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Compound interest waiver will cost Rs 6,500 crore to govt: Official

Cabinet decision soon on setting up a development finance institution and framing a new policy on public sector enterprises

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India economy | Supreme Court | RBI

Somesh Jha  |  New Delhi 

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Illustration by Binay Sinha

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

The is scheduled to hear a batch of petitions on Wednesday demanding waiver of interest charged by banks on instalments that have been deferred for repayment by the Reserve Bank of India through a six-month moratorium imposed in March. The matter was listed for hearing on Tuesday, but deferred.


The government has told the apex court it is ready to bear the burden of waiving compound interest for any individual or entity whose loan amount is less than Rs 2 crore, irrespective of whether they have availed of loan repayment moratorium or not. However, it had not stated the cost implications which will involve sponsoring compound interest of borrowers belonging to private lenders, too.

Besides, the finance ministry is going to take proposals related to setting up a development finance institution and a new policy on public sector enterprises to the Union Cabinet shortly, the government official cited above said, without delving much into the details.

Under the new public sector enterprises policy, the government is set to define strategic sectors which will not have more than four state-owned units, while public sector firms in other sectors will be privatised. The government will pick up stake in the proposed development finance institution, which will involve private sector participation to bolster investments in the economy.

On the Rs 20,000-crore Vodafone tax arbitration case, the government will examine whether the bilateral investment treaty (BIT), signed between the Netherlands and India, has any jurisdiction over taxation matters, the official said.

“We haven’t taken a decision on whether we will go for an appeal or not against the Vodafone arbitration award. The government is clear that it is against the principles of retrospective taxation, but you have to examine the judgment (of the Permanent Court of Arbitration) carefully to know the matter in hand,” said the official.

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

“Taxation is within the sovereign domain and not within the jurisdiction of the BIT. Was the case argued on the fact that BIT doesn’t have a jurisdiction?” the official asked.

The Permanent Court of Arbitration at The Hague has upheld the plea of Vodafone Group in its long-pending case against the income-tax department’s demand for Rs 20,000 crore for acquiring Hutchison Whampoa’s stake in what was Hutchison-Essar in 2007 through an overseas deal.

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

Finance Minister Nirmala Sitharaman on Monday announced a two-pronged stimulus package aimed at bolstering capital expenditure and stimulating consumer demand during the upcoming festive season, estimating a Rs 73,000-crore boost by the end of this fiscal year.

The measures, which signalled the Centre’s fiscally conservative approach towards boosting demand, included giving money into the hands of central government employees, but with strict conditions on spending towards goods and services, a limited hike in its capital expenditure, and paltry interest-free loans to states for funding projects.

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First Published: Tue, October 13 2020. 18:09 IST
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