RBI open to raising cap on global e-commerce deals

The Reserve Bank of India (RBI) is open to looking at increasing the limit on international e-commerce transactions now set at $3,000, a top official said on October 8.

“If the system wants the limit to be enhanced, that is something that we are positively inclined to look at,” RBI Executive Director G. Padmanabhan said on the sidelines of a CII event.

Mr. Padmanabhan said the limit was set in consultation with PayPal, a major player among the international payment gateways, and added that as many as 99 per cent of the e-commerce transactions fell under the limit of $3,000.

Giving rationale for setting the limit (there are no limits for domestic e-commerce transactions), he said it was needed in a country like India which had exchange controls.

On extending trading hours in the forex market, the RBI official said it was difficult to relax as “we do not have full capital account convertibility.”

14 FDI proposals approved

The Central Government has accorded approval to 14 foreign direct investment (FDI) proposals envisaging a total capital inflow worth Rs.113.35 crore. Of these, three clearances pertain to the pharmaceutical sector and account for a major chunk of Rs.81.05 crore as FDI.

According to a Finance Ministry statement, among the proposals approved on the basis of recommendations of the Foreign Investment Promotion Board (FIPB) headed by Department of Economic Affairs (DEA) Secretary Arvind Mayaram was that of U.K.-based Dashtag which has been allowed to hike its foreign equity valued at Rs.68.22 crore. The nod is for carrying out the business of pharmaceuticals specialising in dermatology, anti-histamines, antibiotics and oncology products.

Prime Surgical Centers Private Ltd. has also received the go-ahead to set up a limited liability partnership (LLP) to carry out the business of setting up and managing short stay surgery centres in India. With its flagship centre in Pune, the company proposes to bring in FDI worth Rs.14 crore in the medical venture.

Mumbai-based Neo Capricorn Plaza Ltd. was also given post-facto approval for issue of partly paid-up shares to carry out the business of construction of five-star hotels while Pipavav Defence and Offshore Engineering Company Ltd. has been permitted to increase foreign equity by way of issuance of foreign currency convertible bonds (FCCBs) to carry out the business of shipbuilding, ship repairs and offshore assets production.

Decisions on nine proposals were deferred owing to a variety of reasons. These include applications of Multi Commodity Exchange of India, Multi Screen Media Pvt. Ltd. and Deutsche Investments India Pvt. Limited. Alongside, seven proposals pertaining to companies such as British Marine India, Atlas Equifin Ltd., Filtrex Technologies and IPsoft Netherland were rejected.

Cabinet nod for FDI in pension sector

The government gave green signal to foreign investment in pension funds and said the FDI limit could go up 49 per cent in line with cap in the insurance sector.

Allowing FDI forms a part of the amendments to Pension Fund Regulatory and Development Authority (PFRDA) Bill, which was approved by the Union Cabinet.

"The FDI limit in pension will follow FDI limit in insurance. If insurance bill passes with 49 per cent, pension will also be 49 per cent," Finance Minister P Chidambaram told reporters.

The PFRDA Bill was introduced in the Lok Sabha in March 2011, following which the Standing Committee on Finance gave its recommendations in September last year.

Chidambaram said the government has accepted five key recommendations of the standing committee.

The Bill, which would allow part investment of the corpus in stock markets, is likely to be taken up for discussion and passage in the upcoming session of Parliament.

The original Bill had no provisions pertaining to FDI.

However, the Standing Committee on Finance, headed by senior BJP leader Yashwant Sinha, had suggested FDI in pension programmes but with a cap of 26 per cent.

The Bill had failed to get parliamentary approval in the previous term of UPA 1 government due to strong opposition from its then allies, the Left parties.

In June 2012, the Cabinet had deferred a decision on the Bill following opposition from the Trinamool Congress.

The Bill provides powers to the PFRDA to oversee multiple pension funds in the country and also paves way for being a full-time regulator for the sector.

It also provides for establishment of a statutory authority to undertake promotional, developmental and regulatory functions in respect to pension funds.

Interim regulator PFRDA has been functioning since 2003 through an executive order.

Under the new legislation, all government employees who have joined service on or after January 2004, would be covered by the New Pension Scheme (NPS).

Armed forces personnel would not come under the NPS.

The NPS, launched in January, 2004, has about 24 lakh subscribers, mostly those employed with the central government.

The PFRDA has garnered Rs 15,466 crore under the NPS as of July.

Cabinet likely to approve 12th Five Year Plan (2012-17)

The union cabinet  approve the 12th Five Year Plan (2012-17) that seeks an average annual economic growth of 8.2 percent and identifies infrastructure, health and education as thrust areas.

The growth rate has been lowered to 8.2 percent from the 9.0 percent projected earlier in view of the current slowdown in the economy and adverse international situation.

During the 11th Plan period, the average annual growth was 7.9 percent. A full Planning Commission chaired by Prime Minister Manmohan Singh September 15 endorsed the document which has fixed the total plan size at Rs.47.7 lakh crore.

The 12th Plan seeks to achieve 4 percent agriculture sector growth during the five-year period "critical to achieve inclusive growth".

Highlights of 12th Five Year Plan (2012-17)

Average growth target has been set at 8.2 percent Areas of main thrust are-infrastructure, health and education Growth rate has been lowered to 8.2 percent from the 9.0 percent projected earlier in view adverse domestic and global situation. During the 11th Plan period, the average annual growth was 7.9 percent  A full Planning Commission chaired by Prime Minister Manmohan Singh on September 15 endorsed the document which has fixed the total plan size at Rs.47.7 lakh crore The 12th Plan seeks to achieve 4 percent agriculture sector growth during the five-year period Agriculture in the current plan period grew at 3.3 percent, compared to 2.4 percent during the 10th plan period. The growth target for manufacturing sector has been pegged at 10 percent On poverty alleviation, the commission plans to bring down the poverty ratio by 10 percent. At present, the poverty is around 30 per cent of the population.  According to commission Deputy Chairperson Montek Singh Ahluwalia, health and education sectors are major thrust areas and the outlays for these in the plan have been raised. The outlay on health would include increased spending in related areas of drinking water and sanitation. The commission had accepted Finance Minister P. Chidambaram's suggestion that direct cash transfer of subsidies in food, fertilizers and petroleum be made by the end of the 12th Plan period After the cabinet clearance, the plan for its final approval would be placed before the National Development Council (NDC), which has all chief ministers and cabinet ministers as members and is headed by the Prime Minister

Agriculture

Agriculture in the current plan period has grown at 3.3 percent, compared to 2.4 percent during the 10th plan period. The growth target for manufacturing sector has been pegged at 10 percent.

Infrastructure

The document stresses the importance of infrastructure development, especially in the power sector, and removal of bottlenecks for high growth and inclusiveness. It also sets targets for various economic and social sectors relating to poverty alleviation, infant mortality, enrolment ratio and job creation.

Poverty

On poverty alleviation, the commission plans to bring down the poverty ratio by 10 percent. At present, the poverty is around 30 per cent of the population.

Health and Education

According to commission Deputy Chairperson Montek Singh Ahluwalia, health and education sectors are major thrust areas and the outlays for these in the plan have been raised.

The outlay on health would include increased spending in related areas of drinking water and sanitation.

The commission had accepted Finance Minister P. Chidambaram's suggestion that direct cash transfer of subsidies in food, fertilizers and petroleum be made by the end of the 12th Plan period.

Direct cash transfers would bring down the government's subsidy burden as the money would go directly to the "genuine" beneficiaries and "plug leakages" in the implementation of these schemes.

After the cabinet clearance, the plan for its final approval would be placed before the National Development Council (NDC), which has all chief ministers and cabinet ministers as members and is headed by the Prime Minister.

FINANCIAL ACTION TASK FORCE

Financial action task force is an inter-governmental body responsible for setting global standards on anti-money laundering and combating financing of terrorism. The FATF Secretariat is housed at the headquarters of the OECD in Paris and after long wait, India has finally become a full-fledged member of the FATF. History of the FATF In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit that was held in Paris in 1989.  Recognising the threat posed to the banking system and to financial institutions, the G-7 Heads of State or Government and President of the European Commission convened the Task Force from the G-7 member States, the European Commission and eight other countries. Objective The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.  The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms. Starting with its own members, the FATF monitors countries' progress in implementing the FATF Recommendations; reviews money laundering and terrorist financing techniques and counter-measures; and, promotes the adoption and implementation of the FATF Recommendations globally. The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally.  In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse. Benefits to INDIA With its induction as the 34thmember country of the global body that chalks out policies to counter financial frauds, India will have access to information on suspicious financial transactions in Switzerland, China, U.S and the U.K. The development marks a significant step towards tracing the source of terror financing and black money stashed away in tax heavens abroad. India and its tax enforcement authorities—the Financial intelligence unit, the Enforcement directorate, the central economic intelligence bureau and the Directorate of revenue intelligence would be able to exchange vital information from member countries on money laundering and terrorist financing activities. Current In February 2012, the FATF completed a thorough review of its standards and published the revised FATF Recommendations. This revision is intended to strengthen global safeguards and further protect the integrity of the financial system by providing governments with stronger tools to take action against financial crime. They have been expanded to deal with new threats such as the financing of proliferation of weapons of mass destruction, and to be clearer on transparency and tougher on corruption. The FATF currently comprises 34 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe.

India ranked 111th in economic freedom list

India ranks very low at 111th position in terms of economic freedom, behind countries like China, Nepal and Bangladesh, a global study has claimed in a worldwide index of 144 nations.

The annual ranking, titled 'Economic Freedom of the World: 2012', is topped by Hong Kong, followed by Singapore, New Zealand, Switzerland (8.24) and Australia in the top-five.

The index has been prepared by Canada-based public policy think-tank, Fraser Institute, in cooperation with independent institutes in 90 nations and territories, and claims to measure the degree to which the policies and institutions of countries support economic freedom.

India's ranking has fallen from 103rd last year, while Hong Kong has retained its top slot, the report said.

Canada is ranked sixth on the list, while others in the top-ten include Bahrain, Mauritius, Finland and Chile. The countries with lowest level of economic freedom are -- Myanmar, Zimbabwe, Republic of Congo and Angola.

India shares its 111th position with two other countries, Iran and Pakistan, while those ranked lower include Guyana, Syria and Nigeria.

India has scored an overall rating of 6.26 in the economic freedom index as against an average global scrore of 6.83.

In the economic freedom index, China is at 107th position with a score of 6.35, Bangladesh at 109th with a score of 6.34 and Nepal is at 110th position (6.33).

 
The report said that Hong Kong offers the highest level of economic freedom worldwide, with a score of 8.90 out of 10, followed by Singapore (8.69), New Zealand (8.36), Switzerland (8.24), Australia and Canada (each 7.97), Bahrain (7.94), Mauritius (7.90), Finland (7.88) and Chile (7.84).

"Governments around the world embraced heavy-handed regulation and extensive spending in response to the US and European debt crises, reducing economic freedom in the short term and prosperity over the long term," the report noted.

"But the slight increase in this year's worldwide economic freedom score is encouraging. Impressively, all five continents are represented in the global top 10," it added.

The report noted that on an average, the poorest 10 per cent of people in the freest nations are nearly twice as rich as the average population of the least free countries.

Interestingly, the US, which is considered a champion of economic freedom among large industrial nations, continues its protracted decline in the global rankings. This year, the US plunged to its lowest-ever ranking of 18th, after being ranked at as high as second position in 2002.

The decline is attributed to higher spending and borrowing on the part of the US government.

The rankings and scores of other major economies include -Japan (20th), Germany (31st), Korea (37th), France (47th), Italy (83rd), Mexico (91st), Russia (95th) and Brazil (105th).

Cabinet Decisions on FDI in Single Brand Retail, Multi Brand Retail, Civil Aviation, Broadcasting Sector and Power Exchanges Notified

The Government  notified the cabinet/CCEA decisions on FDI in single brand retail, multi brand retail, civil aviation, broadcasting sector and power exchanges. The decisions were taken in the Cabinet and CCEA meetings on September 14, 2012.

Please see the following notifications by clicking on the hyperlinks below.

Amendment of the existing policy on Foreign Direct Investment in Single-Brand Product

Retail Trading-  Press Note No.4 (2012 Series)

    Click here to see

Review of the policy on Foreign Direct Investment- allowing FDI in Multi-Brand Retail

Trading.-      Press Note No.5 (2012 Series)

    Click here to see

Review of the policy on Foreign Direct Investment in the Civil Aviation sector- Press Note No.6 (2012 Series)

    Click here to See

Review of the policy on Foreign Investment (FI) in companies operating in the Broadcasting Sector-  Press Note No.7 (2012 Series)

    Click here to See

Policy on foreign investment in Power Exchanges- Press Note No.8 (2012 Series)

    Click here to See.

Shome Committee GAAR Report submitted by the to Finanace Ministry

The GAAR report was submitted on 1 September 2012 to the finance minister of India by the Shome Committee constituted by the Central Board of Direct Taxes, after the approval of Prime Minister of India. The committee in its report has tried to create a balance in between the investors being invited to the country and protection of the tax base from tax avoidance and evasion, using aggressive tax planning. The major findings of the GAAR’s committee to create a balance in between the investors and chances of tax avoidance and evasion includes:
1. Tax Evasion, Tax Mitigation and Tax Avoidance
2. Overcharging Principle Applicability of GAAR
3. Monetary Threshold
4. Arm’s Length Test
5. Test to Misuse or Abuse the Provisions of Act
6. Factors for determination of Commercial Substance
7. Grandfathering of existing Investments
8. GAAR will not override the CBDT circular 789 of 2000 with respect to the tax-treaty in between India and Mauritius
9. GAAR will not be applicable at places where so ever anti-avoidance provisions are in existence in the treaty of tax and any type of anti-avoidance rule exists in the Act
10. Impermissible Avoidance arrangements
11. Tax abolition in cases of gains that rises out by the transfer of listed securities
12. Foreign Institutional Investors
13. Corresponding adjustments
14. Implementation of the Onus on the revenue authority
15. Tax Withholding
16. Definition of the term Connected Person
17. Constitution of approval panel
18. Time limit for GAAR provisions
19. AAR to pass ruling within 6 months
20. Prescription of Statutory forms
21. Implementation issue
22. Reporting requirements

The committee in its findings has stated that the GAAR guidelines should be introduced in the country at the time of economic stability. Hence, it has recommended the postponement of its implementation by 3 years. Committee’s recommendation also states about the implementation of the findings with complete spirit and has laid emphasis on transition period of the taxpayers and preparedness of the administrators. To provide clarity on GAAR’s applicability provisions in different situations 27 illustrations were made and are mentioned under different conditions like:
1. Tax Mitigation- GAAR can’t be invoked
2. Tax Avoidance- SAAR is applicable hence GAAR is not invoked
3. Court Approved Amalgamations or demergers
4. Tax Avoidance- GAAR invoked
5. Tax Evasion can directly be dealt of law without invoking the GAAR
Following the Finance Act 2012, the introduction of the General Anti-Avoidance Rules (GAAR) was done into the Income Tax Act, 1961. The committee briefly analysed the provisions of GAAR as per the inputs available from stakeholders and following the recommendations made the amendments in the Act were made for finalization of the guidelines for the Income Tax Rules, 1962.

Shome’s Committee:

The expert committee on GAAR (General Anti-Avoidance Rules) was constituted under the Chairmanship of Dr. Parthasarsthi Shome with members, namely Shri N. Rangachary (Former Chairman of IRDA and CBDT), Dr. Ajay Shah (Prof. NIPFP) and Shri Sunil Gupta (Joint Secretary-Tax Policy and Legislation, Department of Revenue) for undertaking the consultations of stakeholders and finalization of guidelines for GAAR. The main objective of the committee was to get feedbacks from the stakeholders and prepare new guidelines or to amend the previous guidelines after examining the things finely.The committee was constituted by the Central Board of Direct Taxes after being approved by the Prime Minister of India.

The committee formed referred to following terms:

• To receive feedback from both public and stakeholders on the Guideline of GAAR mentioned on the website of Government of India.
• To rework on the guidelines following the feedback received and examining the same and then publish the same in form of second draft
• To find out and finalise, guidelines along with an road-map for implementation of GAAR and submit it to the government

Analysis of the GAAR provisions 

The provisions for the GAAR are mention in Chapter X-A (Section 95 to 102) of the Act. Presented provisions allow the authority of tax, despite of containing anything in the Act with clear declaration on the arrangements made for assesses (estimated value, nature or extent of amount of the fine) that has entered into the impermissible avoidance arrangement to face the consequences with regard to the tax liability determined by the arrangement.

Shimla Municipal Corporation introduced Green Tax

Shimla Municipal Corporation on 15 September 2012 introduced Green Tax on Shimla entry of vehicles not registered in Himachal Pradesh. The Corporation Commissioner M.P. Sood stated that the vehicles crossing the entry points of the town will have to pay the imposed tax. The tax will be imposed on automobiles on both commercial and non-commercial category.

By imposing the tax, the corporation will increase its revenue by Rs 6 crore per year. The taxes will be charged on the four entry points of the city namely, Totu, Tara Devi, Dhalli and Mahali.

Tax imposed as per the category of vehicles:

1. Two wheelers- Rs 100 per entry
2. Car- Rs 200 per entry
3. Utility Vehicles- Rs300 per entry
4. Bus/truck- Rs 500 per entry

Prime Minister led National Investment Board

Finance Minister P. Chidambaram on 15 September 2012 pitched for institutionalization of a National Investment Board under the leadership of Prime Minister. The formation of the board will help in speeding the approval of the proposals, for the mega projects and their implementation. Formation of the board will help the country in achieving the targeted growth for the twelfth five year of 8.2 percent. 

At the meeting of the full planning commission under the chairmanship of Prime Minister Manmohan Singh, the finance minister expressed his concern on the delayed implementation of the mega projects and stressed on the fact that the decision made by the National Investment Board (NIB) to be taken as the final decision. Chidambaram also insisted interference by any other authority on the approvals and decisions made by the NIB will be entertained. He also added to his statement that NIB’s role will be limited to the projects with investments of Rs 1000 crore or more.

UNIDO Findings on Industrial Growth

According to a Report of United Nations Industrial Development Organization (UNIDO) the world manufacturing output rose by 5.5. per cent in the third quarter of 2011, compared to the same period of 2010. This growth is mainly attributed to developing countries, whose manufacturing output increased by 13 per cent.

There has been some moderation in the growth rate of industrial production as measured in the Index of Industrial Production (IIP). The IIP growth rate in the fourth quarter (Jan-March) 2011-12 was 0.6% as compared to the growth rate registered of 7.9% in the corresponding quarter of previous year (Jan-March) 2010-11.

The major sectors that have adversely affected IIP growth are manufacturing and mining. Major reasons for the decline in manufacturing include global economic uncertainty, sluggish domestic demand, hardening of interest rates etc., whereas regulatory and environmental issues, court orders, decline in international demand for metallic minerals etc. Are affecting production in the mining sector.

Panel for postponement of GAAR by 3 years

The expert committee on General Anti Avoidance Rules (GAAR) on September 1 recommended postponement of the controversial tax provision by three years and abolition of capital gains tax on transfer of securities.

As a step towards reassuring global investors, the Committee in its draft report, suggested that GAAR provisions should not be invoked to examine the genuineness of the residency of entities in Mauritius.

Mauritius is the most preferred route for foreign investments because of the liberal taxation regime in the island country. India has a double taxation avoidance treaty with Mauritius.

The Committee, headed by Parthasarathi Shome, has recommended that GARR be applicable only if the monetary threshold of tax benefit is Rs 3 crore and more.

The draft report, which was submitted to the Finance Ministry, has also sought comments from the stake holders by September 15. The Shome Committee was set up by Prime Minister Manmohan Singh to address the concerns of foreign investors.

Meanwhile, the Finance Ministry has also expanded the scope of the terms of reference of the committee to include all non-resident tax payers instead of only FIIs.

The draft report of the Shome committee said: ”...GAAR should be deferred for 3 years. But the year, 2016-17, should be announced now. In effect, therefore, GAAR would apply from assessment year 2017-18. Pre-announcement is a common practice internationally, in today’s global environment of freely flowing capital”.

In view of wide-spread concerns by foreign investors, the government had earlier postponed implementation of GAAR, which was introduced by the then Finance Minister Pranab Mukherjee in his Budget for 2012-13 to check tax evasion.

Regulator SEBI permitted seven Alternative Investment Funds (AIFs) to start Operation in India

Market regulator Securities and Exchange Board of India (SEBI) in August 2012 permitted seven Alternative Investment Funds (AIFs) to start operation in India under a newly formulated route that enable pooling of funds for investments in areas such as real estate, private equity and hedge funds. Six AIFs registered with the regulator in August 2012, while one was granted registration back on 23 July 2012. SEBI had published its guidelines with regard to AIF in May 2012.
The seven AIFs that registered with SEBI include IFCI Syncamore India Infrastructure Fund, Utthishta Yekum Fund, Indiaquotient Investment Trust, Forefront Alternate Investment Trust, Excedo Realty Fund, Sabre Partners Trust and KKR India Alternate Credit Opportunities Fund.
Funds established or incorporated in India for the purpose of pooling in of capital from Indian and foreign investors for investing would have to follow a pre-decided policy. SEBI decided to allow promoters of listed companies can offload 10 per cent of equity to AIFs such as such as SME Funds, Infrastructure Funds, PE funds and Venture Capital Funds registered with the market regulator to attain minimum 25 per cent public holding.
AIFs, as per SEBI guidelines can operate broadly in three categories and it is mandatory for them to get registered with the regulator. The SEBI rules apply to all AIFs, including those operating as private equity funds, real estate funds and hedge funds, among others.
AIF Categories
The Category I AIFs are those where funds stand a chance of getting certain incentives or concessions from the government, SEBI or other regulators in India and include Social Venture Funds, Infrastructure Funds, Venture Capital Funds and SME Funds.
The Category II AIFs are those funds which can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements. These AIFs include PE funds, debt funds or fund of funds, as also all others falling outside the ambit of Category I and Category III.
The Category III AIFs are those trading with an objective to make short term returns and include hedge funds, among others.

Inter-ministerial group recommended Linking Patented Drug Prices to Per-capita Income

An inter-ministerial group formed in 2007 and entrusted with the responsibility of regulating prices of patented medicines recommended using a per capita income-linked reference pricing mechanism. The proposal by the group is expected to reduce prices of several patented dugs by up to one-third. However it will hit the profitability of foreign companies.
The committee suggested fixing the price of patented drugs by comparing the price at which these drugs are procured by governments in the UK, Canada, France, Australia and New Zealand. The committee recommended that the retail price is to be fixed by adjusting it to the per capita income of the country. The new mechanism is to be applicable for patented drugs that don’t have any therapeutic equivalents in the market.
For patented drugs that have similar alternatives in the market, the price is to be fixed in such a manner that it should not lead to an overall increase in the treatment cost. If the global launch of the patented drug takes place in India, the retail price will have to be based on the cost of developing the drugs and other factors. Prices of patented drugs are currently unregulated. Patented drugs account for 1% of the $13-billion domestic market. This share is expected to grow to 5% of the estimated $50-60 billion drug market by 2020.
The Indian Pharmaceutical Alliance, the representative body of big Indian drugmakers, supported the reference-based system. The Organisation of Pharmaceutical Producers of India (OPPI), the lobby body of multinationals however stated that the cross-country per capita income-linked proposal is fundamentally flawed.
The Indian government is of the opinion that if patented drugs are not regulated, these would remain unaffordable for most Indians. A WHO study stated that as many as 79% of Indian patients pay for their healthcare expenditure from their own pockets. However it must also be noted that if the government fixes the prices of these drugs at excessively low levels, companies may stop selling drugs in the market.
Historical Backdrop
India had adopted a new product patent regime in 2005 after it became a signatory to TRIPS, an international intellectual property protection agreement, providing 20 years of marketing exclusivity to the patent holder. Global innovator companies such as GSK, Bayer AG, Novartis, Merck & Co and Bristol Myers Squibb who started launching their drugs in India continue to remain jittery about the government’s policies aimed at reducing healthcare costs. They complain that India’s implementation of intellectual property rights has been unsatisfactory.

Contribution of MSMEs to GDP

Based on the data of Gross Domestic Product (GDP) published by Central Statistical Office, Ministry of Statistics and Programme Implementation, the contribution of Micro and Small Enterprises (MSEs) to GDP and total industrial production was estimated to be 8.72% and 44.86% respectively during the year 2008-09. The estimated contribution of Micro, Small and Medium Enterprises (MSMEs) in total exports of the country for the year 2007-08 (latest available), based on data obtained from Export Promotion Councils, was 30.80%.

Enterprise-wise data collected on Micro, Small and Medium Enterprises (MSMEs) during the Fourth All India Census of MSMEs: 2006-07 and Economic Census 2005, Central Statistics Office, Ministry of Statistics & Programme Implementation for activities excluded from Fourth All India Census of MSMEs 2006-2007 namely wholesale/retail trade, legal, educational & social services, hotel & restaurants, transports and storage & warehousing (except cold storage) indicate that out of 361.76 lakh MSMEs, entrepreneurs belonging to Other Backward Classes owned 151.73 lakh MSMEs (41.94%) while Scheduled Castes and Scheduled Tribes entrepreneurs owned 28.34 lakh (7.83%) and 20.84 lakh (5.76%) MSMEs respectively. The socially backward classes of the society together owned 200.91 lakh MSMEs (51.54%). The women entrepreneurs also owned 38.50 lakh MSMEs (10.64%). The above data suggests that the MSMEs helped in achieving inclusive growth.

Economic Outlook 2012-13 Highlights

Dr. C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister released the document ‘Economic Outlook 2012-13’ at  in New Delhi 0n August 17.

 Following are the highlights of the document:

Ø  Economy to grow at 6.7 per cent in 2012/13

o    Farm sector GDP projected to grow at 0.5 per cent in 2012/13 due to the impact of weak monsoon on agriculture and the current reservoir storage position in 2012/13.

o    Manufacturing sector projected to grow at 4.5 per cent. Electricity, automotive, steel and cement sector have shown improvement in the period of April-June. Because of the benefits of the low base, manufacturing sector will show improved performance in the second half of this year.

o    Mining sector for the year as a whole expected to grow at 4.4 per cent due to growth in the coal and lignite sector, and some recovery in iron ore.

o    Electricity generation expected to continue to grow at an average pace of around 8 per cent.

o    Construction expected to show some improvement compared to last year as evidenced by the recent increase in the output of steel and cement.

o    In Services sector, some improvement expected particularly in the large transport, trade and communications sector.

Ø Global Situation: There is a dark mood in the advanced economies; especially in Europe. The slower growth in the US and in the EU will have an adverse impact on the expansion of these markets for India’s exports, both of goods and services.

Ø Structural Factors:

o    Gross Domestic Fixed Capital Formation as a proportion of GDP has fallen from its highest level of 32.9% in 2007/08 to 30.4 % in 2010/11 and to 29.5 per cent in 2011/12. Projected to be 30.0% in 2012/13.

o   Domestic saving rate has declined from 32.0% in 2010/11 to 30.4% in 2011/12 and projected to be at 31.7% in 2012/13.

Ø  External Sector:

o   Current Account Deficit was $78.2 billion (4.2% of GDP) in 2011/12 and projected at 67.1 billion (3.6% of GDP) in 2012/13.

§  The merchandise trade deficitwas$189.8 billion (10.2 per cent of GDP) in 2011/12 and projected at $181.1 billion (9.7 per centof GDP) in 2012/13.

§  Overall the net balance on invisibles was $111.6 billion(6.0% of GDP) in 2011/12 is expected to grow at $114 billion (6.1% of GDP) in 2012/13.

o   Capital flows were $67.8 billion (3.7% of GDP) in 2011/12 and projected at $73.2 billion (3.9% of GDP) in 2012/13. This would be adequate to service the projected CAD of $67 billion for the year as a whole.

o   Accretion to reserves projected at $4 billion in 2012/13

Ø Inflation:

o  Deficient SW monsoon likely to have an adverse impact on the prices of primary food items, especially on those where the ability of government stocks to play a moderating role is not there.Inflation rate expected to be within the range of 6.5 to 7.0 per cent at the end of 2012-13.

Ø  Expanding fiscal imbalance continues to be a major area of policy concern.

o  The fiscal deficit for the Centre was 5.89% of GDP in RE 2011/12 and is estimated at 5.06% in BE 2012/13.

o  In some contrast to the Centre’s finances, the fiscal health of the States is better. 

o  The consolidated fiscal deficit of the Centre and the State governments for 2011/12 (RE) was 8.2 per cent of GDP. The consolidate deficit based on Budget Estimates for 2012/13 is estimated to be 7.2 per cent.

o  The containment of the fiscal imbalance at the Centre rests on our managementofthe subsidy bill, especially that on refined petroleum products and by increasing the Tax-GDP ratio.

o  Introduction of the General Sales Tax on Goods & Services (GST) would be a very important milestone in the path of tax reform. It requires considerable negotiations, bargaining and preparatory work in relation to both the structure and operation of the tax.

Ø    Reforms in Agriculture sector:

Reforms in Agriculture sectorneed focused attention on liberalizing tenancy arrangements, reforming domestic markets for agricultural produce and, reducing input subsidies.

Ø    Measures to accelerate the Economic growth:

o  Integrated decision-making on high-impact infrastructure projects

For Projects costing in excess of a minimum threshold, say Rs 5,000 crore, a Cabinet Committee comprising of ministers in charge of concerned departments should take an integrated view. The Cabinet Committee on Infrastructure could be recast as the Cabinet Committee for Sustainable Development of Infrastructure for this purpose, and its composition as well as powers under the rules of business modified accordingly.

o  Permitting FDI in multi-brand retail

For channelling transfer of capital and technology, FDI in multi-brand retail up to 49 per cent may be allowed to attract investment in this sector. Such of the states as are receptive to the idea may implement this.

o  FDI and other reforms in the Aviation sector

    FDI in civil aviation may now be allowed to the existing extent of 49 per cent for foreign airlines as well.

o  Containing petroleum products subsidies

Given the huge subsidy projection for the current financial year, priority consideration may be given to (i) a suitable increase in the price of diesel in one or more steps, and (ii) a cap on the level of consumption of subsidised domestic LPG close to what is currently being consumed by poorer households, i.e., 4 cylinders.

We need to focus further on the following issues:

o    Policy predictability: There is need to specifically focus and address the apprehensions that have been occasioned by perceptions of arbitrary actions on tax and other fronts.

o    Clearing payments: Outstanding payments for infrastructure projects need to be cleared on time.

o    Promoting savings:Given the declining trend in domestic saving rate, we need to make financial products more attractive.

o    Containing inflation:

§   Taming inflation is critical for sustained growth. Need to take steps to contain high inflation in primary food which is mostly linked to the antiquated system of marketing and absence of modern handling and storage facilities for perishable products.

o    Improving the CAD:

§   Some amelioration through price reform in case of diesel could serve to contain demand.

§   To contain the import of gold, an improvement in the return as well as the regulatory regime in which mutual funds and life insurance products are sold areof utmost importance.

§   Significant improvement required in the approach of government to a number of issues to make IT-related export business much more competitive.

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MCA-21 E-Governance Project- an Effort to Facilitate Business in India

As a regulator and enabler for corporate growth in the country, the Ministry of Corporate Affairs has been working on two key initiatives, to reform the legislative framework and to embark on e-Governance initiatives that will facilitate service delivery in a user friendly, efficient and economic manner.

            To facilitate business in India a pioneering e-Governance initiative ‘MCA21’ was launched by the Ministry in January 2007. The initiative has been successful in achieving its aim of providing speed and certainty in the delivery of MCA services to its stakeholders. This project has adopted a service oriented approach in the design and delivery of Government services, whereby stakeholders have easy and secure access to MCA services, through the infrastructure setup for the purpose, at any time and from any place and in a manner that best suits them. The system has brought a fine balance between stakeholder facilitation and control, through a blend of well-defined goals and performance metrics.

           

            Although, MCA 21 has been progressing at a constant velocity to provide better services to the citizens and corporate alike, year 2012 has been the one standing out in terms of rolling out newer initiatives. These initiatives have benefited citizens, corporate and government agencies alike. 

Online Payments Using NEFT

MCA 21 has been allowing three modes of payment by the companies, Credit cards, Netbanking (5 designated banks) and Paper challans; all these modes had limitations for the companies with bank accounts in banks other than the 5 designated banks and physical visits to the branches of the designated banks for filing challans.

By introduction of National Electronic Funds Transfer mode of payment, companies having bank account in any bank can make e-payments by using the NEFT method.

Key benefits of NEFT:

·         Reduces the Payee’s effort (branch visit is not required)

·         Reduces the time for funds transfer (2-5 hours)

·         Reduces the dependency on the limited number of banks

Initiatives Taken by the Government for Unearthing and Curbing Black Money: A Fact Sheet

Initiatives taken by the Investigation Division of Central Board of Direct Taxes (CBDT) for unearthing black money :

I.                   The Government of India has commissioned a study on unaccounted income/ wealth both inside and outside the country bringing out the nature of activities engendering money laundering and its ramifications on national security. The study is being conducted by three national institutes viz. National Council of Applied Economic Research (NCAER), National Institute of Public Finance & Policy (NIPFP) and National Institute of Financial Management (NIFM), with inputs from various ministries/departments. The study will be completed by the end of 2012.

II.                A  Directorate of Criminal Investigation (DCI) has been created as an attached office of the Central Board of Direct Taxes (CBDT) to track financial transactions relating to illegal / criminal activities, including illicit cross-border transactions, from the direct tax angle and bring such activities to justice. Creation of DCI is also in line with FATF recommendations to exclusively deal with tax crimes, including direct taxes.

III.             CBDT is coordinating with the Election Commission of India (ECI) for controlling political expenditure and verification of affidavits filed by candidates of political parties.

IV.            In order to strengthen the existing laws relating to black money, the Government constituted a Committee under the Chairman, CBDT to examine the measures to strengthen the existing legal and administrative framework to deal with the menace of generation of black money through illegal means including, inter alia,

a) Declaring wealth generated illegally as national asset;

b) Enacting / amending laws to confiscate and recover such assets; and

c) Providing for exemplary punishment against its perpetrators.

The Committee submitted its report to the Government on 29^th March 2012. The report has been sent to different Ministries / Organisations and State Governments for necessary action.

V.               Information received under DTAA – Information from Germany & France has been investigated. Tax evasion of more than Rs.600 crore detected and taxes of Rs.200 crore has already been realized. Prosecution proceedings have been launched in 17 cases pertaining to LGT Bank accounts. Assessment proceedings have been initiated in cases relating to HSBC accounts. Further information from outside the country is awaited in several cases. Information received from different countries under the automatic exchange of information arrangement is appropriately utilized for the purpose of investigation and assessment.

VI.            Search & Seizure, Surveys – In the last three financial years, the Investigation wing of the CBDT has detected undisclosed income of over Rs.32,000 crore besides seizing undisclosed assets valued at over Rs.2,600 crore. The Income Tax Department (ITD) has further detected undisclosed income of Rs.17,325 crore in surveys conducted at business premises.

VII.         Tax Prosecutions – Out of 1,548 prosecution cases disposed of during the last three financial years, the ITD has obtained conviction in 97 cases besides fiscal compounding in 771 cases of admitted tax evasion, leading to a success rate of 56.1 percent.

RBI permitted Banks to lend to Telecom Companies for the Upcoming Auction for Spectrum

The Reserve Bank of India (RBI) permitted banks to lend to telecom companies for the upcoming auction for spectrum, subject to conditions such as mortgaging the spectrum to the lenders. The RBI had laid down a few pre-conditions for financing of telecom firms for the auction of airwaves to protect banks against potential defaults.
The Union cabinet on 3 August 2012 approved a proposal that allows telecom companies bidding for airwaves to mortgage spectrum to raise funds from banks. The government set a reserve or base price of Rs 14000 crore for the auction.
That banks were revising their lending rates in specific maturities without lowering the base rate concerned the RBI. This activity of the banks resulted in the transmission of monetary policy signals by the central bank to be ineffective. The base rate is supposed to be responsive to changes in monetary conditions.
The RBI had formed a committee to assess the monetary policy transmission mechanism and also loan products offering fixed interest rate. The RBI want banks to enact changes in lending rates through their respective benchmark base rates for floating-rate loans.

India’s Fiscal Deficit reached 37 Percent of the Budget Estimate

According to the latest data released by the Controller General of Accounts (CGA) on 1 August 2012, India's fiscal deficit in the first quarter (April-June) of the fiscal year 2012-13 stood at 1.90 lakh crore rupees which was 37 percent of the entire budget estimate.

The Union Government in the budget 2012 had pegged the fiscal deficit for the financial year 2012-13 at 5.13 lakh crore, or 5.1 percent of total GDP. Fiscal deficit during the corresponding period of fiscal year 2011-12 was 39 percent of the budget estimates amounting 1.63 lakh crore rupees.

The revenue receipts, however, increased in the first three months of fiscal year 2012-13. The revenue receipt during the given period stood at 1.18 lakh crore rupees, which was 12.7 percent of the budget estimates. Total expenditure of the government stood at 3.12 lakh crore rupees, or 21 percent of the budget estimates.