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Is doing business in India really easier now?

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Ease of doing business

Prime Minister Narendra Modi’s efforts in building India’s global appeal for investors seems to have finally yielded returns in terms of the country’s performance in the World Bank Doing Business rankings. India witnessed its highest-ever jump of 30 places in the rankings, reaching the 100th place among 190 countries. Subsequently, it also joined the list of top 10 improvers for the first time and became the first South Asian country to achieve the feat.

The World Bank measures this in terms of a Distance to Frontier (DTF) metric, which shows the distance of the economy from the best performer in each category on a scale of 0 to 100, with the latter representing the frontier. India has shown a drastic improvement of 4.71 points over the last year from 56.05 to 60.76. To put things in perspective, China has witnessed an increase of 0.40 points.

India’s performance has been impressive by any standard. It has moved closer to the global standards in nine of the ten parameters on which the Doing Business rankings are based and has enforced reforms in eight of these categories over the last year. The three key reforms among these were resolving insolvency, ease of paying taxes online and protection of minority investors. Despite these improvements, the general sentiment has been to dismiss the rankings mainly for the flaws in its methodology.

First, the rankings are based on perception surveys of few entrepreneurs or professionals based on questions that are mostly subjective in nature. Second, they are not even based on the economic conditions of the entire economy but on one or two cities within a nation. For India, it is based on Delhi and Mumbai alone. However, the critics miss the point.

If India performs poorly even on such a limited study that chooses the best cities in the country, it speaks volumes of the business conditions across the country and is indicative of the scope of improvement that remains. Moreover, rankings are relative by definition and since the World Bank chooses a maximum of two cities for other countries as well, it should depict a near accurate performance of any country on a relative scale. Therefore, any improvement up the ladder cannot be summarily dismissed.

Further, reforms considered by the World Bank include a mix of central and state initiatives. Passing of central legislation like the Insolvency and Bankruptcy Code, 2016, that helped India jump from 136 to 103 in the “resolving insolvency” parameter have pan-India benefits and are not just limited to Delhi and Mumbai. Therefore, it would be incorrect to presume that merely focusing on a few cities is disassociated from reality even though the actions of state governments are not reflected.

Incidentally, India performs poorly in parameters where state government interference is maximum: Getting an electricity connection, starting a business and registering a property. This underlines the importance of policy coordination between the states and the Centre. Nevertheless, credit needs to be given where it is due for an improvement in rankings majorly driven by reforms undertaken by the central government over the last few years. It must be noted that the rankings have not taken into account the implementation of the Goods and Services Tax (GST). Therefore, considerable potential remains for further improvement.

But it should also be kept in mind that these rankings are not an end in themselves and are far from perfect. A lot of it is based on policies which are on the books and do not necessarily capture the real experiences on the ground. After reforms are initiated to ease the business environment, the main task of implementation begins where the real problems emerge. For instance, the World Bank applauded India’s efforts at increasing access to credit with the adoption of a new insolvency and bankruptcy code. However, the parameters fail to recognise the problem that India is going through one of its slowest phases of credit growth and that banks are wary of lending so easily.

Moreover, a lot more parameters, apart from the ones considered in the Doing Business rankings, need to be considered to understand the business environment in India. The country’s dismal performance in the Heritage Foundation’s Index of Economic Freedom (in which it is ranked 143, below most of its South Asian neighbours) and Transparency International’s Corruption Perception Index (ranked 79th), reflect the areas that the country still needs to improve upon to better the business environment.

Therefore, the chest-thumping around the Doing Business ranking improvements needs to be seen in conjunction with these factors and worked upon to ease the problems faced by common businessmen. A premature celebration can be counter-productive.

(Amit Kapoor is chair, Institute for Competitiveness, India. The views expressed are personal. He can be contacted at [email protected] and [email protected] Chirag Yadav, senior researcher, Institute for Competitiveness, India has contributed to the article)

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Vodafone retrospective tax decision was erroneous: Jaitley

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Vodafone Tax Case

The decision taken by the previous UPA government to tax British telecom multinational Vodafone Group retrospectively was an “erroneous” one, the likes of which the ruling NDA would be loath to repeat, Finance Minister Arun Jaitley said on Saturday.

He was responding to a question from the audience here on the issue at the ET Global Business Summit here.

“I always felt Vodafone tax decision was an erroneous decision. This government decided it will not be taking any retrospective decision,” Jaitley said.

It was precisely for this reason that the Long Term Capital Gains Tax reintroduced in the Budget earlier this month had been exempted for investments made up to January 31, 2018, he added.

The Budget 2018-19 has proposed to tax long-term capital gains on equities exceeding Rs 1 lakh at 10 per cent, which is expected to bring in revenue of Rs 20,000 crore.

However, capital gains made on shares until January 31, 2018, will be “grandfathered”, Jaitley said while presenting the budget, adding “we have protected all investments coming in before February 1”.

Vodafone is facing tax claims and interest totalling more than Rs 22,000 crore in India, which includes Rs 14,200 crore for acquiring Hutchison’s stake in 2007.

The UPA government had said that the Hutchison-Vodafone deal was liable for tax deduction at source (TDS) under the Income Tax (IT) Act. While the Supreme Court subsequently quashed the demand in January 2012, the government amended the IT Act retrospectively, putting the liability back on Vodafone Group.

The company last year said an international arbitration tribunal would begin trial on Vodafone’s challenge to India’s retrospective legislation to seek Rs 22,100 crore in taxes.

In this connection, the UK India Business Council (UKIBC) has said thatb predictability and clarity regarding retrospective taxation would help British companies to invest more in India.

“I think that if there was more clarity, certainty, predictability around retrospective taxation and (resolving) the Vodafone issue that would help the UK companies make their investment decisions in India,” UKIBC Managing Director Richard McCallum told IANS over a telephonic interaction on Friday.

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Equities recoup on value buying after 3 weeks of losses

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sensex

Mumbai, Feb 24: After three weeks of consecutive losses, the key Indian equity indices bounced back from their lows to close this week with humble gains on value buying by investors.

Market observers said futures and options (F&O) expiry infused volatility in the domestic markets, amid global cues and a slew of domestic developments like the $1.8 billion fraud reported by the Punjab National Bank (PNB) and a weakening rupee due to the continuous outflow of foreign funds.

However, losses were trimmed as bargain-hunting by investors on the last trading day of the week lifted the benchmark indices.

On a weekly basis, the barometer 30-scrip Sensitive Index (Sensex) of the Bombay Stock Exchange (BSE) edged higher by 131.39 points or 0.39 per cent to close at 34,142.15 points.

The wider Nifty50 of the National Stock Exchange (NSE) closed trade at 10,491.05 points — up 38.75 points or 0.37 per cent from its previous week’s close.

“The week gone by saw the Nifty bouncing back from a low of 10,302 to finally end with a modest gain. This week’s gains came after three weeks of losses,” Deepak Jasani, Head, Retail Research, HDFC Securities, told IANS.

According to D.K. Aggarwal, Chairman and Managing Director of SMC Investments and Advisors, markets across the globe fluctuated wildly — highlighting the market’s fragility — as investors continued to assess the quickening pace of economic growth and the prospects of the US Federal Reserve’s tightening efforts.

“Back home, the sentiment of market participants have been dented by factors such as surging US bond yields, a multi-crore fraud in India’s second-largest public sector lender PNB and the return of long-term capital gains (LTCG) tax on equities, which put a break on the record-setting market rally,” he added.

During the eight trading sessions following the detection of a $1.8 billion fraud in one of the branches of the PNB, the bank’s shares on the BSE have plunged almost 30 per cent to Rs 113.40 per share.

Gitanjali Gems, the other listed entity involved in the fraud case, also witnessed an eight-day fall in its shares, nosediving 60.54 per cent to Rs 24.80 per share.

“The consolidation in the domestic market continued due to the NPA (non-performing assets) issue in public-sector banks, trade deficit, conflict between NSE and SGX, rise in bond yield and depreciation in rupee due to selling by FIIs (foreign institutional investors),” said Vinod Nair, Head of Research, Geojit Financial Services.

On the currency front, the rupee weakened by 51-52 paise to close at 64.73 against the US dollar from last week’s close of 64.21-22.

Provisional figures from the stock exchanges showed that FIIs sold-off scrips worth Rs 5,781.98 crore, while domestic institutional investors (DIIs) purchased scrips worth Rs 5,972.69 crore during the week.

Figures from the National Securities Depository (NSDL) revealed that foreign portfolio investors off-loaded equities worth Rs 3,054.94 crore, or $468.06 million, during February 20-23.

Sectorwise, Jasani said: “The top sectoral gainers were IT, metal and Bank Nifty indices. The top losers were auto, realty and pharma indices.”

The top weekly Sensex gainers were: Tata Consultancy Services (up 4.76 per cent at Rs 3,076.90); Yes Bank (up 3.75 per cent at Rs 323.60); Infosys (up 2.74 per cent at Rs 1,155.65); Kotak Bank (up 2.67 per cent at Rs 1,079.85); and Coal India (up 2.49 per cent at Rs 310.55).

The losers were: Bajaj Auto (down 3.70 per cent at Rs 2,988); Asian Paints (down 3.65 per cent at Rs 1,101.90); Mahindra and Mahindra (down 3.29 per cent at Rs 719.30); Tata Motors (down 2.73 per cent at Rs 360.45); and Tata Motors (DVR) (down 2.32 per cent at Rs 203.85).

IANS

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In the Indian system politicians are accountable but regulators are not: FM Jaitely on Banking frauds

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arun Jaitely
Finance Minister Arun Jaitely at Global Business Summit (Photo-ANI)

Finance Minister Arun Jaitley on Saturday told that cases of periodical willful default are much more dangerous than business failure and bank frauds.

Speaking at Global Business Summit the leader pointed out that these kinds of incidents not only harm the economic atmosphere like the ease of doing business but also scars the economy.

The finance minister Jaitley also said, “If a fraud is taking place in multiple branches of banking system & no one raised the red flag, doesn’t that become worrisome for a country. Similarly, top management who were indifferent, multiple layers of auditing system which chose to look another way, it creates a worrisome situation.”

The leader also referred that Regulators plays important roles and decide the rules of the game and they have to have a third eye which perpetually is open.

“Unfortunately, in the Indian system we politicians are accountable but regulators are not,” he added.

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