Waiver of compound interest will cost government 6,500 crore rupees: official

The Centre’s decision to fund compound interest payments for small borrowers during the six-month moratorium period will cost Rs.6,500 crore, a senior government official said on Tuesday.

The Supreme Court is due to hear a series of motions on Wednesday demanding the waiver of interest charged by banks on payments whose repayment was deferred by the Reserve Bank of India under a six-month moratorium imposed in March. The case was scheduled for hearing on Tuesday, but adjourned.

The government has told the Supreme Court that it is prepared to shoulder the burden of waiving compound interest for any person or entity whose loan amount is less than Rs 2 crore, whether or not it has received a moratorium. loan repayment. However, he had not indicated the financial implications which will also involve the sponsorship of the compound interest of borrowers belonging to private lenders.

In addition, the Ministry of Finance will soon submit to the Cabinet of the Union proposals for the creation of a development finance institution and a new policy on public sector enterprises, said the government official quoted below. above, without going into too much detail.

Under the new policy on public sector enterprises, the government is to define strategic sectors that will have no more than four state units, while public sector enterprises in other sectors will be privatized. The government will take a stake in the proposed development finance institution, which will involve the participation of the private sector to support investment in the economy.

In the Rs 20,000 crore Vodafone tax arbitration case, the government will consider whether the Bilateral Investment Treaty (BIT), signed between the Netherlands and India, has tax jurisdiction, the government said. responsible.

“We have not made a decision as to whether or not we will appeal against Vodafone’s arbitration award. The government is clear that it is against the principles of retrospective taxation, but you need to carefully examine the judgment (of the Permanent Court of Arbitration) to know the current case, ”the official said.

The official explained that the BIT only protects the investments of the two countries in question, but does not deal with taxation which is a sovereign right of a country.

“Taxation falls within the sovereign domain and not within the competence of the BIT. Has the case been argued on the fact that the ILO has no jurisdiction? Asked the official.

The Permanent Court of Arbitration in The Hague upheld the plea of ​​the Vodafone group in its long-standing case against the income tax department’s claim of Rs 20,000 crore for the acquisition of Hutchison Whampoa’s stake in which was Hutchison-Essar in 2007 through an overseas agreement.

The government has kept its option open for another round of relief measures “if need be,” the official said.

Finance Minister Nirmala Sitharaman on Monday announced a two-pronged stimulus plan to boost capital spending and boost consumer demand over the coming holiday season, estimating an increase of Rs 73,000 crore by the end of this exercise.

The measures, which signaled the Centre’s conservative budget approach to stimulating demand, included putting money back into the hands of central government employees, but with strict conditions on spending on goods and services, a limited increase in its spending. paltry capital expenditures and interest-free loans. to States for the financing of projects.

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