Economics & Investment Updates (7)

         Economic & Business Services Team (BEST)


                                  Economics & Investment Updates (7)

1. Spicejet Airline May Survive
There are indications that beleaguered Spicejet airlines may be salvaged from its deep financial with the coming back of its co-founder Ajay Singh. Corporate circles are agog with the rumor that the alumni of the Delhi IIT and Cornell University has the task cut out for pumping oxygen into airlines. Ajay Singh is the man Friday since he is close to the establishment and is often seen in the corridors of power in the recent days holding parleys with ministry officials and airline senior executives. In the meantime, there is also a news floating that  the present owners Chennai based  Marans can pump money for the revival of the airlines. But the catch is that the South based media baron is caught up in many serious cases along with his brother, who was an ex-minister in the UPA 2 cabinet.
2. PMO to fast track investment plans
Buoyed by the inadequate pace in which the cleared projects are implemented, Prime Minister's office is said to have control of the project monitoring works. This experiment was done by the previous government towards the close of the term of UPA 2. It may be noted that several scams that have erupted during the previous governments such as 2G, coal, Commonwealth etc. were on account of the fast rtracking of the project without following rules and regulations.There are also vested interests in operation who want fast tracking based on the premise that: you give us a long rope and we will deliver. They did deliver in all cases but being in the wrong side of the law. Analysts say that since Modi administration has the benefit of knowledge of what that had happened to the previous regime, they will be careful in striking a balance.
3. Gas Allocation
The government has taken a decision to give top priority to companies selling CNG and piped cooking gas while allocating gas.Presently, fertilizer manufacturing plants and liquefied petroleum gas (LPG) companies have a priory over other utilities.
4. SC Turns Down Pleas Against Coal Ordiance
The apex court has turned down pleas against promulgation of coal ordinance. The aggrieved companies has challenged the legality of imposing penalty of rs 295 per tonne on illegally mined coal, which has cast huge liability on the companies. However, the court refused to entertain their pleas. Now it is clear that coal auction will be round the corner.   

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Possible Takeaways from Modi-Obama Parleys Next year

Business Economics & services Team (BEST)
                              

                               Possible Takeaways from Modi-Obama Parleys Early Next Year

If reports have to be believed, the Modi administration is readying a bunch of policy and administrative decisions that will cheer President Obama, when he touches down in India in the coming month to be the chief guest at the Republic Day parade, the annual pageantry to showcase India's military strength along with her cultural richness and diversity.
Initially referred as a confidence boosting exercise, the first visit ever of a US president to attend the  Republic day celebrations,  is now increasingly talked about as  a mission to seal many economic and defense deals with India. Almost all ministries, despite their hectic schedules in Parliament is working over time to hold discussions amongst themselves or with the representatives of the US companies to figure what are the irritants that have to be ironed out before Eagle touches down  the Indian soil. There are some issues that top the pecking order and they are listed below.

1. The government expects that the logjam in Parliament may end in a day or two. By any chance, if it prolongs and affects the passage of the Bill seeking to increase foreign equity participation in insurance sector, the government may come out with an ordinance to that effect. Having regard to the fact that the main opposition- Congress party-is favorably disposed of with the bill, the government may not find difficulty in getting the nod of the house, when the bill finally will  be introduced in the House.
2. A few US based  e-commerce companies invested in India are pressing for allowing FDI in business to customer services (B2C)in the e-retail space to expand their foothold in India. They are willing to expand their operations and up their investment in India once that is allowed. Presently, FDI is allowed only in business to business (B2B) operations, which they point out is an irritant. While many of the Indian e-commerce companies, which are cash starved  are pitching for allowing FDI in B2C format to shore up their bottom lines, there is a stiff resistance from brick and mortar retail companies not to do so, since it will afect tehir long term growth prospects. It is to be seen whether the government will display political courage to go against the powerful Indian lobby that is dead against the entry of foreign companies in B2C space.
3. Closely linked up is the issue connected with the retail opening up, which was allowed by the earlier government and the present government has put it in a limbo since it was a aprt of their manifesto not to allow multi-retail opening up.  Will the government garner the strength to go against the dikat of  allied organization of BJP is something to be seen?
4. Obama administration is pitching for strong legislation and administrative actions against violation of IPR and trade marks acts. They are also of the view that judicial pronouncements, particularly in the case of compulsory licensing, incremental innovation etc. in sectors like pharmaceuticals , electronics, telecom etc are harsh and   go against the interest of the investing companies in India. It has to be seen whether the government has got any maneuverability to out do the opposition to bring them in line with the wishes of the US companies.

India is also likely to gain some brownie points from the discussions. The much debated visa problem will be coming up for discussion. The US reply and assurance will likely to be equivocal in the light of  flak drawn by the Obama Administration for its relaxed visa and immigration policies. Also, India accounts for a major share in the H1B visas and all other categories of visas granted to foreign nationals. Analysts are of the view that not much can be gained on the visa front, since US will have to follow a tight policy on account of the general elections, which is not very far off from now.
Policy watchers opine that there can be some talks on totalization agreement, which India has been pressuring the US for quite some time. A positive decision on the issue will enable India to gain a lot of funds struck in the US by way of contribution towards social security by persons who are working on short term visas in that country. Going by the reactions emanating from  some quarters, who have been actively lobbying for  early conclusion of the agreement,  the deal may not go  through, since the revenue loss to the US will be considerable.
The other area  that can come up for discussion is the transfer of state-of-the - art -technologies to India  to facilitate India's Make in India program. It is reliably learnt that the US will be receptive to the idea, particularly in the field of environment,  power and alternative sources of energy.       

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Dedicated Division for Transfer Pricing -Can It Stem Disputes?

Business Economics & Services Team (BEST)


                              Dedicated Division for Transfer Pricing -Can It Stem Disputes?
The government has valiantly announced that it is contemplating setting up a dedicated unit for  redressing grievances related to transfer pricing. It may be soothing to the foreign investors to hear such news since many cases are pending involving crores of rupeees. The assertion of the government to set up such a unit may be an admission that the Revenue has been over aggressive in dishing out over pitched  assessment and with that  appeasement policy  it may be thinking that foreign investors  can be hawkish on India.

Is it an over reaction from the part of the government? Admittedly, a scientific tax regime should be predictable, certain and easy to comply with. That does not mean that one has to bend too much to accommodate all wish lists of investors. Ours is not a tax haven or a banana republic that shut eyes to all omissions and commissions. A look at the facts of the cases regarding transfer cases can be revealing. There are enough proofs to construe that routing of investment through tax havens , doctrine of look in as against look through concepts, definition of  underlying capital assets, preponderance of different views among the jurists and different layers of courts etc are  hinging on myriad ways of   interpretation rather than based on tenets of law. Different courts at different times can come out with varied interpretations, which will make the  issue  more complicated and can create complex situations.
What is therefore important is to have a set of rules and laws which are crystal clear and and above interpretations, which are more subjective rather than based on statutes. India has to closely examine the similar laws in other countries regarding tranfer pricing rulings in complex areas like legal validity of funds flowing from tax havens for investment, flow of private equity funds and their sources, what is the tax liability of a transaction between two parties outside the country on an underlying capital asset in a third country, possible mala fide intentions while routing the funds from tax haven countries, how does it differ from money laundering and the like.
To believe that there is a political mandate to do anything to attract investment into the country is a misplaced pitch, to say the least. There is a  powerful group within the ruling alliance, which looks at undue haste to attract investment with a tinge of suspicion. Their argument is that  domestic industry has to be pepped up and that should receive priority rather than declaring India a hub for all kinds of  investments. It is rather unfortunate that we hear only allurements to the foreign capital. What about nurturing  Indian industry? What is the ultimate objective of Make in India? Could we make a pitch for creating 100 Indian strong Indian brands in a year like 100 smart cities?What about the Indian brands that dominated in the Indian landscape in the 1990's and before that. All those brands had bitten the dust. Nobody is taking about Kelvinator refrigerator or Fiat car. Indian made cars have stopped production, except the Tatas, which the market share indicates is not a big shake.  It is easy to say that they could not withstand competition from outside. But what have the successive governments did to nurture them, spot their sickness in time and take timely action to rectify them. Instead, the successive  government machinery collided with them to bleed the industries and to make a beeline of sick companies, which had considerable stake of the government and that is tax payers money.

Also, the government's initiative to streamline the transfer pricing hiccup should pass the test of judicial intervention. It is not necessary that the government should file against the tax liability of a multitnational company. Any citizen can file a PIL against it  and the court has to take cognizance of it on its merit. Cases can be struck up there also.
What is important for the government machinery to have a balanced approach for inviting the FDI and not a policy: FDI is a be all and end all.             

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Economics & Investment Highlights (6)

Business Economics & Services Team (BEST)

                                Economics & Investment Highlights (6)

1.       1.US Domination Back?

After the meltdown many had written off the US economy and predicted that it cannot return to its predominant position as the number one economy in the world. That belief was reinforced by the fact that China has piped the US as the number one economy in the world. Now, those who held that the US economy will be fading out sooner or later are proving to be wrong. World over currencies are swearing on the US dollar and are converting their assets into the greenback. This had led to steady erosion of values of the local currencies. In India also, the situation is not different. The rupee breached the Rs 63 mark against dollar and feared that with the current account deficit is widening, the rupee will further slide.

2.     2.   Cabinet nod for GST Bill

Cabinet has finally given nod to the long awaited goods and services tax (GST) bill. A constitutional amendment is needed to give effect to the provisions of the bill, which is supposed to bring about a new tax regime. There was stiff resistance from the states since the bill seeks to take away some of the powers to levy and collect taxes by the state governments. The Center before giving nod to the bill prepared by the finance ministry and discussed threadbare in the cabinet has given some major concessions to the states. The bill is likely to be introduced in the Parliament today.

3.      3.  The government is contemplating separate unit for  Transfer Price Cases

Quite likely a dedicated court for hearing and settling cases relating to transfer pricing will be set up to expedite disposal of such cases in a fast track manner. Of late there has been many cases being heard and decided by different layers of judiciary cases relating to this segment. The decision of the government is seemingly governed by two factors. One, to create a pool of judges well versed in the subject: two, for ensuring speedy disposal of the cases of that nature, which will send right signals to the foreign investors.

4.      4. Insurance Bill caught up skirmish

The government effort to pass the much awaited insurance bill has caught up with stiff resistance from the opposition in the upper house of parliament –Rajya Sabha. It seems that the government has to resort to some compromise on its stand to being the sulking opposition.   

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Economics & Investment Updates (5)

  
                                    Business Economics & Services Team (BEST)



                                                Economics & Investment Updates  (5)
1. Capital Market Sheds the Shine
Indian capital market, which has been on a continuous bullish mood, has tanked 538 points. It is widely believed that the  market was responding to unsavory global developments, such as further cuts in oil rices, deep problems confronting Russia, erosion of major currencies including rupee against dollar. It may be noted that rupee has gone further down vis a vis dollar. The preset value of over Rs 63 against dollar, many say, is untenable and is mostly due to outgo of dollar on account of steady increase in imports, particularly  gold. It is an anomaly for a country like India to be in the grip of a current account deficit syndrome when the oil prices dip low, the major importing item.
2.Aviation Ministry for Bailout of Spicejet  
After abetting its closure, now the aviation ministry has come to rescue of the beleaguered airline -Spicejet, which is under a deep crisis. A few days back, the aviation regulator- DGCA- has sent a warning to Spicejet not to book the tickets beyond one month. The general public took the cue and avoided booking in the budget airline, which incidentally also cancelled many flights. Since the booking for the holiday season falling on May - June 2015 starts now, many passengers diligently kept away from the crisis ridden airlines. Now the aviation ministy has extended the time for booking till 31st March 2015. But not many will go for the airline, which is also cancelling many flights on a daily basis. Not left with that, the aviation ministry is cajoling banks and institutions to pump in money into the airlines coffers. It is to be seen how many will come forward to stem the rot in the airline.
3. Russia In deep Problems 
Coming close on the heels of the turmoil in Russia, many Indian companies, particularly pharma companies are facing hardhips. They are already facing severe crunch in their sales with the sanctions  on Russia. Also, they are apprehensive that so they will face payment difficulties. However, the Indian gem and jewelery segment is upbeat that they will  be able to start trading with Russia directly in diamonds, which  are brought into the country trhough middlemen in  Antwerp, Dubai etc.
4. Government Considering Ways to Curb Gold Imports
Cagey on account of the steady increase in gold imports, the government is contemplating many ways to curbs its imports, which is casting its shadows in the widening current account deficit. Gold imports has gone up by more than  five times in the recent months. There are many options with the government including increasing the import duty and also restricting the import of gold for re-export purposes. Since the rupee is steadily eroding its value vis a vis dollar, if gold imports are left to market forces, it will have deleterous impact on the economy.

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Xiaomi Set to Re-start its Sales in India

Business Economics & Services Team (BEST)



                            Xiaomi Set to Re-start its Sales in India

In a major reprieve to the Chinese smartphone maker Xiaomi and its  third party sales partner e-commerce company Flipkart, the Delhi High Court has allowed it to sell the smart phones in India. Earlier, a  single bench of the same court banned sales till the next date of hearing set for 5 February 2015. However, the court has imposed certain conditions for the sale such as:-
1. Handsets should use Qualcomm's chip sets
2.The company also has to deposit with the court Rs 100 after the sale of every 3G technology supporting device till January 5, 2015
Importantly, the court advanced the date of next hearing from February 5 2015 set earlier to 8 January 2015.
A company official of the Xiaomi said that it will resume its sales from 23 December 2014 since it might take sometime to re-start its operations. It may be noted that Xiaomi sells its devices only through its e commerce sales partner Flipkart. Incidentally, within a short time, Xiaomi has become a major player in the Indian market and is said to have sold over 800,000 pieces since July this year.
It may be noted that the entire episode has happened because of the case filed by Ericsson, another telecom major complaining that the Chinese company has violated  its  IPR. Ericsson has pointed out eight instances of ovulation, which has led to the ban. Aggrieved by the single bench's decision,  Chinese company has gone in appeal to the double bench.
There are a few takeaways for the foreign investors in the adjudication of this case.
1.The fast track in which the case has been adjudicated so far. The single bench's decision to ban the sales was only a week back.
2. Indian judiciary and administration are trying their best to revamp the justice delivery systems particularity in cases where foreign investors are involved.
3. Growing number of cases are decided by the Indian courts in the IPR segment. In the last one month or so, at least three high profile cases have been decided by different layers of the judiciary   

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Economics & Investment Highlights (4)

Business Economics & Services Team (Best)

                     Economics & Investment Highlights (4)

1.      1.  Trade deficit Widens

Trade deficit of India has widened to a 16 month record level riding on the back of increased import of gold. Exports for the month of November 2014  grew by 7.2%  after 8.5% contraction in October 2014 mainly due to increased exports of  textiles, garments,  gems and jewelry etc. At the same time, imports were up 26.8% in November 2014 to US $ 42.8 billion , leaving a trade deficit of US$ 16.9 billion. This increased trade deficit will widen the current account deficit of the third quarter of the current fiscal year. At the same time, one has to fact in the steady slide of the oil prices, which the experts predict may continue for some more time, offsetting the increased trade deficit.

2.    2.    New arbitration Clause to inserted in Indian trade treaties

Concerned by increasing number of arbitration cases that the individuals and companies are resorting to, the Government of India is likely to incorporate a provision to the effect that it will not allow foreign companies to drag India to arbitration on issues settled by a judicial authority. A draft cabinet note has been circulated by the finance ministry for changing the draft guidelines for the bilateral investment treaties.

3.     3.   Inflation falls to zero level in November 2014

Triggered by dramatic fall in the whole sale prices of food and fuel, the whole sale inflation has flattened to zero level, according to the government sources. Many feel that it is the ideal time for the RBI governor to revisit the demand of the industry to cut the interest rate to jump starts the economy, when he reviews the monetary policy in the first week of February 2015. But many feel that the RBI governor will have to take cognizance of many factors including inflationary expectation, oil prices at that time, current account deficit and most importantly, fiscal deficit.

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