Cabinet nod for permanent residency to FDI investors

BUSINESS » ECONOMY

NEW DELHI, August 31, 2016

Updated: August 31, 2016 23:20 IST

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The residency status is available to all foreign investors except those from Pakistan

The Union Cabinet approved a scheme to grant permanent residency status (PRS) to all foreign investors, except those from Pakistan, subject to the relevant conditions.

“The scheme is expected to encourage foreign investment in India and facilitate the Make in India programme,” the government said in a statement. “Under the scheme, suitable provisions will be incorporated in the visa manual to provide for the grant of PRS to foreign investors.”

The PRS will be granted for a period of 10 years with multiple entry, the Centre added.

“In order to avail this scheme, the foreign investor will have to invest a minimum of Rs.10 crore to be brought within 18 months or Rs.25 crore to be brought within 36 months,” the government said. “Further, the foreign investment should result in generating employment to at least 20 resident Indians every financial year.”

The Cabinet also gave its ex-post facto approval for the foreign direct investment (FDI) policy amendments announced by the Centre on June 20, 2016, which opened up FDI norms for almost all sectors including food manufacturing, defence, broadcasting, pharmaceuticals, civil aviation, animal husbandry and single-brand retailing.

Development Fund

The Cabinet also gave its approval to create a Project Development Fund (PDF) with a corpus of Rs.500 Crore “for catalysing Indian economic presence in Cambodia, Laos, Myanmar and Vietnam”.

The PDF is to be housed in the Department of Commerce and operated through the EXIM Bank.

The PDF will be governed by an inter-ministerial committee under the chairpersonship of the Commerce Secretary.

‘Sri Lanka-India economic pact may soon be a reality’

• T. RAMAKRISHNAN

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The proposed Economic and Technology Cooperation Agreement (ETCA) between India and Sri Lanka, which would be an improvement over the existing Free Trade Agreement (FTA), may soon be a reality.

Indicating this, Y.K. Sinha, India’s High Commissioner in Colombo, used the 70th Independence Day as the occasion to tell critics and sceptics of the ETCA that “it is up to Sri Lankans themselves to decide on the contours of any agreement that they sign with a foreign country”. However, there has to be “genuine debate and discussion” among stakeholders in Sri Lanka, he added.

Mr. Sinha, who hoisted the tricolour flag at his residence here on Monday morning, referred to the latest round of discussion on the pact in Colombo last week and expressed the hope that the agreement, when signed, would be of mutual benefit to both countries. It will be a “win-win situation for all”.

India-Sri Lanka bilateral trade stood at $4.6 billion last year, of which Indian exports were valued at about $4 billion, said the diplomat. Nearly 60 per cent of Sri Lankan exports were making use of the FTA whereas 90 per cent Indian exports did not use the channel. “It is obvious who has benefitted more from the FTA,” he said.

Mr. Sinha added that as per the latest estimates, India’s economic growth rate was expected to touch 8 per cent during the current financial year.

Bilateral trade stood at $4.6 billion last year, of which Indian exports were valued at $4 billion

Govt notifies revised tax treaty with Mauritius

PTI | Aug 13, 2016, 06.51 PM IST

NEW DELHI: Government has notified the revised tax treaty with Mauritius under which India will impose capital gains tax on investments routed through the island nation from April 1 next year in a bid to curb tax evasion.

The protocol amending the agreement between India and Mauritius, signed on August 24, 1982 for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains and for the encouragement of mutual trade and investment, was signed at Mauritius on May 10, 2016.

India and Mauritius had signed the revised Double Taxation Avoidance Convention (DTAC) after prolonged negotiations at Port Louis.

Under the amended treaty with Mauritius, for two years beginning April 1, 2017, capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. Full rate will apply from April 1, 2019.

This concessional rate would however apply to a Mauritius resident company that can prove that it has a total expenditure of at least Rs 27 lakh in that nation and is not a 'shell' company with just a post office address.

As per the revised treaty, investments made prior to April 1, 2017, will be protected from new tax provisions.

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The island nation with just 1.3 million people was the biggest single source of foreign direct investment into India in 2014-15, accounting for about 24 per cent of USD 24.7 billion foreign direct investment (FDI).

The three-decade-old taxation treaty is said to have been misused by many Indian and multinational companies to avoid paying tax or to route illicit funds.

Top Comment

well done... though its just the beginningSumit Dubey

India had been insisting on review of the treaty since 2006 as it felt a chunk of the funds were not real foreign investments but Indians routing cash through the island to avoid domestic taxes, a practice known as "round tripping".

It wanted to ensure firms in Mauritius that invest in India are not just 'shell' and instead have substantial operations in the island, such as paying staff there, before qualifying for treaty terms of getting exemption from payment of capital gains tax in India.

Not desirable to use exchange rate to spur economic growth, says Rajan

BUSINESS

February 15, 2016

Updated: February 16, 2016 02:45 IST

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RBI Governor Raghuram Rajan addresses at the fourth edition of India Micro, Small and Medium Enterprises (MSME) Summit in Thiruvananthapuram on Monday.

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economy, business and finance

economy (general)

The Reserve Bank of India (RBI) and the government don’t favour undervaluation of the exchange rate as a means to spur economic growth, RBI Governor Raghuraman Rajan said.

“There are those who argue that in countries such as China, Japan and Korea business enterprises grew via an undervalued exchange rate,” Dr. Rajan said at the India MSME Summit-2016 organised by the Confederation of Indian Industry(CII) on Monday. “Such people want the same to be tried out in India. However there are a lot of problems with undervaluing the exchange rate and some of these problems are reflected in the economic condition that these countries find themselves in today.”

The exchange rate will not be a source of either comparative advantage or disadvantage, Dr. Rajan said. “I personally believe that sustained undervaluation over a long period of time is not a feasible or desirable strategy. Which is why I firmly believe that the RBI’s philosophy of not focusing on the level of exchange rate and trying to manipulate it up or manipulate it down but trying instead to minimise situations of extreme volatility and intervening in situations when the exchange rate becomes extremely volatile in either direction is the right one,” he said.

The Indian rupee is one of Asia’s worst performing currencies against the U.S. dollar this year amid renewed concern about the health of the world economy and dwindling investor confidence in Prime Minister Narendra Modi’s ability to push through economic reforms. On February 12, the currency completed its biggest weekly decline since mid-January as overseas funds fled the nation’s stocks amid a global equity rout.

The RBI wants the exchange rate to be reasonably predictable and reasonably stable, Dr. Rajan said.

The advantage to Micro Small and Medium Enterprises (MSMEs) should come from their capabilities, cost-effectiveness and innovative ideas rather than from undervaluation, he pointed out. MSMEs can act as a means of social empowerment where disadvantageous sections of society can be empowered with money and wealth.

However, the idea should not be to reserve entire sectors for MSMEs.

“This would only ensure that they remain small always. There is a need to figure out a regulatory environment that facilitates the growth and expansion of MSMEs.

There needs to be a level playing field and an easy framework of regulations for the entry and growth of small industries,” he said.

Lack of infrastructure and logistics, lack of access to marketing, difficulty and the expense in acquiring land and financing are some of the impediments faced by MSMEs.

“It is necessary that large companies handhold MSMEs for the latter’s growth,” Dr. Rajan said.

It is also necessary to have a safety net for the workers in small business firms, the RBI governor said.

Kerala, with its literacy rate and educational achievements, is quite capable of triggering a revolution on the MSME front, he added.

Keywords: Raghuraman Rajan, exchange rate, economic growth, economy

New U.S. rule a blow to Indian pharma exporters

» TODAY'S PAPER » BUSINESS

NEW DELHI, February 3, 2016

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Local manufacture of ingredients made mandatory

The government will first try to resolve the issue bilaterally, failing which, it will consider approaching the World Trade Organisation’s dispute settlement panel, say sources

In a move that will further inflate prices of drugs in the United States — already a burning issue in the current presidential campaign — the U.S. government has made it mandatory for Active Pharmaceutical Ingredients (APIs) to be manufactured locally. At present, nearly 80 per cent of drug raw material requirement is met by India or China.

The decision has already sent Indian pharmaceutical exporters into a tizzy, as it will significantly impact Indian drug exports. Before the new norms came into effect, U.S.-based companies were allowed to procure APIs from countries like India and China, make the fixed formulations (final product) in the U.S. and sell the drugs to the U.S. government.

Pharmexcil — India’s pharmaceutical Export Promotion Council — has approached the Commerce Ministry, requesting authorities to intervene and resolve the issue. The issue comes at a time when Indian API exports have been slowing down. Commerce Minister Nirmala Sitharaman said, “Pharmaceutical exporters raised concerns on restrictions in the U.S. regarding APIs. India will take up this issue [with the U.S.].” Sources said the government would first try to resolve this issue bilaterally, failing which it would consider approaching the World Trade Organisation’s dispute settlement panel.

“Sourcing of APIs is done according to the DMF — Drug Master Files — which means APIs will have to be registered with the U.S. Food and Drug Administration,” said P.V. Appaji, Director-General, Pharmexcil. “For [U.S.] government purchase of medicines, they [U.S.] prefer local companies. That was alright because many [Indian] companies have subsidiaries in the U.S. now. But having to manufacture APIs in the U.S. will be a difficult requirement to meet for many of these Indian generic drug manufacturers,” added Dr. Appaji.

The changes in the norms have been made under the Drug Master Files (DMF) — a submission to the USFDA, made solely at the manufacturers’ discretion — to provide confidential information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of one or more human drugs. It is worth noting that Indian companies are not allowed to quote for government contracts in the U.S. since India is not a signatory to the WTO’s government procurement agreement. But this change will affect companies which have subsidiaries in the U.S. that procure APIs from their Indian counterparts and make the finished product in the U.S.

Further, the decision would impact availability of affordable generics in the United States, said DG Shah, secretary-general, Indian Pharmaceutical Alliance (IPA). “This would seriously impact availability and prices of medicines in the United States. As things stand, nearly 80 per cent of the U.S. requirement for APIs is imported and due to these norms, the U.S. government procurement prices will go up significantly.

This will also be a setback for Indian companies that have subsidiaries or holdings in the U.S.”