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C.Chandrasekhar
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May 2, 2013
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The Finance Bill was passed with little discussion in the Parliament.
Perhaps there was not much to discuss as none of the political parties are seized with any developmental issues and the Government could not care less.
The only positive aspect of the budget was the absence of any obvious populist measures – though it is not of much solace, as the fertilizer, food and oil subsidies still stood at Rs. 2,20,971 cr.
The subsidy estimates are 23% higher than the budget estimates for the previous year, though they are lower by 11% as compared to revised estimates for the year 2012-13. The fact that the revised estimates are about 50% higher than the earlier budget estimates indicate the possibility of similar over run during the current year.
There are no concrete policy proposals in the budget to promote growth. The fiscal deficit as a % of GDP can be contained either by restraining fiscal expenses, or by achieving higher GDP growth – the latter does not appear to have gained any prominence either in the budget or in the post-budget announcements.
The domestic as well as global investment flows in to India are constrained by two major factors.
The environment clearances and other bureaucratic hurdles are holding up several investment proposals. Following the revision of FDI Policy, the IKEA proposal for investment of Rs. 10500 cr in India was cleared by Foreign Investment Promotion Board, but is still to be cleared by the Cabinet Committee on Economic Affairs. Investment plans of several steel and power plants, including the expansion plan of SAIL are held up for want of clearance from Environment Ministry.
The role of newly formed Cabinet Committee on Investments is diluted as their clearances are not final, until the approvals are received from the Ministry of Environment. They have yet to succeed in a time-bound clearances schedule for new projects.
The tax regime is becoming more and more opaque. The areas where the IT officers are allowed to exercise their ‘value judgment’ recently expanded to cover issues like pricing of capital issues in overseas transactions (which in point of fact do not result in any erosion of wealth in India), royalty payments (Is Suzuki brand worth so much?) and publicity expenses (Advt in India is contributing to the image of parent company overseas…). One would wonder if large global and Indian companies have so grossly misread the tax law as to attract humongous tax bills with retrospective effect (e g $ 2.5 bn for Vodafone, Rs. 15000 crore for Shell, Rs. 1330 cr for Bharti Airtel….). PSUs like Coal India are no exception to the tax disputes. If the taxation becomes so unpredictable, and the retrospective effect becomes the norm, India would be the last investment destination both for global as well as Indian investors.
Transfer pricing is not difficult to resolve if quantitative norms are fixed in the law, rather than leaving the judgment to revenue officials. For instance RBI has already fixed a cap on remittances relating to royalty fee, and income tax regulators are free to fiddle with the ceiling, instead of leaving it to the subjective decision of the assessing official.
An E&Y Survey reported 1500 transfer pricing litigations in India in February 2011, as against 6 in U S and none in Taiwan and Singapore* - that was before the flood of recent supersize notices to Indian companies. As at end of September 2012, the amount locked in direct tax disputes was estimated at Rs. 1002 trillion. No wonder that India ranked 184th in World Bank’s ranking of 185 countries in terms of business efficiency. And a risk consultancy in Singapore ranked Indian bureaucracy as the worst in Asia for the year 2012.
A pragmatic budget should have not just income and expense proposals, but a long term perspective of growth to guide the annual budget planning.
* quoted from Indian Express 25th April
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Mecklai Financial
Services Ltd. is a consulting company exclusively focused on treasury
risk management.
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