India Regulatory Brief: Government Extends Highway Contracts to Attract Investors and More Changes to GST Bill Announced

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Government Considers Longer Highway Contracts to Attract Investors

The government will consider extending the tenure of contract for operation and maintenance (O&M) of highways, from the current nine years to 29 years. This includes both fresh contracts and projects where the contractor is the National Highways Authority of India (NHAI). The extended stipulated period will ease recovery of costs and boost profit margins, after which the projects will be handed over to the government. Sources placed in the government state that the Union Ministry of Road Transport and Highways and NHAI are already working together to come up with more incentives to attract foreign investors to India’s infrastructure sector.

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The ruling NDA government has consistently been pushing for the expansion of road and highway connectivity in the country. Moreover, increasing the tenure of contract for O&M will attract greater investments in the sector, including international pension funds and foreign institutional investors. Finally, the government’s consideration  comes after a spike in foreign investor interest. Recently, the international investors, Macquarie, Brookfield, and Cube Highways, took up equity in 10 national highway projects worth US$ 622 million (Rs 4,150 crore) from which private promoters had exited. The Abu Dhabi and Qatar sovereign funds are also expected to make an entry in India’s roads and highways sector.

India-Cambodia Bilateral Investment Treaty Approved

The Union cabinet recently approved the Bilateral Investment Treaty (BIT) between India and Cambodia, which will boost the scope for bilateral investment, trade, and tourism between the two countries. The India-Cambodia BIT also includes provisions that safeguard the interests of investors and will facilitate greater commodity and investment flows between the two countries. This treaty is the first BIT that is in accordance with the Indian Model BIT text that was approved in December last year.

The BIT provisions entail that the two countries will provide an incentivized environment to attract investors. Cambodia currently benefits from a Duty Free Tariff Preference (DFTP), which has facilitated faster growth of exports to India, according to the Indian Embassy’s website in Phnom Penh. India was the first country to extend this facility to LDCs (Least Developed Countries). Cambodia exports footwear, rubber, fruits, nuts, lime, non-ferrous metals, cement, salt, and precious stones to India. India exports pharmaceuticals, chemicals, cotton, and rubber to Cambodia. 

The amount of trade between the two countries has increased, and reached to about US$ 160 million in the fiscal year 2014-2015. The portfolio of traded sectors is diversifying, and includes services, agriculture, infrastructure, construction, among others.

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Government Amends Goods and Services Tax (GST) Bill, Further Consolidates Support

The Union cabinet announced last week that the government will drop the contentious one percent additional inter-state tax in the proposed GST Constitutional Amendment Bill, meeting a key opposition demand. The move has been welcomed by tax experts as it simplifies the overall GST structure. Further, the central government will compensate the states for any revenue loss incurred over a period of five years. Earlier this year, compensation proposed was staggered as 100 percent for the first three years, followed by 75 and 50 percent, respectively, in the next two years. Aside from these developments, the Union cabinet also approved the inclusion of a dispute settlement mechanism in the GST Constitutional Amendment Bill, which will be decided by the GST Council. Any dispute between the state governments and the center will be adjudicated by this proposed ‘committee’, which will have representation from both the center and states.

The most recent changes made to the bill is a further step in what has been a long-drawn negotiation process, and seeks to gain opposition support in the upper house of parliament where the opposition Congress has so far blocked passage. The government plans to roll out the GST by April 1, 2017, and is working overtime to build consensus to get the bill passed in the ongoing session, which ends August 12.


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