India Market Watch: India, Malaysia Sign 15 Business Pacts and Heavy Cost of Liquor Ban

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India and Malaysia to sign 15 business pacts

15 business pacts are expected to be signed between India and Malaysia on Monday, April 4, on the occasion of the Malaysian Prime Minister Najib Razak’s five-day visit to India.

The business-to-business agreements aim to deepen commercial linkages between the two countries. Total projects under bilateral discussion amount to US$5 billion.

This will be the Malaysian PM’s third official visit to India since 2009, and the current itinerary included visits to Chennai, Tamil Nadu state (March 30) and Rajasthan state (April 2). In Rajasthan, Malaysian companies have invested in road and infrastructure projects worth an estimated US$1 billion.

PM Modi’s talks with the Malaysian Prime Minister centered on improving economic ties between the two countries, where he pitched investment opportunities for Malaysia in India’s smart cities, infrastructure, and food security.

Malaysia is India’s third largest trading partner in the Association of Southeast Asian Nations (ASEAN) after Singapore and Indonesia. Bilateral trade between Malaysia and India was at US$12.8 billion in 2015-2016, with the trade balance in Malaysia’s favor; both countries seek to upscale bilateral trade to US$15 billion.

Malaysia has invested more in India at an overall estimate of US$7 billion, while Indian investments amount to about US$2.5 billion in Malaysia. Malaysian companies have so far completed 53 highway and road projects in India worth US$2.84 billion. In addition, there are seven projects valued at $0.34 billion under construction. Currently, there are 61 Indian joint ventures, seven Indian public sector undertakings, and 60 Indian IT companies operating in or from Malaysia.

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FMCGs rush to Assam to avail of tax benefits before GST rollout

Fast-moving consumer goods (FMCG) firms have invested nearly US$461.33 million (Rs 3,000 crore) in the past few months to build new plants in the northeastern state of Assam. The rush to set up manufacturing units in the state was primarily to avail of fiscal benefits – before the deadline of March 31, 2017.

Assam has offered FMCG companies decisive financial incentives — a 10-year tax holiday (excise benefits)— for those who set up plants before March 31 this year. Such incentives were earlier offered in the states of Himachal Pradesh and Uttarakhand, both of which expired in 2010.

The tax benefits hold crucial for companies as tax havens will close up following the implementation of the Goods and Services Tax (GST) by July 1.

FMCG companies taking advantage of the industry sops include Hindustan Unilever (HUL), Patanjali, Dabur, Marico, Jyothy Labs, Emami, and Bajaj Corp.

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Huge losses estimated for hospitality industry after SC liquor ban

Recently, the Indian Supreme Court (SC) banned the sale of liquor near highways across the country, forcing prominent hotel chains like the Taj, Oberoi, Hyatt, and Accor groups to stop serving alcoholic beverages to guests after April 1. The losses to the hospitality industry and respective states amount to an estimated US$10 billion (Rs 65,000 crore).

As per lobby group National Restaurant Association of India (NRAI), the ban will cause loss of jobs for around 100,000 people in the hospitality sector. Further, states could lose tax revenue worth about US$7.7 billion (Rs 50,000 crore), while restaurants and pubs could suffer losses worth US$1.54 to US$2.3 billion (Rs 10,000 to 15,000 crore).

The Supreme Court announced the drastic measure to reduce the number of drunk driving accidents as India is among the most cash-prone countries in the world. Industry representatives have called the move short-sighted and negative for the economy, instead calling for awareness initiatives about road safety and dangers of drunk driving.

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