Kelkar backtracks on interest rates

On the banking industry, Kelkar hinted that privatisation of banks is high on the finance ministry8217;s agenda. This is in line with the second Narasimham panel recommendations for paring the government stake in public sector banks below 51 per cent.

Said Kelkar: quot;The finance minister had indicated in the budget that a second phase of reforms will be announced soon. The finance ministry plans to bring out a paper on this8230; one of the likeliest issues that will be includedin it is privatisation of public sector banksquot;.

On Resurgent India Bonds RIBs floated by the State Bank of India, Kelkar admitted that RIB has not served its purpose as the 5-year tenure of the instrument is too short a period to support infrastructure. He said that a large amount of RIBs has gone into investment in government securities and other statutory liquidity ratio SLR instruments.

On tax proposals, Kelkar said the finance ministry is not averse to taking a second look at the employees8217; stock-option scheme ESOP proposed in this year8217;s budget, so as to make the scheme more attractive for Corporate India and its employees.

Kelkar also asked the apex body to present a detailed paper on the proposed ESOP scheme and tax exemptions on voluntary retirement schemes to make them more attractive.

Industrialists, led by Wockhardt chief Habil Khorakiwala, pointed out that employees availing of the scheme would end up paying tax twice, first on the perquisites difference between offer price andmarket price, and, secondly, on the capital gains during the sale of stock. CII members cited examples of developed countries, including the US and Britain, where such schemes are taxed only once at the hands of the employees. quot;Our basic objective is to promote ESOP, and we will try to remove the bottlenecks,quot; Kelkar said in response.

The finance secretary also hinted that tax breaks might be allowed to make VRS attractive. He agreed with CII members that employees should be eligible for tax breaks on VRS, or else, the schemes might not meet with much success. quot;VRS schemes, which are crucial for corporate restructuring, can be a success only if tax exemptions on capital receipts are tempting for employees,quot; a Tata Steel official said.

quot;I fully agree that the VRS offers should be tempting for employees to make it successful,quot; Kelkar said, adding that companies should promote the scheme in order to downsize, as also to maintain administrative efficiency.

In an earlier seminar on restructuring of Indiancompanies, jointly organised by the Ficci and ICICI, Kelkar said restructuring of the public sector and privatisation assumed quot;criticalquot; importance in the overall framework of second-generation reforms. quot;Without this exercise, it would be difficult to fine tune the economy and help permeate the fruits of liberalisation,quot; Kelkar said. He also laid emphasis on strengthening the capital market, and said a reduction in the cost of capital was only possible through a strong capital market.