CURRENT NATIONAL AFFAIRS
DEFENCE
Revised Maritime Policy
Just six months after the Indian Navy was given charge of the country’s entire coastal security, it announced a revised maritime policy on August 28, 2009. The Navy will now have an even sharper focus on the neighbourhood of the country. This means securing the trade routes in the Indian Ocean region; extending the reach of the Navy to project India as a major force and also preventing Mumbai-style sea-borne invasions by terrorists.
The 2009 edition of the Indian Maritime doctrine was released by the Chief of Naval Staff, Admiral Suresh Mehta. The original doctrine was published in 2004 to provide a common understanding of universally applicable maritime concepts, not only for the forces but also for the public at large. This revision was needed on account of the rapidly changing geo-strategic environment and transformational changes in the maritime domain.
The earlier doctrine was more generic in nature; this one will provide a sharper focus. The Indian Navy’s role in the Indian Ocean has changed in the past 12 months. It has been sent out to patrol the pirate-infested Gulf of Aden area to ensure safety of international sea trade routes. Indian sailors have successfully foiled at least five bids by pirates to take over ships and brought down instances of pirates using choppers stationed on the ships. After the Mumbai attacks in November 2008, the government handed over the entire command and control of the coast to the Indian Navy that has been installing high-tech sensors along the coast. In coordination with the coast guard, it is also buying fast-attack crafts for shallow waters.
JUDICIARY
PM for war on judicial backlog
Promising the judicial system that his government would “match each step of the judiciary with two of our own”, Prime Minister Manmohan Singh has asked the Supreme Court to play a “vital role” in the “war on arrears” of cases and wiping “every tear of every waiting litigant”.
Addressing the day-long Joint Conference of Chief Ministers and Chief Justices, he, however, made it clear that increasing the court strength to improve the low judge-population ratio would depend on High Courts filling all 3,000 existing vacancies in the lower judiciary.
Describing the executive and the judiciary as “two vital wheels of the chariot of good governance”, Mr Singh said India suffered from “the scourge of the world’s largest backlog of cases and time-lines that generated surprise globally and concern at home. The expeditious elimination of this scourge was the biggest challenge for such conferences and should constitute the highest priority for all of us”. Over 30 million cases are pending in various courts across the country.
Calling for an “arrears-free judicial institution”, he expressed concern over under-trials languishing in jails for unduly long periods. “Many such under-trials have been in jails for periods longer than they would have served had they been sentenced. This is indeed very disturbing,” he said.
The road map for judicial reforms, suggested by President Pratibha Patil in her address to the joint session of Parliament in June 2009, was under preparation and national-level consultation with jurists and stakeholders in that regard would be held very shortly, Prime Minister said.
Further, there was need for comprehensive computerisation and ultimate linking of all courts in the country into one “mega judicial information grid” for screening all pending cases and disposal of “many old cases as moot or infructuous”.
In his address, Chief Justice of India KG Balakrishnan said there had been a “chronic shortage” of judicial officers, especially at the subordinate level. There were also some “structural obstacles that discouraged talented law graduates” from joining judicial services. However, he did not elaborate on the issue. Citing a Law Commission report, he said the judicial system had to be expanded at least five-fold in order to match the judge- population ratio of developed countries.
SC judges to disclose assets
Bowing to intense public pressure and faced with division in their ranks, Supreme Court judges have finally agreed to take a belated step towards transparency and make public their assets and liabilities. Details of judges’ holdings will now be posted on the website of the apex court. However, the landmark decision comes with a caveat: The judges will not entertain any query relating to their assets and liabilities and how their wealth has increased or decreased.
The decision to make public personal assets and liabilities as well as those of their spouses and dependants was taken by Chief Justice of India K.G. Balakrishnan and the judges at a full court meeting, marking a major climb-down on the part of the higher judiciary. The outcome of the meeting was influenced by the growing pressure from within for disclosure of assets with Justice D. V. Shylendra Kumar of the Karnataka High Court publicly taking issue with the CJI for his stand that judges should not be required to disclose assets. The CJI even described Justice Kumar as ‘publicity crazy’.
The judges have been declaring these details to the CJI since 1997 under an internal resolution. But these remained a closely guarded secret with neither the head of the judiciary nor the apex court entertaining any query, even under the RTI Act, relating to these details.
PLANNING & ECONOMY
India ranks low in public health spending
As per a WHO study, India ranks 171 out of the 175 countries in the world in public health spending. This is less than some of the sub-Saharan African countries. For a country of one billion, India spends 5.2% of the GDP on healthcare. While 4.3% is spent by the private sector, the government continues to spend only 0.9% on public health. When the economic growth index is moving forward, the wellness index is dipping.
While India ranks among the top 10 countries for communicable disease, it is, today, world leader of chronic diseases like diabetes, hypertension and coronary artery disease.
One of the key findings of the commission was that by improving the health condition, the economy of the country will improve. But it has been reverse in India. There is growth in GDP but there has been no increase in healthcare spending. This inadequate public health spending has forced the public to depend on private sector.
India’s health scenario currently presents a contrasting picture. While health tourism and private healthcare are being promoted, a large section of Indian population still reels under the risk of curable diseases that do not receive ample attention of policy-makers.
New Direct tax code
Making the process of paying taxes simpler for the common man has always been on top of the UPA’s agenda. This was amply demonstrated today with the government initiating radical tax reforms by releasing the direct tax draft code that aims to moderate tax rates and at the same time tries to make it easier for a layman to understand and calculate his tax liability.
The reform of the tax regime introduced in 1961 is based on the objective of having a tax system that is simpler, fairer, and easy to administer. The specific objectives of the measures are to improve the responsiveness of the tax system, that is, to enhance the automaticity in the increase in tax revenues with increases in economic activity; improve tax administration by simplifying the tax system; and, lastly, promote tax compliance objective as to reduce the scope for disputes and minimize litigation.
The goal of the new tax code is to consolidate and amend all direct taxes and simplify language to ensure that the law can be reflected in the return form. The aim is also to reduce scope for litigation and provide flexibility in accommodating changes without need for frequent amendments.
Key gains from the new tax code will be: (a) Deduction (the popular section 80C) increased to Rs 3 lakh from present Rs 1 lakh. Thus, a person with taxable income of Rs 10,00,000 is likely to save approx Rs 1,20,000 annually. (b) Corporate tax rates, including for foreign companies, reduced to 25% from 34%. (c) Net wealth tax exemption limit increased to Rs 50 crores from Rs 30 lakhs. (d) Wealth tax rate cut to 0.25% from 1%. (e) Indefinite carry forward of tax losses. (f) Deduction for donation towards scientific research @ 125%. (g) Agriculture income stays outside tax net. (h) Deductions for Royalty income of authors who are individual residents up to Rs three lakhs and deduction for Royalty income on patents for individual residents up to Rs three lakhs. (i) STT to be abolished. (j) Cost inflation adjustment to be available for transfers anytime after one year from end of year in which asset is acquired (earlier 3 yrs, except for shares). (k) Base date for capital gains tax shifted from April 1, 1981 to April 1, 2000—capital appreciation up to 2000 not taxable. (l) Maximum penalty down to two times tax amount (from three times tax)
Key pains will be: (a) Branch profit tax to be introduced @ 15%. (b) Reintroduction of capital gains tax on listed shares & MF units. (c) Tax saving schemes like PPF and retirement benefit schemes to be taxed on withdrawal time on “Exempt, Exempt, Tax” (EET) methodology of taxation, for savings done after introduction of the new code. (d) Deduction for rent paid restricted to Rs 2,000 per month. (e) Profit-linked incentives dropped. (f) Period consumed in recovering all capital and revenue expenditure same as tax holiday. (g) Area based exemptions given earlier to continue. (h) Definition of income to include all accruals and receipts of revenue and capital nature unless otherwise specified. (i) Receipt of LIC policy taxable except for pure life insurance policy. (j) Distinction between short term and long term assets done away with. (k) Cost of acquisition/improvement nil if not determinable. (l) Roll over benefits for capital gains tax exemption trimmed to only one residential house. (m) Profits on sale of business capital assets/undertaking no longer treated as capital gains, but as business income. (n) Loss on sale of business capital assets not allowable, to be only depreciable. (o) Presumptive rent to be calculated at 6% p.a. of rateable value when higher than contractual rent to compute income from house property. (p) For self occupied property, no deduction for interest and principal loan repayment. (q) Income from letting of machinery, plant, furniture included if letting of building is inseparable from the same. (r) Rent free accommodation to govt employees made taxable. (s) MAT linked to gross assets rather than book profit @ 0.25% for banking companies and 2% for others. (t) No carry forward credit for MAT in later years. (u) In case of conflict between double tax treaty and code, the one that is later in point of time shall prevail.
Some new concepts have also been added to the code. These are: (a) Tests for residency changed. (b) Foreign companies, even if partly held/managed from India, will become “resident”. (c) Concept of ‘resident but not ordinarily resident’ dropped. (d) Income from business to be computed separately for each business. (e) Income-expense model based on US, Canada, Australia and most Asian countries. (f) Three types of biz expenses allowed: Operating expenditure, permitted financial charges and capital allowances. (g) Scope of weighted deduction of 150% to be extended to all industries. (h) ‘Scientific research’ to be defined. (i) Presumptive taxation for certain business to continue. (j) Separate income determination regimes provided for hospitals, SEZ, infrastructure, etc. (k) MF, VCF, Pension Fund etc. To be taxed as pass through entities. (l) New tax regime for trusts, institutions carrying on charitable activities.
New Foreign Trade Policy
India has extended tax holiday and duty refund for exporters, while allowing duty-free capital goods import under its Foreign Trade Policy to insulate them from protectionism induced by recession abroad. The new five-year policy was released on August 27, 2009 by Commerce Minister Anand Sharma. It sets a target of $200 billion worth exports for 2010-11, a feat that India failed to achieve in 2008-09 due to a slump in global demand in the face of financial crisis.
Extension of income tax holiday for export units for one more year and continuance of duty refund scheme till December 2010 and enhanced assistance for the scheme for development of markets are among the measures in the FTP. The aim of the policy, which would be reviewed after two years, would be to "arrest and reverse declining trend of exports”.
Exports have been on a decline for the past 10 months. Exports in FY'09 amounted to $168 billion and the country hopes to maintain the same level in 2009-10.
The government would encourage exports through a “mix of measures including fiscal incentives, institutional changes, procedural rationalisation and efforts for enhance market access across the world and diversification of export markets”.
The policy would provide a special thrust to the employment-oriented sectors which have witnessed job losses in the wake of recession, especially in the fields of textiles, leather and handicrafts.
Highlights
Government to scrap Darjeeling Gorkha Hill Council
The Centre, West Bengal government and the Gorkha Janmukti Morcha (GJM) have agreed to scrap the Darjeeling Gorkha Hill Council (DGHC) and bring in its place an alternative administrative framework for the hill district to be finalised through mutual consultation and agreement. At a tripartite meeting of representatives of the Centre, led by Union home secretary G.K. Pillai, of West Bengal government led by chief secretary A.K. Chakrabarty and of GJM led by Anmole Prasad, it was decided that the DGHC Act, 1988 would be repealed and the proposal for establishment of a hill council under the Sixth Schedule of the Constitution be dropped.
The press statement, however, makes no reference to the GJM’s central demand for a separate Gorkhaland: a pointer to such a drastic concession being almost ruled out. The alternative administrative framework to be worked out by the yet-to-be-named interlocutor for the Gorkha talks will have due constitutional status and will be supported by a full-fledged Act. It is also likely to be given more powers than DGHC. However, working out its terms is likely to be a long-drawn affair, and, in all probability, the new framework may come well after installation of the new government in West Bengal.
During the tripartite talks, the Centre extracted an assurance from the GJM that it would help maintain a peaceful and conducive atmosphere during the negotiations. GJM has agreed to work along with the other parties “in a spirit of constructive cooperation to carry the talks forward”.
The Centre also decided to push administrative works in the hill district by sending a team of its officials to Darjeeling to review development works. Both the Union and the West Bengal government suggested that elections to the panchayat samities, gram panchayats and municipalities be held in the hill district “as an interim measure and to restore the democratic process”. The GJM team offered to consult its brass on the proposal and revert to the state government.
With nearly Rs 70 crore worth of special central assistance and even portions of the Calamity Relief Fund lying un-utilised, it was agreed at the tripartite meeting that the West Bengal government would send across a team to Darjeeling to discuss fund utilisation.
FOREIGN RELATIONS
India, ASEAN ink free trade deal
In a major success in its ‘Look East' policy, India, on August 13, 2009, signed a Free Trade Agreement (FTA) with the 10-member Association of South East Asian Nation (ASEAN) bloc that would eventually eliminate duty on 80% of the goods traded at present by 2016. The two sides have set an ambitious target of achieving an increase of $10 billion worth of trade in the first year after the agreement comes into force from January 2010. India's current bilateral trade with the ASEAN bloc is worth $40 billion.
The agreement was signed by Commerce and Industry Minister Anand Sharma and Economic Ministers of ASEAN in Bangkok. Considered as a major breakthrough, the pact comes after six years of intense negotiations. The FTA would bring down tariffs on electronics, chemicals, machinery and textile goods.
However, talks on software and information technology services have been postponed for December 2009. This is one area where Indian exporters of services could have brought in good business and also offset setbacks received in the European and US markets during the downturn. Of the total $936 billion worth of ASEANn imports, services import account for $180 billion which is the primary focus of Indian industry.
ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Lobbying from the domestic industry has led to India excluding 489 items from the list of tariff concessions and 590 items from the list of tariff elimination to address sensitivities in agriculture, textiles, auto, chemicals, crude and refined palm oil, coffee, tea, pepper, etc.
Visit of Defence Minister A.K. Antony to Maldives
Defence Minister A.K. Antony went on a three-day official visit to Maldives from August 20, 2009. He led a high-level delegation comprising Defence Secretary Pradeep Kumar; DG, Armed Forces Medical Services, Lt Gen N.K. Parmar; DG, Coast Guard, Vice Admiral Anil Chopra and Deputy Chief of Navy Staff Vice Admiral D.K. Joshi.
During his visit, Mr Antony held bilateral discussions with his counterpart Ameen Faisal on ways of expanding defence cooperation between the two countries. He also attended the closing session of the India-Maldives Friendship function, besides paying a visit to the Indira Gandhi Memorial Hospital, the most visible symbol of Indo-Maldives cooperation and friendship.
In a move that will serve security interests of both India and Maldives, the two countries in the Indian Ocean region agreed on a series of measures to step up defence cooperation. At discussions with Maldives defence forces, the emerging security challenges in the region and the need to strengthen joint and collective mechanisms to mutually counter them were highlighted. The purpose of his visit, Mr Antony said, was not to enter into any agreement, but to expand cooperation within the existing robust framework.
Visit of Nepalese Prime Minister
Amid an uncertain political situation back home, Prime Minister of Nepal, Mr Madhav Nepal arrived in New Delhi on August 7, 2009 on a five-day visit to India—his first to the country since he assumed office nearly three months ago.
Several important bilateral issues, including the proposed revision of the friendship and trade treaties and the finalisation of a revised extradition treaty figured prominently in the discussions between the two sides.
Besides meeting Prime Minister Manmohan Singh, the Nepalese Prime Minister also meet President Pratibha Patil, UPA chief Sonia Gandhi, External Affairs Minister S.M. Krishna, Finance Minister Pranab Mukherjee and Home Minister P. Chidambaram.
Prime Minister Manmohan Singh extended India’s full support to the peace process in Nepal and also discussed the broad contours of a proposed revised trade treaty between the two countries. The two leaders had a one-on-one meeting lasting about an hour during which they discussed the entire gamut of bilateral relations as well as international issues.
Intensifying economic partnership between the two countries remained at the centre of the discussions with the focus on investment in hydro power sector. The issue of the misuse of Nepal's territory by anti-Indian forces also came up during the talks.
Nepalese Prime Minister also addressed captains of the Indian industry, inviting them to invest liberally in the Himalayan Nation in various sectors. He assured them of conducive atmosphere for industrial growth. The visiting dignitary identified hydro power, roads, bridges, infrastructure construction, tourism, agro-processing and financial services as potential areas of investment.
Political events in Nepal since May this year had shaken the confidence of Indian entrepreneurs after attacks by militant trade unions on a few firms, including a well-known fast moving consumer goods firm. With India-Nepal trade expected to touch Rs 15,000 crore ($3 billion) in 2009-10, the commerce ministers of the two countries discussed the proposed revised treaty to widen the scope of bilateral trade.
Nepal Prime Minister Madhav Kumar Nepal assured Indian investors that his office would coordinate to ensure that investments coming from India get priority. Regarding the ongoing violence and unrest in the country, the Prime Minister said the general law and order condition in the Himalayan Kingdom was returning to normalcy. He said his government would shortly unveil its security plans in consultation with all Nepalese political parties, which would offer security to investments and ensure manufacturing without interruption. The new security plan will address the issue regarding strikes and disruptions, so that industrial production is maintained at steady pace and investors’ interests are adequately protected.
In a bid to support Nepal’s beleaguered peace process and check China’s growing influence, India has decided to pump in crores of rupees into the neighbouring nation’s infrastructure. The Indian government has taken a decision to fund three large infrastructure projects, which will increase border connectivity and increase trade between the two countries. The government has quickly pushed through funding for the projects to show that India is serious in its efforts to help Nepal through the transitional period.
With the development mantra in mind, the government will put in around Rs 200 crore to set up the first two state-of-the-art integrated Customs point along the border at Raxaul-Birganj and Jogbani-Biratnagar. The idea is to set up the ICPs so that trade between the two countries becomes smoother, cutting down on current procedural delays at the border. After the first two sites are set up, the two countries will then look at setting up ICPs at Sunauli-Bhairahawa and Nepalgunj-Nepalgunj points.
The Indian government will also fund the first phase of the Terai road project at a cost of around Rs 700 crore and set up two rail links worth Rs 700 crore. The Terai road project looks at upgrading around 1,500 km of roads in the Terai region, with the first phase covering 657 km. Additionally, India will also fund a Nepal Police Academy worth Rs 300 crore in what is a capacity-building exercise. These infrastructure projects were at the conceptual stage for the last couple of years but have not gotten off the ground for one reason or another. By funding road and rail projects, India hopes to start a new era of cooperation and send a strong message of support to Nepal and its government, which has been struggling to push forward the peace process in the face of Maoist opposition.
India’s current push for Nepal’s infrastructure also comes in the backdrop of China’s continuing efforts in Nepal. China is currently helping Nepal build a cross border road linking Nepal to the Tibetan Autonomous Area to improve trade and tourism. China has put in vast amounts of money into Nepal in various sectors including hydropower, health and IT.
India, Singapore ink pact on tourism
On August 4, 2009, India and Singapore signed a joint action plan on tourism cooperation. Minister of Tourism Kumari Selja and Singapore Senior Minister of State for Trade and Industry and Education S. Iswaran witnessed the signing by tourism officials of India and Singapore. The plan reiterates provisions of cooperation enshrined in the bilateral agreement on tourism signed between India and Singapore on January 24, 1994.
India, South Korea ink free-trade pact
India and South Korea have signed a comprehensive economic partnership agreement which will make Korean consumer products and auto parts cheaper in India. The deal excludes fully built-up vehicles and provides for easier movement of contractual service providers and professionals between the two countries and treatment of investments from one another’s country on a par with domestic investments.
This is the second CEPA signed by India, the other being with Singapore. This is also India’s first bilateral trade agreement with an OECD country.
As per the agreement, South Korea will eliminate duties on 93% of its industrial and agricultural products and India will do the same on 85% of its goods. India has excluded sensitive items such as farm products, textile items and built-up automobiles from tariff elimination commitments. Duties will be phased out on most products in the next eight years.
DEFENCE
Revised Maritime Policy
Just six months after the Indian Navy was given charge of the country’s entire coastal security, it announced a revised maritime policy on August 28, 2009. The Navy will now have an even sharper focus on the neighbourhood of the country. This means securing the trade routes in the Indian Ocean region; extending the reach of the Navy to project India as a major force and also preventing Mumbai-style sea-borne invasions by terrorists.
The 2009 edition of the Indian Maritime doctrine was released by the Chief of Naval Staff, Admiral Suresh Mehta. The original doctrine was published in 2004 to provide a common understanding of universally applicable maritime concepts, not only for the forces but also for the public at large. This revision was needed on account of the rapidly changing geo-strategic environment and transformational changes in the maritime domain.
The earlier doctrine was more generic in nature; this one will provide a sharper focus. The Indian Navy’s role in the Indian Ocean has changed in the past 12 months. It has been sent out to patrol the pirate-infested Gulf of Aden area to ensure safety of international sea trade routes. Indian sailors have successfully foiled at least five bids by pirates to take over ships and brought down instances of pirates using choppers stationed on the ships. After the Mumbai attacks in November 2008, the government handed over the entire command and control of the coast to the Indian Navy that has been installing high-tech sensors along the coast. In coordination with the coast guard, it is also buying fast-attack crafts for shallow waters.
JUDICIARY
PM for war on judicial backlog
Promising the judicial system that his government would “match each step of the judiciary with two of our own”, Prime Minister Manmohan Singh has asked the Supreme Court to play a “vital role” in the “war on arrears” of cases and wiping “every tear of every waiting litigant”.
Addressing the day-long Joint Conference of Chief Ministers and Chief Justices, he, however, made it clear that increasing the court strength to improve the low judge-population ratio would depend on High Courts filling all 3,000 existing vacancies in the lower judiciary.
Describing the executive and the judiciary as “two vital wheels of the chariot of good governance”, Mr Singh said India suffered from “the scourge of the world’s largest backlog of cases and time-lines that generated surprise globally and concern at home. The expeditious elimination of this scourge was the biggest challenge for such conferences and should constitute the highest priority for all of us”. Over 30 million cases are pending in various courts across the country.
Calling for an “arrears-free judicial institution”, he expressed concern over under-trials languishing in jails for unduly long periods. “Many such under-trials have been in jails for periods longer than they would have served had they been sentenced. This is indeed very disturbing,” he said.
The road map for judicial reforms, suggested by President Pratibha Patil in her address to the joint session of Parliament in June 2009, was under preparation and national-level consultation with jurists and stakeholders in that regard would be held very shortly, Prime Minister said.
Further, there was need for comprehensive computerisation and ultimate linking of all courts in the country into one “mega judicial information grid” for screening all pending cases and disposal of “many old cases as moot or infructuous”.
In his address, Chief Justice of India KG Balakrishnan said there had been a “chronic shortage” of judicial officers, especially at the subordinate level. There were also some “structural obstacles that discouraged talented law graduates” from joining judicial services. However, he did not elaborate on the issue. Citing a Law Commission report, he said the judicial system had to be expanded at least five-fold in order to match the judge- population ratio of developed countries.
SC judges to disclose assets
Bowing to intense public pressure and faced with division in their ranks, Supreme Court judges have finally agreed to take a belated step towards transparency and make public their assets and liabilities. Details of judges’ holdings will now be posted on the website of the apex court. However, the landmark decision comes with a caveat: The judges will not entertain any query relating to their assets and liabilities and how their wealth has increased or decreased.
The decision to make public personal assets and liabilities as well as those of their spouses and dependants was taken by Chief Justice of India K.G. Balakrishnan and the judges at a full court meeting, marking a major climb-down on the part of the higher judiciary. The outcome of the meeting was influenced by the growing pressure from within for disclosure of assets with Justice D. V. Shylendra Kumar of the Karnataka High Court publicly taking issue with the CJI for his stand that judges should not be required to disclose assets. The CJI even described Justice Kumar as ‘publicity crazy’.
The judges have been declaring these details to the CJI since 1997 under an internal resolution. But these remained a closely guarded secret with neither the head of the judiciary nor the apex court entertaining any query, even under the RTI Act, relating to these details.
PLANNING & ECONOMY
India ranks low in public health spending
As per a WHO study, India ranks 171 out of the 175 countries in the world in public health spending. This is less than some of the sub-Saharan African countries. For a country of one billion, India spends 5.2% of the GDP on healthcare. While 4.3% is spent by the private sector, the government continues to spend only 0.9% on public health. When the economic growth index is moving forward, the wellness index is dipping.
While India ranks among the top 10 countries for communicable disease, it is, today, world leader of chronic diseases like diabetes, hypertension and coronary artery disease.
One of the key findings of the commission was that by improving the health condition, the economy of the country will improve. But it has been reverse in India. There is growth in GDP but there has been no increase in healthcare spending. This inadequate public health spending has forced the public to depend on private sector.
India’s health scenario currently presents a contrasting picture. While health tourism and private healthcare are being promoted, a large section of Indian population still reels under the risk of curable diseases that do not receive ample attention of policy-makers.
New Direct tax code
Making the process of paying taxes simpler for the common man has always been on top of the UPA’s agenda. This was amply demonstrated today with the government initiating radical tax reforms by releasing the direct tax draft code that aims to moderate tax rates and at the same time tries to make it easier for a layman to understand and calculate his tax liability.
The reform of the tax regime introduced in 1961 is based on the objective of having a tax system that is simpler, fairer, and easy to administer. The specific objectives of the measures are to improve the responsiveness of the tax system, that is, to enhance the automaticity in the increase in tax revenues with increases in economic activity; improve tax administration by simplifying the tax system; and, lastly, promote tax compliance objective as to reduce the scope for disputes and minimize litigation.
The goal of the new tax code is to consolidate and amend all direct taxes and simplify language to ensure that the law can be reflected in the return form. The aim is also to reduce scope for litigation and provide flexibility in accommodating changes without need for frequent amendments.
Key gains from the new tax code will be: (a) Deduction (the popular section 80C) increased to Rs 3 lakh from present Rs 1 lakh. Thus, a person with taxable income of Rs 10,00,000 is likely to save approx Rs 1,20,000 annually. (b) Corporate tax rates, including for foreign companies, reduced to 25% from 34%. (c) Net wealth tax exemption limit increased to Rs 50 crores from Rs 30 lakhs. (d) Wealth tax rate cut to 0.25% from 1%. (e) Indefinite carry forward of tax losses. (f) Deduction for donation towards scientific research @ 125%. (g) Agriculture income stays outside tax net. (h) Deductions for Royalty income of authors who are individual residents up to Rs three lakhs and deduction for Royalty income on patents for individual residents up to Rs three lakhs. (i) STT to be abolished. (j) Cost inflation adjustment to be available for transfers anytime after one year from end of year in which asset is acquired (earlier 3 yrs, except for shares). (k) Base date for capital gains tax shifted from April 1, 1981 to April 1, 2000—capital appreciation up to 2000 not taxable. (l) Maximum penalty down to two times tax amount (from three times tax)
Key pains will be: (a) Branch profit tax to be introduced @ 15%. (b) Reintroduction of capital gains tax on listed shares & MF units. (c) Tax saving schemes like PPF and retirement benefit schemes to be taxed on withdrawal time on “Exempt, Exempt, Tax” (EET) methodology of taxation, for savings done after introduction of the new code. (d) Deduction for rent paid restricted to Rs 2,000 per month. (e) Profit-linked incentives dropped. (f) Period consumed in recovering all capital and revenue expenditure same as tax holiday. (g) Area based exemptions given earlier to continue. (h) Definition of income to include all accruals and receipts of revenue and capital nature unless otherwise specified. (i) Receipt of LIC policy taxable except for pure life insurance policy. (j) Distinction between short term and long term assets done away with. (k) Cost of acquisition/improvement nil if not determinable. (l) Roll over benefits for capital gains tax exemption trimmed to only one residential house. (m) Profits on sale of business capital assets/undertaking no longer treated as capital gains, but as business income. (n) Loss on sale of business capital assets not allowable, to be only depreciable. (o) Presumptive rent to be calculated at 6% p.a. of rateable value when higher than contractual rent to compute income from house property. (p) For self occupied property, no deduction for interest and principal loan repayment. (q) Income from letting of machinery, plant, furniture included if letting of building is inseparable from the same. (r) Rent free accommodation to govt employees made taxable. (s) MAT linked to gross assets rather than book profit @ 0.25% for banking companies and 2% for others. (t) No carry forward credit for MAT in later years. (u) In case of conflict between double tax treaty and code, the one that is later in point of time shall prevail.
Some new concepts have also been added to the code. These are: (a) Tests for residency changed. (b) Foreign companies, even if partly held/managed from India, will become “resident”. (c) Concept of ‘resident but not ordinarily resident’ dropped. (d) Income from business to be computed separately for each business. (e) Income-expense model based on US, Canada, Australia and most Asian countries. (f) Three types of biz expenses allowed: Operating expenditure, permitted financial charges and capital allowances. (g) Scope of weighted deduction of 150% to be extended to all industries. (h) ‘Scientific research’ to be defined. (i) Presumptive taxation for certain business to continue. (j) Separate income determination regimes provided for hospitals, SEZ, infrastructure, etc. (k) MF, VCF, Pension Fund etc. To be taxed as pass through entities. (l) New tax regime for trusts, institutions carrying on charitable activities.
New Foreign Trade Policy
India has extended tax holiday and duty refund for exporters, while allowing duty-free capital goods import under its Foreign Trade Policy to insulate them from protectionism induced by recession abroad. The new five-year policy was released on August 27, 2009 by Commerce Minister Anand Sharma. It sets a target of $200 billion worth exports for 2010-11, a feat that India failed to achieve in 2008-09 due to a slump in global demand in the face of financial crisis.
Extension of income tax holiday for export units for one more year and continuance of duty refund scheme till December 2010 and enhanced assistance for the scheme for development of markets are among the measures in the FTP. The aim of the policy, which would be reviewed after two years, would be to "arrest and reverse declining trend of exports”.
Exports have been on a decline for the past 10 months. Exports in FY'09 amounted to $168 billion and the country hopes to maintain the same level in 2009-10.
The government would encourage exports through a “mix of measures including fiscal incentives, institutional changes, procedural rationalisation and efforts for enhance market access across the world and diversification of export markets”.
The policy would provide a special thrust to the employment-oriented sectors which have witnessed job losses in the wake of recession, especially in the fields of textiles, leather and handicrafts.
Highlights
- Aims annual growth of 15 pc in 2010-11.
- Double India’s exports of goods and services by 2014.
- A high-level panel to look into dollar needs of exporters.
- Six 'Made in India' shows to promote Brand India.
- Directorate of Trade Remedy Measures to safeguard exporters.
- Duty Entitlement Passbook Scheme extended till December 2010.
- A single window system for export of perishable agri produce.
- Value addition norm for tea halved to 50 per cent.
Government to scrap Darjeeling Gorkha Hill Council
The Centre, West Bengal government and the Gorkha Janmukti Morcha (GJM) have agreed to scrap the Darjeeling Gorkha Hill Council (DGHC) and bring in its place an alternative administrative framework for the hill district to be finalised through mutual consultation and agreement. At a tripartite meeting of representatives of the Centre, led by Union home secretary G.K. Pillai, of West Bengal government led by chief secretary A.K. Chakrabarty and of GJM led by Anmole Prasad, it was decided that the DGHC Act, 1988 would be repealed and the proposal for establishment of a hill council under the Sixth Schedule of the Constitution be dropped.
The press statement, however, makes no reference to the GJM’s central demand for a separate Gorkhaland: a pointer to such a drastic concession being almost ruled out. The alternative administrative framework to be worked out by the yet-to-be-named interlocutor for the Gorkha talks will have due constitutional status and will be supported by a full-fledged Act. It is also likely to be given more powers than DGHC. However, working out its terms is likely to be a long-drawn affair, and, in all probability, the new framework may come well after installation of the new government in West Bengal.
During the tripartite talks, the Centre extracted an assurance from the GJM that it would help maintain a peaceful and conducive atmosphere during the negotiations. GJM has agreed to work along with the other parties “in a spirit of constructive cooperation to carry the talks forward”.
The Centre also decided to push administrative works in the hill district by sending a team of its officials to Darjeeling to review development works. Both the Union and the West Bengal government suggested that elections to the panchayat samities, gram panchayats and municipalities be held in the hill district “as an interim measure and to restore the democratic process”. The GJM team offered to consult its brass on the proposal and revert to the state government.
With nearly Rs 70 crore worth of special central assistance and even portions of the Calamity Relief Fund lying un-utilised, it was agreed at the tripartite meeting that the West Bengal government would send across a team to Darjeeling to discuss fund utilisation.
FOREIGN RELATIONS
India, ASEAN ink free trade deal
In a major success in its ‘Look East' policy, India, on August 13, 2009, signed a Free Trade Agreement (FTA) with the 10-member Association of South East Asian Nation (ASEAN) bloc that would eventually eliminate duty on 80% of the goods traded at present by 2016. The two sides have set an ambitious target of achieving an increase of $10 billion worth of trade in the first year after the agreement comes into force from January 2010. India's current bilateral trade with the ASEAN bloc is worth $40 billion.
The agreement was signed by Commerce and Industry Minister Anand Sharma and Economic Ministers of ASEAN in Bangkok. Considered as a major breakthrough, the pact comes after six years of intense negotiations. The FTA would bring down tariffs on electronics, chemicals, machinery and textile goods.
However, talks on software and information technology services have been postponed for December 2009. This is one area where Indian exporters of services could have brought in good business and also offset setbacks received in the European and US markets during the downturn. Of the total $936 billion worth of ASEANn imports, services import account for $180 billion which is the primary focus of Indian industry.
ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Lobbying from the domestic industry has led to India excluding 489 items from the list of tariff concessions and 590 items from the list of tariff elimination to address sensitivities in agriculture, textiles, auto, chemicals, crude and refined palm oil, coffee, tea, pepper, etc.
Visit of Defence Minister A.K. Antony to Maldives
Defence Minister A.K. Antony went on a three-day official visit to Maldives from August 20, 2009. He led a high-level delegation comprising Defence Secretary Pradeep Kumar; DG, Armed Forces Medical Services, Lt Gen N.K. Parmar; DG, Coast Guard, Vice Admiral Anil Chopra and Deputy Chief of Navy Staff Vice Admiral D.K. Joshi.
During his visit, Mr Antony held bilateral discussions with his counterpart Ameen Faisal on ways of expanding defence cooperation between the two countries. He also attended the closing session of the India-Maldives Friendship function, besides paying a visit to the Indira Gandhi Memorial Hospital, the most visible symbol of Indo-Maldives cooperation and friendship.
In a move that will serve security interests of both India and Maldives, the two countries in the Indian Ocean region agreed on a series of measures to step up defence cooperation. At discussions with Maldives defence forces, the emerging security challenges in the region and the need to strengthen joint and collective mechanisms to mutually counter them were highlighted. The purpose of his visit, Mr Antony said, was not to enter into any agreement, but to expand cooperation within the existing robust framework.
Visit of Nepalese Prime Minister
Amid an uncertain political situation back home, Prime Minister of Nepal, Mr Madhav Nepal arrived in New Delhi on August 7, 2009 on a five-day visit to India—his first to the country since he assumed office nearly three months ago.
Several important bilateral issues, including the proposed revision of the friendship and trade treaties and the finalisation of a revised extradition treaty figured prominently in the discussions between the two sides.
Besides meeting Prime Minister Manmohan Singh, the Nepalese Prime Minister also meet President Pratibha Patil, UPA chief Sonia Gandhi, External Affairs Minister S.M. Krishna, Finance Minister Pranab Mukherjee and Home Minister P. Chidambaram.
Prime Minister Manmohan Singh extended India’s full support to the peace process in Nepal and also discussed the broad contours of a proposed revised trade treaty between the two countries. The two leaders had a one-on-one meeting lasting about an hour during which they discussed the entire gamut of bilateral relations as well as international issues.
Intensifying economic partnership between the two countries remained at the centre of the discussions with the focus on investment in hydro power sector. The issue of the misuse of Nepal's territory by anti-Indian forces also came up during the talks.
Nepalese Prime Minister also addressed captains of the Indian industry, inviting them to invest liberally in the Himalayan Nation in various sectors. He assured them of conducive atmosphere for industrial growth. The visiting dignitary identified hydro power, roads, bridges, infrastructure construction, tourism, agro-processing and financial services as potential areas of investment.
Political events in Nepal since May this year had shaken the confidence of Indian entrepreneurs after attacks by militant trade unions on a few firms, including a well-known fast moving consumer goods firm. With India-Nepal trade expected to touch Rs 15,000 crore ($3 billion) in 2009-10, the commerce ministers of the two countries discussed the proposed revised treaty to widen the scope of bilateral trade.
Nepal Prime Minister Madhav Kumar Nepal assured Indian investors that his office would coordinate to ensure that investments coming from India get priority. Regarding the ongoing violence and unrest in the country, the Prime Minister said the general law and order condition in the Himalayan Kingdom was returning to normalcy. He said his government would shortly unveil its security plans in consultation with all Nepalese political parties, which would offer security to investments and ensure manufacturing without interruption. The new security plan will address the issue regarding strikes and disruptions, so that industrial production is maintained at steady pace and investors’ interests are adequately protected.
In a bid to support Nepal’s beleaguered peace process and check China’s growing influence, India has decided to pump in crores of rupees into the neighbouring nation’s infrastructure. The Indian government has taken a decision to fund three large infrastructure projects, which will increase border connectivity and increase trade between the two countries. The government has quickly pushed through funding for the projects to show that India is serious in its efforts to help Nepal through the transitional period.
With the development mantra in mind, the government will put in around Rs 200 crore to set up the first two state-of-the-art integrated Customs point along the border at Raxaul-Birganj and Jogbani-Biratnagar. The idea is to set up the ICPs so that trade between the two countries becomes smoother, cutting down on current procedural delays at the border. After the first two sites are set up, the two countries will then look at setting up ICPs at Sunauli-Bhairahawa and Nepalgunj-Nepalgunj points.
The Indian government will also fund the first phase of the Terai road project at a cost of around Rs 700 crore and set up two rail links worth Rs 700 crore. The Terai road project looks at upgrading around 1,500 km of roads in the Terai region, with the first phase covering 657 km. Additionally, India will also fund a Nepal Police Academy worth Rs 300 crore in what is a capacity-building exercise. These infrastructure projects were at the conceptual stage for the last couple of years but have not gotten off the ground for one reason or another. By funding road and rail projects, India hopes to start a new era of cooperation and send a strong message of support to Nepal and its government, which has been struggling to push forward the peace process in the face of Maoist opposition.
India’s current push for Nepal’s infrastructure also comes in the backdrop of China’s continuing efforts in Nepal. China is currently helping Nepal build a cross border road linking Nepal to the Tibetan Autonomous Area to improve trade and tourism. China has put in vast amounts of money into Nepal in various sectors including hydropower, health and IT.
India, Singapore ink pact on tourism
On August 4, 2009, India and Singapore signed a joint action plan on tourism cooperation. Minister of Tourism Kumari Selja and Singapore Senior Minister of State for Trade and Industry and Education S. Iswaran witnessed the signing by tourism officials of India and Singapore. The plan reiterates provisions of cooperation enshrined in the bilateral agreement on tourism signed between India and Singapore on January 24, 1994.
India, South Korea ink free-trade pact
India and South Korea have signed a comprehensive economic partnership agreement which will make Korean consumer products and auto parts cheaper in India. The deal excludes fully built-up vehicles and provides for easier movement of contractual service providers and professionals between the two countries and treatment of investments from one another’s country on a par with domestic investments.
This is the second CEPA signed by India, the other being with Singapore. This is also India’s first bilateral trade agreement with an OECD country.
As per the agreement, South Korea will eliminate duties on 93% of its industrial and agricultural products and India will do the same on 85% of its goods. India has excluded sensitive items such as farm products, textile items and built-up automobiles from tariff elimination commitments. Duties will be phased out on most products in the next eight years.
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