Economy

USIBC seeks relaxation in FDI norms in insurance, defence

PTI Washington | Updated on July 09, 2014

The US India Business Council (USIBC) has sought an increase in FDI cap in key sectors like insurance and defence in the Modi Government’s maiden Budget to be presented tomorrow.

It also urged Finance Minister Arun Jaitley not to make changes in income tax laws with retrospective effect in the budgetary proposals to be unveiled in Parliament.

“We respectfully request that the GOI (Government of India) ensure that any changes to India’s income tax law will not be retrospective, as well as provide clarification that recent changes to that effect will be legally binding and not subject to arbitrary application,” USIBC said in a pre-Budget memorandum submitted to the Union Finance Minister.

The USIBC remains committed to supporting India across all sectors in implementation of policies that support the exciting momentum underway which will continue to propel India’s growth story, the pre-Budget memorandum said .

USIBC believes that the next step in retail sector development is lifting current restrictions in foreign direct sales to Indian consumers via e-commerce, it said.

The council urged the Union Finance Minister to ensure that transfer pricing principles are applied in a fair and consistent manner for all taxpayers, as well as allow a reasonable method for determining transfer pricing.

“On defence, USIBC looks forward to positive signals indicating clarity and allowance of greater than 50 per cent FDI in India’s defence sector.

“This enables greater defence manufacturing cooperation, wider scope of technology transfer, and expedient development of India’s Defence Industrial and Technological Base,” it said.

Passage of the Insurance Laws (Amendment) Bill, 2008 is an urgent business reform needed to boost domestic job creation and send a strong signal to the global investment community that India is “open for business,” the memorandum said.

“We strongly support the expeditious passage of this critical foreign investment reform including the provision to raise the existing 26 per cent FDI cap to 49 per cent, unfettered and without voting rights restrictions.

“It is an imperative that the opening be full and “clean” without these voting rights compromises which are harmful to global investor confidence,” USIBC said.

SEBI's FPI regime

SEBI’s new Foreign Portfolio Investor (FPI) regime is a step in the right direction for streamlining the foreign investment process, including registration, clearance, and administration of portfolio investment, USIBC said.

Current and future FPI implementation rules should be clear enough to add certainty and predictability, it added.

In the short term, GOI should consider raising the single 10 per cent FII limit which hinders investment in high-growth Indian companies, the memorandum said.

“We support the premise that Goods and Services Tax (GST) would aid in streamlining domestic supply chains, thereby increasing India’s global competitiveness as an investment destination.

“There are deep benefits to both domestic and global industry in this clear, predictable, and unifying approach,” USIBC said.

Currently there is a 15 percent capital gains tax for US investors on gains realised on their direct investments in Indian equity investments.

“To make investments in Indian equity markets more appealing to US investors, especially in light of the recent Foreign Portfolio Investor (FPI) Framework, we recommend that the US-India Double Taxation Avoidance Agreement be amended to eliminate this capital gain tax to US investors,” USIBC said.

It said this should also apply to investors in mutual funds that are investing in Indian equity investments.

“Foreign banks in India (including those engaged in limited banking operations or having limited branches) should be encouraged to increase their investment by allowing them access to all low-cost sources of funds as are available to Indian banks,” the USIBC said.

Published on July 09, 2014

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