Times of India - UPA’s green delays hit growth

Published on 23rd May 2012

The UPA-2 government on Tuesday show cased several initiatives that have helped in sustaining the environment during its three year rule despite the fact that delay in environmental approvals have hurt project implementation and overall industrial growth.

The report to the people outlined the major steps taken to preserve the environment. It talked about the National Action Plan on Climate Change, forest conservation, mission clean Ganga, the setting up of the National Green Tribunal and tiger conservation.

The business of the environment ministry, however, got treated more as an albatross around its neck by the UPA than a subject of concern, with clearances remaining at the centre of all debates amid the competing demands of industries.

The environment ministry gained profile and so did its work in UPA-2 but very often it got pushed to ease norms and amend rules even as the government found the debates on how to marry growth with greater equity gain ground.

The ministry also got dragged into the 2G scam, as the issue of better regulation of natural resources remained stuck. The UPA was unable to push through either the reformed mining bill or the land bill even as existing legislation's such as PESA and Forest Rights Act remained relative non- starters.

Ironically, UPA-1's impetus to move the debate on natural resources out of the ambit of traditional boundaries - protecting the tigers and forests from tribals and poor - into an argument about better distribution of benefits tied UPA-2 into knots. Big ticket projects such as Posco and Vedanta hit an air pocket of uncertainty as government vacillated on how far to move on the agenda it had set before 2009.

On climate change, the other big ticket issue in the environment ambit, the UPA veered back to its original stance gaining some lost ground though fighting the battle at international negotiations with its back to the wall and domestically failing to step on the gas.

The two climate change missions that seemed to be taking off - energy conservation and solar power - got bogged down. The former, victim to government's prevarication and the latter, to a controversy similar in nature to that which had hit other resource allocation decisions.

Source: http://timesofindia.indiatimes.com/india/UPAs-green-delays-hit-growth/articleshow/13401688.cms

Hindu Business Line - Another quit India movement

By: Aarati Krishnan on 20th May 2012

If you expect big financial firms to swim in Indian markets, you cannot expect them to make do with a paddle pool.

Forget foreign investors knocking at India's doors. It is time for policy makers to start worrying about foreign firms which are queuing up to exit the country's financial sector. In the last one year, instances of foreign firms selling out their stakes in their Indian ventures, particularly in financial services, have ballooned.

Fidelity's decision to sell its Indian mutual fund operations this March followed exits by many other foreign firms (AIG, Aegon, Temasek, Merrill Lynch) since 2008. Taking stock of mutual fund houses with foreign sponsors in India today, one would hardly find one or two who have stayed on from the nineties.

A similar exodus is on in the banking sector. In the past year alone, foreign investors — be they banks, private equity funds or portfolio investors — have reduced their equity stakes in over 25 listed Indian banks.

A decade into privatisation, the insurance sector today has over two dozen players. But foreign partners in these firms are getting restive too. Last month, New York Life sold its 26 per cent stake in Max New York Life to Mitsui Sumitomo.

Other firms such as Aegon and HSBC are rumored to be scouting for buyers. It is convenient, of course, to dismiss all these instances as the spill-over of the 2008 credit crisis. And the turmoil has had a role to play in the current churn.

Stake sales by AIG, Merrill Lynch or Fortis in their Indian mutual fund arms, for instance, were prompted by the parent's decision to restructure their own operations.

Citi group's recent decision to cash out from HDFC was intended to unlock capital for its parent, in preparation for Basel- III norms. Stake sales by foreign institutional investors in private banks could also be the result of a routine portfolio rejig.

But even leaving out such cases, there are still instances that suggest that foreign firms may be shedding their blind optimism about the India story.

THE SIZE PROBLEM

One key issue is with market size. When Fidelity decided to throw in the towel after a seven-year stint in India, it managed just Rs 8,800 crore in assets. This is an inconsequential sum by global standards. In fact, a single global fund of Fidelity's manages Rs 3 lakh crore!

In a recent visit to India to review the BRICs story, Goldman Sachs lamented that the total fee pool for investment bankers in India was $810 million in 2011. This compared to over $4.3 billion in China and $1.5 billion in Brazil.

Private equity and venture capital funds investing in India are chafing too. A large private equity firm told this paper that the problem with India was not about opportunity, but the ability of the market to absorb investments.

Global private equity firms raise $1 trillion in assets annually. Even deploying 5 per cent of these assets in India would entail a $50-billion bet, impossible in Indian equity markets. The minuscule pie creates problems for private investors who are already here too. 2007 was a record year for Indian PE deals with $17 billion sewn up.

These investors are now chafing as a moribund stock market has made exits difficult. These deals are set to complete five years in 2012, when investors typically get restive.

WE NEED CAPITAL

The other key constraint, particularly for banks and insurance companies, is capital. With new businesses drying up, costs reduced by regulations and poor investor appetite, nearly half the Indian insurers are making losses.

Capital infusion, amounting to $7.5 billion in these ventures over a decade, has gone largely to fund accumulated losses. Now, the industry needs a fresh infusion of money to sustain operations. Primary markets in their current state offer no way out.

But with the government deferring a decision to raise the foreign direct investment cap from 26 to 49 per cent, foreign venture partners in insurance are beginning to have second thoughts.

SOLUTIONS

One can argue that some of these are temporary problems that could be set right by a revival in the capital markets worldwide. But India has not enjoyed great liquidity or market depth even in the best of times. If you expect big fish to come to Indian markets, you cannot expect them to make do with a paddle pool.

This suggests that policy makers need to take specific steps to address market depth and liquidity. These can only come from measures such as unlocking household savings from gold, re-directing a small portion of pension savings into equity and incentivising long-term holdings in stocks.

The problem with the mutual fund and insurance sectors is one of unviable scale. Both sectors rely heavily on a field force for retail penetration.

Piecemeal regulations in the last two years have put the agent force in disarray. Here, the regulators will need to collaborate to come up with a uniform regime that will incentivise distributors, without hurting consumer interest. s Given that capital is going to be in short supply the world over, the government may in fact need to change its entire mind set on foreign investments in India's financial sector.

The question now is, not whether India will ‘allow' foreign capital to come in; it is about what we can do to attract that capital, when there is so much demand for it!

This fortnightly column will take a fresh look at issues in policy making in financial markets and flag the ones that merit a rethink.

Keywords: foreign firms, queuing up, exit financial sector, selling out their stakes, Indian ventures, financial services, CIRCUIT BREAKER

Soure :

http://www.thehindubusinessline.com/opinion/columns/aarati-krishnan/article3439263.ece  

Economic Times - Why investors are wary of India

Even as the world watches Greece, the UPA-II has managed to script its own Greek tragedy at home.

In its three years at the helm, the government and its other arms have alienated companies and investors in sector after sector with its decisions - or, equally, its indecision.

TAX RULES

Vodafone, Similar Deals

Retrospective change in rules to tax deals between two foreign entities for an Indian asset. Rs 20,400 cr is the claim on Vodafone and could set a precedent.

Anti-Avoidance Rules

Software Products

Budget proposes to treat 'income' from sale of packaged software as 'royalty', with effect from 1976. MNCs such as Adobe, Microsoft, Oracle and SAP, which pay tax elsewhere, would pay 10-20% in India.

OIL & GAS

Deal Delay

Vedanta waits 17 months for government nod to buy Cairn and also accepts a heavy royalty burden.

RIL Penalty

The govt tells RIL it can't claim $1.23 billion of its development cost in the K-G basin as it has not met output commitments.

Reforms

Oil subsidies remain misdirected and a strain on the country's finances.

TELECOM

Licence Cancellation

SC cancels 122 mobile permits issued by former telecom minister A Raja. Norway's Telenor, Russia's Sistema, UAE's Etisalat and Bahrain's Batelco write off $3 billion. Etisalat & Batelco exit, Telenor & Sistema threaten to exit India.TRAI proposals on spectrum auction have irked old and new players alike.

POWER

Coal Crunch

Even as power plants gasp for coal, PSU monopoly Coal India is acting like one - its production is stagnant at 431-435 million tonnes in the last 3 years.

PHARMA

Buyouts M&As delayed as government stops automatic approval for acquisitions by foreign companies and new rules yet to be finalised.

Patents

India's first 'compulsory licence', for Bayer's cancer drug Nexavar, overrules a patent-holder's rights in lifesaving drugs.

BANKING & FINANCIAL

FDI in insurance - Not raised from 26% in spite of being talked about for a decade.

New Banks

Promised by UPA-I in 2004, none issued as yet.Although GAAR, which aims to check tax evasion by foreign investors, has been deferred by a year uncertainty remains.

Published on 22nd May 2012

BHEJA FRY

In 1948, just about the post independence era, the government was the most dominant factor, it is still today, I dare not deny this.  The participation of private sector was `just’ present.  People respected government and industries both.  The reciprocation was equally appreciable.  

After 10 years the profile of industries started changing.  The government realized that the country needs public and private sector both to grow and develop and that is where the strengthening of mixed economy started, which was different from the than USSR and America.

We were coming out of almost 200 years of British Rule and the time taken to put the entire system into place was very well understandable. Everyone understood.

India passed through another phase, phase of wars – first with Pakistan and then with China. The economy broke into pieces but the government, people and the industries again came together to build a stronger India.

These crises never dithered India from its growth.  The GDP fluctuated between 3.5 to 6, but the country never took a back-step from its development.  Industrialization picked up and so the borrowing from World Bank, IMF like organizations.

I remember the time when India introduced New Economy Policy, in 1990s.  The country took all the measures to not only structure the policies to invite foreign investments but also structure internal taxation process.  India became open market for most of the best industries globally.

Liberalization – Globalization – Privatization took country into a new direction, towards an unparallel growth.

How much true it is !!! When the world was in deep financial crises, India was one of the rare if not the only country sitting atop with full support coming from Industries and people.

Oh.. Oh.. Oh.. Have I not spoken too much on the goody goody situation of India?  Let me come back to realities of today. Let us start naming few past and present - Harshad Mehta, 2Gs, Satyam Raju, Neera Radia, Cairn Oil Deal, Falling of Rupee, Foreign Direct Investments, Changing Policies as per whims and wishes, Tax Burden and the most fashionable today, the interference of foreign NGOs in India Economy.

From GDP to Coal Crises to Power Crises to Inflation to Environment Policy to Foreign Taxation Policy to Coal Policy to Delayed Clearances to Agitations to Land Issues to Water Issues to Income Tax issues to Pollution to Corruption to Politics etc.. every thing brought country into limelight, but for a different reason.

The situation is so worse today that Anna Hazare and Aamir Khan had to come forward to put the things in place… not mentioning the celebrities a reason to earn motive. The crises needs more of "Sach Ka Saamna" than "Satyamav Jayate".

When you read morning newspaper, it HURTS.  But not anymore, I have found a solution. "BHEJA FRY".

BHEJA FRY is NOT AN EFFORT to build a strong platform to discuss prevailing critical issues in the country.. NO.. It a platform where you, me and many more like us can take out all the frustration and go happy to their offices or homes, thinking…. ‘All is Well’… `We Shall Overcome One day’ … It took many years for a monkey to become a man..

These are my views..

BHEJA FRY

Financial Express - National Interest - Anybody out there?

By: Shekhar Gupta published on 21st May 2012

The flavor of this disastrous season seems to be distinctly Greek. Who is to blame for the rupee and the Indian stock market being the emerging markets’ worst performers? And, of course, as the brilliant and irrepressible Indian Express columnist Surjit Bhalla pointed out in Saturday’s Op-ed page, for India’s industrial production growth being the lowest in the world outside Europe? Of course, it is the wretched debt-defaulting Greek.

And who is responsible for this state of total decision paralysis, a loss of political authority so severe that in one sector after the other, bureaucrats have taken over all power? Where the almighty Sarkar-e- Hind has to unleash the governance equivalent of a WMD by issuing a presidential directive to one of its own PSU monopolies to supply coal to stranded power producers even if it is entirely according to its laid-down policy? Where economic bills are being put in cold storage even when many have the BJP’s support? And where, two months from the installation of the new president of the republic, the ruling party is still keeping all its hopefuls on wait? If they were to be held responsible for this total paralysis of political governance in India, then those 11 million Greeks would have to be awfully hard-working people. Unless, of course, our famous CAG carried out their last census and counts, as it has often done lately, the 11 million as 110 crore: what’s a few more zeros between friends? After all, you have to be given a margin of error.

Take a closer look at this total abdication of political authority by UPA 2. After the courts and civil society moved in to fill the governance space ceded by UPA 2, what was left has been taken over by the civil services. After the courts, now regulators, who are almost all retired civil servants, are determining basic policy while senior ministers wring their hands in main- kya- karoon despair that has now been printed on the calling card of this cabinet: take TRAI, for example. One year ago, we were all fighting to defend the political class, and justifying its supremacy in a democracy as the assault from Anna’s civil society raged. Today, we have entered a fascinating new phase in democratic evolution, where civil servants are so dominant, they are also cornering many of the sinecures the political class usually counted as its own. Note, for example, how retired IAS and IPS (in fact, more IPS than IAS) officers have governorships of more key states in the country than political veterans. Who do you blame for this political debacle? The Greeks?

You have to look within, a skill and quality UPA 2 has lost, caught in the maze of confusion, scams, its lack of conviction. But, most importantly, its lack of leadership. The old story of discord between the party and the government is rubbish. Surely, the government is neither deciding, nor implementing. But, equally, the party either does not know what it wants or is not telling anybody. Unless you think it is being done through leaks, deep-background briefings and whispers that are usually prefixed with "but 10 Janpath has a different view...". Has anybody heard 10 Janpath’s point of view on any key policy issue? Or of 12 Tughlaq Lane (Rahul Gandhi’s residence)? And let’s be fair, have you lately heard what 7 Race Course Road thinks on any of the issues, problems and pains assailing India today? A capital city like this, where no one speaks to anybody in such a vast country, may be fascinating for journalists and pundits. But it looks like a very, very foreign place to the rest of India. A very alien place, more distant than even Greece.

We have, today, an incredible situation where the top three in the ruling establishment almost never speak to the people of India. Sonia, Rahul and the prime minister speak sparingly in Parliament, almost never to the media and hardly ever directly to the people of India, except during election campaigns. Media, you can understand. Everybody seems to think that journalists are vermin and the only thing they now need is regulation. UPA 2 has also added Indian entrepreneurs to that category. Go back to some of the footage that shows Revenue Secretary R.S. Gujral admonishing the captains of corporate India at FICCI and CII forums. Nobody knows if he was mandated by the finance minister to do so, but entrepreneurial India has not been kicked around so rudely since the V.P. Singh- Bhure Lal raid raj. you have today an establishment where nobody speaks with their people. Nobody explains any action taken, and certainly nobody tries to build any public opinion for any contemplated policy action. You cannot help thinking sometimes that our establishment has lapsed into some old Beijing/ Moscow style of governance. But at least then you could pore over People’s Daily, Pravda or some such and read between the lines and guess what was on the comrades’ mind. Not so in India, today. The Congress does not have an official daily, and the government does not speak through any official media. In fact, if you looked at government-owned TV, particularly the Lok Sabha and Rajya Sabha channels, you would find the entire discourse so utterly in conflict with any idea of modern, reformist economic policies that you can see how government’s own media does not speak for it.

In any case, what is the government policy on key issues? On the economy, it seemed to follow calculated ambiguity until the new revenue secretary changed it to coercive diplomacy. On foreign policy, particularly on Pakistan, nothing has been done to sensitize public opinion on the historic opportunity that has emerged after an entire decade of peace on the LoC, while old establishment hawks (in India, not Pakistan) continue to fan disinformation. And on politics, the party is playing with the cards so close to its chest even on its nominee for the president, that every possible and impossible name is being speculated upon, the latest being Labour Minister Mallikarjun Kharge.

This reminds me of a story from I.K. Gujral’s short-lived government. His principal secretary (now governor of Jammu and Kashmir) N.N. Vohra, exasperated by decision-freeze in the PMO, once told him, "Prime Minister, there is an allegation against us that ours is a government of the Punjabis."

Gujral lifted his head and asked, sort of philosophically, "So what can we do about it?"

"For once, Sir, for just two weeks," said Vohra, "can we function like Punjabis?"

I am not betraying any confidences because Vohra did not tell me this story, Gujral did, and he will forgive me. But it is a conversation worth recalling in these unusual times.

Link:
http://epaper.financialexpress.com/38627/Indian-Express/21-May-2012#page/9/1

Economic Times - Letter From London - Sleeping on the Job? Check the Mattress

By: Sudeshna Sen published on 21st May 2012

Be afraid. Be very afraid. If you think that the rising mercury and falling rupee is bad enough, far more severe economic headwinds are coming your way. The euro zone isn’t headed for imminent collapse — it is already on its way, going to all kinds of hell in a flaming wire basket. If you think that’s something only the people who follow the sensex obsessively should worry about, you’re wrong. I keep reading from time to time, various analysts and commentators in India go on about what the government and RBI have done wrong — and what they should have, or should do to put the economy and exchange rate back on track.

Sure, there’s lots they could have done, in general and in particular. But if anyone thinks that Pranab or Subbarao could have prevented what’s happening to the rupee now, think again. No one expected the absolute mayhem that’s going on in Europe, though I’m told the Finmin has a contingency plan in place. At the risk of oversimplifying, for those of you who aren’t glued to Bloomberg tickers all the time, international traders and money managers — the ones you call FIIs, who are mainly responsible for dollar inflows — are all sticking their money under the mattress; they’re terrified of what may or may not happen in Europe and are taking no risks. JPMorgan’s loss hasn’t helped confidence any, either.

Sorry, high-growth, emerging markets do not fall in the super-safe, blue-chip or mattress category. Yes, they’ll bring their cash out again: a trader doesn’t earn his bread, butter or caviar by sitting on cash. But not now. I’m betting — not a penny, mind you — that they will start buying properly again after the summer school holidays. In case Europe goes into free fall, not even then. So you’re looking at a year of uncertainty, at least. I’d say that translates into a year of inflation, falling rupee, abysmal business confidence, low growth and uncertainty.

Uncertainty, anathema for global markets, is in this case a severe understatement. These days, tracking Europe, I feel like a hapless Lok Sabha reporter. Don’t knock the Indian political class. In the past week, we have had one head of the finance minister’s group, Jean-Claude Juncker of Luxembourg, openly lambasting his peers for "threatening Greece" on a daily basis, and presuming to dictate to the Greek electorate. We’ve had a German chancellor make conciliatory noises about Germany loosening its purse strings to help Greece, while her top aide said exactly the opposite. We’ve had European central bankers talk about a Grexit — actually, I prefer the term Drachmatisation, which I first stumbled across in Dr Doom Nouriel Roubini’s latest editorial. (He says Greece should now leave the euro and let ’em be damned. In January, he put this as a 50:50 chance. That’s how fast things are changing.)

We’ve had a non- euro head of state be seen to ‘lecture’ the EU; David Cameron telling them to make up or break up. We’ve had the EC head saying one thing, the ECB head saying something else. If you consider that the EU is like a loose federation of states, then Indian politicians, Mamata included, seem like a model of restraint and cooperation compared to Europeans, however much they disguise it in polite speak. In a nutshell, nobody seems to know what the devil they’re doing, and everyone’s pulling in different directions.

I don’t normally think David Cameron knows what he’s doing, but in this case, even if it annoys Europeans no end, I think he’s actually done the right thing. Hey, if Europe wants everyone to contribute to sorting out their mess through the IMF, they’ve got to take some tough medicine, including lectures from creditors. That’s precisely what Germany is doing to southern Europe, so what’s sauce for the goose…

Idunno what the Indian authorities can do to stave off a global financial meltdown tsunami effect. The economic news from China isn’t good either, and if the high-growth economies stall, Germany, which at least till now has the money — but not the will — to make a difference will start to feel the pain soon enough. Times will be tough, for at least a year.

What do I think India should do? Use this time to push through a few, lucrative, unpopular reforms, to keep the financial powder dry, in case a major economic stimulus, like in 2008, is needed. I’m horrified to hear Pranab starting to chant the austerity mantra, that’s a dead end to nowhere. I live in an austerity mantra society. Trust me, it’s hell. Don’t worry about FII inflows and fiscal deficits, the traders will be back once they’ve got over their mattress concerns. Some key structural reforms will help in restoring confidence when the money starts to come back, at first glance, retail, insurance and debt markets. Vodafone/Gaar’s a sideshow. Why am I so pessimistic about Europe?

What would you be, when the kind of people I talk to, who know about these things, are telling me about contingency plans companies are making for civil war in Greece, including evacuating their employees? Or political risk companies and human rights charities putting EU nations on the list? Or when top overseas businessmen are worrying about the rise of the far right, given that European electorates have lost faith in any moderate centre? Would you invest in a Europe that is poised to go nationalistic, protectionist and right wing? I don’t respect (despite having studied it) any economists, but am now starting to think Ms Merkel should be force-fed John Maynard Keynes.

We’re all told about German antipathy to hyper-inflation in the 1920s, but everyone seems to have forgotten that it was Great Depression of the 1930s that led to the rise of Hitler. The anti-German sentiment across the continent is rising — I’m told by the people who know that it’s palpable. The Germans don’t get why nobody likes their prescription of strict terms for bailouts, which to them seems completely correct and moral, and don’t understand what the kerfuffle is about. It’s about philosophical and cultural differences. Unfortunately, that's what (along with rubbish economic policy) led to the last world wars.

To quote someone I can’t officially quote, is Europe doomed to repeat its mistakes, because its leaders haven’t studied its history enough? We don’t think so, the demographics are different now.

But be afraid. Be very afraid.

Link:

http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETM/2012/05/21&PageLabel=17&EntityId=Ar01702&ViewMode=HTML

Business Standard : Investors’ hot potato GAAR put into cold storage until next year

Published on 8th May 2012

Finance Minister Pranab Mukherjee today announced the rollback of some Budget proposals dubbed ‘draconian’ by industry groups. During the discussion on the Finance Bill, 2012 in Parliament, Mukherjee proposed to defer the General Anti-Avoidance Rule (GAAR) for a year, withdraw the excise duty proposed on jewellery and remove provisions making some excise and customs duty evasion offences non- bailable.

"To provide more time to both taxpayers and the tax administration to address all related issues, I propose to defer the applicability of the GAAR provisions by one year. The GAAR provisions will now apply to the income of financial year 2013-14 and subsequent years," Mukherjee said.

The estimated revenue loss due to various indirect tax proposals, including the withdrawal of one per cent excise duty on jewellery, would be ~600 crore for 2012-13, Central Board of Excise and Customs Chairman S K Goel said.

The deferment of GAAR, which can deny tax benefits under a treaty if an arrangement is "impermissible", will be a reprieve for foreign investors who invested in listed Indian securities through tax havens last year. In a breather to all classes of investors, the onus of proving tax avoidance will be shifted to the tax authorities, against the Budget proposal to put it on the taxpayer.

The government conceded to the demand of aparliamentary standing committee to include an independent member, an officer of the level of joint secretary or above from the law ministry, in the panel to give approvals for invoking GAAR. It also allowed all taxpayers, resident as well as non- resident, to approach the Authority for Advance Ruling to know whether an arrangement to be undertaken was permissible under GAAR.

Clarifying doubts on retrospective amendments related to capital gains on the sale of assets located in India through indirect transfers abroad, the minister said these amendments would not override the provisions of the Double Taxation Avoidance Agreements (DTAAs) India had with 82 countries. He added old cases where assessment had already happened would not be reopened. This means the tax demand on Vodafone and other similar deals, expected to add ~35,000-40,000 crore to the revenue kitty, would remain valid. "Most of the Vodafone-like transactions were routed through tax havens that do not have a DTAA with India. Some deals were routed through DTAA countries, but India has the right to tax such transactions under treaties with those countries," a finance ministry official told Business Standard.

On the indirect tax front, Mukherjee rolled back two major controversial proposals — levy of one per cent excise duty on precious metal jewellery and non- bailable arrest for custom and excise duty evasion cases punishable with imprisonment of three years or more.

To appease the states, the definition of "services" under the negative list will be changed to exclude from the purview of service tax activities specified in the Constitution as "deemed sale of goods". States had been demanding the Centre not levy service tax on activities already taxed by them as goods.

Mukherjee said other concerns related to indirect taxes could be addressed through notifications. "There are a few other proposals relating to rationalization and adjustment of central excise and custom duties which I will place before the House while replying to the debate," he added. of foreign banks.

Withdrawal : DEFERMENT AND ROLLBACK

Sigh of relief on the Street, Sensex stages dramatic recovery.

The Sensex recovered from early lows to close higher by 82 points after the government deferred the implementation of GAAR. The index had dropped 317 points to an intra- day low of 16,513.77, before it recouped losses to end in the green.

To try and get ~35,000-40,000 crore in taxes from cross-border deals conducted via tax havens, such as those of Vodafone-Hutchison, Idea-AT&T, GE- Genpact, Mitsui Vedanta, Sab Miller- Foster’s and Sanofi- Aventus- Shantha. Cases related to taxation from many of these deals are pending across various courts of the country. 4 >Finance Bill discussion spreads cheer as govt backs down on tough Budget proposals

Business Standard : With ~40 k- cr tax at stake, Fin Min firm on I-T amendments

Published on 28th April 2012

Pressure from various quarters notwithstanding, the government is sticking to its guns on retrospective amendments to the Income Tax Act, as it eyes ~35,000-40,000 crore tax realization from deals similar to the $11-billion Vodafone Hutchison deal in 2007.

Finance ministry officials said if the government did not opt for the amendments, those who had paid tax in such deals would ask for refunds.

The merger and acquisition deals pending in courts include the $150-million Idea Cellular AT&T deal, the GE’s $500-mn deal with Genpact, the $981 million Mitusi - Vedanta Sesa Goa deal, the SAB Miler- Fosters deal and the $770-mn Sanofi Aventis- Shanta Boitech deal.

Though officials said other deals were also being investigated, they refused to divulge the details.

According to the Income Tax Department’s estimates, deals similar to the Vodafone Hutchison one would yield ~35,000-40,000 crore. Officials, however, said these were rough calculations.

In the $6-billion Cairn India deal between Cairn Plc and Vedanta, the parties concerned have already made an arrangement to pay capital gains tax to the government. In fact, London-based Cairn Plc has already paid more than $500 million to the Indian government.

In the recent Max New York Life deal, Japan’s MS&AD Insurance Group withheld tax while acquiring 26 per cent stake in the company for ~2,731 crore.

New York Life Insurance Company said the capital gains should not be subject to tax in India, as it held the shares in the life insurance joint venture with Max India through a holding company in Mauritius. However, it has allowed the Japanese company to withhold the tax as a precaution, and would file for a refund with the tax department later.

Meanwhile, officials claimed retrospective amendments would not impact foreign direct investment in India, as investors do not look at only taxes, but the overall economic environment.

Vodafone, however, does not agree. A source in Vodafone said even as tax rates may not be minutely assessed while investing, the certainty of tax laws and the policy environment what certainly looked at.

He also contested the finance ministry’s view that retrospective amendments to income tax laws were not being carried out in India alone, but in the UK as well In the Barclays deal, the UK government had amended a tax law in 2009 to clarify certain assistance given to companies in distress would not qualify as tax deductions. But when Barclays continued to avail of that exemption, UK authorities clarified the company would have to pay tax for these for the period when the tax laws were first clarified.

"It was not as if the law was amended with retrospective effect, as is being done in India. In no other country is it done after a court verdict and that too, with a retrospective effect. You cannot change the rule of the game in between," the source said.

At a meeting between Finance Minister Pranab Mukherjee and his UK counterpart George Osborne, Mukherjee had mentioned the UK’s move to amend its tax law a day before Mukherjee presented the Budget in Parliament. Osborne had told Mukherjee investors were anxious, as India proposed to amend the Income Tax Act retrospectively. VODAFONE- TYPE DEALS IN COURTS:

|Idea Cellular-AT&T’s $150-mn deal pending in Bombay HC |GE- Genpact $500-mn deal pending in Delhi HC | Mitsui- Vedanta $981-mn Sesa Goa deal pending in Goa HC |SAB Miller-Fosters 2006 deal pending in Bombay HC |Sanofi Aventis-Shantha Biotech $770-mn deal pending in Bombay HC.

Hindu Business Line : The big picture on FDI in retail

By : Nilanjan Banik on 11th December 2011 -
The author is Associate Professor, IFMR

India's FDI inflows have improved since 2005, perhaps at China's expense. In this context, the expected FDI inflows from retail are not significant. However, retail FDI can lead to FDI flows in other sectors and improve our BoP situation.

Foreign direct investment (FDI) in the retail sector has been at the epicentre of national debate. Much has been said on India possibly losing out on investment by sending a wrong policy signal. But do we really need to get so worked up?

INDIA AS FDI DESTINATION

Considering the anticipated level of inflows on account of FDI in retail, there may not be much reason to worry. During 2000, India attracted significantly lower FDI ($3.5 billion) than many other South-East Asian countries, such as South Korea ($10. 5 billion), Thailand ($6 billion) and Malaysia ($5 billion).

However, an interesting pattern has started to emerge since 2005. FDI inflow into India increased by leaps and bounds, from $7.6 billion in 2005, to $35 billion in 2009. FDI flow in the whole of East Asia and the Pacific remained more or less constant during this period — $104 billion in 2005 and $102 billion in 2009.

For China, the figure is $79 billion in 2005, and around $78 billion in 2009. In 2000, India's share among middle-income countries, in terms of attracting FDI, was only 2.4 per cent, compared with China's 26 per cent. In 2009, China's share fell to 22 per cent, whereas India's share increased to 10 per cent (Global Development Finance: Country and Summary Data 2011). India's gain has been at the cost of China losing out in terms of being a favourable FDI destination.

CHINA'S PROBLEMS

India has outdone China due to the high inflation rate in the latter country. Wages of migrant workers, land, property rents and power prices, have all registered an increase in China.

Measured as a year-on-year basis as of November 2010, labour costs went up by 21 per cent, and the home prices across 70 cities in China went up by 7.7 per cent. Property prices have also been on the rise, despite the government having ownership rights over land — indicating a real-estate bubble.

What is evident from data is also being witnessed in reality. Multinationals such as Ford and Hyundai are shifting their manufacturing base from China to India. During the early part of last fiscal, India exported 2,30,000 cars, vans, sports utility vehicles, and trucks — a growth of 18 per cent, whereas Chinese exports have tumbled 60 per cent to 1,65,000 units. Perhaps due to these reasons, Nokia and Lotte, are setting up their manufacturing base in India.

It is no surprise, therefore, that India has attracted, on an average, an annual FDI inflow of $20.4 billion per annum between 2006 and 2009.

The estimated inflow from FDI in retail, of $3 billion over the next five years, seems modest in comparison. To get a sense of proportion, the Reserve Bank of India generally uses this sum of money daily in the foreign exchange market.

Even so, there are reasons to be concerned if FDI in retail were to be stalled in the long run. So, what are the problem areas?

SUPPLY LOGISTICS

FDI in retail will bring down inflation by investing in supply chain logistics, that is, by investing in transport and refrigerated storage necessary for perishable items. Typically, if a farmer were to sell his produce, he needs to bring it to the local market where he usually auctions it to the retailer, who, in turn, will sell to the final consumers.

This process of auctioning in the mandi (central market) is facilitated by the middleman, who charges a commission from the farmers. Add to this the cost of bringing the agricultural produce to the local market; the price difference between what the farmers get and what the consumers pay is what society loses out due to inefficiency.

By investing in supply chain logistics, the players in multi- brand retail will reduce the cost, and bring down inflation. They will procure the produce directly from the farmers, keep it in their storage, and transport it directly to their retail outlet. It is worthy to note that there is a huge investment involved to get the supply chain logistics in place — something that FDI in retail promises.

Those who have been arguing that the local kirana and the marginal farmers may be hurt — the former losing out on business, and the latter not getting the right price – are not right. Currently, the local kirana, and retail outlets such as Reliance Fresh, Tata-Tesco, and Spencer, to name a few, are co- existing comfortably with each other.

Marginal farmers also stand to gain. Recent evidence suggests that marginal farmers who have entered into contracts with Pepsi India have on average realised double the price in comparison with the local mandi and the local mahajan (in absence of the local mandi). This is an eye-opener for those suggesting that multinationals will squeeze the farmers by not offering them the right price.

Experience from around the globe suggests that the local kirana needs to worry from the spread of e-commerce, and not the presence of corporates in the retail sector. India badly needs corporatisation of the agriculture sector to even out distribution of income. The ITC and Pepsi examples have shown that, in their best interest, corporates directly get in touch with the farmers, and give them the necessary information on how to increase crop output and productivity.

It is to be noted that the agriculture sector receives minuscule investment, while supporting the livelihoods of around 55 per cent of the population.

RIGHT POLICY SIGNAL

The UPA government also stands to gain substantially by sending the right policy signal. Moreover, FDI in retail can bring in forms of FDI, at a time when our trade figures aren't doing really well. The trade deficit for April-October, 2011-12, was estimated at $94 billion, which was higher than the deficit of around $85 billion during April-October, 2010-11.

India's credit-worthiness can improve, with more FDI inflow resulting from reforms. International rating agencies usually look at total foreign exchange reserves and the FDI inflow as a criteria for rating any country.

Tailpiece: Mamata Banerjee is smart, and is playing her cards right. She has already got Rs 8,750 crore, out of her demand for Rs 19,000 crore as part of the Bengal package.

Who knows, she might actually give in if the UPA government meets her demand.

Link : http://www.thehindubusinessline.com/opinion/article2714921.ece

Mumbai Mirror : Why the Rupee fall fails to alarm

The mighty rupee is falling against the almighty dollar. It now takes 54 of them to equal one American greenback. It wasn’t always so. Just a few months back it only took 48. This recent fall has been rather quick. The rupee lost ten percent in just two months. It has been the quickest loser among all global currencies. If you are planning a holiday in London or New York you are in for a shock. If you are joining an American University this is going to burn a hole in your pocket.

But is this really a cause for alarm? Should we be losing sleep because the svelte Miss Roopee is dancing with the dashing Mr. Dollar in Studio 54? Why they may shift to Studio 55 or 56 soon, and will that be a bad thing.

Here’s why it is not so alarming. Firstly the weak rupee is helping our exports. Not only is the rupee weakening against the dollar, but also against most other currencies. Most notably it is much weaker than the Chinese renminbi (RMB). This means that in markets where Indian goods compete with Chinese goods, the Indians are winning. This has helped our exports in labour intensive industries. Textiles, leather footwear and even small and medium industries are happy. India just recorded its highest ever exports of more than 300 billon dollars, in a global economy which is still sluggish. That does not even count the earnings from IT and software exports. The weak rupee is brining a smile to many software companies like TCS, Cognizant and Infosys. Even though weaker rupee makes oil imports expensive, the price of petrol and diesel is politically regulated in India. So the impact on our petrol pumps won’t be immediate. And strangely, a weak rupee means we earn extra in petrol and diesel exports. Yes India has become a significant exporter of petrol and diesel, to countries like Iran and Saudi Arabia. That’s because our domestic refining capacity (think Jamnagar and Bhatinda) is far in excess of domestic requirement. So we import far more crude oil, and export the surplus in the form of petrol and diesel. At this pace the export of petrol and diesel will earn us more than export of software and IT services in a couple of years. Remember, exports create jobs and dollars.

A second reason that a weak rupee is not as alarming as it used to be, is because our foreign exchange reserves are plenty. At 300 billion dollars we are among the world’s six largest stock of dollar reserves. So we have plenty of room to live with an exchange rate of 54 to 60.

A third mitigating factor, is the inflow of remittances and NRI deposits. As dollar gets stronger, and interest rates on non- resident dollar deposits are deregulated, we get a surge of these NRI deposits. Our NRI cousins get barely 1% return on a fixed deposit in an American or European bank, but get almost 10% return here. That too without tax deduction. Who can resist that? Inward remittances of workers from IT or Dubai are the highest in the world. A weak rupee seems to encourage people to send more money home.

A fourth and very important reason to not panic, is that this rupee weakness is ultimately self correcting. Beyond a certain reasonable limit, markets will gyrate in the other direction. Stock market investors, sensing an inevitable correction will send in dollars, which can quickly lead to a stampede. That very stampede causes the rupee to gyrate upwards quickly, causing more investment to come in. Meanwhile the RBI is already tinkering to make the rupee calm down.

So relax, there’s no need to panic. Or as Mario Miranda once said: "I don’t mind the Rupee falling, so long as some of it falls on me!

DNA : FDI in retail will cause unemployment: Retailers

Published on 15th May 2012

Traditional retailers are strongly against foreign direct investment (FDI) in retail and are against any move to opening the sector to foreign capital. In fact, the Confederation of All India Traders (CAIT), an umbrella organisation of 5000 retail associations across the country, has brought out a book on FDI in multi- brand retail.

Interestingly, the book suggests measures for a strong retail sector which are similar to the suggestions made in a working paper on the subject authored by two IIMA members of faculty. DNA had recently published a report on the working paper's conclusions and recommendations.

The Central government has argued that influx of foreign capital in retail will generate employment and trigger huge investments in back-end infrastructure of retail chains in the agriculture and food segment.

But traditional retailers are against the move as it may harm the interests of farmers, and small and medium enterprises. The book brought out by CAIT also argues against allowing FDI in retail.

CAIT has said that the Centre should instead improve infrastructure for trading and take steps for removal of intermediaries in agriculture retail. It has also suggested that the government should focus on skill development in the work force for better employability before allowing FDI in multi- brand retail.

"Our book gives some realistic arguments against the government's assumptions and claims in terms of creation of jobs, investment in back-end infrastructure, etc," said Praveen Khandelval, general secretary of CAIT.

On the claim that 4 million jobs will be created in the first three years if FDI in retail is allowed, the CAIT book says that it is unrealistic.

"If 4 million jobs are to be created, even Wal- Mart, which has the largest average employee per store, will need to open over 18,600 supermarkets in India. This means 644 retail stores in 53 cities," the book states.

It further says that the global experience in organized retail has shown that instead of creating employment, mega- retail corporations actually reduce employment. This is so because they promote technology and automation which cuts the need for manpower. The claim that FDI in retail will also benefit farmers is eyewash, claims the book. Supermarkets actually push up prices and pass on payment risks to farmers and growers.

"Milk producers in the US got only 38% share of the consumers' dollar that was spent on milk. In the UK, milk producers got only 36%. However, in India, the milk producer gets more than 70% of the consumers' rupee on an average," the book says.

The government thinks consumers will be the second major beneficiary after farmers as competition among the retail chains will bring down prices.

"Research findings have established that retail and brand companies have positioned themselves as powerful gatekeepers between the consumers and the producers. Organized mega- retails encourage mass consumerism. As a result, the consumer tends to spend more than his current requirement," the book says.

Link :

http://www.dnaindia.com/india/report_fdi-in-retail-will-cause-unemployment-retailers_1689088

Economic Times : After Vodafone, taxmen to go snapping at many past deals involving Indian assets

By: Deepshikha Sikarwar and Vinay Pandey on 10 MAY, 2012

The income-tax authorities will pursue all targeted cases that concern overseas transactions involving Indian assets, said a senior finance ministry official, making it clear the intent of retrospective tax was not merely to penalise Vodafone, and the exemptions announced by the finance minister earlier this week will not benefit most of the deals being investigated.

The controversy over the retrospective amendment to law that will allow the government to tax past overseas transactions involving Indian assets has so far centred around the multi-billion dollar demand on the Vodafone-Hutchison transaction.

But the stage is now set for a showdown between tax authorities and other affected companies, which are exploring legal options to challenge the constitutional validity of the amendment.

Finance ministry officials said the deals under the scanner include SABMiller's acquisition of Foster's India, Vedanta Group's purchase of a majority stake in Sesa Goa through the acquisition of Finsider International, and General Atlantic and Oak Hill Partners' buyout of GE's 60% stake in Genpact. In all these transactions, tax notices had been served, they said.

Sanofi Aventis' acquisition of Shantha Biotech will not be subject to the retrospective amendment, but will be covered by the Double Taxation Avoidance Treaty (DTAA) India has with France, said an official.

The income-tax department has prepared a list of all cases where it believes the retrospective amendment could have an impact.

http://www.economictimes.indiatimes.com//articleshow/13072108.cms

Hindustan Times : Kudankulam: 4 NGOs' books being audited

By : Aloke Tikku on 28th February, 2012

The home ministry ordered probe against four NGOs on Tuesday for alleged diversion of foreign funds to fuel protests against the Kudankulam nuclear power project.

But the ministry did not cancel their registration, as was initially claimed, nor did it name them. As Tuesday, government sources confirmed that the ministry asked the CBI to probe two NGOs where the suspected amount of diverted funds exceeded Rs. 1 crore, while the other two will be handled by the Tamil Nadu crime branch.

Sources said the communication was sent in the first week of February, long before Prime Minister Manmohan Singh's remark on foreign-funded NGOs channelling money into the protests. Besides, accounts of some more NGOs operating in Tamil Nadu's coastal belt were still being audited.

Home ministry officials said the claims made by some central ministers that the licences of the NGOs had been cancelled were inaccurate.

"There is a procedure to be followed for cancelling the registration of an NGO. That stage has not been reached yet," said an official.

As Hindustan Times reported first on February 25, the home ministry only froze the foreign contribution accounts of the NGOs because of accounting loopholes.

That's why home minister P Chidambaram declared on February 4 that the Centre was probing the flow of funds received by anti-project activists.

Home secretary RK Singh confirmed that the Centre had directed agencies to register cases for violating the Foreign Contribution Regulation Act. But there was no confirmation if cases had been registered.

"We need the Tamil Nadu government's consent before we can register the case," a CBI official in Delhi said, acknowledging that proving the charge of diversion of funds in court would be a near-impossible task.

It will require the CBI and the crime branch to build a money trail to establish that foreign funds - meant for the stated charitable purposes, and not money generated through local or domestic contributions - were spent on protesters.

Link :  http://www.hindustantimes.com/India-news/NewDelhi/Kudankulam-4-NGOs-books-being-audited/Article1-818531.aspx