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INDIA GL BAL BUSINESS Online Print Events Published by May 2015 Indias outbound investment magazine Page 18 HOT SPOT INDIA INC. PICK UK woos Indian business with free office space Moodys gets positive on course of Indian economy Page 8 Pages 39 UK-India special relationship set for a second term Direct UK-Gujarat flights must firmly come onto bilateral agenda by Manoj Ladwa OPINION Page 12 PUTTING IT IN CONTEXT UK-India Enthusiasm alone wont do Camerons promise to hold an In-Out Referendum on Europe in 2017 popularly referred to as the BREXIT Britains Exit threat. Nearly 81 per cent of the Confederation of British Industry members are clear that they see Britains interests firmly within Europe. Indeed virtually all the Indian companies in the UK I speak to say precisely the same thing. They made the UK their home and invested heavily here as they saw it as the ideal launch-pad into Europe. A home away from home with access to the European single market and estimated 500 million consumers across the continent. The murmurings may question whether Cameron made a historic blunder in promising something that will most certainly divide his party and preoccupy the UK government on matters domestic and European at the expense to special partners such as India. But there is hope in the newly re-elected PMs pledge to campaign to stay IN following a promised renegotiation of a better deal for the UK. So here are five commitments that will demonstrate that Cameron is serious on India 1. It has been 10 years since Blair and the then Indian PM Manmohan Singh signed the UK India Strategic Partnership. It is time to renew vows by signalling a fresh relationship taking into consideration Prime Minister Modis vision and priorities for aspirational India. W e all know that David Cameron is enthusiastic about India. Why shouldnt he be and why wouldnt he be His enthusiasm follows a long line of UK prime ministers who shared a similar optimism about the country. John Major launched the Indo-British Partnership to boost trade and investment with his Indian counterpart P.V. Narshima Rao back in 1993. This partnership evolved into the Indo-British Partnership Network IBPN paving the way for todays UK India Business Council UKIBC by 2005 when the then Prime Minister Tony Blair launched the UK- India Strategic Partnership which officials in both countries to this day regard as the holy grail of the bilateral relationship. His successor Gordon Brown in taking a heavy- weight delegation to India in 2008 changed the rules of engagement forever by repeatedly referring the relationship as being between two equals. But Camerons surprising outright victory in last weeks UK general elections has rightly revived expectations of a renewed bond. Admirably his party manifesto referred to India six times whereas in contrast Labour stood accused of taking its Indian diaspora supporters for granted by failing to even make a fleeting reference to the worlds largest democracy. BREXIT There is of course the small issue of David Enthusiasm alone wont be enough for the next era of bilateral ties. Actions timeframes measured deliverables will have to count over the soundbites. 2. A re-setting of the target to double trade and investment over the next five years along with absolute clarity on the rules by which trade figures will be measured. No fudging. 3. UK Chancellor George Osborne increased funding to UKTI to support UK business entering China by 6.5 million in his last budget but failed to increase funding for India. At the very least the UK India Business Council should receive the same level of funding as its China equivalent. Currently I understand I am told its less than a third 4. A comprehensive agreement on green technology collaboration with India to ensure the very best of UK technology is accessible to India and at affordable prices. This will help India to make better and bolder commitments at the Paris Climate Change conference in December 2015. Beating developing countries like India with the climate change stick without putting in place seriously bankable solutions is a tad disingenuous. 5. Under David Cameron the number of Indian students coming to the UK has dropped by 36 per cent. While Indian students remain the second- largest international group more needs to be done to ensure long-term equity with India so that Indian students do not feel less welcome in the UK than in the US Canada and Australia. The UKs pre-eminence is a historical fact Britain ranks as the largest European investor in the country and India the second-largest investor in the UK. However enthusiasm alone wont be enough for the next era of bilateral ties. Actions timeframes measured deliverables will have to count over the soundbites. Otherwise the UK quite quickly may be reduced as one Indian minister recently said to me the best transit base that Indians visiting the US or Europe could ever have hoped for. And not much more. Hopefully the prospect of a Modi visit to the UK will help focus minds. Manoj Ladwa Publisher CEO India Inc. manojladwa INDIA GLOBAL BUSINESS A series of online and offline initiatives to plug into the bold new Digital India vision unveiled by the Narendra Modi led government. www.digitalindia.indiaincorporated.com www.indiaincorporated.comOnline Print Events www.indiaincorporated.com For business development opportunities please email infoindiaincorporated.com London 44 020 7873 2386 India 91 07940 063 339 IndiaIncorp indiaincorporated companyindia-inc Facebook f Logo CMYK .ai Facebook f Logo CMYK .ai BANKING 10 Raghuram Rajan ticks off banks over high rates 11 Modi launches Mudra Bank to fund the unfunded Courts to settle Indian tax upheaval on legal ground UK woos Indian business with free office space Page 32 Page 8 INDIA INC. PICKS SECTOR FOCUSHOT SPOT ANALYSIS PHARMA 38 India all set for 8 growth World Bank 39 Moodys gets positive on course of Indian economy MARKETS FOCUS AUTO 22 Markets indicate good news for Modinomics 40 Mahindra Mahindra to bid for Italian auto firm 21 Indian biotech firms scout for UK ties 41 Cipla acquires Brazilian pharma firm INDIA GLOBAL BUSINESS The UK General Election 2015 marks a major turning point in the countrys relationship with India as it comes with a fresh mandate to strengthen ties. This edition of India Global Business analyses the poll battleground along with the other key elements across the globe. UK-India special relationship set for a second term Page 18 CONTENTS Chief Executive Manoj Ladwa Senior Editor Aditi Khanna Chief Operating Officer Shamit Ghosh Events Manager Dina Ladwa Operations Rajvi Singhi Sales Advertising Jennifer Francis Project Coordination Nomita Shah Digital Marketing Executive Darshan Khant Graphic Designer Ankur Saxena Operation Support Saurabh Brahmbhatt Research Associate Purva Gosai Accounts Admin Bhavin Thakor India Inc. Limited all rights reserved. Reproduction in whole or in part without our written permission is prohibited. Views expressed by our contributors are their own and do not necessarily represent the views policies of India Inc. While every effort is made to achieve total accuracy India Inc cannot be held responsible for any errors or omissions. www.indiaincorporated.com Online Print Events UK POLL 2015 OPINION GUEST COLUMNS SPECIAL REPORTS DIGITAL INDIA 19 Indian companies boost UK growth Report 12 Direct UK-Gujarat flights must firmly come onto bi-lateral agenda by Manoj Ladwa 25 Smart wearable tech is the next wave for mobile industry by Nitin Dahad 30 The trail of realty investment by Deepak Sam Verghese 27 Non-doms on borrowed time by Simon Simpson 14 Global Indian Wealth under the scanner 23 EU on board for a new Digital India partnership 28 A broadband highway to development 36 Indian IT firms step into the robotics era 42 Net neutrality is every Indians birthright 20 Indian finance minister gets proactive on tax 31 India unveils 900bn export boost plan by 2020 34 The vital significance of Trust by Sidharth Birla 44 The Future of Wealth Management by Michael Shimmin www.indiaincorporated.com INDIA GLOBAL BUSINESS8 UK woos Indian business with free office space O ne of Britains lesser known cities Notting- ham has announced the offer of free office space for a period of two years for any Indian company looking to set up a new business in the region. The City Council of Nottingham which falls in the East Midlands region of the UK wants to encourage Indian companies to look beyond London as a business base. Nottingham is a much better place to do business and live than London far more cost-effective. I came here by accident and didnt want to leave. I now want to ensure others from India can get a similar leg up said Prof. Nat Puri a India- born businessman and Honorary Freeman or ambassador of the City of Nottingham. This offer of a 250 square meter office space in the heart of the city is open to any firm free of cost for two years. We hope it will be that first step that breaks the inertia and makes Indian companies explore the opportunities here for themselves he said on behalf of Nottingham City Council. Chris Henning Nottingham City Councils Director of Economic Development added We hope this would provide a kind of soft landing for Indian companies. Our city can offer a very attractive investment platform for Indian businesses due to our fast-growing innovative businesses academic specialisms and location at the heart of the UK providing a strong gateway to trade with Europe. The offer forms part of a long-term India strategy led by the city council and involving organisations such as Nottingham Means Business and University of Nottingham. The strategy centres around connecting with India by developing an investment bridge to attract Indian businesses to the region and encourage Nottingham businesses to explore business opportunities in India including academic and cultural links. HOT SPOT May 2015 www.indiaincorporated.com 9 HOT SPOT It is very heartening to see that Nottingham has such a broad India strategy. India is among the best performing economies in the world and there is tremendous potential that can be translated into concrete results said Dr Virander Paul deputy high commissioner of India to the UK during a Confederation of Indian Industry CII led delegation to the city. He also announced an offer to the University of Nottingham to work with the Indian Consul Generals office in Birmingham on establishing an India-UK co-funded chair of Indian studies for short- term exchange of faculty members between the two countries. The delegation was aimed at strengthening the citys research trade and investment links in India and build on a Memorandum of Understanding signed last month between Panjab University and the University of Nottingham and between CII in Chandigarh and Nottingham City Council. We are seeing rejuvenated interest from Indian companies to venture out and look at business opportunities in untapped areas across the UK and Nottingham is our first stop under CIIs new RoadtripUK initiative to strengthen regional business engagement explained Shuchita Sonalika Director and Head of CIIs UK operations. Tara Naidu Air India UK regional director and a member of the delegation added Air India is looking at expanding its services around the UK and we will certainly look at East Midlands airport as a potential hub for new flights if we see trade expanding in the region. Nottingham known for its association with the English folk legend of Robinhood is among the UKs core cities with the highest proportion of employment in knowledge-based services. May 2015 May 2015 INDIA GLOBAL BUSINESS10 INDIA GLOBAL BUSINESS10 May 2015 R eserve Bank of India governor Raghuram Rajan left key policy rates unchanged but appeared to strongly tick off commercial banks for not passing on the two rate cuts of 0.25 percentage points each in January and February to customers even as he indicated that further rate cuts could be expected in the coming months. Announcing the first monetary policy of 2015-16 Rajan kept the repo rate which banks benchmark their lending and deposit rates against at 7.5 per cent and the cash reserve ratio which indicates the percentage of deposits that banks have to maintain as cash balance unchanged at 4 per cent. Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and the front loading of two rate cuts. With little transmission and the possibility that incoming data will provide more clarity on the balance of risks on inflation the Reserve Bank will maintain status quo in its monetary policy stance in this review the central bank policy statement said. This means that Rajan may wait for fresh data on growth and inflation expected in the coming week as well as rate cuts by lenders before embarking on further rate cuts which he indicated could be coming. Indian industry has been clamouring for more rate cuts to ease the high cost of funds which it blames for the demand slowdown. Three sectors that will immediately benefit from lower rates are housing construction automobiles and consumer durables. An overwhelming percentage of sales in these three industries which can lift the fortunes of more than 400 supplier sectors is financed by banks. An uptick in these industries can set off a virtuous cycle of consumption demand-led growth and prosperity. Going forward the accommodative stance of monetary policy will be maintained but monetary policy actions will be conditioned by incoming data. The Reserve Bank will await the transmission by banks of its front-loaded rate reductions in January and February into their lending rates the RBI policy statement said. Rajan also indicated that good times may be returning albeit gradually. The outlook for growth is improving gradually. Comfortable liquidity conditions should enable banks to transmit the recent reductions in the policy rate into their lending rates thereby improving financing conditions for the productive sectors of the economy. Rajan has twice cut rates in the period between two policy statements. Will he follow suit a third time Analysts said that would depend of inflation and growth data and the transmission of the rate cuts by commercial banks. The good news all the major lenders including State Bank of India ICICI Bank and others have indicated that they could cut lending rates sometime this month. If they do the good times could soon start to roll. Raghuram Rajan ticks off banks over high rates Going forward the accommodative stance of monetary policy will be maintained but monetary policy actions will be conditioned by incoming. SECTOR FOCUS - Banking May 2015www.indiaincorporated.com 11www.indiaincorporated.com 11May 2015 SECTOR FOCUS - Banking I n an initiative that can potentially generate mil- lions of new jobs and address criticism that the NDA government is following pro-rich policies Prime Minister Narendra Modi on recently launched the Mudra Bank which will finance Indias 60-mil- lion-plus small and micro business units that have so far remained outside the ambit of formal financial channels. This bank with a corpus of Rs 20000 crore 3.3 billion will provide loans of up to Rs 1 million to small businesses that employ 120 million people but account for only about 4 per cent of institutional financial disbursements. The unorganised sector in India employs 93 per cent of its labour force while the remaining is accounted for by the organised sector. Given the average family size of five in India that means the sector collectively provides livelihoods to about half the Indian population. This initiative announced in this years Union Budget can go a long way in helping fulfil Modis election promise of providing jobs for every one of the 10-12 million army of youngsters many of them with little or no formal education or training and making them self-sufficient individuals. This in turn is expected to lead to a virtuous cycle of consumption-led demand and growth that will lead to higher savings investments and even more jobs. After banking the un-banked with the Jan Dhan Yojana its time to fund the unfunded Modi said at the launch of the Micro Units Development and Refinance Agency Mudra. Incidentally mudra means money in several Indian languages. Mudra is our innovation of funding the unfunded he added at the event that was attended by Finance Minister Arun Jaitley and several other senior government officials. Millions of common men and women in this country who run small businesses have almost remained outside the net of formal institutional finance in spite of their large contributions to the economy Modi said. Providing access to institutional finance to such micro and small business units and enterprises will not only help in improving the quality of life of these entrepreneurs but also turn them into strong instruments of growth and employment generation Jaitley said adding These measures will greatly increase the confidence of young educated or skilled workers who would now be able to aspire to become first generation entrepreneurs existing small businesses too will be able to expand their activities. Mudra Bank will also regulate the micro finance sector and lay down norms for responsible financing patterns to ensure that small and micro entrepreneurs many of whom come from the bottom of the pyramid themselves face no hassles accessing funds for their businesses. Modi launches Mudra Bank to fund the unfunded After banking the un-banked with the Jan Dhan Yojana its time to fund the unfunded Indian PM. May 2015 INDIA GLOBAL BUSINESS12 OPINION Manoj Ladwa is the founder of India Inc. and chief executive of MLS Chase Group. Direct UK-Gujarat flights must firmly come onto bilateral agenda T he campaign for directs flights between the UK and Gujarat has been a long one. Many many thousands of people have petitioned and lobbied to make this legitimate demand a reality. I too have been involved since the inception of the campaign in writing position papers speaking with various Indian officials and politicians. I was also entrusted to hand over a bulky petition perhaps the largest since our campaign to save the Hare Krishna Temple in Watford on behalf of the British Gujarati community to the then chief minister Narendra Modi. I did so along with my friend actor and now MP for Ahmedabad Paresh Raval. This was the culmination of a huge campaign led by Gujarat SamacharAsian Voice and the refreshingly invigorated National Congress of Gujarati Organisations. This is and has always has been an apolitical campaign. With politicians from all parties pledging support and the government of the day in New Delhi maintaining either a studied silence or replying that the matter is in consideration. The huge social arguments for direct flights are clear. The business case though anecdotally very plausible is something that I have been told does not stack up. I am skeptical given the huge business interest in Gujarat. But in any case as national and nationalised carrier it is incumbent upon Air India to take factors beyond business into consideration much in the same way that the Royal Mail has a responsibility to deliver to even the most remotest parts of the UK. However there is a wider political play within the aviation industry here which I fear the Campaign is a victim of. And that is the politics played between airlines and also governments on premium landing slots especially at the worlds busiest airport Heathrow. Cannot governments step in and resolve such issues Well this is where precisely in my view the campaigns agenda needs to move. Immediately after the UK general election I would urge the Campaign leaders to write jointly to the newly elected UK prime minister and prime minister Modi to put this issue on the bilateral agenda. This issue is not in my view an Indian issue or a UK issue its an issue for both governments. And both country ultimately stand to benefit. The huge social arguments for direct flights are clear. The business case though anecdotally very plausible is something that I have been told does not stack up. May 2015www.indiaincorporated.com 13 NEWS IN BRIEFS Modi German visit yields 11 pacts ONGC eyes overseas acquisitions Indian companies have signed 11 pacts with German firms on the back of Prime Minister Narendra Modi led delegation to the country last month. The agreements will boost foreign fund inflows as well as the Make in India initiative the Indian Parliament was told. Indian commerce and industry minister Nirmala Sitharaman said These Memorandum of Understandings MoUs are expected to increase FDI flows to India bring in new technology help growth of manufacturing sector and create employment opportunities in the country thereby boosting its economy. Essel Group with Wind and Sun Technology GroupFeCon GmbH to develop 12500 MW of solar and 4000 MW of wind energy projects in India. Essel Group with Passavant Energy and Environment for water and waste water treatment projects. Among the other deals include Instrumentation Ltds pact with German-based KE Kauer Engineering for the production of control valves and Vikram Solar with Fraunhofer Institute for solar energy systems. Indias state-owned oil major is keen to cash in on the low crude oil prices with overseas corporate acquisitions to strengthen its global presence. The Oil and Natural Gas Corporation ONGC plans for its new corporate entities headquartered in the US or Europe with assets spread across regions mainly in Africa and Latin America. ONGCs previous overseas corporate acquisition was in 2009 when it had bought Imperial Energy with an investment of about 2.9 billion. Dinesh K. Sarraf chairman and managing director of ONGC said Our overseas business strategy is very clear. We want to take advantage of prevailing market conditions and go for both corporate as well as asset acquisitions. Acquisitions will also help ONGC meet its blue print of raising overseas output in phases to 60 million tonnes of oil plus oil-equivalent gas annually or 1.2 million barrels a day by 2030. Meanwhile the company continues to acquire stake in oil and gas assets abroad through its investment arm ONGC Videsh Limited. May 2015 INDIA GLOBAL BUSINESS14 SPECIAL REPORT I ndia Inc. organised its second annual Global Wealth Management Conclave in London against the backdrop of the UK General Elections just over a week away on May 7. The overwhelming message from the financial experts private wealth advisers and political chiefs was for Britain to ensure that it remains an attractive destination for Indians looking to invest in the overseas market. Cobra Beer founder Lord KaranBilimoria said This is the most uncertain election the UK has witnessed where an elected government which has achieved great economic success is not certain of the outcome. Prime Minister David Cameron has made three visits to India more than any British PM. And while we await Indian Prime Minister Narendra Modis visit to the UK the groundwork has been laid for the relationship to strengthen further under any new UK government. The focus of India Incs annual conclave organised along with global accountancy firm BDO was on private wealth and taxation issues affecting Global Indians. It is estimated that around 160000 high net worth Indians are living around the world and the UK must remain competitive to attract a fair share of them said Kim Hayward international liaison partner at BDO. The 1.5-million Indian diaspora in the UK is believed to occupy a major chunk of the countrys high net worth HNW population with many holding assets across various jurisdictions. This is a challenge for professional advisers accountants lawyers bankers wealth mangers how they can respond to what will inevitably be an increasing demand for truly joined-up advisory services said India Inc. CEO Manoj Ladwa. The sessions at the event centred around the impact of the UK General Elections on Global Indian investments the growing debate around non-domicile tax status Family Wealth and Risk Mitigation as well as property and luxury assets. London is the best shop window of the world as far as global investment in concerned and any new UK government will only take relations with India from strength to strength said Chris Cummins CEO The 1.5-million Indian diaspora in the UK is believed to occupy a major chunk of the countrys high net worth HNW population with many holding assets across various jurisdictions. Global Indian wealth under the scanner May 2015www.indiaincorporated.com 15 SPECIAL REPORT of TheCityUK a representative body for Britains financial services industry. The UK has always held a fascination for India and the India-UK relations are at a very stable equilibrium and there are no institutional obstructions to robust ties in the future too added Indian political analyst Swapan Das Gupta during the session on UK elections. On the issue of non-Dom tax status which affects a number of Global Indians as they tend to be domiciled in India in terms of tax while living outside the country financial experts warned that the UK government needs to handle the issue sensitively. Neel Sahai director of Minerva Trust said Lots of Indian clients in the UK tend to be non-doms who look at family elements when choosing tax jurisdiction. A stable legislation is important for any global investor and if UK regulations are seen as onerous clients will prefer somewhere with a lighter touch added Wendy Walton from BDO. D avid Camerons second term as British Prime Minister must also means a mandate for India-UK ties to realise their true potential. High-profile trade delegations and photo-ops are now firmly covered by both governments. The new Cameron-led team can take that groundwork much further to ensure it does not miss the boat on a wide open field in the form of Make In India or any of the other Narendra Modi led governments flagship plans. May 2015 INDIA GLOBAL BUSINESS18 UK POLLS 2015 D avid Cameron secured a second term as British Prime Minister a move that can only mean achche din or good days for India-UK ties. Cameron has been among the most proactive British PMs to give India priority on his global agenda by not only visiting the country a re- cord three times but repeatedly extending his invite to Narendra Modi for his maiden visit as Indian PM to the UK. Modi was unsurprisingly among the first international leaders to congratulate him on Face- book with a nod to the campaign slogan he had borrowed from him As you rightly pointed out its Phir Ek Baar Cameron Sarkar My best wishes. I want to welcome Prime Minister Modi to Britain at the earliest opportunity and yes I met him in Brisbane I was proud to be one of the first leaders to congratulate him and I know how pleased you are to see a dynamic Prime Minister taking India forwards Cameron had said on the campaign trail. The Conservatives under his leadership in fact had made support for Indias bid for a permanent seat in the United Nations Security Council UNSC an election pledge. As part of our drive to attract more investment into the UK and increase British exports we will build on our strong relationship with India push for an ambitious EU-India trade deal and support Indias bid for permanent representation on the UN Security Council the party manifesto said. We will push for freer global trade concluding major trade deals with the US India and Japan and reinvigorating the World Trade Organisation it added. Besides the relationship on the world stage India is also named as the only country in the section on heritage creativity and sports to get a whole new museum gallery. We will help the Manchester Museum in partnership with the British Museum to establish a new India Gallery reveals the document. All these efforts combined with an India-friendly campaign including a Hindi campaign song would have undoubtedly led to the nearly 1.6 million Indian-origin voters as well as Commonwealth citizens based in the UK swaying in favour of the Tories. Indian-origin voters have traditionally connected more with Labour due to its working class and immigrant friendly outlook however these elections will bring a strong shift away from Labour which came across as a party unfriendly towards non-domiciles and NRIs. Indian PM congratulates Cameron on Twitter As you rightly pointed out its Phir Ek Baar Cameron Sarkar My best wishes. UK-India special relationship set for a second term May 2015www.indiaincorporated.com 19 UK POLLS 2015 T he success of Indian companies is fuelling the British economy through job creation and high revenues a new analysis has revealed. India meets Britain India Tracker 2015 developed by professional services major Grant Thornton in collaboration with the Confederation of Indian Industry CII found that the number of Indian companies employing people in Britain has increased by 14 per cent from 700 in 2014 to 800 in 2015. The total number of people in the UK employed by Indian companies has increased by 10 per cent from 100000 last year to nearly 110000. The report also shows that the combined turnover of these businesses has increased by 3 billion in the last year up from 19 billion in 2014 to 22billion in 2015. Anuj Chande head of the South Asia Group at Grant Thornton UK LLP said The India Tracker shows that the appetite of Indian companies to do business in the UK remains as strong as ever. The UK has reinforced its position as the leading location for Indian investment in Europe. The Indian economy appears to be gathering pace as the Modi Government tries to walk the talk on key reforms. Its pro-business stance will further encourage many Indian businesses to pursue their global ambitions and Indian investment in the UK is likely to continue to grow as a result. Grant Thornton said it expects outbound MA deals from India to the UK to benefit from a combination of stable government significant reforms and falling commodity prices. Indian companies are making tremendous progress in UK as evidenced by the fact that India invests more in the UK than the rest of the EU combined. We can see Indian companies picking up pace in business activity as they are now actively scouting for opportunities here said Shuchita Sonalika Director and Head of CII UK. The report also shows that the combined turnover of these businesses has increased by 3 billion in the last year up from 19 billion in 2014 to 22billion in 2015. Indian companies boost UK growth Report May 2015 INDIA GLOBAL BUSINESS20 I ndian Finance Minister Arun Jaitley stepped in to reassure foreign equity investors who have poured in about 300 billion into Indian mar- kets that the government would work proactively to resolve the vexed issue of retrospective application of Minimum Alternate Tax MAT on them. Writing in Londons Financial Times Jaitley said I am consid- ering a high-level committee to consider what can be done to resolve the past and move it in a way that would provide real predictability and certainty to investors. Admitting that the issue was damaging Indias image as a business-friendly investment destination he wrote The committee will be instructed to report back expeditiously so that early actions can be taken to resolve the issue.To be fair to the gov- ernment these are legacy issues that date back from before it assumed office last May. The Budget made it clear that MAT would not apply to FPIs from this year onwards but a ruling by the Authority for Advance Rulings AAR a quasi-judicial body has opened the floodgates for these tax notices. Earlier Jaitley had told Parliament that 68 such notices adding up to about 100 million in tax demands had been issued. These numbers may rise as tax inspectors sift through more records going back six years. We have little choice but to respect these decisions he wrote. Earlier junior Finance Minister Jayant Sinha had clarified that investors from Singapore and Mauritius with which India has tax avoidance treaties would not be subject to these taxes. But this had failed to assuage investor sentiments as FPIs from the US and Luxembourg have a massive exposure to the Indian markets as well. Since coming to power eleven months ago the Narendra Modi government has walked the extra mile to undo the damage done to Indias image by the previous UPA government and has taken several steps to burnish Indias potential as an attractive investment destination. These steps have by and large been well received by foreign and domestic investors and India is now once again ranked among the top business destinations in the world. The Modi administration has pledged to end the previous Indian governments record of tax terrorism but it has not been entirely successful in convincing investors about the fairness of our tax system Jaitley said in his article. The setting up of the high powered panel will hopefully be the first step towards resolving this vexed legacy issue that is unfortunately overshadowing the governments efforts to put India back at the top of the investment charts. To be fair to the government these are legacy issues that date back from before it assumed office last May. Indian finance minister gets proactive on tax SPECIAL REPORT May 2015www.indiaincorporated.com 21 S ome of Indias leading biotech and life sciences firms are exploring tie-ups to tap the vast potential within the sector in the UK. Representatives from firms such as CyberLiver Phyto Biotech and AzaTrius held meetings with more than 150 UK businesses organisations and potential partners such as Bupa InterMune a biotech firm recently acquired by Roche NHS trusts and Oxford University. Patricia Hewitt chair of the UK India Business Council UKIBC who led some of the discussions said While I was UK health secretary I saw how much the NHS benefits from Indian doctors and other talent helped by the strong connections in healthcare education training and career opportunities. Now the flip side of that coin is the opportunity for innovative British companies and NHS trusts in the growing Indian healthcare market. British businesses should start their footprint in India a country that will soon be setting the global pace for innovation in the life sciences and healthcare sector. The Indian biotech market was worth 2.9 billion in 2013 and is forecast to grow to 68 billion by 2025. Indias pharmaceutical industry is the third-largest in the world by volume and the tenth-largest by value with production costs half that of the UK and Europe. Experts believe UK companies are yet to maximise this India potential. Shakthi M. Nagappan executive secretary of the Federation of Asian Biotech Associations which represents 20 Asian countries in the life sciences sector said The biotechnology sector is one of the fastest growing knowledge- based sectors in India and India and UK have lot to offer to each other. The UK is by far the most popular business destination in Europe for Indian companies out of the about 1200 Indian firms in Europe 700 operate out of the UK. With extraordinary growth in the past decade the Indian biotech sector promises to offer lucrative opportunities and bioConclave 2015 will showcase the bilateral opportunities and strengthen Indo-UK relationship in the sector. The Narendra Modi led Indian government has committed to raise health spending from 1.1 per cent to 2.5 per cent of GDP over the next five years while the private sector spends another 4 per cent of GDP on healthcare. The government offers incentives such as foreign direct investment FDI opportunities for overseas firms to control stakes of up to 100 per cent in biotech companies. States like Gujarat and Andhra Pradesh also offer grants for foreign companies that conduct research. On the reverse side only a handful of large Indian companies have made inroads into the UK market. Last year Indian pharmaceutical major Cipla announced a 100-million investment into the UK aimed at the launch of a range of drugs in the areas of respiratory oncology and anti-retroviral sectors. Indian biotech firms scout for UK ties The Narendra Modi led Indian government has committed to raise health spending from 1.1 per cent to 2.5 per cent of GDP over the next five years while the private sector spends another 4 per cent of GDP on healthcare. SECTOR FOCUS - Pharma May 2015 INDIA GLOBAL BUSINESS22 SECTOR FOCUS- Markets T hree unrelated developments on the macro- economic corporate and investor sentiment fronts point to the fact that Indian economic recovery is finally gaining some stickiness and stability. Initial esitimatesmade by the government suggest that it will meet its tough fiscal deficit target of 4.1 per cent of GDP despite a shortfall of about Rs 10000 crore 1.6 billion in direct tax collections. In addition the central government had to provide Rs 11000 crore 1.8 billion to the states as compensation for losses on sales tax to get them on board for the rollout of the Goods Services Tax and also pay a hefty sum to the Andhra Pradesh and Telangana following the bifurcation of the erstwhile Andhra Pradesh into two states. There were genuine concerns that the government may not be able to meet the fiscal deficit target set by former UPA Finance Minister P Chidambaram in his interim Budget last year and accepted by Finance Minister Arun Jaitley in his regular Budget in July 2014 especially when the deficit number was touched in February this year. But some nifty fiscal management by Jaitley and the top bureaucrats in North Block helped the government achieve this daunting task and that too without cutting back on any rural development and social sector schemes as had been feared by a number of naysayers. The government cut defence spending marginally and was also helped by the inflow of close to Rs 11000 crore 1.8 billion from the sale of spectrum to telecom companies. A slippage in meeting the fiscal deficit target would have had serious repercussions on the Indian economy. Ratings agencies may ahve cut Indias sovereign rating impacting the feel good mood about India and affecting the flow of foreign funds into this country.But the containment of the fiscal gap lays a stable macro- economic platform for the economy to perform to its full potential. The second factor that points to a more sustained economic recovery is the recovery in the manufacturing sector as measured by the HSBC Purchasing Managers Index which rose sharply to 52.1 in March compared to 51.2 the previous month. An index score of more than 50 indicates expansion. The rise was aided by new order flows and expectations of a sustained improvement in demand. Momentum is building in manufacturing as the sector begins to build up a head of steam. Stronger expansion of output new orders and stocks of purchases all contributed to the higher PMI reading in March said P De Lima economist at Markit which compiles the index. Shorn of jargon this means companies increased output on the back of a strong recovery in their order book positions. And finally an analysis of IPO filings shows that companies could raise up to 12 billion in funds this year a five year high. Markets indicate good news for Modinomics Initial esitimates made by the government suggest that it will meet its tough fiscal deficit target of 4.1 per cent of GDP despite a shortfall of about 1.6 billion in direct tax collections. May 2015www.indiaincorporated.com 23 DIGITAL INDIA I ndia and the European Union struck a new digital partnership to mark Prime Minister Narendra Modis visit to the region. India Inc.s India-EU Strategic Dialogue Series backed by key players like Microsoft and McKinsey kicked off in Brussels with a focus on Delivering Smart Communities as part of the Modi governments Digital India drive. The European Union has done remarkable work in the field of cyber security innovation start- ups digital governance e-governance. Here are some of the issues where we can profitably learn from the experiences of European Union and its team member countries said Indian IT and communications minister Ravi Shankar Prasad in his inaugural address at the event. India and the EU have lot of things in common. Both of us are democracies both of us are open societies both of us respect freedom of a speech of association and above all creativity... We India are also promoting innovation lot of new start-ups are coming. I am very happy to inform my friends in Brussels that smart phones have got the largest consumption in India after the US he noted. The Digital India Roundtable in Brussels supported by Tata Consultancy Services TCS and Germany- based IT solutions entity SAP focussed on the potential of India-EU collaboration in the field of technology and innovation as well as collaborations to create smart cities. The EU must look at India beyond an offshoring market and more as an innovation co-creation partner. Indias experience of scale provides a big leapfrog opportunity explained Arvind Gupta national head of the BJPs IT Cell. Europe among the largest outsourcing economies in the world contributes almost 33 per cent to the global offshore IT sector. Indian IT majors TCS Infosys and Wipro have in the last year alone struck a series of long-term deals worth millions of euros EU on board for a new Digital India partnership Indian IT minister says the European Union has done remarkable work in the field of cyber security innovation startups digital governance e-governance. May 2015 INDIA GLOBAL BUSINESS24 across Europe. Digital India is an absolute must for the people of India and an absolute opportunity for the people of Europe. Our shared values of democracy and an open society will underpin this partnership said Manoj Ladwa India Inc. chief executive. The event in Brussels brought together all the key players within the European IT industry and was attended by the Indian ambassador to the EU Manjeev Singh Puri as well as key players from the European Commissions communications team. Manjeev Singh Puri ambassador of India to the EU The two areas where where the EU should be playing a critical role is Make in India and Digital India. India is hugely open for cooperation in both these areas. R.S. Sharma secretary in the Indian governments Department of Electronics IT DietY joined the conference via live Skype link-up from Hannover in Germany where he was part of Modi delegation. He said The Prime Ministers vision is very clear the entire government should be on the mobiles of every citizen. India is leapfrogging to true digital democracy. Robert Madelin director-general of DG Connect in the European Commission said India needs to be a louder partner in e-governance. It remains high priority on our side and in future I see huge scope in EU-India cooperation in the European Digital Single Market strategy. DIGITAL INDIA May 2015www.indiaincorporated.com 25 OPINION Nitin Dahad is a consultant and advisor to the technology industrial and media sector and to government agencies and trade organisations to develop global market strategies and programs based on nearly 30 years experience across Europe US Asia and Latin America. Smart wearable tech is the next wave for mobile industry I ts now clichd to say that mobile technology is becoming a fundamental part of almost every aspect of life. This was certainly evident at this years Mobile World Congress in Barcelona last month which was attended by over 93000 peo- ple. The key trend this year was around connected devices watches fitness bands fashion health monitoring devices and so on. It was also clear that wearable technologies are now going mainstream and growth in this market will continue with the sub- sequent hype around the launch of the Apple Watch. India will itself be a key part of this ecosystem as chip manufacturers like Qualcomm Broadcom and Intel are developing devices for the wearable and Internet of Things IoT products for local markets too. Speaking in the Economic Times recently Intels South Asia director of marketing and market development Sandeep Aurora said the company is building system-on-chips for wearables and IoT at its Bengaluru RD centre A lot of action is happening on this front and we have a robust roadmap for these market segments. India will be adding value to the whole wearable market in a significant way. Wearables are now an integral part of any original equipment manufacturers product portfolio. At the conference I saw numerous smart bracelets and smartwatches. In India sales of wearable devices such as smartwatches and fitness bands was around 100000 units in 2014 and this will grow to slightly over half a million in 2015 according to Counterpoint Research. Recent global forecast data from International Data Corporation IDC on wearable devices says vendors will ship a total of 45.7 million units in 2015 up 133.4 percent from the 19.6 million units shipped in 2014. By 2019 total shipment volumes are forecast to reach 126.1 million units. A key driver for this growth in 2015 is an increased focus on smart wearables or those devices capable of running third-party applications. These include devices like the Apple Watch Motorolas Moto 360 and Samsungs Gear watches. The total volume of smart wearables will reach 25.7 million units in 2015 up from the 4.2 million units shipped in 2014. Basic wearables or those devices that do not run third party applications will grow from 15.4 million units in 2014 to 20.0 million units in 2015. Wrist-worn wearables including bands bracelets and watches will account for more than 80 percent of all wearable device shipments. Behind wrist-worn products are modular wearable devices or those devices that can be worn on any part of the body with a clip or a strap. Clothing is the third category and is expected to grow the fastest as companies embed computing power into items like shirts socks hats and other products with computing power. I saw many prototypes of such products at Mobile World Congress in Barcelona and the Wearable Technology Show in London last month. This is just the beginning of the wearable industry One graphic I saw at Mobile World Congress summed up the concept of wearable technology it showed an image of an ecosystem connecting Human to Cloud. Wearable technology involves collecting data from something being worn by a person and delivering that to the cloud for some kind of action or feedback. May 2015 INDIA GLOBAL BUSINESS26 According to the organizers of the Wearable Technology Show the market is young but its already estimated to be worth 14bn and analysts believe this will rise to over 70bn by 2024. Wearables are here to stay and we are about to see them become more intrinsic to our lives our health wellbeing and entertainment. We are also about to see them move from mainly consumer applications to having a much bigger impact on industry said a statement from the organizers. In fact Sara Kami Shirazi product marketing manager for companion products at Sony Mobile Communications said to The Next Silicon Valley magazine in Barcelona This is just the beginning of the wearable industry. Todays wearable is just the embryo of whats to come. She spoke about Sonys philosophy to wearables which is about modularized thinking providing core products which can be customized by the customer to their own taste or preference. That is why Sony she says has developed a product portfolio in which each product is customizable. The market is moving towards customized wearables she added. She also said that no matter how good the product is technologically the key to a successful product is finding the right balance between technology and design. She added that wearables are just a small part of the ecosystem that the products are also an entry point into the connected home and its future would involve use with smart eyeglasses. The companys president Hiroki Totoki also talked about the value of wearables in industry. He commented The biggest benefit of wearable technologies is that they free up both hands. So we will be looking at what kind of workers want information on a real-time basis in what kind of circumstances and what information they need. Testament to this Virgin Atlantic announced an innovative trial with Sony Mobile Communications to test how new wearable technology can help improve the airlines maintenance and engineering processes. Engineers working on Virgin Atlantic aircraft at the airport and in the hangar will test Sonys SmartEyeglass Developer Edition SED-E1 tablet mobile phone and SmartWatch 3 in an eight- week trial at London Heathrow to test how the technology can be used for real time communication between the engineering team on the aircraft and in the engineering support areas. Using Sonys SmartWear alongside a smart phone or tablet will remove paper from some engineering processes and reduce the journey times between an aircraft and technical control. This will enable the engineers and technicians to remain on the aircraft during turnarounds helping to save valuable time as well as make a significant contribution to Virgin Atlantics targets to reduce paper waste. Engineers will be able to take pictures or video of the tasks they are working on. This will be linked to an app running on a smartphone which will allow the engineers to efficiently complete and submit a form requesting further technical assistance. Real-time video streaming will also allow office- based engineering staff to see a problem from the engineers point of view in order to provide more rapid technical assistance. Its clear that wearable technology has many different applications and with the growth in connected devices is going to be much more part of our lives. While some of us will see it today as just fitness bands trackers and smart watches theres a lot more to come that we may not even have imagined. OPINION May 2015www.indiaincorporated.com 27 Non-doms on borrowed time Simon Simpson is a Tax Director in the International Private Wealth Team at BDO with over 20 years experience specialising in the taxation of high net worth individuals HNWIs with complex and varied affairs often across multiple jurisdictions. Simon is a member of the Chartered Institute of Taxation and advises on tax efficient structures to assist in creating and maintaining family wealth exit and remittance strategies and the tax implications of inbound and outbound migration as well as the more general UK taxation of wealth. I n August 2014 HM Revenue Customs HMRC an- nounced that it had changed its previously published stance on the use of borrowings secured against foreign assets for non-UK domiciled individuals. Previous- ly HMRC guidance stated that it was acceptable practice for UK resident non-UK domiciled individuals to use untaxed foreign income or capital gains as collat- eral for borrowings which could then be brought to the UK without triggering a taxable remittance in respect of the collateral. This was on the assumption that the borrowings were made on com- mercial terms and were serviced regularly. This allowed non-UK domiciled individuals to bring funds to the UK that would oth- erwise be taxable when remitted - for instance to acquire say a UK property. However HMRC claimed it was seeing large numbers of arrangements which were not considered to be commercial and not within the scope of the concession. Their revised view which applied with immediate effect from 4 August 2014 is likely to impact non-UK domiciled individuals who have such borrowings. As a result any new borrowing arrangements secured against foreign income or gains will be treated as giving rise to a deemed remittance of the security if the borrowings are used in the UK. Furthermore existing arrangements could also be caught where remittances under an agreed loan facility are made to the UK now. If the loans are serviced or repaid from a different source of foreign income or gains the repayment will also constitute a taxable remittance as has previously been the case. However a double tax charge could now arise. It is therefore essential that affected individuals with existing borrowing arrangements undertake a review of their position as soon as possible to ascertain their potential exposure to UK tax and to consider possible alternatives such as repayment of the borrowing or refinancing from a source of clean capital. Of course how readily an individual can access clean capital or otherwise refinance existing arrangements will ultimately determine whether there is any taxable remittance. Further clarification is expected from HMRC in the coming months as regards any possible grandfathering of existing arrangements on the basis that individuals would have a legitimate expectation to be able rely on previously published HMRC guidance.There are significant pit-falls for the unwary in respect of restructuring arrangements already in place and BDO can assist in navigating a path. GUEST COLUMN May 2015 INDIA GLOBAL BUSINESS28 DIGITAL INDIA P rime Minister Narendra Modis Digital India initiative is about leveraging Indias skills in the information technology sector to integrate government departments and deliver government services. This will also include delivery mechanisms around subsides to people across a vast country like India promising to lift people out of poverty bring new opportunities for the advancement of millions of Indians and provide inclusive development to every one of Indias 1.2 billion citizens. The 20-billion programme also offers huge opportunities for technology companies across the world. In a nutshell it proposes to create a broadband highway to connect Indias 250000 gram panchayats in order to achieve this goal. Hardware and software companies such as Microsoft Google Facebook and Cisco telecom equipment and handset makers such as Microsoft Samsung Xiaomi Huawei Alcatel and Qualcomm consultants such as Pricewaterhouse Coopers KPMG EY and McKinsey Co. as well as civil contractors who will have to build the physical infrastructure such as the nationwide fibre optic network and allied installations and service providers in the healthcare education and banking are all preparing to cash in on this programme which in terms of sheer scale has never been attempted before. The initiative which the government hopes to complete by 2019 envisages net zero imports by 2020 and the setting up of manufacturing clusters that will dovetail with another major Modi initiative Make in India. So the opportunities are huge. But last mile connectivity remains an issue. Laying fibre optic cables to individual homes especially in rural and remote areas is not cost effective. Here Microsoft Google and Facebook have each offered their expertise to overcome this hurdle. Bhaskar Pramanik chairman of Microsoft India said the company is ready with two pilot projects to harness unused spectrum between TV channels in 200-300 MHz range which is the property of the state-owned broadcaster Doordarshan to provide free broadband access. The advantage it has a range of about 10 km and A broadband highway to development In a nutshell it proposes to create a broadband highway to connect Indias 250000 gram panchayats in order to achieve this goal. May 2015www.indiaincorporated.com 29 DIGITAL INDIA Digital India Decoded The big numbers opportunity can potentially provide free internet access to people in remote areas who may not be able to pay for it. Experts feel this unlicensed technology which hasnt been adopted extensively anywhere in the world can potentially lead to an exponential growth in broadband connectivity in countries such as India. An international consortium comprising Microsoft BT Nokia and BBC has conducted field trials of this technology in Cambridge India and MS India engineers have adapted it for Indian conditions. FB and Google have also offered alternative technologies for last mile connectivity and chances are that the government will finally go for a mix of several options depending on local conditions. The government of India is also working on fine tuning Indias duty and tax structure to provide incentives for foreign manufacturers of telecom equipment mobile phones consumer electronics medical devices LED solar power equipment and defence electronics to incentivise their local manufacturing. Its a humungous undertaking. So is it a pipe-dream or a blueprint to leapfrog across several generations of technology and carry Indians to the very cutting edge of 21st century innovation It is an ambitious even audacious undertaking but Modis track record as chief minister of Gujarat provides room for optimism. If his government can pull it off and only the foolhardy would risk a wager against that the Prime Minister will have delivered on his election slogan of More governance less government. 20 billion Cost of the project 2019 Scheduled date of completion 102 million No of jobs to be created 17 million direct jobs 85 million indirect jobs 250000 No. of villages to be connected via fibre optic network 400000 Public internet access points to be set up 250000 No. of schools colleges universities to be have wifi connections Source Ministry of Telecom Govt. of India May 2015 INDIA GLOBAL BUSINESS30 OPINION Deepak Sam Varghese founder-director of Moonbeam Advisory is a career banker with nearly two decades of experience in retail and private banking. He is a specialist in banking services and wealth advisory and has been advising domestic and non- resident Indians NRI in Mumbai Delhi Dubai Singapore and London where he was based. Now Bangalore-based his special emphasis is on financial advisory in real estate transactions advising investors and developers in key Indian metros. The trail of realty investment I n the five-year period from 2002 to 2007 any investment made in the realty segment barring a few odd spots turned in returns ranging from 10x to a low 2x for exits in 20102011. This phenom- enon could be achieved due to a large correction between 1997 and 2001 which was due to the Far East realty-led currency crisis coupled with Y2K. Looking at the phenomenal returns in isolation and without looking at the run-up to the causes of the returns Indians and non-resident Indians NRIs started entering this sector vigorously and investments were made across land plots villas retail units commercial units and apartments starting 2007. This also coincided with the phase of the rise of Real Estate funds led by HDFC and ICICI with global road shows attracting NRI and offshore funds. Given the drum roll many investors could just not resist jumping onto the bandwagon for fear of missing out on the opportunity. Investments were made across the spectrum of geographies and segments through friends and family members besides relationship managers of MNC wealth management companies through collective investment schemes. Nobody had realised that the Lehman Brothers banking crash could have such a stalling effect to the overall economic activity so much so that the composition of industry itself would undergo a dramatic shift where suburbs of certain cities would have people who focus only on ecommerce mobile apps and big data. Only a couple of years ago these would have SME manufacturing facilities and a very industrial suburb- like feel. Investors who entered the realty sector in late 2007 found that they were barely making 10 per cent annualised returns on their investments which if leveraged on rupee basis was less than the interest paid Given the gross mismatch between expectation and reality investors held on to their direct investments and sadly quite a few of the collectives that were managed by professional firms too could not anticipate the dramatic shift in the landscape leaving the investors disappointed in the sector. Beginning 2014 the early realty funds have started exiting the investments as it marked the end of the seven-year fund life. But at the same time there is a parallel raising of funds which has caused sceptics to believe that this could be a case of transfer of assets from one fund to another. Even if one fund was exiting and another fund raising money for a new scheme some sceptics felt this could be another form of asset transfer for liquidity given some markets like the National Capital Region NCR were trading below par. Greed had turned into fear. Basically given the phase of poor returns over the past five years in general investors who have been investing optimistically in this sector since 2000 have by and large become cautious in not just their direct investments but also in investing through collectives irrespective of the brand name of the fund. They are keen to know the key decision-makers their past performance in specific investments their view of certain developers markets etc. Scrutiny is intense. For their direct investments they have now started bringing on board neutral advisors who will assess the situation and advise. The advice could be either sell hold for their existing portfolio and specific advisory fees paid for this activity separating it from the transaction fee for executing the trade. For investors whose portfolio runs into an equivalent to millions of dollars these advisors have started advising the investors on all opportunities that come by the way of the investor with little participation in the actual execution where they oversee the best platform for executing the sale purchase lease. May 2015www.indiaincorporated.com 31 SPECIAL REPORT T he Narendra Modi government which has made economic revival and high growth its topmost priority has set an ambitious target of doubling Indias exports from 466 billion a year in 2014-15 to 900 billion by 2019-20. Unveiling the much delayed and simplified Foreign Trade Policy for the period 2015-2020 Commerce Minister Nirmala Sitharaman said her target was to raise Indias share of global trade from 2 per cent now to 3.5 per cent by the end of the policy period. This new policy sets out a stable and sustainable roadmap for Indias global trade engagement over the coming years she told the media. The policy simplifies several procedures and removes much of the red tape that has constricted the growth of businesses in India and forced industrialists to either shelve planned investments or seek greener pastures overseas. For example it merges five export promotion schemes into one omnibus and much more simplified Merchandise Exports from India Scheme MEIS. Exports with higher domestically made components will be eligible for higher incentives under the scheme. The new policy also replaces complex government procedures on services exports with a Service Exports from India Scheme SEIS. FTP 2015 - 2020 lays out a roadmap for cutting down turnaround time at ports and shipment centres a major grouse of trade and industry and addressing constraints within the country such as poor infrastructure and bureaucratic sloth. The government is also working on a scheme to allow exporters to submit documents electronically. Our target is to move towards a paperless environment Sitharaman said. The FTP which is aligned to two of Modis pet schemes Make in India and Digital India proposes to station senior officials in every state to assist exporters and cut down on red tape and also provides major incentives for sourcing components locally. It also provides for reduced export obligations for capital goods purchases under the EPCG scheme and encourages exports of defence equipment. The government has laid a special thrust on manufacturing critical defence goods in India to change this countrys current status as the worlds largest defence equipment importer. Commerce Minister Nirmala Sitharaman said her target was to raise Indias share of global trade from 2 per cent now to 3.5 per cent by the end of the policy period. India unveils 900bn export boost plan by 2020 May 2015 INDIA GLOBAL BUSINESS32 Courts to settle Indian tax upheaval on legal ground What has really spooked investors is the demand by the tax authorities of minimum alternate tax MAT owed by foreign portfolio investors FPIs on profits earned in several previous years. T he benchmark BSE Sensex has fallen 1400 points or almost 5 per cent in the last five trading sessions. At the time of writing it was down 233 points. There are several reasons for this poor earnings reports in the fourth quarter delays by banks in cutting rates sub-optimal export perfor- mance due to the slowdown in the eurozone and the possibility of a Greek default plunging the world into a crisis once again. But more than all of these what has really spooked investors is the demand by the tax authorities of minimum alternate tax MAT owed by foreign portfolio investors FPIs on profits earned in several previous years. This is retrospective taxation they are screaming. Not so retorts the government. Taxes due must be paid as India is not a tax haven. Both sides have sound arguments to support their case. But as investment decisions are based as much on perception as on ground realities the tax demands whether justified or not are affecting ANALYSIS May 2015www.indiaincorporated.com 33 Indias image as an investment destination and pushing investor dollars to rival destinations such as the Philippines and Vietnam among other countries. At the root of the controversy lies differing interpretations of Section 115 J of the Indian Income Tax Act which states Notwithstanding anything contained in any other provision of this Act where in the case of an assessee being a company the income tax payable on the total income... is less than 18.5 per cent of its book profit such book profit shall be deemed to be the total income and tax levied at the rate of 18.5 per cent. This years Budget states that MAT will not be levied on FPIs from the current year. Also it was widely accepted that MAT cannot be levied on companies that do not have a balance sheet in India. But the taxman has cited an Authority on Advance Rulings AAR verdict in support of its claims. In 2012 AAR ruled in a case involving Castleton Investments an FPI that MAT can be levied on companies that do not have balance sheets in this country. But there are rulings to the contrary as well. In 2010 this same AAR had ruled in the case of Bank of Tokyo-Mitsubishi UFJ that MAT cannot be levied in companies without a permanent establishment in India. The only way to resolve the situation is for a higher judicial authority to rule one way or the other and decide which verdict will stand. Till that happens taxmen will continue to issue notices and demand taxes. Not doing so will invite censure and audit objections as well as give rise to allegations of corruption and backroom deals that the Narendra Modi government has taken care to avoid so far. Finance Minister Arun Jaitley has said the tax demands will stand and that if taxes are due they will have to be paid. But his department on the advice of Indias top law officer the Attorney General had decided against appealing against a Bombay High Court verdict quashing a retrospective tax demand against Vodafone. It is not known what view the government will take if the judiciary rules against these latest tax demands but the way forward for the FPIs is to take the government to court and seek judicial redress for their grievances. Indian courts though slow have routinely struck down executive decisions that have stretched interpretations of the law. If the FPI argument has merit and right now both sides can cite precedents to back their case it is for the judiciary to settle the issue. So instead of appealing to the government to withdraw the notices which it cant do without inviting charges of corruption the aggrieved parties should approach the courts. That is the only logical way to bring this controversy to a closure. ANALYSIS May 2015 INDIA GLOBAL BUSINESS34 The vital significance of Trust Aged 57 years Mr. Sidharth K. Birla is a Company Director and Entrepreneur Chairman of Xpro India Limited and Digjam Limited. He holds an MBA Degree from IMD Switzerland and is an Alumnus of the Harvard Business School. He is Immediate Past President of FICCI Indias largest apex business chamber. I n recent times business seems to be receiving negative vibes based on insinuation or allegations ranging from conspiracy to abetting greed and graft. No responsible businessman supports these negative traits. To preclude being painted with a broad brush it is the duty of business to act and negate wrong feelings. Aberrations exist in all walks of life - business administration society and political class but presumption of pervasive greed corruption or collusion in any class is flawed logic. Such atmosphere creates serious reputational risks for enterprises and the country. The biggest injustice that can be inflicted on the nation is to keep people in jobless poverty or in under-employment i.e. employed below fair earning capacity. Job creation and productivity gains are historically proven forces for improving living standards. India requires deep reforms that encourage people and businesses to invest scale up and hire. Government restricting itself to social goals infrastructure and agricultural advances is clearly spelt out. It is thus necessary for private enterprise to step in with growth drivers. It is a dichotomy that India wants massive increases in investment to create jobs and income yet media projects an anxiety of government and opposition to convey a non-pro-corporate image. People exposed to these signals 24x7 may be left with confused feelings since to all intents and purposes the position of leadership is rightly that there is no contradiction in being concurrently pro-business and pro-poor and there is a national agenda where all sectors must play a role. From post-independence till about 1991 the Indian State largely viewed private enterprise with suspicion ironically it was trust of society that supported it. Our ethos still encourages one with capital to act in trust for himself his family and society and do good for the nation with his ability wisdom and experience. However capital has inherent need to earn returns matching business risk and therefore flows to jurisdictions that best allow this. Ease of doing business has much to do with building and administering trust business attractiveness or simplifying rules and process comes later being relevant only when one decides to do business here Above anything else trust is critical for taking business risk entering into a contract or for that matter for bureaucracy to take decisions. But when push comes to shove why does our national instinct GUEST COLUMN May 2015www.indiaincorporated.com 35 GUEST COLUMN switch so as to demote trust and follow a maxim of approval through perception A factor in recent years was allegations and perceptions of crony capitalism some instances were enough to threaten a mature systemic balance painstakingly achieved. Ambiguous laws with clouded transparency and convenient discretion can make a system frequently extortive and occasionally collusive and promote a mindset that larger success is driven by relationships. This is at cross purposes with true aspirations of business which seeks legislative clarity contractual certainty and fair treatment. Greed can lead to unsavoury outcomes but such exceptions must be dealt with both care and expediency. Public breast- beating achieves no outcome. Our economy requires huge resources over an extended period. The act of placing capital at risk in the country deserves encouragement and must come without implicit non-business risk the world for example takes a label of criminally accused or tax litigator far more seriously than our society does. Every government in the world leverages natural resources and tax policies at a command to generate economic activity provide jobs and enable profits in rational reward risk ratios. Legitimate requisites of an investor cannot be automatically deemed a loss caused to another constituency. Resultant benefits to society exchequer and expanding business activity and competitiveness are the real holistic paybacks. Recently it has been articulated that India can deliver the highest returns in the world. But one flip-side argument knowing that India is not the most competitive can be that the very risk of working here requires such returns to compensate for risk and uncertainty. If one cannot earn through inherent competitiveness the country must surely be picking up a bill somewhere else. Our leadership takes pains to exhort bureaucracy to take honest decisions without fear or favour. Respectfully exhorting cannot override existing laws which can at some future point deem proper decisions to be corrupt even without nexus or gratification. It is no-ones case that improper conduct or violation of law whether by business or otherwise goes unpunished. Swift judgment on aberrant behaviour builds systemic trust but requires larger supporting judicial infrastructure and processes not more of laws. Legislators have passed enough draconian laws but failed to appreciate that having laws does not solve problems. Allegations devoid of irrefutable evidence or political expediency or extension of outlived economic thought are weak foundations on which to threaten mutual trust of society business government. Like in a family trust is fragile and needs conviction and perseverance to nurture. May 2015 INDIA GLOBAL BUSINESS36 DIGITAL INDIA I ndian information technology firms are increasingly working on enhancing their automated delivery models with the use of robotics. All the key players Infosys Tata Consultancy Services TCS and Wipro have been investing in new high-end technology that will eventually make robots commonplace within the software industry. Infosys recently acquired US automation specialist Panaya Inc. for 200 million. Wipro is building computing systems designed to mimic human decision-making abilities where machines can understand and react to what human beings say to them. HCL Technologies is reportedly using robotics to do away with manual testing of hardware. This week TCS revealed that it is testing the use of robots to fast-track chunks of the software development process and automate some support functions. The move is being seen as TCS big bet in the emerging realm of machine-to-machine M2M communication which enables one device to talk with another machine over the Internet without any significant human intervention. Increased automation would ultimately lower the dependence on human resources for low-end IT activities and lead to long-term cost-effectiveness. N. Chandrasekaran TCS CEO and managing director said We are currently doing some pilot projects in what we are calling services-as-a software. Its a self-learning system that can train from the environment that you put it in. We will be making an announcement on this shortly. The announcement is expected to centre around robots developed in-house by TCS internal research and development teams. Strategy advisor Offshore Insights estimates automation and artificial intelligence work will grow to 25 to 30 per cent of an IT outsourcing market set to be worth an estimated 300 billion by 2020. Indian IT firms step into the robotics era All the key players Infosys Tata Consultancy Services TCS and Wipro have been investing in new high-end technology that will eventually make robots commonplace within the software industry. May 2015www.indiaincorporated.com 37 Tata Steel to hike Canada stake Bank of India to raise 750mn Tata Steel is poised to raise its direct stake from the current 80 per cent in its Canadian joint venture Tata Steel Minerals Canada Ltd TSMC. Toronto-listed New Millennium Iron Corp which holds the remaining 20 per cent in the JV was required to make fresh investments worth 19 million to fund certain capital expenses for the DSO and Howse mine development projects in Canada operated by TSMC. But the company is not making any equity investment now. Tata Steel is likely to pump in Canadian 23 million and increase its stake in the JV. The move will result in a dilution of New Millenniums interest in TSMC from the current 20 per cent. New Millennium and Tata Steel are currently in discussion to review the dilution process in accordance with the joint venture agreement. Tata Steel the largest investor in New Millennium has decided to focus more on developing two other inferior grade taconite projects Lab Mag and Key Mag in Canada through the JV according to sources. Indias state-run Bank of India opened its bond issue to raise 750 million under its medium-term notes MTN programme. Bank of India BoI is opening its bond issue under MTN programme in overseas market. The size of issue is 750 million and the bonds will be issued with tenor of five years the Bank said in a Bombay Stock Exchange BSE filing. In February this year Bank of India deferred its plans to raise 750 million in foreign currency loan under its MTN programme due to enough liquidity on slow credit growth. The bank has a board approval to raise 5 billion through MTN beginning 2005 and has so far raised 2.5 billion. Last November BoI had said it was in the initial stages of raising 750 million via MTN programme and might do so in the fourth quarter of the fiscal. NEWS IN BRIEFS May 2015 INDIA GLOBAL BUSINESS38 T he growth track of the Indian economy received a resounding thumbs up from the World Bank which has forecast 8 per cent GDP for the country within two years. The stagnating growth rate is set to accelerate to 7.5 per cent in the 2015-16 fiscal year to hit 8 per cent in 201718 the Washington-based organisation said in its semi-annual South Asia Economic Focus report. The Bank noted that India was making a shift from consumption to investment-led growth at a time when China is undergoing the opposite transition. Its projections reflect the Narendra Modi led governments attempts at growth acceleration driven by business-oriented reforms and improved investor sentiment. A strong expansion in the country coupled with favourable oil prices have given India an edge in South Asia. World Bank South Asia Chief Economist Martin Rama said Cheap oil gives the opportunity to rationalise energy prices reducing the fiscal burden from subsidies and contributing to environmental sustainability. The report noted that India has already taken encouraging steps to decouple international oil prices from fiscal deficits and to introduce carbon taxation to address the negative externalities from the use of fossil fuels. The challenge will be to stay the course in the event of oil price hikes something that may well happen in the medium-term. India also continues to be the leading nation in remittances pulling in 70 billion from its global migrant workforce in 2014. World Banks study of remittance the money workers and professionals working in foreign lands send back to their native countries attributed this mainly to weak economic growth in Europe deterioration of the Russian economy and the depreciation of the euro and ruble. Kaushik Basu World Bank chief economist and senior vice-president said Israel and India have shown how macro liquidity crises can be managed by tapping into the wealth of diaspora communities Migrants and remittances are clearly major players in todays global economy. The report noted that India has already taken encouraging steps to decouple international oil prices from fiscal deficits and to introduce carbon taxation to address the negative externalities from the use of fossil fuels. India all set for 8 growth World Bank INDIA INC. PICKS May 2015www.indiaincorporated.com 39 T he Narendra Modi governments management of the Indian economy received its first major internationally-recognised endorsement when Moodys Investor Service one of the Big Three global ratings agencies to raise the countrys outlook from stable topositive indicating that an upgrade of Indias sovereign rating could be around the corner. This is a huge turnaround from the situation prevailing till last year when India faced the very real prospect of a downgrade in ratings to junk status which would have resulted in the outflow of dollars raised interest rates and pushed the then floundering economy further into the doldrums. Recent measures to address inflation keep external balances in check simplify the regulatory regime for investors increase foreign direct investment and facilitate infrastructure development will reduce some of Indias sovereign credit constraints a Moodys statement said. On the macro-economic front the government is likely to meet the tough fiscal deficit target a shorthand for the amount the government borrows to meet any shortfall in revenues of 4.1 per cent set by former UPA finance minister P Chidrambaram and accepted by his NDA successor Arun Jaitley. Then India is expected to end 2014-15 with a current account deficit the difference in dollars between all imports and exports of less than 1 per cent. The inflation rate is benign interest rates are falling investments are slowly picking up and the governments fiscal consolidation roadmap announced by Jaitley in the Budget is on track. The World Bank IMF ADB and the OECD have all reported that India is likely to overtake China as the worlds fastest growing large economy in the world this year. All these developments are leading analysts to believe that SP and Fitch the other two major global rating agencies may also raise Indias outlook now and upgrade its sovereign rating which is one step above junk status sooner rather than later. Moodys decision and similar ones expected from the other two ratings agencies will increase Indias attractiveness as an investment destination and enable the government to attract foreign funds it needs to upgrade Indias infrastructure. India needs an estimated 1 trillion for this purpose over the next five years. This is a huge turnaround from the situation prevailing till last year when India faced the very real prospect of a downgrade in ratings to junk status Moodys gets positive on course of Indian economy INDIA INC. PICKS May 2015 INDIA GLOBAL BUSINESS40 I ndias largest maker of sports utility vehicles SUVs Mahindra Mahindra is in the final stages of negotiations to buy Italian auto-design firm Pininfarina SpA. According to media reports the Mumbai- headquartered automotive major is all set to reach an agreement to purchase the company that has designed some of the most iconic Ferraris and other luxury sports cars such as Rolls-Royce Camargue Cadillac Allante and Maserati Quattroporte. Debt-laden Pininfarina which has a market value of 162 million had revealed last month that Mahindra Mahindra had expressed an interest in buying it. The companys offer is expected to have the backing of Pininfarinas controlling shareholder Pincar which has a 76 per cent stake in the group but will also need to get the support of Pininfarinas creditor banks. The Italian designer already works with Mahindra on SUV development and worked with it on the Halo electric sports-car concept presented at the Delhi auto show last year. Mahindra has a track record of buying indebted companies and turning them around. In 2010 it bought troubled South Korean automaker SsangYong Motor and last year it acquired a majority stake in PSA Peugeot-Citroens money- losing scooter business. Pininfarina was founded in 1930 as a niche car manufacturer but that part of the business has been struggling to compete with bigger carmakers and was eventually closed down in 2010. The company reinvented itself as a smaller niche design and engineering player and produces only one-off models or very small series. The group which has expanded its design work to buildings interiors furniture and electronics had a net loss of 1.3 million last year. Mahindra Mahindra to bid for Italian auto firm Mahindra Mahindra is in the final stages of negotiations to buy Italian auto-design firm Pininfarina SpA. SECTOR FOCUS - Auto Pininfarina was founded in 1930 as a niche car manufacturer but that part of the business has been struggling to compete with bigger carmakers and was eventually closed down in 2010. May 2015www.indiaincorporated.com 41 Cipla entered into a JV agreement with two of its existing business partners in MoroccoSociete Marocaine De Cooperation Pharmaceutique Cooper Pharma and The Pharmaceutical Institute. SECTOR FOCUS - Pharma M umbai-based drugmaker Cipla has clinched an agreement to buy Duomed Produtos Farmaceuticos Limited a two- year-old importer and distributor of pharma products in Brazil for an estimated 418000 million. Cipla EU Ltd UK a wholly-owned subsidiary of Cipla has entered into a definitive agreement for acquisition of 100 per cent stake in Duomed Produtos Farmaceuticos Ltd for a cash consideration of Brazilian Real 1293600 Cipla said in a filing to the Bombay Stock Exchange BSE. The deal is expected to be completed by the end of next month. Duomed was incorporated in 2013 and has received approvals from ANVISA the Brazilian health authority and other regulatory authorities to import and distribute pharmaceutical products in Brazil. The acquisition is part of Ciplas front-end strategy to expedite its product registrations in Brazil. The firm has been active in forming overseas joint ventures and acquiring firms in its bid for global expansion. Earlier this year Cipla entered into a JV agreement with two of its existing business partners in MoroccoSociete Marocaine De Cooperation Pharmaceutique Cooper Pharma and The Pharmaceutical Institute PHI. It is expected to invest 15 million in this venture. A few months ago it said it is acquiring 51 per cent stake in a UAE-based pharma company. Earlier the company acquired 60 per cent stake in a Sri Lankan firm for 14 million. Cipla acquires Brazilian pharma firm The acquisition is part of Ciplas front-end strategy to expedite its product registrations in Brazil. May 2015 INDIA GLOBAL BUSINESS42 DIGITAL INDIA T heres a debate raging across government circles in India and across social media. The issue Net neutrality. The outcome of this de- bate can have a long-term impact on Indias future as a technology superpower. Quite simply the issue is this should all internet users have equal and unfettered access to all parts of the Net unless restricted by terms of use mandated by the content producer or should intermediaries such as telecom companies have the right to give preferential treatment or levy additional user charges on certain types of content. To illustrate the point let us take an actual example Flipkart Indias largest e-commerce company is holding negotiations with Airtel Indias largest telco to pay its data charges incurred by users while using the Flipkart app. On the face of it this sounds good and consumer- friendly but it is highly anti-competitive and anti- consumer. How Consumers who get to browse the Flipkart app without paying any data charges may be disinclined to visit the sites of other smaller e-commerce players who may not have the wherewithal to pay Airtel. This will act as an entry barrier and reduce competition in the e-commerce market thus restricting consumer choice. Like Airtels Zero platform which specifically promotes such deals Reliance Communications and Facebook also have plans in this area. The reason why companies such as Amazon Facebook Twitter and ebay among others could grow so fast was because consumers had unrestricted access to the internet. In India Flipkart Snapdeal Jabong and others could also ramp up to billion-dollar-plus valuations in almost no time because of the same reason. All of them have deep pockets funded by billions of dollars of investor money. They are burning this corpus at a furious rate in the hunt for new customers as competition intensifies in the Indian e-commerce space. If they are allowed to use part of this money to subsidise their customers Net surfing bills it will give them an unfair advantage over newer smaller rivals who lack such funding. The question is why should my service provider and some deep-pocketed companies decide which sites I visit Net neutrality is every Indians birthright The question is why should my service provider and some deep-pocketed companies decide which sites I visit May 2015www.indiaincorporated.com 43 DIGITAL INDIA The US has decided in favour of Net neutrality and European Union will take a call in a few months. The issue is especially important in India as internet connectivity provides an ideal and relatively cheap platform for universal inclusion financial social and cultural. The governments ambitious Digital India initiative which promises to lift people out of poverty bring new opportunities for advancement for millions of Indians and provide inclusive development to every one of Indias 1.2 billion citizens is premised on the concept of Net neutrality. Then India is poised on the cusp of an internet- powered tech revolution. Tiny start-ups are coming out with new apps every day. These are often compared to the early tech titans of Palo Alto who started out in garages with seed funding from family and friends who went on to become household names across the world. It doesnt require much of a leap of faith to say that some of these Indian start-ups will also go on to become world beaters if they are given the right environment and some hand holding. And Net neutrality is possibly the most important part of creating that right environment. The Telecom Regulatory Authority of India has been deluged with more than 150000 emails arguing in favour of Net neutrality. Indian Telecom Minister Ravi Shankar Prasad too has spoken out in favour of the concept. It is time to bring this issue to a closure. End this debate by making Net neutrality mandatory in India. It is every Indians birthright. May 2015 INDIA GLOBAL BUSINESS44 The Future of Wealth Management Michael Shimmin is chairman of the Fedelta Group. He was also chairman of the Trust and Corporate Industry representative body in the Isle of Man for a number of years. T here is no doubt that there have been big changes in the Wealth Management industry and that change will continue indeed the very concept of what we mean by the term needs to be considered. Per- ception often lags behind reality and for many people the use of terms such as tax dodgers tax havens and tax evasion is still associated with wealth managers. It is true that historically people were often driven by the desire to reduce or avoid tax and some of them to evade tax but this is no longer the primary driving factor and I will explain why. Following the world changing events of 911 global governments quite rightly decided that secrecy that allowed terrorists to hide their activities was unacceptable and a drive for transparency began. Then came the economic crash and Governments had to find ways of reducing their deficits the difficulty with this is that they either had to explain what taxes they would increase or what services they would cut and a convenient way to make up any shortfall is to say they will make up the difference by cutting down on tax evasion. This has caused a two tier system of Low Tax Areas to emerge. There are those that have willingly signed up to FATCA the IGAs and CRS which are various methods of agreeing to report transactions of individuals to their respective tax authorities and there are those that are doing so with great reluctance and under pressure. The willing territories are those which have successfully transformed themselves into International Finance Centres IFCs they have sophisticated support services banks law firms trust companies fiduciaries and efficient regulators. This will lead to the number of IFCs diminishing considerably and those that are in the winning territories will be those that pass the test of international scrutiny have a robust legal system and are geographically positioned to service the needs of America Europe and Asia. These territories will succeed because they will assist the wealthy to preserve and enhance their wealth and allow it to cascade down the generations tax mitigation will be a welcome bonus but will not be a driving factor. Protection of this wealth in a secure location will be an important consideration in a world that has become increasingly unstable secure in this instance consists of a jurisdiction that has all the support services legal systems and regulators in place. Only a few will survive to tick all those boxes. 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