There have been some green shoots in economic activity as new Covid 19 cases seem to have stabilized around the 40,000 daily mark. The festive season has just commenced and there are apprehensions as well as expectations. The apprehension stems from gatherings and people coming together which could result in a rise in cases if Covid protocols are not followed. The expectation is that with increased spending around this time, revival of the economy could lead to a quicker recovery of the slowed economic growth. What is encouraging is the vaccination coverage – India administered a record 10 million doses on a single day recently, as more than half of India’s eligible population (some 473 million people) have received at least one dose of a Covid vaccine but only about 15% of eligible adults have been fully vaccinated since the beginning of the drive in January.

Economy ReboundsIndia’s Gross Domestic Product (GDP) for the April-June quarter (Q1) of the ongoing financial year 2021-22 (FY22) grew by 20.1 per cent, as per the provisional estimates of GDP released by the Ministry of Statistics and Programme Implementation (MoSPI) recently. The Gross Value Added (GVA) at basic prices during Q1 of FY22 was 18.8 per cent, against (-)22.4 per cent in the corresponding quarter year ago, the data showed. The sharp rise in Q1 GDP data can be mainly attributed to a low base last year. The Indian economy had contracted by a record (-)24.4 per cent in the corresponding quarter last year owing to the impact of the nationwide lockdown that was imposed to curb the transmission of the Covid-19, which brought all non-essential activities to a halt. A recent Reuters poll of 41 economists showed gross domestic product rose 20.0 per cent in the three-month period ended June. Separately, the Reserve Bank of India (RBI) in its monetary policy committee meeting earlier this month had projected the Q1 GDP to grow at 21.4 per cent. In value terms, the GDP stood at Rs 32,38,020 crore in Q1 FY22, higher than Rs 26,95,421 crore in corresponding period of FY21 but lower than Rs 35,66,708 crore in Q1 FY20.

FDI Increase Foreign direct investments into the country is on the rise, jumping to USD 12.1 billion in May this year, Commerce and Industry Minister Piyush Goyal recently said. He also said the government is working on a mission mode to achieve exports target of USD 400 billion in 2021-22. “India has received the highest ever FDI inflow in 2020-21. It surged by 10 per cent to USD 81.72 billion and FDI during May 2021 is USD 12.1 billion, i.e. 203 per cent higher than May 2020,” he said while addressing a meeting of different industry associations on promoting exports. He said that exports are recording healthy growth and during August 1-14, the outbound shipments grew 71 per cent over 2020-21 and 23 per cent over 2019-20. According to the minister, India’s average applied import tariff (duty) has dropped to 15 per cent in 2020 from 17.6 per cent in 2019, and the country’s applied tariffs are way below the bound rate of 50.8 per cent (permissible limit under the World Trade Organization).

FDI in Life Insurance CorporationIndia is considering allowing foreign direct investment in Life Insurance Corporation (LIC), according to a person familiar with the matter, which could enable a single overseas investor to buy a large stake in the firm that’s headed for a mega-IPO. Any strategic investment would be subject to a cap, though it’s unclear at what level that would be set, the person said, asking not to be identified as the deliberations are private. Participants at a meeting earlier this month noted a 20 per cent FDI limit on state-run banks, the person said. Allowing FDI in LIC would permit so-called strategic investors such as massive pension funds or insurance firms to participate in the initial public offering, which is slated to be India’s largest ever. The RBI defines FDI as purchase of a stake that’s 10 per cent or larger by an individual or entity based abroad. While FDI of as much as 74 per cent is permitted in most Indian insurers, the rules don’t apply to LIC because it is a special entity created by an act of parliament, the person said, adding that the discussions regarding FDI are at an early stage and no final decision has been reached yet.

Retrospective Tax Law to be Nullified – The Government recently introduced Taxation Laws (Amendment) Bill, 2021 in Lok Sabha to do away with the contentious retrospective tax demand provisions. The retro tax provision was introduced by the previous government in Finance Act 2012. The purpose was to impose tax on capital gains made by companies retrospectively. As per the amendment, tax raised for the indirect transfer of Indian assets before May 2012 would be “nullified on fulfillment of specified conditions” such as the withdrawal of pending litigation and an undertaking that no damages claims would be filed. It also proposes to refund the amount paid by companies facing trail in these cases without interest thereon. As many as 17 entities stand to benefit from the proposed tax amendment, the government said in Parliament. About Rs 1.10 lakh crore in back taxes was sought from 17 entities that were levied taxes using the 2012 legislation. Centre said that it will refund about Rs 8,100 crore collected to enforce such levies. “The Bill proposes to amend the Income-tax Act, 1961 so as to provide that no tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012 (i.e. the date on which the Finance Bill, 2012 received the assent of the President),” the proposed bill said.

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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