Focus of the Month: Ease of Doing Business: Moving Ahead Steadily

2. ECONOMY MATTERS 2

3. 1
FOREWORD
NOVEMBER 2016
E
ase of Doing Business has been a priority with the government, as it has made a concerted and
coordinated effort across all ministries and state governments to improve the business environ-
ment. Industry too feels that the business ecosystem has improved over the last two years owing
to the impressive list of reforms implemented. The recent World Bank Doing Business Report for 2017
indicating a marginal improvement in India’s ranking among 189 countries from 131 to 130 was therefore
a disappointment. CII is and will continue to work in tandem with World Bank, DIPP, industry and other
stakeholders on improving the business environment further. Going forward, with the participation
of all players, we are confident that the Doing Business report will recognize the many achievements
taking place in the Indian economy. Ease of Doing Business is an ongoing effort, and there will always
be work to be done. Suffice it to say that the journey has begun on a good note and the government
has shown resolve, dedication and commitment to the effort of taking India’s ranking to a higher level.
On the domestic front, the pick-up in industrial output in September 2016 after two consecutive
months of contraction is an encouraging sign. Going forward, normal monsoons, along with the im-
pact of interest rate reductions and 7th
pay commission handouts are expected to boost demand.
There may be short-term disruptions on account of government’s recent demonetisation move as
it impacts the cash based transactions, which are a large part of the Indian economy. However, in
the medium-term this will lead to greater formalization of the economy, better compliance among
businesses, wider spread of digital payments leading to greater productivity and growth and more
confidence among investors. With a single move, the government has reiterated its strong com-
mitment to addressing the scourge of black money prevalent in the country. It has articulated its
strict stance on not tolerating any kind of unaccounted cash, undisclosed incomes, and tax evasion.
The Federal Reserve is bracing itself for an interest rate increase in December 2016 as the US econ-
omy has been recovering slowly but steadily. The job market has stepped up and inflation, while
still below the Fed’s 2 per cent target is picking up. Moreover the likelihood of an interest rate in-
crease has multiplied manifolds with the election of Donald Trump as the new 45th
President of US.
Trump is widely regarded as a supporter for Reaganomics which promulgates tight monetary poli-
cy coupled with an accommodative fiscal policy stance. On the other side of the globe, Japan saw
its economic growth witness a higher-than-expected upsurge in the third quarter of 2016, helped
by stronger exports. However, domestic consumer spending and business investment remained
soft indicating that the central bank’s ultra-loose monetary policy has not yet had an impact.
Chandrajit Banerjee
Director General, CII

5. 3 NOVEMBER 2016

7. 5
EXECUTIVE SUMMARY
NOVEMBER 2016
FocusoftheMonth: EaseofDoing
Business: Moving Ahead Steadily
The recent release of the World Bank’s Ease of Doing
Business Report saw India’s ranking improve by one po-
sition to 130 from last year. The marginal improvement
in ranking led to disappointment among the policy cir-
cles as government was hopeful of a major leap in the
rankings owing to the impressive list of reforms imple-
mented in the past one year. Moreover, such a concert-
ed and coordinated effort across all ministries and state
governments has not been made ever before in India’s
industrial history. The Government is to be commended
for addressing the hurdles and fast-tracking administra-
tive processes in such a comprehensive manner. In this
context, it is encouraging to note that India’s absolute
score improved from 53.93 to 55.27, which is the first
time in history when its absolute score has improved
in two consecutive years. Going forward, with the par-
ticipation of all players, we are confident that the Doing
Business report will recognize the many achievements
taking place in the Indian economy. Ease of Doing Busi-
ness is an ongoing effort, and there will always be work
to be done.
Domestic Trends
Industrial output moved to the positive territory in Sep-
tember 2016 after two consecutive months of contrac-
tion. Industrial production posted a growth of 0.7 per
cent as compared to decline of an equivalent amount
in the last month. Manufacturing and consumer goods
sectors witnessed improvement during the month, thus
contributing to the uptick in the headline data print.
However, capital goods continued to weigh on the over-
all industrial growth. On a cumulative basis, factory out-
put in April-September 2016 contracted by 0.1 per cent
compared to 4.0 per cent growth in the same period a
year-ago. Overall in FY17, we expect industrial produc-
tion to grow at a higher rate as compared to the previ-
ous fiscal on the back of policy aided domestic upturn
and low global commodity prices. Meanwhile, both WPI
and CPI inflation moderated in October 2016, providing
relief to the policymakers. It also validated the Reserve
Bank of India’s decision to frontload an interest rate cut
in anticipation of such a development.
Policy Focus
In a historical move that will add record strength in the
fight against corruption, black money, money launder-
ing, terrorism and financing of terrorists as well as coun-
terfeit notes, the Government of India has decided that
the Rs 500 and Rs 1000 notes will no longer be legal
tender from midnight, 8th November 2016. Currency in
the form of Rs 1000 and Rs 500 notes amounted to Rs
14.2 lakh crore as of March 2016, or about 85 per cent
of total currency in circulation. The impact of the deci-
sion to make Rs 500 and Rs 1000 no longer legal tender
will be felt in addressing the issues of terrorism, coun-
terfeit currency, and arms smuggling, as mentioned by
Hon’ble Prime Minister. It would have economy-wide
positive advantages in tackling the scourge of corrup-
tion that has taken hold in the country over the last sev-
eral decades.
Global Trends
In line with market expectations, US Federal Reserve
maintained a status-quo and kept the Fed funds target
range unchanged at 0.25-0.50 per cent in its monetary
policy review held on November 3rd, 2016. The Federal
Open Market Committee (FOMC) judged that the case
for an increase in the federal funds rate had continued
to strengthen but decided, for the time being, to wait
for further evidence of continued progress toward its
objectives. However, the stance of the Federal Reserve
remains accommodative, thereby supporting further
improvement in labor market conditions and a return
to 2 per cent inflation. Elsewhere, Japan’s economic
growth beat expectations in the July-September period
to expand for a third straight quarter; helped by strong-
er exports. But weak domestic activity cast doubt on
hopes for a sustainable economic recovery. To be sure,
the world’s third-largest economy expanded 0.9 per
cent between July and September 2016 on year-on-year
basis as compared to 0.6 per cent posted in the previ-
ous quarter.

8. ECONOMY MATTERS 6
FOCUS OF THE MONTH
Ease of Doing Business: Moving Ahead Steadily
tably, India registered an improvement in ranking on 2
key indicators out of the 10 Doing Business indicators,
which are ‘getting electricity’ (ranking improved by 44
places) and ‘enforcing contracts’ (ranking improved by
6 places). In ‘paying taxes’, we came in at the same rank
as last year, while in the remaining five fields, the rank-
ings have tumbled.
CII has been working very closely over the last several
years on the ease of doing business process. The imple-
mentation of reforms have never been faster, with the
government implementing widespread reforms across
a number of areas including company incorporation,
tax procedures and dispute resolution, land allocation,
environmental and forest clearances, and getting pub-
lic utility connections, apart from many others. Further,
there are several areas like the opening of FDI across
sectors, labour reforms, etc. which have contributed
to the improvement in the overall investment climate
apart from procedural issues. State governments too
have identified land banks for the setting up of industrial
parks and are taking rapid strides on handholding inves-
tors and expediting processes through single window
systems and online interface. Additionally, many states
are also holding mega investor meetings for showcas-
ing their achievements in order to attract investment.
T
he recent release of the World Bank’s Ease of Do-
ing Business Report saw India’s ranking improve
by one position to 130 from last year. The mar-
ginal improvement in ranking led to disappointment
among the policy circles as government was hopeful of
a major leap in the rankings owing to the impressive list
of reforms implemented in the past one year. Moreo-
ver, such a concerted and coordinated effort across all
ministries and state governments has not been made
ever before in India’s industrial history. The Govern-
ment is to be commended for addressing the hurdles
and fast-tracking administrative processes in such a
comprehensive manner. In this context, it is encourag-
ing to note that India’s absolute score improved from
53.93 to 55.27, which is the first time in history when its
absolute score has improved in two consecutive years.
The World Bank Report lays emphasis on the adminis-
trative procedures and time taken for ten defined pa-
rameters of the business cycle from starting a business
to obtaining credit and exiting through insolvency. No-

9. 7
FOCUS OF THE MONTH
NOVEMBER 2016
Nonetheless, several key reforms have been recog-
nized by the Report where it has noted improvements.
Examples include online filing and payment of returns
under ESIC, ICEGATE for import clearances, etc. How-
ever several reforms which have taken place since the
last World Bank report have not been incorporated as
they came after the deadline of June 1, for instance,
legislation of the transformational Goods and Services
Tax (GST), the institution of the Insolvency and Bank-
ruptcy Code, rapid introduction of INC-29 for company
incorporation by the Ministry of Corporate Affairs etc.
Moreover, the report currently looks at reforms in just
two cities of Delhi and Mumbai. These two cities have
been making progress, but it is not sufficient to capture
the entire status of the country.
It is pertinent to mention here that aside from the
World Bank’s report, India has moved up the rankings
of the recently released Global Competitiveness Report
of the World Economic Forum by 16 positions this year
and leaped 19 slots in the World Bank’s Logistics Perfor-
mance Index. CII has been working with DIPP and the
World Bank on ranking of 29 states and 7 UTs on a real
time basis for 340 parameters. These rankings are quite
an unprecedented and innovative reform measure by
itself and have been taken up for the first time. This
year, with the expansion of parameters, we have seen
tremendous improvement. As many as ten states have
implemented over 90 per cent of the reform measures
and 17 states have achieved success in over 75 per cent
of the parameters. This is indeed a remarkable achieve-
ment in less than one year. The spirit of competitive fed-
eralism to attract FDI has also been seen in roadshows,
investor meets and investor facilitation undertaken by
state governments, both in India and overseas. Some of
the key reforms undertaken by the state governments
include electronic registrations, online payment of tax-
es, easier electricity connections, and simpler regimes
for inspections by labour and pollution inspectors.
At the ground level, domestic and overseas industry has
undoubtedly experienced improvement in the invest-
ment climate. CII is and will continue to work in tandem
with World Bank, DIPP, industry and other stakehold-
ers on improving the business environment further.
Going forward, with the participation of all players, we
are confident that the Doing Business report will recog-
nize the many achievements taking place in the Indian
economy. Ease of Doing Business is an ongoing effort,
and there will always be work to be done. Suffice it to
say that the journey has begun on a good note and the
government has shown resolve, dedication and com-
mitment to the effort of taking India’s ranking to within
50. This may take some more time than anticipated, but
we are sure to get there. In this month’s Focus of the
Month, we provide an analysis of the three Ease of Do-
ing Business Surveys released by various multilateral
agencies, in addition to experts providing their insights
into the various sub-components of the these surveys.

10. ECONOMY MATTERS 8
FOCUS OF THE MONTH
India’s Ranking improves in WEF’s Global
Competitiveness Index
I
n some good news, India’s ranking in the Global Com-
petitiveness Index for 2016-17, released by the World
Economic Forum (WEF) improved 16 places to 39,
making it the fastest ascent up the ranks among 138
countries surveyed. In fact, this is the second year in
a row when India’s ranking has jumped 16 spots. In the
year 2015-16, India was ranked at the 55th
place. “Thanks
to improved monetary and fiscal policies as well as
lower oil prices, the Indian economy has stabilised and
now boasts of the highest growth among G20 coun-
tries,” the WEF’s Global Competitiveness Report 2016-
17 stated. India is also the second most competitive
country among BRICS nations. “China, on 28, remains
top among the BRICS grouping although another surge
by India – which climbs 16 places to 39 – means there is
now less of a gap between it and its peers. With both
Russia and South Africa moving up two places to 43 and
47, respectively, only Brazil is declining, falling six places
to 81,” WEF said in its report. In the WEF report, Swit-
zerland, Singapore and the United States remained the
world’s most competitive economies.
Brief Methodology
WEF defines competitiveness as the set of institutions,
Key highlights of India’s
performance
• India’s GDP per capita in PPP terms almost dou-
bled between 2007 and 2016, from US$3,587 to
US$6,599. However, economic growth in India
slowed after the 2008 global financial crisis, hitting
a decade’s low in 2012–13. This experience prompt-
policies, and factors that determine the level of produc-
tivity of an economy, which in turn sets the level of pros-
perity that the country can achieve. Since 2005, building
on Klaus Schwab’s original idea of 1979, the World Eco-
nomic Forum has published the Global Competitiveness
Index (GCI) developed by Xavier Sala-i-Martín in collabo-
ration with the Forum. The GCI combines 114 indicators
that capture concepts that matter for productivity and
long-term prosperity.
These indicators are grouped into 12 pillars (see Figure
1): institutions, infrastructure, macroeconomic environ-
ment, health and primary education, higher education
and training, goods market efficiency, labor market ef-
ficiency, financial market development, technological
readiness, market size, business sophistication, and in-
novation. These pillars are in turn organized into three
sub-indices: basic requirements, efficiency enhancers,
and innovation and sophistication factors. The three
sub-indices are given different weights in the calcula-
tion of the overall Index, depending on each economy’s
stage of development, as proxied by its GDP per capita
and the share of exports represented by raw materials.
ed India to rethink its policies and implement the
reforms necessary to improve its competitiveness.
Growth rebounded in 2014 and last year surpassed
that of China, making it the fastest-growing large
emerging market in that year.
• India’s competitiveness score stagnated between
2007 and 2014, and the economy slipped down the
GCI rankings.

11. 9
FOCUS OF THE MONTH
NOVEMBER 2016
• Table 1 illustrates which pillars (out of the 12 pillars
of WCI) improved or deteriorated over the 10 years
from 2007 to 2016. Due to the rebound in economic
growth between 2015 and 2016, India’s overall com-
petitiveness score in this period increased by 0.19
points.
• The two most significant improvements were seen
in infrastructure and in health and primary educa-
tion: for example, India almost halved its rate of
infant mortality (62 per 1,000 in the 2007–2008 edi-
tion of the GCI versus 37.9 today). Life expectancy
increased to 68, up from 62, 10 years ago, while pri-
mary education has become almost universal (up to
93.1 per cent from 88.8 per cent).
• Moreover, India has made significant progress on
infrastructure, one of the pillars where it ranked
worst, the WEF report states. As India closed the
infrastructure gap, new priorities have emerged.
The country’s biggest relative weakness today is in
technological readiness, where initiatives such as
Digital India could lead to major improvements in
the coming years. Most importantly, India has out-
performed countries in the same stage of develop-
• As compared to the WCI rankings of 2015, in 2016,
India’s competitiveness improved across the board,
particularly in goods market efficiency (ranked 60
in 2016), business sophistication (ranked 35 in 2016)
and innovation (ranked 29 in 2016). WEF said that
ment, mostly those in sub-Saharan Africa, in all pil-
lars except labor market efficiency. Macroeconomic
environment is another basic requirement where
India’s performance has improved significantly.
• However, as per the WEF report, financial market
development is the pillar which is currently drag-
ging down India’s competitiveness the most as
compared to 10 years ago. Here the efforts of the
Reserve Bank of India to increase transparency in
the financial market and shed light on the large
amounts of non-performing loans, previously not
reported on the balance sheets of Indian bank, are
laudable.
• The efficiency of the goods market has also deterio-
rated, resulting from India’s failure to address long-
running problems like implementing GST. But this
is about to change next year. Another area of con-
cern is India’s stagnating performance on techno-
logical readiness. These pillars will be key for India
to prosper in its next stage of development, when
it will no longer be possible to base its competitive-
ness on low-cost, abundant labor. Higher education
and training has also shown no improvement.
the recent reform efforts by the government have
concentrated on improving public institutions (up
16 places in 2016 from 2015), opening the economy
to foreign investors and international trade (up 4
places in 2016 from 2015), and increasing transpar-

12. ECONOMY MATTERS 10
FOCUS OF THE MONTH
ency in the financial system (up 15 places in 2016
from 2015).
• Tax regulation was found to be the most problem-
atic factor for doing business as per the WEF re-
port, while corruption emerged as the second most
problematic factor (see Figure 2). Notably, inflation
also figured amongst the top 5 most challenging
factors for doing business.

13. 11
FOCUS OF THE MONTH
NOVEMBER 2016
India Moves up in World Bank’s ‘Ease of Doing
Business’ Ranking
I
ndia improved its ranking from last year’s 131 (re-
vised) to 130 out of 190 countries in the World Bank
Doing Business 2017 report, which was released last
month. New Zealand emerged the best country for
doing business. The report recognised India’s achieve-
ments in implementing reforms in four out of ten indica-
tors- trading across borders, getting electricity, enforc-
ing contracts and paying taxes. This is the first time in
history that India has been recognised for improvement
in the two indicators. The Doing Business report ranks
As table 2 shows, out of the 10 indicators, India made
the sharpest jump in “getting electricity”, with its rank
jumping 44 spots to 26 in the 2017 report of World Bank.
“India made getting electricity faster and cheaper by
streamlining the process of getting a new commercial
electricity connection,” the World Bank highlighted in
the latest report. India’s rank also improved in the “en-
forcing contracts” parameter by 6 spots to 172. “India
made enforcing contracts easier by creating dedicated
divisions to resolve commercial cases,” the World Bank
said in its report.
countries on the basis of Distance to Frontier, an abso-
lute score that measures the gap between India and the
global best practices. India’s absolute score improved
from 53.93 to 55.27 in the previous year. This is the first
time in history that India has improved its absolute
score in two consecutive years. Additionally, India’s
Distance to Frontier score improved on 6 out of 10 in-
dicators, showing that India is increasingly progressing
towards best practices.
Though India’s ranking in “paying taxes” deteriorated
by 15 spots to 172, the World Bank elucidated that India
had made paying taxes easier by introducing an elec-
tronic system for paying employee state insurance con-
tributions. Further, India’s ranking in “trading across
borders” also fell by 10 spots to 143 in the 2017 rank-
ings, though the World Bank recognized that India’s re-
forms in making imports and exports easier through the
launch of the ICEGATE portal and simplifying border and
documentary procedures.

14. ECONOMY MATTERS 12
FOCUS OF THE MONTH
The ranking of India is likely to improve going forward in
response to the slew of reform measures implemented
by the government of India in the last two years which
has made it easier for the businesses to start, operate
and exit. Some of the laudable measures introduced by
the government, but which were not considered by the
World Bank in their rankings are as follows:
- The elimination of the requirement of a company
seal while applying for government registrations
and permissions at the time of setting up of a busi-
ness. The Companies Act, 2013 was amended in
2015 to make provision for the same.
- Online registration for ESIC and EPFO, which has ex-
pedited the time to register. This functionality has
been made applicable from 1st December, 2015.
- Online filing and payment of returns at the Employ-
ee’s Provident Fund Organisation (EPFO), where
the majority of returns and payments are now filed
and paid fully online. It was implemented by EPFO
on 5th June, 2015.
- Streamlining of name reservation process at Minis-
try of Corporate Affairs (MCA), which has reduced
the time taken to an average of 1.86 days.
- Registration under VAT and Profession tax has been
merged into a single process from 1st January, 2015
by Government of Maharashtra.
- Registration for VAT in Delhi has been made online
and is allotted real time because of which business
can start operations immediately on receipt of the
TIN number.
- Delhi Pollution Control Committee has removed the
requirement of obtaining consent to establish for a
non-hazardous warehouse.
- Time required to get electricity connection has
been reduced to 15 days in both Mumbai and Delhi.
The government of India remains committed to its goal
of achieving the top 50 rank in the ‘Doing Business’ re-
port in the coming years. Action is already being taken
to implement further reforms with an eye on next
year’s ranking. Some of these steps being taken by the
government are enumerated below:
i). Implementing Goods and Services Tax (GST) nation-
wide by April 1, 2017.
ii). Implementing the Insolvency and Bankruptcy Code
by notifying regulations and institutionalizing pro-
ceedings at the National Company Law Tribunals.
iii). Implementing a single form for company incorpora-
tion, name availability and director’s identification
number and making it mandatory.
iv). Merging registries of charges at MCA and CERSAI
into a single registry to build a unified online data-
base of security interests over movable assets.
v). Introduction of paperless court procedures and sys-
tems including e-filing, e-payment, e-summons and
downloading of electronically signed orders in com-
mercial courts.
vi). Further streamlining processes related to customs
clearances to bring about faster and cheaper pro-
cessing time including increase in direct delivery of
good and integrate clearances/NOCs of all agencies
for both exports and imports.
vii). Allowing online filing of application, scheduling of
appointments and payment of fees for registering
properties.
viii). Digitising all encumbrances and record of rights of
land for the last 30 years and making them available
online.
ix). Integrating land records with the sale deeds at the
Sub-Registrar offices.
x). Making color coded maps of Airports Authority of
India, Delhi Urban Arts Commission, Delhi Metro
Rail Corporation, Archaeological Survey of India GIS
enabled and integrating them with the Single Win-
dow System of Municipal Corporation of India.

15. 13
FOCUS OF THE MONTH
NOVEMBER 2016
Assessment of State Implementation of Business Re-
forms 2016: Report by DIPP & World Bank
T
he Department of Industrial Policy and Promo-
tion (DIPP), Ministry of Commerce and Industry,
in partnership with the World Bank Group, re-
cently released the results of the Assessment of State
Implementation of Business Reforms 2015-16. As per
the rankings, Andhra Pradesh and Telangana jointly
topped the rankings relegating Gujarat, last year’s top
ranker, to the third spot. The national implementation
of reforms average stood at 48.93 per cent, significantly
higher than last year’s national average of 32 per cent.
This demonstrates the great progress made by States
this year.
The Assessment of State Implementation of Business
Reforms studies the extent to which states have imple-
mented DIPP’s 340-point Business Reform Action Plan
(BRAP) for States/UTs 2015-16, covering the period July
1, 2015 to June 30, 2016. The BRAP includes recommen-
dations for reforms on 58 regulatory processes, poli-
cies, practices or procedures spread across 10 reform
areas spanning the lifecycle of a typical business. Data
for this assessment was collected from State Govern-
ments on the BRAP portal. The portal, among the first
of its kind globally, allowed State Governments to
submit evidence of implemented reforms. At least 32
States and UT Governments submitted evidence of im-
plementation of 7,124 reforms for the year 2016. These
submissions were reviewed by the World Bank team
and validated by DIPP’s team to study whether they
met the objectives of the BRAP.

16. ECONOMY MATTERS 14
FOCUS OF THE MONTH
The highlight of the implemented reforms during this
period is as follows:
• Single Window Systems: Various States have cre-
ated a dedicated body/bureau as a one-stop sys-
tem for State level regulatory and fiscal incentive
approvals. The online single window system has a
provision for filing applications, payment, status
tracking, online scrutiny and approval of applica-
tions. The officials of the Body/Bureau have also
been given powers to grant approvals.
- States include: Andhra Pradesh, Chhattisgarh,
Gujarat, Haryana, Jharkhand, Madhya Pradesh,
Maharashtra, Punjab, Rajasthan, Telangana,
Uttarakhand.
• Tax reforms: States have made good progress in
tax reforms. These include mandating e-registra-
tion for Value Added Tax (VAT), Central Sales Tax
(CST), Professional Tax, Entry tax, etc, allowing
online payment and return filing; providing e-filing
support through service centers and helpline and
risk-based tax compliance inspections.
- States include: Bihar, Chhattisgarh, Gujarat,
Karnataka, Madhya Pradesh, Maharashtra,
Odisha, Punjab, Rajasthan, Uttar Pradesh, Ut-
tarakhand, West Bengal.
• Construction permits: Many States have allowed
applicants to apply online and upload building plans
for automated construction permit approval. In
addition, several states have developed AutoCAD-
based systems that automatically scan building
plans and monitor compliance with the building
bye-laws and building codes in force.
- States include: Andhra Pradesh, Chhattisgarh,
Gujarat, Haryana, Madhya Pradesh, Maharash-
tra, Rajasthan, Telangana, Uttarakhand.
• Environment and labour reforms: States have also
implemented advanced automated solutions to
deal with environmental and pollution related ap-
plications and approvals. These solutions provide-
shassle free, 24 X 7 e-access to businesses to apply
online, track applications, file returns and state-
ments and get online permissions under various
Acts and regulations.
- States include: Andhra Pradesh, Bihar, Chhat-
tisgarh, Gujarat, Haryana, Jharkhand, Karna-

17. 15
FOCUS OF THE MONTH
NOVEMBER 2016
taka, Madhya Pradesh, Maharashtra, Odisha,
Punjab, Rajasthan, Tamil Nadu, Telangana, Ut-
tar Pradesh, Uttarakhand, West Bengal.
• Inspection Reforms: A number of inspection re-
forms with regard to labour, tax and environment
related compliances have been introduced across
the States to help businesses comply with inspec-
tion requirements in a user friendly manner. To
bring in transparency, the states have also pub-
lished comprehensive procedures and checklist for
various inspections and have implemented online
systems for allocation of inspectors to increase ef-
ficiency and effectiveness of the procedure.
- States include: Andhra Pradesh, Chhattisgarh,
Gujarat, Haryana, Jharkhand, Karnataka, Mad-
hya Pradesh, Odisha, Punjab, Rajasthan, Pun-
jab, Telangana, Uttar Pradesh, Uttarakhand.
• Commercial disputes and paper-less courts: There
has been significant progress this year in the area
of judicial reforms compared to last year, particu-
larly due to the passage of the Commercial Courts,
Commercial Divisions and Commercial Appellate
Divisions Act. To address the concern of time and
costs associated with various legal processes, Dis-
trict Courts in various states have also made the
provision of making online payments, e-filing and e-
summons. Few States have also filled up vacancies
in District Courts/commercial courts to ensure avail-
ability of adequate capacity for dealing with various
cases.
- States include: Andhra Pradesh, Chhattisgarh,
Gujarat, Haryana, Jharkhand, Madhya Pradesh,
Maharashtra, Rajasthan, Telangana.
However, the present evaluation also highlights the
need to properly communicate, monitor and evaluate
these reforms to ensure that their impact is being felt
on the ground.

18. ECONOMY MATTERS 16
FOCUS OF THE MONTH
Enforcing Contracts: Need to Improve the Ju-
dicial Ecosystem
I
t is well recognized that speedy dispute settlement
mechanism, implying fair and speedy court trials,
would improve contract enforcement for businesses
and governments. However, at present, commercial
disputes before courts in India are among the most
lengthy, complex and costly globally, let alone in South
Asia. This delay in enforcing contracts is one of the big-
gest reasons why Indian citizens, especially the poor,
are prevented from speedy justice.
Our judicial ecosystem, especially at the district and sub-
district levels in India, is largely responsible for abysmal
contract enforcement in India. Our judiciary takes an
inordinately long time for disposing judicial cases and
enforcing contracts. Hence, it is virtually impossible to
conclude a case within a reasonable timeframe.
The system of multiple appeals and revisions, numerous
interim and interlocutory applications and generously
granted adjournments contribute to the cost of litiga-
tion and delays. Indeed, a civil case trial (including ap-
peals) can stretch to decades.
Contract enforcement, status in India
In the Doing Business rankings of the World Bank (WB),
there are ten parameters for ranking the various coun-
tries. These include starting a business, dealing with
construction permits, getting electricity, registering
property, getting credit, protecting minority investors,
paying taxes, trading across borders, enforcing con-
tracts and resolving insolvency. The first eight relate
to different parts of government - the executive and
legislature at union, state and local levels. The last two,
enforcing contracts and resolving insolvency are closely
linked to judicial efficiency (or inefficiency) for final reso-
lution. Indeed, insolvency is a special kind of contract,
and rarely enforced in India. In effect, lack of contract
enforcement in India hurts resolving insolvency as well.
The World Bank’s contract enforcement parameter is
measured as ‘effective commercial dispute resolution’
- a breach of a sales contract between two domestic
businesses through a local first-instance court. This as-
sumes that there is no appeal to the judgement in or-
der to enforce the contract. To quote the WB study,
‘Speedy trials are essential for small enterprises, which
may lack the resources to stay in business while await-
ing the outcome of a long court dispute.’ This is espe-
cially relevant in India where most enterprises are small
and medium in nature and need a facilitative environ-
ment for growth.
In the ‘contract enforcement’ parameter of Doing Busi-
ness, out of 189 countries ranked in 2015, India had till
recently been ranked 186, ahead of only Angola, Bang-
ladesh and Timor-Leste. However, in the latest Doing
Business rankings, India has improved its ranking to 172
out of 190 countries. To give a BRICS perspective, on
contract enforcement, China is ranked 5th
, Russia is 12th,
Brazil is 37th, South Africa is 113th, and India is 172nd.
The top five countries in this parameter are Korea, Sin-
gapore, Australia, Norway and China.
As per the 2016 data on India’s contract enforcement,
from Mumbai and Delhi, it takes an average of 1420
days to enforce a contract compared to only 164 days
in the global leader, Singapore. The OECD high income
average of enforcing a contract is 553 days. Let us re-
mind ourselves that 1420 days (almost 4 years) is the
time taken in our largest megacities like Mumbai and
Delhi; the time taken in the lower income states in India
would perhaps be much higher. At the same time, the
cost of enforcing the contract as a percentage of the
claim stands at a whopping 39.6 per cent of the claim,
which combined with the delayed enforcement is a dou-
ble whammy. Incidentally, Greece takes longer at 1580
days, which is probably one of the reasons why that
country suffers from weak economic indicators.

19. 17
FOCUS OF THE MONTH
NOVEMBER 2016
Problems due to ineffective contract en-
forcement
a. Lack of trust and predictability: Lack of contract
enforcement leads businesses to rely much more on
trust and limited networks. This is a huge constraint on
the Union government’s flagship programmes such as
‘Make in India’ and ‘Digital India’, since young entrepre-
neurs with their start-ups are deprived from entering
into contracts with the wider business ecosystem.
Good contract enforcement is one of the fundamental
pillarsofbuildingastrongeconomy.Apartfromasigned
contract, oral contracts are also valid under the Indian
Contract Act 1872, which has a Chapter VI, sections 73-
75, outlining the consequences of breach of contract.
Other Acts lay down process of contract enforcement.
However, seldom are these processes enforced quickly.
International investors, especially long-term investors
like pension funds and sovereign wealth funds are ap-
prehensive about delays in contract enforcement in In-
dia. They point to other studies on ‘Rule of Law’ across
economies published by the World Economic Forum,
and want additional guarantees for their investments.
But Indian business, especially the small entrepreneur,
struggles due to this lack of trust and predictability dai-
ly.
b. Increasing costs and inefficiency: Most parties enter
into contracts after considering and pricing the addi-
tional risk of the eventuality of the contract being dis-
honored. Hence a lender does not trust the contract
and loan documents. She builds in structures and collat-
eral so that the cost of non-repayment is higher than the
cost of repayment. The high cost of contract enforce-
ment, at nearly 40 per cent, is built into the pricing for
every contract, leading to cost escalations all around. As
an example, the recourse for a bounced cheque in, say
Dubai is immediate imprisonment. In India, a bounced
cheque would take years to resolve through the judicial
system. Hence payment security mechanisms are more
complex and unwieldy.
c. Perverse incentives to game the system: Lack of
contract enforcement discourages companies and busi-
nesses from playing fair, and using ethical best practic-
es in business. This prevents good professional business
practices, and is a disincentive to responsible corporate
behavior. It encourages the ‘Chalta hai’ and ‘Jugaad’ at-
titude present in several businesses and governments.
For government contracts, bidders put in unrealistic
bids to ‘bid and win, and then renegotiate’ – such be-
havior is squarely because their security deposit is not
forfeited on defaulting on the bidding contract. Simi-
larly, large companies enter into subcontracts with Tier
2 and Tier 3 suppliers and subcontractors. These sub-
contracts are seldom enforceable, and very often the
subcontractors suffer delayed payments from the large
companies. This leads to most stakeholders exploiting
the system.
d. Making Indian judicial recourse uncompetitive: Sev-
eral courts outside India have commented on the slow
pace of decision-making in Indian courts. Most con-
tracts with international parties specify the place of
arbitration as Singapore or London. Even after such ar-
bitral awards, the enforcement of the award must be
carried out in Indian courts. This has led to the entire
market for arbitration and alternative dispute resolu-
tion to move out of India, hurting business for Indian
legal professionals.
How to ensure quicker contract enforcement
The Union government has taken a few steps, some of
which are as follows:
a. The Commercial Courts, Commercial Division and
Commercial Appellate Division of High Courts Act
has been passed for speedy adjudication of high-
value commercial transactions, with a value of over
Rs. 1 crore. This is too high for SMEs, though.
b. Arbitration and Conciliation act, 1996 has been
amended to ensure quicker arbitration awards.
However, much more needs to be done. Some sugges-
tions include the following:
- We need much more investment in court infrastruc-
ture and each state High Court should oversee its
district and sub-district courts move towards tech-
nology enabled e-courts and tribunals.
- Both the Judiciary and the Executive need to work
together to streamline legal processes, limit ad-
journments, use technology in case management
and taking evidence and for delivering final orders.
- Between the Bar and the Bench, the bar, i.e. the
legal profession needs to introspect and move to-
wards measures to discourage delays and adjourn-
ment seeking.
- The Legislature and Executive need to simplify laws,
following the ‘Simple English’ movement followed
in some countries, to ensure less litigation.
Finally, enforcing contracts is not exactly the most glam-
orous subject, but is a necessary and critical infrastruc-
ture for every business. This aspect needs to be given
the attention it deserves, both by the legal ecosystem
and other parts of India’s governance structure. India
would be a frontrunner in the ease of doing business
only when it has a strong legal system with machinery
for quick contract enforcement and dispute resolution.
(Views expressed are personal)

20. ECONOMY MATTERS 18
FOCUS OF THE MONTH
Reforms in Customs Procedures to Improve
Ease of Doing Business
I
nternational trade is the key driver of economic de-
velopment, and Customs has a significant role in free
flow of international trade. No doubt, revenue collec-
tion and cross-border enforcement of allied laws relat-
ed to import and export control, national security, pro-
tection of Indian heritage, flora and fauna etc. continue
to be the core competency of customs. Nevertheless,
trade facilitation and ensuring security of international
trade supply chain are equally important responsibili-
ties of customs. Keeping these responsibilities in mind,
Indian customs has gone for more and more use of
technology in customs assessment of goods since mid
– eighties.
It all started with the introduction in 1985 of Sperry Map-
per System, an off line data entry based assessment. The
computerization process was speeded up when the In-
dian Customs EDI System (ICES) was introduced in 1995.
The ICES is an EDI- based automated workflow system
for clearance of import and export consignments. The
ICES enabled on- line acceptance and processing of Cus-
toms documents and electronic exchange of informa-
tion with organizations like RBI, DGFT, regulatory agen-
cies etc. This was followed by introduction of ICEGATE,
an e-commerce gateway in 2002. It facilitated e-filing of
Customs documents. Thus, the ICES and ICEGATE to-
gether facilitated online processing, web based track-
ing, help desks and touch screen kiosk for importers to
know the status of their documents etc.
The next major Customs modernization was achieved
in 2005 through Risk Management System (RMS), a
System based assessment of risks. The RMS aimed to
achieve optimal balance between facilitation and en-
forcement by driving down the dwell time for Customs
processing and the transaction costs, while simultane-
ously promoting the culture of compliance. As a result
of the RMS based assessment, only the Bills of Entry hit
by targeting based on certain risk based analyses were
taken up for closer scrutiny , the rest moving seam-
lessly to the following stages till the time duty was paid
and representative sample was examined by Customs.
Soon, the facility of e-payment of Customs duty intro-
duced in 2006 made things even better.
Meanwhile in 2005, as a measure of facilitation, prefer-
ential treatment was meted out to the importers with
good track record through Accredited Clients Program
(ACP). This facilitation was extended even much before
the World Customs Organization (WCO) talked of Au-
thorized Economic Operators which will be discussed
soon. The setting up of data warehouse was another
milestone in the progress of modernization of Customs.
It provided the information needs of Customs Depart-
ment as well as external users. Other smaller but equal-
ly significant initiatives were Courier (Express Cargo)
Automation, Advance Passenger Information System
(APIS) for expeditious air passenger clearance etc.
After the RMS stabilized, and so did the National Import
Data Base (NIDB) meant for checking undervaluation, it
was time for further drastic reforms. Thus, self-assess-
ment in Customs was introduced in 2011. The importers
filed the Bills of Entry electronically sitting at their of-

21. 19
FOCUS OF THE MONTH
NOVEMBER 2016
fice, did the self assessment himself and made the duty
payment electronically based on his assessment, and
then followed the subsequent procedures, again elec-
tronically. In a case where the flow of the Bills of Entry
was not interrupted through laid down targeting proce-
dure, the importer proceeded to the docks examination
shed to get a percentage of the goods examined to en-
sure that the goods were as per declaration, and there-
after walked away with the imported goods in less than
a day’s time. Only around ten per cent of the imported
goods got hit by the aforesaid targets which were then
taken up for closer scrutiny.
Meanwhile, the WCO came up with SAFE Framework
of Standards (SAFE FOS) in 2005, and suggested to
facilitate the legitimate trade while at the same time
securing borders from unlawful trade. This was to be
achieved through the dual measures of Customs to
Business Partnership and Customs to Customs Net-
work. In the process there was the birth of Author-
ized Economic Operator (AEO) scheme. The idea was
to provide facilitation to the stakeholders with proven
track record. Since in imports and exports there is the
involvement of two Customs Administrations - one at
the exporting country, and the other in the importing
country, there was the inherent need for both the Cus-
toms Administrations to recognize each other’s AEOs.
So there was the need to have Mutual Recognition Ar-
rangements (MRAs) between the two Customs Admin-
istrations. The idea of introducing AEO scheme in India
was first crystallized in 2011. After many improvements,
the main attractions for the AEO scheme can be said to
be as follows: Option for deferred duty payment, direct
port deliveries for import and export, fast tracking of
refunds, drawbacks and adjudications, recognition by
partner government agencies etc. The AEO scheme is
not restricted to importers and exporters only. It is also
extended to other economic operators like logistic ser-
vice providers, custodian and terminal operators, cus-
toms brokers, warehouse operators etc.
For Indian Customs, the reforms have always been
‘work in progress’. The most significant reform in the
realm of clearance of goods through different regula-
tory agencies at the port has been the launching of
Customs Single Window Interface for Facilitating Trade
(SWIFT) clearance in 2016. The Customs SWIFT enables
importers/exporters to file a common electronic ‘Inte-
grated Declaration’ on the ICEGATE portal. The Inte-
grated Declaration takes care of the requirements of
Customs, FSSAI, Plant Quarantine, Animal Quarantine,
Drug Controller, Wild Life Control Bureau and Textile
Committee and it replaces nine separate forms required
by the said 6 different agencies including Customs. With
the roll-out of the Single Window, CBEC also introduced
an Integrated Risk Management facility for Partner Gov-
ernment Agencies (PGAs), which will further improve
ease of doing business. The Integrated Risk Manage-
ment System will ensure that consignments are not se-
lected by agencies routinely for examination and test-
ing but based on the principle of risk management. With
this development, Indian Customs is amongst a few se-
lect countries that have functional Single Window clear-
ances, inclusive of multiple PGAs and integrated risk
based selection.
Certain other minor but significant Customs reforms
undertaken in the recent past include the use of ‘Digi-
tal Signature’ for filing of declarations of importers,
exporters, Customs brokers and for filing manifests by
Shipping Lines and Airlines. The number of documents
required for export and import has been reduced to
three, namely Electronic Declaration, Invoice cum Pack-
ing List and Bill of Lading.
Besides, introduction of electronic messaging system
between shipping lines and Custodians for Electronic
Delivery Orders instead of a paper based delivery has
also helped the trade. Further, 24 X 7 Customs clearance
facilities have been extended to 19 Sea Ports and 17 Air
Cargo Complexes across the country. The provision of
Deferred Duty Payment for select categories of import-
ers and exporters introduced recently has also enabled
speedier release of cargo without payment of duty and
provided more liquidity in hands of the business. In or-
der to address the issues relating to Customs clearance
and the need for upgrading infrastructure that could
impact clearance, Customs Clearance Facilitation Com-
mittee (CCFC) has been set up at every major Customs
station.

22. ECONOMY MATTERS 20
FOCUS OF THE MONTH
(Views expressed are personal)
Finally, Indian Customs has been taking the lead in the
international arena in respect of trade facilitation in a
systemic manner. Realising the importance of exchange
of information amongst Customs Administrations, In-
dian Customs has been pitching for Globally Network
Customs (GNC) in the WCO meetings right since 2008.
The GNC was the first building block of the ‘Customs in
the 21st
Century’ vision approved by the WCO in 2008.
Simply speaking, GNC is a standardized way for Cus-
toms Administration to share information based on en-
hanced Customs cooperation. This will facilitate quicker
Customs clearance based on the on-line information
about the imported goods from the Customs Adminis-
tration of the exporting Country. Once the GNC is fully
operational, the dream of a Shipping Bill at the export-
ing country getting translated into Bill of Entry in the
importing country would get fulfilled, thus facilitating
the trade to the maximum extent.
The aforesaid reforms had a positive impact on time and
cost required for export and import. The impact is vis-
ible in the improved scorecard of India in Logistics Per-
formance Index, a survey done by World Bank Group on
trade logistics. India has moved up 19 positions (from 54
to 35) in LPI rank and Indian Customs has moved up by
27 positions (from 65 to 38) in 2016 report as compared
to 2014 report. Even in the report by World Economic
Forum on Burden of Customs Procedures, Indian Cus-
toms has made significant progress by moving up from
54th
to 37th
position in the ranking. Business Report 2017,
by World Bank has recognized the implementation of
the Single Window Interface for Trade.
Thus, Indian Customs would do well to continue with its
modernization efforts so as to provide further ease of
doing business.
[The author is former Chairman, CBEC and Senior Advisor to ITIC, Washington D.C. He is also engaged with a EU
Project in India on GST and with Myanmar Government for their Indirect Tax Reforms]

23. 21
FOCUS OF THE MONTH
NOVEMBER 2016
Book Review: India the Business Opportunity by
Dr. Linda Spedding, Eastern Book Company (2016)
T
he business world today is facing a global slump
with developed nations growing at an ordinary
rate of 2-4 per cent annually. Amid the sluggish
milieu, one country that manages to defy that trend is
India. With its growth rate consistently in excess of 7
per cent it has become the fastest growing economy
of the world. The galloping rate with which India is
progressing has caught the attention of the world and
has made it an investor magnet. This is the sentiment
that echoes in the introductory chapter of the book,
‘Overview’, “The world is looking at India, looking to
it”. The current situation being so triggers the need
for the world to know India better, to understand In-
dia better. The book is in the form of a compilation of
chapters each dealing with a particular issue related
to doing business in India. Thus it is an attempt by au-
thors of the various chapters to achieve the same and
is written with a spirit to build a holistic understand-
ing of the reader in fields impacting business in India.
The 1st
chapter is an overview that acquaints the reader
with (a) how establishing a business needs to begin
with an understanding of foreign exchange and how
it is monitored in India by three regulatory bodies i.e.
the Reserve bank of India (RBI), Department of Indus-
trial Policy and Promotion (DIPP) and the Foreign In-
vestment Promotion Board (FIPB) (b) what the differ-
ent laws regulating business in India are, for example,
Company law, the employment of manpower under the
various Labour laws, the Intellectual property regime
and the Competition Act (c) the system of taxation
in India - The two types of taxes (direct and Indirect)
and how the Goods and Sales tax (a unified taxation
system for indirect taxes) is in the offing and (d) the hi-
erarchy and network of courts in India i.e. Trial courts,
High Courts, Supreme Court and specialized Tribunals.
The 2nd
chapter being the most topical one discusses (a)
the types of legal entities i.e. corporations, private com-
panies, public companies, sole proprietorships and LLPs
- their nature and functioning according to domestic
laws (b) alternate entry points for formation of legal en-
tities i.e. joint ventures, franchise agreements and port-
folio investments (c) Foreign Direct Investment and its
regulatory framework in 5 major sectors namely retail,
insurance,telecommunications,realestateandbanking.
The Editor herself writes the 3rd
and 4th
chapter, which
touch the ‘social’ and ‘psychological’ elements of the
consumer-supplier relationship. The chapters deal with
(a) corporate responsibility – how there is a greater
demand for transparency and the shift in business
psyche from ‘profit for stakeholders’ to ‘reputation
management discussion’ / ‘assessment of impact of
policies’ (b) advantages of adopting a corporate so-
cial responsibility model fulfilling sustainable practices
for optimizing natural resources, employees and the
environment (c) how we need to protect and reward
whistleblowers. Dr. Spedding notes that the Indian
parliament has initiated a Whistle Blowers Protection
bill that has not acquired the status of a law (Act) and
there exists a void for a law catering to the subject (d)
importance of ethics in business and how there is an
increased need for transparency and accountability in
India due to proliferation of business in recent times
and (e) an illustrative account of mishaps across the
globe and their consequences which underline the
significance of ‘reputational risk’ in business today.
The 5th
chapter caters to the facilitation and execution
of plans of big-ticket corporates operating in India by
‘mergers and acquisitions’. The author here draws
a legal map on how the mergers take place in India.
The contents range from (a) the different investment
instruments in India (i.e. equity shares, preference
shares, debentures and share warrants) and condi-
tions a foreign investor must meet to purchase these
instruments (b) due diligence – how the exercise aids
in creating awareness about the business plans, cus-
tomers, contracts, etc and avoids non-compliance of
legal provisions (c) an illustrative account of major im-
pediments that often arise in mergers and acquisitions
(d) preliminary information about options to liquidate
the investment and follow the exit route (e) the proce-
This is a practical handbook for understanding the legal and regulatory affairs in India in order to
do business in India.

24. ECONOMY MATTERS 22
FOCUS OF THE MONTH
dure of acquisition of shares of a private company or
public company and the limitations attached with it (f)
the 3 popular modes of acquisitions i.e. slump sale, as-
set transfer and share acquisition (g) how acquisition
of listed companies require additional compliances.
The 6th
and 7th
chapters talk about raising capital for eq-
uity and debt respectively, they familiarize the reader
with the different routes an investor can take to accu-
mulate ‘equity capital’ i.e. (a) an initial public offering
(b) Global Depository Receipts (c) Qualified Institutions
placement (d) Rights issue and (e) bulk and block deals.
After the difference is carved out between equity capi-
tal and debt financing the author covers Debt financing
from the stage of creating a ‘Charge of over the prop-
erty’ to the final ‘Enforcement of claims’ in the even-
tuality of a default of payment. The reference to the
‘Proposed Bankruptcy Code 2015’, which has recently
attained the status of a law, assumes great relevance
since the new legislation seeks to transform debt re-
covery in India and even according to the World Bank
report on the ‘Ease of doing business’; India has been
rated low on the global debt recovery index. In this
backdrop, the illumination on debt recovery would
be well received, as it constitutes one of the major
conditions the investors consider before investing.
Chapter 8 deals with corporate governance. It starts
with the fact that India has borrowed most principles/
norms from developed economies like UK and USA but
there is variance on account of application of those
norms in India. The Author has explained the structure
of a company and its operations by dint of domestic le-
gal provisions. There is also a demonstration by draw-
ing a time line of events proving that Corporate Gov-
ernance principles are still in the state of evolution in
India, for example the ‘Compensation Awarded to Ex-
ecutives’ is still rising compared to developed markets
and ‘Related Party Transactions’ have only recently
been put under regulation in Companies Act 2013.
Chapter 9 discusses Labour and Employment Laws.
This area is very important for an investor because af-
ter the initial investment every business requires skilled
labour regulated by domestic laws for smooth and sta-
ble functioning of their enterprise. The Constitution of
India empowers both State government and Central
government to enact laws relating to employment. The
chapter deals with a total of 20 Central laws that moni-
tor the employee-employer relationship. The author
explains (a) various types of employees, (b) certain uni-
form conditions of service applicable across the board
that are paramount because they are inducted in the
governmental ‘Standing Orders’ (c) types of employ-
ment contracts i.e. permanent, temporary, probation,
casual, etc. (d) all incidental avenues of employment,
for example, salaries, allowances, occupational health
standards, compensation, pension, etc. (e) concepts
of ‘retrenchment’ of employees, ‘closure’ of any un-
dertaking, ‘laying off’ an employee and ‘strike and lock-
out’ declared by workers which are essential because
they generate majority of the litigation in Labour law.
Chapters 10 and 11 are on topics that have gained im-
portance in recent times and have just begun devel-
oping in India such as Intellectual Property Rights
(IPR) and Competition law. The intellectual prop-
erty law in India consists of trademarks, copyright,
patents, designs and geographical indications. The
Author has dealt with each of the instruments by
discussing (a) their largely similar procedures for ob-
taining protection in India (b) the grounds for refusal
of the application seeking protection of rights (c)
registration of rights to protect the property (d) ac-
tions to revoke registration of the protected property.
The Author then deals with the historical evolution of
the MRTP Act, 1969 (Monopolies and Restrictive Trade
Practices) to the Competition Act, 2002 operational
in India today. What investors and analysts would un-
derstand from the discussion is - the major impedi-
ment of lack of evidence against cartels, the process
of complaints /investigation of alleged combinations
and the trend of horizontal agreements being sub-
jected to stricter scrutiny than vertical agreements.
Chapter 12 is a critique on the condition of Indian in-
frastructure. The author tells the reader how there
is a pressing need for improvement in various de-
partments of infrastructure especially in the current
state of affairs where investors, domestic and for-
eign are desirous of setting shop in India. The discus-
sion aims to suggest a solution to this problem by
encouraging the government to use the PPP route,
which has been followed in a few cases in the re-
cent past i.e. development of the National Highways.
Chapter 13 and 14 deals with Tax, which is, one of the
most important aspects considered by investors be-
fore investing monies. There are chapters dedicated
to both types of taxes i.e. Direct and Indirect tax. As
far as Direct taxes are concerned, the author enunci-
ates how tax operates in various commercial dealings
- (a) the implications of tax in case a foreign invest-
ment has to enter India (b) taxation in case of cross

25. 23
FOCUS OF THE MONTH
NOVEMBER 2016
border trade with India (c) tax implications during
corporate transactions of acquisition, merger, etc.
The appraisal of the ‘Proposed Good and Services
Tax’ in India is much needed in the Indirect Tax de-
partment as it is aims at reforming the flaws of
the current taxation system. An understanding of
the new proposed regime is essential because it is
just a matter of time till the NDA would have suf-
ficient numbers in the Rajya Sabha to pass this bill.
Chapter 15 deals with Arbitration, which is the pre-
ferred mode of dispute resolution in light of the surg-
ing pendency in courts. As a consequence, all con-
tracts invariably have an arbitration clause in today’s
day and age. The Author dwells on a journey from
‘drafting an arbitral agreement’ to ‘enforcement of an
award’. The same provides a reasonable idea about
the benefits of arbitration and apprises the reader
about the options/choices parties have with regard to
the procedure to be followed, institute selected for
the arbitration, appointment of the arbitrator, etc.
Chapter 16 talks about Environment law, the Author
cautions investors about the painstaking exercise of
obtaining clearances in India. The same also finds re-
verberation in the World Bank Report on ‘Ease of Do-
ing Business 2016’ (that is compiled on various param-
eters inclusive of environmental clearances) under the
title ‘dealing with construction permits’, as per the rat-
ings, India is ranked at 183, which is, one of the worst
in the world. The same is attributed to the number of
procedures that need to be complied with ‘before
construction can commence’ for instance, in India the
number of procedures are 40 on an average compared
to 12 in OECD countries. Despite that being the case,
no concrete steps have been taken by the govern-
ment to change the scenario, making it all the more
important to know and comply with these procedures.
InChapter17,theAuthortalksaboutCyberlawsandhow
the government of the day has recognized the boons of
internet and has provided access to all ‘Stage-agencies’
online. The intent of the Prime Minister is manifest in the
digital India campaign where the agenda is to connect
the entire country through the internet. The Author has
discussed the importanceof intermediaries as ‘reposito-
ries of data’ and the provisions ‘protecting private/con-
fidential data’. Cyber laws may not be directly related to
business but since the world is moving to an E-platform
making it the preferred mode of transactions today,
one must be abreast with the developments in this field.
The book culminates with a deduction and summary of
the business opportunity in India in light of the above
chapters. Dr. Spedding has applauded the Modi govern-
ment for the initiatives taken to make the environment
conducivetocommercialdevelopment,suchas–(a)skill
development of our young population, (b) expenditure
on roads and ports to improve connectivity, (c) making
all state services available on an E-platform, (d) initia-
tion of the GST bill, (e) promoting the ‘Make in India’
campaign, (f) supplying power to businesses, etc. The
Author in the presence of certain pitfalls like infrastruc-
ture, uneven development, illiteracy and unskilled pop-
ulation forecasts a bright future at the horizon for India.
This book comes at an opportune time and provides the
reader the much-needed comprehensive understand-
ing of the Indian market dynamics. Dr. Linda Spedding
being an aficionado in the comparative commercial
sphere adds another edition to her oeuvre in 18 chap-
ters spread over 700 pages. The theme of the book is
to touch major aspects that ought to have a bearing
on business in India either directly or indirectly. The as-
signing of chapters on niche areas to advocates prac-
ticing in those very subjects has given greater depth
to the book. One appreciable pattern in every chapter
is the ease with which the Authors start to explain the
basic concept and slowly graduate from an elemen-
tary level to a professional level. With the increasing
awareness/knowledge/specialization in field specific
work today, ‘India – The Business Opportunity’ comes
as an ideal capsule for investors, analysts and lawyers
alike because it gives a detailed account of all laws
impacting Indian commerce in a single compilation.
Chritarth Palli is a Law Clerk cum Research Assistant to Hon’ble Justice T.S. Thakur, Chief Justice of India and an Assistant
Editor of India Law Journal.
(Disclaimer: This book review has already been published by India Law Journal (ILJ) and has been republished by us with
prior permission from ILJ. ILJ still retains the copyright to the book review.)

27. 25
DOMESTIC TRENDS
GDP Growth Stabilises in 2QFY17
NOVEMBER 2016
G
DP growth in the first quarter of the current fis-
cal came in at 7.3 per cent as compared to 7.1
per cent posted in the previous quarter, while
Gross Value Added (GVA) at basic prices posted growth
of 7.1 per cent in 2QFY17 as compared to 7.3 per cent
in 1QFY17. With this, the first half GDP growth stood at
7.2 per cent as compared to 7.5 per cent in the same
period last year. The sectoral data print reveals interest-
ing insights into the data. Even as investment growth
continued to contract for the third consecutive quarter
in 2QFY17, private consumption expenditure growth
quickened while government expenditure growth con-
tinued to post double-digit growth. Going forward,
pay commission payouts, contained inflation, and easy
monetary conditions are expected to support demand
in the economy.
From supply side, GVA growth strongest in
services
From the supply-side, agriculture growth accelerated to
3.3 per cent in the 2QFY17 as compared to 1.8 per cent
growth in 1QFY17. Farm growth picked up in line with
good kharif harvest thanks to bountiful monsoon re-
ceived this year. Industrial growth moderated to 5.2 per
cent in the July-September 2016 quarter from 6.0 per
cent posted in the previous quarter. Within industry, all
sectors except construction witnessed lower growth
in the second quarter as compared to the first quarter.
Though, services sector growth marginally decelerated
to 8.9 per cent in the reporting quarter as compared to
9.6 per cent in 1QFY17, it continued to remain relatively
healthy helped by robust government spending.

28. ECONOMY MATTERS 26
DOMESTIC TRENDS
Consumption continues to outpace invest-
ment
At market prices, private consumption expenditure ac-
celerated to 7.6 per cent in 2QFY17 as compared to 6.7
per cent in the previous quarter. A good monsoon this
year has powered rural income which in turn has sup-
ported private consumption growth. Though, govern-
ment spending growth moderated to 15.2 per cent in
the July-September 2016 quarter as compared to 18.8
per cent in the previous quarter, but it still remained ro-
bust. The worrying aspect on the expenditure front was
the fact that the contraction in gross fixed capital for-
mation has intensified and this is the third consecutive
quarter of de-growth. Even with an accommodative
monetary policy, substantial improvement in this sector
is still probably far away. Exports growth continued to
remain weak during the quarter.
tive for the economy. The transition of the informal
economy into a formal one is likely to be progressive
as it would help to widen the tax base which in turn will
boost consumption demand.
Going forward, the recent demonetisation drive of the
government is likely shave off a few percentage points
from the GDP in the next few quarters. However, the
long-term impact of this move is expected to be posi-
Outlook
The moderate uptick in GDP growth to 7.3 per cent in Q2FY17 as against 7.1 per cent achieved in the previous quar-
ter is noteworthy. The pickup in growth, which has been helped by higher output of agriculture and construction
sectors, is a confidence booster and point towards the re-emergence of growth impulses in the economy. The num-
bers point to the continuing dependence on consumption and public spending to revive demand while investments
are showing a declining trend as compared to last year. The demonetization move will act as a temporary setback
to growth in the coming quarter but CII expects a rebound in investment, going forward, as the government is tak-
ing decisive measures to bring transparency in the system and is committed to improve the investment cycle which
would ultimately take the economy to the double-digit growth trajectory in the long-run.

29. 27
DOMESTIC TRENDS
NOVEMBER 2016
Manufacturing sector posts positive growth
after two consecutive months of decline
The manufacturing sector posted growth after two con-
secutive months of contraction. Manufacturing sector
which has the highest weight among all the industrial
output sub-sectors grew by 0.9 per cent in September
2016 as compared to contraction of 0.2 per cent posted
in the previous month. 12 out of the 22 industries reg-
istered positive growth for September 2016. For the
April-September 2016 period, the sector’s output con-
tracted by 0.8 per cent, as against a growth of 4.2 per
cent in the same period a year ago. Mining & quarrying
sector continued to remain in the negative territory, al-
beit its magnitude of contraction reduced sharply in the
reporting month. In contrast, growth in the electricity
sector accelerated to 2.4 per cent in September 2016
from an anemic 0.1 per cent in the previous month.
In contrast, capital goods continue to remain
a key drag on the overall IIP
According to use-based classification, capital goods
continue to remain a key drag on the overall IIP. Capi-
tal goods witnessed the eleventh straight month of
contraction in the month of September 2016. The sec-
tor posted a contraction to the tune of 21.6 per cent
as compared to decline of 22.1 per cent in the previous
month. The continued decline in capital sector’s output
has raised doubts about the recovery of investment cy-
cle in the country. To be sure, industrial production ex-
cluding the output of the capital goods sector stood at
4.4 per cent during the month as compared to 2.6 per
cent in the previous month. Going forward, capital ex-
penditure by the Government will be crucial to support
recovery in this segment.
Consumer goods post an impressive perfor-
mance in September 2016
Encouragingly, consumer goods drove the overall im-
provement in IIP, growing by 6.0 per cent in September
2016, up from 0.7 per cent in August 2016. This growth
was accomplished on the back of a 14 per cent rise in
consumer durables production even as consumer non-
durables growth remained anemic at 0.1 per cent. While
the growth in non-durables sector has been depressed
Industrial output moved to the positive territory in Sep-
tember 2016 after two consecutive months of contrac-
tion. Industrial production posted a growth of 0.7 per
cent as compared to decline of an equivalent amount
in the last month. Manufacturing and consumer good
sectors witnessed an improvement during the month,
thus contributing to the uptick in the headline data
print. However, capital goods continued to weigh on
the overall industrial growth. On a cumulative basis, fac-
tory output in April-September 2016 contracted by 0.1
per cent compared to 4.0 per cent growth in the same
period a year-ago. Overall in FY17, we expect industrial
production to grow at a higher rate as compared to the
previous fiscal on the back of policy aided domestic up-
turn and low global commodity prices.
Industrial Output Moves to Positive Territory in
September 2016

30. ECONOMY MATTERS 28
DOMESTIC TRENDS
Core sector output improves for the second
consecutive month in October 2016
The output of eight core infrastructure industries fur-
ther improved to 6.6 per cent in October 2016 on year-
on-year basis as compared to 5.0 per cent in September
2016, thanks to a sharp rise in refinery production and
a pick-up in cement production. The cumulative output
improved to 4.9 per cent in April-October 2016 over the
corresponding period of last year. The index measures
output in eight infrastructure sectors – steel, cement,
coal, refinery products, natural gas, crude oil, fertilisers
and electricity generation. It has a 38 per cent weight in
the Index of Industrial Production (IIP). Cement output
quickened to 6.2 per cent in October 2016 compared
with a 5.5 per cent rise in September 2016. Refinery
products output quickened sharply to 15.1 per cent in
October 2016 as compared to 9.3 per cent in the previ-
ous month. The same three sectors continued to con-
tract in October 2016 as in August and September 2016
- coal, crude oil and natural gas.
for bulk of the year, better monsoon this year should
aid the recovery. The boost in consumption due to the
implementation of 7th Pay Commission report is ex-
pected to further improve the growth of consumer du-
rable sector further, going forward.
Government’s recent move to demonetise notes of
denomination Rs 500 and Rs 1000 will hit those indus-
tries which are highly dependent on cash transactions.
Industries such as construction, real estate, hotel busi-
nesses, self-owned businesses, bullion and jewellery,
mining etc. are likely face significant headwinds as a re-
sult of this move. Consequently, growth is likely to see a
sharp drop in the near term. However, in the long term,
economic activity will see gradual recovery amid more
inclusive growth, increased clampdown on black mon-
ey, increased efficiency (by increased tax compliance)
and boost to the formal economy.

31. 29
DOMESTIC TRENDS
NOVEMBER 2016
Outlook
The pick-up in industrial output in September 2016 after two consecutive months of contraction is an encourag-
ing sign. Going forward, normal monsoons, which should improve rural demand, along with the lagged impact of
interest rate reductions and 7th
pay commission handouts are expected to cushion demand in future and boost
industrial activity. There may be short-term disruptions on account of government’s recent demonetisation move
as it impacts the cash based transactions, which are a large part of the Indian economy. However, in the medium-
term the impact of this demonetisation will be largely positive for economic growth.
Inflationary Pressures Abating Slowly
Wholesale Price Index (WPI) based inflation moderat-
ed to 3.4 per cent in October 2016 as compared to 3.6
per cent in the previous month as food articles, led by
vegetables, witnessed softening of prices. This was the
second consecutive month of deceleration witnessed
in the WPI data print. CPI inflation too slowed down
further to 4.2 per cent in October 2016, a one year low
from 4.3 per cent in September 2016. This deceleration
too was driven by a drop in food inflation especially in
vegetables, fruits and pulses. Food and beverages infla-
tion dropped to 4.1 per cent in October 2016 as prices
for vegetables saw deflation to the tune of -5.7 per cent.
Pulses inflation too fell to single digit figures for the
first time in 21 months at 4 per cent from 14.3 per cent
posted in the previous month. Government measures
to address structural issues in pulses have led to relief
in this segment. Normal monsoon this year has also aid-
ed in the deceleration of food inflation. However, high
inflation was seen in sugar which could be a cause for
concern in the future. Going forward, as expected, the
positive impact of a favourable monsoon this year will
get further entrenched and result in further lowering of
food prices. Further, the recent demonetisation meas-
ure is likely to curb demand and put downward pres-
sures on inflation in the short-run. This will give the RBI
the necessary leg-room to cut interest rates further in
order to spur demand.
Food articles inflation pulls down inflation in
primary articles
Amongst the WPI sub-categories, inflation in primary
articles slowed down sharply to 3.3 per cent in October
2016 as compared to 4.8 per cent posted in Septem-
ber 2016. Within primary articles, inflation in both food
and non-food sub categories moderated during the
reporting month. Primary food inflation moderated to
4.3 per cent (as compared to 5.7 per cent in Septem-
ber 2016) while non-food inflation stood at 1.1 per cent
(as compared to 4.5 per cent in September 2016). How-
ever, within the WPI food segment, there were a few
segments which saw high inflation during the report-

32. ECONOMY MATTERS 30
DOMESTIC TRENDS
Outlook
Both WPI and CPI inflation moderated in October 2016, providing relief to the policymakers. It also validated the
Reserve Bank of India’s decision to frontload an interest rate cut in anticipation of such a development. Going
forward, CII expects CPI inflation to settle within the RBI’s target of 5 per cent for March 2017 as food prices are
expected to ease going forward on account of a spate of reforms undertaken by the present government to ad-
dress the supply bottlenecks and the expectation that monsoon would be normal after two consecutive years of
drought. This should spur RBI to continue its rate easing cycle as investments continue to be sluggish.
ing month. Potato, a daily consumable vegetable, wit-
nessed maximum inflationary pressure at 60.6 per cent,
while inflation in fruits rose by 6.5 per cent during the
month.
Fuel inflation accelerates on the back of in-
crease in the domestic fuel prices by the gov-
ernment
Inflation in the fuel group of WPI accelerated to 6.2
per cent in October 2016 from 5.6 per cent in the previ-
ous month on the back of increase in the domestic fuel
prices by the government. Inflation in petrol and die-
sel group quickened to 3.6 per cent (from 1.3 per cent
in September 2016) and 19.3 per cent (19.1 per cent in
September 2016) respectively in October 2016. Going
forward, with the Organization of the Petroleum Ex-
porting Countries (OPEC) announcing an agreement in
September 2016 to cut back on output in an attempt to
lift global prices back up, we can expect some upward
pressure on global crude oil prices. This in turn will push
up domestic fuel inflation as well.
Non-food manufacturing inflation slowly
inching up as demand slowly returns
Inflation in manufactured group increased marginal-
ly to 2.7 per cent in October 2016 as compared to 2.5
per cent posted in the previous month. Manufacturing
food inflation which had moved to double-digits in July
2016 moderated further to 10.5 per cent in the report-
ing month. Meanwhile, manufacturing non-food infla-
tion (popularly called as core inflation and a proxy for
demand-side pressures in the economy) accelerated to
1.0 per cent from 0.6 per cent in September 2016. With
core inflation recording an increase after a prolonged
period of deflation, there are indications that demand is
returning to the economy.

33. 31
DOMESTIC TRENDS
NOVEMBER 2016
Merchandise trade deficit widens sharply in
October 2016
Owing to positive growth posted by imports during the
month, the merchandise trade deficit widened sharply
to US$10.2 billion in October 2016 from US$7.7 billion in
the previous month. Cumulatively, during April-October
2016, India’s trade deficit stood at US$53.2 billion, a
whopping 32.0 per cent lower than the year-ago period.
Going forward, while improving domestic competitive-
ness through structural reforms is crucial to improve
exports performance; we believe that this can only ma-
terialize in the medium-term. In the near-term, a weaker
rupee can act as a catalyst to revive competitiveness.
Exports Growth Rebounds in October 2016
Signaling a reversal of the prolonged contraction in mer-
chandise exports for a very long time, growth in exports
rebounded to 9.6 per cent in October 2016 from 4.6 per
cent growth recorded in the previous month, on the
back of a good showing by the jewellery and engineer-
ing sectors. However, cumulatively for the April-Octo-
ber 2016 period, exports were down 0.17 per cent stand-
ing at US$154.9 billion, as against exports of US$155.2
billion over the same period last year. Gems & jewellery
exports rose 21.8 per cent to US$4.38 billion in October
2016 from US$3.59 billion in October 2015, while engi-
neering goods saw 13.8 per cent jump to US$5.26 billion
in comparison to US$4.6 billion in the corresponding pe-
riod last year. The trend was fairly consistent, with 18 of
the 30 categories recording growth on a year-on-year
(y-o-y) basis.
Merchandise imports posts growth after a
gap of 22 months in October 2016
Merchandise imports posted growth in October 2016
after a gap of 22 months. Imports grew by 8.1 per cent
to US$33.6 billion in October 2016 as compared to con-
traction of 2.5 per cent in the previous month. With
global oil prices climbing back to near US$50 a barrel
mark, oil imports during October 2016 were valued at
US$7.14 billion, which was 3.98 per cent higher than oil
imports valued at US$6.87 billion in the corresponding
period last year. Non-oil imports in October 2016 rose
by 9.3 per cent to US$26.53 billion, from US$24.28 billion
in the same month of last year. During April-October
FY17, merchandise imports on a cumulative basis stood
at US$208.0 billion, registering a degrowth of 10.9 per
cent on a year-on-year basis.

34. ECONOMY MATTERS 32
POLICY FOCUS
1. Demonetization gives body blow to black
economy
In a historical move that will add record strength in the
fight against corruption, black money, money launder-
ing, terrorism and financing of terrorists as well as coun-
terfeit notes, the Government of India has decided that
the Rs 500 and Rs 1000 notes will no longer be legal
tender from midnight, 8th November 2016. The Govern-
ment has accepted the recommendations of the RBI to
issue Rs 2000 notes and new notes of Rs 500 will also
be placed in circulation. Prime Minister Shri Narendra
Modi made these important announcements during a
televised address to the nation on the evening of Tues-
day 8th November 2016. Currency in the form of Rs 1000
and Rs 500 notes amounted to Rs 14.2 lakh crore as of
March 2016, or about 85 per cent of total currency in
circulation. If this is converted to current and savings
deposits, there will be an increase in banks’ liquidity.
Describing illegal financial activities as the “biggest
blot”, PM Modi said that despite several steps taken
by his government over the last two-and-a-half years,
India’s global ranking on corruption had moved only
to 76th
position from 100th earlier. The World Bank in
July, 2010 estimated the size of the shadow economy
for India at 20.7 per cent of the GDP in 1999 and rising
to 23.2 per cent in 2007. There are similar estimates
made by other Indian and international agencies. A
parallel shadow economy corrodes and eats into the
vitals of the country’s economy. It generates inflation
which adversely affects the poor and the middle classes
more than others. It deprives Government of its legiti-
mate revenues which could have been otherwise used
for welfare and development activities. Thus, the de-
monetization of high denomination notes is ultimately
a strong message that goes out to all those who used
cash for illicit activities. A big blow has been dealt to
those who engaged in corruption and took cash bribes.
The message will have far-reaching implications for
those who indulge in such illicit activities. This would
greatly curb such transactions and will be a body blow
to corruption, racketeering, human trafficking, gam-
bling, and other such activities which vitiate the entire
security system of the country.
The important policy announcements by the Government in the month of October-November 2016 are covered in this
month’s Policy Focus. Our endeavor through this section is to keep our readers abreast of the latest happenings on
the policy front so that they can take an informed decision accordingly.

35. 33
POLICY FOCUS
NOVEMBER 2016
Highlighting the key features of the measures an-
nounced, PM Modi added that these decisions of the
government will fully protect the interests of honest
and hard-working citizens of India and that those Rs
500 and Rs 1000 notes hoarded by anti-national and
anti-social elements will become worthless pieces of pa-
per. He further added that the steps taken by the Gov-
ernment would strengthen the hands of the common
citizens in the fight against corruption, black money and
counterfeit notes.
PM Modi highlighted that the people holding old notes
of Rs 500 or Rs 1000 could deposit these notes in bank
or post offices from 10th November onwards till 30th
December. However, there will be some limits placed
on the withdrawals from ATMs and bank for the very
short run. Further, he emphasized that there will be
no restriction on any kind of non-cash payments by
cheques, demand drafts, debit or credit cards and elec-
tronic funds transfer.
CII’s reaction on government’s demon-
etization drive
“Prime Minister Modi’s epochal move to stamp out
black money once and for all means a definitive and
impactful end to the parallel economy and wider
use of cashless transactions. The Prime Minister’s
address to the nation clearly mentions his vision
and objectives for introducing the unusual and in-
novative move of making Rs 500 and Rs 1000 notes
not legal tender any more. It sends out the strong
message that corruption and underground transac-
tions will no longer be tolerated. Prime Minister’s
resolute action infuses huge confidence among
honest tax payers, legal industry and the public at
large that India means business when it comes to
halting corruption and black money,” said Dr Nau-
shad Forbes, President, Confederation of Indian In-
dustry. He was responding to the bold measure to
demonetize Rs 500 and Rs 1000 notes announced
during an address to the nation by Hon’ble Prime
Minister Shri Narendra Modi.
“Prime Minister Modi has taken a massive and
strong measure that will have far-reaching positive
implications for the economy. We congratulate the
Prime Minister for his very courageous action that
broadcasts the powerful signal regarding curtail-
ment of the cash economy. It truly proves to citi-
zens and the world that India can take strong eco-
nomic measures when required, and underscores
the will of the Government to undertake big bang
reforms. We are confident that Prime Minister Modi
will continue to take up difficult moves with huge
macro impact on the economy in the future,” said
Mr Chandrajit Banerjee, Director General, CII.
The impact of the decision to make Rs 500 and Rs
1000 no longer legal tender will be felt in addressing
the issues of terrorism, counterfeit currency, and
arms smuggling, as mentioned by Hon’ble Prime
Minister. It would have economy-wide positive ad-
vantages in tackling the scourge of corruption that
has taken hold in the country over the last several
decades. Such an initiative was recommended by
CII several times in the past.
CII has always supported measures to root out cor-
ruption and black money. CII’s code of conduct for
ethical business prohibits bribery and money laun-
dering and promotes ethical business dealings and
compliance with laws on terrorist financing. In its
submissions to the Government, it has suggested
measures to address electoral spending tackle
black money and undertake steps to promote cash-
less transactions.
2. The Central Government takes various
decisions for the benefit of farmers in
the current Rabi Season and to promote
digital payments in the economy
Following the cancellation of legal tender character of
old Rs. 500 and Rs.1000 notes, a number of measures
have been announced by the Union Government, taking
into consideration the requirements of various sections
of society. Special measures like higher cash drawal
limits for farmers and registered traders in APMC mar-
kets/Mandis, extension of time limit for payment of
crop insurance premium, purchase of seeds with old
high denomination bank notes of Rs. 500 from certain
select Government Centres etc., have already been an-
nounced for the benefit of the farmers. Steps have been

36. ECONOMY MATTERS 34
POLICY FOCUS
taken to ensure availability of cash in rural branches of
Banks and 1.55 lakh Post Offices. Network of Banking
Correspondents has also been activated with higher
cash holding limits to meet the requirements of people
in the rural areas.
On further review of the matter, the Government has
taken certain decisions for the benefit of farmers in the
current Rabi season and to promote digital payments
in the economy. These are in the nature of operational
measures and are as follows:
- NABARD has made available Rs 21,000 crores limit
to the District Central Cooperative Banks (DCCBs)
through State Cooperative Banks for Rabi agricul-
tural operations. This will enable the DCCBs to sanc-
tion and disburse crop loans to the farmers through
the network of Primary Agricultural Cooperative
Societies (PACS). This will benefit more than 40 per
cent of the small and marginal farmers who avail in-
stitutional credit/crop loans.
- RBI and the Banks have been advised to make the
required cash available to the DCCBs. This will en-
sure quick and unhindered flow of credit and re-
quired cash to the farmers, especially for sowing
and other agricultural operations during the cur-
rent Rabi season.
- As a relief to small borrowers (i.e., loans upto Rs
1 crore), RBI has already decided to provide addi-
tional 60 days time for repayment of dues. This will
be applicable to personal and crop loans including
housing and agricultural loans, taken from banks,
NBFCs, DCCBs, PACS or NBFC- MFIs.
- There are 30 crore RuPay Debit Cards which have
been issued, including those issued to Jan Dhan
Account holders. To facilitate the use of this debit
card, the Banks have decided to waive transaction
charges (MDR) up to 31st December, 2016.
- To promote greater use of Debit Cards, Public Sec-
torBanksandsomeoftheprivatesectorBankshave
decided to waive the MDR charges till 31.12.2016.
Other private sector Banks are expected to do like-
wise.
- To promote greater use of Debit Cards, Public Sec-
torBanksandsomeoftheprivatesectorBankshave
decided to waive the MDR charges till 31.12.2016.
Other private sector Banks are expected to do like-
wise.
- To promote greater usage of payments through e-
wallets, RBI has decided to increase the monthly
transaction limit for individuals from Rs 10,000 to
Rs 20,000.
- TRAI has decided to reduce the Unstructured Sup-
plementary Service Data (USSD) charges from the
current Rs 1.50 per session to Rs 0.50 per session
for transactions relating to Banking and payments.
They have also increased the stages from current
five to eight.
- All Government organizations, public sector un-
dertakings and other Government authorities have
been advised to use only digital payment methods
such as internet banking, unified payment inter-
face, cards, Aadhar enabled payment system etc. to
make payments to all stakeholders and employees.
3. RBI allows banks to issue masala bonds
The Reserve Bank of India (RBI) on November 3rd, 2016
after consultation with the government, has allowed In-
dian banks to raise funds through issuance of rupee-de-
nominated bonds overseas (also called masala bonds)
within the present limit of Rs 2,44,323 crore set for
foreign investment in corporate bonds. According to
the RBI, a robust macroeconomic scenario in India and
a relatively stable currency view could attract investors
to rupee bonds issued overseas by Indian firms. Foreign
investors already involved in the Indian domestic cur-
rency space could also be interested in the overseas
rupee product.
To strengthen their capital base, banks could raise per-
petual debt instruments, which could be considered for
calculating a bank’s additional tier-1 capital, or debt cap-
ital instrument that can go into calculating a bank’s tier-
2 capital. These bonds will be issued according to the
Basel-III norms and therefore, will have loss absorption
clause. Under this clause, a bank could choose not to
honour the coupon payment in case of financial stress.
For financing infrastructure and affordable housing, the
banks could issue long-term bonds, which don’t have
the loss absorption clause.

37. 35
POLICY FOCUS
NOVEMBER 2016
Rupee bonds overseas offer ease of access compared to
the process of direct investments in India (registration
as a foreign portfolio investor (FPI) and involvement of
domestic custodians and brokers and local settlement
systems), the central bank said. The window for rupee-
denominated bonds overseas is expected to become
a meeting ground for Indian corporates seeking funds
and foreign investors seeking returns.
4. Council fixes 4-level GST rate structure
The GST council has decided that the Goods and Ser-
vices Tax (GST) will be levied at multiple rates ranging
from 0 per cent to 28 per cent. A zero tax rate will ap-
ply to 50 per cent of the items present in the consumer
price index basket, including food grains such as rice
and wheat. The lowest slab of 5 per cent will be for
items of common consumption, while there would be
two standard rates of 12 per cent and 18 per cent, which
would fall on the bulk of the goods and services. This
includes fast-moving consumer goods. Demerit goods
such as tobacco, aerated drinks, pan masala, and lux-
ury car will be taxed at 28 per cent with an additional
Cess. This Cess along with Clean Energy Cess would be
used to compensate States for loss of revenue during
the first 5 years of GST implementation. The GST Coun-
cil will review annually the tax revenue raised from the
cess that will fund compensations from the Centre to
States for losses arising out of the transition to the GST.
5. Draft Model GST Law, Draft IGST Law and
Draft Compensation Law Placed in the
Public Domain
The Draft Model GST Law (MGL), Draft IGST Law and
Draft Compensation Law which would be considered
by the GST Council for approval has been placed in the
public domain for information of trade, industry and
other stake holders. The first draft of the MGL had been
released by the Ministry of Finance (MoF) on 14th June
2016 for seeking recommendations from industry, trade
bodies and other stakeholders.
Goods and Services Tax (Compensation to the States
for loss of revenue) law has been put in public domain
alongwith the draft Central Goods and Services Tax
(CGST) law / State Goods and Services Tax (SGST) law
[forming part of MGL] and Integrated Goods and Ser-
vices Tax (IGST) law.
There are significant changes in the revised draft laws
with respect to the definitions, levy of tax, Input Tax
Credit, time and place of supply etc. GST rules, Valua-
tion rules, exemption list and the classification of goods
and services are yet to be notified. The revised and im-
proved version of this Model GST laws shall now be con-
sidered by the GST Council for approval on 2nd and 3rd
of December, 2016.
6. Revised Double Taxation Avoidance and
the Prevention of Fiscal Evasion (DTAA)
Agreement signed between India and Cy-
prus
Nearly three months after Cabinet approved signing
of revised Double Taxation and the Prevention of Fis-
cal evasion (DTAA) with Cyprus, India has now signed a
new double tax avoidance pact with this Island nation,
which is a popular tax haven. This agreement will re-
place the existing DTAA that was signed by two coun-
tries on 13th June 1994. The Protocol was signed by Mr.
Ravi Bangar, High Commissioner of India to Cyprus on
behalf of India and Mr. Harris Georgiades, the Minister
of Finance on behalf of Cyprus.
New DTAA provides for source based taxation of capi-
tal gains arising from alienation of shares, instead of
residence based taxation provided under the existing
DTAA. However, a grandfathering clause has been pro-
vided for investments made prior to 1st April, 2017, in re-
spect of which capital gains would continue to be taxed
in the country of which taxpayer is a resident.
The new Agreement provides for assistance between
the two countries for collection of taxes. The new
Agreement also updates the provisions related to
exchange of information to accepted international
standards, which will enable exchange of banking in-
formation and allow the use of such information for
purposes other than taxation with the prior approval of
the competent authorities of the country providing the
information. The new Agreement expands the scope of
‘permanent establishment’ and reduces the tax rate on
royalty in the country from which payments are made
to 10 per cent from the existing rate of 15 per cent, in

38. ECONOMY MATTERS 36
POLICY FOCUS
line with the tax rate under Indian tax laws. It also up-
dates the text of other provisions in accordance with
the international standards and consistent policy of In-
dia in respect of tax treaties.
Provisions of new DTAA will enter into force after the
completion of necessary internal procedures in both
countries and is expected to come into effect in India in
respect of income derived in fiscal years beginning on or
after 1st April, 2017.
7. India to get Swiss Bank Accounts Data
from September 2018
India will be able to access information relating to bank
accounts held by Indians in Switzerland from Septem-
ber 2019 onwards. As per the agreement signed by the
two countries on Tuesday, data beginning September
2018 will be shared from September 2019 onwards on
an automatic basis, a finance ministry statement said.
The ‘Joint Declaration’ for implementation of Automat-
ic Exchange of Information (AEOI) signed on 22nd No-
vember, 2016 between India and Switzerland provides
that both countries will start collecting data in accord-
ance with the global standards in 2018 and exchange it
from 2019 onwards. While Switzerland has conformed
to the global standards on automatic exchange of infor-
mation with the signing of the declaration, India, on its
part, has promised to safeguard the confidentiality of
the data. The Joint Declaration for implementing AEOI
was signed by CBDT Chairman Sushil Chandra and Depu-
ty Chief of Mission of Swiss Embassy Gilles Roduit.
8. RBI Announces Measures to Manage Li-
quidity Conditions
With the withdrawal of the legal tender status of Rs
500 and Rs 1,000 denomination bank notes beginning
November 9, 2016, there has been a surge in deposits
relative to the expansion in bank credit, leading to large
excess liquidity in the system. The magnitude of surplus
liquidity available with the banking system is expected
to increase further in the fortnights ahead. In view of
this, RBI has decided to absorb a part of this surplus
liquidity by applying an incremental cash reserve ratio
(CRR) as a purely temporary measure, as under:
a. The CRR remains unchanged at 4 per cent of out-
standing net demand and time liabilities (NDTL).
b On the increase in NDTL between September 16,
2016 and November 11, 2016, scheduled banks shall
maintain an incremental CRR of 100 per cent, effec-
tive the fortnight beginning November 26, 2016.
This is intended to absorb a part of the surplus li-
quidity arising from the return of the withdrawn
currency to the banking system, while leaving
adequate liquidity with banks to meet the credit
needs of the productive sectors of the economy. As
the incremental CRR is intended to be a temporary
measure within the Reserve Bank’s liquidity man-
agement framework to drain excess liquidity in the
system, it shall be reviewed on December 9, 2016 or
even earlier.
c. The Reserve Bank has separately revived the Guar-
antee Scheme to enable deposit of the withdrawn
currency balances at the Reserve Bank and get im-
mediate value. This measure should also facilitate
banks’ compliance with the incremental CRR.
9. Taxation Laws (Second Amendment) Bill,
2016 Introduced in Lok Sabha
Evasion of taxes deprives the nation of critical resources
which could enable the Government to undertake anti-
poverty and development programmes. It also puts a
disproportionate burden on the honest taxpayers who
have to bear the brunt of higher taxes to make up for
the revenue leakage. As a step forward to curb black
money, bank notes of existing series of denomination
of the value of Rs.500 and Rs.1000 had been recently
withdrawn the Reserve Bank of India.
Concerns have been raised that some of the existing
provisions of the Income-tax Act, 1961 (the Act) could
possibly be used for concealing black money. The Taxa-
tion Laws (Second Amendment) Bill, 2016 (‘the Bill’) has
been introduced in the Parliament to amend the provi-
sions of the Act to ensure that defaulting assessees are
subjected to tax at a higher rate and stringent penalty
provision.
Further, in the wake of declaring specified bank notes