When the wheels of the economy on ground zero are stuck and there is little demand for credit, lowering of interest rates will not help in any way Following marathon deliberations of the Monetary Policy Committee (MPC) over three days, the Reserve Bank of India’s (RBI’s) Governor, Shaktikanta Das, made four important announcements under the central bank’s bi-monthly monetary policy review on August 6. First, Das warned that India’s real Gross Domestic Product (GDP) growth is set to contract in 2020-21 but did not give a specific forecast. He also cautioned that “while an early containment of the Covid-19 pandemic may impart an upside to the outlook, a more protracted spread of the pandemic, deviations from the forecast of a normal monsoon...
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Category: Regulatory environment
Is India ready to tame global tech giants
Global technology companies such as Google, Facebook, Amazon, and Apple have been under the radar of governments in many countries for trying to steamroll competition by either buying their competitors (even if that meant spending mammoth sums) or pushing other vendors to avoid working with them. In June 2019, the US Congress and an antitrust panel of the House Judiciary Committee began a probe into the nature and working of the aforementioned big 4 who together have market capitalization of US$ 5 trillion. Based on collected documents and testimonies from workers of these firms and from rivals (it collected 1.3 million documents), prima facie the panel inferred that they had tried to push them out of the market using unfair...
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The case for a 15% tax rate for India Inc
A uniform tax rate of 15% (17.1% with add-ons) will, among other things, minimise tax litigation that arises largely due to multiple interpretations of a plethora of exemptions and deductions in tax legislation. Besides that, exemptions/incentives make the Indian law cumbersome to a point whereby it makes any prospective investor scary. A major factor affecting India’s ability to attract foreign investment for long has been the high rate of corporate tax. In 2018-19, the rate of tax on domestic companies was 30%. Including surcharge and cess, the total tax incidence is 34.9%. This made India an outlier as the corporate tax rate in other countries is much lower; for example, the US (21%), the OECD average (21.4%), China (25%), Vietnam...
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FDI through front door
The Govt must allow 100 per cent FDI in retail as this will level the playing field for all, eliminate discretion of bureaucrats whose writ is all-pervasive and help small traders On April 22, the California-based US internet giant, Facebook, announced its decision to buy 9.99 per cent stake in Jio Platforms Limited (JPL) paying more than Rs 43,450 crore. JPL is a 100 per cent subsidiary of Reliance Industries Limited (RIL) and has in its fold a wide spectrum of businesses such as wireless broadband, home broadband, enterprise broadband, narrowband, internet-of-things businesses, a bouquet of digital applications, e-commerce and so on. This was followed by a flurry of investments with big names such as General Atlantic, Silver Lake, Qualcomm, Intel,...
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FDI in retail – bring from the front door
On April 22, 2020, the California based US Internet giant Facebook announced its decision to buy 9.99% stake in Jio Platforms Limited (JPL) paying more than Rs 43,450 crore. JPL is a 100% subsidiary of Reliance Industries Limited (RIL) and has in its fold a wide spectrum of businesses such as wireless broadband, home broadband, enterprise broadband, narrow-band, internet-of-things businesses, a bouquet of digital applications, e-commerce etc. This was followed by a flurry of investments with big names such as General Atlantic, Silver Lake, Qualcomm, Intel, Vista, Google etc bringing in cumulative investment of over Rs 100,000 crore taking the total to Rs 150,000 crore. In lieu of this capital infusion, they get aggregate shareholding of 30% or Rs 5000 crore...
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SC will have to solve the telco mess
A cue is available from the stance taken by SC itself in case of unpaid dues from public sector undertakings (PSUs) such as Gas Authority of India (GAIL), etc. The licence fee and SUC is charged as a percentage of service provider’s adjusted gross revenue (AGR)—8% and 3-5% respectively. During the last three years or so, the telecom industry has been enduring an unprecedented crisis, with most of the companies having huge debt in their books and not generating adequate cash flows for servicing the loans. The crisis was aggravated by an order of the Supreme Court (SC) on October 24, 2019, directing telecom firms to pay ‘unpaid’ dues towards licence fee and spectrum usage charges (SUC). The licence fee...
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Tackling bank frauds
An overarching promise, Prime Minister, Narendra Modi had made at the time of taking charge for his first term beginning May, 2014 was to root out nepotism and corruption in all matters of governance – be it in various ministries/department or its agencies including public sector undertakings (PSUs) including banks. Modi’s clarion call to all in this regard was encapsulated in the euphemism he often used viz. ‘naa khaoonga, naa khaane doonga’ (neither, I will take bribe, nor allow anyone else to take). To be fair to Modi, his commitment to this overarching principle is reflected in all his policy decisions, administrative actions, delivery of services and overall governance in every sphere. That he has made an mark in dealing...
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Telecom mess – onus is on the regulator
Addressing the company’s annual general meeting on August 12, 2019, Chairman, Reliance Industries Limited (RIL), Mukesh Ambani had announced a road-map for Reliance to become a net debt-free company before March 31, 2021. That was the time when, the telecom industry was passing through an unprecedented crisis with most of the companies having huge debt in their books and not generating adequate cash flows for servicing the loans (Reliance Jio – the telecommunication unit of the conglomerate – was the lone exception). The crisis was aggravated by an order of the Supreme Court (SC) on October 24, 2019 directing telecom companies to pay ‘unpaid’ dues towards license fee and spectrum usage charges [SUC]. The order was the culmination of a...
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Corporate India – tax all @15%
A major factor affecting the competitiveness of Indian industries and India’s ability to attract foreign investment for long has been the high rate of corporate tax. In 2018-19, the rate of tax on domestic companies was 30%; including surcharge and cess, the effective incidence worked out to 34.9%. Given that the corporate tax rate in other countries viz. US (21%), OECD average (21.4%), China (25%), Vietnam (20%), Thailand (20%), Singapore (17%) etc, was much lower, this made India a sort of outlier when seen from the perspective of a potential investor looking for investment opportunities. Though, the Income Tax (IT) law provides for a spate of exemptions and incentives which facilitates reduction in the tax liability, the effective incidence continues...
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Remodel Google Tax
On June 2, 2020, Trump administration announced probe into digital services taxes that have been either adopted or are under consideration by its trading partners viz. Austria, Brazil, the Czech Republic, the European Union [EU], India, Indonesia, Italy, Spain, Turkey, and U.K. This is the so-called Section 301 investigation by the United States Trade Representative [USTR] to determine whether levies on electronic commerce [or ‘Google tax’ in short] discriminate against American tech giants like Apple, Google, Amazon etc. This could lead to the US imposing tariffs on exports from these countries. Earlier, USTR had launched and completed section 301 probe into France’s digital services tax regime [France levies Google tax @ 3% on digital transactions of firms that have annual local...
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