สรุปข่าวเศรษฐกิจอินเดียประจำวันที่ 10 กุมภาพันธ์ 2557

Government panel sees Foreign Direct Investment and Foreign Portfolio Investment differently

A high-level panel set up by the government to overhaul the foreign investment regime in the country is set to recommend that any investment above 10% in a company's equity be classified as foreign direct investment (FDI) and below that as portfolio investment. The committee headed by economic affairs secretary Arvind Mayaram is expected to submit its report on Monday so that an announcement can be made in the interim budget, likely on February 17, said a senior finance ministry official. The overhaul in the classification had been announced by finance minister P Chidambaram in the budget for 2013-14. Chidambaram is expected to unveil the new definition in his vote-on-account speech. The committee has significantly scaled down its ambitions from reported draft proposals that had gone to the extent of suggesting significant reforms in the overseas investment regime. The committee is now likely to stick to the task assigned and only make recommendations regarding the distinction between foreign direct investment and foreign portfolio investment (FPI). The move is aimed at simplifying things for companies regarding what rules to follow - FDI or FPI. The panel has refrained from suggesting any change in the limit on overseas investment, the official said. The default cap for foreign portfolio investment will continue to be 24%. The distinction between FDI and FPI is in keeping with the practice in a number of countries such as Brazil and South Africa as well as the OECD countries. All foreign investment in an unlisted company, irrespective of how much it is, will be classified as foreign direct investment. The investment regime for non-resident Indians and foreign venture capital investors will be unchanged. The panel has also favoured grandfathering for investors with less than 10% in listed companies as FDI but haven't entered through the portfolio route. Such an investment would be classified as portfolio investment in the new regime. The report is also likely to allow a similar dispensation for a foreign holding dropping below 10% as a result of corporate restructuring. The panel headed by Mayaram had been constituted to draw up the framework for the changes in classifying overseas investment. The UPA government has liberalised the FDI regime in a number of sectors including telecom and single-brand retail over the past one year. These changes were based on a report by another panel headed by Mayaram.

(Source: Economic Times)

P. Chidambaram may extend excise relief, but won’t cut rates

The interim budget for 2014-15 is likely to extend some state and sector-specific indirect tax breaks although tax rate changes are unlikely to happen. Finance minister P Chidambaram is also likely to present his perspective on the future course of reforms in both direct and indirect taxes if the UPA voted is back to power, in an answer to BJP’s promise of a simpler tax regime. Persons privy to government’s budget discussions said most of the indirect tax changes recommended by the Parthasarathi Shome panel has already been announced in the last three months without waiting for the interim budget and hence major tax changes are unlikely in the budget. However, certain end-use specific exemptions in service tax could be expected. While the tax rate presently at 12% is unlikely to be changed, services rendered to certain infrastructure businesses could get relief. The government is also considering an extension of the excise duty exemption in hill states such as Himachal Pradesh and Jammu and Kashmir by either five years or until the GST comes into force. The excise duty exemption available to hill states expires in May 2014. Excise duty is now levied at 12%. In the vote-on-account to be presented in Parliament on February 17, rate changes on the direct tax front (personal income-tax and corporation tax) are virtually ruled out. These changes require Parliament approval and with elections around the corner, it is a matter of propriety that such matters are left to be decided by next Lok Sabha. While excise or service tax rate change at this juncture may not be in keeping with the GST plan, the minister might also refrain from introducing any fresh exemptions as such a move would not be in conformity with the principle of uniform rates and harmonised structure embraced by the policymakers. Indicating his disapproval of major cuts in tax rates, Chidambaram had recently attributed the tough fiscal deficit situation to the fiscal stimulus given during the crisis years of 2008-09 and 2009-10, which brought down country’s tax GDP ratio to 9.7% in 2009-10 from 11.9% in 2007-08. With the curbing of the country’s current account deficit, likely at less than $50 billion or 2.5% of GDP, down from $ 88.2 billion or 4.8% last fiscal, the jewellery industry could expect removal of the non-tariff restrictions on gold imports and a partial rollback of the import duty on gold bars from the current 10%.

(Source: Financial Express)

Rupee might weaken; yields seen falling

The rupee is seen to be weakening this week due to dollar demand from oil marketing companies and defence-related purchases. According to currency dealers, though dollar flows in domestic markets might continue to support the rupee, the demand for dollar might weaken the rupee. The rupee ended at Rs 62.29 on Friday, compared with the previous close of Rs 62.39 a dollar, Government bond yields are seen falling this week. However, the crucial inflation data for January, both Consumer Price Index inflation as well as Wholesale Price Index inflation will be the triggers for bond yields movement. The yield on the 10-year benchmark government bond 8.83 per cent 2023 ended at 8.74 per cent on Friday, compared with the previous close of 8.72 per cent. The yield ended marginally higher as the cut-off yields for the auction on the same day was higher that the expectations of the street.

(Source: Business Standard)

Bitcoin gains more ground as new virtual currency

A number of new entrants, such as bitgem, catcoin, unobtanium and sexcoin, have arrived on the scene even as regulators across the world grapple with risks posed by such currencies and transactions conducted through them. At least 93 virtual currencies are at present being used by people across the world over the internet, as also for some offline transactions, and their total valuation has reached $13 billion (over 80,000 crore), out of which bitcoin alone accounts for over $9 billion, according to market estimates. Total value of bitcoin and other such virtual currency trades in India is estimated to be worth only a few crores of rupee as of now, but their usage seems to be growing and NRIs living abroad are expected to be dealing with virtual currencies in a big way. Within four years of coming into existence, bitcoin has become the world's most expensive currency and its per unit value soared past $1,200 level or about 63,000 recently, although the prices have now slipped below $750 a piece ( 45,000). After RBI and other central banks across the world warned financial intermediaries about dealing with virtual currencies through traditional channels, the buzz around such denationalised currencies, which are not backed by any assets, had moderated for some time. These virtual currencies are increasingly being used to pay for goods and services with retailers, restaurants and entertainment venues. Some Universities, cafes, bars are accepting bitcoins and and even products like bikes and furniture are being sold online for these currencies. However, experts and regulatory officials feel different virtual currencies expose users to unintended risks and also losses arising out of scams perpetrated by cyber criminals looking to make a quick buck. Most platforms require users to upload images of government photo IDs, proof of address documents as well as online banking account details. Illegal drug cartels and those indulging in money laundering activities are said to be increasingly opting to transact through virtual currencies due to to anonymous, low transaction cost and difficult to trace nature of environment.

(Source: Economic Times)

Economic Section

Royal Thai Embassy