MARKET WATCH 09 JAN 2021

NATIONAL

INTERNATIONAL

 

New GST return filing system: How ‘Quarterly Return Monthly Payment’ scheme helps small taxpayers

With an intent to ease of doing business & as a trade facilitation measure, GST Council in its 42nd Meet held on 5th October 2020 proposed new GST Return Filing System for the small taxpayers having aggregate annual turnover (hereinafter AATO) up to Rs 5 crore in the preceding FY i.e. 2019-20, with effect from January 01, 2021. The very attempt behind the Introduction of this scheme is to reduce the monthly return filing burden on the small taxpayers. The council recommended that the taxpayers having the AATO up to Rs 5 Crore is allowed to furnish GSTR-3B quarterly with a monthly payment of GST Liability, from January 01, 2021, onwards. The government has issued various notifications to implement this scheme & circular to explain this scheme in simple terms & to ensure uniformity in its implementation.

In the ensuing paragraphs, we have discussed the QRMP scheme in-depth to provide better clarity in regards to this scheme & also tried to deliver the answers to all of the questions roaming in the mind of the taxpayers & practitioners, about this scheme. To start with the question that who can opt for the QRMP scheme: As per recent Circular, the Following registered person can file quarterly returns and pay tax monthly w.e.f. 01.01.2021:

  1. A Registered person who has an AATO of up to Rs 5 Cr. in the previous financial year is eligible.
  2. Any person obtaining a new registration or opting out of the Composition Scheme can also opt for this Scheme.
  3. The option to avail this Scheme can be availed GSTIN wise. Therefore, few GSTINs for that PAN can opt for the Scheme, and the remaining GSTINs can remain out of the Scheme.

When can a person opt for the QRMP scheme: As per recent Circular: –

  1. The Facility to avail the Scheme on the common portal would be available throughout the year.
  2. A registered person can opt-in for any quarter from the first day of the second month of the preceding quarter to the last day of the first month of the quarter. For Example, a registered person intending to avail of the Scheme for the quarter ‘July to September can exercise his option from May 01 to July 31.
  3. Option for QRMP Scheme, once exercised, will continue till the taxpayers revise the option or his AATO exceeds Rs 5 Cr.

Invoice furnishing facility (hereinafter ‘IFF’) for taxpayers opting for QRMP Scheme: The taxpayers who opted for the QRMP scheme can avail the option of the IFF and furnish their details of outward supply on monthly basis for the first two months so that the recipient of such outward supplies get these invoices reflected in their respective GSTR-2A & GSTR-2B. The details of an outward supply in IFF need to be furnished by the 13th of the succeeding month. The said details of outward supplies shall, however, not exceed the value of fifty lakh rupees in each month. Thus, the details of outward supplies by the taxpayer during a quarter shall consist of details of invoices furnished using IFF for each of the first two months and the details of invoices furnished in FORM GSTR-1 for the quarter.

Manner of monthly payment of taxes, if a person opts QRMP scheme: The registered person under the QRMP Scheme would be required to pay the tax due in each of the first two months of the quarter by depositing the due amount in FORM GST PMT-06, by the 25th of the month succeeding such month. The recent circular lay down two options for the monthly payment of tax during the first two months.

FIXED SUM METHOD:

Under this method, the facility is being made available on the portal for generating a pre-filled challan in FORM GST PMT-06 for an amount equal to thirty-five percent (35%) of the tax paid in cash in the preceding quarter where the return was furnished quarterly or equal to the tax paid in cash in the last month of the immediately preceding quarter where the return was furnished monthly.

SELF ASSESSMENT METHOD:

The said persons, in any case, can pay the tax due by considering the tax liability on inward and outward supplies and the input tax credit available, in FORM GST PMT-06. To facilitate ascertainment of the ITC available for the month, an auto-drafted input tax credit statement has been made available in FORM GSTR-2B, for every month.

Any amount of tax paid in excess can be claimed as a refund by the taxpayers. However, refund shall be permitted only after the return in FORM GSTR-3B for the said quarter has been furnished. Further, this deposit cannot be used by the taxpayer for any other purpose till the filing of return for the quarter.

Applicability of interest: In case FIXED SUM METHOD is been opted by the taxpayer then no interest would be payable for the amount short paid in the first two months’ conditional to full tax liability is discharged for the quarter in the FORM GSTR-3B.

On the contrary, if the taxpayer opted SELF ASSESSMENT METHOD, the Interest amount would be payable as per the provision of Section 50 of the CGST Act for tax or any part thereof (net of ITC) which remains unpaid/paid beyond the due date for the first two months of the quarter.

Applicability of Late fees: Late fee is applicable for delay in furnishing of return/details of outward supply as per the provision of Section 47 of the CGST Act. As per the Scheme, the requirement to furnish the return under the proviso to sub-section (1) of Section 39 of the CGST Act is quarterly. Accordingly, a late fee would be applicable for delay in furnishing of the said quarterly return/details of outward supply.

QRMP is a step towards reducing the compliance of the MSME sector, still, there is an apprehension about the overall interlocking of the compliance framework from January 01, 2020. Since the GST Liability is to be paid on a monthly basis, the monthly reconciliation of the same is required to be prepared by the taxpayers to keep the payment of taxes on track.

Source:  The Financial Express

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The economy is looking up

The National Statistical Office (NSO) expects India’s Gross Domestic Product (GDP) to contract by 7.7% in 2020-21, according to the first advanced estimates for GDP released on January 7. The projection is in line with various institutional and private forecasts, and paints a relatively better economic picture than the widespread consensus on a double-digit contraction up to a few months ago. While the recent recovery in economic performance — other high-frequency indicators confirm the trend — is a welcome development, it should not generate complacency on the policy front. Here is why.

Even though a 7.7% contraction sounds better than what was being predicted earlier, 2020-21 will be the worst year for growth in India. An economic shock of this magnitude is likely to leave significant and deep scars on businesses, in both the real and financial sectors, and on households. That the Indian economy was caught in a protracted slowdown even before the pandemic will make coping with the current crisis even more difficult. A large part of the Indian economy is in what is referred to as the informal sector. It is entirely possible that the economic indicators which have come in so far — the GDP projections are based on extrapolations from limited statistics — have failed to capture the extent of pain in the informal sector. Anecdotal evidence and corporate earnings for the first two quarters have highlighted how smaller entities have suffered disproportionately.

A substantial part of the ongoing economic recovery can be attributed to the fact that India has not faced a second wave of Covid-19 infections like the West. As the government gets ready to roll out its vaccination programme, the public health crisis will, hopefully, subside. However, it is also a fact that India’s fiscal stimulus was among the smallest for major economies in the world. Restoring growth going forward is going to be difficult without a big push from government spending. The Narendra Modi government has, to its credit, also unleashed important second-generation reforms in critical sectors such as labour and agriculture during the pandemic. These should generate tailwinds for future growth. But long-term expectations from these reforms can be compromised if the economy hits a demand-side constraint in the short-run. This should be the guiding principle of economic policy, especially in the next budget.

Source: The Hindustan Times

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Budget 2021: What does the Indian economy need?

An uphill task

India is looking to the February 1 budget for measures that will support the nascent economic recovery, a challenging task for finance minister Nirmala Sitharaman given the already high fiscal deficit and muted revenues. Prime Minister Narendra Modi will helm a virtual meeting with top economists on Friday to discuss steps the government should undertake in the upcoming budget to steer the pandemic-hit economy back onto the growth path. ET spoke to economists to get a sense of how this could be achieved.

Growth the biggest worry

The Centre has to loosen purse strings. This is not the time to worry about fiscal deficit. The total stimulus measures provided by Indian government stand at Rs 17.2 lakh crore, which is about 9% of the GDP. But the fiscal stimulus has been limited, and is estimated to be about 2% of the GDP. In April and November, government spending was muted at Rs 19.06 lakh crore, as compared to Rs 19.20 lakh crore YoY, putting the growth at 4.7%.

Demand remains a concern

Cash should be injected to boost consumption. This can be done through cash transfers, incentives for consumption, such as the LTC scheme, as well as vouchers.

Fiscal consolidation

It is time to draw up a new roadmap for consolidations that needs to prioritise growth, as the current one is irrelevant.

Bolder measures to raise funds for stimulus

Moves such as partial monetisation of government borrowing as well as big-ticket privatisation and divestment should also be considered.

Support for banking system

As banks may be facing higher NPAs during the coronavirus pandemic, there is a need to create a framework to deal with the NPAs, possibly a bad bank or AMC, and also dilute government shareholding in PSBs and create a bank investment company for PSBs.

Allocate more funds for rural schemes

The focus should be on ensuring bigger capital allocation for rural schemes and to promote farm-to-fork locally to boost agricultural incomes.

Direct support measures for stressed sectors

The aviation and services industries need a hand to get through the crisis through tax concessions and equity support.

Universalise PDS

This should be done for at least for a year to give free/cheap food to the jobless and vulnerable.

No new cess or tax to meet Covid expenses

An increase in taxes will eat into what are already lower incomes. The hike in taxes will also dampen demand. Reversing tariff protections taking measures to make industry competitive should also be considered.

Source: The Economic Times

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Indian economy to rebound with 8.9% growth in FY22

Indian economy is likely to rebound with an 8.9 per cent growth in the fiscal year beginning April 2021 after economic activity showed significant improvement in the last quarter, IHS Markit said on Friday.

The National Statistical Organisation (NSO) on Thursday predicted that the economy will contract 7.7 per cent in the current financial year ending in March, the worst performance in four decades.

 

“The Indian economy suffered a severe recession in 2020,” IHS Markit said in a note. “The worst contraction occurred during the period from March until August, with the economy having shown a strong rebound in economic activity since September.”

The GDP contracted by a record 23.9 per cent in the April-June quarter following a national lockdown to prevent the spread of the coronavirus. The contraction came down to 7.5 per cent in the September quarter.

“During the fourth quarter of 2020, India’s industrial production and consumption expenditure have shown a rebound.

“October data showed that industrial production grew by 3.6 per cent year-on-year compared with a steep contraction of -55.5 per cent in April 2020,” IHS said.

Stating that there has been a marked improvement in business conditions across the manufacturing sector, it said factory orders increased during December on the back of the loosening of COVID-19 restrictions, strengthening demand and improved market conditions.

Although India faces a vast challenge to vaccinate its population of 1.4 billion people, it is about to commence its COVID-19 vaccination programme.

The Health regulator has approved the Oxford/AstraZeneca vaccine for emergency use.

An important advantage for India is that the Oxford/AstraZeneca vaccine is already being manufactured in the country by the Serum Institute of India, which projects that it will be able to manufacture 100 million COVID-19 vaccine doses per month by April 2021.

“With the Indian economy already showing a significant improvement in domestic economic activity in the fourth quarter of 2020, the outlook is for Indian GDP growth to rebound by 8.9 per cent year-on-year in the 2021-22 fiscal year,” IHS said.

India Ratings & Research said the NSO projections for GDP growth in FY21 mean that the size of the Indian economy is expected to shrink to Rs 134.40 lakh crore in FY21 as against Rs 145.66 lakh crore in FY20.

“From the demand side except government consumption all other components namely private consumption, investment, exports and imports are estimated to contract in FY21,” it said.

Although the headwinds emanating from the COVID-19-related challenges are unlikely to go away till mass vaccination becomes a reality, the rating agency said it expects GDP growth to turn positive in 4QFY21 (January-March) and FY22 GDP to come in at 9.6 per cent.

Arun Singh, Global Chief Economist, Dun & Bradstreet said the first advance estimates of GDP growth for FY21 is a tad lower than the RBI projection of 7.5 per cent contraction but more optimistic than the projections provided by many institutions, global and domestic.

“We expect the final GDP data to be slightly lower than the first advance estimates when the data for the informal economy is included and adjusted,” he said.

While the investment and consumption demand data were expected to register a strong decline, the 5.8 per cent growth in government final consumption expenditure, the lowest since FY15, was not quite anticipated.

“During uncertain times, only the government can propel the multiplier effect in the economy. Hope hinges on the government to increase its spending to revive the private sector sentiment, overall demand and largely private investment,” Singh said. “Thus, in spite of, the stimulus measure announced by the government during the course of the year, expectation of additional measures from the Union Budget remains high.”

Dharmakirti Joshi, Chief Economist, Crisil said only two sectors are above last year’s level — agriculture and electricity, gas and water supply — and as expected, services are the worst hit.

“With industry seeing some recovery in the second half, the upcoming Budget will need to extend some support to the services sector, which continues to lag,” he said.

Source: The Financial Express

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Ideas for a better Budget: Women’s health, maternal leave and safety for economic growth

The pandemic-induced health and economic crisis meant that 2020 was a tough year for India. Two successive quarters of GDP contraction officially brought the Indian economy to a recession. The country’s performance also deteriorated relative to neighbours such as Bangladesh. In fact, the International Monetary Fund (IMF) projects that Bangladesh’s real per capita GDP will surpass India’s real GDP per capita in 2021.

Finance Minister Nirmala Sitaraman, due to announce the Union Budget for 2021-22 on February 1, must surely be searching for high growth ideas. As economists working on India and Bangladesh, we contrast the role of working women when comparing the different growth stories of Bangladesh and India. According to the International Labour Organization (ILO), 36.4% of women above 15 years are employed in Bangladesh in 2020, up from 24.7% in the 1990s. In contrast, for India, the trend of women’s participation in the labour force was reverse — currently 20.3%, down from 30.3% in 1990.

 

We have three key suggestions to unleash the productive capabilities of women that can lead to higher economic growth and help meet India’s development goals. These proposals are not charity, but investments that lead to higher national income, and can potentially be earned back by the government through future taxes.

First, the Covid-19 pandemic underscored the need for investment into better and universally affordable health care. A healthy population means productive labour, leading to greater economic output. Improving the public healthcare system will ensure that the current health crisis does not increase existing gender disparity in knowledge of and access to affordable health. Priority spending on women’s health will increase individual income, spur spending and boost economic growth.

Providing opportunities for deliberate family planning, healthy mothers before, during, and after childbirth, and the health and productivity of subsequent generations can catalyze a positive cycle. Indeed, research across several countries found that women’s health is tied to long-run productivity globally.

While the country already has a decentralized system for community engagement of health workers, government expenditure is low at 1.29% of the GDP or Rs 1,944 per person. We recommend  improving and expanding the scope of existing public health service delivery by hiring more qualified doctors, timely disbursal of funds towards salaries, and allocation of resources for improving public hospital amenities.

Second, women’s labour force participation in urban areas drops during their 20s as childcare and family responsibilities limit participation in income generating activities. In 2017, India passed the Maternity (Amendment) Bill which increased the right to paid maternity leave for working women from 12 weeks to 26 weeks, but only to those working in the formal sector. On similar lines, NREGA offers child-care provision for women working on-site in rural areas, but these child-care sites are mostly dysfunctional. In fact, a 2019 paper titled “Workfare and Infant Health: Evidence from India’s public works program” found that women’s work owing to NREGA lowers child’s survival rates, as women face a time trade-off between income generating activities and  child care.

Source: The Economic Times

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Year 2020 in flashback: Key decisions that drove economy and those that failed

2020, will be remembered as one of the fascinating stories of mass cooperation in human history, where the entire world came together to fight an invisible enemy, rather successfully. India began the year with a jolt, GDP growth plummeting to 4.2% (lowest in the past decade) and the advent of COVID couldn’t have been timed better for a tailspin. The nation went into a full lock down, cities and malls became zombie towers and we saw population being imprisoned enmasse at homes in fear. However, we need to give it to the Government for having managed the pandemic well and positioning India as one of the better placed jurisdictions to come out stronger.

India’s economy shrank by a record 24% in Q1, unseen even during periods of World War, thanks to stringent nation-wide lockdowns. However, we have bounced back strongly since then. If RBI’s predictions hold good, we should be looking at a positive Q3 and Q4. A series of actions and restraints, during the year made this outcome possible. While some of these have had immediate impact (boundaries), few have been structural with longer term implication (singles and twos) and few were off target (misses) from the intended impact. As a cricket loving nation, if we are to put the highlights of our 2020 innings, the following shots stand out:

Boundaries:

  • Controlling fiscal deficit: When the whole world was clamouring for higher fiscal stimulus, the Government restrained the temptation to print and spend ensuring that the economy shall find its way to resilience and eventual prosperity. India’s effective COVID stimulus is estimated around 2% of its GDP as compared to 13% in US, 21% in Japan, 14% in Australia, 12% in Brazil and 7% in China (statista.com), making it one of the least stretched countries post COVID. 
  • Loan Moratorium: Considering the sudden pause of cashflows to businesses, the RBI permitted a loan moratorium (extending to 6 months) thereby easing the cash flow commitments. The facility was availed by more than a third of borrowers (including 78% of MSME borrowers) ensuring business continuity and protecting jobs across sectors.
  • Emergency Credit Guarantee (ECG) Scheme: Government announced the ECG scheme to provide relief to the business, with additional working capital finance of 20% of existing limits, in the form of a Term Loan at a concessional rate of interest. The limit was fully backed by a sovereign guarantee thereby providing a total liquidity of Rs. 3 lakh crores to more than 45 lakhs MSMEs. This was a master stroke wherein the Government leveraged its balance sheet for a contingent liability instead of a real obligation, which was the case with most other jurisdictions globally.

Singles and twos:

  • Production Linked Incentive (PLI) scheme for Electronic, Medical devices and Pharma Industry: Aatma Nirbhar or self-sufficiency across critical sectors is one of the key objectives of this Government and three sectors were initially identified for the purpose. Bureaucratic delays have always plagued entrepreneurship zeal with approvals taking as much as 1-1.5 years for new projects. In this backdrop, the PLI scheme was launched wherein applications will be cleared within 90 days and shall also be eligible for financial incentives (Rs. 50,000 crores in total). The first window for the pharma scheme received 215 applications from 83 firms and is one of the biggest policy successes for the year. Under the electronics scheme, out of 22 applications, 16 have already been approved comprising of global giants like Foxconn, Samsung, Wistron, etc.
  • Faceless assessments: This is one of the revolutionary steps which would have far reaching impact on ease of operations and transparency in the country. The National e-Assessment Centre has been empowered as the main gateway for communication between the taxpayers and tax authorities. India is the first large jurisdiction in the world to have adopted such a mechanism for assessment. As of Sep 20, nearly 60,000 cases have been taken up for faceless assessments and more than 8500 cases have been disposed off without additions.
  • Abolition of Dividend Distribution Tax (DDT): This has been one of the longstanding demands of investors. Apart from DDT, dividends above Rs. 10 lacs were taxed in the hands of the investors. With the abolition of DDT both these issues have been addressed. Further the surcharge on divided has been restricted to 15% as a relief to the HNIs. The government is expected to forego Rs. 25000 crores of revenue in the interest of encouraging capital investments.

 Misses: Airline Industry, completely ignored: The aviation sector did not receive any comprehensive bailout package from the Indian Government. Measures such as loan moratorium, privatisation of six more air ports, freeing up more air space for civil, etc do not have any direct impact for the current losses of the industry. Countries like Germany, United States, UK, Canada, Singapore, UAE and Hong Kong announced packages in the form of financial assistance for payroll expenses and other operations or soft loans of funding in exchange of a minority stake in the airlines. Indian airlines contended that the Rs.1000 crores of indirect relief was insufficient, as they are estimated to lose revenues to the tune of $11.61 billion (vs 2019) impacting more than 3 million jobs.

MSME Udayam scheme, exclusion of traders: Traders have been excluded from the purview of MSME definition, consequently eliminating nearly 2.3 crore entities (36%) from the landscape. Scheduled commercial banks had sanctioned limits of nearly Rs. 11.5 lakh crore to 1.25 crore traders (whole sale and retail) (Mar 18), all these limits would now have to be reviewed in terms of pricing and eligibility in the absence of priority sector tag.

Ambiguity in Debt Restructuring:  RBI, on the basis of Kamath Committee report, announced a one-time special window for lenders to restructure loans. However, the recommendations were too broad with financial metrics which were difficult to fulfil even under stable economic conditions.  As per RBI’s banking trends report, 39% of scheduled commercial bank loans were under moratorium when it ended in August, which is roughly around Rs. 40 lakhs crore. However, considering the ambiguities and impracticality of the restructuring norms, borrowers to the tune of only Rs. 2 lakh crores have opted for restructuring.

As observed, the year was a mixed bag for policy making however what is encouraging is that the boundaries and runs are higher than misses (the list is endless). Most of the decisions were taken without access to the luxury of history as circumstances were unprecedented. Policy making is a game of options and outcomes, and we must say, with the benefit of hindsight, options with the desired outcomes have been predominantly chosen. Despite good intentions, governments are judged by their outcomes and going by this yardstick, the current dispensation seem to have passed the muster.

Source: The Financial Express

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Flipkart signs MoU to set up Centre of Excellence in Bengaluru

Flipkart has inked an agreement with the Logistics Skill Sector Council (LSC) and Karnataka Skill Development Centre (KSDC) for the establishment of Centre of Excellence (CoE) in Bengaluru.

The new centre will be used to train the workforce across various sectors of the e-commerce industry in India including storage and distribution, customer management, and material handling.

Spread across an area of 1,500 square feet, the centre is equipped with computers and other resources to offer projector-based learning.

The workforce will also be trained for the necessary soft skills like communication to help them better interact with customers through behaviour-focused sessions.

Amites Jha, Senior Vice-President and head of Ekart, said “We are cognisant of our responsibility towards the workforce to create further employment opportunities and ensure career progression through such initiatives.”

Source: Apparel Online

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DGGI detects fraudulent transactions worth Rs 498.5 crore by entities in Maharashtra

The Directorate General of GST Intelligence (DGGI) has busted fraudulent transactions of Rs 498.50 crore by 26 entities across Maharashtra, an official release said. These include fake Input Tax Credit (ITC) of Rs 12.78 crore which was recovered in cash on the spot and one person was arrested, the DGGI release said.

The release informed that as part of the ongoing drive against fake invoices, multiple searches were conducted by officers of DGGI, Nagpur Zonal Unit at a number of places covering diverse industrial sectors across Maharashtra during the last fortnight.

During the investigations, it was observed that the entities covered were trading in a wide variety of taxable goods ranging from supari and coal to textile articles and iron and steel products.

A large number of entities were found to be non-existent or non-business residential properties. These entities had uploaded fake and forged documents like electricity bills and rental agreements on the GST portal as proof of business addresses, the release said.

"Regarding the entities which were found to be functioning, the interrogation of the authorised persons confirmed the fraudulent practices adopted by these entities in availing input tax credit without receipt of any goods," the DGGI said.

Out of the total fake Input Tax Credit of Rs 89.73 crore availed on fictitious paper transactions of Rs 498.50 crore, an amount of Rs 12.78 Crore has already been recovered on the spot.

"One person has been arrested yesterday whose interrogation is expected to give further leads in the fake invoice rackets," it said.

Source: The Economic Times

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Crop estimate increases for 2020-21 cotton season; 358.50 lakh bales expected

Cotton Association of India (CAI) has increased its crop estimate by 2.50 lakh bales for 2020-21 to 358.50 lakh bales. This increase is mainly due to more carry over stock. Notably, the cotton season runs from October to September.

As per CAI, the total cotton production for the 2019-20 season stood at 360 lakh bales.

The exports estimate for the 2020-21 season was 54 lakh bales, against the previous year’s estimate of 50 lakh bales.

Estimated total cotton supply by the CAI during October to December 2020 is 327.35 lakh bales, which comprises arrivals of 197.85 lakh bales, imports estimated at 4.50 lakh bales, and opening stock of 125 lakh bales as on 1 October 2020.

The total cotton supply till the end of the 2020-21 cotton season is at 497.50 lakh bales.

Domestic consumption has now been estimated at 330 lakh bales, the same level as estimated previously.

The consumption is estimated to reach its normal level this year after the disruption and labour shortage caused on account of the lockdown imposed in the country.

Source: Apparel Online

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India’s equalisation levy: Will it ignite a new trade war?

Digital services taxes (DSTs) adopted by India, Italy and Turkey discriminate against US companies, are inconsistent with the currently prevailing principles of international tax and burden or restrict US companies.

These are the findings of the office of the US Trade Representative (USTR) that were recently made public, pursuant to an investigation carried out under section 301 of The Trade Act, 1974.

In particular, USTR’s report points out that: “India’s DST is an outlier. It taxes numerous categories of digital services that are not leviable under other DSTs adopted around the world. This brings more US companies within the scope of the DST, and makes the measure significantly more burdensome.”

USTR has also undertaken similar investigations with respect to the DSTs adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom. The reports relating to these countries are awaited.

Let us take a step back in time. On July 10, last year, US announced imposition of an additional 25% import tariff on imports of a wide range of luxury products from France. This was pursuant to a similar investigation undertaken by the USTR.

The trade value of these imports of cosmetics, soaps, handbags et all, was estimated at $ 1.3 billion. The tariff imposition was kept in abeyance for a 180 period (ie: up to January 5, 2021) to enable negotiations between the two countries.

 While the path that India will adopt is not immediately known, it is unlikely that India will budge on its stand that its Equalisation Levy (EL) aka digital services tax is unequitable. In this backdrop, the Indian government will need to gear up for some hard negotiations.

While, imposition of additional tariffs by the US on imports from India and other countries that have introduced DSTs cannot be ruled out sometime in the future, India will not be alone in this war.

India the first mover: International tax laws were designed for the traditional economy which required a physical presence (permanent establishment as it is defined in tax treaties) in the country where the goods and services were sold. In a unilateral move, owing to lack of consensus at an international level, India introduced an EL from June 1, 2016.

Under it, an Indian payer is required to deduct 6% on payments (if in excess of Rs 1 lakh a year) to a non-resident  for online advertisements. While this is ostensibly a levy on the non-resident entity (say Google, or Facebook), the actual burden of such levy shifted to the B2B customer by way of higher charges.

In financial year 2017-18, which followed its introduction, the collections under equalisation levy exceeded Rs 550 crore. Recent news reports cite that Google has paid around Rs 604 crore, as equalisation levy during the fiscal 2019-20.

However, the scope of the section 301 investigation was focussed on the 2% EL introduced by the Finance Act, 2000, with effect from April 1. It covers non-resident e-commerce operators who have to pay this levy on the consideration received for online sale of goods or services.

It covers both B2B and B2C transactions but does not apply where the sales, turnover or gross receipts of the non-resident entity is less than Rs 2 crore in a fiscal year.

While the collection from this 2% EL will be known only after the current fiscal ends, USTR estimates that the aggregate tax bill for US companies could exceed $30 million per year.

Apart from pointing out the broad scope of the 2% EL, USTR in its report also pointed out that the overwhelming majority of companies subject to this levy are US companies. Of the 119 companies that USTR was able to identify who were likely to bear this levy 86 companies (or 72%) were US companies, followed by China and UK (7 companies),  France (6 companies) and Japan (5 companies). US companies bear the greatest burden of India’s discriminatory approach, it concluded.

USTR pointed out that India had not set a global revenue threshold for the purpose of the levy. The domestic threshold of Rs 2 crore ($267,000 approximately) was also perceived as low, by USTR. It emphasised that both these aspects would bring within the ambit of EL, several companies which do very little business with India.

EL levels the playing field, says India:

The US investigation on the 2% EL included whether the EL discriminated against the US companies, whether it was applied retrospectively, and lastly whether it diverged from US or international tax norms due to its applicability on entities not resident in India.

A statement from the ministry of commerce & industry in response to the USTR findings states: In this regard, the US requested for consultations and India submitted its comments to the USTR on July 15, 2020. It also participated in the bilateral consultation held on November 5, 2020, where it emphasised that the EL is not discriminatory.

It was explained that on the contrary EL seeks to ensure a level-playing field with respect to e-commerce activities undertaken by entities resident in India who are already subject to taxes in India on the revenue generated from the Indian market, and those that are not resident in India, or do not have  a permanent establishment in India.

The EL levied at 2% is applicable on all non-resident e-commerce operators irrespective of their country of residence, who do not have a permanent establishment in India. The threshold for this levy is Rs 2 crore, which is very moderate.

It was also clarified that the EL was applied only prospectively, and has no extra-territorial application, since it is based on sales occurring in the territory of India through digital means.

In addition, it was pointed out that EL was one of the methods suggested by the OECD/G20 Report on Action 1 of BEPS Project (2015), which was aimed at tackling the taxation challenges arising out of digitisation of the economy.

EL is a recognition of the principle that in a digital world, a seller can engage in business transactions without any physical presence, and governments have a legitimate right to tax such transactions, added the ministry’s statement.

Conclusion: Given that a global consensus at the OECD or even the UN level may take several more months, countries including India, are likely to continue with their unilateral DSTs. At this juncture, when economies are reeling under the ill-effects of the pandemic, no country would want to give up its share of revenue and wait for a global consensus to emerge.

That said, India can address certain issues that non-resident taxpayers are facing in complying with the EL. Ease of compliance and payment will go a long way in showcasing that it is not only easy to do business in India but with India.

Source: The Economic Times

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India going to be global source of skilled manpower by 2022: MoS MEA V Muraleedharan

India is going to be the global source of skilled manpower by 2022, Minister of State for External Affairs V Muraleedharan said, noting that Skill India programme is aimed towards making the country ready to become the skill capital of the world by then. Muraleedharan made the comments at the Youth Pravasi Bharatiya Divas Conference on ”Bringing together Young Achievers from India and Indian Diaspora”.

He said India is going to be the global source of skilled manpower by 2022.

“Our Skill India programme is aimed towards making India ready to become the Skill capital of the world by then. Our aim is to not just export ‘manpower’ to the world, but to export ‘skills’,” he was quoted as saying in a statement by the MEA. “Our programme on Pravasi Kaushal Vikas Yojana aims to enhance the skills of Indian youth who seek overseas employment which will not only lead to better image of India in the developed world but will also lead to better salaries and better remittances, thus raising India’s GDP further,” he said.

Muraleedharan said the government has initiated many programmes and schemes to help revive the connections of the young diaspora members to their motherland.

“The most important of these is the Know India Programme, which gives a unique opportunity to the young students and professionals particularly from Girmitya countries to visit India and get re-acquainted with their ancestral roots and witness the transformation of India in fields of politics, economy, science and technology, first hand. Started in 2004, we have had 59 editions of Know India programme since its inception,” he said.

He said the government has initiated a spate of reforms in the economic and financial sector which has immensely opened up India’s investment regime.

“As members of our extended family, overseas Indians hold a special place in our plans for India’s development agenda. We have launched a number of flagship programmes such as Smart Cities Mission; the Digital India; the Skill India; the Start Up India; the Swachh Bharat campaign etc in order to achieve our objectives of a prosperous, skillful, enterprising, clean and futuristic Atma Nirbhar Bharat. We invite you to help us define the contours of this New Self-reliant India by participating wholeheartedly in these initiatives,” he said.

 

Source: The Financial Express

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GDP estimates: Industries showing signs of recovery, says Niti Aayog Vice Chairman Rajiv Kumar

Niti Aayog Vice Chairman Rajiv Kumar on Friday said industries are showing signs of recovery and fiscal measures announced by the government are projected to offset the impact of the COVID-19 pandemic.

Kumar was commenting on the first advance estimates (AE) of national income released by the National Statistical Office (NSO) on Thursday, which projected 7.7 per cent contraction in GDP for the current fiscal year.

“While the first advanced estimates report a contraction of -7.7%, industries, both contact-intensive & non-contact, are showing signs of recovery.

“Fiscal measures are projected to off-set the impact of the pandemic thereby, attain a real GDP of Rs 134.40 lakh crore in 2020-21,” Kumar said in a tweet.

As per the GDP estimates, all sectors are expected to post a contraction for the full fiscal, except agriculture.

“Real GDP or GDP at Constant Prices (2011-12) in the year 2020-21 is likely to attain a level of Rs 134.40 lakh crore, as against the Provisional Estimate of GDP for the year 2019-20 of Rs 145.66 lakh crore…

“The growth in real GDP during 2020-21 is estimated at -7.7 per cent as compared to the growth rate of 4.2 per cent in 2019-20,” the NSO had said in a statement.

In the current fiscal, manufacturing sector is likely to see a contraction 9.4 per cent whereas growth was almost flat at 0.03 per cent in the year-ago period.

The NSO estimates significant contraction in ‘mining and quarrying’, and ‘trade, hotels, transport, communication and services related to broadcasting’.

Agriculture sector is estimated to see a growth of 3.4 per cent in 2020-21. However, it will be lower than 4 per cent growth recorded in 2019-20.

The economy contracted 23.9 per cent in the first quarter and 7.5 per cent in the second quarter due to the COVID-19 crisis.

Source: The Financial Express

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Economists urge Prime Minister Modi to push privatisation, increase infrastructure spending

Top economists on Friday urged Prime Minister Narendra Modi to aggressively push privatisation of state-owned enterprises, avoid challenging international arbitrations and increase infrastructure investment, saying these were essential to build investor confidence. Participating in a virtual meeting with the Prime Minister, some economists suggested that the government could take a lenient view on fiscal deficit in the forthcoming Budget for 2021-22 due to the urgency to revive the pandemic-hit  economy, sources said.

According to the sources, the participants urged the government to come up with policies to increase exports and build investors' confidence as despite multiple structural reforms across sectors, investments are still not flowing into India in a big way.

"There is a need to boost investor confidence. Government should avoid challenging everything (international arbitration awards). This is important as investors are still wary of investing in India despite several reform measures," one of the sources present in the meeting said.

The speakers also stressed on the need to raise India's tax-to-GDP ratio, which is declining since 2008, embark on import tariff rationalisation and undertake bank recapitalisation.

Some participants also pitched for creating a separate ministry for privatisation of PSUs and assets, if needed, as was the case earlier.

Among others, the meeting was attended by Arvind Panagariya, K V Kamath, Rakesh Mohan, Shankar Acharya, Shekhar Shah, Arvind Virmani and Ashok Lahri.

Finance Minister Nirmala Sitharaman, Minister of State (MoS) for Finance Anurag Thakur, MoS Planning Rao Inderjit Singh, Niti Aayog Vice Chairman Rajiv Kumar and Niti Aayog CEO Amitabh Kant too were present at the meeting.

The meeting assumes significance as it is taking place ahead of the Union Budget to be presented by Sitharaman in the Lok Sabha on February 1. Some of the suggestions are likely to be considered by the minister while preparing the budget proposals.

According to sources, several economists suggested that the government should focus on export promotion as it was essential to boost domestic manufacturing.

The sectorial experts underlined the need for more steps to increase investor confidence.

India's GDP is estimated to contract by a record 7.7 per cent during 2020-21 fiscal as the COVID-19 pandemic severely hit the key manufacturing and services segments, as per data released by the National Statistical Office (NSO) on Thursday.

According to the Reserve Bank of India (RBI), India's economy is projected to contract 7.5 per cent in the current fiscal ending March 31, 2021, while the International Monetary Fund (IMF) and World Bank have estimated the contraction at 10.3 per cent and 9.6 per cent, respectively.

The economy contracted by a massive 23.9 per cent in the first quarter and 7.5 per cent in the second quarter of this fiscal on account of the COVID-19 pandemic.

India's economic growth stood at an estimated 4.2 per cent in 2019-20.

Source: The Economic Times

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Forex reserves swell by $4.483 billion to record $585.324 billion

The country’s foreign exchange reserves surged by USD 4.483 billion to touch a record high of USD 585.324 billion in the week ended January 1, RBI data showed on Friday.

In the previous week ended December 25, the reserves had declined by USD 290 million to USD 580.841 billion.

In the reporting week, the increase in reserves was on account of a rise in foreign currency assets (FCAs), a major component of the overall reserves.

FCAs climbed by USD 4.168 billion to USD 541.642 billion, weekly data by the Reserve Bank of India (RBI) showed.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

Gold reserves rose by USD 315 million to USD 37.026 billion in the week ended January 1, as per the data.

The special drawing rights (SDRs) with the International Monetary Fund (IMF) remained unchanged at USD 1.510 billion.

The country’s reserve position with the IMF stood at USD 5.145 billion, same as the previous week.

Source: The Financial Express

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INTERNATIONAL

BGMEA signed agreement with Sidley Austin to receive advice on GSP extension

Bangladesh’s top apparel body the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has signed a contract with Sidley Austin LLP to obtain advisory services to extend duty-free trade benefits to the EU when Bangladesh leaves the states of least developed countries (LDCs).

Recently, the first meeting among the BGMEA, Sidley and other officials concerned was held virtually, joined by Tariff Commission and Economic Relations Division (ERD) representatives.

The Sidley lawyers will counsel BGMEA in making arguments and strategies to extend preferential market access into the European Union, with an emphasis on the ongoing EU GSP reform discussions and Brexit.

Rubana Huq, President of the BGMEA said, “Sidley Austin’s services are free of cost under its Trade for Development Initiative, Emerging Enterprises pro bono program.”

“Sidley will be supporting BGMEA to develop policy guidelines to be submitted to the govt. so that the viewpoint of the private sector is communicated to the policymakers,” Huq said.

“BGMEA wants to guarantee that the govt. representatives should also kindly be in sync with the private sector’s engagement with Sidley so that a shared view can be developed,” said Huq.

“Sidley Austin will aid the BGMEA with framing the grounds based on the government’s extended Everything But Arms (EBA) engagement request,” told Huq.

Bangladesh’s graduation from LDC to a developing nation (DC) in 2024 will end the Generalised System of Preferences (GSP) altogether – which allowed Bangladesh’s shipments duty-free access to considering its LDC status.

Though, the EU has offered a 3-year grace period on the facility following the graduation.

Bangladesh is trying to extend its current GSP status past 2027 as the local economy was cruelly shrunken from the COVID-19.

Bangladesh has been pushing with the EU through an LDC group under World Trade Organisation (WTO), with the commerce ministry asking for 10 more years past 2024.

EU is the largest export destination of Bangladesh. With total exports increased from 58% to 61% in the past 10 years.

According to a recent study by the BGMEA, Bangladesh’s major export item, the garment will lose $4 billion in export to the EU after graduation. Even with the GSP facility, the export loss will amount to $3.2 billion.

the study also showed that the dependence of Bangladesh’s exports on zero-duty benefits of the EU’s GSP has grown by 9.03% in the past 10 years to $17.15 billion in November last year.

At present, some $25 billion or 73% of external trade of Bangladesh enjoys duty-free access for the LDC status, which will end with the effect of LDC graduation.

To become eligible for the EU’s GSP Plus criteria, Bangladesh will have to ratify and effectively implemented 27 international conventions on labor rights, human rights, environmental protection and good governance.

The EU is presently revising its GSP scheme for 2023 which will be finalized soon.

Source: Textile today

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E-commerce platform Udaan secures funds worth US $ 280 million

Udaan, a B2B e-commerce platform, secures funding of US $ 280 million (Rs. 205 crore) in additional financing to support the company’s expansion plan in the country.

The investment has been received from its existing investors including Lightspeed Venture Partners, DST Global, GGV Capital, Altimeter Capital and Tencent as well as from new investors like Octahedron Capital and Moonstone Capital.

Moreover, the money will also be utilised for enhancing the selection of products and categories and the technology platform, in addition to expanding its SME financing capabilities and reinforcing its supply-chain infrastructure.

Udaan is the only e-commerce platform in India to take mobile-first approach. It offers products across various categories including apparels, clothing accessories, electronics and footwear, amongst others.

It was started by Flipkart veterans Sujeet Kumar, Amod Malviya and Vaibhav Gupta back in 2016.

Source: Apparel Online

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India says maintaining communications with China for complete disengagement at LAC

India on Friday said it was maintaining communications with China for complete disengagement at friction points in Ladakh sector of the Line of Actual Control (LAC) against the backdrop of a stalemate in efforts aimed at ensuring de-escalation.

At a meeting of the Working Mechanism for Consultation and Coordination (WMCC) on border affairs on December 18, the two sides reviewed developments on the LAC and agreed to hold another meeting between senior military commanders at an early date. However, the commanders are yet to meet, reflecting the differences between the two sides.

“As you are aware, the latest round of WMCC was held on December 18. The two sides have agreed to hold the next round of senior commanders meeting and are in constant communication through diplomatic and military channels in this regard,” external affairs ministry spokesperson Anurag Srivastava told a weekly news briefing.

“In the meantime, both sides have maintained communication at the ground level to avoid any misunderstandings and misjudgements even as discussions continue for achieving complete disengagement in all friction areas in accordance with the existing bilateral agreements to restore peace and tranquillity,” he said, without giving details.

The two sides had earlier acknowledged that talks between the military commanders had contributed to stability on the ground. The last two meetings between the military commanders were held on October 12 and November 6.

Tens of thousands of troops from both sides have dug in along the LAC in sub-zero conditions after diplomatic and military talks failed to take forward disengagement at friction points in Ladakh sector. External affairs minister S Jaishankar has said bilateral ties were “very significantly damaged” by Beijing’s violation of border agreements, and that the deployment of thousands of soldiers on the LAC had pushed relations into their most difficult phase ever.

Source: The Hindustan Times

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Poshmark files to raise US $ 100 million in IPO

US-based Poshmark, Indian American-founded online marketplace, recently filed to raise US $ 100 million in an initial public offering (IPO) of its Class A common stock.

Poshmark connects buyers and sellers of apparels and allied products.

It has received at least US $ 156 million from investors including Mayfield Fund, GGV Capital, Menlo Ventures, Inventus Capital and Anderson Investments.

In 2019, its active user base spent an average of 27 minutes per day on the site and as of 30 September 2020, Poshmark had 31.7 million active sellers.

As of 30 September 2020, Poshmark had US $ 216.6 million in cash and US $ 210.5 million in total liabilities, it notes. The free cash flow during the 12 months ended 30 September 2020 was US $ 48.8 million.

Poshmark intends to raise US $ 100 million in gross proceeds from an IPO of its Class A common stock, although the final figure may differ.

The company will use the net proceeds from the IPO to increase its financial flexibility, create a public market for its Class A common stock and enable access to the public equity markets for stockholders and the management.

The site acts as a form of social commerce, encouraging users to connect with each other in a safe manner for the sale of new and used apparels, accessories and other products.

Manish Chandra, President and CEO of the Poshmark, was previously co-founder of Kaboodle – an online shopping website acquired by Hearst Communications.

Source: Apparel Online

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Trump finally faces reality - amid talk of early ouster

President Donald Trump said Friday he won't attend President-elect Joe Biden's Inauguration on Jan. 20. He will be the first incumbent president since Andrew Johnson to skip his successor’s inauguration.

``To all of those who have asked, I will not be going to the Inauguration on January 20th,`` Trump tweeted.

Trump offered no clues for how he would spend his final hours in office. Biden will become president at noon on Jan. 20 regardless of Trump's plans.

On Thursday, Trump delivered a video statement admitting his presidency would soon end _ though he declined to mention Biden by name or explicitly state he had lost.

``A new administration will be inaugurated on Jan. 20,'' Trump said in the video.

Source: The Economic Times

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Mike Pompeo says US not ‘banana republic’ after mob attacks Capitol

Secretary of State Mike Pompeo on Thursday hit back at assertions that a mob attack on the Capitol showed the United States to be a “banana republic.”

A number of foreign critics as well as former US president George W. Bush made the analogy after rioters stirred up by President Donald Trump rampaged through a session of Congress that certified his loss to Joe Biden.

“The slander reveals a faulty understanding of banana republics and of democracy in America,” said the top US diplomat, a staunch Trump loyalist, as two other members of the cabinet resigned over Wednesday’s violence.

“In a banana republic, mob violence determines the exercise of power. In the United States, law enforcement officials quash mob violence so that the people’s representatives can exercise power in accordance with the rule of law and constitutional government,” Pompeo wrote on Twitter.

Bush in a statement Wednesday made veiled criticism of the “reckless behavior” of members of his Republican Party in fueling the “insurrection.”

“This is how election results are disputed in a banana republic -- not our democratic republic,” Bush wrote.

Source: The Hindustan Times

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Bangladesh's tax revenue increases in first half despite Covid-19 fallout

The country's tax revenue collection grew by 2.10 per cent in the first half (H1) of the current fiscal year (FY), 2020-21, although the Covid-19 pandemic hit economic activities hard.

The National Board of Revenue (NBR) collected Tk 1.08 trillion as income tax, travel tax, VAT and import duties in the July-December period, according to provisional data of the board.

However, the revenue collection lagged behind the target of Tk 1.41 trillion, set for the first six months of the FY, by Tk 327.54 billion.

Officials said a major slide in VAT collection from domestic sources aggravated the shortfall in revenue collection.

The NBR's VAT Wing faced a negative 16.58 per cent growth in December, as per provisional data.

However, the VAT collection amount will increase further after the deadline for VAT return submission will end on January 15, 2021.

A senior official said the provisional data of VAT collection does not reflect the actual scenario, as collection usually goes up by 25th of a month.

Economists and VAT practitioners said the collection of consumption taxes depends on the purchasing capacity of people that has already been reduced in the pandemic.

In December 2020, the NBR collected Tk 213.77 billion revenue against its target of Tk 282.65 billion.

However, tax collection declined by 2.11 per cent in the month compared to that of the same month in the previous year.

According to the NBR data, income tax collection grew by 6.33 per cent and import duties by 8.61 per cent in December.

An analysis of the FE, based on the NBR's previous data, found that tax collection growth was negative in three months of H1.

In July, tax collection growth declined by 6.77 per cent, while it was negative 7.10 per cent and 2.11 per cent in November and December respectively.

However, it never exceeded 10 per cent growth until December, while the target for the current FY has been set expecting around 46 per cent growth compared to that of the actual collection in the previous year.

Until December, both income tax and import stage tax grew by 4.73 per cent and 6.66 per cent respectively.

However, VAT collection declined by 3.36 per cent in the first six months of this FY compared to the corresponding period last year.

A senior tax official said taxmen's relentless efforts and the NBR's timely steps helped to make a positive growth in revenue collection despite the Covid-induced economic situation.

He noted that the NBR will try to boost revenue collection in the next six months, tapping the potential sectors, especially in the area of consumption tax.

The official, however, said it will not be possible to achieve the target of Tk 3.30 trillion for the current FY, as it seems ambitious like the previous year's target.

The NBR's Customs Wing achieved higher growth in December 2020, as import orders grew by 8.0 per cent to US$ 13 billion in November, he added.

Actual import, in terms of value, also increased by more than 9.0 per cent to $3.64 billion in November from $3.34 billion in the previous month.

Talking to the FE, Senior Research Fellow of the Center for Policy Dialogue (CPD) Towfiqul Islam Khan said the economy is showing a turnaround, but it is yet to return to the pre-Covid state.

Such poor growth in tax revenue constraints the government's fiscal space.

"For this reason, we are yet to see expansionary and counter-cyclical measures of the government to address the downturn of the economy."

Proper use of resources is important along with checking tax evasion and cutting tax exemption, Mr Khan opined.

In case of downsising the Annual Development Programme (ADP), the government should prioritise projects in a comprehensive manner, he added.

Source: The Financial Express Bangladesh

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In MEA’s clear-cut message to US, a reminder on S-400 deal

Against the backdrop of possible US sanctions on the $5.4 billion deal with Russia for S-400 air defence systems, India on Friday said it has an independent foreign policy that guides defence acquisitions in line with national security interests.

Recent reports have suggested the US could impose secondary sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA). The Russian side has said the deal for five S-400 systems is progressing according to schedule despite the threat of possible sanctions.

“India and the US have a comprehensive global strategic partnership. India has a special and privileged strategic partnership with Russia,” external affairs ministry spokesperson Anurag Srivastava told a weekly news briefing.

“India has always pursued an independent foreign policy. This also applies to our defence acquisitions and supplies which are guided by our national security interests,” he said in response to a question on the S-400 deal.

Outgoing US envoy Kenneth Juster said this week that sanctions under CAATSA weren’t aimed against friends of the US, though India might soon need to make hard decisions regarding the acquisition of military hardware.

India has sought to keep its options open on arms purchases and the country’s leadership has signalled its intent to continue with the acquisition of military hardware from Russia, which accounts for more than 60 per cent of the weapons systems of the three services.

Responding to another question on the US administration’s plans to modify the selection process for H-1B visas by giving priority to salary and skills instead of the current lottery, Srivastava said India is in communication with the American side to ensure “increased predictability” in the visa regime.

Almost 70 per cent of the 65,000 H-1B visas issued by the US each year go to Indian nationals.

“We are engaged with the US government for increased predictability in the visa regime and to minimise inconvenience to Indian nationals in the US or those proposing to travel to the US for bonafide reasons, including the movement of Indian professionals,” Srivastava said.

India has also noted the US government’s recent proclamations extending by three months the suspension of entry of certain immigrants and non-immigrants, he said.

“People-to-people relations are a vital part of the partnership between India and the US. There is recognition in the US of the fact that Indian skilled professionals have contributed to the growth of the US economy and helped the US retain its competitive edge and innovation advantage,” he added.

Source: The Hindustan Times

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What India should, and shouldn’t, do in Nepal

Nepal has drifted into a political crisis following its Prime Minister (PM) KP Sharma Oli’s decision to dissolve Parliament. The constitutional validity of Oli’s move has been questioned, and is awaiting decision by the Supreme Court.

Unlike on previous occasions, Oli has refrained from blaming India for destabilising his regime. The PM’s ire has been directed at his senior party colleagues for not allowing him to govern smoothly. The others, in turn, blame Oli for non-governance, corruption, concentration of power, and refusal to honour commitments made on sharing power.

India has played its cards cautiously and craftily. With an assiduously cultivated façade of non-interference, it let China smear itself into the mud of micromanaging the ruling party’s internal conflicts.

Anti-Oli forces were quietly cheered to dump him, but when they failed, India subtly extended a helping hand to a desperate Oli struggling for survival.

Prime Minister Narendra Modi positively responded to Oli’s telephonic greetings on India’s Independence Day. A series of important visits from India followed. The Research and Analysis Wing (R&AW) chief, army chief and the foreign secretary visited Nepal on October 22, November 4 and November 23, respectively. These visits were in the midst of Oli’s intra-party strife.

Energy and trade officials from the two countries have met each other, border talks are on board, and Nepal’s foreign minister is visiting India for the joint commission meeting next week.

Through these moves, India has achieved its immediate tactical goals. Oli has been emboldened to stick to power even by breaking the party. In the process, the shallowness of Oli’s opportunistic and politically driven anti-Indian nationalism has been exposed. The unity and dominance of the ruling Nepal Communist Party (NCP) has been shattered, and China, as its patron, has been embarrassed.

On the sidelines of these developments, India has also fuelled and fed Hindutva forces under the leadership of a discarded monarchy, possibly as a ploy in the unfolding realignment of political forces in Nepal. Towards that end, India has now come out openly in favour of fresh elections.

All this puts India on the side of undemocratic, unconstitutional and opportunistic players in Nepal, which South Block strategists think is a small price to be paid for the significant gains otherwise made.

Seeking a friendly regime in the neighbourhood is a recognised norm in the realist world of international relations. India is no exception. It has often invested heavily in Nepal to have a friendly, even a pliant, regime.

But in the long-term, this approach has largely resulted in the erosion, rather than consolidation, of India’s vital security and economic interests.

With China deeply pitched in the regime change business in Nepal, prospects of this approach in coming years seem expensive and uncertain.

Irrespective of whether Nepal has elections or witnesses the restoration of Parliament, a prudent course for India would be to let Nepal cope with its internal political mess. As no major development in bilateral relations appears likely during the prevailing uncertainty, India must encourage consolidation of a people-driven polity, and improve its own popular profile.

It can pick up pending controversial issues such as the 1950 treaty, the Kalapani border dispute, and trade and investment matters, and categorical state its position, drawing red lines that Nepal should not cross.

Nepal has asked for a revision of the 1950 treaty, and this has been accepted by India. But the issue remains stuck because Nepal does not clarify how to strike a proper balance between India’s security concerns and Nepal’s developmental aspirations. Without this balance, no new treaty is possible, and Nepal, seemingly, is not prepared to abrogate the old treaty.

The question of the Kalapani border dispute has also vitiated popular perceptions in Nepal about India. While Nepal has taken unilateral and extreme decisions on this dispute, drawing new maps, India has not even clearly stated its stand.

The available evidence, also backed by India’s security stakes and civilisational connectivity with Kailash Mansarovar (in China), weighs strongly in India’s favour.

Nepal must be persuaded to assess the claims of both the sides objectively and independently. India’s policy towards immediate neighbours has never been driven by territorial nationalism. This has been evident in the case of Sri Lanka (Katchatheevu), Bangladesh (territorial waters), and even Pakistan and China.

On trade and investment issues, India needs to be more accommodative. Nepal sells less than $1billion worth of products to India while importing nearly $8 billion of them.

This is unsustainable, despite the fact that trade deficits are governed by the nature of economies. India can and must move to remove structural and procedural impediments to the entry of genuine Nepali goods into Indian markets.

It should also encourage Indian investments in such industries, including hydropower production, that can boost Nepali exports.

In redefining its approach to Nepal, India also needs to shed a great deal of its Sinophobia. China is no doubt politically assertive and financially spread out in Nepal, but most of its promises, such as transit through Chinese ports and railroad connections, are politically driven.

Even China’s own Belt and Road Initiative experts have termed some of these projects as economically unviable. Let China sink itself more into Nepali internal politics, which will only help India reclaim its contested strategic space.

Source: The Hindustan Times

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