Third stimulus package unveiled

Finance Minister Pranab Mukherjee unveiled the third stimulus package on 25 February 2009. The following are some of the key highlights of the package:

Central Government amends Land Acquisition Act

The Group of Ministers (GoM) headed by Union Agriculture Minister Sharad Pawar has cleared the proposed amendments to the Land Acquisition Act and the Rehabilitation and Resettlement (R&R) Policy.

The Central Government has retained the 70:30 formula for land acquisition for industrial projects which will allow states to acquire 30 per cent of land for private developers provided they have acquired the remaining 70 per cent for setting up industrial and SEZ projects. Thus, the state will come into the picture only after the private company concerned has acquired the 70 per cent of the land. Earlier, the Left parties, some state governments and the Parliamentary Standing Committee on Rural Development had objected to the 70:30 formula and sought full authority for the state to acquire land.

The R&R Bill, which is designed to give a statutory status to the National R&R Policy, 2007, makes it mandatory for parties concerned to get a social impact assessment prepared by an independent multi-disciplinary expert group in cases where 400 or more families are displaced in plain areas and 200 or more families in tribal and hilly areas. The Bill has also revised the quantum of compensation to be given to persons whose land is to be acquired by the state. It will be 60 per cent of the land's market value in the case of normal acquisition, and as much as 75 per cent in the case of urgent acquisition. Land will be acquired at existing market prices or area floor rate, whichever is higher. In case of a dispute, land owners will be able to approach the Land Acquisition Disputes Settlement Authority, which will be set up in every state.

The benefits include allotment of land to the extent available with the government in resettlement areas and preference in employment to at least one person from each nuclear family affected by the project. The benefits under the new policy would be available to all persons and families whose livelihood has been affected. Scholarship for education, and preference in allotment of contracts and housing are among the other benefits to the landless affected families. A special provision has also been made for providing lifetime monthly pension to vulnerable persons.

Now, the Central Government is planning to turn the R&R Policy into a law through an amendment to the Land Acquisition Act.

3 year tax break extension to EoUs Proposed

The Commerce Ministry is planning to introduce a three-year extension of tax benefits to Exportoriented Units (EoUs) in its bid to give an impetus to the export industry.

Under Section 10(B) of the Income Tax Act, EoUs do not need to pay tax on profits provided they fulfill some conditions, including exporting not less than 50 per cent of their total production. This benefit will expire at the end of next fiscal 2009-10. Earlier the EoU tax benefits were scheduled to expire on 31 March 2009, but in 2008, Commerce Minister, Kamal Nath, had announced that the scheme would be extended till 31 March 2010.

If the proposal gets its way, it will benefit more than 2,700 companies operating within the EoUs like the Reliance Industries 33 million tpa petroleum refinery in Jamnagar, Gujarat. The proposed extension will allow the EoUs to plan their expansion in a better manner which will eventually lead to additional manufacturing and exports.

The final decision on the proposal will probably be taken only after a new government takes over after the general elections, which are scheduled to be held during April-May.

Cabinet to allow single bids for road projects

The Union Road Transport and Highways Ministry is working on a proposal that will permit individual firms to bid for development of road projects. The move follows a tepid response from private firms to various road projects for which the National Highways Authority of India (NHAI) invited bids on BOT basis. The existing norms do not allow awarding the project on BOT (toll) basis if only one firm submits its bid. NHAI recently invited bids for 34 highway projects and received responses for only 16 stretches. Of these 16 projects, six projects attracted only one bid each. The proposed amendment of allowing even single bids will be done by changing the existing model concession agreement (MCA). The current MCA mandates that there should be at least four/five bidders at the RFP stage. This condition has slowed down awarding of road projects in times of economic crunch.

TRAI recommends revised 2G spectrum allocation policy

The Telecom Regulatory Authority of India (TRAI) has suggested to the Central government to revise the spectrum allocation policy before the allocation of 3G frequencies. TRAI has pointed out that it may be difficult to continue with the subscriberlinked spectrum allocation for 2G mobile services as 3G services are soon to be auctioned. Currently, the government has set a subscriber-based milestone for operators to become eligible for additional spectrum. But with 3G frequencies being auctioned, an operator may end up having both types of spectrum and at the same time follow different allocation rules. In this case, it will be difficult to allot additional spectrum 2G band to such a service provider on the subscriber base criteria.

The issue of spectrum allocation based on subscriber base has been hanging on fire since 2007 when the Government decided to increase the number of users required for a mobile service provider to get additional spectrum.

Delhi Government announces state SEZ policy

The Delhi Government on 18 February 2009 announced its policy for development of Special Economic Zones (SEZ). The sectors identified for the setting up of SEZs include information technology-enabled services (ITeS), electronic hardware and software, nanotechnology, bio-technology, gems and jewellery, non-conventional energy equipment, fashion and garments (without dyeing) and higher technical education institute providing world -class manpower.

Major features of the policy are:

Exports Obligations for SEZs revised

The Union government on 3 February 2009 revised some of the export obligations for SEZs.

The amended rules will allow the suppliers of goods to SEZs to claim export incentives on a condition that developers will provide housing to staff and workers within the tax-free enclaves. The tax benefits and other concessions have been extended to the sub-contractors as well.

The gems and jewellery units in the SEZs will now be allowed to re-import the goods exported if their buyers default on payments. Earlier, the export incentives were denied to the SEZ units since the domestic suppliers could not have foreign currency accounts.

Trade policy for 2009-10 unveiled

Union Minister of Trade and Commerce, Kamal Nath announced the interim trade policy for 2009- 10 on 26 February 2009. The new policy features reduction in the customs duty from 5 per cent to 3 per cent under Export Promotion Capital Goods (EPCG) Scheme. Under the scheme, export obligation has been extended till 2009-10 for exports during 2008-09.

Highlights of the policy are: