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BS REPORTERNew Delhi, 17 March

The Cabinet on Tuesdayapproved the signing ofan inter-governmental

agreementbetween Indiaand the US seek-ing to imposehigher withhold-ing tax on Indiancompanies ontheir US income,if they do not pro-vide informationabout their clientsto the US government.

The agreement under theForeign Account TaxCompliance Act (FATCA) willenable exchange of informationon cases of tax avoidancethrough overseas entities. FAT-CA is a US legislation to ensureforeign financial institutionsprovide information aboutclients who could be subject toAmerican tax laws.

Indian institutions had tosign up with the Internal

Revenue Service (IRS) of the USfor this purpose. They had toobtain a Global IntermediaryIdentification Number beforeJanuary 1, 2015, and have toreport the assets of such clients

to the IRS.Financial insti-

tutions such asbank, brokerage ormutual fund, whichdo not sign up withIRS will face a 30per cent withhold-ing tax on all pay-ments from the US.The idea is to cap-

ture the details of US taxpayers’unreported foreign financialaccounts, stock, securities,mutual funds and insurance orannuity schemes with a cashvalue above $50,000.

The US has given Indiatime till September 30 to put inplace a framework to trackthese assets. The deadline hadbeen extended twice because anumber of regulatory concernshad surfaced in between.

The Securities and

Exchange Board of India hadreportedly raised questionsover issues, which includepenalties imposed on financialinstitutions under FATCA.

It was also decided to jointhe multilateral competentauthority agreement on auto-matic exchange of information.According to sources, the deci-sion will enable India to getinformation from the US andfrom other jurisdictions withwhich India has similar agree-ments, about the assets thatIndians hold abroad.

Prime Minister NarendraModi had strongly supportedautomatic exchange of infor-mation during the G20 leaderssummit on November 16, 2014,in Brisbane, and stated thiswould be instrumental in get-ting information about unac-counted money hoardedabroad and enable its eventu-al repatriation.

So far, 52 countries havesigned the agreement on auto-matic exchange of information.

Signing of tax pact withUS under FATCA gets nod

The agreement

under the Foreign

Account Tax

Compliance Act will

enable exchange of

information on

cases of tax

avoidance through

overseas entities

N CABINET DECISIONS N

Page 4: BS+ET+TOI 18-03-15

All letters must have a postal address andtelephone number

>

Does Indian cinema have softpower? And is the new chief ofthe Central Board of Film

Certification (CBFC) messing with that?Here are some facts before we

answer these questions.India is a free, liberal market for the

creation and exhibition of films. It hasno quotas or restrictions like, say, Chinawhich allows the import of only 34 for-

eign films a year. With such a small quo-ta, Hollywood still manages to get half ofthe Chinese box office. In India, on theother hand, Hollywood’s share of box-office revenues has remained between5-8 per cent for more than a decade. The~14,000-crore Indian film industry is acreatively vibrant, prolific and finan-cially healthy one. This explains whyevery one of the major global studios isproducing local films in India.

The influence of Indian cinema,however, goes beyond its 10,000-oddcinema screens. More than 16 per cent ofall TV viewing comes from films. Indianadvertisements are dominated by filmstars. Many of the country’s biggest cre-ative names in advertising – PrasoonJoshi, R Balki, for instance – double asfilm-makers, lyricists or scriptwriters.More than three-fourths of the musicsold in India is from films. Almost all theprogramming on radio is film music.

Films, the ones Indians make for

themselves and in their cultural con-text, dominate the cultural, social andeven political sphere at times. Some ofthe longest-running chief ministershave been popular stars.

For a 100-year-plus industry, whichhad no access to institutional financing orstate support, to hold on to its ownagainst Hollywood films speaks volumesabout its soft power. Indians voted forIndian films with their wallets when theywere relatively poor and now when theyare relatively well-off. This is the biggestmark of its soft power. The only othercountry that stands up with a robust,locally plugged industry is South Korea.And outside India, the films act as a pow-erful magnet, especially in countries withcultural affinity — in West Asia, south-east Asia, Mediterranean markets andeven large chunks of Europe. They are agood if not very lucrative export to have.

To answer the questions that wereposed in the beginning then — yes,

Indian cinema has soft power. And evenif it did not have soft power, no one, theCBFC or the ministry, should be allowedto mess with that.

Going by media reports earlier thisweek, a delegation led by Mahesh Bhattand others from the film industryappealed to the Minister of State forInformation and Broadcasting about thedifficulties of working with an increasingnumber of restrictions on what films canor cannot do. The banning of 28 cusswords, of the use of words such as“Bombay” and “lesbian”, are among someof the changes that Pahlaj Nihalani, thenew CBFC chief who took over in January,has made. Many films are being are beingpersonally cleared by him, say reports.

The CBFC’s job is to ‘certify’ films asfit for viewing by the audience. It is nota censor board or the guardian of India’smorality. There are too many peoplewanting to take on that mantle. PareshMokashi’s critically acclaimed Elizabeth

Ekadashi (Marathi, 2014) got slammedfor using a British Queen’s name alongwith an auspicious day in the Hindu cal-endar. Barbers thought the term ‘bar-ber’ was derogatory, so ‘Billu Barber’became Billu (2009). Dhobi Ghat (2011)had dhobis or washermen in Mumbaiup in arms. The list is endless.

Sure, there are good films and badfilms but let the audience decide that. Byputting restrictions on what film-makerscan or cannot do, the CBFC takes awayfrom the wonderful ability of the Indianindustry to connect with its audience.Largely, Indian films are getting better attelling Indian stories in a language andcontext that Indians want to hear themin. And they touch every aspect of thelives, dreams, problems and miseries ofIndians. Whether it is Bobby from theearly seventies to Jaane Bhi Do Yaaro inthe mid-eighties to the more recent LageRaho Munna Bhai or 3 Idiots and Kai PoChe, our film-makers, whether they areIndian or American, know what Indianslike and don’t like; not the CBFC.

Twitter: @vanitakohlikLarge parts of this column are extracted froma paper, ‘The Soft Power of Indian Cinema’,the columnist presented at the University of Leeds in the UK last year

Is the censor board going overboard?The Indian film industry has survived more than a hundred years of state neglect and is now a global force.The moral policing of the CBFC could end up destroying this symbol of India’s soft power

MEDIA SCOPEVANITA KOHLI-KHANDEKAR

Page 5: BS+ET+TOI 18-03-15

All letters must have a postal address andtelephone number

It’s hard to remember a Budget thatwas met with as much expectation asthe 2015 rendition was. There was a

universal anticipation that it would sig-nal the government’s economic visionfor its first term.

So, were expectations met? On insti-tutional reform, absolutely. A formalmonetary policy framework, with a com-mitment to a monetary policy commit-tee, a world-standard bankruptcy law, apublic-works dispute resolution mecha-nism. If implemented, these institu-tional advancements lay the ground-work for a modern emerging market.

But at the heart of the Budget was agamble – a relaxation of the fiscal deficitto create space for more public invest-ment and transfers to the states – thelatter in line with the Fourteenth FinanceCommission. The case for the former isclear. Private investment remains in aslump and balance sheets – particularlyin the infrastructure sector – remainoverextended. With this kind of debtoverhang, the chances of any privatecapex appear dim. Public investmentmust endeavour to fill the slack.

So, will the gamble succeed? In myview, whether it succeeds will come downsquarely to execution this year? But whyis execution unduly important this year?

First, let’s recognise the changedmacroeconomic backdrop. Over the lastthree Budgets, fiscal policy has simplybeen firefighting. The deficit wasallowed to balloon during and immedi-ately after the Lehman crisis. And theconsequences of that fiscal expansionwere for all to see — inflation surged,the current account deficit ballooned,and India came perilously close to a sov-ereign ratings downgrade in the fall of2012. The primary goal, therefore, of thelast few Budgets was to slash the deficit— in a bid to reduce aggregate demandand thereby external and internal imbal-ances. Budgets were largely judged bywhether the attempted fiscal consolida-tion was aggressive enough. Of course, itwould have been nice if revenues wererealistically budgeted and/or capitalexpenditures were preserved. But thesewere second-order issues. What mat-tered was whether the deficit target washit, and aggregate demand reducedenough. The ends justified the means.

But the macro environment is nowvery different. There are no fires to be putout. India is now considered the epitomeof macroeconomic stability — inflationhas fallen rapidly, the current accounthas collapsed and the rupee is underappreciating pressures even as otheremerging market currencies are underpressure. But growth remains very weak.Too weak for comfort. So, unlike the“stability” Budgets of the last three years,this is a “growth” Budget after many

years. The Budget’s primary objective,therefore, is to boost public investmentin a bid to catalyse private investment.That is the criterion on which the Budgetwill largely be judged, given that fiscaltargets were relaxed in the process.

It’s important, therefore, to recog-nise that the Budget’s capex thrust isvery diffuse. The allocation of non-defense capital expenditure has beenincreased by just 0.17 per cent of grossdomestic product (GDP) over what wasachieved last year. And the allocation is,in fact, less than last year’s Budget as apercent of GDP. Instead, the Budgetenvisions other engines firing: publicsector enterprises investing in publicinfrastructure to the tune of 0.15 per

cent of GDP, states spending some partof their net transfers from the Centre(0.4 per cent of GDP) on capex and theNational Investment and InfrastructureFund levering up. That said, the Budgetpromises to arm the infrastructure fundwith ~20,000 crore a year, though thereis no explicit allocation exists just as yet.So, a public investment boost is cer-tainly intended. But it is largely off theCentre’s balance sheet. And all engineswould need to fire simultaneously.

What happens on the revenue side,however, is equally critical. Over the lastthree years, overly ambitious revenue pro-jections – which would rarely materialise– have meant that capex expenditureshave been the first casualty to meet fiscal

targets. In fact, on average, less than 80per cent of the capex allocation has beenmet in the last three years. From thatstandpoint, revenue assumptions are farmore realistic this year. But they are not aslam dunk. After making the one-offadjustments, tax buoyancy last year print-ed at 0.7 last year, and is budgeted at 1this year. By no means impossible. But itwould require an appreciable growth lift.

On the asset sale front – the govern-ment has been much more bold—tar-geting 0.65 per cent of GDP, which isunprecedented. By increasing asset salesand capex expenditures by about 0.2 percent of GDP each, the government hasessentially delivered an asset swap –something we have long advocated. Thisis very desirable. But, now, executionbecomes the key. A systematic, pro-active disinvestment plan needs to startearly in the year and be appropriatelystaggered. A back-loaded ad hoc pro-gramme is unlike to escape the fate ofprevious years.

All told, the success of the Budgetwill be judged by how much of a publicinvestment thrust it ultimately delivers.And here, line-item execution becomescritical, because the margin for error isvery small. If oil prices were to rise orgrowth, and, therefore, tax buoyancy,does not materialise or disinvestmentfalls short, planned capex could becomethe first casualty. And we could end up inno-man’s-land — a deficit of 3.9 per centof GDP without any increase in capex.Neither bond nor equity markets will behappy with that.

Conversely, pro-active and aggressiveexecution has the potential to both reducethe deficit and boost public investment.For that, however, subsidy slippages any-where must be met by savings elsewhere.Asset sales must be embraced and notshied away from. States must be proddedto spend and save their transfers wiselyand in equal measure. And monies mustbe found soon for the National Investm-ent and Infrastructure Fund. The Budgetis clearly well intentioned. It has talked thetalk. Now it must walk the walk.

The author is chief India economist, JP Morgan

Whether the Budget’s public investment thrust will pay off will depend crucially on line-item execution

India’s Budget: Why executionis so important this year

SAJJID Z CHINOY

TIME TO DELIVER The Budget is clearly well intentioned. It has talked the talk.

Now it must walk the walk PHOTO: REUTERS

Page 6: BS+ET+TOI 18-03-15

ILLU

STRA

TION

BY

BIN

AY S

INH

A

2015-16: a Union Budget with sense and sensibility

Reams have been written on the Union Budgetextolling its proposals or damning them. Asthe discussion approaches an asymptotic ter-

mination, I find that something needs to be said in ret-rospect that balances the thrust ofthe debate that ensued soon after itspresentation in Parliament.

The primary concern prior to theBudget was how to address theextremely negative aspects of taxationfor business decisions that had drivendomestic and foreign investment awayfrom Indian shores. To elaborate,businesses face two obstacles whenmaking a business decision. The firstis risk. An investor has a perception ofthe risk he faces as a risk averter or arisk preferer. Reflecting his perceptionof risk in an investment, he decides toinvest by taking risk insurance, or to stay away from theinvestment.

The second is uncertainty. The investor has a hardtime assessing uncertainty, for it represents factors quitebeyond his conceptualisation in the environment fromwhere he should ideally be in a position to judge if apotential investment is worth it or not. Tax laws between2009-12 converted the investment environment quiteuncertain. Worse, not only did uncertainty prevail forthe future, but it was extended into the past through var-ious retrospective amendments, some of which cata-pulted India to a global high as a poor place to invest.

To begin, the Budget has no doubt attempted toaddress uncertainty. First, it has postponed GAAR foranother two years and has indicated its prospectiveapplication. However, this will not help unless tax offi-cers are given intensive training as to how to use theinstrument. Further, the income tax department has sofar ignored the thirty plus examples provided by the 2012GAAR committee for the use of GAAR. These examplesshould be vitalised. Otherwise, a mere postponementwould be ineffective in removing uncertainty that wouldbe caused by GAAR’s application.

Second, Finance Minister announced that the tax-ation of indirect transfers will be addressed by CBDTthrough a clarificatory circular. That is welcome.However, there was no explanation why he did not pre-

scribe primary legislation for it especially since sucha circular can only address indirect transfers exclu-sively rather than remove or restrict retrospective tax-ation in a wider context. Yet only the latter would

remove uncertainty comprehensively.Further, the 2012 committee on taxa-tion of indirect transfers had cautionedagainst (1) treaty override since Indiastill is a capital importing country, and(2) taxing indirect transfers betweencompanies registered and trading onthe stock exchange. If these mattersremain inadequately addressed, aPandora’s Box of issues will jump out toscuttle government's stated economicobjective of enhancing ease of doingbusiness.

Third, FM’s mention that recom-mendations of the Tax Administration

Reform Commission (TARC) that has just completed itswork, will be implemented in 2015-16 was salutarythough elaboration would have been useful for taxpay-ers to be reassured. TARC emphasised the importanceof assigning accountability since, contrary to mod-ernising tax administrations, India simply does notpractice it, looking at the mass of tax disputes. It wouldnot be surprising if the Indian total surpasses a com-bined rest-of-the-world. FM’s mention of a DisputesBill was salutary but details are awaited.

Fourth, following the announcement of GST intro-duction in 2016, it is time now to put any proposedstructure up for discussion with stakeholders and todesist from introducing GST just on the basis of centre-state discussions at government level. Governmentstend to discuss GST proposals in great detail with tax-payers and the Indian government should follow thosemodern principles. After all, a move from the currentindirect tax structure would make sense only if GST isanchored on easing business and investment. Yet so farthere is no White Paper on GST structure leave alonedeeper technical aspects that will undoubtedly affecttaxpayers and fundamentally alter their interface withcentral and state tax administrations.

Fifth, FM’s pre-announcement of government’sintention to reduce the headline corporate tax rate to25% in consonance with GST dynamism was a daring

step in the right direction. However, the super rich taxdoes impact corporations as well so that in the currentyear, they will be hit with a higher tax rate. This couldhave been explained through some justification in thegovernment’s view of a super rich tax that includesnon-individuals.

Sixth, the abolition of the wealth tax that hardlyyields revenue was a good idea but, in as poor a countryas India, should government reject wealth taxation com-pletely, or should it redesign it at a very small rate on awide base as proposed in DTC2013? This matter shouldbe seriously reconsidered.

Indeed, seventh, FM’s statement that the DTC wasbeing dropped altogether on grounds that most DTCproposals had already been incorporated in the IncomeTax Act reflected an erroneous view of the tax admin-istration that the remaining tough nuts to crack couldbe safely set aside from the ITA. Even Yashwant Sinhaexpressed disappointment at this. FM should retractfrom this position not necessarily through another state-ment but through re-examination of DTC2013 andincorporating the many reform features that remain tobe included in ITA. This topic is worth revisiting atsome point by tax experts.

Eighth, tax revenue has suffered due to the under-ground economy. While Switzerland has an announce-ment effect, the bulk of the problem resides in India. TheBudget announcements to curb black money are thestrongest ever made by any Indian government. It is tobe seen how far government is able or willing to moveon this. If it can, greater tax revenue will get rightfullycaptured in the exchequer and the administrationwould be more easily able to become customer friend-ly in its operations. The crux here would be to encour-age and ensure voluntary compliance by not going afterroving enquiries and thereby turning good taxpayersinto non-filers.

Ninth, the small attempt by government to addressenvironmental degradation by doubling the clean ener-gy cess on coal from ~100 to ~200 per metric tonnewas welcome though, certainly, this is not enough.Urban areas in India deplete life by three years on aver-age; yet there is blindness in favour of pushing theconcept of the small car hub. There has to be wider uni-lateral use of carbon tax in India without looking overour shoulders to see what other countries are doing. Weowe this to ourselves.

Tenth, I would like to emphasise three salient fea-tures that added sense and sensibility to the Budget.First, it made sense to focus tax incentives on invest-ment, primarily infrastructure where the widest gapexists. Second, it also made sense to extend the fiscaldeficit target by one year for absolutely nothing was tobe gained by strict adherence to a paper target whenrevival of the economy is of the direst importance.Third, there was a touch of sensibility by focusingexpenditure subsidies on the absolute poor while cut-ting back on the ones fraught with leakage as fieldreports continue to reveal.

That the government bit the bullet to reveal itsintentions and promises is a sign of apparent sinceri-ty. However, its Budget did leave behind a veil over fea-sibility and a challenge of delivery.

PARTHASARATHI SHOME

The real challenge is delivery

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With Maharashtra and Haryana taking fresh legislative initiatives to bancow slaughter and beef consumption, a highly emotive, albeit con-tentious, issue that had long remained muted has needlessly beenraked up again. Maharashtra has extended an existing slaughter ban

to cover bulls and bullocks as well through the Maharashtra Animal Preservation(amendment) Bill. Passed by the previous BJP-Shiv Sena government, it has final-ly received the President’s formal assent. In Haryana also, slaughtering of cattle(including bulls, bullocks, oxen, heifers and calves) had already been proscribedunder the Punjab Prohibition of Cow Slaughter Act, 1955, that applied to the wholeerstwhile state of Punjab, of which Haryana was a part. The new law has extendedthe ban even to the sale of canned beef – which was permitted earlier – and madeits violation a non-bailable offence. In fact, most Indian states have some kind of anti-slaughter regulations in place.

However, regardless of these provisions, the ground reality is that beef isavailable – openly or clandestinely – in cities like Mumbai, Kolkata and Chennaiwhere legal and illegal animal slaughter houses exist in large numbers. In manyother towns, too, cow meat is available in the guise of buffalo meat which is not abanned item. Aged and unproductive cattle are usually abandoned by their own-ers or get picked up by the cattle traders for illegal butchering — or roam about,uncared for, on city streets. During droughts, when fodder turns scarce, cows areusually the first animals to be discarded by the affected population. The translo-cation of older and non-productive cattle to Kerala or other destinations for slaugh-tering is also fairly common.

Thus, barring placating religious sentiments, the new-found enthusiasmabout curbing cow slaughter is unlikely to serve any gainful purpose. They areunlikely to make conditions for cattle any more humane. Further, they hurt India’sthriving animal husbandry sector which has made India the world’s largest milkproducer and the second largest beef exporter. Also at stake is ordinary Indians’access to relatively cheaper meat – remember, vast parts of this country, includ-ing many Hindus, eat beef – and the livelihood of lakhs of people engaged in beefproduction and trade. Animal husbandry experts feel that the existence of largepopulation of stray, dry or low-yielding cattle is an avoidable drain on the country’sfodder resources. Culling of under-performing animals has, indeed, been a normalpractice the world over. This is part of the process of genetic improvement throughselection which has been used with great advantage in India as well in the case ofbuffaloes and other milch animals. That explains why India has the world’s bestbreeds of buffaloes. That also explains why, unlike cattle, buffaloes are seldom seenwandering around as stray animals. Indeed, but for the religious taboo attached tocow slaughter, India wouldn’t have had to rely on exotic bulls or semen to upgradeits local cow breeds through crossbreeding — a key strategy that paved the way forthe white revolution.

The state of cowsSlaughter bans do not help protect cattle

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