The Monetary Policy Committee (MPC) on Wednesday maintained status quo on repo rates at 6%, largely in line with market expectations. The RBI also maintained its GVA growth guidance at 6.7% although it increased its inflation forecast higher by 10 basis points to a level of 4.3-4.7%. That was something that spooked the markets and the Bank Nifty was the worst hit. 5 out of the 6 MPC members voted strongly in favour of a status quo with only Dr. Dholakia voting in favour of a 25 basis points rate cut. The policy was also cautious ahead of the crucial Fed meeting in mid-December.

Talking on the sidelines of the monetary policy, Dr. Urjit Patel dismissed the idea of the RBI paying additional special dividend to the government of India. For the last fiscal year, the RBI had halved its dividend payout to the government. The RBI governor also promised that the bank recapitalization program would be finalized in a few days and also reiterated that for banks with a strong balance sheet the recap bonds may be front ended. Dr. Patel also underlined that the recapitalization would be accompanied by some drastic reform measures to overhaul the banking system in India.

Infosys has sought a settlement with the regulator on the disputed severance package to its former CFO, Rajiv Bansal. It may be recollected that the opacity of the manner in which the severance package was approved turned out to be one of the key areas of dispute between Mr. Narayana Murthy and Mr. Vishal Sikka. The decision was taken immediately after the company had announced the appointment of Mr. Salil Parekh as its next CEO. The company is looking at a plea bargain wherein the company will pay a certain settlement amount without admitting or denying any of the findings.

The Bombay High Court has upheld the validity of the Real Estate Regulation Act (RERA). There were a bunch of petitions filed by individual plot owners and builders challenging the constitutional validity of the RERA. The RERA has made it mandatory for all developers to register themselves under a common regulatory authority. The Act also stipulates that the license of a developer could be cancelled for non-delivery of promises and customers will be allowed to seek compensation. Most builders had challenged the clause where a delay beyond 1 year would invite penalties. This will be an all-India precedent.

As part of its pre-budget meeting with the government officials, the key industry bodies like CII, FICCI and ASSOCHAM have demanded a cut in the rate of corporate taxes from 30% to 25%. In fact CII has gone one step further and suggested an 18% flat tax on profits and elimination of all exemptions and rebates for industry. There were also demands for the rationalization of the 12% and 18% rates of GST. The debate on the reduction of corporate taxes has gathered steam after the US Senate passed the Tax Bill paving the way for a drastic reduction in corporate tax rates in the US. The CII has also suggested a 3-tier structure for GST consisting of 5% for essentials, 28% for demerit goods and a mid-way convergence between 12% and 18% for all the other goods and services. That will make the task a lot easier.

In a move intended to give a boost to digital transactions, the RBI has cut the merchant discount rates (MDR) for debit cards to make card payments more accessible for the average Indian consumer. The high MDR was one of the reasons that had sustained people’s preference for cash. The RBI has also specified that smaller merchants with annual turnover of less than Rs.20 lakhs the rate would be still lower. For small merchants the MDR will be 0.4% capped at Rs.200 per transaction while for other merchants the MDR will be 0.9% capped at Rs.1000 per transaction. This will mark a sharp reduction.