CBDT revises E-Assessment Scheme, 2019: Scope extended to cover Best Judgement Assessments by Faceless Assessment

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Faceless e-assessment will have no human interface and it’s purpose will be to eliminate instances of “undesirable practices” on the part of tax officials.

The Central Board of Direct Taxes (CBDT) on Thursday revised the ‘E-assessment Scheme, 2019’ notified on September 12, 2019. The Government notified that now, the e-Assessment scheme shall be called Faceless Assessment.

Now, the National e-Assessment Centre shall intimate the assessee for the conduct of faceless assessment in case wherein notice has been issued by AO.

The Board has also extended its scope to cover best judgment assessments.

E-Assessment was a roadway towards a paperless, faceless assessment stripping away at bureaucratic layers. E-Assessment was earlier tried and tested by the Income-tax Department, before going forth with the E-Assessment Scheme, 2019.

The Board notified that in the notification dated September 12, 2019, in the opening portion, for the word “E-assessment”, the words “Faceless Assessment” shall be substituted. The Board notified the procedure for the faceless assessment wherein the National e-Assessment Centre shall serve a notice on the assessee under sub-section (2) of section 143, specifying the issues for selection of his case for assessment.

Promoting a transparent and fair tax regime, Prime Minister Narendra Modi unveiled ‘taxpayers’ charter’, enshrining rights of assesses in a statute under the Income tax law. With the launch of ‘Transparent Taxation — Honoring the Honest’ platform, Modi also unveiled faceless appeal and expanded the scope of faceless assessment, eliminating physical interface between taxpayers and tax authority.

Step wise process for Faceless Assessment, scope extended to cover best judgement assessment:

Introduction

The Central Board of Direct Taxes (CBDT) has revised the ‘E-assessment Scheme, 2019’ notified on September 12, 2019. Now, e-assessment scheme shall be called Faceless Assessment.

The National e-Assessment Centre shall intimate the assessee for conduct of faceless assessment in case wherein notice has been issued by AO. The Board has also extended its scope to cover best judgment assessments.

What was the E-assessment Scheme, 2019?

Finance Minister Nirmala Sitharaman had announced the e-assessment scheme in her Budget speech on July 5, 2019, which was subsequently inaugurated on October 7, 2019.

This was aimed at moving to faceless scrutiny and elimination of human interface in assessment proceedings. The scheme was set to bring in a “paradigm shift” in taxation by eliminating human interface in the income tax assessment system.

The Ministry of Finance vide Central Board of Direct Taxes (CBDT) notification No 61 & 62 dated 12th September 2019 has respectively notified the E- assessment Scheme 2019 & gave directions for its implementation.

E-assessment Scheme, 2019 to be now called as “Faceless Assessment”

Step wise process for Faceless Assessment

By the Notification issued by CBDT on 13th August, 2020, “E-assessment” will be now called as “Faceless Assessment”. Faceless assessment shall be made as per the following procedure:-

Step 1 – Issue of Notice on Assessee

  1. National e-Assessment Centre shall serve a notice on the assessee under section 143(2), specifying the issues for selection of his case for assessment
  2. Assessee may, within 15 days from the date of receipt of notice, file his response to the National e-assessment Centre

Step 2 – Case to be assigned to Assessment Unit

1.National e-assessment Centre shall assign the case selected for the purposes of e-assessment to a specific assessment unit in any one Regional e-assessment Centre through an automated allocation system

2. Where a case is assigned to the assessment unit, it may make a request to the National e-assessment Centre for:-

a. obtaining such further information, documents or evidence from the assesse or any other person

b. conducting of certain enquiry or verification by verification unit

c. seeking technical assistance from the technical unit

3. Where a request for obtaining further information, documents or evidence from the assessee or any other person has been made, the National e-assessment Centre shall issue appropriate notice or requisition to the assessee or any other person for obtaining the information, documents or evidence requisitioned by the assessment unit

4. Where a request for conducting of certain enquiry or verification by the verification unit has been made, the request shall be assigned by the National e-assessment Centre to a verification unit through an automated allocation system

5. Where a request for seeking technical assistance from the technical unit has been made, the request shall be assigned by the National e-assessment Centre to a technical unit in any one Regional e-assessment Centre through an automated allocation system

6. The assessment unit shall, after taking into account all the relevant material available on the record, make in writing, a draft assessment order either accepting the returned income of the assessee or modifying the returned income of the assessee, and send a copy of such order to the National e-assessment Centre with details of the penalty proceedings to be initiated therein, if any.

Step 3 – Draft Assessment Order

1.National e-assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to:-

a. finalise the assessment as per the draft assessment order and serve a copy of such order and notice for initiating penalty proceedings, if any, to the assessee, alongwith the demand notice, specifying the sum payable by, or refund of any amount due to, the assessee on the basis of such assessment, or

b. provide an opportunity to the assessee, in case a modification is proposed, by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the draft assessment order, or

c. assign the draft assessment order to a review unit in any one Regional e-assessment Centre, through an automated allocation system, for conducting review of such order;

2. Review unit shall conduct review of the draft assessment order, referred to it by the National e-assessment Centre whereupon it may decide to:-

a. agree with the draft assessment order and intimate the National e-assessment Centre about such agreement; or

b. suggest such modification, as it may deem fit, to the draft assessment order and send its suggestions to the National e-assessment Centre;

3. National e-assessment Centre shall, upon receiving concurrence of the review unit, follow the procedure laid down in sub point (a) or (b) of point (1), as the case may be

4. National e-assessment Centre shall, upon receiving modification suggestions from the review unit, communicate the same to the Assessment unit

5. Assessment unit shall, after considering the modifications suggested by the Review unit, send the final draft assessment order to the National e-assessment Centre

6. The National e-assessment Centre shall, upon receiving final draft assessment order, follow the procedure laid down in sub point (a) or (b) of point (1),as the case may be

7. The assessee may, in a case where show-cause notice has been served upon him, furnish his response to the National e-assessment Centre on or before the date and time specified in the notice

8. The National e-assessment Centre shall,-

a. in a case where no response to the show-cause notice is received, finalise the assessment as per the draft assessment order; or

b. in any other case, send the response received from the assessee to the assessment unit;

9. The assessment unit shall, after taking into account the response furnished by the assessee, make a revised draft assessment order and send it to the National e-assessment Centre

Step 4 – Final Order and Completion of Assessment

  1. The National e-assessment Centre shall, upon receiving the revised draft assessment order:-

a. in case no modification prejudicial to the interest of the assessee is proposed with reference to the draft assessment order, finalise the assessment or

b. in case a modification prejudicial to the interest of the assessee is proposed with reference to the draft assessment order, provide an opportunity to the assessee

c. the response furnished by the assessee shall be dealt with as per the procedure laid down in point 7, 8, 9 of Step 3

2. The National e-assessment Centre shall, after completion of assessment, transfer all the electronic records of the case to the Assessing Officer having jurisdiction over such case for:

a. imposition of penalty

b. collection and recovery of demand

c. rectification of mistake;

d. giving effect to appellate orders

e. submission of remand report, or any other report to be furnished, or any representation to be made, or any record to be produced before the Commissioner (Appeals), Appellate Tribunal or Courts, as the case may be

f. proposal seeking sanction for launch of prosecution and filing of complaint before the Court;

3. National e-assessment Centre may at any stage of the assessment, if considered necessary, transfer the case to the Assessing Officer having jurisdiction over such case.

Faceless assessment facility was extended to the entire country on 13th August, 2020, ending territorial jurisdiction and individual discretion, where an officer was the whole and sole to the assessee. Scrutiny will be allotted on a random basis. Assessment of a taxpayer in Delhi could well be carried by an officer sitting in Pune. It will put an end to needless litigation. Best Judgements Assessments under Section 144 will be also now covered under Faceless Assessment.

What is the meaning of Best Judgement Assessment?

The Best Judgment Assessment is a procedure under the Income Tax Act to comply with the principles of natural justice. Vide Section 144 of the Income Tax Act, 1961 the Assessing Officer is under an obligation to make an assessment of the total income or less to the best of his judgment in the following cases:

  1. If the person fails to file a return required under section 139(1) and he has not filed a revised return.
  2. If any person fails to comply with all the terms and conditions stipulated under a notice under section 142 or fails to comply with the directions requiring him to get his accounts audited in terms of section 142(2A).
  3. If any person, after having filed a return fails to comply with all the terms of a notice under section 143(2) requiring his presence or production of evidence and documents; or
  4. If the Assessing officer is not satisfied about the correctness and the completion of the accounts of the assessee if no method of accounting has been regularly employed by the assessee.

While Faceless Assessment and Taxpayers Charter came in force already, Faceless Appeal will be available from September 25, 2020. Under the Faceless Appeals system introduced by the government, appeals will be randomly allotted to any officer across the country and the identity of the officer deciding the appeal will remain unknown. The decisions will be team-based.

Economic stimulus package for COVID Relief

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At as much as 10% of GDP, the big stimulus package did not appear to leave any major sphere untouched.

Over five consecutive days of interaction with the country’s financial media, FM Nirmala Sitharaman provided the break-up of PM Modi’s Rs 20 lakh crore COVID-19 stimulus for India.

At as much as 10% of GDP, the package did not appear to leave any major sphere untouched as Prime Minister Modi brought out the fiscal artillery to complement RBI’s monetary measures spread over the past few weeks, putting India firmly in the league of biggies that have gone all out against the virus.

In his speech, Mr. Modi said his package would focus on land, labour, liquidity and laws, and would deal with such sectors as cottage industries, MSMEs, the working class, middle class and industry. He also talked of focusing on empowering the poor, labourers and migrant workers, both in the organised and unorganised sectors.

Dubbed Atmanirbhar Bharat Abhiyaan, this Covid relief package puts bold reforms at the heart of Modi’s stated plan to make India self-reliant so that any other crisis that may emerge in future could be efficiently tackled. Below we collate all the details that emerged in five tranches over the past five days.

FIRST TRANCHE

 

MSME measures

  1. Collateral free automatic loans- a move that’ll enable 45 lakh units to restart work and save jobs. 4 year tenor with 12 months moratorium. 100% credit guarantee on principal and interest – Rs. 3 Lakh Crores (60k Cr cover)
  2. Subordinate debt provision of Rs 20,000 crores for 2 lakh stressed MSMEs. Besides, there will be Rs 50,000 crore equity infusion via Mother fund-Daughter fund for MSMEs that are viable but need handholding. A fund of funds with corpus of Rs 10,000 crore will be set up to help these units expand capacity and help them list on markets if they choose.
  3. Definition of MSMEs revised — the move will allow MSMEs to aim for expansion without losing benefits. Differentiation between manufacturing and service units to be removed.

Micro units – Investments upto 1 Cr + Turnover upto 5 Cr

Small units – Investments upto 10 Cr + Turnover upto  50 Cr

Medium units – Investments upto 20 Cr + Turnover upto  100 Cr

  1. Government tenders upto 200 Crores will no longer be on global tender basis. Global tenders will be disallowed for upto 200 Crores. This will make MSMEs eligible to participate in Government purchases.
  2. Post Covid, e-market linkage to be provided for all MSMEs. Receivables by MSMEs from the Central Government and all PSUs will be cleared in next 45 days

For non-bank lenders

  1. Rs 30,000 crore special liquidity scheme for investing in investment grade debt paper of NBFCs, HFCs and MFIs. These NBFCs are those that are also funding MSMEs. These will be fully guaranteed by government of India.
  2. Rs 45,000 crore partial credit guarantee scheme 2.0 for NBFCs. The first 20% loss will be borne by the guarantor that is government of India.
  3. For Discoms, a one-time emergency liquidity injection of Rs 90,000 crore against all their receivables. The states will guarantee it.

For employees

  1. Liquidity relief of Rs 2,500 crore EPF support to all EPF establishments. The EPF contribution will be paid by the govt for another 3 months (till August). It will benefit more than 72 lakh employees.
  2. Statutory EPF contribution for all organisations and their employees covered by EPFO to be reduced to 10% from 12% earlier (This doesn’t apply to govt organisations). This will help infuse Rs 6,750 cr of liquidity into these organisations.

For Power distribution companies

  1. Power distribution companies will get Rs 90,000 crore liquidity against receivables from state-owned Power Finance Corp. and Rural Electrification Corp. This will allow these discoms to pay dues to power producers.

For Contractors & others

  1. An extension of up to 6 months (without costs to contractor) to be provided by all Central Government Agencies like Railways, Ministry of Road Transport & Highways, Central Public Works Dept.
  2. On real estate, urban development ministry will issue advisory to states/UTs so that the regulators can invoke force majeure. The regulators can suo moto extend completion/registration dates for six months for projects expiring on or after March 25, 2020.
  3. A reduction of 25% of existing rates of Tax Deducted at Source (TDS) & Tax Collection at Sources (TCS) from tomorrow till March 31, 2021. This will release Rs 50,000 crores.

Due date of all Income Tax Return filings extended from July 31 to November 30. Vivaad se Vishwas scheme extended till December 31,2020, without any extra payments.

All pending refunds to charitable trusts and non-corporate taxpayers (but including LLP) will be issued immediately

Date of assessments getting barred as on Sep 30, 2020 extended to December 31, 2020. Date of assessments getting barred as on March 31, 2021 extended to September 30, 2021.

SECOND TRANCHE

Focus on migrant workers, small farmers and the poor, in the manner shown below:

Free food for migrants

  1. For those migrants who don’t have NFSA cards or state cards, 5 Kgs of wheat or rice per person and one kg channa per family per month for next two months to be provided and it will reach through the state governments. This will entail Rs 3,500 crore and is likely to benefit around 8 crore migrants.

One Nation, One Ration Card

  1. National Portability Ration Cards can be used in any ration shops that will be applicable across the country. By August 2020, 67 cr beneficiaries in 23 states or 83% of all PDS beneficiaries will get covered. By March 2021, 100 per cent will be covered.

Rental accomodation

  1. Under PM Awas Yojaana, scheme for rental housing for migrant workers. Under the scheme incentives will be offered to private manufacturing units and industrial units to develop affordable housing, converting govt funded houses into affordable renting accommodations for migrant workers. Shall be done on PPP on concessionaire basis. State government agencies will also be incentivised to develop affordable housing.

MUDRA Shishu loan

  1. Those who have availed loans up to Rs 50,000, an interest subvention of 2% for next 12 months after the moratorium period extended by RBI ends. Three crore people will get benefit of Rs 1500 crore.

Street Vendor

  1. Special scheme for street vendors to avail Rs 5,000 crore loan facility. Will be given Rs 10,000 of working capital.

Affordable Housing

  1. Credit-linked subsidy scheme for middle income households in the income group Rs 6-18 Lakh extended to March 2021. The CLSS scheme was operationalised from May 2017 and extended up to March, 2020. Now, it has been extended till March 2021. This will lead to investments  of Rs 70,000 crore in housing and kick-start sectors like steel, cement and create jobs.

For Tribals

  1. Rs 6,000 crore worth of proposals have come from states under CAMPA funds. Tribal people will get employment in forest management, wildlife protection/management and other forest related activities.

For Small/Marginal Farmers

  1. The government is extending Rs 30,000 crore additional capital emergency funds through NABARD for post-harvest Rabi and Kharif related activities for small and marginal farmers.
  2. Under the PM Kisan Credit Card, Rs 2 lakh crore of concessional credit to boost farming activities and it will benefit 2.5 crore farmers. Those in animal husbandry and fisheries will also be included.

THIRD TRANCHE

For framers, and such sectors as food processing and allied activities.

For Upgrading Infrastructure

  1. One lakh crore fund for strengthening the farm gate infrastructure like cold chains, post harvest storage infrastructures etc.
  1. Rs 10,000 crore fund for micro food scheme will be executed with cluster based approach. Will benefit 2 lakh Micro Food Enterprises. For instance, Bihar can have Makhana cluster, Kashmir can have Kesar cluster, Telangana can have Turmeric cluster, Andhra can have chilli cluster.
  1. Govt will launch Pradhan Mantri Matsya Sampada Yojana for development of marine and inland fisheries. Rs 20,000 crore will be spent to fill the gaps in value chains. This will lead to an additional fish production of 70 lakh tons in next five years and provide employment to 55 lakh people.
  1. Rs 13,343 crore for vaccination of livestock in India to eradicate foot and mouth disease.
  1. Rs 15,000 crore will be spent on ramping up the dairy infrastructure. Also, investments will be made in cattle feed.
  1. Rs 4,000 crore for growing of herbal and medicinal plants. Ten lakh hectares of land will be used for growing medicinal and herbal plants and will provide income of nearly Rs 5,000 crore for farmers.
  1. Rs 500 crore have been allocated for beekeeping. This will help 2 lakh beekeepers.
  1. TOP to TOTAL: Rs 500 crore for Operation Greens that will be extended beyond tomatoes, potatoes and onion and will applicable to all vegetables.

Proposes amendment to Essential Commodities Act to enable better price realisation for farmers. Food stuffs including edible oils, oilseeds, pulses, onions and potato will be deregulated. And stock limits will be imposed only under exceptional circumstances like famine and surge in prices.

Agriculture Marketing Reforms

32. A central law will be formulated to provide (a) Adequate choices to sell produce at attractive price, (b) Barrier free inter-state trade, and (c) Framework for e-trading of agriculture produce.

Agriculture Produce Price and Quality Assurance

33. Facilitative legal framework will be created to enable farmers for engaging with processors, aggregators, large retailers, exporters etc. in a fair and transparent manner. Risk mitigation for farmers, assured returns and quality standardisation shall form integral part of the framework.

FOURTH TRANCHE

For Upgrading Infrastructure

Included structural reforms in 8 critical sectors- Coal, Minerals Defence Production, Airspace management, Social Infrastructure Projects, Power distribution companies, Space sectors and Atomic Energy.

Coal Sector

Government is introducing the commercial mining of coal. India needs to reduce import of substitutable cal and increase self-reliance in coal production.

34. The investment of Rs. 50,000 crores is for the evacuation of enhanced CIL’s (Coal India Limited) target of 1 billion tons of coal production by 2023-24 plus coal production from private blocks.

Minerals

35. Enhancing private investment in mineral sector.

 36. FMalso explained the rationalisation of stamp duty payable at the time of award of mining leases.

37. 500 mining blocks would be offered through an open and transparent auction process, a joint auction of Bauxite & Coal mineral blocks will be introduced to enhance Aluminum industry’s competitiveness.

Defence Production

38. Indigenization of imported spares, separate budget provisioning for domestic capital procurement.

39. FDI limit in defence manufacturing under automatic route is being raised from 49% to 74%.

40. Corporatisation of Ordnance factory board was also announced.

Civil Aviation (Airspace Management, World Class Airports Through PPP, MRO HUB)

41. Restrictions on the utilisation of Indian Air Space will be eased so that civilian flying becomes more efficient.

42. Government is working hard to make India a global hub for for aircraft maintenance, repair and overhaul.

43. Airports Authority of India has awarded 3 airports out of 6 bid for operation & maintenance on (PPP) basis. Additional investment by private players in 12 airports in first & second rounds expected around Rs 13,000 crores.

Power Sector Reforms

44. Power Distribution Companies in Union Territories to be privatised in line with the new tariff policies. This will enable to strengthen industries and bring in efficiency in the entire power sector. This will also enable stability in the sector, announced the FM.

Boosting Private Sector investment

45. Boosting private sector investment  in Social Infrastructure through revamped Viability Gap Funding Scheme of Rs 8,100 crores.

Space Sector

46. Boosting private participation in space sectors. Government is working on a liberal geo-spatial policy. Private sector to be co-traveller in India’s space sector journey through launches, satellite services, commented the Finance Minister.

Atomic Energy

47. The government intends to link India’s robust start-up ecosystem to the nuclear sector – Technology Development cum Incubation Centres will be set up for fostering synergy between research facilities and tech entrepreneurs. Establishment of research reactor in PPP mode for production of medical isotopes.

Fifth Tranche

48. MGNREGS: Additional funding of Rs 40,000 crore to the scheme over and above the Budgetary Estimate.

49. Health: All districts will have infectious disease hospitals while at the block-level, public health labs will be set up.

50. Education: PM eVidya programme to be launched immediately. Each Classroom from 1 to 12 will have one TV channel. Special e-content for visually & hearing impaired. Top 100 universities will be permitted to start online courses by May 30, 2020.

51. IBC reforms: Covid-related debt to be excluded from definition of default under the IBC. No fresh insolvency for next one year. Minimum threshold to initiate insolvency raised to Rs one crore from Rs one lakh earlier.

52. Decriminalising Companies Act: Violations under most of the Companies Act to be decriminalised. This will ease the burden on courts and tribunals. Seven compoundable offences under Companies Act being dropped, 5 offences to be dealt under alternative framework.

53. Listing norms: Companies can now list securities directly in foreign jurisdictions

54. New Public Sector Policy: Public sector enterprise policy: All sectors are open to the private sector while public sector enterprises will play an important role in defined areas. Govt will notify strategic areas and in them at least one PSE will remain but private sector will be allowed. In other sectors, PSEs will be privatised.

55. Additional resources to States: Centre has decided to increase borrowing limit of states from 3% to 5% for FY21. This will give extra resources of Rs 4.28 lakh crore to states. This despite, states having borrowed only 14% of the limit authorised to them. 86% remains unutilised. The additional borrowing limit has been linked with initiating reforms.

The finance minister also gave a break up of how the Rs 20 lakh crore was allocated among the five tranches and the previous schemes as well as the RBI measures.

Large unlisted companies face quicker disclosure rule

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Large unlisted companies may have to make quarterly or half-yearly filings, like their listed counterparts, as the government is considering amendments to the Companies Act to mandate more frequent disclosures in the aftermath of the IL&FS collapse.

The ministry of corporate affairs (MCA) is expected to prescribe a threshold for the disclosure requirement as it does not want to burden all companies, as a bulk of them are small companies, sources told TOI. The idea is to track the systemically important companies, which pose a risk to the entire system. “It will be an enabling amendment and MCA will decide on timing and extent of disclosures later,” said a source.

The assessment in the government is that there is a massive lag, often up to 18 months related to annual filings by companies, many of which have been non-compliant in the past. An entity like the beleaguered IL&FS was not on the radar till it collapsed and MCA is hoping that periodic disclosures would reduce the chances of such failures going undetected. Currently, companies are required to annually file the consolidated financial statement, balance sheet, profit & loss account, annual returns, directors’ report and certified true copy of board resolution with the designated RoC.

The proposal to increase disclosures is expected to be part of a set of amendments to be taken up by a group of ministers chaired by home minister Amit Shah, with defence minister Rajnath Singh, finance & corporate affairs minister Nirmala Sitharaman, commerce & industry minister Piyush Goyal and law & justice minister Ravi Shankar Prasad among the nine members of the committee, sources told TOI.

The ministerial panel, referred to as alternate mechanism by the Narendra Modi administration, will largely look at the recommendations of the company law panel, which submitted its report. While MCA was pushing for the introduction of the Bill during the recently concluded Winter Session, the legislation will now be placed before the Parliament as soon as it is cleared by ministers. The ministry is hoping to introduce the Bill during the budget session.

Source: Times of India

IBC proceeds formula may be reworked to avoid squabbles, legal delays

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The Centre is looking at further changes to the IBC as it doesn’t want to leave any room for litigation on the distribution of proceeds.

The government is considering a formula for distributing the proceeds of insolvency resolution among financial and operational creditors in a fixed proportion, said people with knowledge of the matter. The goal is to protect the interests of operational creditors and reduce delays due to litigation, ensuring that the objective of the Insolvency and Bankruptcy Code (IBC) is preserved.

“This is one of the solutions that is being looked at,” an official said. The government will take a final call only after extensive deliberations, he added.

Distribution of resolution proceeds has emerged as one of the key factors behind the extended litigation, delaying major insolvency cases. Dissatisfied operational creditors have been the source of such cases in some instances.

The Supreme Court is currently deciding on the distribution of proceeds in the case of Essar Steel, which entered the National Company Law Tribunal (NCLT) system in August 2017. The process was thought to have ended when Arcelor Mittal’s Rs 42,000-crore bid for the debt-ridden steel manufacturer was approved in March 2019. But the original promoters, the Ruias, opposed approval of the plan, questioning Arcelor Mittal’s eligibility.

Operational creditors rejected the plan on the grounds of discriminatory treatment. Financial creditor Standard Chartered Bank has also gone to court against the resolution plan on the same grounds. Financial creditors moved the Supreme Court after the National Company Law Appellate Tribunal (NCLAT) ordered proportional recovery for both financial and operational creditors. Under the IBC, cases have to be decided within a 330-day window.

The decision to change the rules to grant greater protection to operational creditors had come from the “highest levels of the government,” said one of the persons.

The Centre is looking at further changes to the IBC as it doesn’t want to leave any room for litigation on the distribution of proceeds, the person said. The IBC is regarded as one of the signal reforms of the first Narendra Modi government. The process got bogged down in litigation over some of the biggest cases, blunting the IBC’s aspiration of speeding up bankruptcy resolution and cleaning up banks’ books. The 2016 IBC has already been tweaked several times toward this end.

Operational creditors had slightly higher recoveries than financial creditors, according to data available with the government, said the person cited above. The Insolvency and Bankruptcy Board of India has pegged the average recovery for financial creditors in cases where there was successful resolution at 41.5% at the end of the September quarter.

In the latest set of amendments to the IBC, carried out in the budget session of parliament, the government had clarified that the CoC would have the right to decide on the distribution of proceeds but that all creditors must receive liquidation value or the amount they would receive if resolution proceeds were distributed according to the ‘waterfall mechanism,’ whichever is higher.

The waterfall mechanism under the IBC outlines the order of priority for repayment to creditors in the event of liquidation.

Under this, secured creditors have to be paid fully before any payments can be made to unsecured financial creditors who in turn have priority over operational creditors.

Experts said the government will have to come up with a balanced formulation. Setting a high fixed proportion for operational creditors could prompt CoCs to opt for liquidation instead of resolution. “At present, in many cases, operational creditors are not getting anything,” said Manoj Kumar, partner at Corporate Professionals.

Source: Economic Times

India replaces France as world’s 6th biggest economy

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India’s GDP amounted to $2.597 trillion at the end of last year, against $2.582 trillion for France

India has become the world’s sixth-biggest economy, pushing France into seventh place, according to updated World Bank figures for 2017. India’s gross domestic product (GDP) amounted to $2.597 trillion at the end of last year, against $2.582 trillion for France. India’s economy rebounded strongly from July 2017, after several quarters of slowdown blamed on economic policies pursued by Prime Minister Narendra Modi’s government.

India, with around 1.34 billion inhabitants, is poised to become the world’s most populous nation, whereas the French population stands at 67 million. This means that India’s per capita GDP continues to amount to just a fraction of that of France which is still roughly 20 times higher, according to World Bank figures.

Manufacturing and consumer spending were the main drivers of the Indian economy last year, after a slowdown blamed on the demonetisation of large banknotes that Modi imposed at the end of 2016, as well as a chaotic implementation of a new harmonised goods and service tax regime.

India has doubled its GDP within a decade and is expected to power ahead as a key economic engine in Asia, even as China slows down.

According to the International Monetary Fund, India is projected to generate growth of 7.4% this year and 7.8% in 2019, boosted by household spending and a tax reform. This compares to the world’s expected average growth of 3.9%.

The London-based Centre for Economics and Business Research, a consultancy, said at the end of last year that India would overtake both Britain and France this year in terms of GDP, and had a good chance to become the world’s third-biggest economy by 2032.

At the end of 2017, Britain was still the world’s fifth-biggest economy with a GDP of $2.622 trillion. The US is the world’s top economy, followed by China, Japan and Germany.

 

Foreign investors pump $3 billion into capital markets, forex at record high in January

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Foreign portfolio investors (FPIs) have invested a phenomenal $3 billion (close to Rs 18,000 crore) in India’s capital markets this month on expectations of high yields as corporate earnings are expected to pick up with the economy gathering momentum after the slowdown due to the chaotic implementation of GST.

The sharp increase in inflows comes after an outflow of over Rs 3,500 crore by foreign portfolio investors (FPIs) from the capital markets in December, data compiled by depositories shows. According to market analysts money pumped in by FPIs has played a key role in fuelling the bull run in the stock markets that saw both the Sensex and Nifty on a record breaking spree in recent weeks.

FPIs infused a net amount to the tune of Rs 11,759 crore in stocks and Rs 6,127 crore in debt during January 1-25 — translating into net inflows of Rs 17,866 crore. For the entire 2017, FPIs invested a collective amount of Rs 2 lakh crore in the country’s equity and debt markets.

The inflow in the current month can be attributed to anticipation of earnings recovery and attractive yields which is expected to further strengthen inflow from foreign investors in the current financial year, said Dinesh Rohira, CEO of 5nance, an online platform providing financial planning services.

However, Quantum MF Fund Manager-Fixed Income Pankaj Pathak believes that FPIs may not be able to repeat this showing in 2018 as withdrawal of liquidity and rate hikes in developed economies pick up. This would provide them with alternative avenues of investment.

The FPI investments have also helped to bolster the country’s foreign exchange reserves which touched an all-time high of USD 414.784 billion in the week to January 19, Reserve Bank data showed. The RBI data showed that the forex reserves rose by USD 959.1 million to touch a record high during the reporting week. In the previous week, the reserves had touched USD 413.825 billion after it rose by USD 2.7 billion.

The reserves had crossed the USD 400-billion mark for the first time in the week to September 8, 2017 but have since been fluctuating. But for the past four weeks the figure has shown a continuous rise. Higher foreign exchange reserves lead to a stronger rupee which in turn reduces the cost of imports as fewer rupees have to be paid to buy the same amount of dollars to pay for items such as crude oil.

A higher foreign exchange kitty also provides a comfortable cushion to finance imports especially at a time when crude prices are shooting up in the international market and the country’s trade deficit has been growing. However, while FPI inflows add to the forex reserves they are considered “hot money” as they can leave Indian shores at short notice and this could send the rupee into a tailspin.

A senior finance ministry official said that foreign direct investment (FDI) is a more stable source of funding for the economy and since it also creates jobs and incomes the government is keen to see an increase in such investments. The Prime Minister’s trip to Davos was aimed at achieving this goal, he pointed out. He said that the government has been working on the ease of doing business which has seen a sharp increase in FDI inflows and this policy will continue in the forthcoming budget. At the same time the government is keen FPI inflows are not disrupted due to tax levies on stocks that create uncertainties, he added.

 

Source: Business Today

Demonetisation, GST will bring long-term benefits for Indian economy: IMF on Narendra Modi’s one-off policy moves

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0

The disruptive impact of demonetisation announced last year is a temporary phenomenon and the scrapping of the high-value currency would bring “permanent and substantial benefits”, according to the International Monetary Fund (IMF).

In an interview to CNBC TV18, IMF Economic Counsellor and Director of Research Maurice Obstfeld said that although demonetisation, as well as implementation of the Goods and Services tax (GST) caused short-term disruptions, both measures would bring long-term benefits.

“The costs of demonetisation are largely temporary and we see permanent and substantial benefits accruing from the move,” Obstfeld said.

Demonetisation caused long queues outside banks.

Demonetisation caused long queues outside banks.

“Both demonetisation and the GST introduction will bring long-term benefits, though these caused short-term disruption,” he said.

The IMF Chief Economist described GST as a “work in progress” to which the Indian economy is “gradually adjusting”.

With businesses going into a “destocking” mode on inventories in anticipation of the GST rollout from July 1, sluggish manufacturing growth, among other factors, pulled down growth in the Indian economy during the first quarter of this fiscal to 5.7 percent, clocking the lowest GDP growth rate under the Narendra Modi dispensation.

Breaking a five-quarter slump, however, a rise in manufacturing sector output pushed the growth rate higher to 6.3 percent during the second quarter (July-September) of 2017-18.

Obstfeld also listed some of the reforms being undertaken by the Indian government that have impressed the multilateral agencies.

“The government has taken important first steps like bringing in the Insolvency and Bankruptcy Code, which helped India improve its position substantially in the World Bank’s ‘Ease of Doing Business’ rankings,” he said.

He also mentioned the recent recapitalisation plan for state-run banks announced by the government and the Asset Quality Review of commercial banks earlier ordered by the Reserve Bank of India (RBI).

Both measures are designed to address the issue of massive non-performing assets (NPAs), or bad loans, accumulated in the Indian banking system that have crossed a staggering Rs 8.5 lakh crore.

In a report released in Washington on Thursday, the IMF cautioned that the high volume of NPAs and the slow pace of mending corporate balance sheets are holding back investment and growth in India even though structural reforms have helped the nation record stronger growth.

The IMF’s Financial System Stability Assessment (FSSA) for India said that overall “India’s key banks appear resilient, but the system is subject to considerable vulnerabilities”.

“The financial sector is facing considerable challenges, and economic growth has recently slowed down,” the report said.

“High non-performing assets and slow deleveraging and repair of corporate balance sheets are testing the resilience of the banking system, and holding back investment and growth.”

“Stress tests show that… a group of public sector banks are highly vulnerable to further declines in asset quality and higher provisioning needs,” it added.

Source: FirstPost