1.NITI bats for tax breaks to achieve monetisation goal

It proposes insolvency cover for investment instruments

To make the National Monetisation Pipeline (NMP) a success, the government should give Income Tax breaks to attract retail investors into instruments such as Infrastructure Investment Trusts (InvITs), the NITI Aayog has recommended.

The Centre’s think tank driving the NMP, estimated to raise almost ₹6 lakh crore for the exchequer over four years, has also called for bringing such trusts within the ambit of the Insolvency and Bankruptcy Code (IBC) to provide greater comfort to investors.

Bringing in policy and regulatory changes to scale up monetisation instruments such as InvITs and Real Estate Investment Trusts (REITs) and expand their investor base have been identified as a critical element for the NMP. The government plans to use the InvIT and REIT route to monetise public assets such as highways, gas pipelines, railway tracks and power transmission lines.

“More tax-efficient and user-friendly mechanisms like allowing tax benefits in InvITs as eligible security to invest under Section 54EC of the Income Tax Act, 1961, are important starting points for initiating retail participation in the instruments,” the Aayog said in its blueprint, indicating that further taxation-related tweaks may be needed along the way.

Capital gains offset

Section 54EC allows taxpayers to offset long-term capital gains from transactions in immoveable properties through investments in bonds issued by some government-backed infrastructure firms. “Though this will entail a cost in the form of loss of revenue for exchequer, the long-term benefits may outweigh the cost as linking investments in specified bonds with the capital gains exemption had proved to be a success in the past,” Amit Singhania, partner at Shardul Amarchand Mangaldas & Co., told The Hindu, adding that this will encourage retail investor participation in InvITs.

While InvIT structures have been used in India since 2014, the Aayog pointed out that such trusts are not considered a ‘legal person’ and cannot be brought under IBC proceedings, deterring lenders from participating. “Since the trusts are not considered as ‘legal person’ under the extant regulations, the IBC regulations are not applicable for InvIT loans,” the Aayog said.

The Central government introduced the Insolvency and Bankruptcy Code(IBC) in 2016 to resolve claims involving insolvent companies. This was intended to tackle the bad loan problems that were affecting the banking system. Two years on the IBC has succeeded in a large measure in preventing corporates from defaulting on their loans. The IBC process has changed the debtor-creditor relationship. A number of major cases have been resolved in two years, while some others are in advanced stages of resolution.

2.‘U.S. will focus more on China now’

USISPF chief says India can benefit from U.S. investment that is leaving China

The Biden administration’s moves to pull out troops from Afghanistan and Iraq mean there will be more American focus on dealing with China, and India could benefit from U.S. investment that is leaving China if the Modi government becomes more transparent in policy-making and “open for business”, said Indo-U.S. trade body chief Mukesh Aghi.

However, he said there is not as much interest in concluding an Indo-U.S. Free Trade Agreement as there was during the Trump administration and India must also put aside its hopes of having its “GSP status” restored, which was cancelled in 2019. Both sides must work on more deliverable goals.

Bones of contention

“If [India] makes GSP a central issue, and the U.S. side makes human rights, labour rights a central issue, then it’s a non-starter. Look at other bigger challenges we have,” Mr. Aghi, President and CEO of the Washington-based U.S. India Strategic Partnership Forum (USISPF) told The Hindu in an interview.

Last week, Commerce Minister Piyush Goyal had said in a speech the U.S. had indicated it was “not looking” for a new trade agreement, but wanted to work on improving market access issues that have become a sore point. However, despite the cancellation of India’s GSP status, exports to the U.S. are the fastest rising than to any other country, indicating the GSP status, which New Delhi has been pushing for, may not have affected demand.

Mr. Aghi was in Delhi for meetings with several Ministers including Mr. Goyal, External Affairs Minister S. Jaishankar who is a “Board Member Emeritus” of the USISPF, as well as Ministers of Information Technology (MEiTY), Civil Aviation, Sports, Health and Education ahead of a planned visit by Prime Minister Narendra Modi to the United States in a few weeks.

The USISPF has invited Mr. Modi to address a special annual meeting of its members in Washington, where President Biden is expected to hold the first in-person ‘Quad’ summit with the leaders of India, Australia and Japan.

Economic cooperation

The summit, which is yet to be confirmed by all the leaders, is likely to be held on September 26-27, a day after PM Modi delivers an address to the U.N. General Assembly. The four countries are likely to discuss economic cooperation on issues like critical and emerging technology, countering climate change and a COVID-19 vaccine partnership. The meeting will also be significant as it would come shortly after the U.S. completes its pull-out from Afghanistan.

“I think pulling out from Afghanistan and Iraq will give resources to the strategists in the U.S. side and they will start looking at putting resources on dealing with China. So I think you will see Quad getting more stronger from that perspective, with more focus. And hopefully, it will go beyond the geopolitical to looking at the economic agenda,” Mr. Aghi said.

Mr. Aghi also said with India-China tensions growing and the Modi government blocking Chinese FDI (foreign direct investment) proposals, India will need to depend on other countries like the U.S. to realise the PM’s hopes of a “5-trillion dollar economy”, as well as a possible economic trade agreement on the lines of the “Trans-Pacific Partnership.”

Mr. Aghi said India still has a “communication problem” among U.S. businesses, as it is not seen as investor-friendly on issues like consultative policy making; legal protections like the indemnity issue holding up the import of U.S.-made vaccines and arbitration and dispute resolution, referring to the Cairn Energy dispute.

USISPF

• Established: The USISPF is a non-profit organization established in 2017.
• Objective: Strengthening the USA-India bilateral and strategic partnership.
• Aim: Strengthening economic and commercial ties between the two countries through policy advocacy that will lead to driving economic growth, entrepreneurship, employment-creation, and innovation to create a more inclusive society.
  • Enabling business and governments to collaborate and create meaningful opportunities that can positively change the lives of citizens.
• Theme for 2020: US-India Navigating New Challenges.
• Economic Relations: In 2019, overall USA-India bilateral trade in goods and services reached USD 149 billion.
  • USA energy exports are an important area of growth in the trade relationship.