The Government finally took some recourse to revise the slowing India economy by introducing a stimulus economic package. The foreign direct investment limits were further liberalized to add possibly as part of the stimulus. The slowdown was now reported by Moody’s as well. The Personal Data Protection Bill is reported to be undergoing further changes. Lawyers continue to oppose entry of foreign law firms by pointing out loopholes in current laws which could indirectly allow foreign law firms to set up business in India.
FDI Liberalised: India opened its doors further to foreign direct investment (FDI), diluting the stringent condition of local sourcing for single-brand retail, in continuation of measures aimed at reviving growth. It also allowed 100% FDI in commercial coal mining and allowed as much in contract manufacturing through the automatic route, hoping to attract global vendors looking to diversify supply chains as the US and China battle it out in a trade war. Earlier, the government had issued a notification allowing 100% FDI in insurance intermediaries. “The changes in FDI policy will result in making India a more attractive FDI destination,” commerce and industry minister Piyush Goyal told reporters after the Cabinet meeting chaired by Prime Minister Narendra Modi. “These will help global companies looking for alternative manufacturing hubs and help create a large number of jobs,” Goyal added. Single-brand retailers with over 51% FDI have to locally source 30% of the value of goods sold. As part of the relaxation, the target can be averaged out during the first five years, and thereafter met annually, Goyal said. All procurements made from India will be counted toward local sourcing, irrespective of whether the goods are sold in India or exported. He ruled out further liberalisation of FDI in multi-brand retail.
Economic Stimulus: The government announced measures to revive economic growth and markets including the withdrawal of higher taxes for foreign portfolio investors (FPIs) and said it would release funds for bank recapitalisation upfront. The government hopes the new measures will improve the sentiment leading to higher private investment. The package of measures, Finance Minister Sitharaman hopes, will arrest if not reverse the slowdown. The intent clearly is not only to revive economic momentum, but also address the growing sense of gloom and doom. While the counter-cyclical measures, especially the spending stimulus, will in all probability give a sugar high to the economy, the promise of a step-up in reforms signals that some structural measures may be on the anvil.
Moody’s Slashed Growth Forecast: Amid an economic slowdown, Moody’s Investors Service has cut India’s gross domestic product (GDP) growth rate to 6.2 per cent for calendar year 2019 against its earlier projection of 6.8 per cent. The rating agency scaled down India’s economic growth to 6.7 per cent for 2020, a cut of another 0.6 percentage points. While it blamed a weaker global economy and an uncertain operating environment for forecasting stunted Asian exports, it attributed slowing growth rates in India, Japan and the Philippines more to the domestic factors. “While not heavily exposed to external pressures, India’s economy remains sluggish on account of a combination of factors, including weak hiring, financial distress among rural households, and tighter financial conditions due to stress among non-bank financial institutions,” Moody’s said. Moody’s said “cooler business sentiment and slow flow of credit to corporate contribute to weaker sentiments in India”.
Personal Data Protection Bill: The Ministry of Electronics and Information Technology (MeitY) is likely to reject the push by the Department for Promotion of Industry and Internal Trade (DPIIT) to include ecommerce data in the proposed Personal Data Protection (PDP) Bill as this will be covered separately. Earlier, it was reported that India is likely to water down its proposed rules on data privacy and localisation, mandating that only critical information needs to be compulsorily retained in India. It is also expected to reduce the number of instances in which company executives can be jailed due to breach of data security to just one.
Pushback from Lawyers: Bar Council of Delhi (BCD) has asked the government to direct the Reserve Bank of India (RBI) to plug what it called a loophole in its March 29 directive “which may lead to the backdoor entry of foreign law firms in India.” The lawyers’ body is of the view that the RBI’s direction, as well as an amendment to Special Economic Zone (SEZ) Rules in India, could be used by foreign law firms. In a recent letter to the Prime Minister, the BCD said the central bank’s March 29 directive said that for the establishment of the branch office, liaison office, project office or any other place of business in India, foreign entities rendering professional or consultancy services can operate after the RBI grants them an approval under the Foreign Exchange Management and Regulation Act. On January 3, 2017, the government brought an amendment in the SEZ Rules which allowed foreign legal and accountancy services to operate from SEZs, as reported by Asia Law Portal. “In the Special Economic Zones Rules, 2006, in Rule 76, for the words ‘professional services (excluding legal services and accounting) rental/leasing services without operators’, the words ‘professional services, rental/leasing services without operators’ shall be substituted,” said the amendment.