Address distortions & inefficiencies in the banking sector

urgent action to address distortions and inefficiencies in the banking sector

Budget 2022

Days ahead of the annual budget, a top American business advocacy group, in a set of recommendations to the India’s Union Finance Minister, has recommended urgent action to address the distortions and inefficiencies arising out of regulatory mandates in the banking sector. Finance Minister Nirmala Sitharaman is scheduled to present her annual budget on February 1.

Washington DC-based US-India Strategic Partnership Forum (USISPF), which represents leading Fortune 500 companies, in a set of recommendations argued that to improve the ease of doing business for institutional investors, the process to register as Qualified Foreign Institutional Investor (QFII) should be streamlined, and the ability to adopt a single window clearance will enable smoother setting up of companies in India.

“Foreign investors can provide the billions in additional insurance equity capital needed to meet higher goals for insurance penetration, but existing restrictions discourage new foreign investment and undermine the 2021 reforms,” it said.

Should the 74 per cent cap on FDI remain, the GOI should address other complications like the three-party joint venture necessitated by the 20 per cent limit of bank ownership in insurers, it added. Having high expectations from the annual budget, USISPF said it should try to bring in tax stability and continuity, crucial factors in attracting investors.

A commitment to global tax norm will keep multinationals assured of tax certainty as they setup shop in India. Functional bottlenecks, ever-increasing TDS/TCS compliances, and a lack of clarity on overseas listings also impact ease of doing business, the forum noted.

Urging full transparency in the upcoming sale of shares in Life Insurance Corporation of India (LIC), USISPF said that reforms in the insurance sector should include eliminating the cap on foreign direct investment, permitting commercial credit cards for settlement of cashless claims to healthcare service providers and allowing insurance companies to set the commissions they pay to agents.

Budget 2022 should take specific steps to make it easier for customers and merchants to use digital solutions, including developing inter-operable QR codes, digitizing business to business (B2B) payments, ensuring the National Common Mobility Card (NCMC) is interoperable with global EMV standards, and expanding the digital payments backbone to underserved areas of the country, USISPF said.

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