grant thornton - india watch issue 16 - indian companies listed on the london markets

India WatchISSUE 16 APRIL 2012

Anuj Chande Partner, Corporate Finance and Head of South Asia GroupGrant Thornton UK LLPT +44 (0)20 7728 2133 E [email protected]

In association with

Welcome to the Spring edition of Grant Thornton’s India Watch, in association with the London Stock Exchange

Our overview of the Indian economy this quarter shows that it is proving diffi cult for the Indian government to support and develop the economic potential of the country. The recent state elections have now further dented the Government’s ability to push through the economic reforms required. In addition, the recent Indian Budget 2012 has, in many economists’ views, failed to implement suitable measures to encourage foreign investment and sustainable economic growth.

Our guest contributors, Saket Somani and Sumir Bhardwaj, Partners at Churchgate Partners, outline the elements of a successful investor relations programme. Indian corporates more than ever need to proactively attract and maintain the attention of increasingly selective global fund managers in order to attract public capital.

Lastly, Nidhi Gupta, tax manager at Walker, Chandiok & Co, gives us an update on the India Budget 2012 and the headline tax proposals that the Indian government announced in March.

If you would like to discuss any of the matters arising in this issue or how Grant Thornton’s South Asia group can help you please contact me.

In this issue we highlight that Grant Thornton India Watch Smaller Caps Index outperformed all major indices between January and March 2012, closing at 24% up. It appears market watchers were right to be optimistic.

The fi rst quarter 2012 witnessed M&A deal activity of US$18 billion, in line with activity levels seen during the corresponding periods in 2010 and 2011. However, the focus in Q1 2012 was domestic deals, particularly internal restructuring and mergers. Private Equity has also continued to witness sustained momentum with US$2 billion worth of deals in Q1 2012 led by Healthcare, IT ITES, Banking and Real Estate.

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India Watch - Issue 16 April 2012

The turning tide forIndian smaller caps?

It appears market watchers were right to be optimistic. Having fallen 11.27% during 2011, the Grant Thornton India Watch Smaller Caps Index outperformed all major indices between January and March 2012, closing at 24% up ahead of the previous quarter compared to the FTSE 100’s 4% rise.

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Mar 12Feb 12Jan 12Dec 11

–– GT India Watch – ALL

–– FTSE 100

–– FTSE AIM ALL-SHARE

–– GT India Watch – smaller caps

–– FTSE ASEAN

–– FTSE AIM 100

–– FTSE AIM UK 50

Source: Thomson Datastream

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In a very strong turnaround for Q1 2012, the India Watch Smaller Caps Index was up 12 points on FTSE AIM UK 50 Index and ahead of global small cap indices (FTSE AIM All-Share Index and FTSE AIM 100 Index). This gain suggests investor appetite for Indian SMEs remains strong.

Many of the leading performers in Q1 2012 are in the agriculture and energy sectors. Nandan Cleantec is a case in point. The rapid growth of the India-based biofuel producer is refl ected in its share price: up from 60p in October 2011 to 98p at the end of March 2012. And Nandan is forecast to grow by at least 25% a year until 2014-15 due to strong demand for its high-yielding variety of oilseeds.

Other energy companies dominating the top spots include Oilex, Indus Gas and Mytrah Energy, which gained 47.06%, 46.85% and 23.66% respectively. The petroleum and natural gas industry in India has attracted foreign direct investment worth US$3,332.78 million between April 2000 and December 2011, according to data from the Department of Industrial Policy and Promotion. The industry saw a further investment of US$196 million between April 2011 and the start of 2012, according to the India Brand Equity Foundation.

The fi rst quarter of 2012 wasn’t so kind to West Pioneer Properties. Its delayed reaction to tightening of monetary policy in 2011 meant it performed poorly in Q1. But the company’s efforts to position the Kalyan mall, near Mumbai, as a leading leisure destination should bolster its fortunes. The Indian real estate industry as a whole should see its prospects improve, thanks to policies to counter the infl ationary issues that led to its decline.

Even for companies suffering poor results, the news is positive compared to 2011, signalling

improved performance among Indian small caps. Against a backdrop of small signs of recovery in the US, some steadying of Europe’s eurozone crisis, and the Indian government’s efforts to reduce interest rates and stabilise infl ation, Indian SMEs should remain an attractive option for investors in Q2 and beyond.

Anuj Chande Partner, Corporate Finance and Head of South Asia GroupGrant Thornton UK LLPT +44 (0)20 7728 2133 E [email protected]

* The India Watch Index consists of 31 Indian companies listed on AIM or the Main Market (excluding GDRs). We only consider companies to be Indian if they are domiciled in India and/or foreign companies holding Indian assets or Investment companies with Indian promoters. The index has been created via Datastream, a Thomson Reuters product and is weighted by Market Value. To avoid distortion of index trends, the two largest market cap entities, Essar Energy and Vedanta Resource, are excluded.** Data sourced from Thomson Reuters.

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It may be too early to conclude a trend based on Q1 2012 cross border activity but deal values have signifi cantly declined in the quarter when compared to earlier years. While Indian companies trade at a premium to their developed market counterparts on the basis of multiples and valuation ratios, the combination of India’s growth story and a weakened currency means that India still remains to be a favoured deal destination.

Indian companies may view European businesses as potential targets at relatively low valuations in order to gain access to advanced technology and markets; we have seen large cross

Domestic deal activity bucks the trend - Overall deal momentum sustained

The quarter witnessed M&A deal activity of US$18 billion, in line with activity levels seen during the corresponding period in 2010 and 2011. However, the focus in Q1 2012 was domestic deals, particularly internal restructuring and mergers comprising approximately US$13 billion of the total M&A deal value. The focus on mergers and internal restructuring activities, a trend which gained prominence in 2011, appears to have intensifi ed in 2012 driven by Vedanta Group restructuring, estimated to be worth over US$12 billion.

border deals in the past, i.e. Bharti Airtel – Zain worth US$10.7 billion in Q1 2010 and BP – Reliance Petroleum worth US$7.2 billion and Vodafone Group Plc – Vodafone Essar worth US$5 billion in Q1 2011, and we expect more big ticket deals in the coming quarters. However, outbound acquisitions will be approached cautiously, given the prevailing debt crisis in Europe and recent proposals outlined in the Indian 2012 Budget (see article Indian Budget 2012: round up).

Q1 Deal Summary Volume Value (US$ billion)

Year 2010 2011 2012 2010 2011 2012

Inbound 23 26 36 1.12 13.75 1.26

Outbound 46 34 26 13.26 1.73 0.69

Cross Border 69 60 62 14.39 15.47 1.96

Domestic & Internal Restructuring 119 82 115 3.05 2.40 16.32

M&A 188 142 177 17.44 17.87 18.27

PE 59 75 118 1.56 2.61 2.01

QIP 9 2 2 0.87 0.53 0.1

Grand Total 256 219 297 19.87 21.01 20.35

Deal summary: January – March 2012

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Top M&A deals: Q1 2012

Acquirer Target Sector US$ Million Sesa Goa Ltd Sterlite Industries Mining 11,927.80

Tech Mahindra Satyam Computer Services IT & ITeS 1,400.00 Piramal Healthcare Vodafone Essar Telecom 618.00 Sesa Sterlite - To be formed Vedanta Aluminium Metals & Ores 473.00 TV18 Broadcast Eenadu Television Network Media, Entertainment & Publishing 395.00 Watson Pharmaceuticals Ascent Pharmahealth Pharma, Healthcare & Biotech 393.00 Sesa Sterlite - To be formed The Madras Aluminium Company Power & Energy 363.00 Binani Industries 3B - fi breglass Co Manufacturing 360.00 Nippon Life Insurance Reliance Capital Asset Management Banking & Financial Services 290.00 Sky City Foundation STel Pvt Ltd Telecom 174.50

M&A sector focusA wide range of sectors have contributed to M&A activity in Q1 2012, led by Mining and IT &ITES followed by Telecom, Pharma, Metals and Media & Entertainment.

The Vedanta internal restructuring deal in the mining sector constituted 65% of M&A values for the quarter. Other top sectors in terms of deal value were IT ITES and Pharma which also witnessed steady volumes, in line with corresponding periods in past years.

Telecom witnessed a sharp decline in deal value in the quarter with less than a billion dollars’ worth of deals, when compared to US$ 5 billion in Q1 2011 and over US$13 billion in Q1 2010. However, this is a sector that is set to enter a consolidation phase post the easing of M&A norms in the telecom sector allowing merged entities to have a market share of up to 60%. The recent ruling issued by the Supreme Court for the cancellation of 122 2G licences has affected a few foreign players such as Telenor, Sistema and Etisalat.

M&A activity in retail and civil aviation sectors remain muted with the Budget not providing

Mining [65%]

IT & ITeS [9%]

Telecom [4%]

Pharmaceuticals, Healthcare & Biotech [4%]

Metals & Ores [3%]

Others [15%]

Top M&A sectors: January – March 2012

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Karthik Balisagar Valuations Manager and Assistant Head of Valuations South Asia GroupGrant Thornton UK LLPT +44 (0)20 7865 2475 E [email protected]

With special thanks for their contribution to Ankita Arora and Sowmya Ravikumar of the Grant Thornton India Dealtracker team.

clarity on FDI in these sectors adding to the woes of investors.

Q1 2012 witnessed sustained momentum in overall M&A deal making, however, the remaining part of the year will largely depend on the aforementioned regulatory implications.

PE Private Equity has continued to witness sustained momentum with US$2 billion worth of deals in Q1 2012 led by Healthcare, IT ITES, Banking and Real Estate sectors. The quarter saw Morgan Stanley Real Estate Investment (MSREI), investing US$90 million in a realty project after more than four years out of the Indian market.

PE ExitsWe can expect a surge of exits likely in the coming years as funds raised post 2005 reach the end of their investment cycles, thus creating enormous pressure for exits for this invested capital, if investors are to maintain or increase their allocations to India. Considering the fact that the volatile stock markets are not expected to aid exits through IPOs, secondary PE deals could become one of the favoured transaction routes.

The quarter saw PE major Warburg Pincus exiting from Kotak Mahindra Bank Ltd, garnering over US$0.6 billion marking the largest exit by Warburg Pincus after they exited Bharti Airtel, by encashing US$1.8 billion on their original US$290 million investment in 1999.

In what we consider a major boost for the India PE/VC space, the Union Budget 2012-13 has proposed positive initiatives such as 100 per cent tax exemption on income from exits in the

Investor Investee Sector US$ million Accel Partners & Tiger Global Flipkart Online Services IT & ITeS 150.00Temasek Godrej Consumer FMCG, Food & Beverages 137.00General Atlantic LLC Fourcee Infrastructure Equipments Logistics 125.00Olympus Capital DM Healthcare Pharma, Healthcare & Biotech 100.00Government of Singapore Investment Vasan Healthcare Pharma, Healthcare & Biotech 100.00Morgan Stanley Real Estate Sheth Developer’s Mumbai project Real Estate 90.00Providence Equity, Macquarie Bank Hathway Cable & Datacom Media, Entertainment & Publishing 72.00Airro Mauritius Nandi Infrastructure Corridor Infrastructure Management 65.003i India Supreme Infrastructure Infrastructure Management 61.00Warburg Pincus AU Financiers Banking & Financial Services 50.00NYLIM Jacob Ballas Religare Finvest Banking & Financial Services 40.00Fidelity Growth Partners Aptuit Laurus Pharma, Healthcare & Biotech 40.00

Top PE deals: Q1 2012

hands of SEBI registered PE/VC companies or funds, thereby aligning with the true intent of pass though status for the PE/VC funds/companies. At present, only investments in nine specifi ed sectors are eligible for tax exemptions. The removal of the sector restrictions will foster the creation of a more robust domestic venture capital and private equity industry as most funds that invest in India operate as foreign investors from tax-friendly, offshore locations such as Mauritius or the Cayman Islands.

The quarter witnessed negligible activity on the IPO and QIP front, a continuation of the trend seen in 2011. It remains to be seen how deal activity in the rest of the year will trend, given continued uncertainty in the European economy, impact of tax regulations introduced in the Budget and lack of clarity on the FDI and regulatory front. Nevertheless, we believe increased domestic activity and sustained PE momentum augurs well for overall deal activity for the rest of the year.

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On 16 March, India’s fi nance minister, Pranab Mukherjee, announced India’s latest budget and has faced increasing criticism for delivering what had been widely considered a weak and, in some cases, a failed budget. In many economists’ views, Mr Mukherjee failed to address the level of India’s public spending as well as failed to implement suitable measures to encourage foreign investment and sustainable economic growth.

Mr Mukherjee forecast a fi scal defi cit of 5.9 per cent of GDP in the fi nancial year to the end of March against a previous target of 4.6 per cent. He also predicted that the defi cit would fall to 5.1 per cent of GDP for the year ending March 2013.

While the budget didn’t contain any major surprises or grand reforms, it also didn’t shut down the increasing number of doubters in respect to India’s economic growth outlook by putting forward a brave plan to revitalise growth in the country and encourage much needed foreign investment.

Indian economy – Prospects for slower growth

Headlines in both the UK and India have been dominated by their respective budgets in the last few weeks and, while much has been written in the UK about George’s Osborne’s address to parliament and the subsequent meetings with the Treasury Committee, we should take this opportunity to look at how Asia’s third largest economy has fared and reacted to its own budget.

As an example of this, and while appreciating that it is rather biased to pick on a single policy in particular, it is diffi cult to see any real benefi t in respect to the introduction of a retrospective tax on offshore transactions involving India assets – a move clearly made with Vodafone in mind. The policy is surely only going to deter external investment into India further. It is policies like these, however, which are symptomatic of the current government and their priorities concerning economic reform.

and

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As noted in the Financial Times, the weak economic data received from the manufacturing and mining sectors (two of India’s largest sectors) over the last few months has accelerated the shift of India’s economy to lower growth. India now faces the possibility of a worse performance in this current fi scal year in terms of growth than it did in the fi scal year of the global fi nancial crisis.

To further highlight India’s economic mismanagement, the country’s economic growth rate dropped to 6.1 per cent in the quarter ended 31 December 2011. Whilst it should be noted that, a growth rate of 6.1 per cent is still signifi cantly more impressive than some of the more developed economies in the West, it is India’s slowest rate in three years. Unfortunately, the recent economic and political reforms have just not been able to support and develop the economic potential of the country.

The recent state elections have now further dented the Government’s ability to push through the economic reforms required. Out of the fi ve state polls in early March, Congress secured a victory in the politically insignifi cant state of Manipur only, while in India’s most populous state, Uttar Pradesh (c. 200m), the party fl oundered in fourth place. With more state elections to come and a general election in 2014, things are not looking particularly good for the current Government. Furthermore, and to make matters worse, the Indian government’s troubles over recent months have not just revolved around the economy or the run up to state elections. There were fresh attacks following a leaked draft report by the state auditor which warned of US$20 billion of state losses on the sale of Indian coal assets.

According to the Times of India, the 110 page report said that the losses were incurred by allocating coal blocks between 2004 and 2009 outside of an auction process. While we won’t

go into the details in this economic update, there were comments from the political opposition party which said that the irregularities could eclipse the 2G telecom licence scandal which has been at the forefront of political and economic debate in India for over a year and a half.

It is, therefore, clear to see that there continues to be substantial and persistent governance issues within Indian politics. The number and scale of the political scandals which have come out of India in a relatively short space of time is totally unacceptable for an economy which is now very much in need of external fi nance and investment. What’s more, whilst there will always be a long list of countries, companies and individuals looking to increase their exposure to the Indian economy, the risk level might just have increased a little too far for some.

Anuj ChandePartner, Corporate Finance and Head of South Asia GroupGrant Thornton UK LLPT +44 (0)20 7728 2133 E [email protected]

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An investor relations program: realising your full valuation potential

Despite the strong recent fl ows of Foreign Institutional Investors (FII) capital into the Indian equity markets, Indian corporates more than ever need to proactively attract and maintain the attention of increasingly selective global fund managers. This applies equally to Indian companies listed in London. Leaving investors to identify the future outperformers in each industry sector, without management having the opportunity to best present their specifi c investment case, has direct value implications. These potentially include having to issue equity at relatively unattractive valuations for ongoing deleveraging, fi nancing future growth plans and meeting upcoming minimum free fl oat requirements. Ultimately a successful investor relations (IR) programme should achieve an appropriate trading valuation based on a continuous and open communication with the fi nancial markets. Shareholders recognise the appointment of an international IR adviser as part of management’s ongoing commitment to bridge any market valuation discount.

For a CEO to internally prioritise an IR value maximisation program, dedicated corporate resources are a pre-requisite. As CFO’s have limited time that can be allocated to this role, an external IR adviser provides a head of IR not only with operating leverage but ‘fresh’ perspectives based on international best practices. A quarterly results press release and attending non deal investor conferences regularly, whilst helpful, are far from a differentiated strategy. Furthermore, public relations should not be confused with investor relations.

At Churchgate Partners we believe there are 4 building blocks for a successful IR program:

1 Communication materials: Deliver best in class communication materials that truly refl ect the investment case and equity story of the company.

A quarterly earnings release needs to be geared towards the fi nancial markets and not the press (which is a separate release). Explaining the ‘story’ for the quarter is critical: what mix of pricing and volumes have driven revenues, why operating margins may have changed, updates on expansion plans, commentary on the economic environment and a soft view on the performance outlook to guide the research analysts’ thought process (without fi nancial guidance). This quarterly earnings release then weaves into the earnings presentations, introduction scripts for investor conference calls, corporate presentations and eventually shapes the management discussion and analysis (MD&A) and Directors Report for the annual report. Detail, focus and consistency across all communication platforms (and captured on the IR website tab) are essential. Although the application of social media for IR programs and online reputation management is evolving, it needs to be an integrated part of the plan.

2 Research analyst engagement: Drive dialogue with a select group of research analysts who have recognised industry expertise and are backed by a strong equity sales force.

Meeting with research analysts on a regular basis, and ideally in a one on one setting, to update them on business developments

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Sumir BhardwajPartnerChurchgate [email protected]

Saket SomaniPartnerChurchgate [email protected]

is key to building sell side support. It also helps research analysts in cases where they are either too bullish or too bearish in their forecasts. This is particularly important during diffi cult and volatile times, where visibility on management’s strategy and operational focus is essential for their ongoing dialogue with their institutional investor clients. Any sense of lack of management commitment to a regular relationship is likely to be hindrance to the publication of any initiation research note or may result in an unnecessary rating downgrade. Limited research coverage is often viewed as a ‘red fl ag’ by investors. Although a comprehensive research report is the ideal outcome from such a relationship, this can often take longer than expected due to the current resource pressures at brokerage fi rms. A management meeting note or a sales force briefi ng may also be effective alternatives to explore in addition to a full research report.

3. Global investor access: Access to and feedback from leading global EM and sector-focused investors, India dedicated funds and portfolio managers to HNI’s.

Market capitalisation and average daily trading volumes are key criteria which often limit what type of investor a company can attract. It is not uncommon for the largest global funds to be restricted from investing in companies with trading volumes less than $5 million per day. As a result of the dramatic growth in investor appetite for the emerging markets in recent years, there is a wide and growing selection of funds which are able to invest in mid/small cap Indian stocks with attractive rerating potential. Actively soliciting and tracking feedback from previous investor meetings and conference calls attendees enables a company to widen and strengthen its investor relationships. Whilst preparing for investor conferences, corporates should work more closely with their IR adviser in selecting those investors they would like the host brokerage fi rm to specifi cally target.

Working with an international adviser also enables the promoter, CEO or CFO to meet with global investors at short notice should they have time in between businesses

engagements in say Singapore, Hong Kong, London, Frankfurt or New York.

4. Market perception study: Proactively collecting feedback through a structured process on a regular basis provides context from which to refi ne and enhance an IR program.

Analysing how the market (buy and sell side) perceives the company, allows management to more actively manage research analyst and investor relationships. Benchmarking communication materials and key fi nancial/operating metrics with global peers identifi es areas where fi nancial disclosure and transparency may be improved. A well-constructed market perception study allows management and IR teams to better understand market views and be more effective in their time allocation to IR. An experienced IR adviser should be able to provide insights on the market’s perception of areas including: strategy, operational strengths and weaknesses, fi nancial performance, management and IR effectiveness. Soliciting this feedback is viewed extremely positively by the fi nancial community.

Overall, IR success is measured by a number of different metrics. In addition to how the company trades on a valuation multiple basis, the development of a diverse long-term investor base, an appropriate mix of FII and domestic investors, the number of analysts actively covering the stock, a base of shareholders who are supportive of management’s strategy and reduced share price volatility are all indicators of positive results. To successfully attract public capital and achieve some of these goals requires a combination of management commitment and the implementation of a specifi cally designed IR program.

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The government announced certain signifi cant direct tax proposals which were part of DTC in the 2012 Budget. These proposals lay emphasis on anti-avoidance measures, addressing money laundering issues and tracing the source of funds in circulation. The budget proposals will transcend into statute sometime in May 2012 after Parliamentary discussion and the Indian President’s assent.

Below, we summarise the headline tax proposals along with the possible impact on offshore merger and acquisition transactions, foreign trade and foreign investments into India.

Taxation of cross-border deals with Indian assetsThe DTC contains a provision for the taxation of indirect share transfers outside India where at least 50% of the value of underlying assets located in India are owned by the transferor of the shares.

The budget proposals have incorporated a similar provision albeit in a more sweeping way. The proposal seeks to tax transactions involving the transfer of offshore companies’ shares between one non-resident of India and another where the companies’ shares derived their value substantially from assets located in India. These proposals lead to taxation in the country of operation (i.e. India) treating it as a country of source.

It was widely anticipated that the introduction

India Budget 2012: Round-up

of a sort of ‘look through’ provision would be accelerated, given that the Indian tax department lost one of the biggest tax litigation cases witnessed anywhere in the world, however, what was not expected, was the retrospective operation of this provision. The retrospective amendment has, once again stirred up the debate on consistency in tax policy amongst industry, tax professionals and even political circles.

Codifi cation of General Anti-Avoidance Rules (GAAR)GAAR has been legislated as a doctrine of ‘substance over form’ to check aggressive tax planning through use of sophisticated structures.

GAAR, as the language suggests, is proposed to ring-fence round trip fi nancing, transactions lacking commercial substance or having malafi de intention. These rules would apply regardless of treaty provisions. GAAR will be invoked after examination at two levels – Commissioner level and Approving Panel’s level.

The Finance Minister has assured that GAAR will only be triggered where legal structures have been superimposed to camoufl age improper motive and genuine overseas investors should not worry. Yet, stringency in GAAR could impact bone-fi de business structures and lead to arbitrary application since the onus to prove genuineness is on the taxpayer.

The ruling Indian government presented the budget proposals for the fi nancial year (FY) 2012-2013 before the lower house of the Indian Parliament on March 16th. The Direct Tax Code (DTC) was planned to substitute the existing Indian Income Tax Act, however, this has been deferred, with the Finance Minister re-affi rming enactment of DTC at the earliest opportunity.

About usGrant Thornton UK LLP established a dedicated South Asia Group in 1991 to serve Asian owned businesses in the UK as well as those investing into and from the Indian subcontinent. We are proud to be one of the fi rst UK accountancy fi rms to focus on this region.

We are widely recognised as one of the leading international fi rms advising on India-related matters and have been in involved in every IPO involving an Indian company on AIM, with the exception of the real estate sector.

For those clients requiring advice in both the UK and India we offer a seamless service building on the already strong and close relationship between Grant Thornton UK LLP and Grant Thornton India.

Introduction of Advance Pricing Agreements (APA)Policymakers introduced APA in the 2012 Budget to deal with the increasing litigation relating to transfer pricing (TP) adjustments and to provide certainty to multinationals involved in transactions with their related parties.

APA is an agreement between a taxpayer and a tax administrator on an appropriate TP methodology for a set of transactions.

Although the detailed rules and guidelines for application will follow in due course, the introduction of APA, meets the long-standing demand of multinational enterprises with footprints in India. APAs are expected to alleviate disputes between taxpayers and the Indian tax department in respect of foreign transactions attracting TP regulations.

Calculation of arm’s length price (ALP): Revision of tolerance limitIndian TP regulations follow an arithmetic mean as opposed to an interquartile range used by various jurisdictions worldwide to calculate ALP, where there is more than one ALP. There is, however, a safe harbour in the form of permissible variance

International and emerging markets blogAs part of our commitment to remaining at the forefront of changes and developments in regards to UK-India relationship we will be using this space to post original thought leadership and research relevant to the industry. The idea is to encourage discussion around these issues and to open up new areas and debate.

To participate: www.grant-thornton.co.uk/thinking/emergingmarkets

More information about our South Asia Group can be found at: www.grant-thornton.co.uk/sectors/emerging_markets/south_asia

up to 5 per cent of the transaction price available to the taxpayer. The 2012 Budget has proposed to restrict this tolerance limit to a maximum of 3 per cent of the transaction price from FY 2012-13. We may witness a notifi cation with industry specifi c tolerance limits not exceeding 3 per cent of the transaction price. This proposal indicates the intention of tightening the available benefi t to the taxpayer and moving towards a more stringent TP regime.

The business community needs to watch the developments closely once these proposals translate into a law. It should actively engage in a dialogue with the government to present businesses’ point of view so that there is an effective and effi cient implementation of the new tax laws.

Nidhi GuptaManager, Tax & Regulatory servicesWalker, Chandiok & CoT +01 11 42787050E [email protected]

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