Jurisdiction - India
Reports and Analysis
India – Once Again The Land Of Opportunity.

16 October, 2014

 

 

The landslide victory of the Narendra Modi led Government reflects the desire of the Indian voter for economic growth and effective governance and for the first time in 30 years, a single party has won by an outright majority ushering in a new era of political and economic stability. Now that the new Government has been in power for more than 100 days, it is time to take a snapshot of the economic and policy changes that have been introduced.


Budget Measures: On July 10, 2014, while the Budget was being unveiled, it was apparent that the new Government wanted to place India back on the path of economic growth by adopting various measures. The Budget maintained a fine balance between continuity and taking pro-active steps to ensure fiscal consolidation and achieve long term development and sustained growth of about 7% to 8% in the next 3 to 4 years. In the Budget, the Government focused on boosting economic growth and job creations by focusing on infrastructure, manufacturing and the real estate sectors. The new Government addressed the impediment of bureaucratic bottle necks for investment related clearances (presently being paper oriented and document intensive) and compliances (particularly in Indian infrastructure projects) and also articulated the focus on information technology (use of IT in government administration is negligible at present).


Increase In FDI Limits: Further, the Budget also mooted proposals for the increase in the Foreign Direct Investment (“FDI”) limits for defence and insurance sectors from existing limit of 26% to 49% with a view to tapping greater foreign investment in these key sectors (detailed guidelines are also being framed). The industry’s demand to liberalize FDI norms in the realty sector has also been accepted with certain restrictive conditions relating to minimum capitalization (reduced from USD 10m to USD 5m) and minimum built-up area requirements (reduced from 50,000 square metres to 20,000 square metres) being further liberalized. Low cost housing is being exempted from minimum capitalization and minimum built-up area. These measures will likely attract further FDI into these sectors. Following the Budget announcements, the FDI limits have recently been raised in the defence and in the railway infrastructure sector (detailed guidelines are also being framed).


Clarity On Taxation Of Gains Of Foreign Portfolio Investors: Further, the foreign portfolio investors who were, in the past, faced with an uncertainty in taxation on account of characterization of their income have been given clarity with the income being treated as capital gains and the clarity being brought in the statute itself and not at the discretion of income tax authorities or courts. This clarity in the tax regime is likely to attract fund managers to India which will create more tax revenue and jobs.


Infrastructure Development & PPP Initiative: The Government is also focused on infrastructure development and has moved a proposal to support various public private partnerships (PPP) through various stages of development to attract further private participation in infrastructure projects established under the PPP model thereby providing more finance for Government projects.


Independence Day Address: More recently, on the occasion of India’s 67th Independence day, the Prime Minister, in his speech, reiterated the Governments stated objectives on making the Government machinery more cohesive, harmonious and efficient. The Prime Minister stressed the importance of a “Clean India” while emphasizing the importance of hygiene and facilities for girls and exhorted all elected members to take this on a priority. 

The Prime Minister also discussed the importance of the manufacturing sector and invited foreign investment in the electronics and manufacturing sector in India with the mantra “Make in India” with a focus on “zero defect” and “zero effect”. India, unfortunately, has not been able to capitalize on its vast labour resources due to infrastructure bottlenecks and inefficient production techniques and also lack of adherence to environment-friendly techniques. Simultaneously, he pledged the Governments support to skill development, vocational training and the promotion of employment in the manufacturing sector. 

These measures are likely to attract more foreign investment in the manufacturing sector in India, particularly from electronics, manufacturing and technology sectors.


Financial Inclusion Of Poor People: The Prime Minister also introduced the Jan Dhan Yojana, to enable the disenfranchised to open zero-balance savings bank accounts with debit cards and an in-built accident insurance cover. This scheme for financial inclusion and transfer of monies directly to the poor people is likely to reduce red tape and corruption which will have a long term beneficial impact on economic growth. On Independence Day 1.5 crore bank accounts were opened at more than 77,000 camps across India.


Broadly, the budget, the policy changes that have followed and the Prime Ministers recent stated objectives adhere to the expectations of the Indian voter as well as to the Industry. This is reflected in the interest that has been shown by the foreign investor community in India in the recent past as well as the bullish trend in the stock markets. From the policy measures adopted, it is evident that India is once again moving in the direction of being “Once Again the Land of Opportunity”.

 

Amarchand Mangaldas Logo - color

 

For further information, please contact:

 

Cyril Shroff, Partner, Amarchand & Mangaldas
cyril.shroff@amarchand.com

Comments are closed.