India is world’s 40th most competitive economy: WEF

The Global Competitiveness Index (GCI) is prepared on the basis of country-level data covering 12 categories or pillars of competitiveness.

India has been ranked as the 40th most competitive economy — slipping one place from last year’s ranking — on the World Economic Forum’s global competitiveness index, which is topped by Switzerland.

On the list of 137 economies, Switzerland is followed by the US and Singapore in second and third places, respectively.

In the latest Global Competitiveness Report released today, India has slipped from the 39th position to 40th while neighbouring China is ranked at 27th.

“India stabilises this year after its big leap forward of the previous two years,” the report said, adding that the score has improved across most pillars of competitiveness. These include infrastructure (66th rank), higher education and training (75) and technological readiness (107), reflecting recent public investments in these areas, it added.

According to the report, India’s performance also improved in ICT (information and communications technologies) indicators, particularly Internet bandwidth per user, mobile phone and broadband subscriptions, and Internet access in schools.

However, the WEF said the private sector still considers corruption to be the most problematic factor for doing business in India.

“A big concern for India is the disconnect between its innovative strength (29) and its technological readiness (up 3 to 107): as long as this gap remains large, India will not be able to fully leverage its technological strengths across the wider economy,” it noted.

Among the BRICS, China and Russia (38) are placed above India.South Africa and Brazil are placed at 61st and 80th spots, respectively.

In South Asia, India has garnered the highest ranking, followed by Bhutan (85th rank), Sri Lanka (85), Nepal (88), Bangladesh (99) and Pakistan (115).

“Improving ICT infrastructure and use remain among the biggest challenges for the region: in the past decade, technological readiness stagnated the most in South Asia,” WEF said.

Other countries in the top 10 are the Netherlands (4th rank), Germany (5), Hong Kong SAR (6), Sweden (7), United Kingdom (8), Japan (9) and Finland (10).

The Global Competitiveness Index (GCI) is prepared on the basis of country-level data covering 12 categories or pillars of competitiveness.

Institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation are the 12 pillars.

According to WEF’s Executive Opinion Survey 2017, corruption is the most problematic factor for doing business in India.

The second biggest bottleneck is ‘access to financing’, followed by ‘tax rates’, ‘inadequate supply of infrastructure’, ‘poor work ethics in national labour force’ and ‘inadequately educated work force’, among others.

The survey findings are mentioned in the report.

“Countries preparing for the Fourth Industrial Revolution and simultaneously strengthening their political, economic and social systems will be the winners in the competitive race of the future,” WEF founder and Executive Chairman Klaus Schwab said.

Narendra Modi government identifies 5 ports to boost cruise tourism

Union minister for shipping Nitin Gadkari on Tuesday announced that the government has identified five major ports — Mumbai, Mormugao, Mangalore, Chennai and Cochin — to boost cruise tourism in India.

While the number of Indians who took a cruise in 2016-17 was 2 lakh, the number could go up to 40 lakh, according to a report prepared by consultants Bermelo & Ajamil jointly with Ernst & Young. Of this, 80% or 32 lakh passengers are expected to take cruises from the Mumbai port alone.

However, Gadkari added that the cruise tourism industry is facing challenges on many issues and that he would make a representation to the finance ministry to waive the goods and services tax (GST), levied at 5% currently on all cruise ships, as well as establish a zero income tax regime.

While the largest cruise line operator, Carnival PLC, is looking to increase the number of cruise liners in India, David Dingle, the company’s chairman told FE that the country must create a domestic cruising tax regime competitive with tax regimes elsewhere in the world.

“In principle, the cruise industry will not come to a part of the world where it has to pay GST on the ticket price and on the sales made on board. We will not bring our ships here in any significant numbers all the while that cruising attracts any GST,” he said. Moreover, Dingle added that international cruise companies have to have the right to repatriate their profits through double tax treaties.

Carnival PLC sold 181,000 cruises in India in 2016, registering a compounded annual growth rate of 31%.

Current estimates are that over 120,000 Indians book a cruise each year with over 90% of them travelling to Singapore to board a cruise liner. To cater to this growing market, the Indian government wants to increase the number of cruise liners that come to India, eliminating the need for cruise seekers to fly abroad to board a ship.

The Indian coastline saw 150 cruise ship visits in 2016 and the government is aiming to increase this to about 955 in the next few years.


Singapore’s automation incentives draw tech firms, boost economy

A Universal Robots employee demonstrates how a model of their industrial robot arms works in Singapore March 3, 2017.

Foreign precision engineering firms are investing more in Singapore, drawn by strong semiconductor demand and government incentives aimed at re-tooling an economy short of skilled labor.

The city-state is running programs worth billions of dollars to support productivity, automation and research, attracting global chipmakers including U.S.-based Micron Technology Inc and Germany’s Infineon Technologies.

This investment rush into electronics helped the technology sector log 57 percent output growth on average in October-February from a year ago, and kept Singapore from recession late last year.

“I’ve lived in Europe, I’ve lived in Japan, I’ve spent a lot of time in Taiwan and other countries. From a proactive standpoint, Singapore is about as good as it gets,” said Wayne Allan, vice president of global manufacturing at Micron, adding the Singapore government’s long-term vision was key to Micron expanding its investment.

Taking advantage of government grants, Micron is investing $4 billion to make more flash-memory chips in Singapore. It increased output by a third in the second half of last year and expects similar growth in the first half of this year.

Linear Technology Corp, a maker of analog integrated circuits, has opened a third chip testing facility in Singapore, and will produce 90 percent of its global test equipment in the city-state.

All this has created something of a virtuous circle in the semiconductor supply chain, with chip testing equipment supplier Applied Materials reporting record shipments to Singapore last year, said its regional chief, Russell Tham.

It’s unclear how much of this revival in Singapore’s $40 billion chip industry is due to a so-called ultra-super-cycle in the global memory chip sector, and Singapore remains a smaller player than South Korea and Taiwan.

“It is vulnerable to a pull-back,” said Nomura economist Brian Tan. “If there’s a turnaround in the semiconductor industry … it becomes a lot more apparent that the underlying growth momentum is not great.”


However, there are real signs that the targeted government incentives are helping firms move up the value chain.

One of the larger programs is the Productivity and Innovation Credit, where Singapore has budgeted S$3.6 billion ($2.6 billion) for 2016-18. Another S$400 million automation support package is aimed at small firms, and a S$500 million Future of Manufacturing plan encourages testing new technologies.

The Ministry of Trade and Industry says it encourages manufacturers to “embrace disruptive technologies” such as robotics. “These measures will help ensure the manufacturing sector in Singapore remains globally competitive,” it said, attributing the strong semiconductors performance partly to demand from China’s smartphone market and improved global semiconductor demand.

For Feinmetall Singapore, whose products are used for testing semiconductor wafers, grants covered about two thirds of the $100,000 cost of a needle-bending machine it needed to help overcome an island-wide labor shortage.

“If we use the same methods as before … I don’t think we can expect any growth,” said Sam Chee Wah, the company’s general manager, noting Feinmetall Singapore struggled to retain some workers for much longer than a year, even after nine months of training.

GlobalFoundries Singapore, a wafer maker, has spent $50 million on 77 robots, each able to perform the tasks of 3-4 workers. This has helped the company move up the value chain into parts for self-driving cars and security-related chips for credit cards and mobile payments, says general manager KC Ang.

Singapore now has about 400 robots per 10,000 workers, the world’s second-highest density after South Korea. Most robots are used in electronics, according to the International Federation of Robots.

And further developments are in the pipeline.


At its Singapore manufacturing hub, Infineon is developing productivity tools such as robotics and automated guided vehicles which it hopes to deploy to other production sites. Dutch chipmaker NXP Semiconductors is also developing vehicle-to-everything technology, enabling vehicles to communicate with each other and roadside infrastructure.

Instead of trying to compete with high-volume producers such as China or Malaysia, Singapore has shifted to higher-end products, said Jagadish C.V., head of Systems on Silicon Manufacturing, another firm making semiconductor wafers.

“So you do the products which others can’t do so easily,” he said, adding his firm had shifted most of its output to specialized products, such as chips used in smartphones.

CK Tan, President of the Singapore Semiconductor Industry Association, noted the global chip industry is automating faster than other sectors because of cost pressure, a need to eliminate or reduce error, and have a consistent process control.

“In Singapore, it’s even more important for us to … look at how to speed up or increase the level of automation because of the lack of skilled resources,” he said. “The industry has recognized it has to move upscale. The government incentives play a part to allow the manufacturing side to be relevant, to be at least cost competitive.”

The Ministry of Trade and Industry said first-quarter growth in manufacturing – up 6.6 percent year-on-year, while overall GDP was up 2.5 percent – was due mainly to output expansion in electronics and precision engineering.

Integrated circuits were Singapore’s biggest export product among non-oil domestic exports in January-March, topping S$6 billion ($4.29 billion), according to trade agency IE Singapore.

($1 = 1.3972 Singapore dollars)


SEBI set to block P-Note route for NRIs to prevent laundering of black money

The regulator wants to tighten the rules amid concerns that various variants of P-Notes have been floated since the implementation of GAAR on April 1.

The regulator plans to put in place a clear bar on non-resident Indians (NRIs) and entities owned by them and resident Indians subscribing to participatory notes, a move aimed at preventing possible round-tripping or laundering of black money.

The Securities and Exchange Board of India (SEBI) is set to tweak its regulations to this effect at its upcoming board meeting on April 26 after the finance ministry recently wrote to the regulator. Such a restriction is already implied through the answer to a frequently asked question (FAQ) but the regulator feels this lacks legal sanctity.

“Most of Sebi’s FAQs themselves clearly state that they should not be regarded as interpretation of law, and that they should not be treated as a binding opinion or guidance from SEBI,” said Moin Ladha, associate partner, Khaitan & Co. “Therefore, in case of any contradictions between the regulations and FAQs, the regulations would prevail. While FAQs do indicate the position SEBI is taking, they cannot be said to override or expand the scope of the regulations.”

P-notes are a derivative instruments issued offshore to those who want to bet on the country’s stocks and bonds without registering themselves with SEBI. The regulator wants to tighten the rules amid concerns that various variants of P-notes have been floated since the implementation of General Anti Avoidance Rules (GAAR) on April 1.

Investments via P-notes had declined to a 43-month low of Rs 1.57 lakh crore in December but rebounded in January to Rs 1.75 lakh crore before dropping again to Rs 1.70 lakh crore in February. There could be a resurgence in P-note issuance as these are exempted from capital gains tax under the amended tax treaties with Singapore and Mauritius that took effect on April 1.

Legal experts said the concept of NRI itself is a grey area and defining it would be crucial for regulators. They said the prohibition should be strictly enforced to prevent round-tripping of Indian money. “The concern of round-tripping of Indian money, particularly when leading industrialists may have a foreign passport, was always a concern,” said Sandeep Parekh, founder, Finsec Law Advisors. SEBI relies on the income tax definition on what constitutes an NRI.

“The concept of who is an NRI itself is a grey zone ranging from income tax definition which is based on residency to citizenship laws which are typically drafted very broadly to include any person of Indian origin and their kith and kin who are born abroad,” Parekh said. “Defining an NRI within this spectrum would be crucial to allow legitimate money in from immigrants who have left India several generations ago and are doing exceedingly well.”

In recent discussions with a leading custodian, the latter gathered the impression that the regulator was not comfortable with NRIs as a group holding a majority interest in a Category II foreign portfolio investors (FPIs) even though regulations do not restrict this. Rules require Category II FPIs to be broad-based — the minimum number of investors should be 20 and no single investor can hold more than 49%. However, NRIs as a group cannot hold more than 49% in Category III FPIs.

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Transfer pricing treaty for investors from cyprus

The government on Monday afternoon clarified that according to the amended Cyprus treaty, investors need to pay only 10% tax with retrospective effect from November 1, 2013, instead of the 30% tax they have already paid. While bringing in clarity on this matter, a lacunae as far as transfer pricing still remains.

The genesis of the problem lies in 2013. The government had, on November 1, 2013, blacklisted Cyprus as an investment destination through a notification. So, investments made through Cyprus attracted 30% tax (TDS) instead of 10% tax under the original India-Cyprus treaty.

The government had blacklisted Cyprus after the island country had refused to share some data related to investors with India.

The government also said that transfer pricing could also apply on returns given to Cyprus investors by Indian companies.

However, the government later amended the treaty (through a notification on December 14, 2016) after Cyprus agreed to co-operate on sharing investor data. Under the amended treaty, the higher taxation part was rescinded. But the transfer pricing portion still remains unclear.

What led to a cause of worry was the fact that many private equity investors had paid 30% tax between 2013 and 2016 on returns from Indian investments. The government clarification on Monday came as many foreign investors were worried that the 10% tax would not be applicable for the three years between 2013 and 2016. However, following Monday’s clarification, they can now claim refunds from the tax department.

Most of the investors used Cyprus as a pooling vehicle to invest in Indian real estate. Most of the investments were in debt vehicles. In some cases, while the equity investment were made either in listed or unlisted companies through Mauritius or Singapore, debt investments were made through Cyprus.

Transfer pricing conundrum
Transfer pricing is normally only applied in cases where two companies— one an Indian and another multinational— do a merger or acquisition. People close to the development said that some of the transfer pricing adjustments could be made in the coming months. In cases where the tax officers have already gone ahead with the transfer pricing procedures, it may not be possible to undo it, say experts.

Treat for genuine investors, though need for clarity in Tax Rules
This reworked Tax Treaty comes very much after India demonstrated flexibility and lifted the so called sanctions after Cyprus agreed to share information on tax evaders. The reworked tax treaty between India and Cyprus for effective information sharing is also a step towards global cooperation on tax transparency. It will provide relief to genuine investors in Cyprus. But investors loathe uncertainty. The need is for stability and certainty in the tax system, and therefore tax rules must be clear.


India ranks 130th in ease of doing business index

India continues to rank low at 130th position in terms of ease of doing business, with the country seeing little or no improvement in dealing with construction permits, getting credit and other parameters.

In the World Bank’s latest ‘Doing Business’ report, India’s place remained unchanged from last year’s original ranking of 130 among the 190 economies that were assessed on various parameters. However, the last year’s ranking has been now revised to 131 from which the country has improved its place by one spot.

The government has been making efforts to further improve the ease of doing business and aims to bring the country in the top 50.

Expressing disappointment over no change in India’s ranking in the World Bank’s index on ease of doing business, Indian government regretted that the report did not take into consideration 12 key reforms undertaken by the government.

When it comes to ‘distance to frontier’ — a measurement of the gap between an economy’s performance and the best practice score of 100 — India’s score has improved to 55.27 this year from 53.93 last year.

India is the only country for which the report has a box dedicated to its ongoing economic reforms.

The list of countries in the Doing Business 2017 is topped by New Zealand while Singapore is ranked second. It is followed by Denmark, Hong Kong, South Korea, Norway, the UK, the US, Sweden and former Yugoslav Republic of Macedonia.

Neighbouring Pakistan is ranked 144th in the list.

On the basis of reforms undertaken, the top 10 improvers are Brunei Darussalam, Kazakhstan, Kenya, Belarus, Indonesia, Serbia, Georgia, Pakistan, United Arab Emirates and Bahrain.

A record 137 economies around the world have adopted key reforms that make it easier to start and operate small and medium-sized businesses, the report said.

Developing countries carried out more than 75 per cent of the 283 reforms in the past year, with Sub-Saharan Africa accounting for over one-quarter of all reforms, it added.

“What we have seen is a remarkable effort on the part of the government to implement business reforms. It looks like we are going to have to wait for another year or so. But the direction of change is fundamentally a very significant one,” Global Indicators Group Director Augusto Lopez-Claros told PTI in an interview.

The rankings are based on ten parameters — starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

India has improved its ranking with respect to various areas. In terms of getting electricity, the country’s position has jumped to 26th spot from 51st place last year.

When it comes to trading across borders, the ranking has moved up one place to 143, and in enforcing contracts the rise is of six spots to 172nd position.

However, with respect to starting a business, the ranking has slipped four places to 155th spot and in the case of dealing with construction permits by one rank to 185th.

As per the report, India’s ranking in terms of protecting minority investors dropped to 13th place from 10th position last year.

With regard to getting credit, the ranking has fallen by two places to 44.

Explaining as to why India’s reform efforts is not being reflected in the ease of doing business report, Lopez-Claros said it very often takes some time for the reforms implemented by governments about the regulatory environment to be felt on the ground by the business community.

Rita Ramalho, Manager of the Doing Business project said that there were in fact improvements this year.

“There are four areas of improvement this year in India getting electricity, trading across border, enforcing contracts and paying taxes,” Ramalho told PTI.

India’s ranking is based on the study of the system in the two cities of Mumbai and New Delhi.

“The reason why there is no real movement in the ranking is more to do with the fact that other countries are also moving. In absolute terms India, does improve significantly.

There aren’t many countries that improved more than India in terms of absolute number,” Ramalho said.

The ‘Doing Business’ project provides objective measures of business regulations for local firms in economies and selected cities at the sub-national level.

The World Bank is emphasising that countries pay attention to what it calls “distance to frontier” which is an absolute metric, Lopez-Claros said.

“There has been actually substantial increase in the last 12 months in India by couple of percentage points, which is quite large,” he noted.


FDI inflows rise 7% to $10.55 bn in Q1

Foreign direct investment (FDI) inflows grew 7 per cent to $10.55 billion during the first quarter against $9.88 billion in January-March 2015.

According to the Department of Industrial Policy and Promotion (DIPP) data, the sectors, which attracted maximum FDI during the period, include computer hardware and software, services, telecommunications, power, pharmaceuticals and trading business.

In terms of countries, India received maximum overseas inflows from the US, Singapore, Mauritius, Japan and the Netherlands.

An official said with the government further liberalising foreign investment policies for services sector in the Budget, more inflows would come.

The government has recently relaxed FDI norms in about eight sectors, including defence, civil aviation, food processing, pharmaceuticals and private security agencies.

Foreign investment is considered crucial for India, which needs around $1 trillion for overhauling infrastructure sector such as ports, airports and highways to boost growth.

A strong inflow of foreign investments will help improve the country’s balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.