The Narendra Modi government has cracked the code to put India among world’s top-100 most business-friendly nations. At number 77 on the World Bank’s 2018 global ranking of 190 countries, India made drastic improvements to its reputation for global business in a few short years. India is now the most highly ranked country in South Asia, and the World Bank attributes its progress to sustained business reforms, which are transforming the country into a sought-after investment destination. India is one of the top-10 improvers and the only large country in South Asia to have achieved such a significant shift. The jump is a result of the government’s consistent efforts to revive growth. This report is a barometer of competitiveness that businesses consider while making investment decisions.
While there has been progress, India lags in some key best practice measures for its regulatory framework. Plans to remake India’s economy and efforts to sell India as an investment destination are practical, but if the government is to be successful in attracting more global investors, it needs to create a more stable and predictable fiscal and regulatory regime.
Retrospective taxation: This issue continues to concern investors. The government’s retrospective tax claim against Cairn Energy and the resulting dispute has perpetuated concerns among investors about the transparency and stability of the Indian tax regime. For instance, the law imposing tax on indirect transfer of assets in India may have been enacted in 2012, but the tax is applicable to all transactions that took place from 1962 onwards.
The controversy surrounding this issue is whether it is fair to impose a tax with retrospective effect whereby a company’s business decisions are based upon the tax situation that exists today? It is difficult for a business to organise its activities today based on a future law that will be made applicable from today. An ideal tax system should be predictable, clear and stable. While the Modi government has categorically stated that it will not issue any new retrospective actions, there are several high-profile cases throughout the BJP’s reign, which are yet to be resolved. Now that a final resolution of this dispute is expected shortly under the UK-India Bilateral Investment Treaty, we believe a commitment by the government of India to swiftly respect/adhere to the terms of the Treaty ruling on this matter would offer assurance to global investors.
Oil & gas industry: Ironically, one such case is in the oil & gas industry where the government has initiated a number of positive reforms over the last four years, including open acreage policy, pricing reforms and liberalised licensing policy.
In 2015, the PM set a target of reducing India’s oil dependence by 10%% over the next five years, but imports have actually risen. India imported 77% of its crude oil requirements in 2014 and this has increased to over 83% in 2018, according to the Petroleum Planning & Analysis Cell Report—India spent more than $87 billion on crude oil imports in FY18, which represents 25%-plus increase from last year.
The government continues to seek private investment to raise domestic oil & gas production, which has stagnated in recent years, while fuel demand has risen annually. A change in domestic production would be of significance in view of India’s rapid economic growth, which could be impacted due to expanding gaps between energy demand and supply.
Current oil prices allow India an opportunity to attract serious investments in the oil & gas industry. In fact, Cairn Energy is leading the charge, contributing about 25% to the country’s domestic crude oil production in FY18. Investment in energy is critical to achieving India’s development ambitions—to support an expanding economy, to bring power to those who remain without it, to fuel the demand for greater mobility, and to develop infrastructure to serve what would soon be the world’s most populous nation.
Top-50: We applaud improvements in ease of doing business made by the government, and believe that expediting a conclusion to the long-running Cairn dispute by respecting the Treaty ruling would strengthen the message that the business environment in India is predictable, stable and attractive to global investors.
Source: financialexpress.com