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Sunday, March 1, 2015

Govt Willing to Walk the Talk Through Higher Public Investments ANIL AGARWAL GROUP CHAIRMAN, VEDANTA RESOURCES

Mar 01 2015 : The Economic Times (Mumbai)

by Invite - Govt Willing to Walk the Talk Through Higher Public Investments

ANIL AGARWAL GROUP CHAIRMAN, VEDANTA RESOURCES

Budget 2015 is the right enabler to achieve growth

India is one of the world's fastest-growing economies. However, it operates far below its potential. Over the past few years, investments have slowed and there is an urgent need to revive the economy.
I believe the first full Budget of the new government is the right enabler to achieve growth. Special focus on infrastructure, both social and physical, would have significant benefit for our nation.
It is heartening to note that the government is willing to walk the talk through higher public investments. Higher public investments will be a catalyst for higher private investments and support a swift recovery, as private spending is key to long-run growth.
Manufacturing is a key policy objective of the new government, which identifies this sector as the engine of long-run growth. To this end, Budget 2015 has announced a series of cuts in customs and excise duties.This has the potential to promote domestic manufacturing and `Make in India' for creation of more jobs. Even as we embark on a high economic growth trajectory, our special emphasis should be on social infrastructure to bring the marginalised and poor sections of society into the mainstream. This is because 21.9% of our population is living below the poverty line. We are in the bottom 25% of all countries on the Human Development Index, and bottom 20% on the Gender Inequality Index.
Women account for nearly 48% of India's population. Thus, focus on women should be a priority for any budget.The vision of each house in the country having clean drinking water and a toilet by 2022 is commendable. There is a very close interdependence between water, sanitation, health, nutrition, and human well-being. We view water as a central resource for a sustainable India world's youngest nations and it is blessed with a demographic dividend. It is important for us to harness this immense potential. Thus, it is heartening to see that the government will soon launch a National Skills Mission. It is a step in the right di and are in the process of playing a very transformational role. We are successfully executing a crucial pilot in the state of Rajasthan and working together with the government and the community to improve water access and availability, and as a result transform lives of rural communities.
I ndia is one of t he rection and numerous initiatives on skill development will help improve employability and generate greater employment opportunities.
Numerous social security measures, particularly the universal social security system, announced in Budget 2015 will have far-reaching benefits for all Indians and poorer sections of society.
To conclude, the new government has pursued pro-growth initiatives and I believe Budget 2015 will continue the impetus to further boost economic growth and re-establish investor confidence.
The government is well positioned for a swift and efficient execution of pro-growth initiatives. Not only will this help bring in more capital and employment, it will significantly benefit society at large and help achieve aspirations of millions of Indians.

FIRING ON ALL CYLINDERS Budget promises rapid construction of roads, ports, UMPPs, airports & green energy projects with the help of massive public funding while weeding out delays and corruption

Mar 01 2015 : The Economic Times (Mumbai)

IN FOCUS - Adding Muscle to the Core

Himangshu Watts

FIRING ON ALL CYLINDERS Budget promises rapid construction of roads, ports, UMPPs, airports & green energy projects with the help of massive public funding while weeding out delays and corruption

Infrastructure development is poised to take a giant leap as the Budget promises rapid construction of highways, ports, ultra mega power plants, airports and renewable energy projects with the help of massive public funding made possible by delaying fiscal belt-tightening.
Analysts expect foreign direct investment, which has been lukewarm towards Indian infra structure, to flow into the sector. The optimism stems from the belief that the promised transparent auction and absence of uncertainty over clearances will calm overseas investors, who often say it is difficult to compete with local firms that are adept at navigating bottlenecks and roadblocks.
With projects worth `8.7 lakh crore stalled due to difficulties in clearances, litigation, poor performance of contractors or financial difficulties, Finance Minister Arun Jaitley said the major slippage in the past decade has been on the infrastructure front."There is a pressing need to increase public investment....with private investment in infrastructure via the public-private partnership (PPP) model still weak, public investment needs to step in, to catalyse investment," he said.
The minister focused on steps to fund infrastructure and rule out delays and corruption steps which analysts said can lure foreign companies to invest in Indian projects. A key initiative is the "plug-and-play" model, in which projects will be offered after securing all clearances. Jaitley said he expects `1 lakh crore investment in five ultra mega power projects (UMPP). India Ratings said domestic companies may not participate enthusiastically in these projects due to weak lending and equity sentiment in the sector. "However, this could boost the foreign interest in the sector which will bring in the required equity and more technological inputs for timely implementation and enable efficient operation of these projects," the agency said.
Shubhranshu Patnaik, senior director with Deloitte, said land acquisition for giant projects may be an issue."Committing to bid out five UMPPs is creditable but it isn't clear how soon this can be done, given the need to acquire land for the plant and mines," he said. The Budget proposals include a massive expansion and acceleration of road-building by completing 1 lakh km of highways already under construction and another 1 lakh km of new projects, which will boost demand for inputs, including cement and steel.
Jaitley also promised tax-free bonds for various infrastructure projects and the setting up of the National Investment and Infrastructure Fund, which will have an annual flow of `20,000 crore to it. "This will enable the trust to raise debt and, in turn, invest as equity, in infrastructure finance companies such as IRFC and NHB. These companies can then leverage this extra equity, manifold," Jaitley said. Further, PSUs will raise capital expenditure by `80,444 crore to `3,17,889 crore in 2015-16. "In fact, all told, investment in infrastructure will go up by `70,000 crore in 2015 16, over 2014-15 from Centre's funds and resources of CPSEs (central public sector enterprises)," the minis ter said. Jaitley also said the government plans to in troduce a Public Contracts (Resolution of Disputes) Bill to resolve disputes, which have delayed many projects.
Analysts and industry executives said that the steps announced in the Budget will boost infrastructure investment and improve business sentiment, even as they added that they will keenly watch how effectively the promised measures are implemented.

LISTING GETS EASIER - Tax on REIT Income Passes to Investors

Mar 01 2015 : The Economic Times (Mumbai)

LISTING GETS EASIER - Tax on REIT Income Passes to Investors

Sobia Khan & Kailash Babar

Bengaluru | Mumbai:

Finance minister Arun Jaitley proposed to make the path slightly easier for Real Estate Investment Trusts (REITs) to list, allowing pass-through on rental income and doing away with capital gains tax issue for the sponsors.However, the capital gains tax will be applicable for direct transfer of real estate to these trusts.
REITS are vehicles for real estate companies to sell down income-producing assets in the market to investors and use the cash to invest in other projects. If an asset is directly owned by the trust, its income will be taxed at the unit holders' hand and the trust need not pay tax. A domestic investor will be taxed at 10% for this while a foreign investor will pay tax as per India's tax treaty with that country . If the asset is held through a special purpose vehicle and not directly, dividend distribution tax (DDT) will be applicable. The industry was seeking removal of DDT, but the FM has not accepted this request.
The move may boost REIT listing in India, allowing faster and smoother exits to investors in a sector hit by funding constraints. REITs own properties, and their rental income is distributed among investors. In developed markets, REITs enjoy special tax considerations. For investors, they offer high dividend, along with a liquid option, to invest in real estate.
The government, in its Budget last year, had unveiled proposals to encourage REITs and Infrastructure Investments Trusts. While several developers have shown interest, no REIT is listed in India, partly because of lack of clarity on taxation.
"A large quantum of funds is locked up in various completed projects which need to be released to facilitate new infrastructure projects to take off," Jaitley said on Saturday while presenting the Budget. The sponsors can list REITs by paying securities transaction tax, he said.
Some of the developers who may benefit are DLF, Embassy Property Developments, RMZ Corp, K Raheja Corp and Unitech.
"Promoter-level capital gains tax on migration to REITs has been rationalised, which should kick-start the REIT industry , although minimum alternate tax on the migration to discourage promoters may immediately initiate the process," said Bhairav Dalal, associate director, tax & regulatory , PwC India.

Holi Comes Early for FIIs

Mar 01 2015 : The Economic Times (Mumbai)

IN FOCUS - Holi Comes Early for FIIs

Sachin Dave & Nishanth Vasudevan

FORWARD PUSH Deferral of GAAR and prospective application, MAT waiver and new investment avenue in alternative investment funds... foreign investors never had it so good

Foreign institutional investors, the biggest movers of Indian stocks, got what they wanted in this Budget. Finance minister Arun Jaitley postponed implementation of the widely-dis liked general anti avoidance rules of taxation (GAAR), and ruled that offshore investors don't have to pay minimum alternate tax (MAT). FIIs have also been allowed to invest in private equity funds, also called alternative investment funds (AIFs).
GAAR was introduced by the then finance minister Pranab Mukherjee in his budget speech in March 2012.But ambiguity surrounding some of its provisions spooked foreign institutional investors who feared that wide powers given to local taxmen to scrutinise returns would increase harassment by some bent on increasing revenue collections at all costs. Several threatened to pull out of India and the government set up a committee which recommended deferment.
"This is a huge boost for investments coming from Singapore and Mauritius as FIIs would continue to benefit from double tax avoidance treaty," said Dinesh Kanabar, tax expert and CEO of tax advisory firm Dhruva.
On Saturday, the government also clarified that foreign portfolio investors would not pay minimum alternate tax and relaxed rules allowing FIIs to set up shop in the country. "The Budget is a big positive for foreign institutional investors. It has cleared a lot of uncertainties," said Sanjay Sanghvi, partner at law firm Khaitan & Co.
Tax practitioners and lawyers said the MAT exemption is the biggest takeaway. The tax de partment had issued notices to several foreign portfolio inves tors (FPIs) earlier this year on MAT causing frantic investors to knock on the doors of the gov ernment and tax consultants and complain about arbitrariness. The levy would have resulted in FPIs paying 20% tax making the capital gains tax regime irrelevant.India taxes short-term capital gains at 15% and there is no long-term capital gains tax on investment beyond one year.
"The announcement would remove the uncertainty and anxiety created due to the recent tax notices to FPIs asking them to pay MAT," said Rajesh H Gandhi, partner (tax), Deloitte Haskins & Sells. The IT department had issued notices to about 400 FPIs in the last few months.
The government has also made it easier for foreign fund managers to set up base in India by tweaking the permanent establishment (PE) norms. PE refers to a situation where a non-resident entity becomes liable to pay taxes just by having an office or a fund manager in that jurisdiction. Jaitley said PE would not apply to foreign institutions whose fund managers are located in India.
"Earlier, funds would have a contrived arrangement with their India managers to operate as otherwise their gains would be treated as profits and taxed accordingly.With the new arrangement, the FPIs returns would be treated as capital gains," said Kanabar.
The Finance Bill states that the proposed new Section 9A seeks to provide that in the case of an eligible investment fund, any fund management activity carried through an eligible fund manager acting on behalf of such a fund shall not constitute business connection in India of the said fund.
Sub-Section 2 of the new section provides that an eligible fund shall not be treated as resident just because an eligible fund manager is doing fund management activities on behalf of the fund in India.
Concern over taxation of such entities had prompted many fund managers, who manage India-centric portfolios, to handle operations from Singapore and Hong Kong.