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On April 17, the Ministry of Corporate Affairs amended Schedule XIV of the Companies Act 1956 to permit amortisation of intangible assets relating to toll road projects created through a Build Operate Transfer, Build Own Operate Transfer or other Public Private Partnership route (collectively, PPP arrangements), based on a pattern that reflects the projected revenue profile over the concession period. These intangible assets would generally arise due to the costs incurred by an infrastructure company in building or improving the underlying infrastructure covered by the concession (toll road).
Prior to this amendment, there was significant diversity in practice in this area. Several companies amortised the infrastructure on a straight-line basis over the concession period. Some other companies amortised the infrastructure based on revenue projections. This diversity arose, in part, due to the provisions of AS26, Intangible Assets, which provides that while amortisation should be based on the pattern of economic benefits, there will rarely, if ever, be persuasive evidence to support an amortisation lower than the straight-line method. Companies that currently amortise these assets on a straight-line basis generally report accounting losses in the initial years due to the high amortisation amount as compared to the lower revenues earned, as usage and revenues generally increase over time. This amendment, which will become applicable after it is officially gazetted, is likely to benefit these companies due to the potential improvement in accounting profits.
The amendment refers to amortisation of intangible assets (toll roads). It is unclear whether revenue-based amortisation would also be permitted or required for other infrastructure assets (for example, airports) created under PPP arrangements. Further, the amendment does not specify the manner of transition to the new method for companies that previously followed a straight-line amortisation. Lastly, the amendment seems to create a conflict between the requirements of AS26 and the provisions of Schedule XIV. Practice is likely to evolve in these areas.
Biting the bullet on fuel price
Despite the RBI's nonconventional measures and direct intervention in the currency markets, the rupee continues to slip against the greenback. Guidelines that mandate conversion of 50 per cent of Earners' Foreign Currency Account balances, and cutting down on speculative activity by capping the intraday exposures of commercial banks have done little to stem the rupee's slide. The negative developments in Europe could not have come at a worse time for India, with the retrospective tax amendments and widening trade and current account deficit removing the shine from India as far as international investors are concerned. The postponement of GAAR, too, has not helped the rupee much, nor have the recent downgrades and negative outlooks. The Government needs to take immediate action to reassure the international investor community that it still has the ability to take tough decisions — raising fuel prices would be one of these. Measures considered unconventional in the Indian context may also need to be evaluated — sovereign bonds, or NRI-targeted instruments such as RIBs and IMDs.
Old fears on new medicines
A recent report made by a Parliamentary committee has brought to light the complete disregard for guidelines in the introduction of new medicines in the highly lucrative Indian market. This once again brings out an age-old malaise that seems to afflict the very institutions that are meant to safeguard the interest of the common man.
Bringing a new medicine to the market is a very serious and complex project with the safety of the consumer being the most critical objective. It's possible that Indian authorities lack the requisite numbers to screen all such applications; they may also lack expertise, but it still does not justify their lapse in this case, more so as it deals with public health.
With the healthcare and pharma industry evolving rapidly, it may be time to review and update our policies to address the attendant high risks.
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