Other Briefings
India Targets US$200 Billion Exports in 2009-10
Feb. 27 – India’s commerce and Industry minister Kamal Nath has set an export target of US$200 billion during the fiscal year 2009-10. Due to poor economic conditions the government has also lowered this fiscal year’s export target from US$200 billion to US$175 billion. India’s export sector grew 30 percent from January 2008 to September, however in January this year the sector was down 16 percent from the year earlier. Experts estimate the slowdown in exports to continue until March this year.
By way of offering exporters 26 additional sops on Thursday, including interest rate subsidies on export loans, enhanced reimbursement of duties, and a longer period to fulfill export obligations etc. the government hopes to decrease the burden on exporters. Nath also said that the most affected industries leather and textile would get a special package of Rs 325 crore (US$64 million) and the threshold limit for recognition as premier trading house would be lowered from Rs 10,000 crore (US$1.9 trillion) to Rs 7,500 crore (US$1.5 trillion).
Ways to Set Up a Company in India
Feb. 19 – Foreign companies looking at a presence in India can set up five different kinds of entities depending on how they want to be represented in India. Companies wishing to maintain their foreign company status can set up a Liaison Office, Project Office or a Branch Office. Those companies that wish to operate as an Indian Company can set up a Wholly-owned Subsidiary or a Joint Venture Company. Due to ease and scope of work allowed most foreign companies decide to open a wholly owned subsidiary. The following enumerates shareholding and scope of work under the specific entities:
Gold Prices Peak in World’s Largest Consumer Market
Feb. 18 – Just ahead of the auspicious wedding season gold prices in India have soared to an all time high topping US$950 an ounce or Rs. 15,000 for 10 grams. India is the world’s largest consumer of the metal and demand usually piques ahead of the wedding season.
Experts believe the high prices can be attributed to several factors. Indians usually buy gold as the safest form of investment. Economists feel that due to the economic crisis Indian banks and financial institutions have been hedging gold which has led to the sky high prices. A weakened Indian rupee and high prices are also believed to have hit demand this year.
“Record prices have seriously hurt demand,” Rajesh Mehta, chairman of Rajesh Exports Ltd., India’s biggest jewelry producer and exporter, told Bloomberg in a telephone interview from Bangalore. “The economic slowdown isn’t helping demand either.”
Mukherjee Delivers Common Man’s Budget
Feb. 16 – India’s acting Finance Minister Mr. Pranab Mukherjee delivered the present government’s last budget today. The interim budget stayed on course satisfying the common man before elections this may. Highlights of the budget included tax waivers for farmers, a greater focus on infrastructure, an increase in the defense budget by 34 percent and a significantly higher fiscal deficit of 6 percent of GDP much higher than the initial target of 2.5 percent of GDP. The fiscal deficit for the fiscal year 2009/10 is expected to be slightly lower at 5.5 percent of GDP.
While no sweeping policy changes were made in the budget, it also didn’t announce any cuts in either direct or indirect taxes – a highly anticipated move. The budget instead suggested measures such as elevating literacy rates and jobs, increasing rural spending and subsiding food and fuel – measures that could improve the nation’s inclusive development. Thefull budget will be announced by July by which time the new governement will be sworn in.
The stock markets – both the Nifty and the Sensex nosedived during delivery of the speech as no announcement of a third stimulus package was announced. The government announced a revised estimate of spending Rs 11 trillion (US$227 billion) during 2008/09 as against an estimated total spending of Rs 9.53 trillion (UD$ 197 billion) in 2009/10.
India Opens Doors Wider to FDI
Feb. 12 – Innovative thinking has lead the Indian government to offer India Inc a better deal than any stimulus package could have. In a sweeping move to usher in more FDI into India, the Cabinet Committee on Economic Affairs (CCEA) released a statement stating that equity investments routed through companies in which a majority ownership and control is in the hands of Indians would be treated as fully domestic equity. This effectively then nullify’s any FDI caps in the industry allowing room for millions of dollars to flow in. The retail, telecom, insurance and aviation sectors are expected to benefit most from the move.
Former Finance Minister P. Chidambaram told the Economic Times, “All investments directly by a non-resident entity into an Indian company will be counted as foreign investment, while foreign investment through an investing Indian company will not be considered for calculation of the indirect foreign investment, in case the Indian company is owned and controlled by resident Indian citizens.”
The landmark change in policy means that a company with 60 percent Indian equity and 40 percent foreign equity would be treated as a company with zero FDI. Previously if the same company had invested Rs 100 crore in another firm, Rs 40 crore of this amount would be treated as FDI.
India to Announce Interim Budget on February 16th
Feb. 6 – The present Indian government which will deliver an interim budget on the 16th of February is expected to announce tax sops to aid the staggering economy. While tax benefits will not be announced across the board, experts expect sops to be given to selected industries that have been severely affected.
"They might keep the options open for some fiscal support — more expenditure and tax exemptions for textiles, exports and for small and medium sized firms," N.R. Bhanumurthy, a senior economist at the Institute of Economic Growth told Reuters.
Although it is not established political practice to announce tax cuts in an interim budget, the economic slowdown calls for effective and innovative policy changes.
“Keeping in view the pressures on the Indian industry, lowering of tax rates for companies and individuals may be considered as part of overall economic relief package. As an immediate relief, the removal of surcharge may be considered at this stage,” KPMG executive director Vikas Vasal told the Economic Times. According to current tax laws, individuals with an income above Rs one million (US$20,550) or companies with an income of more than RS 10 million (US$205,507) have to pay a 10 percent tax surcharge.
Unemployment Rate to Escalate
Feb. 5 – The Indian job market doesn’t look too optimistic these days. While falling exports mean that the export sector could loose up to 1.5 million jobs by March, large Indian conglomerates are thinking up innovative ways to lean their workforce. To add to India’s employments woes, fears are that the millions of Indian workers in the Gulf could return due to dire economic situations. Foreign companies such as IBM are also giving their employees in the west an option to relocate to India alleviating fears of further job losses in India’s thriving IT industry.
Although authorities say the situation currently isn’t alarming, if millions came to India in search of employment the situation will worsen. India has announced two stimulus packages targeting specific industries, however results are yet to be felt. Experts further fear that a spike in the unemployment rate could lead to social disharmony and unrests.
Foreign Companies Jostle for India’s Arms Business
Feb. 3 – The global economic crisis doesn’t seem to have dented the Indian arms business. With a budget of well over US$30 billion for importing weapon systems and platforms over the next four-five years, global arms manufacturers are jostling for space of the Indian arms pie. The Indian government on their part is also interested in offers as they plan to increase and upgrade their weapons systems post heightened tensions with Pakistan and the use of some obsolete weapons by the Army, Navy, Air Force and Coast Guard.
