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Agrees to remove technology transfer requirements, caps on royalty payments

Easy going: Removal of certain restrictions could result in increased investments in India, it is felt. K.R.deepak

While India has not yet signed the Regional Comprehensive Economic Partnership agreement, it has accepted suggestions of other countries regarding rules on investments, a source aware of the developments told The Hindu.

India and the other RCEP countries are currently in the final phase of negotiations in Vietnam.

India has so far agreed to several provisions that bring it in line with the investment rules applicable in most comparable countries, including banning host countries from mandating that the investing companies transfer technology and training to their domestic partners, and removing the cap on the quantum of royalties domestic companies can pay their foreign partners.

If the RCEP agreement is signed, these rules are expected to attract greater investment in India from the other 15 RCEP countries (the 10 ASEAN countries, China, Japan, South Korea, Australia and New Zealand). Indian laws currently have the provision wherein companies investing in the country can be made to transfer technology or know-hows to their domestic counterparts.

The government and Reserve Bank of India also currently impose a cap on the royalties a domestic company can pay to its foreign parent or partner, for certain kinds of investments.

Major hindrance

These restrictions have been seen as major hindrances to investing in India, and other RCEP countries have argued strongly for their removal.

“The investment chapter of the RCEP deal has been agreed upon, and India has agreed to the removal of technology transfer requirements, and also the removal of any caps on royalty payments,” the source said.

“This means there will be no cap on the royalties that a company like, say, Maruti, [can] pay a foreign partner.”

While there is apprehension in industry that removing the cap on royalty payments would lead to increased outflow in foreign exchange and deplete the ability of domestic firms to pay dividends to shareholders, there is also the view that removal of these restrictions will result in increased investments in India.

“If India has taken this decision, then it is certainly a step in the right direction,” T. S. Vishwanath, principal adviser with ASL, a law firm specialising in trade law and remedies, said.

‘Such a move will protect returns and have minimal impact on fiscal deficit’

Even as some banks are planning to link deposit rates with external benchmark, after linking retail floating lending rate to repo rate, a report by State Bank of India (SBI) suggested full tax breaks for senior citizens savings scheme to protect returns.

According to the report, authored by Soumya Kanti Ghosh, group chief economic adviser, SBI, such deposits formed 5.5% of private final consumption expenditure in FY19. When interest rates come down and if deposit rates are linked to repo rate similar to loan rates, this will impact private final consumption expenditure.

Under the Senior Citizens Savings Scheme (SCSS), a senior citizen can deposit ₹15 lakh and the current interest rate is 8.6%. However, the interest on such SCSS is fully taxable.

“The March’18 outstanding under SCSS was ₹38,662 crore. It will be fair if such amount is given full tax rebate as the revenue foregone by the government could be only ₹3,092 crore, that will have the minimal 2 bps impact on government fiscal deficit,” the report pointed out.

Estimates suggest that there are about 41 million senior citizen term deposit accounts in the country with total deposits of ₹14 lakh crore or 7% of India’s GDP.

The average deposits size per account is about ₹3.3 lakh and interest income from such deposits formed 5.5% of private final consumption expenditure in FY19.

The report also said despite the cut in corporate tax, which will cost the exchequer ₹1.45 lakh crore, the fiscal deficit for the current financial year will be close to 3.5%.

The Centre has a target of 3.3% fiscal deficit for FY20.

“We still believe that fiscal deficit estimates for Centre in current fiscal should be still close to 3.5%.

“We are surprised that the market has missed out that only 58% of the ₹1.45 lakh crore fiscal bonanza will be revenue loss for the Centre/₹84,100 crore,” the report said.

IRDAI okays collecting premium in instalments, increasing maximum entry age

Different treatment: Insurers can even increase age limit of policies beyond 65. Special arrangement

A set of guidelines likely to make it easier for health insurers to tweak certain features of the cover provided to individuals, including one permitting collection of premium in instalments and another increasing the maximum entry age, has been notified by IRDAI.

It is “proposed to permit the insurers to effect minor modifications, on certification basis subject to complying [with] these guidelines,” said a communication from the Insurance Regulatory and Development Authority of India (IRDAI) to general and standalone health insurance companies.

Options for premium

Stating the guidelines are applicable to approved individual products of health insurance business, the regulator listed among the minor modifications that will be permitted addition of premium payment options.

In other words, in addition to existing, yearly payment mode, the insurers can collect premium in other frequencies (monthly, quarterly or half-yearly) or in installments. The insurers can also make change in the base premium rates, subject to the change not exceeding plus or minus 15% of the premium rates of originally approved individual product, according to the circular issued by Member-Non-Life T.L. Alamelu.

Another change insurers are allowed to make to their products is reducing the minimum and increasing the maximum entry age. Describing the changes as welcome, Rashmi Nandargi, head-retail health, PA and travel underwriting, Bajaj Allianz General Insurance, said typically the maximum age limit of the health insurance policies filed is up to 65 years. But if the insurer feels the age limit can be extended, then it can be increased beyond 65.

Other minor modifications the health insurers can make are expansion of the list of day care procedures to be offered and addition of critical illnesses covered under benefit-based products.

The guidelines come into force with immediate effect, according to IRDAI.

Corporate tax, especially for new manufacturing units was slashed last week

Capital flow: Construction work on the Vadodara facility will start in October, says Prashant Tewari. Special Arrangement

Pharmaceutical firm USV Private Ltd. has announced plans to invest ₹400 crore in a new formulation plant at Vadodara in Gujarat.

The announcement comes in the backdrop of Finance Minister Nirmala Sitharaman reducing corporate tax from 30% to 22%. USV said it would ‘immediately’ proceed with the investment in the formulation plant.

“The recent announcement by the government has provided the much-needed boost to the pharmaceutical manufacturing sector that requires investments to provide world-class medicines to the population, at large,” the company said.

While the tax cut announced by the government will help spur capital spending and generate employment in the pharmaceutical sector, the investments will also go a long way to improve sustainability and capacities in pharmaceutical manufacturing, it added.

Prashant Tewari, MD, USV, said, “The construction for the new facility at Vadodara will start in October, with an initial capital investment of around ₹400 crore.

“The facility will provide employment to more than 350 people, despite being a highly automated plant.” The firm will manufacture products in the diabetes and hypertension segments in the unit. USV, with ₹3,100 crore topline in FY19, is separately investing in an active pharmaceutical ingredient (API) plant at Ambernath.

Borrow with caution, says S. Gopalakrishnan

S. Gopalakrishnan

Start-ups should look at raising money through initial public offerings (IPO) rather than borrowing from external sources, said S. ‘Kris’ Gopalakrishnan, co-founder Infosys.

Addressing members of Rotary Club of Madras on the topic ‘Lessons from Infosys’s journey and building a world-class business in India,’ he said that Infosys Technologies remained bootstrapped until it went public during 1993.

“Till then, we managed to run our operations with own funds. When the banks refused to give loans to us in the absence of a collateral, it was the Karnataka Government that helped us. That’s why we set up our registered office in Bengaluru,” he said.

Urging start-ups to seek external funding with caution, he said that an external investor would decide how to run and govern the business. “Instead, go for an IPO. It allows public to participate in wealth creation,” he said.

Owned by foreigners

“Entrepreneurs are not thinking about IPOs. They only want to be private. When they go for external funding, the funds come from overseas. So, most of the Indian start-ups today are owned by foreigners,” he said. The former Infosys chairman, who had invested ₹300 crore in several start-ups through Axilor Ventures, asked Indian entrepreneurs to lend a helping hand by investing in Indian start-ups.

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