I. Economy
1.
Sweeping and slashing to trap
investments
Finance Minister
Nirmala Sitharaman’s sweeping reforms slashing corporate tax rates to bring
them at par with most South Asian and Southeast Asian nations are expected to
trap investments headed even to low-tax destinations like Bangladesh and
Vietnam.
While markets
saluted the Minister’s sweeping reforms of the corporate tax rates on Friday,
the best is yet to come, according to experts. The tax rates have become
competitive when compared to most other South Asian and even Southeast Asian
investment destinations.
A competitive
environment should help India trap some of the capital fleeing China fearing a
worsening of the US-China trade war and imposition of stiffer sanctions on
Beijing. The tariff war touched off by US President Donald Trump has only
worsened with Chinese President Xi Jinping in no mood to relent. India is
eyeing a major share of the capital moving out of China to boost Prime Minister
Narendra Modi’s ‘Make in India’ initiative, say reports.
India’s effective
rate of 25.17% compares well against China’s 25%. The new rates will make India
a good bargain when compared to Pakistan’s 31%, Sri Lanka’s 28% and even
Bangladesh’s 25%. Among the Southeast Asian economies, India can easily steal a
march over the Philippines which has a 30% rate and Indonesia and South Korea
who maintain a 25% rate and Malaysia with 24%. Thailand and Vietnam offer 20%,
but India could score in terms of technically skilled labour and better
infrastructure. Only Taiwan and Singapore with 17% still have a clear advantage
over India.
The Finance
Ministry, in consultation with the Ministry of Commerce, has been evolving a
strategy to compete with South Asian neighbours like Bangladesh which have
attracted investors because of the cheaper labour and more conducive land
acquisition laws. Indian officials think the country’s reforms will enhance its
ease of doing business rating and make it capable of taking on even Southeast
Asian competitors. Vietnam, which is drawing a lot of investment fleeing
Mainland China, has been on the Indian crosshairs for some time.
Government slashed
the corporate tax rate to 22% from 30% for domestic companies – and proposed a
competitive 15% rate for new investment in manufacturing. The cumulative fiscal
boost emanating from the tax law changes would amount to Rs. 1.45 lakh crores, which
sends a strong signal of the government resolve to revive economic growth, a
report on the The Economic Times website said. To be eligible for the
new concessional tax rates, companies need to forego the existing incentives
and exemptions in force. Even those opting for the status quo, the
minimum alternate tax (MAT) shrinks to 15% from 18.5%. Companies will have the
option of the lower tax rate after the expiry of the tax holidays and
concessions that they enjoy now. Once they choose the new tax rate, they can’t
revert to the concessional regime.
Prime Minister
Modi, bound for the US to address the historic ‘Howdy Modi!’ event along with
President Trump, termed the step to cut corporate tax rate ‘historic’, saying
it ‘will give a great stimulus to “Make in India”, attract private investment
from across the globe and help create more jobs.’
(Source:
International Business Times – By Prathapan Bhaskaran, 21st
September, 2019)
2.
Recruitment may counter the
slowdown gloom
India’s
second-largest employer, Coal India Limited (CIL), is offering 9,000 openings;
4,000 people will be recruited to fill up executive posts and the rest will be
technical and non-technical staff.
The massive
recruitment drive to fill up about 9,000 openings in the parent company and
subsidiaries amid the gloom of a general economic slowdown and talk of stiff
divestment targets is cheering up the country’s job market, reports say. Of the
vacancies announced, 4,000 will be of executives in the parent company while
the technical hands will be taken in by the company’s eight subsidiaries, said
a report in the Economic Times. CIL sources say this would be the
biggest recruitment drive of the group in a decade.
CIL and its subsidiaries employ about 2,80,000 people, second only to
the Indian Railways, including nearly 18,000 at the executive level. CIL is one
of the public sector undertakings (PSU) that Finance Minister Nirmala
Sitharaman has identified for raising Rs. 3.25 lakh crores through divestment
in the next five years of Prime Minister Narendra Modi’s second stint in
office. The target for the 2019-20 financial year is an estimated Rs. 1.05 lakh
crores.
‘Coal India is
recruiting so many executives in a single year in almost a decade in an effort
to fill up all the vacancies that have been pending for several years. Last
year, we recruited only about 1,200 people,’ the report quotes an unidentified
senior Coal India executive as saying.
‘Of the 4,000
executives Coal India plans to recruit, 900 would be through advertisements and
interviews in the junior category, another 400 would be recruited from campuses
and some 100 would be miscellaneous, such as medical officers, etc. We have
already recruited 400 executives most of whom are doctors. Another 75 have been
recruited and would be joining soon. The company will recruit around 2,200
additional executives through competitive examinations.’
The company’s coal-producing subsidiaries will recruit 5,000 workers and
technical hands, including about 2,300 who will be recruited as part of a
policy of offering jobs to families whose land was acquired for various
projects. Another 2,350 people will be hired on compassionate grounds as part
of the company’s policy of offering a job to one family member of a deceased
employee. About 400 openings will be of a non-technical nature, the report
said.
Set up in 1975, CIL
has been seeing mass retirement of a large number of employees at
superannuation in recent years. The number of employees who have left this way
in the last three years is pegged at more than 12,300. The posts have remained
unfilled because of a general recruitment ban in the government. While not all
posts will be filled up, the group companies need large-scale recruitment over
the next few years to ensure adequate workforce strength, the reports say.
(Source:
International Business Times – By Prathapan Bhaskaran, 18th September,
2019)
II.
Finance
3.
Credit fairs aka ‘loan melas’
Credit fairs by
public sector banks will bring early festival cheer to consumers as the
corporate tax bonanza will put on steroids PM Modi’s FDI push after ‘Howdy
Modi!’
Finance Minister
Nirmala Sitharaman’s big-ticket reforms are focused on a demand boost for the
revival of the domestic economy. For this, the Ministry has set rolling a
series of steps, apart from the headline reform of corporate tax rates that put
the stock market on steroids. The corporate tax reduction that will entail a
revenue loss of Rs. 1.45 lakh crores to the government is expected to help
Prime Minister Narendra Modi make a big splash at the ‘Howdy Modi!’ event after
which he would be meeting top executives of 16 big US corporate houses in his
foreign direct investments (FDI) campaign.
The major takeaways
from the series of announcements Sitharaman made were:
(i) Credit fairs (loan melas): The public
sector banks (PSBs) will organise fairs for potential borrowers in 400
districts, boosting liquidity and driving demand in the retail sector across
the country. The rural economy survives on retail demand and the increased
liquidity will help drive demand and spending, thus helping the rural revival,
experts believe;
(ii) NBFC role: Sitharaman’s directive to the PSBs
to ensure the participation of NBFCs in the credit fairs will help improve the
liquidity status of the NBFCs. This is particularly important because the
ailing NBFCs have been shown to be behind the economy’s illiquidity, according
to reports;
(iii) Relief for
MSMEs: The injunction on lenders to desist from declaring loans to micro,
medium and small enterprises (MSMEs) as non-performing assets (NPAs) during
this financial year ending on 31st March, 2020, will help reduce
morbidity in a vital segment of the economy, according to experts. With over 60
million units, the MSME segment is second only to the agriculture sector in
employment generation;
(iv) MSMEs loan restructuring: Banks have been
directed to use the special dispensation that the RBI circular, ‘MSME sector –
Restructuring of Advances’, dated 1st January, 2019, has made
available. ‘We have also requested that at the branch level banks should make
efforts to sit with such stressed asset accounts of MSMEs to get them out of
the situation,’ Sitharaman said. MSMEs that are unable to repay loans within 90
days of the due date will not be stamped with the NPA tag. The facility will be
available to MSMEs whose aggregate exposure, including non-fund-based
facilities, of banks and NBFCs to the borrower does not exceed Rs. 25 crores as
on 1st January, 2019;
(v) Spreading liquidity: The Reserve Bank of
India (RBI) has said that there is enough liquidity in the economy after its
fifth successive repo rate cuts. Sitharaman says the credit fairs will ensure
that the liquidity reaches the lowest layer of the economy, driving up
consumption;
(vi) All types of
loans: The credit fairs will be organised as public meetings to be monitored by
Minister of State for Finance Anurag Thakur to ensure that the needy get the
loans;
(vii) The reform
announcements ahead of Prime Minister Modi’s meetings in the US will serve to
send a loud message to industrialists across the world to consider India as a
friendly investment destination, especially when the US-China trade wars are
threatening FDI flow to China.
(Source:
International Business Times – By Prathapan Bhaskaran, 20th September,
2019)
4.
Just a face to defy the law?
PwC India has been fined more than Rs. 230 crores (£ 26.37 m) by the
Indian Enforcement Department for breaches of the Foreign Exchange Management
Act (FEMA).
The ‘Big Four’ firm
had been accused of receiving large foreign investments from Netherlands-based
PricewaterhouseCoopers Services BV, which allegedly had been disguised as
‘grants’ to avoid FEMA. The legislation requires foreign investments in
financial services to be approved by the Reserve Bank of India.
The Directorate of
Enforcement was brought in by the Indian Supreme Court to investigate PwC’s
affairs following a public interest petition brought by the Centre for Public
Interest Litigation (CPIL), a non-governmental organisation, in 2013.
At the time, CPIL
called for a ruling on whether the ‘Big Four’ in general were operating in
India ‘in violation of law in force in a clandestine manner’, whether effective
steps were being taken to enforce the law and, if this was not happening, what
orders were required to ensure proper enforcement. The Indian government later
backed up the original public interest litigation with a second,
similarly-worded petition.
PwC was used as an example to illustrate in the petitions how global
firms were exploiting the law to build up their presence in India and gain
access to lucrative audit markets.
In February last
year, the Supreme Court ruled that PwC Services BV Netherlands had enabled its
Indian partners to acquire Dalal & Shah, a chartered accountancy firm based
in Mumbai and Kolkata, through a series of interest-free loans to them. This
‘circuitous route’, the judge said, was in violation of the law.
The Dutch firm had also shared profits in the form of licence fees and
network charges and made further investments through grants for enhancement of
skills, he said.
The judge concluded
that while the court could not involve itself with policy-making, it was
entitled to look at the policy framework to find out whether safeguards for
enforcement of fundamental rights had been maintained. ‘In the present context,
having regard to the statutory framework… it may prima facie appear that
there is violation of statutory provisions and policy framework, effective
enforcement of which has to be ensured’.
‘Statutory
regulatory provisions intended to advance the object of law have to be enforced
meaningfully,’ he continued. ‘No vested interest can flout the same by
manifesting compliance only in form. Compliance has to be in substance. The
law-enforcing agencies are expected to see the real situation.’
He said that the
large multinational firms’ compliance was in form, not in substance. ‘Having
got registered partnership firms with the Indian partners, the real
beneficiaries of transacting the business of chartered accountancy remain the
companies of the foreign entities. The partnership firms are merely a face to
defy the law.’
According to
reports, the Enforcement Department found that PwC had received the equivalent
of Rs. 229 crores in US dollars. The agency said that they were received as
grants and used ‘for various business purposes, including acquisition of other
Indian companies and paying non-compete fee’.
(Source:economia.icaew.com/news/september-2019/pwc-india-breached-indian-foreign-exchange-rules)
