Making India Business Friendly
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS
IMPERATIVES
Vol. 2: 2015-16 December 2015
CONTENTS
Executive Summary 2-3
Ease of Doing Business 4-15
Sectoral Updates 16-33
Conclusion 34-35
Annexure 37-41
About BMR 42-43
A decade ago, India seemed
prepared to rival East Asian tiger
China. Annual growth was heading
closer to 10 percent. A growing
population, with rates of savings
and investment of over 30 percent
of GDP, was uplifting the
economy’s potential. Unlike most
East Asian countries, India was
mildly – centre strong with a weak
state, but had a brilliant
entrepreneurial streak to fast-track
the country to prosperity.
However, policy paralysis coupled
with the global crisis of 2008 took
India off the radar.
What went wrong? Primal inputs of
growth – land, labour and capital –
were marginalised. The rate of
savings and investment declined
materially and their ratio went
downhill. High ination pushed
households towards gold
accumulation, swerving money to
unproductive uses. A concoction of
ofcialdom, excessive leverage,
ineptitude and corruption led private
companies to cut investments by
nearly half. What got invested
remained tangled in red tape and
graft. The policy and constitutional
constraints on growth became
binding.
The tide is now clearly shifting. The
country’s economic plan under the
administration of Prime Minister
Narendra Modi is rightly home
grown, with a thrust towards labour
intensive industrialization. PM Modi
has spent the last 18 months in
ofce propagating far and wide the
message, ‘India is a changed
country now’. He has criss-crossed
the world promoting India as the
next industrial destination through
the ‘Make in India’ campaign.
The rst 18 months of National
Democratic Alliance (NDA) regime
has been driven by intense
reforms. The nation witnessed
increased growth rates supported
by benign external factors. There
EXECUTIVE SUMMARY
SUMMARY
2
has been a dramatic revision of
policies on various fronts. All this
has contributed towards a change
in the momentum and triggered
positivity in market sentiments. The
country is focused on launching
itself on a high, perpetual growth
trajectory. There has been a
climactic revision in GDP and
consumer price index (CPI), with an
overall growth gure for FY 2015
standing at 7.3 percent, up from 6.9
percent in FY 2014.
Economic growth is expected to
remain high, backed by a
resurgence in investment. Structural
reforms to improve the Ease of
Doing Business and Make in India
initiatives are expected to boost
corporate investment. On the other
hand, relaxation in scal
consolidation targets will propel
infrastructure spends. However, all
this is constrained by growth in
exports which is subject to demand
revival in advanced economies.
Decline in oil prices though will scale
down pressure on current account
decit, ination and subsidies.
Most argue that all India needs to do
is open up more aggressively and
disinvest stake in public sector
enterprises. However, the business
ecosystem is still weak in many
ways on enforceability of contracts,
lack of liquidity etc. Even in case of
FDI, the impediment is not legal
restrictions but business conditions
that exasperate local rms.
It is in this frame of reference that
the report outlines key issues
confronting India’s business
ecosystem and a series of recent
initiatives taken by the Government
of India (GoI), including thrust for
reforms to accelerate the growth
trajectory. The report is split into the
following sections:
Section A – Ease of doing business
in India - the theme
Section B – Key developments in
various ministries impacting
business
The rst eighteen months of NDA’s regime have been driven by intense reforms.Economic growth is expected to remain high, backed by a resurgence in investment.
3
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
A lot has changed since India rst opened its gates to embrace liberalization over
two decades ago. Back then, it was tough for entrepreneurs to envisage an
entryway into the vocational world. It took an entrepreneur years to acquire
rudimentary licences and approvals for starting a business.
EASE OF DOING BUSINESS IN INDIA
The country rightly opened up its
market for competition but in the
process overlooked the plight of
its factor markets. Land, labour
and capital continued as
challenges. The cost of capital
shot up. Complex laws made it
strenuous to acquire land for
industry or infrastructure.
Incomprehensible labour laws
muzzled manufacturers. With all
this, the country’s industrial
growth has been despondently
limping its way through a crowd of
tough competitors to nd itself a
place.
The new momentum of reforms
introduced by the NDA
government has made change
inevitable. Prime Minister Modi
rightly declared at the
inauguration of the Hannover
Messe Fair in Germany in early
2015 that “India is a changed
country now”. Several economic
ministers led by the PM spanned
the world promoting India as the
next industrial destination. The
vision of Make in India could not
have come at a better time. The
economy imparts a hopeful
picture and is on path of steady
and palpable reformation. The
campaign has received
overwhelming response from
both Indian and global investors.
The World Bank’s Ease of Doing
Business Report 2016, is an
emphatic acknowledgment of the
efforts of the government to make
India a business friendly country.
With the new rankings, India has
shot up 12 spots and has secured th
the 130 position up from earlier nd142 among 189 countries.
According to World Bank’s Chief
India is achanged
country now
SECTION A: EASE OF DOING BUSINESS IN INDIA
4
Economist and Vice President Kaushik Basu,
“For any big economy, a rank improvement
of 12 is a remarkable achievement. Going
from 142 in the world to 130, as India has
done, is very good sign. It gives a good
signal about the way things are moving in
India”. The report takes into account data till
June 2015 and is based on a new
methodology adopted for compiling the
ranks both this year and last year.
Two key reforms in India were responsible for
the improved ranking: the elimination of the
requirements for a paid-in minimum capital
and a certicate to commence business
operations. Beyond these reforms, the Indian
government has sought to address a number
of other ease of doing business issues
through a state by state approach, such as
utilities connections, construction permits,
minority investor protection and property
registration, amongst others.
De facto, this is a time of great expectations
for the country and is plausibly the only time
in recent past when our chances of
unshackling industrial growth are very high.
The new government has not missed a
chance to lure investors pitching the idea of
manufacturing in India. It has pledged to
vault India into the top 50 countries in World
Banks’s Ease of Doing Business rankings.
5
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
EASE OF DOING BUSINESS IS RECOGNISED AS THE SINGLE MOST IMPORTANT FACTOR TO PROMOTE ENTREPRENEURSHIP.
6
SECTION A: EASE OF DOING BUSINESS IN INDIA
Table 1 gives an illustration of India's ranking on all Ease of Doing Business parameters.
However, some challenges still remain. The entire business cycle – starting a business, running
it and exiting – is beset by inefcient and lengthy procedures, lack of information and weak
accountability. Among the most important factors impeding investors in India are: delays in
approvals, multiplicity of authorities, plethora of regulations and lack of clarity.
Table 1 | Source: World Bank: Doing Business 2016
INDICATORS RANK DTF SCOREPROCEDURES
(NUMBER)TIME
(DAYS) COST
Star�ng a business
Dealing with construc�on permits
Ge�ng electricity
Registering property
Ge�ng credit
Protec�on of minority investors
Paying taxes
Trading across borders
Enforcing contracts
Resolving insolvency
155
183
70
138
42
8
157
133
178
136
73.59
32.47
74.56
50.29
65
73.33
56.14
56.45
1420
4.3 ⁵
32.41
32.59
12.9
33.6
5
7
29
191.5
90.1
47
13.5 ¹
26.0 ²
442.3 ¹
7.5 ³
39.6 ⁴
9.0 ⁶
---
-
-
-
-
-
- -
- -
- -
Notes: ¹ % of income per capita. ² % of warehouse value. ³ % of property value. ⁴ % of claim. ⁵ in years. ⁶ % of estate
Summary of Doing Business indicators for India
7
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
Realizing the urgency, the government has
gone into overdrive announcing and
executing signicant institutional reforms. It
has realized the enormous task to provide
the right ecosystem and amenities for its
business enterprises of all forms to succeed.
Policy stance over the last few months has
been centre-right with a clear focus on
reducing bureaucratic red tape. Pace of
decision making has picked-up. Reforms to
improve the ease of doing business are
underway but cyclical headwinds might delay
their impact. Progress on labour reforms,
relaxation of procedurally complex
environmental rules, and removal of
bottlenecks in the energy sector have largely
exceeded expectations.
Plan of Action: Making it easier
Ease of Doing Business is recognized as the
single most important factor to promote
entrepreneurship. A number of initiatives
have been initiated during last 18 months in
this direction. The aim is to de-license and
deregulate industry in its entire business
lifecycle. The government has partnered with
states to make things simple at
implementation level. Meanwhile, it is
ensuring greater market access for Indian
industry across various trade pacts it is
negotiating.
Recent steps by the government towards
Ease of Doing Business include initiatives
which increase the speed at which protocols
are met with, and increased transparency:
Ÿ Starting a business: The Companies
(Amendment) Act, 2015, has been passed
which waives the obligation of minimum
paid-up capital for companies and need
of a common seal. Employer’s registration
with Employees State Insurance
Corporation (ESIC) and Employees
Provident Fund Organisation (EPFO) has
been made real time. Payments can now
be made online with 56 accredited banks.
There is now a single process for
company incorporation, allotment of
MAKING THE PIECES FIT PERFECTLYTHE GOVERNMENT HAS LAUNCHED A SERIES OF INITIATIVES TO ENCOURAGE AND FACILITATE INVESTMENT IN INDIA, MAKING THE PROCESS SIMPLER AND FASTER
8
SECTION A: EASE OF DOING BUSINESS IN INDIA
Permanent Account Number (PAN), Tax
Account Number (TAN) and registration
with ESIC and EPFO, through eBiz 1portal.
Ÿ Dealing with construction permits:
Regulation of construction is vital to
ensure safety of life and environment but
unusually lengthy and complex
compliance procedures, lack of
information, petty bribery in addition to
mandated fees is choking infrastructure
development and often results in
substandard construction quality. To curb
this, common application forms have
been launched in Delhi. The Municipal
Corporation of Delhi (MCD) will get
clearances from all departments, doing
away with the running around time and
cumbersome procedures involved. Also,
online color-coded maps for Delhi and
Mumbai airports have been introduced to
get no-objection certicates (NOCs) from
Airports Authority of India (AAI). Similar
steps are being taken for Archaeological
Survey of India and National Monuments
Authority.
Ÿ Getting electricity: Another major
concern in our country is availability of
power. It takes ve procedures, 90.10
days and a huge chunk of capital
(442.30% of income per capita) to gain
access to electricity in India. State
governments have taken cardinal
measures to revamp the approval
procedure. The government of
Maharashtra has reduced number of
procedures to three and number of days
required to 21 in addition to making the
application process online. Similar
actions have been taken by the
government of Delhi. The requirement to
get an NOC from State Pollution Control
Board/Committee has been omitted.
Ÿ Paying Taxes: The process of paying
taxes in India is cumbersome. In all, there
are 33 tax payments a year and it takes
243.00 hours a year ling, preparing and
paying taxes. To ease this, the
government has made EPFO and ESIC
payments online. The need for ling a
separate monthly return has been
eliminated. Challans received for
payment for these will be considered as
return. Submission of physical returns to
the Income Tax department has been
dispensed with, replaced by an Aadhaar-
based electronic verication code to
validate the document.
Ÿ Trading across borders: Big strides have
been taken by the government to
streamline inter-nation trade. Mandatory
documents for import and export have
been cut down to three from earlier ten
and seven respectively following the
Directorate General of Foreign Trade
(DGFT) notication dated March 12,
2015. The requirement of ling foreign
currency exchange, separate packing list
and obtaining terminal handling receipts
have been done away with. A Customs
Clearance Facilitation Committee has
been set up in ports to ensure
expeditious clearance of goods. Online
message exchange with Food Safety and
Standards Authority of India (FSSAI) and
Plant Quarantine has been started.
1 The e-biz Portal is a single online government to business window for Central, State and Parastatal bodies. The portal envisages to serve as a one – stop shop for delivery of services to investors and addresses the needs of business and industry from inception through the entire lifecycle. The work on e-biz portal started close to a decade ago and then a 2009 plan targeted putting around 200 G2B (Government to business) services, offered by the central and state governments, online in ten years. The portal was however launched in January 2014 with just two services (industrial licenses and industrial entrepreneur memorandum) provided by DIPP. Between July 2014 and February 2015, nine more services were added. The count now stands at 14.
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
Ÿ Enforcing contracts: When it comes to
enforcing a contract, there is a heavy
legislative meshwork. Contract
enforcement takes 1420 days and costs
39.60% of the value of the claim. There
are fast track procedures for small
claims, laws are in place to set overall
time standards for key court events in a
civil case. Commercial divisions have
been created in Delhi and Mumbai high
courts for hearing commercial cases.
Two benches in original jurisdiction for
suits involving commercial disputes, two
division benches in appellate jurisdiction
for appeals, two benches in original
jurisdiction for arbitration and one bench
for exclusively dealing with tax matters
have been set up. Besides, one court
each has been designated to deal with
commercial disputes in each district
court. Government has cleared
amendments made to the Arbitration
and Conciliation Act, 1996, specifying
deadlines for awards by tribunals and
incentivising expeditious disposal of
cases.
Ÿ Resolving insolvency: Entry of new
companies and exit of failed ones is part
of the business cycle. There are many
pending litigations related to insolvency
in National Company Law Tribunal due
to the cumbersome process involved.
Realising this, the Ministry of Micro Small
and Medium Enterprises (MSME) has
facilitated revival and rehabilitation of
sick MSMEs through a bankers
committee. The government is working
towards bringing a new bankruptcy law
that will allow faster closure of business
and give investors an easy exit.
Ÿ Getting credit: Globally, India stands at
42 on the ease of getting credit. Credit
information systems provide details of
the borrower's nancial history to
calculate risks. The presence of sound
laws for secured transactions and strong
legal rights for borrowers and lenders
helps businesses to have a better
access to credit.
Ÿ Protecting minority investors: India
stands at number 8 on the strength of
minority investor protection index. A
stronger index protects minority
investors from conict of interest and
indicates the presence of strong
economic regulations in this area.
India strengthened minority investor
protections by requiring greater
disclosure of conicts of interest by
board members, increasing the
remedies available in case of prejudicial
related party transactions and
introducing additional safeguards for
shareholders of privately held
companies.
There is an obvious and direct relation
between ‘Ease of Doing Business’ and
‘Make in India’. Investors are often wary of
starting up any business in India because it
includes various impediments. Recent
steps enumerated above are directed
towards removing such impediments and
making it easier to do business. This will
naturally attract investors who were earlier
reluctant to invest in India thus, boosting
the Make in India programme.
9
Ease of Doing Business – The Tax Regime
Income tax compliance forms part of the overall tax compliance cost which impacts the ease of
doing business. India's income tax administration has simplied the pre-audit logistics for
businesses by implementing electronic tax payments and return lings. However, it is the
subsequent audit and dispute resolution process which forms a substantial part of the current
tax compliance cost. In 2013:
2Ÿ Less than half of pending scrutiny audits were completed - a 59 percent pendency
Ÿ Less than a third of the pending appeals before departmental Commissioners were 3
completed - a 71 percent pendency
Ÿ Pending appeals numbered about 200,000 for departmental Commissioners, 30,000 each for 4tribunals and High Courts and 5000 for the Supreme Court
5Ÿ Transfer pricing adjustments in assessments were in excess of INR 590 billion
Ÿ Total taxes in dispute jumped from about 15 percent to more than 30 percent of total direct
tax collections
2 CAG Audit Report 2013-143 Ibid4 Annual Report 2013-14, Ministry of Finance5 Ibid
0
100000
200000
300000
400000
500000
14.79% 16.41% 14.27%
33.94% 41.56%
2009-10 2010-11 2011-12 2012-13 2013-140.00%
20.00%
40.00%
60.00%
80.00%
100.00%
Direct tax collec�on Taxes in dispute Percentage
Source: Figures from Receipts Budgets, 2009 to 2013
From the date of ling of a company return, it takes the department about 5 years to complete a
scrutiny audit (which is typically nalised only by the statutory outer limit) and adjudicate the rst
level of appeal. Considering further appeals to tax tribunals, High Courts and the Supreme Court,
it takes more than a decade for a scrutiny audit to reach certainty in an ongoing cycle for the
business.
Company files return of
income
Scru�ny Audit process
Dispute Resolu�on
ProcessTax Tribunal
High Court and Supreme Court
0 3 - 4 4 - 5 6 - 9 10 - 15
T I M E I N Y E A R S
Recent initiatives to address this issue have been through:
Ÿ Constituting specialist committees for early resolution of signicant sector specic tax
disputes
Ÿ Restructuring of cadres in the department to increase ofcers assigned to scrutiny and
appellate functions
Ÿ Instituting an Advance Pricing Agreement (APA) process to reduce transfer pricing disputes
Ÿ Issuing administrative guidelines to reduce the number of appeals led by the department
Ÿ Constituting separate benches by the Supreme Court to expedite tax appeals
Ÿ Constituting Justice Easwar Committee to simplify the provisions under the Income Tax Act,
1961 and to suggest modications and alternatives to the existing provisions.
Some further initiatives to reduce tax disputes and litigation could be:
Ÿ Independent scientic assessment of audit selection, scrutiny workload and the ofcers
available could determine the optimal number of scrutiny audits to be taken up every year so
that the pendencies are reduced.
Ÿ Reviewing processes within the department so that scrutiny audit disputes with businesses
are pre-empted by resolution within the department's decision making levels through
concurrent consultation instead of a tax demand in the scrutiny assessment. Current
procedures are more in nature of ex-post reviews after scrutiny assessments are completed.
A separate directorate for deciding whether appellate orders of commissioners /directions of
Dispute Resolution Panel need to be appealed to the tribunal. This could remove inbuilt bias
of eld authorities in evaluating the merits of their own assessment orders.
Ÿ Revisiting and re-evaluating statutory right of the tax department to le appeals against
adjudication done by its own ofcers.
Ÿ Reallocating and monitoring manpower and resources to expedite APAs.
Ÿ Speeding up alternative dispute resolution process of the advance ruling authority by
operationalizing additional benches to reduce the three years it currently takes to issue a
ruling.
Ÿ Strengthening the functioning of tax tribunals by lling up vacancies, creating specialized
benches for international taxation and transfer pricing issues and using electronic means to
le and monitor appeals.
Critical areas for easing the business
environment: Much needed reforms
Ÿ Minimizing regulatory cost of doing
business is one of the most crucial steps
on the road to a thriving economy –
enabling entrepreneurs to create new
value through market transactions. Three
new important laws in the ofng –
litigation policy, bankruptcy code and
arbitration law are steps in the right
direction.
Ÿ Need for widening the tax base is felt. In
this direction, there is a lot of anticipation
about the introduction of the Goods and
Services Tax (GST) from April 2016.
Ÿ Pursuing the disinvestment agenda to
raise resources for the government, as
well as to improve performance of PSUs.
Ÿ Industry expert FICCI has demonstrated in 6
a survey that capacity utilization levels
are still below optimal levels. Consumer
demand has not hit the road in a manner
that could push investments. Further
policy rate cuts by the central bank and
equivalent transmission of same in the
form of lower lending rates by banks for
both consumers and investors is
suggested.
Ÿ Creation of MUDRA (Micro Units
Development and Renance Agency)
bank and Self-Employment and Talent
Utilisation (SETU) mechanism has given a
boost to MSMEs and entrepreneurship.
However, it is felt that there should be a
rebated income tax for small start-up
businesses. Tax benet can be for a
dened rebate proportion of say up to 50
percent and for a limited period of say ve
years. This would empower small start-
ups to grow and expand. A key issue for
small businesses is sanctity of contracts,
and steps must be taken to ensure that
commercial contract can be enforced
quickly.
Ÿ Land reforms and implementation of the
current Land Acquisition Bill is
indispensable (the bill is under
consideration by the Parliamentary Joint
Committee, which will submit its report in
the upcoming winter session).
Ÿ Archaic and primitive labour reforms to be
done away with and replaced by new laws
that are in line with growing business
needs. Suggested labour reforms include:
SECTION A: EASE OF DOING BUSINESS IN INDIA
12
UNLOCKING INDIA’S
POTENTIAL AS A GLOBAL
INVESTMENT DESTINATION
6 Business Condence Survey, July 2015: http://blog.cci.com/business-condence-survey/6296/
13
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
Ÿ grand-fathering existing laws for existing
work force, amending contemporary
laws for new entrants to the work force,
and operationalizing exit policy under
national manufacturing policy.
Ÿ Strengthening infrastructure is an
important pillar on which ‘Make in
India’program is based. The government
has highly ambitious plans for Indian
infrastructure and plans to make it
‘Better than the Best’. The plan includes
projects to develop freight corridors
supported by better train linkages,
developing a bullet train network
(Diamond Quadrilateral Project) and
modernizing ports and airports.
Schemes to build an optical-bre
network up to village level ensuring
basic level of infrastructure (home,
electricity, water) and a national highway
programme are on the list. The
government intends to develop industrial
corridors and smart cities to bestow
infrastructure based on modern
technology with high-speed
communication. However, all this is
subject to availability of capital. India’s
closed nancial system articially raises
the cost of capital.
The World Bank has placed India twelve notches
higher than last year in its Ease of Doing Business
rankings for 2016. This comes close on the heels
of the country’s sixteen place leap on the World
Economic Forum’s Global Competitiveness index.
These rankings underline the impact of the recent
spate of reforms, which have come to bear fruit.
Notwithstanding the debate on whether a push up
in these rankings could have been far better, the
outcome is encouraging and signals a trend
reversal of sort.
A number of measures–at the policy and
administrative levels–have contributed to this
development. Amongst key investment reforms a
few initiatives which stood out include
liberalisation of Foreign Direct Investment (FDI)
norms including permitting composite caps,
efcient processing of approval permitting
investments, executive’s intervention to pre-empt
tax controversies and abstinence from
retrospective tax legislations.
Besides, the government’s commitment to
undertake signicant tax policy reforms, such as
tax rate rationalisation to make India a more
competitive investment destination vis-à-vis
BRICS and other emerging economies in Asia,
enhancing efcacy of dispute resolution forums
and a constitutional amendment to facilitate
Goods & Services Tax (GST) have contributed to
revitalising investors’ condence. Improving
macro-economic fundamentals such as moderate
ination and a relatively stable currency have
brought the sheen back to investors’ money. Till
June 2015, FDI ows recorded a year-on-year
growth of 30 percent.
At an administrative level, speedier decision
making, clamp down on disruptive practices such
as retail corruption and a behavioral shift in the
government’s functioning to result orientation are
other positives that drove the change. Push for
competitive federalism initiated a unique
movement of sorts, as states are beginning to
realise their potential by pitting themselves
against each other and taking measures to build
attractiveness for investments. State level land
and labour reforms will further hasten growth in
investments.
A slew of major policy reforms, which have the
potential to sustain investment momentum, are in
the making. Amongst these, two critical reforms
which are hung primarily due to the lack of
political consensus are land reforms and the
introduction of the unied national GST law. In
times when global economies are progressively
slowing down and India is reaping the benets of
low crude and commodity prices, India has a
unique opportunity to add a couple of percentage
points to GDP growth by implementing the GST
regime and thus setting in motion state-level
efciencies for doing business in India. Pending
land reforms tend to
Better global rankings underline India’s potentialMukesh ButaniManaging Partner, BMR Legal
cause more collateral damage to untapped
investment potential for infrastructure
development across the country, though
progressive states are likely to drive the agenda.
That these policy reforms can open the ood
gates for foreign and domestic investments, is a
no-brainer. I reckon it is in the overall interest of
state governments to allow convergence of their
ideology and let GST and land reforms see the
light of day.
Amongst others, unveiling of bankruptcy
legislation will catalyse growth of the ‘startup’
economy which requires easier norms for not only
entry but investment exit as well. The Bankruptcy
Law Reforms Committee has recommended
legislating a unied Insolvency Code for all
entities, which must replace existing disparate
legislations pertaining to insolvency and
liquidation of registered entities. Further, ne-
tuning of the Prevention of Corruption Act shall
address the menace of retail corruption, by
encouraging transparent and bold decision by
civil servants.
A case for impending reforms in labour laws
presents itself, since such reforms could well be
the inection point in reviving the languishing
growth of the manufacturing sector which far from
leading, contributes less than a quarter of the
country’s GDP. Again, states like Rajasthan and
Madhya Pradesh are driving such reforms at the
state level.
Financial sector reforms continue to hold the key.
While the merger of market regulator Sebi with the
Forward Markets Commission is a signicant
action emanating from recommendations of the
Financial Sector Legislative Reforms Commission
(FSLRC), major initiatives are required to realise
the objective of an integrated nancial sector
regulatory framework. Proposals to enact a
unied Indian Finance Code, and constituting a
Monetary Policy Committee as the custodian of
decision making in monetary policy matters are
signicant developments, and will trigger
modernisation of monetary controls.
Major breakthroughs have been witnessed on the
scal policy front in the past twelve months. India
becoming a signatory to the multilateral
agreement on automatic exchange of information
showed the way for embracing best practices in
tax administration. To ensure compliance with
Foreign Account Tax Compliance Act (FATCA),
India is adopting inter government agreements, in
tandem with revised disclosure norms prescribed
by the department of revenue to track reportable
transaction of nancial institutions. Enhanced
rigour on disclosures in tax matters is bound to
promote governance standards.
Continued focus on law making through
consultative processes bodes quite well from
investors’ standpoint. More recently the
government having embarked upon simplication
of income tax laws through a comprehensive
review by an expert group, is yet another instance
of progressive policy thinking. The outcome of
OECD and G20-led BEPS Project has received a
lion’s share of government attention. The nance
minister has hailed BEPS works as a stepping
stone to the rapidly emerging new era of tax
policies. It wouldn’t be far from mark to anticipate
major tax policy announcements in the Finance
Bill 2016 to embrace some of BEPS
recommendations, which have assumed
immediate signicance. An ordinance to amend
the Arbitration Act can facilitate speedier
resolution of commercial disputes in a time-
bound manner.
To sum up, optimism over the Indian growth story
is growing. What is needed is a continued policy
push to unleash reforms, lest India’s growth
pattern is held ransom to hostile politics.
(First published in Forbes India rd(www.forbesindia.com) issue dated 23
November 2015
http://forbesindia.com/blog/economy-
policy/better-global-rankings-underline-indias-
potential/)
Goods and Services Tax –
Where we are and how it could
impact business
The proposed Goods and
Services Tax (GST) is a
destination-based consumption
tax with an objective to eradicate
economic distortions and help in
development of a common
national market. Syncing with the
overall philosophy of ‘ease of
doing business in India’ to a great
extent, on a medium to long term
basis, GST is expected to pave
way for economic development.
ndTo recap, the 122 Constitution
Amendment Bill was passed in
the Lok Sabha and subsequently
got referred, by the Rajya Sabha,
to the Select Committee for its
recommendations. The Cabinet
accepted most of the changes/
suggestions proposed by the
Select Committee in the
Constitution Amendment Bill but
the Bill failed to get approved in
the Rajya Sabha in the recently
concluded monsoon session
owing to opposition from some of
the political parties.
With the Prime Minister and the
Finance Minister hopeful of the
implementation date in 2016, the
Government appears to be
making best efforts to ensure the
passing of the GST legislation in
the winter session scheduled in
November 2015/December 2015
and also laying ground work so as
to effectuate its implementation.
On a practical basis, it is fair to
assume that GST would
unfortunately miss the April 1,
2016 deadline. However, GST
being a transaction tax, the
introduction of the same can
happen anytime during the
nancial year and it is not
necessary that the next target
date only ought to be April 1,
2017.
The biggesttax reform
aimed at eradica�ng
economic distor�ons
and introducinga tax-friendly
businessenvironment
SECTORAL UPDATES
Key Developments in the Ministry of Finance
SECTION B: SECTORAL UPDATES
16
The Government has already released draft
reports on business processes on GST
registration, GST refunds and GST payments
for inviting comments of stakeholders and is
reported to release the draft model CGST,
SGST and IGST laws, along with GST
business processes for ling of returns.
These recent announcements and releases
not only reect a fair amount of back end
work that has been done, but also reects a
welcome approach of consulting different
stakeholders, by releasing drafts and seeking
inputs.
Given the magnitude of the expected impact
of GST on business, businesses should
make best use of this time gap to strategize
their business structures and work on IT
systems, as the roll out is certain though the
effective date of implementation remains
undetermined. Specically, in the run up to
GST, impact areas that business should
focus on should be the following:
a) Financial areas:
(i) Pricing
(ii) Working capital
(iii) Credits and refunds
While GST is expected to benet business to
have more credits of indirect taxes in the
supply chain, with the expected high rates of
GST, businesses should focus on
understanding the nancial impact areas
above. Specically, exporters need to get
prepared for higher credit build up and
refund thereon – as it is expected that upfront
exemptions would be kept minimal under
GST and current exemptions available to STP
units, EOUs and possibly SEZ units may be
replaced by tax payments, eligible for credit/
refund.
b) Operational areas:
(i) Procurements – including impact on key
vendors
(ii) Supply chain
(iii) Dealers/agents
(iv) Review of service contracts (sales and
procurement side)
GST is likely to impact different key functions
of businesses. Understanding the impact on
operations would require companies to be
engaged with business functions in the run
up to GST (e.g., setting up of a core internal
GST committee, typically driven by the
nance/ tax team).
The current CST/ VAT system has often been
a driver in decision making around supply
chain including setting up of warehouses.
This would need a complete relook.
By far, the most important complex change
that GST is expected to bring about is on
taxation of services at a state level, as
against the current tax regime of taxing
services centrally. This change would have a
signicant impact on service businesses
performing pan India services/contracts and
it is expected that they would need to revise
their service contracts and possibly raise
invoices on a decentralised/ state wise basis.
c) Infrastructural areas:
(i) Redesigning IT systems to be GST
compliant – ensuring compliance as well as
payment of taxes/ recoupment of credits in
appropriate States
(ii) Impact on account of decentralization of
compliances and accounting – adequacy of
and improvements to existing systems and
processes
17
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
IT system changes are known to take a
signicant amount of time. While the ne print
of exact format of invoices, returns and
record keeping is expected to come in only
closer to the date of GST introduction,
industry should make use of time available to
work on transaction ows, map current tax
data elds, possible expected tax data elds,
etc.
As it may be observed, the specic impact
on the business entities would be highly
dependent on individual business operations.
It is advisable for businesses to be updated
with the ongoing changes, understand likely
business impact and to also be engaged in
advocacy/ dialogue with the Government in
this most signicant indirect tax reform in
India.
18
Acknowledging importance of Foreign Direct
Investment (FDI) Policy for maneuvering
investments in priority sectors, the
Government has engaged in intensive
consultations with stakeholders and notied
series of important changes to the FDI Policy.
Amongst key reforms, move to dispense with
distinction amongst multiple types of foreign
investments while reckoning FDI cap is
signicant. Henceforth, sectoral FDI caps are
to be seen as composite cap. This singular
reform will certainly assist sectors which
hitherto could not fully utilize FDI potential,
due to an articial sublimit within the
permissible FDI cap.
In November, the Government announced
tangible measures to increasing FDI caps in
select sectors, placing more activities under
automatic route and easing of entry
conditionalities. The reforms are broadbased,
touching upon variety of sectors, including,
Defence, Construction & Development,
Retail, Broadcasting, Civil Aviation, Banking
and Manufacturing and resonate
Government's mantra for 'minimum
government and maximum governance'.
Progressive reforms measures rolled out to the Foreign Direct Investment Policy
SECTION B: SECTORAL UPDATES
INDIA AMONGST THE TOP
FIVE PROSPECTIVE FDI
DESTINATIONS - UNCTAD.
DIPP INDICATES NEARLY 30
PERCENT INCREASE IN FDI
INFLOWS DURING 2015.
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
19
Sector/ActivityForeign
Investment CapEntry Route
Tea, Coffee, Rubber, Cardamom and Palm oil tree plantations
Defence Industry subject to Industrial license under the Industries (Development &
Regulation) Act, 1951
(1) Teleports (setting up of up-linking HUBs/Teleports); (2) Direct to Home (DTH); (3) Cable Networks; (4) Mobile TV; (5) Headend-
in-the Sky Broadcasting Service (HITS)
Terrestrial Broadcasting FM
Up-linking of 'News & Current Affairs' TV Channels
Up-linking of 'News & Current Affairs' TV Channels, Downlinking of TV Channels
(1) (a) Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline
(b) Regional Air Transport Service
(2) Non-Scheduled Air Transport Service
(3) Helicopter services/seaplane services requiring DGCA approval
(1) Ground Handling Services subject to sectoral regulations and security clearance
(2) Maintenance and Repair organizations; ying training institutes; and technical training institutions
Satellites- establishment and operation, subject to the sectoral guidelines of Department of Space/ISRO
Credit Information Companies
Construction-development projects
Single Brand Product Retail Trading
Duty Free Shops
100%
49%
100%
49%
49%
100%
49%(100% for NRIs)
100%
100%
100%
100%
100%
100%
100%
100%
100%
Automatic
Automatic upto 49%. Above 49% under the government route
on case to case basis, wherever it is likely to result in access to modern and 'state-of-art' technology in the country.
Automatic upto 49%.Government route beyond 49%.
Government
Government
Government
Automatic
Automatic
Automatic
Automatic
Automatic
Automatic
Automatic
Automatic
Automatic
Automatic upto 49%Government route beyond 49%
The latest policy review marks another key
step forward in India's FDI regime as it opens
many sectors, which hitherto failed to reap
benets of FDI liberalisation owing to
investors' cautious approach. In the emerging
landscape, the erstwhile 26% equity
threshold seems to lose relevance, as '49%'
emerges as acceptable FDI threshold in
almost all sectors, except print news media,
and public sector banking. Also, onerous
approval requirements have been eased out
for majority of sectors, exception being
closely guarded sectors (i.e multi-brand retail
trading; Insurance and Broadcasting).
Further, useful clarity in interpretation shall
emerge following explicit denitions of certain
terms (such as 'manufacture'; control in case
of LLPs, 'internal accruals' etc), dispensation
of certain conditions in case of single brand
retail trading of products of Indian brands.
Key aspects of reforms are summarised below:
20
Foreign investors get relief from MAT
The dispute on the applicability of Minimum
Alternate Tax (MAT) to a foreign company
gained momentum in recent years, largely on
account of contrary rulings of tribunals
/quasi-judicial authorities. Tax
administration’s indiscreet approach in
serving show cause notices to foreign
investors levying MAT demand caused
considerable loss to India’s credibility as a
stable and predictable tax jurisdiction.
To prevent further damage to investors’
condence, the government vide Finance Act
2015, introduced MAT exemption, with
prospective effect in case of foreign
companies including FPIs (subject to
prescribed conditions). The amendment
caused disquiet amongst foreign investors as
revenue authorities took an interpretation that
exemption from MAT was only prospective,
and that prior to such conrmation foreign
companies (including FPIs) were liable to
MAT.
The long winding debate on applicability of
MAT to foreign companies has now been put
to rest by the Department of Revenue, vide
its Press Release dated September 24, 2015.
MAT exemption has now been extended,
subject to appropriate amendments to be
carried out to the IT Act, to all foreign
companies with retrospective effect from
April 1, 2001, provided foreign companies do
not have a ‘permanent establishment’ (PE) in
India, or have a registered place of business
in India.
The administrative guidance shall pre-empt
tax litigations and will reinstate investors’
condence in Indian tax policy which has
long been decried for lacking predictability
for foreign investors, in particular. It may help
the cause if legislative amendment is brought
about without further delay, and in the
manner that leaves no room for interpretative
debate.
Indradhanush Plan for PSBs
Public sector banks (PSBs) have played a
pivotal role in building India’s economy,
maintaining a lion's share in project nancing.
But low (global and domestic) demand and
stalled projects due to endowment issues,
delayed approval processes, land acquisition
etc. have adversely hit their protability.
Crippled by bad loans, the government rolled
out second generation banking reforms with
a heavy dose of capital infusion for PSBs and
unleashed a seven-step plan for
improvement. The package, titled
Indradhanush, touches upon several
incremental reform measures such as
creation of a Bank Board Bureau (BBB),
linking the compensation of banks’ top
management to performance, improving
governance standards, focussing on
SECTION B: SECTORAL UPDATES
Going by qualitative statistics released by
World Bank, World Economic Forum and 7UNCTAD , the investment policy reforms,
witnessed over past 18 months have been
recognized as having incremental effect.
Whilst further improvement in statistics is
anticipated on account of the recent policy
review, the current reforms are still not to be
seen as the end of road in FDI landscape.
Hopefully, further reforms shall follow swiftly
as India embarks upon the journey to
become truly an 'open economy'.
7 World Bank's Ease of doing business index; World Economic Forum's Global competitive index; UNCTAD's World Investment Report 2015
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
qualitative aspects of business and infusing
additional capital. Under the scheme, the
entire process of appointing MDs and CEOs
on the boards of banks has been revamped.
The approach for appointment is based on
global best practices and as per the
Companies Act. The government is also set
to launch the BBB, which will regularly
engage with the board of directors to
formulate appropriate strategies for growth
and development.
The Finance Ministry is devising a plan to
infuse INR 250 billion into recapitalisation of
PSBs this nancial year. In conformity, State
Bank of India will get INR 55.31 billion, Bank
of India INR 24.44 billion, IDBI Bank INR
22.29 billion, IOB INR 20.09 billion, Bank of
Baroda INR 17.86 billion, PNB INR 17.32
billion, Union Bank of India INR 10.80 billion
and Corporation Bank INR 8.6 billion.
All this has given a fresh impetus to the
banking sector. Other incremental reform
measures like linking the compensation of
banks’ top management to their performance
are still in the ofng.
GEARING UP FOR GROWTH
India, US sign FATCA to ght tax evasion
To identify and curb offshore tax evasion,
India and the US have taken a rm step
forward by inking an Inter-Governmental
Agreement (IGA), FATCA (Foreign Account
Tax Compliance Act). This is aimed at
bulwarking Indian nancial entities such as
banks, insurance companies, custodians and
broking houses from facing penal taxes when
they fail to disclose dealings of American
citizens and US entities.
FATCA will save nancial institutions the
bother of inking individual agreements with
the US. To date, the US has IGAs with more 8than 110 jurisdictions.
The United States had passed FATCA in
2010 to glean information on accounts held
by US taxpayers in other countries. US
nancial institutions are prescribed to
withhold a portion of payments made to
foreign nancial institutions (FFIs) who
disagree to identify and report information on
US account holders. As per the IGA, FFIs in
India will have to report tax information about
US account holders to the Indian government
directly. The Indian government will relay
such information to the US Internal Revenue
Service (IRS). The IRS will do the same for
Indian account holders.
Besides FATCA, India also signed Multilateral
Competent Authority Agreement (MCAA) on
June 3, 2015, enabling automatic exchange
of information on multilateral basis with 92
nations starting 2017. These are important
milestones in India’s ght against the
menace of black money. It would equip the
Indian revenue authorities to receive nancial
account information of Indians from foreign
countries on an automatic basis.
A firm step forward
22
SECTION B: SECTORAL UPDATES
8 Press Information Bureau, Government of IndiaIndia and United States signs Inter-Governmental Agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) to promote transparency on tax.http://nmin.nic.in/press_room/2015/India_US_sign_IGA09072015.pdf
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
23
TRANSFORMING INDIA THROUGHPOLICY
NITI Aayog to set up monitoring body
The government’s premier think tank NITI
Aayog is planning to set-up a Development
Monitoring and Evaluation Ofce (DMEO) to
oversee the centre’s agship programmes
and evaluate their performance.
The new body will perform much the same
role as the Independent Evaluation Ofce
(IEO) which functioned under the erstwhile
Planning Commission. Though in
coordination, the ofce is to be structured in
a fashion that it can work at arm’s length. It
would subsume the Programme Evaluation
Ofce (PEO) of the Planning Commission in
its realm.
DMEO will have two secretaries to oversee
development, monitoring and evaluation of
infrastructure schemes and social sectors
schemes respectively. The two secretaries
will directly report to the Aayog's vice
chairman, Dr. Arvind Panagariya.
Key Developments in Yojna Bhawan
24
Key Developments in the Ministry of Commerce & Industry
Launch of eBiz Portal
As a part of the Ease of Doing Business
initiative, an eBiz portal offering single
window processing of a number of
essential government-to-business (G2B)
services was launched. The portal is
expected to expand, but its rst incarnation
is promising.
The eBiz portal integrates several
government services in a single website,
facilitating faster delivery of licences,
registrations and clearances. Entrepreneurs
can apply for clearances on the portal, make
electronic payments to process applications
and track status of their application online. It
is also a repository of information on services
for setting up business in India. The website
falls under the government’s Digital India
initiative, designed to create digital
infrastructure and improve government
service provision. Currently, the federal
government offers 14 G2B services through
the portal. Many state and union territory
governments – including those in Andhra
Pradesh, Delhi, Haryana, Tamil Nadu and
Maharashtra – are shifting G2B services to
the portal. Another 40 services from the
federal government and state governments
are expected to be added over the next three
years. Well-organized applicants will nd the
amount of time involved to drop signicantly.
It is undoubtedly a step in the right direction
by the government.
SECTION B: SECTORAL UPDATES
EBIZ PORTAL HAS RADICALLY ABRIDGED THE COMPLEXITY IN OBTAINING INFORMATION AND SERVICES RELATED TO STARTING AND OPERATING BUSINESS IN INDIA.
Industrial Entrepreneurs Memorandum (DIPP)
Employer Registration with EPFO
Allotment of Director’s Identication Number (DIN)
Declaration of Commencement of Business (MCA)
Advance Foreign Remittance (RBI)
Tax Deduction Account Number TAN)
Importer Exporter Code (IEC – DGFT)
14 Government services that have already been integrated with eBiz are:
Industrial License (DIPP)
Employer Registration with ESIC
Company name availability (MCA)
Certicate of company incorporation
RBI’s foreign collaboration - General Permission
Route
Permanent Account Number
Issue of Explosive License (PESO)
Company Law – Recent Developments
The last few months have seen several
relaxations in application of specic
provisions of the newly introduced
Companies Act, 2013. The relaxations are
primarily based on stakeholder feedback and
practical experience gathered in the last year
since the new legislation became effective.
A large portion of these relaxations are
contained in Companies (Amendment) Act,
2015 (Amendment), and notications
released by the Ministry of Corporate Affairs
(Notication) exempting various kinds of
companies from certain provisions of the
Companies Act, 2013 (Act). Amongst
different categories of companies to whom
these notications were directed, private
companies largely welcomed the exemptions
granted from certain procedural requirements
under the Act.
One of the most signicant relaxations was
with regard to related party transactions. As
per the Act, certain related party transactions
were required to be approved by a
shareholders’ resolution with three-fourths
majority (where the ‘related party’ was not
entitled to vote). With a large proportion of
Indian companies still being promoter
managed and owned, this provision
presented difculties in moving ahead with
related party transactions since building
consensus, at times, became difcult. As a
relief to corporates, but still adhering to the
philosophy of minority protection, the
government relaxed the majority vote
requirement from three-fourths majority
(special resolution of shareholders) to 50.1
percent majority (ordinary resolution).
Further, for private companies, another relief
was provided – shareholders who are related
parties shall have a right to vote on such
resolutions.
A few weeks after this relaxation, the
securities market regulator also made
changes to the corporate governance
requirements to be complied with by listed
companies, such that these requirements
were aligned to relaxations made in the Act.
While certain issues and questions still
remain with regard to related party
transactions, this relaxation itself could pave
Key Developments in the Ministry ofCorporate Affairs
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
25
EASE OF DOING BUSINESS
way for transactions where consensus
building was difcult in environments which
involved dispersed minority shareholders
driven by varying considerations. Additionally,
approval requirements have been entirely
done away with for transactions with wholly
owned subsidiaries. Finally, private
companies are exempted from the
requirement of a shareholders’ resolution for
transactions with a holding, subsidiary,
associate, or fellow subsidiary companies.
In line with industry requests, the
Notications also brought in a number of
procedural relaxations for private companies.
One of the more signicant relaxations here
is non-applicability of Sections 43 and 47 of
the Act (relating to kinds of share capital and
voting rights), to companies. This empowers
private companies to structure investments
by external investors by issuing special
classes of shares. The Notication also
provides that limits on remuneration of
managerial personnel shall not be applicable
to a private company, which makes it easier
for companies to attract talent at key levels.
Additionally, there are many relaxations on
the procedural front. The requirement of
having a minimum paid-up capital to oat a
company (private or public) has been done
away with. The outdated and rarely deployed
‘common seal’ has also been done away
with. For private limited companies, the
Board can transact matters given in Section
180 of the Act (e.g. sale of undertaking,
borrowings beyond a particular threshold
etc.) without prior approval from the
shareholders. For certain private companies,
in which the entire shareholding is held by
non-corporates, provision of loans to
directors and their related entities, otherwise
prohibited under Section 185 of the Act, is
now possible. Finally, private companies can
raise deposits (up to a certain limit) from their
members without complying with certain
onerous conditions as prescribed in Section
73 of the Act. Flexibility has also been
provided to private companies to prescribe
their own regulations as to the conduct of
meetings in their bylaws.
In summary, the regulators have displayed
a pro-industry attitude by understanding
market feedback, and announcing
relaxations in a balanced manner. Though
issues still remain, as expected with any
large and material legislation, the overall
regulatory developments have been
encouraging.
SECTION B: SECTORAL UPDATES
26
SEBI – Simplifying the listing of Startups
As Indian start-ups grow and move towards maturity, challenges of raising further growth capital
in larger amounts and providing a credible exit to existing investors have (or will) come up. The
traditional (or rather conventional) approach to address the challenge has been to seek listings
in overseas markets. Reasons for this are multifarious – the primary three being (1) availability of
sufcient market capacity and sophisticated investors with a favourable mindset to price such
assets, (2) tax considerations of promoters and investors, and (3) regulatory environment
governing the listing process.
Securities and Exchange Board of India (SEBI) has been mindful of the potential ight of valuable
assets to overseas capital markets, and also the challenges faced by existing companies in
current capital raising and listing regime [largely covered under SEBI (Issue of Capital and
Disclosure Requirements) Regulations, 2009, referred to as ICDR herein].
ICDR had itself provided easier capital raising/ listing regimes for companies qualifying as small
and medium enterprises (SMEs) contained in Chapters XB and XC (wherein eligible companies
could simply list, or list along with making a public issue, subject to prescribed conditions).
However, these were not very successful, owing to regulatory constraints. In August 2015, SEBI
issued ‘refreshed’ listing and capital raising regime for ‘eligible’ start-ups with the intention of
developing a market place for this asset class which can be accessed and used by
sophisticated investors.
The ‘refreshed’ regime in summary
To be eligible, a company should have at least 25 percent of its pre-issue capital held by
qualied institutional buyers (QIBs as dened in ICDR), and should be engaged in the use of
technology, information technology, intellectual property, data analytics, bio-technology and
nano-technology to provide products, services or business platforms with substantial value
addition. If companies are not engaged in the businesses mentioned above, QIB holding in pre-
issue capital has to be at least 50 percent. Further, no person, individually, or with others in
concert, shall hold 25 percent or more of post issue capital of the company.
Eligible companies can either list their securities without raising fresh capital from public, or seek
listing pursuant to making a public issue on a special ‘institutional trading platform’. Minimum
trading lot on the platform should be INR 1 million to ensure that the asset class is accessed
only by sophisticated investors with risk taking capability.
In case of companies making a public issue along with listing, the minimum application size
shall be INR 1 million and the number of allottees should be more than 200; 75 percent of the
net offer to public shall be allocated to institutional investors, while the remaining 25 percent can
be allocated to non-institutional investors.
Key positives
The new regime addresses the following key challenges:
Financial criteria
Companies accessing the regime shall not have to comply with minimum assets/ prot/net
worth criteria as prescribed in ICDR for normal public issues.
Objects of issue
Companies would have the exibility of stating objects of the issue in broad terms.
Valuation
Basis of issue price may include disclosures, except projections, as deemed t by issuers in
order to enable investors to take informed decisions.
Lock-in of pre-issue shareholding
Lock-in requirement of one-three years applicable for normal IPOs has been reduced to six
months. Further, there shall be no lock-in in respect of shares held by certain funds and
promoters, provided the shares have been held continuously for a period of one year.
Key issues
Whilst the new regime addresses major challenges, a few constraints could impact its efcacy:
Denition challenges
In terms of business models, the new regime creates a distinction between businesses enabled
by certain kinds of technology; this seems to be anachronistic. The dampener is the necessity to
have a minimum 25 percent, or 50 percent, shareholding by QIBs to be eligible for the platform.
Concentration norms
There is a requirement of no shareholder owning 25 percent or more of the post issue share
capital, thereby leaving out ventures where promoters or large institutional investors hold
signicant shareholdings. Further, having minimum 200 allottees, and no institutional investor
being allotted more than 10 percent of issue size may also impact the regime's workability.
But for some constraints mentioned above, the new regime is a signicant regulatory enabler
and, coupled with favourable tax treatment for on exchange transactions, could create a viable
platform for structuring exits for investors. That said, the decision on listing, apart from regulatory
and tax considerations, also depends on factors such as market appetite and maturity of
investors to understand such ventures. It would now be left to market forces to determine the
success of this new initiative.
Prime Minister Modi visited ve Central Asian
countries – Uzbekistan, Kazakhstan,
Turkmenistan, Kyrgyzstan and Tajikistan – in
July to reinvigorate India's traditional ties with
the region. Central Asian countries are
resource rich and India is looking at investing
and building partnerships in the region. India
sealed several agreements with nations on
energy and trade and held discussions on
security issues and cultural interchange.
Kazakhstan, the biggest producer of uranium
in the world, supplied India with 2,100 metric
tonnes of uranium between 2009 and 2014.
India signed a fresh deal to secure 5,000
tonnes of uranium supply over the next four
years. This would allow operations to restart
in many nuclear plants, which are currently
closed due to lack of fuel.
A major landmark of India's engagement with
Central Asia is the TAPI (Turkmenistan-
Afghanistan-Pakistan-India) Project – an
ambitious pipeline for transporting natural
gas from Central Asia to South Asia. The
proposed 1,700 km pipeline is a USD 10
billion project, passing through Afghanistan
and Pakistan. Turkmenistan has the world's
largest reserve of natural gas and could be a
steady source of natural resource. However,
given the unrest and political equation with
neighbours, questions regarding completion
of the project remain.
In Kyrgyzstan, pacts to boost co-operation in
medicine and information technology were
signed. During Modi's Uzbekistan visit, both
sides discussed strengthening bilateral
economic relations, ways to improve
connectivity with the landlocked Central
Key Developments in Foreign Affairs
SIGNING LANDMARK DEALS WITH ITS NEIGHBOURSPM NARENDRA MODI MEETS HEADS OF STATE OF TAJIKISTAN, UZBEKISTAN AND TURKMENISTAN
29
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
Asian nation and implementing the contract
for supply of uranium from mineral-rich
republic.
Modi’s recent visit to the United Arab
Emirates (UAE) chalked discussions on
security, trade and cultural exchanges. The
prime ministers’ attempts to woo UAE
investors for infrastructure projects saw
success when the two parties were able to
establish the UAE-India Infrastructure
Investment Fund. This fund aims to reach a
target of USD 75 billion to support investment
for rapid expansion of next generation
infrastructure capabilities.
Prime Minister Modi’s visit in September to
the US marked a signicant step on the road
to strengthening Indo-US ties and business
relations. During his ve-day visit, he not only
met US President Barack Obama, but also
sought to invite investment from prominent
CEOs of the Silicon Valley. During his one-
hour meeting with President Obama, a range
of issues were discussed, including terrorism
and climate change. Several path-breaking
MoUs were signed between various Indian
and US rms. The Prime Minister promised to
provide lifetime visas to Persons of Indian
Origin (PIO) cardholders and visa on arrival
to American tourists visiting India. The
merger of PIO and Overseas Citizens of India
(OIC) schemes to facilitate hassle free travel
to the Indian diaspora was announced. PM
Modi pitched India to some of the largest
global investors and nanciers, urging them
to shed any fears they might have developed
in recent years about investing in the country.
Over a series of one-on-one meetings and a
power breakfast, Modi met top executives of
Fortune 500 companies such as BlackRock’s
Laurence D. Fink, Lloyd Blankfein of
Goldman Sachs and KKR's Henry Kravis as
well as CEOs of manufacturing rms,
including Boeing’s James McNerney, General
Electric’s Jeffrey Immelt and IBM's Virginia
Rometty. He also met executives from Merck,
Cargill, AES, Citigroup, PepsiCo etc.
Besides, PM Modi took the opportunity of
meeting head honchos of global tech giants
– Google, Apple and Microsoft – to promote
his Digital India initiative. During his tour of
the Google campus, he announced that in
collaboration with Google, Indian Railways
would provide free wi- services to 500
railway stations in India.
Bilateral meetings with British Prime Minister
David Cameron and France’s President
Francois Hollande were held on key issues
like terrorism, UN Security Council (UNSC)
reforms and climate change.
On the last day of his visit, PM addressed the
UN Peacekeeping Summit where he made
another strong pitch for UNSC reforms. He
also attended the UN General Assembly
where a number of subjects centred around
collective world development were touched
upon. PM Modi pledged his uncompromising
commitment to ghting climate change
without hurting development.
30
SECTION B: SECTORAL UPDATES
PM NARENDRA MODI MEETING WITH CEOS OF GLOBAL TECH GIANTS – SUNDER PICHAI OF GOOGLE, SATYA NADELA OF MICROSOFT AND TIM COOK OF APPLE – TO PROMOTE THE ‘DIGITAL INDIA’ INITIATIVE.
Relaxation of Offset Discharge Procedure
The Ministry of Defence recently made
important modications to the offset policy
forming part of Defence Procurement
Procedure (DPP) 2013, with the intent of
providing greater headroom to OEMs in
meeting their offset commitments.
Key takeaways emerging from
modications brought about in the DPP
2013.
Enhanced exibility to OEMs in choosing
Indian Offset Partners
The earlier offset policy permitted OEMs to
change the Indian offset partner
(IOP)/components only “in exceptional
cases” after seeking prior approval from
relevant government authorities. Whilst any
change in the IOP required prior approval
from the secretary, defence production, a
change in the offset component required
approval of the defence minister pursuant to
recommendations of the Defence Production
Board.
In order to
simplify the
approval
process, the
notication
proposes that aforesaid changes in IOP and
offset components shall now be subject to
approval by the defence production
secretary. Such a change in IOP/offset
components shall no longer be restricted to
“exceptional cases� only; such change could
be uniformly sought by OEMs.
Calibrated approach to submitting offset
work plans
Hitherto, OEMs were required to submit the
detailed technical offset proposal for review
by the Technical Offset Evaluation Committee
(TOEC) at the bid stage. The proposal
required to be submitted by OEMs had to
specify offset components, names and
eligibility documents of IOPs and IOP wise
work share. Further, OEMs were required to
ensure that the proposal is in conformity with
the offset guidelines.
Under the amended policy, if OEMs fail to
provide an offset plan comprising details
pertaining to IOP wise work share, specic
products and supporting documents
indicating IOP eligibility, at TOEC stage, it
may choose to provide such details as
under:
a) OEM may furnish such details to the
Defence Offset Management Wing (DOMW)
one year prior to discharging offset
obligations through IOPs.
The approval of the proposal shall be
intimated by the DOMW within three months
of receipt of complete documents. In case
Key Developments in the Ministry ofDefence MAKING POLICY
THAT ISMANUFACTURINGFRIENDLY
31
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
NITI Aayog to bring Integrated
Energy Policy
NITI Aayog is expected to announce an
integrated energy policy for decontrolling
energy prices. The policy, a blueprint for
developing energy security and right pricing
mechanism, would push competition on
quality standards.
In 2013-14, the erstwhile Planning
Commission had created the India Energy
Security Scenarios (IESS) 2047, which was
launched in February 2014. Its role was to
assess and predict India’s energy needs,
domestic supplies and imports. NITI Aayog
has planned to take IESS 2047 to the next
level by bringing its rened version IESS 2047
2.0, which allows for three GDP growth
scenarios 7.4 percent, 6.7 percent and 5.8 9
percent in 2012-47 and accords a series of
energy consumption projections.
This initiative will boost power generation
from various sources like solar, wind, gas and
coal and counterbalance growing demand.
Today, India has an installed power
generation capacity of over 250,000 MW from
all sources, while peak power decit lies
roughly at 3.6 percent. The government has
set an ambitious target of generating 175,000
MW from renewable sources by 2022,
including 1,00,000 MW solar power.
India has the potential to emerge as a major
manufacturing hub in renewable power. Wind
energy in India accounts for nearly 70
percent (21.1 GW) of installed capacity,
making it the world's fth largest wind energy
producer. The government has set a capacity
addition target of 30 GW, taking total
renewable capacity to almost 55 GW by
2017. This includes 15 GW from wind power,
10 GW from solar power, 2.9 GW from
biomass power and 2.1 GW from small
hydropower.
the proposal is found ineligible, the vendor
may be required to rephrase the offset plan.
It is useful to note that in case there is any
change in annual commitments, there shall
be a consequential enhancement of 5
percent in obligations.
Alternatively,
b) OEM may furnish such details to DOMW at
the time of seeking offset credits.
In this scenario, DOMW shall evaluate the
proposal in light of the present offset
guidelines. On such evaluation, if proposal is
found to be ineligible, DOMW may levy
penalty treating transactions as invalid.
The aforesaid amendments shall come into
effect immediately and shall be applicable to
all Offset contracts and ongoing procurement
cases, irrespective of the applicable DPP.
The industry has long awaited rationalization
of the offset policy allowing OEMs to
calibrate their offset commitments as these
near actual implementation stage in the
project lifecycle. The latest amendment to
offset regime is a progressive policy move as
it permits OEMs to change non- performing
IOPs and offset component on near time
basis.
Key Developments in the Ministry ofPower & New and Renewable Energy
32
SECTION B: SECTORAL UPDATES
9 India Energy Scenarios Version 2.0, 2047: http://indiaenergy.gov.in/docs/Handpercent20Book.pdf
THE PROPOSED NATIONAL RENEWABLE ENERGY ACT, WILL HELP TO BRING IN CLEAR INSTITUTIONAL, FINANCIAL, STRUCTURAL ROADMAP FOR THE SECTOR AT THE NATIONAL LEVEL.
National Renewable Energy Act in pipeline
To reinforce the renewable energy sector and
give it institutional design, the government
has drafted the National Renewable Energy
Bill 2015. It is due in parliament next year and
once passed will cover all aspects of
renewable energy supply chain. Through an
independent law, the Ministry of New and
Renewable Energy (MNRE) would get
freedom to execute projects and not depend
on other ministries and departments for
clearances.
The law comes at a much needed time. The
government has announced scaling up of
renewable power generation to 175,000 MW
by 2022. Of this, solar power alone would be
around 100 GW. The distinct focus segments
of the policy are – renewable energy resource
assessment, technical and safety standards,
monitoring and verication, manufacturing
and skill development and data
management. It also aims to build dedicated
renewable electricity investment zones.
The Bill once passed will enable a National
Renewable Energy Committee for inter-
ministerial coordination relating to the
implementation of the Act and a National
Renewable Energy Advisory Group to
monitor optimum utilisation of funds.
According to the draft, MNRE would work
with nodal agencies and state governments
to enforce mandated Renewable Energy
Purchase Obligation through appropriate mix
of incentives, penalties, and legal action as
dened in National RE Policy and Plan.
33
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
KEYTAKEAWAYS
India’s knowledge employee base
demonstrated its strength to the world
nearly two decades ago. Top executives
who wish to diversify their supply chains no
longer consider India as just a supplier of
software and BPO services. Manufacturing
is the next frontier in India. The country has
proven that its resources hold tremendous
potential. Its attractiveness as part of the
global supply chains is much higher now. In
fact, global CEOs could follow Jeff Immelt’s
lead and begin including India as an
integral part of their global supply chain.
Recent initiatives that improve India’s
business ecosystem while re-zoning focus
towards manufacturing are critical to elevate
more than half a billion of its people out of
poverty. The direction of reforms and
administrative measures is to strengthen
initiatives towards Make in India and demand
revival.
New administrative and structural reforms are
being envisaged with focus on a three-point
theme. One, cutting down as many points of
human interface as possible. Two, putting
processes online. Three, converging and
integrating the processes and procedures of
different departments. This is what underpins
all the initiatives in the past year. Action is not
conned to the centre. States account for
nearly half the regulatory landscape that
companies have to navigate and
governments there are following each other
to become business friendly. Hence,
procedures and paperwork are being
simplied or put online, e-procurements, e-
tendering and deemed approvals are being
facilitated and self-certication and third-party
certication are being encouraged.
On demand revival, government is less likely
to resort to scal expansionary measures.
These were initiated when the nancial crisis
hit the market. In the current scenario, this
solution stands ruled out, as any kind of
expansionary policy beyond a point may
produce negative consequences. Thus, the
government’s emphasis seems primarily
towards promoting and attracting fresh
investments in India.
A new enabling framework is under
preparation for start-ups, which will eventually
shift base due to procedural issues. The
government is committed to stabilising and
simplifying taxation regime and the pace of
reforms is expected to continue on the
taxation front. IT backbone for GST legislation
SECTION C: CONCLUSION
34
is being drafted; this claries that the
government is administratively gearing up for
the rollout. FDI policies have been
instrumental in reviving inows after a three-
year slump.
The decision of the government to launch the
gold bond and gold monetization schemes
can be seen as a clear measure to catalyse
domestic savings. This has been an area of
challenge especially for the last two-three
years.
While companies across the globe have
shown interest in India’s manufacturing
potential, they often cite challenges they face
when doing business in India. Critical legacy
issues – land, labour, power – often helm the
business exercise. The fourfold list has
translated into some action recently (e.g. the
Land Acquisition Bill, 24x7 Power for All
Scheme, laws including codes on industrial
relations, wages and mandatory minimum
wages) and more structural reforms are in the
ofng.
The next few years would be critical as the
government works its way towards ushering
India into the top 50 in the World Bank Ease
of Doing Business ranking. The government
is pulling out all the stops, leaving no stone
unturned to achieve this.
The vision is to have a simple regulatory
regime with no act more than three pages,
no rule more than two pages and no form
more than one page. This when
implemented will set the stage for
exponential growth and unprecedented
transformation.
35
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
Researched by
Aastha Dara, Dipti Chawla, Jyoti Bhowmick
Contributions by
Ashutosh Dikshit, Mahesh Jaising, Malini Mallikarjun, Siddharth Nair, Siddharth Sehgal,
Sumit Singhania
Acknowledgements
Abhinay Kapoor, Asmita Mishra, Geetha G, Hardik Bhatia, Swagath KV, Vishwendra Singh
Edited by
Mukesh Butani
36
Rank RankState StateScore Score
12 28
16 32
15 31
14 30
13 29
11 27
10 26
9 25
8 24
7 23
6 22
5 21
4 20
3 19
2 18
1 17Gujarat Himachal Pradesh
Andhra Pradesh Kerala
Jharkhand Goa
Chha�sgarh Puducherry
Madhya Pradesh Bihar
Rajasthan Assam
Odisha U�arakhand
Maharashtra Chandigarh
Karnataka Andaman & Nicobar
U�ar Pradesh Tripura
West Bengal Sikkim
Tamil Nadu Mizoram
Telangana Jammu & Kashmir
Haryana Meghalaya
Delhi Nagaland
Punjab Arunachal Pradesh
DIPP: Assessment of State Implementation of Business Reforms
In a bid to encourage competition amongst states to attract investments, the Department of
Industrial Policy and Promotion (DIPP) in September 2015 released the Ease of Doing Business
rankings for each state and union territory. The report Assessment of State Implementation of
Business Reforms, assesses implementation of the reforms undertaken by state governments
across the following eight areas – setting a business, allotment of land and obtaining
construction permit, complying with environment procedures, complying with labour regulations,
obtaining infrastructure related utilities, registering and complying with tax procedures, carrying 10out inspections and enforcing contracts.
In December 2014 during a Make in India workshop, state governments agreed to a 98-point
action plan for business reforms that will make all states and union territories investor friendly.
The action plan lays out a series of recommendations targeted at increasing transparency and
improving efciency and effectiveness of various government regulatory functions and services
for business in India.
The report reveals that states are at different levels of implementation of the 98-point action plan.
DIPP has converted the implementation status of each state to a percentage and has calculated
the ranking based on this. Table 3 illustrates the state-wise ranking.
71.14% 23.95%
70.12% 22.87%
63.09% 21.74%
62.45% 17.72%
62.00% 16.41%
61.04% 14.84%
52.12% 13.36%
49.43% 10.04%
48.50% 9.73%
47.37% 9.29%
46.90% 7.23%
44.58% 6.37%
42.45% 5.93%
40.66% 4.38%
37.35% 3.41%
36.73% 1.23%
Source: DIPP
10 Assessment of State Implementation of Business Reforms, September 2015http://dipp.nic.in/English/Investor/Ease_DoingBusiness/StateAssessmentReport_14September2015.pdf
State-wise Ease of Doing Business Ranking in India, 2015
ANNEXURE
While Gujarat tops the list, Andhra Pradesh is second and Jharkhand third. Although states like
Punjab, Gujarat, Haryana and Maharashtra have been undertaking reforms since late 1990s, it is
interesting to note that the charge is being led by industrially backward states like West Bengal,
Uttar Pradesh and Odisha too. These states are gradually emerging as enthusiastic reformers.
On the other hand, intense competition between Andhra Pradesh and Telangana has seen these
states institutionalise a self-certication system through legislation. Andhra Pradesh has pledged
to penalise ofcials who delay permissions. Chhattisgarh has put all clearances and applications
online and has sought help from the Confederation of Indian Industry (CII) to draw a master plan
for easing its business environment further.
Although DIPP's report is an icebreaker, it was only in December 2014 that states had agreed to
comply with the 98-point action plan. It thus seems too early to pass a verdict. One should be
cognizant of the fact that all 31 states share diverse demographics and resource endowments.
Therefore, it might be difcult for some states to undergo these structural and process reforms
(dened by the action plan) with the same speed as others.
Make in India – One Year Success Story
Electronics
Automobiles
Defence
Foxconn, the manufacturer of Apple's iPhones, has announced plans for
crea�ng 10 -12 facili�es in India, which will include factories and data
centres.
Smart phone manufacturing company Oppo mobiles is star�ng its
manufacturing plant this year
ZTE Corpora�on, a Chinese telecom major, has completed its recce to
set up its manufacturing facility in India.
Chinese mobile handset maker Phicomm has commi�ed to inves�ng
USD 100 million in the next three years to market its product and
exploring the possibility of se�ng up a manufacturing facility in India.
Mercedes Benz has decided to invest in two areas - First, in the luxury
car segments, it has decided to manufacture more of its components in
India, thus increasing localiza�on of its new model C220 CDI to 60
percent. Second, it has decided to manufacture its luxury buses in India,
to be exported to Africa and South East Asian markets.
BMW has decided to increase localiza�on to 50 percent and has signed
deals with more than 20 companies who supply its components.
Volvo is exploring the possibility of expor�ng its range of buses to other
markets from India.
Renault, the French automobile major, has improved localisa�on of its
KWID model to 98 percent.
Ford has commi�ed to inves�ng INR 40 billion-50 billion for R&D in its
Chennai facility.
Tata-JLR (Jaguar Land-Rover) announced that it will move produc�on of
the Land Rover Defender to its Pune facility in 2016.
Hyundai Heavy Industries (HHI) of South Korea will work with Hindustan
Shipyard Limited in Visakhapatnam to build warships in India.
Samsung has agreed to build LNG tankers with Kochi Shipyard
Gurgaon based Sun Group is in discussion with Russia to manufacture
200 Kamov Ka 226 light helicopters in Punjab.
Reliance Infrastructure is in discussion with officials in Russia to explore
opportuni�es to build nuclear submarines and stealth warships in India.
Sector Success Stories
39
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
Railways
Avia�on
Food Processing
Energy & Power
Mining
Media & Entertainment
In the recent deal with France on Rafale Jets, India has been able to
extract a substan�al amount of investment. About 50 percent, i.e.
USD 4 billion, of the total deal value will be invested in India
Airbus has announced that exports from India will reach USD 2 billion
from India.
Pra� and Whitney, a US based firm, has shown interest in se�ng up
its facili�es in India.
The government has announced se�ng up of 42 new mega food
parks in the next four years. These food parks will provide incen�ves
for small business to set up their facili�es under various schemes.
MNCs like Pepsico, Coca Cola and Nestle have commi�ed to
increasing capacity in the country.
Bangladeshi food and beverages processing company, the PRAN
Group, has set up a plant in Tripura at a targeted investment of INR 2
billion.
Indian Tobacco Company (ITC) has joined the bandwagon by se�ng a
food processing park in Khurda in Odisha.
Alstom T&D will manufacture two substa�ons, including components
completely in India.
Essel Group has formed a joint venture with leading Chinese solar
energy producer JA Solar to manufacture solar cells and modules in
India
Azure Power India, has announced the commissioning of its largest
solar photovoltaic plant under India's Na�onal Solar Mission policy in
Jodhpur, Rajasthan.
Karnataka Iron Ore Corpora�on Limited (KIOCL) is offering its pellet
plant and blast furnace units to overseas companies.
Na�onal Aluminium Company (NALCO) has approved a capacity
expansion plan to set up a one million tonne alumina refinery at
Damanjodi, Odisha, with a proposed investment of INR 55.4 billion.
Government has held discussions with USIBC (US-India Business
Council) to explore opportuni�es to make India a film shoo�ng
des�na�on. Representa�ves from The Walt Disney Company, Time
Warner, Viacom 18 and Mo�on Picture Associa�on have expressed
interest in this regard.
Indian Railways has invited bids from interna�onal suppliers for
procurement and manufacture of 15 train sets. Of these, two trains will
be imported and the rest manufactured in India. The whole project is
es�mated to be worth INR 25 billion.
Sector Success Stories
40
REFERENCES
Doing Business 2015 – Going Beyond Efficiency, Indiah�p://www.doingbusiness.org/~/media/GIAWB/Doingpercent20Business/Documents/Annual-Reports/English/DB15-Full-Report.pdf
Doing Buisness 2016 – Measuring Regulatory Quality and Efficiency, Indiah�p://www.doingbusiness.org/~/media/GIAWB/Doingpercent20Business/Documents/Annual-Reports/English/DB15-Full-Report.pdf
CIRC Working Paper – Unease of Doing Business in Indiah�p://circ.in/pdf/Doing-Business-in-India.pdf
Indradhanush – Plan for revamp of Public Sector Bankh�p://financialservices.gov.in/PressnoteIndradhanush.pdf
CII Policy Watch: Ease of Doing Business in India
Make in India: Turning vision into reality – Boston Consul�ng Grouph�p://www.bcgindia.com/documents/file176705.pdf
Economic Times h�p://ar�cles.economic�mes.india�mes.com/2015-07-10/news/64282983_1_tax-evasion-fatca-revenue-secretary-shak�kanta-das
India US Sign FATCA h�p://www.thehindubusinessline.com/economy/policy/india-us-sign-agreement-to-share-tax-informa�on/ar�cle7403450.ece
NITI Aayog h�p://ar�cles.economic�mes.india�mes.com/2015-08-24/news/65808504_1_ni�-aayog-programme-evalua�on-organisa�on-independent-evalua�on-office
India Briefing – India's New eBIz Portal, all you need to knowh�p://www.india-briefing.com/news/indias-ebiz-portal-11139.html/
Commerce Ministry to integrate all central, state services to e-Biz pla�ormh�p://ar�cles.economic�mes.india�mes.com/2015-08-07/news/65318155_1_dipp-secretary-amitabh-kant-na�onal-quality-conclave-e-biz-pla�orm
Defence Ministry brings major retrospec�ve changes in offsets policyh�p://economic�mes.india�mes.com/news/defence/defence-minstry-brings-major-retrospec�ve-changes-in-offsets-policy/ar�cleshow/48460547.cms
Na�onal Renewable Energy Act to change landscape of REh�p://www.business-standard.com/ar�cle/economy-policy/na�onal-renewable-energy-act-to-change-landscape-of-re-115072001013_1.html
NITI Aaayog to bring integrated energy policy soonh�p://www.livemint.com/Poli�cs/rml2PROJpXdFHsjeMWTwGO/NITI-Aayog-to-bring-integrated-energy-polcy-soon-Arving-Pa.html
PM Narendra Modi's UAE visith�p://indianexpress.com/ar�cle/india/india-others/pm-narendra-modis-uae-visit-quick-take/
Narendra Modi's visit to Central Asiah�p://blogs.wsj.com/indiareal�me/2015/07/06/narendra-modis-visit-to-central-asia-what-to-know/
Launch of Skill India Campaignh�p://pib.nic.in/newsite/PrintRelease.aspx?relid=123208
41
INDIA'S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES
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