Month: August 2020

Reliance nearly doubles retail footprint with acquisition of Future Group

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

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Reliance Industries Ltd’s acquisition of debt-strapped Future Group will almost double the footprint of its retail business, which now is valued at up to USD 68 billion, analysts said.

The oil-to-telecom conglomerate on Saturday announced the acquisition of Future’s retail, wholesale, logistics and warehousing units for Rs 24,713 crore. The deal terms entail a merger of five listed units of Future Group into Future Enterprises Ltd (FEL).

Reliance Retail has also proposed to invest Rs 1,200 crore in FEL preferential equity (6.09 per cent of post-merger equity of FEL) and Rs 1,600 crore in preferential warrants (option to acquire further 7.05 per cent).

The deal increases the retail store footprint of Reliance Retail Ltd, a unit of RIL, from current 28.7 million square feet to 52.5 million sq ft, consolidating its pole position, analysts said.

While UBS said the deal would require approvals from SEBI, CCI and NCLT in addition to no objection from creditors and minority shareholders, JP Morgan said it remains to be seen if Reliance would look to re-brand the existing Future group stores under own formats.

The deal brings potential synergies from the increased geographic presence, improving sourcing efficiencies and cost rationalisation, UBS said raising its valuation of Reliance Retail from USD 64 billion to USD 68 billion.

HSBC said the acquisition implies a clean acquisition of Future Retail, Future Lifestyle Fashions Ltd (FLFL) and Future Supply Chain Solutions Ltd (FSCSL). In addition, it will acquire a 13.1 per cent shareholding in the remaining of FEL.

“The deal will allow Reliance Retail to almost double its retail area under operation and increase the store count by 15 per cent,” it said.

Goldman Sachs said the proposed transaction could solidify Reliance Retail’s market leader positioning in organised retail across categories, bolster warehousing and logistics enabling faster growth for its online offering JioMart and improve competitive positioning versus foreign retailers like Walmart and Amazon.

Motilal Oswal said the deal holds very high strategic interest to RIL as it would aid in enhancing footprint, offer a good legacy franchise and help build competitive strength.

Credit Suisse said EBITDA per square feet of the acquired portfolio is less than one-third of that of Reliance Retail and Avenue Supermarts.

“This is due to both lower revenue per sq ft and higher cost structure (both rent and employee cost). In our view, the synergies are higher on the revenue front,” it said.

Further synergies should come from a higher scale with benefits from saving in procurement, logistics and supply chain costs.

Also, the deal will lower delivery cost and reduce delivery timelines for JioMart as a result of deeper presence through Future Retail’s neighbourhood store network of Heritage Fresh (in South India) and EasyDay Club (in North India).

“Both should help to improve the competitive positioning of RIL’s online and offline retail segments,” it added.

Nomura said after Reliance Retail, Future group’s retail business is the largest offline organised retail business in India.

“It is particularly strong in the grocery and fashion/lifestyle segments, has a pan-India presence, and has outlets at strategic locations,” it said.

Due to high leverage and the impact of COVID-19 impact, the Future Group has faced challenges. “A financially strong Reliance could significantly turn around operations and grow sales volumes and improve profitability, in our view.

“Also, we expect the combination with Reliance’s existing retail advantage to bring synergy and scale advantages,” it said.
Axis Capital said besides network expansion, there were tremendous benefits in operating synergies/scale efficiencies, supply-chain integration, and acceleration in JioMart rollout (through Future’s expertise in last-mile delivery/logistics plus the potential conversion of a large network of small store/convenience format as JioMart fulfilment centres.

It valued Reliance Retail at Rs 3.6 lakh crore, up from Rs 3.5 lakh crore. Kotak said the proposed acquisition will boost Reliance’s retail footprint to 13,540 outlets from its existing base 11,806 outlets reported as on June 30, 2020.

FRL reported footprint stands at 16.1 mn sq feet across a network of 1,388 outlets including 290 Big Bazaar stores (large format grocery) and 990 Easyday, Heritage Fresh and Nilgiri stores (small format grocery).

FLFL has a presence of 7.7 mn sq ft across 348 outlets. “We believe FRL’s formats can provide a significant boost to Reliance Retail’s food and grocery (F&G) business segment,” it said.

“Further, Easyday, which is a small kirana-like neighborhood store format, can also potentially boost Jiomart’s fulfilment capability in the cities that it is present in.”

FRL operates store formats such as Big Bazaar (hypermarket), FBB (value fashion), Easyday (local grocery store) and Foodhall (premium food and grocery).

FLFL is an apparel retailer and operates the Central (premium apparel large format store) and Brand Factory (apparel discount retailer) formats. Besides, FLFL also has partnerships with foreign brands and operates certain standalone stores (EBOs) for these brands (some of these brands include Clarks, Celio).

It had a network of 348 stores (including EBOs) as of March 2020 and retail trading area of 7.7 mn sq ft.

JP Morgan said Future Group in the past had highlighted multiple partnerships with Amazon India which were being scaled up, and “there is no mention of what would happen to those partnerships”.

“By making Reliance Retail larger and more dominant, strategic investors could have to pay a higher premium to buy into Reliance Retail,” it said.

It valued Reliance Retail at USD 65 billion with online grocery delivery business JioMart accounting for USD 20 billion and the remaining being value for the physical retail.

“Given the multiple steps of FEL acquiring the listed subsidiaries of the Future Group and then the slump sale, we believe the entire transaction could easily take a year to complete,” it added.

(Disclaimer: Reliance Industries is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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

RBI to conduct 2 more OMOs; announces measures to foster orderly market conditions

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

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The Reserve Bank of India (RBI) on Monday announced several measures including two more tranches of special open market operations (OMO) in bonds and raising the held-to-maturity limit under the statutory liquidity ratio for banks.

“The RBI remains committed to use all instruments at its command to revive the economy by maintaining congenial financial conditions, mitigate the impact of COVID-19 and restore the economy to a path of sustainable growth while preserving macroeconomic and financial stability,” a statement by the apex bank read.

The central bank will conduct additional special OMOs involving the simultaneous purchase and sale of government securities for an aggregate amount of Rs 20,000 crore in two tranches of Rs 10,000 crore each.

Auctions would be conducted on September 10, 2020 and September 17, 2020.

“The RBI remains committed to conduct further such operations as warranted by market conditions,” it said.

On August 25, RBI had announced a special OMO of govt securities of Rs 20,000 crore.

The RBI will also conduct term repo operations for a total of Rs 1 lakh crore at floating rates in the middle of September to assuage pressures on the market on account of advance tax outflows.

In order to reduce the cost of funds, banks that had availed of funds under long-term repo operations (LTROs) may exercise an option of reversing these transactions before maturity. Thus, the banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15 per cent) and availing funds at the current repo rate of 4 percent, RBI added.

Further, RBI decided to allow banks to hold fresh acquisitions of SLR securities acquired from September 1, 2020 under HTM up to an overall limit of 22 percent of net demand and time liabilities (NDTL) up to March 31, 2021 which shall be reviewed thereafter.

Currently, banks are required to maintain 18 percent of their NDTL in SLR securities. The extant limit for investments that can be held in HTM category is 25 percent of total investment.

On the recent appreciation of the rupee, RBI said, it is working towards containing imported inflationary pressures.

“The RBI remains vigilant about these developments. In support of the accommodative stance of monetary policy, the RBI is committed to ensuring comfortable liquidity and financing conditions in the economy,” the statement added.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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

Prashant Bhushan will pay fine of Re 1 imposed by Supreme Court

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

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Activist lawyer Prashant Bhushan said on Monday that he will submit the token fine of Re 1 imposed by the Supreme Court in the contempt case for his tweets against the judiciary, but also indicated he would file a review plea against the order.

Bhushan said he has the greatest respect for judiciary and the tweets were not intended to disrespect the apex court or the judiciary.

“I reserve my right to file review, I propose to submit and pay fine as directed by the court,” Bhushan said in a press conference.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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

RBI announces steps to ease pressure on liquidity

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

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The Reserve Bank on Monday announced a host of steps, including term repo operations totalling Rs 1 lakh crore in mid-September to ease pressure on the liquidity and maintain congenial financial conditions with a view to ensuring sustainable recovery of economic growth.

“The RBI stands ready to conduct market operations as required through a variety of instruments so as to ensure orderly market functioning,” the central bank said in a statement adding that recently market sentiment has been impacted by concerns relating to the inflation outlook and the fiscal situation amidst global developments that have firmed up yields abroad.

As part of the measures to ‘foster orderly market conditions’, the RBI will conduct term repo operations for an aggregate amount of Rs 1,00,000 crore at floating rates (at the prevailing repo rate) in the middle of September to assuage pressures on the market on account of advance tax outflows.

The RBI said that in order to reduce the cost of funds, banks that had availed of funds under long-term repo operations (LTROs) may exercise an option of reversing these transactions before maturity.

“Thus, the banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15 per cent) and availing funds at the current repo rate of 4 per cent. Details are being notified separately,” it said.

The last date for paying the second instalment of advance tax is September 15.

Further, the RBI will conduct additional special open market operation involving the simultaneous purchase and sale of government securities for an aggregate amount of Rs 20,000 crore in two tranches of Rs 10,000 crore each. The auctions would be conducted on September 10, 2020, and September 17, 2020.

The RBI remains committed to conducting further such operations as warranted by market conditions, the central bank said.

As part of the measures, the RBI has also decided to allow banks to hold fresh acquisitions of statutory liquidity ratio (SLR) securities acquired from September 1, 2020, under Held-To-Maturity (HTM) up to an overall limit of 22 per cent of net demand and time liabilities (NDTL) up to March 31, 2021 which shall be reviewed thereafter, it said.

Currently, banks are required to maintain 18 per cent of their reserves in SLR securities. The extant limit for investments that can be held in HTM category is 25 per cent of total investment.

Banks are allowed to exceed this limit provided the excess is invested in SLR securities within an overall limit of 19.5 per cent of NDTL. SLR securities held in HTM category by major banks amount to around 17.3 per cent of NDTL at present.

The RBI further said it remains committed to using all instruments at its command to revive the economy by maintaining congenial financial conditions, mitigate the impact of COVID-19 and restore the economy to a path of sustainable growth while preserving macroeconomic and financial stability.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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

India-China border tensions highlights: Chinese troops tried to close in on Indian positions again on August 31, say sources

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

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The border tension between India and China escalated on Monday after a fresh confrontation by the Chinese army was reported in eastern Ladakh. The China’s People’s Liberation Army (PLA) carried out “provocative military movements” to “unilaterally” change the status quo on the southern bank of Pangong Tso lake on the intervening night of August 29 and 30, but the attempt was thwarted by the Indian troops, the Army said on Monday.

Here are the highlights on the ongoing border tensions between the nuclear-armed neighbours from September 1:

Chinese troops tried to close in on Indian positions on August 31, but were warded off, sources to CNBC-TV18

Chinese troops tried to close in on Indian positions again on August 31, but were warned and warded off. The PLA soldiers wanted to take control of Southern Bank of Pangong Tso on August 29, 30 and 31. The Second Brigade Commander level meeting held on September 1 was inconclusive, sources told CNBC-TV18. No military talks have been scheduled for September 2 as yet. Situation on the ground at Southern Bank on Pangong Tso remains tense

Defence Minister holds high level review meeting

Defence Minister Rajnath Singh holding a high level review meeting after China attempted to build a post on the Southern Bank of Pangong Tso. EAM S Jaishankar, NSA Ajit Doval, CDS Bipin Rawat, Service Chiefs and DGMO present in the meeting. Border tensions between the two nuclear armed neighbours has been on the rise since May this year, after a bloody fight between troops of both sides, which resulted in several casualties.

China says Pranab Mukherjee’s death a huge loss for Sino-India friendship

China on Tuesday paid rich tributes to former president Pranab Mukherjee, saying he was a veteran statesman and his death is a huge loss for India-China friendship. The 84-year-old veteran politician died after he suffered a septic shock on Sunday. He died of a cardiac arrest on Monday evening in a hospital in New Delhi following a 21-day battle with multiple ailments. “Former President Mukherjee was a veteran statesman of India. In his 50 years in politics, he made positive contributions to China-India relations,” Chinese Foreign Ministry spokesperson Hua Chunying told a media briefing here, replying to a question.

Chinese embassy on fresh tensions

Chinese embassy on Tuesday claimed that Indian troops violated the consensus reached in previous multi-level engagements and negotiations between China and India and illegally trespassed the LAC at the southern bank of the Pangong Tso Lake on August 31.

It further accused India of “flagrant provocations” and “violating China’s territorial sovereignty” and asked the country to “immediately withdraw troops that have illegally trespassed the LAC”.

India strengthens military presence in all strategic points in Pangong lake area, say sources

The Indian Army has significantly enhanced deployment of troops and weapons in all “strategic points” around the Pangong lake in eastern Ladakh following an unsuccessful attempt by the Chinese PLA to unilaterally change the status quo in the area, authoritative sources said on Monday. The Army has also further bolstered overall surveillance mechanisms in all areas along the Line of Actual Control (LAC) in eastern Ladakh after foiling China’s fresh attempt to occupy an area on the southern bank of Pangong lake, they said.

Earlier in the day, Army Spokesperson Col Aman Anand said the Chinese military carried out “provocative military movements” to “unilaterally” change the status quo on the southern bank of Pangong lake on the intervening night of August 29 and 30 but the attempt was thwarted by the Indian troops.
Top military and security brass has already reviewed the entire situation in eastern Ladakh. Separately, Chief of Army Staff Gen MM Naravane held a meeting with top military officials over the fresh confrontation, the sources said.

Anyone challenging one-China policy will pay heavy price: Wang Yi

Chinese Foreign Minister Wang Yi has warned that anyone challenging the ‘one-China’ policy will pay a heavy price as he termed a top Czech Republic official’s visit to Taiwan as a provocation and short-sighted move. (PTI)

Hunan Coast and Reqin Mountain Crossed by India: China

Senior Colonel Zhang Shuili, spokesman for the PLA Western Theater Comman said that Indian troops took control of Hunan coast and the nearby Reqin mountain pass once again, blatantly provoking and causing tension on the border.

Chinese troops attempted to create a new post near Pangong Tso: Sources

The Chinese troops attempted to creat a new post near the Pangong Tso, sources said. The incident took place in the late hours of August 20 and 30. The Chinese troops wanted to put the Indian army at a disadvantageous position but failed. However, Indian Army was able to successfully prevent the Chinese troops from setting up a new post at the Southern Bank of Pangong Tso. There was no physical altercation. A Brigade Commander level flag meeting is taking place at Chushul while Indian Army has bolstered its defences in the area.

China opposes India’s claim

Chinese military says it strongly demands India to withdraw its troops from China-India border in order to avoid escalation of tension. It says the Indian army illegally crossed the Line of Actual Control on Monday, a provocative move that violated the previous consensus and urges the Indian side to withdraw its forces, said Senior Colonel Zhang Shuili, spokesman for the PLA Western Theater Command.

PM Modi Holds High Level Meeting

Sources told News18 that Prime Minister Narendra Modi is holding continuous meetings with persons concerned to understand the situation and it was established during the discussions that India is prepared for any eventuality. Sources added that the situation is currently under control.

Ladakh LG meets MoS Home Reddy

Lieutenant Governor of Ladakh R K Mathur met Union Minister of State for Home G Kishan Reddy, amidst fresh tension between the Indian Army and China’s PLA. The details of the meeting were not known immediately but sources said the prevailing situation along the Line of Actual Control was discussed, News18 reported.

Army Averts Repeat of North Bank Transgression

According to officers, Indian Intelligence agencies had picked up noise of Chinese movement towards the Southern Bank of Pangong Tso in Ladakh and troops were moved to occupy the locations that the Chinese wanted to ingress to change the ground situation from the previous consensus arrived at during military and diplomatic engagements.

(With agency inputs)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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

Niyogin Fintech acquires 51% strategic stake in iServeU

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

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BSE listed, fintech company Niyogin, has acquired a 51% strategic and controlling stake in iServeU for Rs 592 million ($8 million) in a cash plus stock deal.

Niyogin’s vision is to create a full-stack digital platform for the underserved and bring best in class products and services on the platform. Niyogin has been scaling its unique platform through a network of financial professionals along with products such as wealth, credit and other SaaS-based products that help digitise small businesses.

Financial inclusion solution provider, iServeU enables small village merchants to serve local communities and drive financial inclusion through iServeU’s digital platform.

Already processing transactions worth ~$500 million annually on its platform, iServeU claims that transactions and platform adoption have accelerated through the lockdown as rural local communities rapidly moved towards digital adoption.

The acquisition not only provides Niyogin with deep market access to under banked India, but also offers multiple product complementarities such as credit, digital wealth, and payments among others which the two companies can jointly access to create a strong full-stack fintech value proposition for its customers, believes Amit Rajpal, Chairman and Co-Founder, Niyogin Fintech.

“We welcome iServeU and the team to the Niyogin family. They bring with them a unique platform, reach, and experience that will be of immense benefit to Niyogin. We continue to make strategic investments in effectively using technology to bring digital enablement to unserved. Niyogin’s capabilities combined with iServeU’s digital platform strengths will maximize impact to the underserved and unserved customers and allow us to expand product stack and addressable market,” he said.

Welcoming the acquisition, Debiprasad Sarangi, Co-Founder and Chief Executive Officer of iServeU Technologies said, “We see Niyogin as a long-term strategic partner and are excited about what Niyogin and iServeU can deliver jointly to rural customers and micro-businesses, transform communities, leverage technology to empower people and accelerate much needed financial inclusion in India. The capital infusion will be used to scale and accelerate growth with expanding footprint deeper into rural India and new product innovation.”

The acquisition is subject to necessary approvals and customary closing conditions. Equirus
Capital acted as the exclusive financial advisor to iServeU for this transaction.

Niyogin Fintech currently offers credit and non-credit products including India’s leading Digital wealth platform under the brand “Moneyfront” and has over $100 M in assets under administration.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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

YCombinator-backed Bikayi raises $2 million from international investors

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

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YCombinator-backed Bikayi has raised a seed round of $2 million from a clutch of international investors including Mantis ventures, a VC fund promoted by Chainsmokers.

Co-founded in April 2019 by Sonakshi Nathani and Ashutosh Singla, Bikayi is a B2B e-commerce enabler which helps small businesses build online presence and gives them the right tools to manage e-commerce on WhatsApp.

The duo spotted an opportunity and decided to set up shop when Sonakshi saw her local grocery store taking orders via WhatsApp chat and resorting to the good old pen and paper to manage orders.

Mantis is a $50 million VC fund to invest in startups and this is their first investment in an Indian entity. Other investors include YC, Pioneer Fund, and Angel Investor Ankur Nagpal to name a few.

Ankur Nagpal, Angel Investor who also participated in the latest round, says “Bikayi is the company I am most excited about in the entire YC batch. They have a tremendous opportunity to become the storefront of choice for the millions of small local businesses in India and eventually the entire developing world. They make commerce both local and personal, which is integral for success in India, and their growth numbers speak for themselves.”

Sonakshi Nathani, co-founder of Bikayi, said, “We are elated that prominent investors showed interest in Bikayi. In this process they are a part of up scaling Bikayi. With these funds we will hire more talent to accelerate product development, ramp up the platform and on-board a million new merchants.”

According to the company, as of today more than 75,000 merchants are active on Bikayi and the team claims to be recording daily transactions of Rs 2 crore.

In terms of presence, Bikayi is being used by grocery stores, wholesalers, manufacturers & retailers from over 3000 towns across India, it said. More than 53 percent of its merchants are coming in from tier 3 & 4 cities. Bikayi is helping local merchants to set up their own Swiggy, big basket and amazon to serve their customers.

“Bikayi’s founders combine a deep understanding of their small business customers with top tier product execution. We loved that their product makes everyone’s lives easier, while fitting naturally into the way business is done. The resulting growth has been phenomenal. It’s an honor for us to back this team and their vision”, added Tim Suzman, General Partner at Pioneer Fund.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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

In his words: Why Pranab Mukherjee imposed the controversial retro tax

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

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The legacy of former President Pranab Mukherjee will always be marked by a controversial decision he took as the country’s Finance Minister when he imposed the “retro tax” on Vodafone – a move that many said kickstarted the spiral of India’s economy into a downward spin. In his book, The Coalition Years, the former president wrote about the decision. Extracts reproduced with permission.

This decision of mine, born out of my conviction that India’s Direct Tax Policy should not discriminate between domestic and foreign entities, was a subject of much debate and remains so to date.

Also read: Former President Pranab Mukherjee dies at 84

The controversy began when I announced in my 2012–13 budget speech that I proposed to amend the Income Tax Act, 1961, with retrospective effect to undo the Supreme Court judgement in the Vodafone tax case.

The background

Hutchison Telecommunications International Limited, through its various subsidiaries located in tax havens such as Cayman Islands, British Virgin Islands and Mauritius, had made investments in the Indian telecom sector since 1992. In December 2006, it held 66.98 per cent shares in Hutchison Essar Limited which had seven 100 per cent subsidiaries.

These eight companies together held telecom licenses in 23 telecom circles in India. Hutchison Telecommunications decided to exit India in December 2006 and sold its stake to Vodafone International Holdings BV, incorporated in the Netherlands, a 100 per cent subsidiary of Vodafone Group Plc, UK. The two companies entered into a sale purchase agreement on 11 February 2007, for the sale of ‘entire issued share capital’ (which incidentally was only one share) of CGP Investments (Holdings) Limited, a company incorporated in the Cayman Islands for a total consideration of $11,076,000,000-plus at Libor from the date of agreement to the date of completion.

In the recital to the sale purchase agreement, it was mentioned that CGP owned, directly or indirectly, companies which controlled the ‘company interests.’ This was defined to mean the aggregate interests in 66.98 per cent of the issued share capital of Hutchison Essar.

After the sale purchase agreement, Essar Group raised an objection to the transaction in view of the Right of First Refusal granted to it by Hutchison Telecommunications. A settlement agreement was reached between them on 15 March 2007.

Hutchison Telecommunications agreed to pay $415 million to Essar Group. Through a deed of retention entered between Vodafone International and Hutchison Telecommunications on 8 May 2007, Vodafone retained an amount of $351.8 million from the sale consideration by way of Hutchison Telecommunications’ contribution towards acquisition cost of options.

After deducting this retention amount, Vodafone paid $10,854,229,859.05 to Hutchison Telecommunications on 8 May 2007. In the Hutchison Telecommunications annual accounts, this was shown as ‘profit from discontinued operations’ and was computed at HK$69,343 million. Out of this profit, Hutchison Telecommunications paid a special cash dividend of HK$ 6.75 per share (HK$ 32,234 million in aggregate).

Since Hutchison’s source of profit was entirely from the capital appreciation through its Indian operations (the subsidiaries in Cayman Islands, British Virgin Islands and Mauritius did not earn any profit), the tax department in September 2007 issued a show-cause notice to Vodafone. The department contended that the transaction of transfer of shares in CGP had the effect of indirect transfer of assets situated in India.

This notice was challenged in the Bombay High Court which gave its decision in favour of the revenue department on 3 December 2008. This verdict laid down the legal position, following which, several other multinational corporations paid taxes leading to an increase in tax revenue.

The Special Leave Petition (SLP) filed against this decision was dismissed on 23 January 2009 and the Supreme Court directed the assessing officer to consider the preliminary issue of jurisdiction.

Vodafone International was directed to submit all the relevant documents. A jurisdiction order was passed by the assessing officer on 31 May 2010, which was again challenged before the Bombay High Court which passed an order on 8 September 2010 again in favour of the revenue department.

When the SLP was filed against this decision, the Supreme Court directed the assessing officer to determine the tax liability, which came to Rs 11,218 crore.

While the Supreme Court, in an interim order on 15 November 2011, had directed Vodafone International to pay Rs 2,500 crore and provide a bank guarantee of Rs 8,500 crore, its decision of 20 January 2012 directed the tax department to refund Rs 2,500 crore with interest of 4 per cent within two months and asked its registry to return the bank guarantee within four weeks.

With the Supreme Court setting aside the judgement of the High Court, it created an unusual situation where the tax department would have to return several thousands of crores to several companies.

One of the major concerns of the Supreme Court while delivering its judgement was the potential effect on FDI. I maintain that these concerns, which might have persuaded them to give a decision against the revenue department, were unfounded. First, this was not a case of FDI. Rather, money was paid by one foreign company to another for purchasing the former’s assets in India. Second, the nature of the FDI policy is entirely the prerogative of the Executive.

The rationale

It is pertinent to note that FDI investments are not dependent upon tax; rather, crucial deciding factors include the size of the domestic market, low costs of operations and labour and skilled manpower. Competition from relatively low-tax countries without these advantages is unlikely for the location choice of FDI.

Since India offers a huge domestic market, low costs of operations and a cheap and skilled workforce, a direct tax policy that does not discriminate between domestic and foreign entities has very little role to play in attracting FDI.

As a matter of policy, the source country should protect its tax base by ensuring that those foreign investors who have earned through their investments in the source country should also pay taxes like any other domestic investor or resident taxpayer.

Just because some foreign investors choose to structure their investments through tax havens, they should not, as a matter of policy, get away without paying any taxes.

What foreign investors need is certainty in tax laws and not a tax-free environment, which no emerging economy can afford.

I was convinced that this certainty of payment of taxes needed to be embedded in our tax policy.

The budgetary proposal to amend the Income Tax Act with retrospective effect from 1962 to assert the government’s right to levy tax on merger and acquisition (M&A) deals involving overseas companies with business assets in India was an enabling provision to protect the fiscal interests of the country and avert the chances of a crisis.

This retrospective arrangement was not merely to check the erosion of revenues in present cases, but also to prevent the outgo of revenues in old cases. As the Finance Minister, I was convinced of my duty to protect the interest of the country from the revenue point of view.

The reaction

The budget proposal to undo the Supreme Court judgement evoked sharp reactions, not only domestically but also internationally. Some said that the Indian Government was ‘going back to its old socialist ways’.

“[Harish] Salve was deeply critical of the United Progressive Alliance’s budget on the whole. We should show that we have institutions in this country which work. I think the country will pay a dear price for this. I think we are on course for elections this year. It’s a government which is politically rattled. They don’t want to take tough decisions and introduce reformist measures. This is waging war on foreign investment. If a client asked me ‘should I invest in India today? I would say “no”.”

Manmohan Singh was convinced that the proposed amendment in the IT Act would impact FDI inflows into the country.

I explained to him that India was not a ‘no-tax’ or ‘low-tax’ country.
Here all taxpayers, whether resident or non-resident, are treated equally. I insisted that as per our country’s tax laws, if you pay tax in one country, you need not pay tax in the other country of your business operation which is covered by the Double Tax Avoidance Agreement (DTAA). But it cannot be a case that you pay no tax at all. I clarified that some entities had done their tax planning in such a way that they didn’t have to pay tax at all.

My intention was clear: where assets are created in one country, it will have to be taxed by that country unless it is covered by the DTAA.

Later, Sonia Gandhi, Kapil Sibal and P. Chidambaram also expressed the apprehension that the retrospective amendments would create a negative sentiment for FDI. I explained to them that FDI comes when there is profitability and not on account of zero tax. Clarificatory amendments were proposed to make the intent of the legislature clear.

This would bring tax certainty and would clarify that India had the right to tax similar transactions. Two more Cabinet colleagues separately advised me to take a middle path, and to reconsider the decision. But I remained resolute.

Days ahead of introducing the Finance Bill in Parliament 2012, several colleagues, including one along with a high-ranking Vodafone official, approached me seeking reconsideration of the move to retrospectively amend laws.

Despite the angst that my proposal generated at that time, and even now, both from within my party and outside, I wonder why every succeeding finance minister in the past five years has maintained the same stance.

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NHAI awards 26 projects worth Rs 31,000 crore from April-August 2020

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

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The National Highways Authority of India has awarded 26 projects that will cover 744 km worth Rs 31,000 crore between April and August of FY2020-21.

The capital cost of Rs 31,000 crore includes cost of civil construction, land acquisition, and other pre- construction activities. NHAI has a target of laying highways covering 4,500 km in FY2020-21. The highway authority said on August 31 that it expects to exceed the target.

Over the same period, in the previous three financial years, NHAI awarded 676 km in FY19-20, 368 km in FY18-19 and 504 km in FY17-18.

This is 10 percent higher than the length of projects awarded in the year-ago period, 102 percent higher than Apr-Aug of FY19 and 48 percent more than Apr-Aug of FY18.

“To ease the liquidity crunch and ensure cash flow to the contractors, NHAI ensured that no payments are delayed due to closure of office and disbursed Rs 10,000 crore during lockdown in March 2020 using digital platforms,” NHAI said.

During Apr-Jun of the current financial year 2020-21, NHAI disbursed more than Rs 15,000 crore to vendors.

“Additionally, steps such as monthly payments to the contractors were taken. Such moderations saw an encouraged participation from the bidders resulting in spiraling effect on the growth of the road sector,” NHAI added.

On August 10, CNBC-TV18 had reported that NHAI had construct around 670 km of national highways in the current financial year until July.

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