India’s ambitious vaccination drive is currently going on in full swing. The trend of declining fresh Covid 19 cases for the last 5 months has somewhat been slowing down now. New cases have been rising in some pockets and looks like another wave is knocking on our doors. The economy is expected to recover with the union budget announcements including the crucial one relating to infusion of INR 35,000 crore (about USD 4.8 billion) for Covid 19 vaccine.

Union Budget – The Union Minister of Finance, Nirmala Sitharaman presented the 2021 Union Budget in the Parliament. The following announcements were made relating to foreign investment:

  • FDI in insurance – It is proposed to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% in insurance companies and allow foreign ownership and control with safeguards. Under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and specified percentage of profits being retained as general reserve.  
  • One Person Company – It is proposed to incentivize the incorporation of One Person Companies (OPCs) by allowing OPCs to grow without any restrictions on paid up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow Non Resident Indians (NRIs) to incorporate OPCs in India.
  • Infrastructure Sector – In the last union budget, for attracting foreign investment in the infrastructure sector, the Government had granted 100% tax exemption, subject to certain conditions, to foreign sovereign wealth funds and pension funds, on their income from investment in Indian infrastructure. It was noticed that few of such funds are facing difficulties in meeting some of these conditions. In order to ensure that a large number of funds invest in India, it is proposed to relax some of these conditions relating to prohibition on private funding, restriction on commercial activities, and direct investment in infrastructure.
  • Education – In order to promote enhanced academic collaboration with foreign higher educational institutions, it is proposed to put in place a regulatory mechanism to permit dual degrees, joint degrees, twinning arrangements and other such mechanisms.
  • Dividend Income – In order to provide relief to taxpayers, advance-tax liability on dividend income shall arise only after the declaration/payment of dividend. The dividend paid to Real Estate Infrastructure Trusts or Infrastructure Investment Trusts (REIT/InvIT) shall be exempt from TDS. It is also proposed to clarify that deduction of tax on incomes including dividend income of Foreign Portfolio Investors may be made at treaty rate. It is also proposed to exempt dividend payment from levy of Minimum Alternate Tax (MAT) for foreign company if the applicable tax rate is less than the rate of MAT. Debt Financing of InVITs and REITs by Foreign Portfolio Investors will be enabled by making suitable amendments in the relevant legislations. This will further ease access of finance to InVITS and REITs thus augmenting funds for infrastructure and real estate sectors.
  • GIFT City – The Government is committed to make the International Financial Services Centre (IFSC) in GIFT City, Gujarat a global financial hub. In addition to the tax incentives already provided, it is proposed to include, among others, tax holiday for capital gains for aircraft leasing companies, tax exemption for aircraft lease rentals paid to foreign lessors; tax incentive for relocating foreign funds in the IFSC; and to allow tax exemption to the investment division of foreign banks located in IFSC.

Moody’s Improved Economic Forecast – Global rating agency Moody’s has said India’s economy will shrink by 7 per cent in FY21 and revised India’s growth estimate for the next financial year 2021-22 to 13.7 per cent from 10.08 per cent earlier. The agency in its earlier estimates had predicted India’s GDP to shrink 10.6 per cent in the current financial year, as reported by Asia Law Portal here. In its ‘Global Macro Outlook 2021-22 (February 2021 Update)’, Moody’s said India’s Economy has rebounded quickly from one of the world’s longest and most stringent lockdowns, which also came with the steepest fall in GDP in the second quarter of 2020. “Aggregate Economic activity is estimated to have mostly recovered to the pre-pandemic-level by the end of 2020, resulting in a significant carry-over and, hence, an upward revision to our growth projection for 2021,” the ratings agency said.

Cryptocurrency – The Government plans to introduce a bill to regulate cryptocurrencies – The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The Bill is mentioned in S. No. 12 of the list of new bills to be introduced in the current Budget session of the Lok Sabha. The ‘Purport’ for the Bill is ‘To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India (RBI). The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of crytptocurrency and its uses.’ This comes about a year after the Supreme Court overturned a RBI circular Prohibition on dealing in virtual currencies in India.

BRICS 2021 Website – The Government recently launched India’s BRICS 2021 website www.brics2021.gov.in at the BRICS Secretariat in Delhi. India assumed the BRICS chairship in 2021, at a time when BRICS is celebrating its 15th anniversary. Under the theme BRICS@15: Intra-BRICS Cooperation, India’s approach is focused on strengthening collaboration through continuity, consolidation and consensus. The priorities for BRICS during the year include reform of the multilateral system, counter terrorism cooperation, technological and digital solutions for sustainable development goals and enhancing P2P cooperation. The dedicated website will maintain an updated and dynamic information repository and will display all relevant information for BRICS, along with documents, press releases and media gallery and registration platform for the events planned over the year.

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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