Tuesday, March 20, 2012



Foreign Direct Investment is welcome into any country – in sectors in which it is needed. Each country has to identify the sectors in which it needs FDI and aggressively promote and canvass for such FDI in those sectors.

Developing Countries like India FDI in many critical sectors. We do make appropriate noises on FDI at times.

But when FDI comes in – there are huge problems in India for whoever brings in the FDI. This is inexplicable.

Take the case of Vodafone. The transaction took place off-shore. The taxation rules do not allow the taxing of such transactions. The Highest Court of the Land has ruled so – after examining the issues involved – in great detail.

Then, the Government goes to the Supreme Court again – with a Review Petition. Now, the Supreme Court has rejected the Government’s review Petition also – as having NO MERIT.

But, we do not stop there. Even while the Review Petition was pending before the Highest Court, the Budget proposes a review of all such cases of foreign based transactions -  during the last 16 years – and we RESTATE our Intention (of the Government) in its Decades Old Rules that we always wanted to TAX  such transactions – though there are no such words in the Tax laws as they exist. 

Is this needed at this time? Has not Vodafone proved extremely beneficial to Indian Telecom – rising to a close No.2 position and spreading telecom to all nooks and corners of India.

How much did India get by way of various taxes on telecom equipment, telecom services etc? The credit goes to AirTel and Vodafone – mainly – in relentlessly enhancing the Tele density in India to the levels of the very Advanced countries.
So – is it worthwhile – to find all possible ways to get over even Supreme Court Verdict -  and tax this transaction, and probably many such other transactions? Does it not scare away Potential Investors into India? Trust and friendliness are what attract people into any country.

Even if it was the REAL INTENT of whosoever made laws 16 years ago – to tax all such transactions but they failed to put in proper words to that effect – even if this be so – is it worthwhile taxing all of them NOW? No one can blame the Tax department from taking a view which enhances TAX REVENUES in a year in which they are falling short. But, the Government needs to take a more long term view of the REAL NEEDS  of India.

We need to build TRUST and FRIENDLINESS  in the minds of Foreign Investors and Domestic Investors – to invest aggressively in India. India will benefit hugely from such a mindset – rather than from extracting a onetime tax revenue and break that trust and friendliness. That type of decision can only come from the FM – not from Tax department, which has a vision cut out for itself.

It is not a question of one Vodafone. Many cases of FDI get stuck in India for different reasons. When someone comes with FDI, he doesn’t seem to get the treatment he deserves. He doesn’t seem to get the treatment our proclamations on FDI seem to suggest to them.

Whether FDI or Indian Investment, there must be RED CARPET invitation to the BIG INVESTORS and Entrepreneurs – for, it is they, who are creating wealth in India, Jobs in India, GDP in India, per-capita Income in India, Tax Revenues in India, social services in India, even philanthropy in India – just to mention a few benefits.

Also, most entrepreneurs are not embroiled in murders, rapes, thefts etc and are usually abiding by all laws. Most of the entrepreneurs are CLEAN. Many of them are like MODEL CITIZENS. They need to be encouraged.

India must allow both local and foreign entrepreneurs some freedom to invest, expand and bring benefits to India. The Indian laws must be much more enabling than at present.

These initial investments must not be seen purely from the stand point of some tax revenues. In fact, they must be specifically exempted from all taxes. Please get the FDI or IDI in first. The Tax Revenues will flow later automatically, for a long time to come. All initial investments and investments for expansion must be freed from all Taxation. These are the monies that ensure the long term health of India.

We need FDI. We must be really very, very clear that we need FDI which creates JOBS and INCOMES in India and enhances Tax revenues on a more permanent basis?

There is a huge clamour for FDI in Retail. We want to see Walmart in India. Many Political and media pundits and even some Corporateurs are dishing out arguments – saying that Walmart and other FDI Retailers – will do this, that etc to our Farmers, to our consumers etc and create a virtual heaven in India. No one TALKS ABOUT THE RETAILERS whose livelihoods are likely to go! We cannot be having a policy of robbing Peter to Pay Paul.

Did the Walmarts and other Foreign Retail Biggies bring any such great benefits to farmers and consumers where they are already operating? There is absolutely no proof for this. Then, why are we hell-bent on taking away the professions of Indian retailers in very large numbers in this sector. Whether Farmers and consumers benefit or not – there is not an iota of doubt that small retailers will suffer badly.

Also, there is no guarantee that only the likes of Walmart will come with FDI. FDI from not so friendly countries will probably be the FIRST to set foot in this sector. We already know that Indian retail market is already swamped by Chinese products – without any FDI limits.  There is real need to protect local manufacturers against these products. Many news reports have hinted and highlighted this need.

On the other hand, there is huge scope for FDI in Defence Production. India has two great neighbours – whose friendliness towards India is never clear. Each has its territorial claims also on India. In such a scenario – FDI in advanced Defence production through Foreign-Indian-Government partnerships is the NEED OF THE HOUR. In fact it was needed decades ago. India can and must allow equity participation even up to 49% also - by Advanced Defence equipment producers from friendly countries like US, UK, Russia etc. Control can however be retained in Indian Hands.

Sri Pranab Mukherjee’s Budget of March,2012 – is certainly very Good in many aspects – in the circumstances in which it is presented – with some of these exceptions. He has proved to be a master economist, who can steer clear of all bumps and holes in the economy –except of course, one or two aspects, like the ones highlighted above.

The request from all is – please let go of this RETROSPECTIVE CHANGES in taxation, which scare away all FDI. On the other hand, introduce a few changes, which clearly encourage FDI in Defence, Telecom, Aerospace, even Road Building and so on – and offer MORE TAX SOPS AND EXEMPTIONS for such investment.

It is certainly good Business sense that where we don’t have the money or  the skill – we get both of them from whosoever has them. But why will he come unless things here are at least as easy as in his home country?

Hope, we will see some welcome moves in this direction – from our Finance Minister, making this year’s Budget, the best in recent years.

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