Reforms Boost 2021 Announced by the Government of India

Retrospective Tax Repeal

● In August 2021, the GOI introduced the Taxation Laws (Amendment) Act, 2021, to amend the Income Tax Act, 1961, and withdraw tax demands made using a 2012 retrospective legislation on indirect transfer of Indian assets prior to May 28, 2012.

● The tax demand will be nullified on fulfillment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and that no claim for cost, damages, interest, etc. shall be filed.

● The aim of the amendment is to bring tax certainty and ensure the pending Income-tax proceedings shall be withdrawn, demand, if any, raised shall be nullified, and amount, if any, collected shall be refunded to the taxpayer without any interest.

Impact of the Retrospective Tax Repeal

● The law has been repealed after almost a decade and will allow the GOI to settle long-pending disputes.

● The reform has given a boost to the investment climate in India, signaling the GOI’s intent to facilitate investments.

● Symbolic of GOI’s balancing effort between the principle of sovereign right to tax and relief to those from whom taxes were due.

● Creates predictability in the Tax regime, and boosts confidence of existing and potential investors.

PLI Schemes

GOI has announced an outlay of INR 270,827 cr (~US$ 36.26bn) for the Production Linked Incentive (PLI) Schemes across 13 key sectors.

● Production Linked Incentive Schemes are a key element of the Government of India’s push for achieving its Atmanirbhar Bharat goals.

● With an aim of making India truly Atmanirbhar, the prime objective of these PLI schemes is

● (i) to make manufacturing in India globally competitive by removing sectoral disabilities,

● (ii) to create economies of scale and ensure efficiencies.

● (iii) to create a holistic ecosystem in India and make India an integral part of the global supply chains.

● (iv) to attract global investments and generate large scale employment opportunities and enhance exports substantially.

PLI Schemes

i. Auto components: INR 57,042 cr (~USD 7.61 bn)

ii. Automobile: INR 57,042 cr (~USD 7.61 bn)

iii. Electronic systems: INR 40,000 cr (~USD 5.33 bn) + INR 7,325 cr (~USD 0.97 bn) (for large scale electronics manufacturing + for IT hardware respectively),

iv. Pharmaceuticals: INR 21,940 cr (~USD 2.93 bn),

v. Medical devices: INR 18,420 cr (~USD 2.45 bn),

vi. Chemicals: INR 18,100 cr (~USD 2.41 bn),

vii. Telecom: INR 12,195 cr (~USD 1.62 bn),

viii. Food processing: INR 10,900 cr (~USD 1.45 bn),

ix. Textiles & Apparels: INR 10,683 cr (~USD 1.42 bn),

x. Metals & Mining: INR 6,322 cr (~USD 0.84 bn),

xi. White Goods: INR 6,238 cr (~USD 0.83 bn),

xii. Renewable Energy: INR 4,500 cr (~USD 0.60 bn),

xiii. Aviation: INR 120 cr (~USD 0.02 bn)

National Asset Monetization Pipeline In August 2021, GOI launched the asset monetization pipeline of

Central ministries and public sector entities: ‘National Monetization Pipeline (NMP Volumes 1 & 2)’.

NMP estimates aggregate monetization potential of Rs. 6 lakh cr (~USD 82.2 bn) through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.

Includes more than 12 line ministries and more than 20 asset classes. The sectors included are roads, ports, airports, railways, warehousing, gas & product pipeline, power generation and transmission, mining, telecom, stadium, hospitality and housing.

The top 5 sectors (by estimated value) capture ~83% of the aggregate pipeline value. Roads (27%), Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%).

The strategic objective is to unlock the value of investments in brownfield public sector assets by tapping institutional and long-term patient capital, to be leveraged for further public investments

Portfolio of Assets to be monetised As per the NMP list, the following are some of the asset classes that will be considered for asset monetisation.

Sector wise Monetisation Pipeline over FY 2022-25 (Rs crore)

ASSET CLASS VALUE ASSET CLASS VALUE

Roadways and Railways 26,700 km Power transmission lines 2,8608 Ckt km

Fibre assets 2.86 lakh km Solar and hydroelectric assets

6 GW

Petroleum Pipelines 3,930 km Natural Gas Pipelines 8,154 km

Telecom towers 14,917 Airports 25

Coal Mining Projects 160 Warehousing Assets 210 lakh MT

Railway Stations 15 Regional Centres 2

National Stadia 2 Port Projects 9

Policy of Strategic Disinvestment

● Policy of Strategic Disinvestment announced in February 2021; Clear Roadmap for Strategic and Non-Strategic Sectors.

● Strategic Disinvestment of Bharat Petroleum, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML (Bharat Earth Movers), Pawan Hans, Neelachal Ispat Nigam Limited etc. to be completed in 2021-22.

● Privatization of two public sector banks and one general insurance company to be taken up in FY 2021-22

● IPO of Life Insurance Corporation (LIC) to be brought in through requisite legislative amendments

● Rs. 1,75,000 cr (~US$ 23.42 bn) estimated as Receipts from Disinvestment.

● States to be incentivized for taking up Disinvestment of their Public Sector Companies

● Proposal of a special purpose vehicle in the form of a company to monetize idle land

Infrastructure Financing: Development Finance Institution● In March 2021, GOI approved setting up of a Development Finance Institution

with an initial capital of Rs. 20,000 cr (~US$ 2.67 bn).

● National Bank for Financing Infrastructure and Development (NBFID) is being set up as the principal development financial institution (DFIs) for infrastructure financing.

● NBFID will be set up as a corporate body with authorised share capital of Rs. 1 lakh cr (~US$ 13.38 bn). Initially, the central government will own 100% shares of the institution which may subsequently be reduced up to 26%.

● DFIs are set up for providing long-term finance for such segments of the economy where the risks involved are beyond the acceptable limits of commercial banks and other ordinary financial institutions.

● Financial objectives: to directly or indirectly lend, invest, or attract investments for infrastructure projects located entirely or partly in India.

● Developmental objectives: facilitating the development of the market for bonds, loans, and derivatives for infrastructure financing.

Telecom Sector Reforms● In September 2021, GOI announced 100 percent

foreign direct investment (FDI) in the telecom sector with safeguards.

● Cabinet also announced a four-year moratorium on unpaid statutory dues by telecom companies. The telecos will, however, pay interest on the moratorium period.

● Cabinet also approved rationalizing of the definition of aggregated gross revenue (AGR), excluding non-telecom revenue of telecos from payment of statutory levies.

● Announcement is a part of the comprehensive package for Telecom sector reforms.

● Till date, only 49 percent investment was allowed through the automatic route, while beyond that had to be routed through the government

● Expected to ease cash flow issues that are being faced by the companies in the telecom sector.

Labor Codes

● GOI passed 4 path-breaking Labor codes in September 2020. New Labor Codes envisage covering over 0.5 billion workers from organized, unorganized and self employed for minimum wages, social security. The four codes include (i) Wage Code (ii) Social Security Code (iii) The Occupational Safety, Health and Working Conditions Code (iv) Industrial Relations Code.

● Social Security net of Employee State Insurance Corporation (ESIC) and Employees’ Provident Fund Organization (EPFO) to widen opening for all workers and self-employed persons.

● Setting up of “Social Security Fund” for 0.4 billion unorganized workers, GIG and platform workers, will help in widening Universal Social Security coverage

● Pay parity to women workers as compared to their male counterparts

● All migrant Workers Labor now to be covered instead of only those brought by contactors earlier

● Migrant Workers to get journey allowance from Employer, to visit hometown once a year

● Codes to Promote Harmonious Industrial Relations for higher productivity and more employment generation

● Labor Codes will establish transparent, answerable and simple mechanism reducing to one registration, one license and one return for all codes.

● Inspector to be now made as Inspector – cum- Facilitator and introduction of Random, Web Based Inspection System to remove Inspector Raj.

Fintech Sector Achievements

● In the Fintech sector, India has now 65 companies that have turned Unicorn. 28 of 65 companies were created in 2021.

● Unicorns of 2021 include Mobile Premier League (gaming platform), Grofers (groceries), CoinDCX (cryptocurrency) and BharatPe (Fintech), among others.

● Between 2011-14, India produced only one Unicorn per year. 2015 saw 4 Unicorns, 2018 saw 8 Unicorns, 9 in 2019, 10 in 2020, and 28 in 2021.

● 9 of the 28 start-ups originated from Bengaluru, 7 from Mumbai and the rest from Gurugram, Noida, Delhi, Pune and Chennai.

● Fintech sector has the highest number of Unicorns (5), followed by e-commerce, Software as a Service (SaaS), marketplace, EdTech, and NBFCs.

● Trend indicates maturing start-up ecosystem in India and increasing investor confidence in Indian start-ups.

Vehicle Scrappage Policy

● In August 2021, the GOI launched the Vehicle Scrappage Policy, with the following conditions:

i. Commercial vehicles be de-registered after 15 years in case of failure to get the fitness certificate.

ii. Private Vehicles be de-registered after 20 years if found unfit or in case of a failure to renew registration certificate.

iii. All vehicles of the Central Government, State Government, Municipal Corporation, Panchayats, State Transport Undertakings, Public Sector Undertakings and autonomous bodies with the Union and State Governments may be de-registered and scrapped after 15 years from the date of registration.

● Objectives of the policy are to reduce population of old and defective vehicles, achieve reduction in vehicular air pollutants to fulfil India’s climate commitments, improve road and vehicular safety, achieve better fuel efficiency, formalize the currently informal vehicle scrapping industry and boost availability of low-cost raw materials for automotive, steel and electronics industry.

● Expected to attract additional investments of around Rs. 10,000 cr (~USD 1.37 bn) and 35,000 job opportunities.

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