US-India Business Council – Member Briefing
December 14, 2015
India’s GDP and Macroeconomic Indicators
GDP (2014-15) GDP (2015-16 - Estimated)
7.3%
7.5% 7.3% 7.5%
World Bank IMF Indian Government
FY 2013-14 FY 2014-15 Q1 FY15-16 Q2 FY15-16
GDP (%) 6.9 7.3 7.0 7.4
Forex Reserves (US$) ~304 bn ~341 bn ~$351 Bn ~$354 Bn
FDI (US$) ~24 ~44 ~22 ~24
CAD (as a %age of GDP) 4.9 (Q1)1 1.6 (Q1)1 1.2 Not Released
Inflation (%) 9.5 5.9 4.4 5.0
GDP Growth Comparison
(IMF)
World Economy Advanced Economies Emerging Economies China India
3.1% 2% 4% 6.8% 7.3%
INDIAN ECONOMY AT A GLANCE
1CAD is for Q1 FY 2013-14 and FY 2014-15
First 18 months of the NDA Government has cemented its pro-business, pro-growth credentials with emphasis on ‘minimum government – maximum governance’
INDIAN ECONOMY AT A GLANCE
World Bank Ease of Doing Business Index: India scaled-up 12 spots, ranked 130th in 189 economies “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” – World Bank
WEF’s Global Competitiveness Index: India ranked 55th among 140 economies, moving up 16 spots
“This dramatic reversal is largely attributable to the momentum initiated by the election of Narendra Modi, whose pro-business, pro-growth, and anti-corruption stance has improved the business community’s sentiment toward the government,” - World Economic Forum (WEF)
INDIAN ECONOMY AT A GLANCE
PM Modi and Foreign Affairs Minister Swaraj together have visited over 45 countries to boost trade and bilateral ties.
• US visit: Modi met prominent CEOs of Silicon Valley and signed path-breaking MoUs with the President
• Recent visit to UK, Singapore and Malaysia included signing various bilateral agreements
• Prominent world leaders have visited India – US, Japan, China, Germany; India also hosted India-Africa Forum Summit
Countries PM Modi has visited
REPOSITIONING INDIA IN WORLD ECONOMY
Aim is to de-license and deregulate entire business life cycle
Make in India (Developing 25 key industries) - Cutting down on procedural delays, providing Tax sops, promoting innovation, skill development, labour law reforms
Developing Infrastructure - 100 smart cities, develop rail network & highways, dedicated freight corridors,
developing ports, amending the civil aviation policy
FDI - Liberalization of its FDI policies in 15 major sectors, big bang reforms in real estate and media
Erstwhile 26% equity threshold replaced with 49% as acceptable FDI limit
Foreign Trade Policy - Reward schemes for exports, simplification of procedures for digitization and e-
governance, reduction of export obligation for domestic procurement
Digital India - Digital footprint for every Indian and integrating government services through a single window
Assessment of state driven business reforms – land, labour and others
EASE OF DOING BUSINESS
Tax Reforms
GST: Government desirous of implementing harmonised indirect tax system in 2016
Corporate Tax Reforms: Intent to reduce corporate tax rate from 30% to 25% over next 4 years
Simplifying Income Tax Act: Committee to give its recommendations before Budget 2016
MAT levy on FIIs: Extension of MAT exemption to foreign investors (which do not have permanent establishments) retrospectively
Transfer Pricing Reforms:
Permitting OECD approved range concept
Accelerating APAs – bilaterals to get greater impetus
Expanding reach of Authority for Advance Ruling.
Accelerating resolution of India-US mutual agreement procedure under the double tax avoidance agreement.
Other Business Regulatory Reforms
• Black Money Act: Take action against stashing illegal wealth abroad. India ranks 4th in black money outflows ($51 BN per annum, 2004-2013)
• Bankruptcy Code: Code to provide legal certainty and speed for business closure
• Real Estate Bill: Bill to overhaul the Indian realty landscape and regulate the market
• Arbitration and Commercial Courts Ordinance of 2015
TAX AND REGULATORY REFORMS
Perceptible shift in tax environment – administration of tax policy, tax dispute resolution
8
OVERVIEW AND STATUS - KEY BUSINESS, TAX AND REGULATORY REFORMS
DRAFT BANKRUPTCY CODE
Page 9
Challenges
• Liquidation proceedings under the Companies Act remain independent of the draft Code – detracts from the consolidation effort
• Code is not yet on the agenda for the current session of Parliament – unlikely to be tabled in this session; likely to be tabled as a Bill in February
• Creating necessary bandwidth
Need
▫ Too many laws and forums ▫ Complex and lengthy processes ▫ Inefficient enforcement ▫ Unpredictable and unsatisfactory outcomes
Click here for highlights
Objective
• Consolidate all insolvency / bankruptcy laws
• Streamline processes and early detection
• Hasten and improve outcomes for stakeholders
• Put in place modern oversight and administration mechanisms
REAL ESTATE (REGULATION AND DEVELOPMENT BILL)
Objective
• Protect consumer interest
• Ensure timely execution of projects
• Provide uniform regulatory environment and have a dispute resolution mechanism to enable the sector to gain increased access to capital and destress highly leveraged projects
Need
• Lack of a uniform regulatory environment
• Absence of transparency and accountability in transactions
• Foreign institutional investors carry high risk perception of the sector
Impact - Developers
Uptick in business and lower cost of funds owing to transparency and accountability
Effective dispute resolution
Rationalization of approval processes
Impact - Consumers
Adequacy of material project disclosures
Protection of land title
Central authority for resolving sector specific disputes
Click here for highlights
Page 11
GOODS AND SERVICE TAX IN INDIA l AN UPDATE
Single largest tax reform in India, since its independence
Subsumes key Central taxes and State taxes (except Customs)
Post Parliament’s approval, approval by at least by 50% of States and President
mandated
Constitution Amendment Bill passed in the Lower House of the Parliament – Awaiting Upper House approval
Implementation in April 2016 is unlikely
Addresses cascading effect of taxes, aims at harmonized and integrated market
Stiff resistance being faced – Government reaching out to the Opposition
Legislative process towards approval of Amendment Bill long drawn
Likely to increase throughput taxes and compliance per se
However, groundwork for implementation of GST is underway with a good momentum
Impact all areas of
Business – Infrastructure, operation and
finance
Facilitates “Make in
India”
Page 12
Objective
• Creation of commercial courts for speedy adjudication of disputes
• Provide timelines for court processes
• Provide viable alternatives for dispute resolution
• Ensure speedy disposal of high value commercial cases
Need
• Expenses of arbitration
• Time consuming court processes
• Unpredictable and unsatisfactory outcomes
• Impact on attempts to attract business and investment into India
Analysis
Potential to dramatically alter dispute resolution processes for commercial matters.
Ordinance effective from October 23, 2015 – implementation remains to be seen.
Ordinance will attempt to create a cadre of competent jurists for commercial matters.
Click here for highlights
COMMERCIAL COURTS ORDINANCE, 2015
ARBITRATION AND CONCILIATION (AMENDMENT) ORDINANCE, 2015
Page 13
Objective
• To minimize judicial intervention
• To efficiently dispose matters referred to arbitration with definitive timelines
• To bring about transparency in the process of appointment of arbitral tribunal
Need
• No definitive timelines for disposal of cases
• High costs and expenses involved in the arbitration process
• No set parameters in appointment of arbitral tribunal
Analysis
Amendments will help in reduction of cost of arbitration and increase transparency in the process.
Parties to an international commercial arbitration can now seek interim measures of protection from Indian courts, unless specifically, contractually agreed to otherwise by the parties.
The existence of arbitration agreements has been restricted to a prima facie examination by courts, effectively legitimizing agreements to arbitrate entered into through electronic means.
Click here for highlights
14
WAY AHEAD: WHAT WILL GUIDE GOVERNMENT AGENDA IN 2016?
POLICY ROADMAP l 2016
Policy initiatives in pipeline
Budget 2016 agenda: Four Key Pillars
as articulated by Jayant Sinha, MoS-Finance
• Indian Financial code
• Public Contracts (Resolution of Disputes) Bill
• IPR Policy
• Labour Reforms
• Roll-out of Universal Social Security as a platform for direct benefits
• Agricultural security
• Job creation (associated programs) - ‘Make in India’ ‘Skill India’ ‘Start-up India’
• Simplifying tax structure
KEY TAX ASKS FROM THE INDUSTRY | 2016
• Accelerated amortization for IT Products
• Possible reduction in MAT rates; in line with Corporate tax rates
• Relief under Section 10AA; clarification on maintenance of separate books
• Extension of concessional excise and customs duty benefits to components for manufacture
• Address Inverted duty structure; probable solution by providing SAD exemption
Make In India/
Digital India
Make In India/
Digital India
Guide state level reforms: land, labour,
capital
Guide state level reforms: land, labour,
capital
• Speedy disposal of SVB cases (customs transfer pricing review); Nil BCD/ MRP based to be outside the purview of SVB
• Robust refund and rebate mechanism for expeditious sanction of claims
Policy Initiatives
Procedural Initiatives
• Clarity of ICDS; relaxation required
• Relax tax filing by foreign companies for passive streams of income, royalty and fees for technical services
INDIRECT TAX DIRECT TAX
CBDT issues circular capping monetary limits for Government to pursue litigation before ITAT and High Court
ANNEXURE
INDIA’S ECONOMIC PERFORMANCE AND BUSINESS IMPERATIVES – MAKING INDIA BUSINESS FRIENDLY: THIRD EDITION
Page 18 URL for downloading the report directly - http://www.bmradvisors.com/pdf/India-Economic-Performance.pdf
FEATURES OF DRAFT BANKRUPTCY CODE
Page 19
Features of the Draft Code
Applicable to both corporate and non-corporate persons
Facilitates early detection by permitting all creditors (whether secured, unsecured, domestic, international, financial or operational) to trigger resolution processes
Establishes the Insolvency and Bankruptcy Board of India as the regulator, the National Company Law Tribunal as an adjudicating authority for corporate entities, and the Debt Recovery Tribunals as adjudicating authorities for non-corporate persons
Establishes a 180+90 day moratorium on new proceedings to protect the integrity of existing proceedings
Provides for the replacement of existing management with resolution professionals during insolvency proceedings to prevent asset-stripping
Provides for predictable and time-bound viability assessment mechanisms, liquidation processes and distribution waterfalls
Provides for penalties on promoters for asset diversion leading up to liquidation
FEATURES OF REAL ESTATE BILL
Page 20
Features of the Bill
Applicable to both commercial and residential projects
Provides for establishment of a Real Estate Regulatory Authority (“RERA”) in States to regulate projects
Specified projects and Real Estate agents are to be registered with this Authority. Specified projects being projects of at least 500 square metres or 8 flats
Requires mandatory disclosure of all registered projects, details of the promoter, project, layout plan, land status, approvals, agreements along with details of real estate agents, contractors, architect, structural engineer etc.
Project developers required to deposit at least 70% of project cost including land cost, in a separate escrow account to meet the cost of construction.
Insurance for land is now mandated
Establishment of fast track dispute resolution mechanisms for settlement of disputes through adjudicating officers and Appellate Tribunal
Civil courts jurisdiction prohibited from taking up matters defined in Bill, however, consumer court allowed to hear real estate matters
Promoters prohibited to change plans and design without consent of customers
FEATURES OF COMMERCIAL COURTS ORDINANCE, 2015
Page 21
Features of the Ordinance
Constitution of courts: Commercial Courts at district level, Commercial Divisions and a Commercial Appellate Division in High Courts
Specified value: Matters valued at not less than INR 10 million to be referred to Commercial Courts / Commercial Divisions. Detailed procedure for determining value of a matter has been provided.
“Commercial disputes”: Inclusive definition covering disputes arising out of JVAs, SHAs, investments agreements, technology development agreements, distribution and licensing agreements, management and consultancy agreements, construction and infrastructure contracts, intellectual property agreements, to name a few.
Amendment to the Code of Civil Procedure, 1908: Provisions amended in respect of commercial disputes of specified value.
FEATURES OF ARBITRATION AND CONCILIATION (AMENDMENT) ORDINANCE, 2015
Page 22
Features of the Ordinance
Indian courts have been empowered to grant interim relief in international commercial arbitrations.
Definitive timelines have been introduced for disposal of cases (12 months from the date of appointment of an arbitral tribunal, with an extension of an additional 6 months ).
For parties amenable to speedy disposal of cases, a fast track procedure has been introduced, which provides for disposal of cases within 6 months of appointment of the arbitral tribunal.
The Ordinance empowers an arbitral tribunal to grant interim relief during arbitration proceedings, to reduce judicial intervention.
The qualifications and conflict of interest requirements for appointment of an arbitrator have been made more stringent
High Courts have been empowered to frame rules with respect to fees payable to arbitrators.
DISCLAIMER: This presentation has been prepared by BMR Legal and provides general information existing as at the time of preparation and reflects personal views of the panel members. The presentation is only meant for USIBC member briefing. No responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this presentation will be accepted by organisers and/ or panel members. This presentation does not substitute the need to refer to the original pronouncements © Copyright 2015, BMR Legal. All Rights Reserved.