Author: Rituparna Bhuyan

Biden’s trade representative initiates retaliatory action against India’s Equalisation Levy on e-commerce players

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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United States Trade Representative (USTR) has initiated the process to retaliate against India and 5 other countries for levying a digital service tax on foreign companies that have impacted US enterprises.

On its part, India has maintained that it will take suitable action on any proposed US retaliatory action.

The 5 other countries include Austria, Italy, Spain, Turkey, and the United Kingdom.

Newly appointed USTR Katherine Tai said, “The United States remains committed to reaching an international consensus through the OECD process on international tax issues. However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs.”

Commerce Ministry officials in Delhi said, “Government of India will examine the proposed action with the stakeholders concerned and would take suitable measures keeping its trade and commercial interest of the country and overall interest of its people.”

USTR has the mandate to negotiate bilateral trade and investment issues of United States. It is now proceeding with the steps that could lead to imposition of tariffs or sanctions against India and five other countries.

“USTR is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations,” the USTR statement further added.

This is the first trade related friction witnessed between the Biden and Modi administration. Under the Trump Administration, the USTR had initiated a probe under Section 301 of the US Trade Act against what it calls Digital Service Tax imposed by 10 nations.

In January 2021, the USTR had released the findings of the probe that said that India and the other countries covered by the investigation discriminated against US companies by levying the tax.

India had imposed a 2 percent equalisation levy on sales of products and services by e-commerce companies in Budget 2020.​

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Economic Survey 2020-21 said to forecast FY22 growth at close to 11%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Economic Survey 2020-21, which will be presented in the Parliament by Finance Minister Nirmala Sitharaman today, has forecast India’s FY22 growth at close to 11 percent, sources told CNBC-TV18.

This year’s Economic Survey captures the impact of COVID-19-induced lockdown on the economy.

Among the key figures to be tracked in the Survey are gross domestic product (GDP) growth projections for 2021-22 and estimates for the current year (2020-21) as these will reflect the pace at which the government expects the economy to show a firm recovery.

The Survey will also outline a roadmap for the rival of the Indian economy. Another important element of the Survey will be a roadmap for the 5 trillion economy.

According to the sources, who did not want to be named, the Economic Survey 2020-21 sees a resurgence and recovery in multiple sectors and economic indicators including power, steel, GST collections, rail freight and e-way bills.

The Economic Survey maintains that the measures taken to save lives and curb the virus have helped the economy, the sources said.

The Economic Survey can be seen as a report card of the country’s economic health that provides detailed statistical data covering all aspects.

The Economic Survey highlights the economic trends in the country and facilitates a better appreciation of the mobilisation of resources and their allocation in the budget, according to the government.

This survey analyses the trends in agricultural and industrial production, infrastructure, employment, money supply, prices, imports, exports, foreign exchange reserves and other relevant economic factors that have a bearing on the budget.

The Economic Survey is usually presented by the FM a day before the Union Budget, however, this year, due to the Budget Day being right after a Sunday, the Survey is being brought earlier.

The Union Budget will be presented by the FM on February 1 at 11 am.

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USTR calls India’s levy on non-resident e-commerce companies discriminatory; New Delhi denies

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The US foreign trade regulator has called India’s equalisation levy on non-resident e-commerce companies to be discriminatory. New Delhi, on the other hand, has maintained that the levy is applicable to all foreign companies and leads to level playing field between domestic and foreign companies in the e-commerce space like Google and Amazon.

The United States Trade Representative (USTR) on January 6 released a probe report under Section 301 of its Trade Act, as per which the 2 percent equalisation levy charged by India “discriminates against U.S. digital services companies,” “unreasonably contravenes international tax principles,” and  “burdens or restricts U.S. commerce”.

India’s imposes a 2 percent tax on revenue generated by non-resident e-commerce companies from activities like digital content sales, data related services, digital platform services as well as digital sales of a company’s own goods.

The report claims that an Indian government official accepted that levy was meant to be discriminatory. “Indeed, one Indian government official confirmed that the very “purpose” of the DST is to discriminate against non-resident foreign companies, explaining that: “[a]ll parts of the digital taxation incident should be on the foreign player, because if the incidence is passed on to the Indian player, then it doesn’t really serve the purpose.”. The report also says that India and the US had a confidential consultation on the levy on November 5, 2020.

According to USTR, the taxation burden on 86 US e-commerce companies in India will “exceed $ 30 million per year” due to the 2 percent taxation on non-resident companies. The report also says that the levy by India on foreign non-resident e-commerce companies is on revenue on not on income, which is against principles of international taxation.

Section 301 probe is initiated by USTR based on policy actions taken by its trade partners which are deemed discriminatory by its companies. Based on the findings of a Section 301 probe report, the US government is empowered to take retaliatory trade actions.

However, in the case of India, USTR is not taking any action for the time being but has warned that it will continue to “evaluate all options”.

Indian government officials maintained that the equalisation levy does not discriminate against US companies. “The Equalisation levied at 2 percent is applicable to non-¬resident e-commerce operator not having a permanent establishment in India. The threshold for this levy is Rs 2 crore, which is very moderate and applies equally to all e-commerce operators across the globe having business in India. The levy does not discriminate against any U.S. companies as it applies equally to all non-resident e-commerce operators, irrespective of their country of residence,” officials in India maintained.

They also stressed that the tax is not retrospective in nature and it does not have any extraterritorial application as it is on revenue generated from India.

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China FDI proposals yet to be cleared by govt

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India is yet to take a call on FDI proposals from China which are pending with different government agencies, sources told CNBC-TV18. But the country won’t restrict Chinese companies bidding for projects that are funded by multilateral institutions like the World Bank or ADB.

According to the sources, as many as 120-130 FDI proposals from China are currently with the government, totalling around Rs 12,000-13,000 crore.

In April this year, India put restrictions on inbound FDI from China by mandating that all foreign investment proposals from nations that share a land border with India will need to get a nod from the government.

An inter-ministerial panel that was set up to vet the FDI proposals is yet to take a call on the FDI proposals from China.

The sources also told CNBC-TV18 that several Chinese companies have applied for registration with the government to bid for government contracts. India has made it mandatory for foreign companies belonging to nations that share a land border with India to register before being allowed to bid for government projects.

But government officials clarified that companies wanting to bid for public projects in India that have multilateral funding from agencies like the World Bank or Asian Development Bank need not register with the Indian government.

India shares a 3,488-km border with China. Both the countries undertook massive deployment of defence forces along their northern borders, amidst the worst skirmish seen in 40 years that led to casualties on both sides in the month of June. ​

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JCB machines tell a story: In pandemic year, infra development pace in Bharat outpaces that of India

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Rural India seems to be leading in infra and construction activity this year versus peer projects in urban areas according to heavy construction machinery maker JCB India, which monitors real time performance of its excavators, loaders & compactors in the country.

Speaking to CNBC-TV18 after launching India’s first CNG run dual fuel backhoe loader, JCB India chief executive officer and managing director Deepak Shetty said this year, three fourths of its machines in the country are being utilised in rural projects, indicating a strong infra and construction push in the hinterland. The company believes that higher usage of JCB machines in the hinterland also points towards lower pace of infra activity in urban Indian clusters.

India has over 160,000 JCB made excavators, loaders and compactors which stream a host of data like fuel efficiency, engine performance etc. to the company in real time through a proprietary technology. This helps the JCB to analyse usage of these machines in different geographies and regions.

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“Analysis of data from JCB machines show that their usage was higher in rural India this year. In a normal year, 55-60 percent of the JCB machines are used rural areas but this year, it is 70-75 percent, Shetty said in an exclusive interview. “Overall, JCB machine usage is up 10 percent this year compared to last year.”

According to Shetty, the higher usage of JCB machines in villages and non-city areas can explained by the infra push of the government in rural areas after lifting the lockdown, especially in public projects related to housing under PMGSY and basic infrastructure work being carried out under MNREGA.

In addition, the company also got to know that the higher than average rainfall promoted construction of a large number of ponds in rural eastern India. “Bharat seems to be firing in all cylinders,” Shetty said.

Apart from basic infra, JCB machines saw higher usage in the months following the lockdown in highways, expressways and roads projects. Moreover, JCB machines usage in border and defence infra was higher compared to previous years. “We have received additional orders for excavators, loaders & compactors from defence organisations,” Shetty said.

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The company had to shut production during the lockdown period and no machines were produced during the month of April. But as India started the unlock process in June, JCB saw a spike in sales due to pent up demand. “July sales were up 30 percent year-on-year. Even in August, September and October, sales have been on the higher side compared to last year,” Shetty said.

The UK-based company, which has 5 plants in India, plans to restart work on its 6th factory in Vadodara, Gujarat, which was paused due to the COVID-19 pandemic. The company also plans to add to the alternate fuel portfolio by launching the first duel fuel backhoe loader on November 25 in New Delhi.​

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Will avoid joining agreements which are ‘FTAs by stealth with China’: India on RCEP

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian trade officials have defended the country’s decision on not joining the Regional Comprehensive Economic Partnership (RCEP) agreement even as 15 nations signed the dotted line on November 15 to take one of the biggest trade pacts forward.

The signing comes a year after Prime Minister Narendra Modi formally announced the country’s exit from the mega FTA after seven years of negotiations.

Negotiators of the Commerce and Industry Ministry — which is in charge of the country’s trade mandate — refuted allegations that India raised last minute issues to scuttle the trade pact. Officials said that India raised several issues consistently during the parleys to seek a balanced outcome for all RCEP FTA members.

Trade negotiators in New Delhi have maintained that India would continue to avoid any trade pact that involves preferential duty market access with China, with whom it has had a spike in border issues.

Commerce Ministry officials shared six specific terms that it disagreed with during the RCEP FTA talks.

Here are the issues that objected to during the RCEP FTA meeting.

1. Circumvention of Rules of Origin by China

Commerce Ministry officials maintain that there was a constant threat of circumvention of minimum value addition norms called Rules of Origin by China. India was convinced that China would push cheap goods indirectly into India by shipping it via RCEP members like Vietnam or Malaysia, thereby bypassing Rules of Origin norms.

2: Request for change in base rate of customs duty from 2014 to 2019

Indian trade officials maintain that multiple requests were made to change the base year for customs duty rate cut from 2014 to 2019. India maintains that RCEP trade will be operational from 2022, once the member countries individually ratify the pact. When that happens, the applicable duties will have to be rejigged to levels seen in 2014.

India has raised duties on over 3,000 goods in the past six years and hence recalibrating its duties to 2014 levels in 2022 — the first year of RCEP FTA — would harm sunrise sectors like electronics and mobile manufacturing, officials maintained.

3: Request for tariff lines in auto trigger safeguard mechanism

Sources in the Commerce Ministry pointed out that India wanted an automatic mechanism by which it could impose safeguard duties in case of import surge from RCEP FTA members. Officials said that there is always a risk of sudden surge in imports from FTA partners and hence an automatic trigger safeguard mechanism was needed to protect Indian industries.

4: Exclusion from Most Favoured Nation (MFN) obligations in investments

India wanted an exclusion from the Most Favoured Nation (MFN) clause related to investment commitments under RCEP. India has maintained that this gives MFN benefits on investments only to strategic partners like the US or France or friendly nations like Sri Lanka and Nepal. India was not ready to offer MFN benefits on investments to RCEP members like China.

5: Carve-out of sensitive sectors from ratchet obligations in investment

India would have had to mandatorily offer investment related benefits that it gives under other FTA partners to RCEP members. India opposed this condition known as ratchet obligation in the RCEP FTA.

6: Carve-out of local policy measures should be applicable only in top two levels of government

Under RCEP FTA, investment related commitments would have to be adhered to even by local governments like municipal corporations. India demanded a carve-out by agreeing to investment commitments in the top two levels of government at the Centre and state.

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Finance ministry releases MEIS dues but disbursal to be calibrated over next few years

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The union finance ministry on Thursday has approved allocation for a key export sop, which were held up earlier this year amidst a dip in revenue collection.

Sources told CNBC-TV18 that North Block has approved allocation worth Rs 39,097 crore for Merchandise Exports from India Scheme (MEIS) benefits for exports undertaken in FY20 and Rs 15,555 crore for exports between April and December 2020.

Sources added that for exports between April and August 2020, MEIS allocation will be Rs 10,555 crore while for September and December, it will be Rs 5,000 crore. As per government guidelines, the maximum amount for MEIS benefits for exports between September and December 2020 will be Rs 2 crore per exporter.

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MEIS is an export benefit scheme through which exporters are given duty-free scrips at pre-approved rates which can be used to pay customs dues on foreign inputs. The scrips are tradeable and used to help Indian exporters cushion the impact of indirect taxes and outcompete exporters from other countries. The scheme will expire on December 31, 2020.

The scheme is administered by the Directorate General of Foreign Trade (DGFT), which has put MEIS registrations of exporters on hold in mid-2020 as the allocations were not released by the finance ministry.

While the scheme will help clear dues of exporters, the issuance of MEIS scrips will be rationed. The finance ministry has instructed DGFT to limit the issuance of MEIS scrips to Rs 16,000 crore during FY21. The balance amount will be adjusted in subsequent years.

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India has decided to stop MEIS by the end of 2020 as the scheme has been challenged at the World Trade Organization for allegedly distorting global trade in favour of Indian exporters.

Moreover, finance ministry and policy think tanks like NITI Ayog believe that MEIS has not been able to push Indian exports in the global trade arena.

The government has instead come up with a new Production Linked Incentive (PLI) scheme through which 13 sectors like mobiles, electronics, auto and components, pharma will be supported through an allocation of nearly Rs 2 lakh crore spread over five years.​

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Lowest salary increments in 2020 by India Inc in 25 Years: Aon survey

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India Inc offered the lowest ever salary increments to employees in 2020 as COVID-19 disrupted the economy, said global professional services firm Aon.  According to the ‘Salary Trends Survey 2020 – 2021′ which captured responses of 1050 organisations spread across 20 sectors, the average salary hike in 2020 stood at 6.1 percent, which is the lowest level seen in 25 years of the survey.

The previous lowest average salary hike in India was recorded in 2009 at 6.3 percent during the global financial crisis. Average salary increment by Indian Companies for 2021 has been forecast at 7.3 percent by the Aon survey.

During the ongoing calendar year, 29 percent of the surveyed companies didn’t offer salary hikes while 46 percent gave increments in the range of 5 to 10 percent to their employees. In addition, 16 percent of the companies offered a salary hike of 10 percent.

Sectors with the highest salary increase in 2020 include hi-tech, IT, pharma and life sciences while hospitality, real estate, engineering services recorded the worst performance on salary.

Going forward, the number of companies offering increments are likely to increase in 2021, Aon said, even as the quantum of increments is likely to remain at levels seen in previous years. The survey forecast that in 2021, 14 percent companies are unlikely to offer any salary hike but more companies are likely to reinstate compensation cuts carried out in 2020 due to the pandemic.  61 percent of companies are expected to offer salary rise in the range of 5 to 10 percent. Further, as many as, 15 percent of the companies are likely to offer 15 percent hike in compensation next year, Aon said.

The survey also said that active hiring by Indian companies, that reduced workforce due to pandemic, was not expected till the third or the fourth quarter of 2021.

In addition, Aon predicted that companies across the board will seek to re-calibrate compensation to factor in Work From Home or Work From Anywhere modes, by including location-based compensation differentiation.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

WTO divided over India, South Africa’s proposal to temporarily hold IPR enforcement to fight COVID

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India introduces Reciprocal Restriction Norms in its public procurement programme 

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Department for Promotion Of Industry and Internal Trade (DPIIT) has notified a new set of rules that seeks to impose reciprocal restrictions on countries that don’t allow Indian firms to participate in their government contracts.

As per the new norms, line ministries will monitor any restrictions or prohibitive tender conditions that directly or indirectly prohibits the participation of Indian companies in government contracts of foreign countries.

In case such restrictions are identified, India would prohibit companies of that country to participate in its publicly funded projects.

The new rules also make it mandatory for foreign companies to form JVs with Indian companies for participating in public-funded projects above a certain threshold, which will be notified later. However, such JVs will get relaxation on Minimum local content limits which were imposed earlier this year.

DPIIT also said that departments under the central government that have annual procurement budgets above Rs 1000 will have to notify a 5-year procurement roadmap.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow