Category: Miscellanea

The rules also notify that GAAR shall not apply where the tax benefit arising to all parties to an arrangement (any investment transaction or even business transactions like lease) does not exceed Rs 3 crore in a financial year. Grandfathering or protection of past transactions from the application of GAAR is also provided by the rules. Only FIIs that have not taken the benefit of any tax treaty entered into by India and who have invested in listed or unlisted securities with the prior permission of the relevant authorities – Sebi or other regulatory guidelines – shall not be covered by GAAR.

The GAAR rules provide amnesty only for FIIs not claiming treaty benefits. This is practically meaningless as it would not settle any controversy around the India-Mauritius tax treaty. The rules clarify that foreign investors investing in an FII via an offshore derivate investment shall not be covered by GAAR. This is a welcome step. However, as regards FIIs, in order to provide certainty all FIIs, including those seeking tax treaty benefits, should have been excluded from GAAR.

Under the provisions of the Income Tax Act, GAAR applies to an impermissible avoidance arrangement. If the main purpose of an arrangement is to obtain a tax benefit and it also satisfies certain other tests, such as the transaction lacks commercial substance, it is regarded as an impermissible avoidance arrangement. The tax benefits or benefits arising out of tax treaties applicable to such transactions can be denied by the tax authorities. As the tax implications of a transaction falling within the GAAR ambit are onerous, the rules may unsettle the FII community. For instance, if the arrangement of investing into India via a favourable country is treated as a transaction where the main aim was to obtain a tax benefit and if the transaction was considered as lacking commercial substance, or was treated as resulting in abuse of the Income tax Act provisions, the tax treaty benefits could be denied. Tax officials, speaking on condition of anonymity, said that genuine investors are unlikely to come within the GAAR ambit and there is no cause for panic.

Under the India-Mauritius tax treaty, sale of investments in India by a resident of Mauritius can be subject to tax only in Mauritius, which does not levy any capital gains tax. India does not tax long-term capital gains arising on sale of listed securities (which are held for more than a year). However, short-term capital gains, where shares are held for less than a year, are taxed. Sale of unlisted securities is also subject to tax.

The plain fact is that retailers now value both internet-enabled and offline, across-the-counter sales, and the policy moves lately to enable FDI in retail would be incomplete sans clearcut liberalisation and opening up in online retail. Assorted domestic ventures in online retail starve for capital and the best way to attract both capital for these ventures and foreign exchange for the larger economy is to remove the restriction on FDI in online retail.

The policy change to allow FDI in retail e-commerce would boost investments, rev up stable capital inflows, modernise the entire retail sector here and, in the process, bring in new expertise, knowhow and shore up hiring and employment in myriad related ways. Note that it is now standard practice for online retailers to have offline presence too, including in prime footfall areas, for seamless brandbuilding.

ICICI Bank chairman K V Kamath concurs, and expects accelerated project clearance by the government finally bringing some life to the comatose infrastructure sector. HDFC Bank managing director Aditya Puri sees the current gloom as being overdone. While he is in favour of taking measures to counter what he called dumping of artificially cheap manufactured goods in India by China, Deutsche Bank co-CEO Anshu Jain defended the benefits of free trade.

We endorse his call for using the crisis on the external front and slowdown in economic growth to concentrate on fixing long-term structural problems. But we also see that this calls for bipartisan cooperation, whether to introduce a goods and services tax or scrap the law that institutionalises middleman control over marketing agricultural produce, a major source of food inflation.

Unilever COO Harish Manwani was in a good position to underline global faith in the Indian economy, in the wake of his company’s INR300-billion open offer to increase its stake in the Indian subsidiary. Sequoia Capital MD Shailendra Singh attested to continuing vigour in startups and entrepreneurship. His optimism on technology absorption was not just echoed by Unique Identity Authority chairman Nandan Nilekani but amplified by him to posit digital inclusion leading to a quantum leap in productivity and growth. We agree, emphatically. (Source: The Economic Times dated 24-09-2013)

Today, however, most investors refuse to acknowledge India as a competitor to China. Any comparison is rubbished because we are seen as being incapable of execution.

To many investors, India does not seem to have a long-term strategic game plan, and the lurch towards populism is scary. Everyone is convinced that this is a largely self-inflicted problem. The great demographic dividend is seen by most as an upcoming demographic disaster, given India’s inability to provide skills training to its people or to create jobs.

I try to think what the root cause of our travails is. I know we will point to policy paralysis, the global slowdown, lack of political will and interest in reforms, judicial activism and so on. These are serious problems, but the source of our travails goes back even further – when India was included in the BRIC group.

The inclusion of India in the BRIC group, as well as the surge in global capital flows and attention that this brought, lulled the country’s policy makers into complacency. We started believing that we were the next big thing, and that we had a god-given right to grow at eight or nine per cent for decades. We ignored the lessons of economic history, which clearly show that few countries have actually been able to deliver this type of sustained high growth. We seemed to believe that even with no effort we were destined to join this select club.

However, a great deal of effort was required to sustain this growth – serious reform, institutional adaptation, and the willingness to take some tough decisions, which could have caused short-term pain. It is here that we have been found lacking. As we began to believe in our growth acceleration and in its permanence, we started putting in place spending programmes to utilise this revenue windfall – not once questioning what would happen if growth slowed. Many economies get stuck in the so-called middleincome trap, wherein institutional weaknesses prevent the realisation of an economy’s full growth potential, which normally happens at a much higher level of income per capita (typically above INR432,871-8,000 a year). India seems to have stalled at far lower levels of economic development. This is largely due to complacency and an unwillingness to make structural improvements to our economy. I think the current growth slowdown, although harmful in terms of economic hardship, has at least shaken our policy makers out of their complacency. No longer does anyone believe that we will grow at eight or nine per cent, irrespective of policy action. Everyone acknowledges that we don’t have all the answers and that there are lessons to be learnt from other economies. Therein lies an opportunity for India. Just when most people have given up on us and on our ability to make the economic course correction required to regain a strong growth trajectory, the odds of us making the necessary changes have never been higher. Irrespective of which government comes to power in 2014, I am confident that the changes required for us to regain our growth trajectory will be implemented. Ironically, belief in India’s long-term growth outlook has never been weaker, but the chances that we will take the necessary steps to deliver that growth have never been stronger. (Source: Extracts from an Article by Mr. Ajay Shah in the Economic Times dated 10.10.2013)

It’s true that many of the best ways to establish your brand in the professional world are still weighted toward extroverts: taking leadership positions in professional associations, starting your own conference or networking group, or — indeed — embracing public speaking… First, social media may actually be an area where introverts, who thrive on quiet contemplation, have an advantage.

With a blog — one of the best techniques for demonstrating thought leadership — you can take your time, formulate your thoughts and engage in dialogue with others. Next, with a little strategy and effort, you can become a connector one person at a time… Simply placing diplomas or awards on your office walls can help reinforce your expertise.

In popular imagination, personal branding is often equated with high-octane, flesh-pressing showmanship. But there are other, sometimes better, ways to define yourself and your reputation. Taking the time to reflect and be thoughtful about how you’d like to be seen and living that out through your writing, interpersonal relationships and decor is a powerful way to ensure you are seen as the leader you are.

From “Personal Branding for Introverts”.
(Source: Extracts from “Personal Branding for Introverts” by Dorie Clark : The Economic Times dated 25-09-2013).

What is it about Indian politics that makes it so conducive to criminal activity? Is it that it is largely the criminally inclined who are drawn to politics in India? Or is it that the country’s system of politics has become so tainted with illegality that even decent individuals soon find themselves corrupted?

Whatever the reason, India’s Parliament has increasingly come to resemble the local chapter of Mafia Inc. Those who backed the ordinance which sought to overturn the Supreme Court ruling that legislators sentenced for crimes carrying a sentence of two years or more in prison would lose their elected seats may have had a point. If all legislators so sentenced – a la Lalu Prasad – were to lose their seats, Parliament might well find itself so depopulated as to confront the country with a deficiency of democracy.

Pursuing this line of argument it could be reasoned that in order to safeguard our increasingly criminalised democracy, instead of making convicted legislators give up their seats, measures must be taken to ensure that sentenced MPs retain their seats, come what may. In order to do this, it would be necessary to override the SC ruling via a constitutional amendment requiring a two-third majority vote in Parliament.

Towards this laudable end, all political parties must in future field candidates with suitably impressive criminal credentials, and see to it that they get elected, by hook or by crook, quite literally. If voters in a particular constituency are so disobliging as to reject all the candidates because of their criminal records, a re-election fielding the same set of candidates should be held and a satisfactory result obtained by the tried-and-tested expedient of booth-capturing.

Eventually we would get a Parliament composed wholly of criminal elements. Such a Parliament could devise appropriate legislation to solve, once and for all, the vexatious problem of the criminalisation of politics. It would do this by using its supreme legislative authority to decriminalise not politics – not just an impossible task, but also an undesirable one, given the circumstances – but to decriminalise crime itself.

If crime, of all variety, were to be legitimised by parliamentary diktat, not just politics but all of society would at one stroke be made totally, 100% crime-free. Thanks to its uniquely innovative Parliament, India would be the first country in the world to achieve this distinction.

Henceforth, state awards and honours would be bestowed on thugs, goons and scamsters who showed the most enterprise and ingenuity in their chosen field of activity. By the same token, those displaying the reprehensible and anti-social traits of honesty and uprightness would be suitably punished for their errant ways. 8 Outlawry would be the order of the day, and dishonesty would not only be the best policy but the only policy. A Parliament full of MPs – Mafia Politicos – would ensure this. Criminals of India unite, you have nothing to lose but your crimes.

(Source: Column “Second Opinion” by Mr. Jug Suraiya in the Times of India dated 16-10-2013.)

Attrition creates a middle management that’s tasted neither success nor failure. Weak middle management delivers faulty, corner-cutting processes. It forces senior management to work a level lower, forsaking the bigger picture. A weak middle management means poor mentorship of entry-level managers, hurting long-term leadership development.

Why do we see high attrition? The first is economic; new industries open up when GDP grows faster than 5%. Talent in established industries is raided to staff newer industries. FMCG is the talent bank in India, funding telecom, retail, health and entertainment industries.

The next reason is “hurried aspiration.” Everyone is in a hurry to be a young vice-president or a CEO, to own the latest car and television or to take that exotic holiday. This forces people to take risks with their loans, and anyone with an EMI payment greater than 25% of his takehome salary is constantly in the job market, to reduce that to below 10%. Hurried aspiration is fuelled by average headhunters who create insecurity and peer pressure by transacting CVs between managers and firms. Performance evaluation is loose and incomplete, based more on potential and less on merit.

What do Indians value at work? The top five factors are: job security, career advancement, base pay and title, learning and development, and the reputation of the organisation. A company must grow. If it doesn’t, people leave. Learning and development is the Achilles’ heel in India. Companies do not invest much in training and developing talent: this is the first reason quoted by exiting employees. The cost of training and development is minuscule, but it is the first item cut in tough times. On-the-job learning from leaders is something young people value. Leaders in India must coach young employees; this will lead to higher engagement, better performance and lower attrition.

Culturally, we need to change. We should value contracts, which we don’t do today. Our contracts are social in nature and less legal or economic. Employees will need a moral compass of right and wrong: joining competition, refusing to join a new firm at the last minute, burning bridges and so on.

Companies will need to be flexible, using innovative policies for women, building alumni networks and designing customised career paths. Firms must differentiate on merit early to keep top talent. They should build a stronger middle-management pool by rewarding those who stay. Senior leaders must engage, coach and grow talent. Firms should start learn-and earn internships.

(Source: Extracts from an Article by Mr. Shiv Shivakumar in The Economic Times dated 23-09-2013).

Psychologist Georges Potworowski at the University of Michigan found that certain personality traits —such as emotional stability, self-efficacy, social boldness and locus of control — predict why some people are naturally more decisive than others.

When faced with two equally attractive strategic options, timid, less emotionally stable leaders who fear upsetting anyone will let the debate drag on for weeks or months before selecting a compromised Frankenstein solution that both sides can merely tolerate.

More decisively-gifted managers make it clear from the beginning that they will carefully consider both sides of the argument, but will choose what they judge to be best for their team. They make the decision early on, and move quickly to enlist both sides in executing their decision. Some members of the team are not thrilled with the choice but are quietly pleased to finally have some clarity of direction… All of us have the potential to be decisive or indecisive.

(Source: Extracts from “Just Make a Decision Already” by Nick Tasler : The Economic Times dated 10-10-2013).

As the currency and financial markets recovered, the sense of crisis and urgency dissipated swiftly. By early October senior government officials were reportedly exuding confidence. Let us consider the realism of these official macroeconomic expectations.

A significant question is: how much has this decline in gold imports through official channels been substituted by an increase in smuggled gold? Another major imponderable is the impact of the ongoing US government shutdown and possible failure to raise the debt ceiling. On the one hand, such uncertainties are likely to prolong current levels of QE and, thus, ease the financing of India’s current account deficit. On the other, a significant setback to US and global economic activity could damp exports of goods and services and reignite global financial turmoil. It is impossible to assess the net effects on India’s external accounts at this stage.

The government’s expectation of 5.5 per cent growth this year looks decidedly optimistic. Aside from a good, monsoon-propelled performance in agriculture (which accounts for only 15 per cent of India’s GDP) and a modest recent uptick in some core sectors (from depressed levels) and some exports, it is hard to locate signs of a significant resurgence in economic activity.

The most implausible element in the finance ministry’s present confident/complacent macro expectations pertains to the fiscal deficit target of 4.8 per cent of GDP. In sum, the fiscal deficit could be overshot by a significant margin by the time the fiscal year ends. In the first five months of 2013-14, the Centre’s fiscal deficit ratio has been running at a whopping 8.7 per cent of GDP. Bringing it down to 4.8 per cent in the remaining seven months looks impossibly difficult, without recourse to seriously creative accounting ploys.

In any case, it is worth pointing out that a deficit that stays high through most of the year imposes the associated costs of higher inflation, higher interest rates, more crowding out of private investment and greater pressure on the current account deficit during the period, even if “miraculously” corrected in the final months. It is also worth emphasising that if the months unfold without any serious policies to correct the deficit, there is a growing risk of negative external perceptions (including a possible credit rating downgrade), which could have serious adverse consequences for external financing of the current account deficit and for currency markets.

In other words, India’s macroeconomic condition remains quite shaky and certainly does not warrant an iota of complacency. This is doubly true if one considers the available patchy data on employment trends, which point to miserable job prospects for the country’s burgeoning youth population.

(Source: Extracts from an Article by Mr. Shankar Acharya in the Business Standard dated 09.10.2013)

This institutionalises a significant level of excess capacity spread in small increments throughout decision factories. That is why decision factory productivity is a persistent modern challenge.

(Source: Extracts from “Rethinking the Decision Factory” by Roger Martin : The Economic Times dated 24-09-2013).

Exhibit 2 is the decision to allow designated members of three all-India services (including the Indian Administrative Service and the Indian Police Service) to go overseas for medical treatment, accompanied by a family member, at government cost. Why the police, and not the armed forces, one could ask. After all, soldiers face enemy bullets. And why an IAS officer who may be in the department of mines, and not India’s most important space or nuclear scientist? What’s different about the IAS and IPS? There’s only one answer: they are the guys who move the files and get them approved. Poor generals and scientists have no say in the matter. Once again, government of, for and by the governors.

What is particularly galling is that the same officers responsible for failing to provide a proper public health system have managed their own escape from the mess they have created. First they gave themselves access to private hospitals, and now it is hospitals in other countries. What about people waiting for a bed in government hospitals? Well, tough luck, you don’t belong to the IAS, so you can’t go at taxpayer’s expense to Sloan-Kettering.

Then consider the Member of Parliament Local Area Development Scheme (MPLADS), allowed to members of Parliament for spending on local area development. First, this violates the principle of separation of powers – elected representatives legislate, debate and ask questions; the executive that answers to these elected representatives proposes and implements spending programmes. Second, it started as Rs. 1 crore per constituency each year, then grew to Rs. 2 crore and Rs. 5 crore – for each of nearly 800 MPs every year, which means Rs. 20,000 crore every five years. It is an open secret that the scheme is open to misuse, but who is to bell the cat?

Exhibit 4 is the latest announcement on a pay commission for eight million central government employees and pensioners. Everyone knows that, at the lower levels of government, pay packages are well above what the market pays. These are not people who should get another pay hike, especially when the fiscal deficit is too large. On the other hand, there is a case for paying more at senior levels, because private sector salaries are way ahead and the gap needs to be narrowed. But for that you don’t need a pay commission. Remember that Rajiv Gandhi simply ordered a special allowance for officers on the top rung, because they had not got a pay hike in 30 years. But the government takes care of its own, and also wants votes; so we have a pay commission.

One could add other examples; eg, politicians already spend large sums on airports that only they use. So why not go all the way to creating Milovan Djilas’ New Class, and have exclusive dachas, special lanes for their cars … the works?