January 2018

Economic Survey 2018

Economic Survey 2018 Highlights

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  • GDP to grow 7-7.5% in FY19; India to regain fastest growing major economy tag
  • GDP growth to be 6.75% in FY2017-18.
  • NITI Aayog Vice Chairman says that he hopes the government sticks to its 3% fiscal deficit target for FY19 but that it was possible that the deficit could end up being higher than that.
  • Agriculture, education, and employment will be areas of focus in the medium term.
    Economic Survey says private investment is poised for a rebound.
  • Policy vigilance required next fiscal if high oil prices persist or stock prices correct sharply.
  • The Economic Survey says economy management is likely to be challenging in FY19.
  • Policy agenda for next year — support agriculture, privatise Air India, finish bank recapitalization.
  • GST data shows 50% rise in number of indirect taxpayers.
  • Tax collection by states, local governments significantly lower than those in other federal countries.
  • Demonetisation has encouraged financial savings.
  • Insolvency Code being actively used to resolve NPA woes.
  • Retail inflation averaged 3.3% in 2017-18, lowest in last 6 fiscals.
  • India needs to address pendency, delays and backlogs in the appellate and judicial arenas.
  • Urban migration leading to feminisation of farm sector.
  • Economic Survey says that consumption demand is likely to be aided by low real estate.
  • Rs 20,339 cr approved for interest subvention for farmers in current fiscal
  • FDI in services sector rises 15% in 2017-18 on reforms.
  • Fiscal federalism, accountability to help avoid low equilibrium trap.
  • India’s external sector to remain strong on likely improvement in global trade. The biggest source of upside potential is the exports sector.
  • Technology should be used for better enforcement of labour laws.
  • Swachh Bharat initiative improved sanitation coverage in rural areas from 39% in 2014 to 76% in January 2018.
  • Priority to social infrastructure like education, health to promote inclusive growth
  • Centre, states should enhance cooperation to deal with severe air pollution
  • Survey 2017-18 in pink colour to highlight gender issues.
  • The Economic Survey has taken note of the behavioural pattern of Indian parents who prefer to have children “until the desired number of sons are born” calling this the “son meta-preference. The Economic Survey has mentioned that the desire for a male child has created 21 million “unwanted” girls in India between 0 and 25 years. While India has shown improvement in several parameters related to women’s empowerment, the preference for a son has not diminished.

Cabinet approves amendments in FDI policy

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The Union Cabinet chaired by Prime Minister Narendra Modi has given its approval to a number of amendments in the FDI Policy. These are intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country. In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment.  Government has put in place an investor friendly policy on FDI, under which FDI up to 100%, is permitted on the automatic route in most sectors/ activities. the Government has decided to introduce a number of amendments in the FDI Policy.

 Details:

a)      FDI in Single Brand Retail Trading – Government approval no longer required for FDI in Single Brand 

                 Retail Trading (SBRT)

  • Extant FDI policy on SBRT allows 49% FDI under automatic route, and FDI beyond 49% and up to 100% through Government approval route. It has now been decided to permit 100% FDI under automatic route for SBRT.
  • It has been decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning 1st April of the year of the opening of first store against the mandatory sourcing requirement of 30% of purchases from India. For this purpose, incremental sourcing will mean the increase in terms of value of such global sourcing from India for that single brand (in INR terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking single brand retail trading entity, either directly or through their group companies. After completion of this 5 year period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis.
  • A non-resident entity or entities, whether owner of the brand or otherwise, is permitted to undertake ‘single brand’ product retail trading in the country for the specific brand, either directly by the brand owner or through a legally tenable agreement executed between the Indian entity undertaking single brand retail trading and the brand owner.
    b)      Civil Aviation

As per the extant policy, foreign airlines are allowed to invest under Government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. However, this provision was presently not applicable to Air India, thereby implying that foreign airlines could not invest in Air India. It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49% under approval route in Air India subject to the conditions that:

  • Foreign investment(s) in Air India including that of foreign Airline(s) shall not exceed 49% either directly or indirectly
  • Substantial ownership and effective control of Air India shall continue to be vested in Indian National.

    c)       Construction Development: Townships, Housing, Built-up Infrastructure and Real Estate Broking Services

It has been decided to clarify that real-estate broking service does not amount to real estate business and is therefore, eligible for 100% FDI under automatic route.

d)      Power Exchanges

Extant policy provides for 49% FDI under automatic route in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010. However, FII/FPI purchases were restricted to secondary market only. It has now been decided to do away with this provision, thereby allowing FIIs/FPIs to invest in Power Exchanges through primary market as well.

e)      Other Approval Requirements under FDI Policy:

As per the extant FDI policy, issue of equity shares against non-cash considerations like pre-incorporation expenses, import of machinery etc. is permitted under Government approval route. It has now been decided that issue of shares against non-cash considerations like pre-incorporation expenses, import of machinery etc. shall be permitted under automatic route in case of sectors under automatic route.

Foreign investment into an Indian company, engaged only in the activity of investing in the capital of other Indian company/ies/ LLP and in the Core Investing Companies is presently allowed upto 100% with prior Government approval. It has now been decided to align FDI policy on these sectors with FDI policy provisions on Other Financial Services. Thus, if the above activities are regulated by any financial sector regulator, then foreign investment upto 100% under automatic route shall be allowed; and, if they are not regulated by any Financial Sector Regulator or where only part is regulated or where there is doubt regarding the regulatory oversight, foreign investment up to 100% will be allowed under Government approval route, subject to conditions including minimum capitalization requirement, as may be decided by the Government.

f)       Competent Authority for examining FDI proposals from countries of concern

As per the existing procedures, FDI applications involving investments from Countries of Concern, requiring security clearance as per the extant FEMA 20, FDI Policy and security guidelines, amended from time to time, are to be processed by the Ministry of Home Affairs (MHA) for investments falling under automatic route sectors/activities, while cases pertaining to government approval route sectors/activities requiring security clearance are to be processed by the respective Administrative Ministries/Departments, as the case may be. It has now been decided that for investments in automatic route sectors, requiring approval only on the matter of investment being from country of concern, FDI applications would be processed by Department of Industrial Policy & Promotion (DIPP) for Government approval. Cases under the government approval route, also requiring security clearance with respect to countries of concern, will continue to be processed by concerned Administrative Department/Ministry.

g)      Pharmaceuticals:

FDI policy on Pharmaceuticals sector inter-alia provides that definition of medical device as contained in the FDI Policy would be subject to amendment in the Drugs and Cosmetics Act. As the definition as contained in the policy is complete in itself, it has been decided to drop the reference to Drugs and Cosmetics Act from FDI policy. Further, it has also been decided to amend the definition of ‘medical devices’ as contained in the FDI Policy.

h)      Prohibition of restrictive conditions regarding audit firms:

The extant FDI policy does not have any provisions in respect of specification of auditors that can be appointed by the Indian investee companies receiving foreign investments. It has been decided to provide in the FDI policy that wherever the foreign investor wishes to specify a particular auditor/audit firm having international network for the Indian investee company, then audit of such investee companies should be carried out as joint audit wherein one of the auditors should not be part of the same network.