India opens Foreign Direct investment (FDI) floodgates

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In what showed a mindset shift among India’s policymakers, the government on Monday opened the floodgates for foreign direct investment (FDI) by easing the terms for nine sectors

In what showed a mindset shift among India’s policymakers, the government on Monday opened the floodgates for foreign direct investment (FDI) by easing the terms for nine sectors. Showing scant signs of legacy inhibitions, it virtually paved the way for even foreign airlines to acquire their Indian counterparts, removed the condition of domestic access to state-of-the-art technology for 100% FDI in the defence sector and put in abeyance the fractious 30% local sourcing norm for FDI in single-brand retail of advanced-technology products. graph 2

Despite the local pharma industry’s oft-expressed fear of being swamped by Big Pharma, foreign firms can now take majority (up to 74%) ownership in Indian drugmakers via the automatic route, which could again catalyse big-ticket M&A activity in the sector.

With the relaxations in the aviation sector, even a foreign airline could acquire 100% ownership in an India airline company by working in concert with a related party, according to some analysts. For example, a Qatar Airways could acquire a GoAir by directly picking up a 49% in the Indian firm and lapping up the balance equity through the West Asian nation’s sovereign wealth fund, Qatar Investment Authority.

Analysts, however, said the government seems to have tightened the sourcing rule in single-brand retailing, instead of giving a blanket exemption from such a rule for entities having “cutting-edge” technology, as was the case earlier. For instance, Apple will be exempted from the local sourcing rule for three years and have a relaxed sourcing regime for another five years if it wants to set up its own retail store, as its technology has already been described as “cutting edge” by a government panel. However, the company will still have to start local sourcing from the fourth year itself, thanks to the insistence of the finance ministry, which wanted that the Make in India programme get a boost. Similarly, Chinese company LeEco will be subjected to the same conditions if its claim of having “cutting edge” technology is endorsed by the panel headed by department of industrial policy and promotion secretary Ramesh Abhishek. However, another Chinese smartphone maker, Xiaomi, which recently withdrew its application for such a waiver, will have to comply with the mandatory 30% sourcing rule from the beginning should it wish to set up its own retail store.

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Commenting on the new FDI policy for airlines, Amber Dubey, partner and India head of aerospace and defence at KPMG in India, said: “The avoidable controversies on settling ‘ownership and control’ issue is now over. Foreign airlines can now focus on the customers and competition rather than wasting time on legal and regulatory issues.”

“The likely increase in competition will bring down prices and enhance air penetration in India, both international and domestic. Indian carriers can now look for enhanced valuations in case they wish to raise funds or go for partial or complete divestment,” he added.

Calling the new norms a “bit tricky”, Amrit Pandurangi, senior director, Deloitte Touche Tohmatsu India, said, “Foreign airline investment is restricted to 49% and FDI investment in this sector has been opened up to 100%, so if the beyond the portion of the equity is by a related entity, then that needs to be tested.”

Among domestic airlines, the Rahul Bhatia-controlled Interglobe Enterprises holds close to 43% in IndiGo, Ajay Singh has a 60% stake in SpiceJet and Naresh Goyal holds 51% in Jet Airways. While Tata Sons holds 51% in both Vistara Airlines and AirAsia India, GoAir is wholly owned by the Wadia Group.

In defence, the decision to scrap the condition of access to “state-of-the-art technology” for FDI beyond 49% (through government route) will make it easier for foreign investors to invest in India. Already, Russian firm Kalashnikov is reportedly looking for local partners for manufacturing in India. Similarly, Swedish defence major Saab is learnt to be looking at more than 49% FDI in defence in its joint venture with a local partner to make the Gripen aircraft in India.

The government’s move to allow 100% FDI through the automatic route (earlier it was up to just 49%) in the broadcast carriage industry, comprising teleports, cable, direct-to-home (DTH) players, HITS (head-end-in-the sky) and mobile TV operators will provide a breather to the cable industry which has been struggling with the process of digitalisation of cable TV. The government has also allowed 74% FDI (49% under automatic route and through government approval beyond this ceiling) in private security agencies. Earlier, only 49% of FDI through government route was allowed.

Also allowed now is 100% FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture under the automatic route under controlled conditions. It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities.

“For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, it has been decided that approval of Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted,” a PMO statement said..

Monday’s is the second largest FDI liberalisation initiative by the Modi government, after the steps taken in November 2015. Prime Minister Narendra Modi tweeted: “In two years, Govt brings major FDI policy reforms in several key sectors… India now the most open economy in the world for FDI; most sectors under automatic approval route.” He added: “Today’s FDI reforms will give a boost to employment, job creation & benefit the economy.”

In what seemed to indicate that the government’s intention was indeed to let foreign airlines acquire Indian firms and thereby augment their capital and fleet strength for the benefit of air travellers, economic affairs secretary Shaktikanta Das said that Monday’s reforms in the sector were a “game changer”.

India’s FDI inflows increased to $55.5 billion in FY16 from $36 billion in FY14. Net FDI inflows stood at $36 billion in FY16 compared with $32.6 billion in FY15.

Commerce and industry minister Nirmala Sitharaman, however, rejected assumptions that the government decided to announce so many FDI policy reforms in one go to divert public attention from RBI governor Raghuram Rajan’s decision to not continue at the central bank after his current tenure ends on September 4. The reforms are a result of months of deliberations among various departments and are not announced in a hurry to divert attention, she affirmed.

Source: http://www.financialexpress.com/article/economy/india-opens-fdi-floodgates-apple-to-qatar-airways-gain-but-grey-areas-remain/291429/

HDFC Bank launches SME e-bank

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HDFC Bank, the country’s second largest private sector lender, has launched a digital bank for its small and medium enterprises  (SME) customers. It aims to grow its market share in the hinterlands with this.

“It takes away the hassle of physical availability of a relationship manager and makes banking process faster. We expect this service to take off in a much better way in smaller towns and the hinterlands, as it will save time and manpower. It will help people live in the areas where there is no bank branch close to their home,” said Aseem Dhru, head, business banking. This comes at a time when the bank, traditionally known for its retail  (individual) offerings, has started focusing  on growing its corporate book. With this, the bank has managed to cross the Rs 1-lakh-crore mark in its corporate book for the first time in FY16, more than double the Rs 47,000 crore three years ago.  However, on the business banking side, the bank had seen some pressure on asset quality and had checked the growth in the last few quarters.  Dhru said despite this, the bank has been growing its business banking book at a faster pace than its peers.

“At the end of December 2015, lending to SME sector has seen de-growth by five per cent but HDFC Bank has grown its SME lending by 29 per cent. So, we are very bullish on this segment and looking at increasingly reaching out to rural and semi-urban areas in a big way.”

With credit growth in the corporate sector around single digits annually, banks had reduced lending to the the sector because of their dependency on large companies for payments.

However, bankers say SME players have started reducing concentration risk by focusing on only a few corporate players and have been broad-basing their growth , giving the banks the ability to lend to them more comfortably.

Source: http://www.business-standard.com/article/finance/hdfc-bank-looks-to-grow-market-share-in-hinterland-with-its-sme-e-bank-116061900519_1.html

Startups get much awaited tax exemptions

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In a major incentive, startups can now issue shares to investors at higher than fair value without worrying about tax consequences.

The Central Board of Direct Taxes (CBDT) has notified the much awaited tax exemption on investments above fair market rate for startups.
“The exemption provided to startups from the ‘rigour’ of section 56(2)(viib) of Income Tax Act has been long awaited,” Amit Maheshwari, Partner Ashok Maheshwary and Associates LLP, said.

The effect of the CBDT’s notification is that in case a startup gets investment from resident angel investors, family offices or funds which were not registered as venture capital funds, it will not be taxed even if the investment is made in excess to the fair value.

“It has been a long standing industry demand to abolish this Angel tax,” Maheshwari said.

A startup is a company in which the public are not “substantially interested” and conforms to certain conditions as prescribed by the Department of Industrial Policy and Promotion (DIPP) in February this year.

Under Indian tax law, if an Indian company receives share subscription amount from an Indian resident which exceeds the fair value of shares, then the excess amount is taxed as income of the Indian company, said Rajesh H Gandhi, Partner, Deloitte Haskins and Sells LLP.

“The notification now exempts startups from this rigorous provision. This is a welcome relaxation and would ensure that startups can issue shares to investors at higher than fair value without worrying about any tax consequences,” Gandhi said.

A similar exemption already exists for Venture Capital Funds (VCFs).

Maheshwari said this Angel tax still poses threat to earlier investments which could be perceived as being overvalued in light of the declining valuations globally and in India.

Last week, the DIPP has launched a portal and mobile app through which startups can gather all latest updates on various notifications, circulars issued by various departments and different funding agencies.

In January, Prime Minister Narendra Modi had unveiled a slew of incentives to boost startup businesses, offering them a tax holiday and inspector raj-free regime for three years, capital gains tax exemption and Rs 10,000 crore corpus to fund them.

Source: http://www.businesstoday.in/current/corporate/startups-get-much-awaited-tax-exemptions/story/233953.html

Abu Dhabi banks in talks to form largest West Asia lender

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National Bank of Abu Dhabi (NBAD) PJSC and First Gulf Bank (FGB) PJSC said they’re in talks to merge in a deal that would create the largest lender by assets in West Asia.

A working group of senior executives from each bank is reviewing the commercial, structural and legal aspects of a potential transaction, according to a filing to the Abu Dhabi stock exchange on Sunday. Bloomberg News was first to report the two banks were considering a potential merger on June 16.

A deal would create a lender with assets of about $170 billion and mark the first major banking merger in the United Arab Emirates’ since National Bank of Dubai and Emirates Bank International combined to create Emirates NBD PJSC in 2007. The country’s fragmented banking industry is ready for further consolidation and a deal could prompt further mergers among lenders, according to investment bank EFG-Hermes Holding SAE.

“There’s no doubt it will lead to synergies and would give them a competitive edge, considering there are more than 40 banks in the UAE,” Chiradeep Ghosh, a banks’ analyst at Securities & Investment Co in Bahrain, said by phone on Sunday. “The combined entity will have a bigger equity book. That will help them to lend to larger entities and take up a greater share of the syndicated loan book.”

First Gulf Bank could pay a premium of as much as 14 per cent to buy National Bank of Abu Dhabi, Arqaam Capital Ltd said in a note to investors on Thursday. NBAD shares surged 15 per cent on Sunday, the maximum allowed in a day, to 9.2 dirhams as of 10:52 am local time. First Gulf Bank also soared, rising 7.8 per cent to 12.7 dirhams. NBAD is the UAE’s second-biggest bank by assets, while FGB is third-ranked.

A combination would help them overtake Emirates NBD as the country’s largest lender and represent nearly a quarter of the system’s loans and deposits, according to EFG-Hermes.

The UAE is home to about 9 million people and has about 50 banks, including the local units of Citigroup Inc, HSBC Holdings Plc and Standard Chartered Plc. Both NBAD and FGB have pushed to expand in other countries to beat the limitations of a small home market and build investment banking businesses to compete with bigger foreign rivals.

NBAD was the fifth-biggest arranger of syndicated loans in the six-nation Gulf Cooperation Council last year, while FGB ranked seventh, according to data compiled by Bloomberg. NBAD was also the second-largest arranger of bonds and sukuk sales last year.

The league tables are dominated by foreign lenders including HSBC Holdings Plc, Citigroup Inc and Sumitomo Mitsui.

NBAD, with a market value of about $11.3 billion at the end of Thursday, is 69 per cent owned by sovereign wealth fund Abu Dhabi Investment Council. State-owned investment fund Mubadala Development is the biggest shareholder in FGB, whose market capitalization is $14.4 billion, according to data compiled by Bloomberg.

The news “was a surprise considering, they have a very contrasting style of management and business strategy,” Ghosh at SICO said. “One is a public-sector focused bank, while FGB is an aggressive private sector bank, with reasonable focus in consumer lending. FGB primarily operates within the UAE, while NBAD is looking to expand outside the UAE.”

Double taxpayer base to 100 million, PM tells taxmen

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Prime Minister Narendra Modi (right) and Finance Minister Arun Jaitley at the first Rajasva Gyan Sangam in New Delhi.

Prime Minister Narendra Modi pitched for nearly doubling of tax base to 10 crore assesses while addressing tax officers in the first ever Rajasva Gyan Sangam that kick-started on Thursday.

Modi outlined a five-point charter for tax administrators – RAPID, which stands for Revenue, Accountability, Probity,  Information and Digitisation to reform the taxation system in the country.

MODI’S FOUR COMMANDMENTS FOR TAX DEPARTMENT:
  • Increase tax base to 100 million people from 54.3 million now
  • Focus on RAPID: Revenue, Accountability, Probity, Information and Digitisation
  • Ensure simplification and go for total digitisation
  • Turn Gyan Sangam into a Karma Sangam, so ideas generated here lead to concrete action on the ground

 

In an hour-long interaction, he urged officers to build a ‘bridge of confidence’ between tax payers and tax officials, stressing on incorporating a sense of trust in the system so that they pay taxes without fear or harassment.

 

“While there should be respect for the rule of law among all citizens, and even fear of the long arm of the law for those who evade taxes, people should not fear tax administrators,” Modi said in his interaction with tax officers.

 

Citing the example of the “Give it up” initiative for voluntarily giving up gas subsidy, he said that the tax base too could be increased significantly, provided the tax administrators can demonstrate the leadership to bring about a change.

 

This is for the first time that the two boards — Central Board of Direct Taxes and Central Board of Excise and Customs — came together for the joint conference.  Earlier they held separate conferences with the Finance Minister as the chief guest.

 

Modi said that tax officials should act like “mentors of taxpayers” and not treat them as “tax evaders”.

 

“People of India are inherently honest. If you build trust then people will pay taxes and you will be able to achieve the target,” Modi said.

 

The conclave will deliberate on a host of issues related to taxpayer services and effective implementation of fiscal laws and government policies with discussions around government’s financial inclusion initiatives, ensuring a transparent tax regime for businesses and foreign investors besides issues and challenges being faced by the two tax departments.


Minister of state for finance Jayant Sinha in a briefing after the first session said, “Prime Minister laid out certain goals and objectives for the officials to increase the tax base to 10 crore from 5.43 crore at present.”

Sinha said of the 25 crore households in the country, 15 crore are agriculturalists and hence the remaining 10 crore should be under the tax net.

 

Modi in his speech said 92% of tax department revenue comes from TDS, advance tax and self assessment tax, while the remaining 8% comes after scrutiny.

 

He said if 42,000 officials of CBDT are engaged for ensuring direct tax revenue, then the tax net should increase further.

 

Stating that the country is filled with “aspirational people”, Modi urged the taxmen to take steps so that people find it easier to pay taxes here.

 

Prime minister emphasized that people in India mostly pay taxes and the number of people who want to evade it is less.

 

“People don’t have problem in paying tax. So there is no question of tax evasion. The issue is how much cooperative are we in dealing with people. He said you should behave like mentors with the people rather than evader… If you become taxpayer friendly, then taxes will automatically come to you,” Modi said.

 

During the brainstorming session, he pressed officers to move towards digitisation besides making tax administration better and efficient.

 

The two-day Gyan Sangam is being attended by close to 250 officers of the rank of Principal Chief Commissioners, Chief Commissioners and Principal Commissioners from CBDT and 170 from the CBEC.

 

During the interaction, Modi said if someone Googles ‘how to pay taxes in India’, there will be seven crore results. If the question of ‘how not to pay taxes in India’ is put to Google, there would be 12 crore feeds.

 

The tax officials in their interaction with the prime minister gave a host of suggestions, which included to setting up of National Tax Facilitation Act to regulate basic norms of tax collection.

 

Ideas and views were expressed on diverse subjects such as digitization, voluntary tax compliance, facilitation for taxpayers, increasing the tax base, upgradation of digital and physical infrastructure for tax administrators etc.

 

Modi urged officers to turn the Gyan Sangam into a Karma Sangam, so that the ideas generated from this conference lead to concrete action on the ground.

 

As many as 15 officers from the CBDT and CBEC posed their questions to Prime Minister on various issues being faced by them in their regular work.

 

The issues included dilemma over whether officials should act as law enforcement agency or taxpayer friendly agency while collecting due taxes from people.

 

They also raised the issue of voluntary tax compliance, increasing tax base, upgradation of digital and physical infrastructure for tax administrators.

Source: Business Standard

RBI simplifies registration process for new NBFCs

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In order to make the registration process of new non-banking finance companies smoother and hassle-free, the Reserve Bank of India has revised the application form for registration of these companies and the checklist of documents to be submitted.

The number of documents to be submitted by NBFC applicants has been reduced from the existing set of 45 documents to seven to eight in the revised process, the central bank said in a statement.

The RBI said henceforth there would be two different types of applications for non-deposit taking NBFCs (NBFC-ND) based on sources of funds and customer interface.

The first type (Type-I) will be a NBFC-ND not accepting public funds/ not intending to accept public funds in the future and not having customer interface/ not intending to have customer interface in the future.

“Public funds” include funds raised either directly or indirectly through public deposits, commercial paper, debentures, inter-corporate deposits and bank finance but excludes funds raised through issue of instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue.

“Customer interface” means interaction between the NBFC and its customers while carrying on its business.

The second type (Type-II) will be NBFC-ND accepting public funds/ intending to accept public funds in the future and/or having customer interface/intending to have customer interface in the future

Fast track mode

The RBI said processing of cases for Type-I of NBFC-ND applicants would be on fast track mode. As these companies will not have access to public funds and will not have customer interface, they will be subjected to less intensive scrutiny/ due diligence.

However, the certificate of registration issued to Type I – NBFC-ND companies will be conditional. These companies will be prohibited from accessing public funds and having customer interface, the RBI said.

In case Type-I companies intend to avail public funds or intend to have customer interface in the future, they are required to take approval from the Reserve Bank of India, Department of Non-Banking Regulation.

Source: http://www.thehindubusinessline.com/todays-paper/tp-money-banking/rbi-simplifies-registration-process-for-new-nbfcs/article8742967.ece

Amazon India sees 250% annual growth in sellers

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US-based Amazon on Friday said it had witnessed a 250 per cent year-on-year growth in bringing new sellers on board, as it looks to tap into the booming e-commerce market in India.

The company, which is making multi-billion dollar investments in India, has about 85,000 sellers on board.

“We started with 100 sellers three years ago and now we have about 85,000 sellers growing at 250 per cent year-on-year and adding nearly 90,000 products a day,” an Amazon India spokesperson stated.

Amazon, which competes with the likes of Flipkart and Snapdeal, has cut its commissions by 25-30 per cent across categories such as mobile phones, PCs, electronic devices and personal care appliances.

“We think these revised rates can significantly help sellers to perform even better and succeed in their business. In addition, we continue to innovate and offer best in class services such as Fulfilment by Amazon, Easy Ship, Seller Flex, etc, to help them with fulfilment/logistics, so that they can focus on their business,” the Amazon spokesperson said.

Flipkart, on the contrary, had recently increased its commissions across key segments and asked sellers to bear the costs of logistics in case of returns.

Recently, Amazon Chief Executive Officer Jeff Bezos had said the company will invest $3 billion in India. This is in addition to the American e-commerce giant’s $2-billion infusion in 2014, taking its total investments here to over $5 billion.

The funds will be channelled towards enhancing customer and seller experience, Amazon India managing director Amit Agarwal had told PTI.

“India is a key market for Amazon and we will work towards continuing to reduce operating costs for sellers backed by good logistics and fulfilment capabilities,” he had added.

 

Source: http://www.business-standard.com/article/companies/amazon-india-sees-250-annual-growth-in-sellers-116061700852_1.html