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N CABINET DECISIONS N

Signing of tax pact with

US under FATCA gets nod
Revenue Service (IRS) of the US
for this purpose. They had to
obtain a Global Intermediary
he Cabinet on Tuesday Identification Number before
approved the signing of January 1, 2015, and have to
an inter-governmental report the assets of such clients
agreement
to the IRS.
between India The agreement
Financial instiand the US seek- under the Foreign
tutions such as
ing to impose Account Tax
bank, brokerage or
higher withhold- Compliance Act will mutual fund, which
ing tax on Indian enable exchange of do not sign up with
companies on information on
IRS will face a 30
their US income, cases of tax
per cent withholdif they do not pro- avoidance through ing tax on all payvide information overseas entities
ments from the US.
about their clients
The idea is to capto the US government.
ture the details of US taxpayers
The agreement under the unreported foreign financial
Foreign
Account
Tax accounts, stock, securities,
Compliance Act (FATCA) will mutual funds and insurance or
enable exchange of information annuity schemes with a cash
on cases of tax avoidance value above $50,000.
through overseas entities. FATThe US has given India
CA is a US legislation to ensure time till September 30 to put in
foreign financial institutions place a framework to track
provide information about these assets. The deadline had
clients who could be subject to been extended twice because a
American tax laws.
number of regulatory concerns
Indian institutions had to had surfaced in between.
sign up with the Internal
The
Securities
and

BS REPORTER

New Delhi, 17 March

Exchange Board of India had

reportedly raised questions
over issues, which include
penalties imposed on financial
institutions under FATCA.
It was also decided to join
the multilateral competent
authority agreement on automatic exchange of information.
According to sources, the decision will enable India to get
information from the US and
from other jurisdictions with
which India has similar agreements, about the assets that
Indians hold abroad.
Prime Minister Narendra
Modi had strongly supported
automatic exchange of information during the G20 leaders
summit on November 16, 2014,
in Brisbane, and stated this
would be instrumental in getting information about unaccounted money hoarded
abroad and enable its eventual repatriation.
So far, 52 countries have
signed the agreement on automatic
exchange
of
information.

>

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 Indias soft power

MEDIA SCOPE
VANITA KOHLI-KHANDEKAR

oes Indian cinema have soft

power? And is the new chief of
the 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 has
no quotas or restrictions like, say, China
which allows the import of only 34 for-

eign films a year. With such a small quota, Hollywood still manages to get half of
the Chinese box office. In India, on the
other hand, Hollywoods share of boxoffice revenues has remained between
5-8 per cent for more than a decade. The
~14,000-crore Indian film industry is a
creatively vibrant, prolific and financially healthy one. This explains why
every one of the major global studios is
producing local films in India.
The influence of Indian cinema,
however, goes beyond its 10,000-odd
cinema screens. More than 16 per cent of
all TV viewing comes from films. Indian
advertisements are dominated by film
stars. Many of the countrys biggest creative names in advertising Prasoon
Joshi, R Balki, for instance double as
film-makers, lyricists or scriptwriters.
More than three-fourths of the music
sold in India is from films. Almost all the
programming on radio is film music.
Films, the ones Indians make for

themselves and in their cultural context, dominate the cultural, social and
even political sphere at times. Some of
the longest-running chief ministers
have been popular stars.
For a 100-year-plus industry, which
had no access to institutional financing or
state support, to hold on to its own
against Hollywood films speaks volumes
about its soft power. Indians voted for
Indian films with their wallets when they
were relatively poor and now when they
are relatively well-off. This is the biggest
mark of its soft power. The only other
country that stands up with a robust,
locally plugged industry is South Korea.
And outside India, the films act as a powerful magnet, especially in countries with
cultural affinity in West Asia, southeast Asia, Mediterranean markets and
even large chunks of Europe. They are a
good if not very lucrative export to have.
To answer the questions that were
posed in the beginning then yes,

Indian cinema has soft power. And even

if it did not have soft power, no one, the
CBFC or the ministry, should be allowed
to mess with that.
Going by media reports earlier this
week, a delegation led by Mahesh Bhatt
and others from the film industry
appealed to the Minister of State for
Information and Broadcasting about the
difficulties of working with an increasing
number of restrictions on what films can
or cannot do. The banning of 28 cuss
words, of the use of words such as
Bombay and lesbian, are among some
of the changes that Pahlaj Nihalani, the
new CBFC chief who took over in January,
has made. Many films are being are being
personally cleared by him, say reports.
The CBFCs job is to certify films as
fit for viewing by the audience. It is not
a censor board or the guardian of Indias
morality. There are too many people
wanting to take on that mantle. Paresh
Mokashis critically acclaimed Elizabeth

Ekadashi (Marathi, 2014) got slammed

for using a British Queens name along
with an auspicious day in the Hindu calendar. Barbers thought the term barber was derogatory, so Billu Barber
became Billu (2009). Dhobi Ghat (2011)
had dhobis or washermen in Mumbai
up in arms. The list is endless.
Sure, there are good films and bad
films but let the audience decide that. By
putting restrictions on what film-makers
can or cannot do, the CBFC takes away
from the wonderful ability of the Indian
industry to connect with its audience.
Largely, Indian films are getting better at
telling Indian stories in a language and
context that Indians want to hear them
in. And they touch every aspect of the
lives, dreams, problems and miseries of
Indians. Whether it is Bobby from the
early seventies to Jaane Bhi Do Yaaro in
the mid-eighties to the more recent Lage
Raho Munna Bhai or 3 Idiots and Kai Po
Che, our film-makers, whether they are
Indian or American, know what Indians
like and dont like; not the CBFC.
Twitter: @vanitakohlik
Large parts of this column are extracted from
a paper, The Soft Power of Indian Cinema,
the columnist presented at the University
of Leeds in the UK last year

Indias Budget: Why execution

is so important this year
Whether the Budgets public investment thrust will pay off will depend crucially on line-item execution

SAJJID Z CHINOY

ts hard to remember a Budget that

was met with as much expectation as
the 2015 rendition was. There was a
universal anticipation that it would signal the governments economic vision
for its first term.
So, were expectations met? On institutional reform, absolutely. A formal
monetary policy framework, with a commitment to a monetary policy committee, a world-standard bankruptcy law, a
public-works dispute resolution mechanism. If implemented, these institutional advancements lay the groundwork for a modern emerging market.
But at the heart of the Budget was a
gamble a relaxation of the fiscal deficit
to create space for more public investment and transfers to the states the
latter in line with the Fourteenth Finance
Commission. The case for the former is
clear. Private investment remains in a
slump and balance sheets particularly
in the infrastructure sector remain
overextended. With this kind of debt
overhang, the chances of any private
capex appear dim. Public investment
must endeavour to fill the slack.

So, will the gamble succeed? In my

view, whether it succeeds will come down
squarely to execution this year? But why
is execution unduly important this year?
First, lets recognise the changed
macroeconomic backdrop. Over the last
three Budgets, fiscal policy has simply
been firefighting. The deficit was
allowed to balloon during and immediately after the Lehman crisis. And the
consequences of that fiscal expansion
were for all to see inflation surged,
the current account deficit ballooned,
and India came perilously close to a sovereign ratings downgrade in the fall of
2012. The primary goal, therefore, of the
last few Budgets was to slash the deficit
in a bid to reduce aggregate demand
and thereby external and internal imbalances. Budgets were largely judged by
whether the attempted fiscal consolidation was aggressive enough. Of course, it
would have been nice if revenues were
realistically budgeted and/or capital
expenditures were preserved. But these
were second-order issues. What mattered was whether the deficit target was
hit, and aggregate demand reduced
enough. The ends justified the means.
But the macro environment is now
very different. There are no fires to be put
out. India is now considered the epitome
of macroeconomic stability inflation
has fallen rapidly, the current account
has collapsed and the rupee is under
appreciating pressures even as other
emerging market currencies are under
pressure. 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

TIME TO DELIVER The Budget is clearly well intentioned. It has talked the talk.
PHOTO: REUTERS
Now it must walk the walk
years. The Budgets primary objective,
therefore, is to boost public investment
in a bid to catalyse private investment.
That is the criterion on which the Budget
will largely be judged, given that fiscal
targets were relaxed in the process.
Its important, therefore, to recognise that the Budgets capex thrust is
very diffuse. The allocation of nondefense capital expenditure has been
increased by just 0.17 per cent of gross
domestic product (GDP) over what was
achieved last year. And the allocation is,
in fact, less than last years Budget as a
percent of GDP. Instead, the Budget
envisions other engines firing: public
sector enterprises investing in public
infrastructure to the tune of 0.15 per

cent of GDP, states spending some part

of their net transfers from the Centre
(0.4 per cent of GDP) on capex and the
National Investment and Infrastructure
Fund levering up. That said, the Budget
promises to arm the infrastructure fund
with ~20,000 crore a year, though there
is no explicit allocation exists just as yet.
So, a public investment boost is certainly intended. But it is largely off the
Centres balance sheet. And all engines
would need to fire simultaneously.
What happens on the revenue side,
however, is equally critical. Over the last
three years, overly ambitious revenue projections which would rarely materialise
have meant that capex expenditures
have been the first casualty to meet fiscal

targets. In fact, on average, less than 80

per cent of the capex allocation has been
met in the last three years. From that
standpoint, revenue assumptions are far
more realistic this year. But they are not a
slam dunk. After making the one-off
adjustments, tax buoyancy last year printed at 0.7 last year, and is budgeted at 1
this year. By no means impossible. But it
would require an appreciable growth lift.
On the asset sale front the government has been much more boldtargeting 0.65 per cent of GDP, which is
unprecedented. By increasing asset sales
and capex expenditures by about 0.2 per
cent of GDP each, the government has
essentially delivered an asset swap
something we have long advocated. This
is very desirable. But, now, execution
becomes the key. A systematic, proactive disinvestment plan needs to start
early in the year and be appropriately
staggered. A back-loaded ad hoc programme is unlike to escape the fate of
previous years.
All told, the success of the Budget
will be judged by how much of a public
investment thrust it ultimately delivers.
And here, line-item execution becomes
critical, because the margin for error is
very small. If oil prices were to rise or
growth, and, therefore, tax buoyancy,
does not materialise or disinvestment
falls short, planned capex could become
the first casualty. And we could end up in
no-mans-land a deficit of 3.9 per cent
of GDP without any increase in capex.
Neither bond nor equity markets will be
happy with that.
Conversely, pro-active and aggressive
execution has the potential to both reduce
the deficit and boost public investment.
For that, however, subsidy slippages anywhere must be met by savings elsewhere.
Asset sales must be embraced and not
shied away from. States must be prodded
to spend and save their transfers wisely
and in equal measure. And monies must
be found soon for the National Investment and Infrastructure Fund. The Budget
is clearly well intentioned. It has talked the
talk. Now it must walk the walk.
The author is chief India economist, JP Morgan

2015-16: a Union Budget with

sense and sensibility

ILLUSTRATION BY BINAY SINHA

The real challenge is delivery

eams have been written on the Union Budget scribe primary legislation for it especially since such
extolling its proposals or damning them. As a circular can only address indirect transfers excluthe discussion approaches an asymptotic ter- sively rather than remove or restrict retrospective taxmination, I find that something needs to be said in ret- ation in a wider context. Yet only the latter would
remove uncertainty comprehensively.
rospect that balances the thrust of
Further, the 2012 committee on taxathe debate that ensued soon after its
tion of indirect transfers had cautioned
presentation in Parliament.
against (1) treaty override since India
The primary concern prior to the
still is a capital importing country, and
Budget was how to address the
(2) taxing indirect transfers between
extremely negative aspects of taxation
companies registered and trading on
for business decisions that had driven
the stock exchange. If these matters
domestic and foreign investment away
remain inadequately addressed, a
from Indian shores. To elaborate,
Pandoras Box of issues will jump out to
businesses face two obstacles when
scuttle government's stated economic
making a business decision. The first
objective of enhancing ease of doing
is risk. An investor has a perception of
business.
the risk he faces as a risk averter or a PARTHASARATHI SHOME
Third, FMs mention that recomrisk preferer. Reflecting his perception
mendations of the Tax Administration
of risk in an investment, he decides to
invest by taking risk insurance, or to stay away from the Reform Commission (TARC) that has just completed its
work, will be implemented in 2015-16 was salutary
investment.
The second is uncertainty. The investor has a hard though elaboration would have been useful for taxpaytime assessing uncertainty, for it represents factors quite ers to be reassured. TARC emphasised the importance
beyond his conceptualisation in the environment from of assigning accountability since, contrary to modwhere he should ideally be in a position to judge if a ernising tax administrations, India simply does not
potential investment is worth it or not. Tax laws between practice it, looking at the mass of tax disputes. It would
2009-12 converted the investment environment quite not be surprising if the Indian total surpasses a comuncertain. Worse, not only did uncertainty prevail for bined rest-of-the-world. FMs mention of a Disputes
the future, but it was extended into the past through var- Bill was salutary but details are awaited.
Fourth, following the announcement of GST introious retrospective amendments, some of which catapulted India to a global high as a poor place to invest. duction in 2016, it is time now to put any proposed
To begin, the Budget has no doubt attempted to structure up for discussion with stakeholders and to
address uncertainty. First, it has postponed GAAR for desist from introducing GST just on the basis of centreanother two years and has indicated its prospective state discussions at government level. Governments
application. However, this will not help unless tax offi- tend to discuss GST proposals in great detail with taxcers are given intensive training as to how to use the payers and the Indian government should follow those
instrument. Further, the income tax department has so modern principles. After all, a move from the current
far ignored the thirty plus examples provided by the 2012 indirect tax structure would make sense only if GST is
GAAR committee for the use of GAAR. These examples anchored on easing business and investment. Yet so far
should be vitalised. Otherwise, a mere postponement there is no White Paper on GST structure leave alone
would be ineffective in removing uncertainty that would deeper technical aspects that will undoubtedly affect
taxpayers and fundamentally alter their interface with
be caused by GAARs application.
Second, Finance Minister announced that the tax- central and state tax administrations.
Fifth, FMs pre-announcement of governments
ation of indirect transfers will be addressed by CBDT
through a clarificatory circular. That is welcome. intention to reduce the headline corporate tax rate to
However, there was no explanation why he did not pre- 25% in consonance with GST dynamism was a daring

step in the right direction. However, the super rich tax

does impact corporations as well so that in the current
year, they will be hit with a higher tax rate. This could
have been explained through some justification in the
governments view of a super rich tax that includes
non-individuals.
Sixth, the abolition of the wealth tax that hardly
yields revenue was a good idea but, in as poor a country
as India, should government reject wealth taxation completely, or should it redesign it at a very small rate on a
wide base as proposed in DTC2013? This matter should
be seriously reconsidered.
Indeed, seventh, FMs statement that the DTC was
being dropped altogether on grounds that most DTC
proposals had already been incorporated in the Income
Tax Act reflected an erroneous view of the tax administration that the remaining tough nuts to crack could
be safely set aside from the ITA. Even Yashwant Sinha
expressed disappointment at this. FM should retract
from this position not necessarily through another statement but through re-examination of DTC2013 and
incorporating the many reform features that remain to
be included in ITA. This topic is worth revisiting at
some point by tax experts.
Eighth, tax revenue has suffered due to the underground economy. While Switzerland has an announcement effect, the bulk of the problem resides in India. The
Budget announcements to curb black money are the
strongest ever made by any Indian government. It is to
be seen how far government is able or willing to move
on this. If it can, greater tax revenue will get rightfully
captured in the exchequer and the administration
would be more easily able to become customer friendly in its operations. The crux here would be to encourage and ensure voluntary compliance by not going after
roving enquiries and thereby turning good taxpayers
into non-filers.
Ninth, the small attempt by government to address
environmental degradation by doubling the clean energy cess on coal from ~100 to ~200 per metric tonne
was welcome though, certainly, this is not enough.
Urban areas in India deplete life by three years on average; yet there is blindness in favour of pushing the
concept of the small car hub. There has to be wider unilateral use of carbon tax in India without looking over
our shoulders to see what other countries are doing. We
owe this to ourselves.
Tenth, I would like to emphasise three salient features that added sense and sensibility to the Budget.
First, it made sense to focus tax incentives on investment, primarily infrastructure where the widest gap
exists. Second, it also made sense to extend the fiscal
deficit target by one year for absolutely nothing was to
be gained by strict adherence to a paper target when
revival of the economy is of the direst importance.
Third, there was a touch of sensibility by focusing
expenditure subsidies on the absolute poor while cutting back on the ones fraught with leakage as field
reports continue to reveal.
That the government bit the bullet to reveal its
intentions and promises is a sign of apparent sincerity. However, its Budget did leave behind a veil over feasibility and a challenge of delivery.

The state of cows

Slaughter bans do not help protect cattle

ith Maharashtra and Haryana taking fresh legislative initiatives to ban

cow slaughter and beef consumption, a highly emotive, albeit contentious, issue that had long remained muted has needlessly been
raked 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 finally received the Presidents formal assent. In Haryana also, slaughtering of cattle
(including bulls, bullocks, oxen, heifers and calves) had already been proscribed
under the Punjab Prohibition of Cow Slaughter Act, 1955, that applied to the whole
erstwhile state of Punjab, of which Haryana was a part. The new law has extended
the ban even to the sale of canned beef which was permitted earlier and made
its violation a non-bailable offence. In fact, most Indian states have some kind of antislaughter regulations in place.
However, regardless of these provisions, the ground reality is that beef is
available openly or clandestinely in cities like Mumbai, Kolkata and Chennai
where legal and illegal animal slaughter houses exist in large numbers. In many
other towns, too, cow meat is available in the guise of buffalo meat which is not a
banned item. Aged and unproductive cattle are usually abandoned by their owners 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 are
usually the first animals to be discarded by the affected population. The translocation of older and non-productive cattle to Kerala or other destinations for slaughtering is also fairly common.
Thus, barring placating religious sentiments, the new-found enthusiasm
about curbing cow slaughter is unlikely to serve any gainful purpose. They are
unlikely to make conditions for cattle any more humane. Further, they hurt Indias
thriving animal husbandry sector which has made India the worlds largest milk
producer and the second largest beef exporter. Also at stake is ordinary Indians
access to relatively cheaper meat remember, vast parts of this country, including many Hindus, eat beef and the livelihood of lakhs of people engaged in beef
production and trade. Animal husbandry experts feel that the existence of large
population of stray, dry or low-yielding cattle is an avoidable drain on the countrys
fodder resources. Culling of under-performing animals has, indeed, been a normal
practice the world over. This is part of the process of genetic improvement through
selection which has been used with great advantage in India as well in the case of
buffaloes and other milch animals. That explains why India has the worlds best
breeds of buffaloes. That also explains why, unlike cattle, buffaloes are seldom seen
wandering around as stray animals. Indeed, but for the religious taboo attached to
cow slaughter, India wouldnt have had to rely on exotic bulls or semen to upgrade
its local cow breeds through crossbreeding a key strategy that paved the way for
the white revolution.