During the first 2 years of its stint, Modi – government did a splendid job sticking to its fiscal consolidation road-map. It achieved fiscal deficit target for both 2014-15 and 2015-16. This was despite a substantial step up in the planned expenditure [a major chunk of this going into roads including rural roads, highways, irrigation, agriculture and railways] besides meeting social welfare commitments etc. This was the outcome of reforms in the area of FDI [foreign direct investment], ease of doing business and fast track approvals of stuck projects [leading to acceleration in GDP growth and buoyancy in tax receipts] on one hand and rationalization of subsidies on the other. The latter focused mainly on plugging leakages and efficient delivery...
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Category: Foreign investment & other inflows
Local sourcing – license raj through back-door
In the context of the raging debate over relaxing local sourcing norms for 100% foreign direct investment [FDI] in single-brand retail, finance minister, Arun Jaitely [he is the controlling authority for Foreign Investment Promotion Board (FIPB) which approves proposals for FDI] observed that India cannot be turned in to a ground for proliferation of trading activities. The strident observation came in response to intense lobbying by commerce minister, Nirmala Sitharaman for dropping of 30% local sourcing requirement for setting up of retail shop by Apple for selling its hand-sets [i-phones, i-pads etc] directly to customers. She was relying on recent amendment in policy guidelines which provided for such exemption in case of high-tech items. The exemption was justified on the...
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Time to shut door
P-NOTES REGIME : Why have a system where everyone is dissatisfied? Modi should crack the whip by saying “no” to foreign investment via ODIs/P-notes. Early last month, the Narendra Modi government revised the India-Mauritius DTAA (double taxation avoidance agreement) to withdraw exemption from tax on capital gains made by foreign investors from sale of shares of Indian companies from April 2019. That was a major attempt to kill the incentive for rounding tripping of Indian black money through that tax haven jurisdiction. The tax treaty with Singapore is being re-negotiated on the same lines. Now, the Securities and Exchange Board of India (Sebi) – the national regulator for investment in Indian stocks – has taken the fight against money laundering...
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Fiscal deficit ‘range’ – stepping in dangerous terrain
One of the most laudable achievements of Modi – government is its sticking to the fiscal consolidation road-map. Thus, even as it stuck to fiscal deficit [FD] target of 3.9% of GDP during 2015-16, for current year also, it has set an ambitious target of 3.5%. For 2017-18, it aims at lowering it further to 3.0%. In this backdrop, it was rather intriguing for finance minister, Arun Jaitely announcing [budget speech for 2016-17], the government’s intent to review Fiscal Responsibility and Budget Management [FRBM] Act with a view to make the target flexible. He was alluding to make it range bound instead of a fixed number as has been the position hitherto under the extant Act in vogue since 2003....
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Time to shut door to P-notes
Close on the heels of revising the India-Mauritius DTAA [double taxation avoidance agreement] which will completely eliminate tax arbitrage opportunities from April, 2019 and hence, the incentive for routing of Indian money through that tax haven jurisdiction, Modi – government has taken the fight against black money and rounding tripping to the next higher level. The Securities and Exchange Board of India [SEBI] – national regulator for investment in shares and other securities issued by Indian companies – has drastically amended the norms for foreign investment via offshore derivative instruments [ODIs] or Participatory notes/P-notes [as these are known in common parlance] which have been used a major conduit for reverse flow of Indian black money as well as other forms...
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HALF-MEASURES WILL NOT YIELD RESULTS
The Government must end the piecemeal approach on attracting FDI in the country’s various growth sectors. It must allow 100 per cent FDI in multi-brand retail In the Union Budget of 2016-17, Union Minister for Finance Arun Jaitley announced that “100 per cent foreign direct investment would be allowed through FIPB (Foreign Investment Promotion Board) route in marketing of food products produced and manufactured in India”. This paved the way for FDI in multi-brand retail in food, which accounts for a major slice of MBR business in India. This is a U-turn in the Bharatiya Janata Party’s stance of 2012, when on the floor of Parliament, it had opposed the proposal of the then UPA dispensation to allow 51 per...
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DTAA with Mauritius – overhauled to curb “round tripping”
Firing yet another salvo in its fight against back money stashed abroad in safe haven jurisdictions, Modi – government revised on May 10, 2016 India’s Double Taxation Avoidance Agreement [DTAA] with Mauritius that now provides for withdrawal of exemption from tax on capital gains made by investors from alienation/sale of shares of Indian companies. The investors from Mauritius have been enjoying this exemption on their equity investment in India for over 3 decades under the extant DTAA [it was signed in 1983]. Juxtaposed with the fact that they don’t pay tax on such income in that country also [courtesy, a highly liberal taxation and eco-system therein], they had a prolonged “honey moon” period almost eternally. The dispensation was so attractive...
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FDI in retail – shun policy flip-flop
In Union Budget for 2016-17, finance minister, Arun Jaitley announced that “100% foreign direct investment [FDI] would be allowed through FIPB [foreign investment promotion board] route in marketing of food products produced and manufactured in India.” While, the detailed policy guidelines in this regard are yet to be notified [currently, inter-ministerial consultations are in progress and the entire exercise leading to approval by Union Cabinet may take a few months], Jaitely’s announcement in the budget speech is a clear pointer to Modi – dispensation permitting FDI in multi-brand food retail. In 2012, during a heated debate in Parliament, BJP members had vociferously opposed the proposal of then UPA government to allow FDI in multi-brand retail citing threat to millions of...
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FDI policy for e-commerce, just a cosmetic change
The problem lies in the government de facto shutting the door for FDI in multibrand offline retail. The department of industrial policy and promotion (DIPP)—the nodal authority for issues relating to foreign direct investment (FDI)—has notified guidelines for FDI in e-commerce. Under these, 100% FDI through the automatic route will be allowed in the ‘marketplace’ format of e-commerce retailing, but not in the ‘inventory-based’ model. Under a marketplace model, an e-commerce entity provides an IT platform on a digital and electronic network to act as a facilitator between buyer and seller. The company may provide support services to sellers in terms of warehousing, logistics, order fulfillment, call centre, payment collection and other services. Post-sales, delivery of goods to the customers...
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Guidelines for FDI in e-commerce – an act of skulduggery
The Department of Industrial Policy and Promotion (DIPP) – nodal authority for issues relating to foreign direct investment [FDI] – has notified guidelines for FDI in e-commerce. Under these, 100 per cent FDI through automatic route will be allowed in the “marketplace” format of e-commerce retailing but not in “inventory-based” model of e-commerce. Under a marketplace model, an e-commerce entity provides an IT [information technology] platform on a digital and electronic network to act as a facilitator between buyer and seller. The company may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other services. Post-sales, delivery of goods to the customers and customers satisfaction will be responsibility of the seller. Any...
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