India climbed five places to reach rank 58 in the Global Competitive Index recovering from the huge dip last year, after stellar performances in 2015 and 2016. India’s economic growth forecast by the IMF remained slightly lower that its April forecast. The current royalty norms for unlisted companies are being reviewed. The data localization requirements of India’s central bank are being enforced as per its stated timelines.

WEF Global Competitive IndexThe Global Competitiveness Index 4.0 prepared by the World Economic Forum (WEF) assesses the microeconomic and macroeconomic foundations of national competitiveness, which is defined as the set of institutions, policies, and factors that determine the level of productivity of a country. India ranks 58th out of 140 countries on the global competitiveness rankings, 2018. The United States leads the latest rankings, followed by Singapore, Germany, Switzerland and Japan. India ranks behind other emerging economies such as Malaysia, Thailand and Indonesia. While India has moved up 5 places since last year, its ranking is far below its 39th rank in 2016 (climbing 16 places consecutively in 2015 & 2016), as reported by Asia Law Portal. The global competitiveness rankings are based on a country’s performance on four sub-indices, namely enabling environment, human capital, markets and the innovation ecosystem it offers.  Performance on each of these sub-indices is in turn measured through select indicators. India’s performance can be viewed here: http://reports.weforum.org/global-competitiveness-report-2018/country-economy-profiles/#economy=IND

IMF World Economic Outlook – As per the World Economic Outlook, October 2018 released by the International Monetary Fund (IMF), India’s growth is expected to increase to 7.3 percent in 2018 and 7.4 percent in 2019 (slightly lower than in the April 2018, as reported by Asia Law Portal and again in July 2018), given the recent increase in oil prices and the tightening of global financial conditions), up from 6.7 percent in 2017. This acceleration reflects a rebound from transitory shocks (the currency exchange initiative and implementation of the national Goods and Services Tax), with strengthening investment and robust private consumption. India’s medium-term growth prospects remain strong at 7¾ percent, benefiting from ongoing structural reform, but have been marked down by just under ½ percentage point relative to the April 2018 WEO.

In India, important reforms have been implemented in recent years, including the Goods and Services Tax, the inflation-targeting framework, the Insolvency and Bankruptcy Code, and steps to liberalize foreign investment and make it easier to do business. Looking ahead, renewed impetus to reform labor and land markets, along with further improvements to the business climate, are also crucial. Inflation in India is on the rise, estimated at 3.6 percent in fiscal year 2017/18 and projected at 4.7 percent in fiscal year 2018/19, compared with 4.5 percent in fiscal year 2016/17, amid accelerating demand and rising fuel prices.

Royalty payment to foreign parent companyRoyalty payment by unlisted companies to their overseas parents is under the lens after data from the income tax department revealed massive payouts to MNCs. The move at the Centre comes months after the Securities and Exchange Board of India (SEBI) mandated that royalty and brand payments beyond 2% of the consolidated turnover needed the backing of a majority of the minority shareholders of a listed company. This cap was the result of recommendations by a committee headed by Uday Kotak that had proposed a 5% cap. The move, which will affect several local arms of multinationals, has already prompted lobbying by some companies, but the market regulator and the government do not appear to be in a mood to offer any relaxation at the moment. While a committee of officials was already looking at the issue of royalty payments, the work has picked up pace after SEBI’s action this summer. A section in the government is keen that some cap be imposed as was the case prior to 2009. But the entire government is not on the same page, with some suggesting that it will send a wrong signal to international investors.

Data localization of Fintech companiesThe Reserve Bank of India (RBI) did not relax the October 15, 2018 deadline for global financial technology (fintech) companies to comply with its data localisation norms in the public interest, according to sources. The Indian central bank in April gave six months time to global payment companies to store transaction data of Indian customers within India. The RBI notification in April 2018 had observed that not all system providers store the payments data in India. It further stated that in order to ensure better monitoring, it is important to have unfettered supervisory access to data stored with these system providers as also with their service providers / intermediaries/ third party vendors and other entities in the payment ecosystem. Accordingly, all system providers shall ensure that the entire data relating to payment systems operated by them are stored in a system only in India. This data should include the full end-to-end transaction details / information collected / carried / processed as part of the message / payment instruction. For the foreign leg of the transaction, if any, the data can also be stored in the foreign country, if required. For meeting compliance, system providers are required to submit the System Audit Report (SAR) on completion of the above requirement to the RBI by December 31, 2018.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra is an India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel with a global research firm in Delhi, India; views expressed are personal; he can be reached at sourish24x7@gmail.com; Twitter: @sourish247

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