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Newspaper: Business Standard
Section: Opinion
Date: 11th Mar, 2010
Page: 11
Medicines for all
Unrestricted entry of foreign equity
into the Indian pharmaceuticals sector is being questioned
on three grounds, one serious and two non-serious.
The least serious of the three comes from the National
Security Council, which has proposed that the sector
be put on the “sensitive” list, requiring
prior scrutiny by the Foreign Investment Promotion
Board. This is difficult to understand as there is
no intellectual property to guard against foreign
takeover, the Indian industry being entirely generic.
The second non-serious reason, given by the department
of pharmaceuticals, is that Indian firms are not on
a level playing field — they do not have deep
pockets to do the kind of R&D necessary for survival
in a free-for-all which global firms do. But the key
example cited in favour of this argument is the takeover
of Ranbaxy by Japanese firm Daiichi Sankyo, which
happened not because Ranbaxy ran out of money to carry
forward the vision of Parvinder Singh, but because
his heirs wanted to cash out.
The department is on firmer ground when it fears that
a growing tide of foreign takeovers can impact the
pricing and availability of medicines in India. It
is in India’s national interest to ensure that
essential medicines are available cheaply and easily
to meet health-care needs. India was able to do this
in the last century by ignoring the product patent
regime and becoming a global leader in generics, using
its chemistry skills to produce quality medicines
cheaply. Now that it has accepted the product patent
regime, it is faced with a new challenge, a growing
tide of ever greening. Global majors, seeing their
product patent pipelines dwindling, have resorted
to more and more ingenious arguments and devices to
prolong the life of patents so that generic substitutes
cannot be marketed even after the running out of the
original patent. The government has to actively guard
against this, all the more so because Indian doctors
appear entirely in thrall of costly medicines. If
more and more good Indian firms get taken over by
global firms, who will challenge patents because it
is the former that are the global leaders in doing
this? In allowing foreign entry, the government has
to ensure that the firms take on an obligation to
produce and sell essential medicines cheaply, according
to the requirements of national policy.
Of the two devices used in the past to keep medicine
prices low, a favourable patent regime and price control,
the latter has worked up to a point. Any price control
system has its limitations and in the past, populist
ministers have sought to unduly extend the list of
medicines under price control even as pharma companies
have tried to dodge by tweaking formulations. A better
way for the government to access good medicines cheaply
can be through negotiated bulk purchase for distribution
through the public health-care system. This way it
can ask for precisely what it wants and talk only
to the firms that follow good manufacturing practices.
This route can become important over time as the government
raises its expenditure on health care, which it must.
Also, as incomes rise rapidly, private health-care
expenditure is likely to rise even faster. Therefore,
the market for affordable drugs is likely to grow
long and fast. Foreign firms which play by these rules
and get in are likely to reap early-bird advantages.
Newspaper: The Mint (Hindustan Times)
Section: The Last Word
Date: 11th Mar, 2010
Page: 24
Law firms prepare for new
tax regime
Companies are training staff, hiring
attorneys and studying other countries’ goods
and services tax systems
Manish Ranjan, manish.r@livemint.com
When Ashok Dhingra was sent to Canada
in freezing January by the law firm J Sagar Associates
(JSA), where he is a partner, he had duty rather than
vacation on his mind.
The firm wanted him to study the nuances of the Canadian
goods and services tax, or GST, on which India is
likely to model its own new indirect tax regime.
Dhingra’s trip is an example
of how Indian law firms are gearing up for the proposed
introduction of GST on 1 April 2011—by training
employees, recruiting new attorneys and studying GST
of other countries.
Under the Union government’s
proposal, a single GST will replace a web of national,
state and local taxes such as Central excise duty,
service tax and value-added tax, making tax rates
on almost all important goods and services uniform
throughout the country.
It was earlier expected to be introduced on 1 April.
The new regime will bring about fundamental changes
in the practice of indirect tax law, and law firms
realize they need to begin the groundwork now to be
ready to meet the challenge.
Rohan Shah, partner at Economic
Law Practice (ELP), calls GST a “game changer”
as it will make lawyers’ knowledge of indirect
taxes until now effectively redundant.
He said it will take at least a year of training and
learning for tax lawyers to catch up with the new
structure.
Dhingra of JSA agrees. “It
takes years to train a professional in a particular
tax legislation. Over a period of time, they acquire
knowledge of all legislation,” he said.
“Professional services firms also need to make
(a) huge investment of billable time and, of course,
money to retrain their teams to be ready to provide
assistance to their clients (when GST is implemented),”
he added.
For instance, lawyers routinely
argue their cases by citing previous judgements based
on a particular law. But once GST is introduced, the
basic principle of indirect tax law will no longer
be the same.
This, says Dhingra, means previous Supreme Court rulings
on the subject may not have a direct bearing on new
cases, but only have persuasive value.
V. Lakshmi Kumaran, managing partner at law firm Lakshmi
Kumaran and Sridharan, said his firm, too, had started
preparing for GST.
“To increase our understanding
of GST, we have analysed GST of various countries
like Australia, Canada, and (the) UK,” he said.
His company has also hired 12 new attorneys to help
deal with GST cases.
Shah of ELP said the new regime
will also bring a host of new opportunities with it
for law firms, precipitating a spurt in legal advisory
and litigation work.
“Industry and companies will
face a host of legal issues like tax compliance, exemptions,
credit issues, domain of states and issues of constitutional
validity of taxes, which would mean more work for
the law firms,” he said.
GST’s introduction will be
accompanied by the adoption of a new direct tax code
and International Financial Reporting Standards, which
are also set to be implemented on 1 April next year.
When Dhingra was flying to Canada, he was still expecting
GST to happen this April, the original deadline. The
deferment, he said, has given the legal community
an extra year to get ready for the new tax regime.
Newspaper: The Economic Times
Section: Economy, Finance & Markets
Date: 11th Mar, 2010
Page: 11
Select LLPs may get 49% FDI
Experts Seek Opening Up Of More Sectors
For Limited Liability Partnerships To Create Level
Playing Field
Deepshikha Sikarwar NEW DELHI
FOREIGN investors may soon be able
to set up Limited Liability Partnerships, or LLPs,
in India, as the government is all set to allow foreign
direct investment in this new form of business organisation.
Initially, FDI up to 49% may be allowed in LLPs in
select sectors such as manufacturing, a DIPP official
told ET.
This could help make this form of business organisation
more popular. So far, only 914 LLPs have been registered
in the country. “We are ready with a discussion
paper on the FDI framework for LLP,” the official,
who did not wish to be named, said. The current thinking
within the government is to allow FDI in LLP selectively
and cap it at 49% even in sectors where companies
can have 100% foreign investment, he added.
LLPs are business entities that are a hybrid between
companies and partnership firms. As the name suggests,
partners’ liability is limited to the extent
of their stake in the LLP.
Unlike private limited companies where number of shareholders
is limited to 50, an LLP can have unlimited number
of partners. Besides, LLPs are not burdened with cumbersome
compliance such as meetings and maintenance of statutory
records. The DIPP will soon call a joint meeting with
other ministries, departments and regulators including
the RBI to discuss the paper and finalise the foreign
investment regime for LLPs.
“Any move to ensure that LLPs have a level playing
field will help the structure takeoff,” said
Aseem Chawla, partner, Amarchand & Mangaldas adding
that it was important that regulators in various services
industry recognised this structure.
However, Akash Gupt, executive director, PwC felt
more was needed for this structure to take off. “While
allowing FDI in LLPs there is also a need to address
sector regulatory issues that prohibit these entities
from carrying on a particular activity,” he
added. LLPs, for instance, cannot bid for a road project
as per guidelines of the National Highway Authority
of India.
Currently, FDI is not permitted in partnerships firms,
but is allowed in companies subject to sectoral caps.
In a number of manufacturing sectors 100% FDI is allowed
through the automatic route.
Sole proprietorship firms can also get non-resident
investment on a non-repatriable basis. Many countries
allow 100% foreign investment in LLPs though they
may not be allowed to undertake certain sectoral activities.
The official said the 49% cap on FDI will ensure that
control in LLP rests in Indian hands.
RBI had written to the finance ministry and the DIPP
that FDI should be allowed in all sectors for LLPs
but capped at 49%. It had also favoured mandatory
Foreign Investment Promotion Board clearance for any
FDI in LLPs.
The government had notified the LLP Act on April 1,
2009. But the taxation of LLPs, which is akin to partnership
firms, could be clarified only in the July budget
2009-10. The budget for 2010-11 proposes to exempt
capital gains on account of transfer of assets from
on conversion of a company into an LLP from tax if
the total sales, turnover or gross receipts of the
company does not exceed Rs 60 lakh in any three preceding
years.
UNLIMITED GROWTH
Govt may cap FDI in LLP at 49% even
in sectors with 100% FDI Cap on FDI aimed at ensuring
LLP controls in Indian hands RBI for FDI in all sectors
for LLPs but with a cap of 49% RBI favours mandatory
FIPB clearance for any FDI in LLPs. So far, only 914
LLPs have been registered in the country DIPP plans
meeting with other ministries, depts and regulators,
including RBI, to finalise the foreign investment
regime for LLPs Union budget exempts capital gains
on account of transfer of assets from on conversion
of a company into an LLP from tax if the total sales,
turnover or gross receipts of the company does not
exceed Rs 60 lakh in any three preceding years
Newspaper: Business Standard
Section: Economy & Policy
Date: 11th Mar, 2010
Page: 7
FIPB tightens norms for FDI
in sensitive sectors
ANINDITA DEY Mumbai, 10 March
To improve the scrutiny of foreign
direct investment (FDI) for sensitive sectors, the
Foreign Investment Promotion Board (FIPB) has come
out with a new set of norms for applicants.
It would now be mandatory for foreign companies that
wish to invest in telecom, defence and security services
in India to provide details of all directors. Till
now, while it was a desirable criterion for the companies
seeking FIPB approval, the norm was mandatory only
for telecommunications. However, in its new portal
to be hosted for launching electronic filing of FIPB
applications, this criterion would be mandatory for
all applicants in these sectors.
Officials added that after conducting a test drive,
the ministry had formally decided to launch online
filing of FIPB applications. A separate website was
being launched for FIPB exclusively.
Till now, FIPB was hosted on the site of the finance
ministry, along with other departments.
Besides, the requirement for furnishing details of
all directors in foreign companies seeking to invest
in India has been made mandatory for all sectors if
the company has Chinese or Hong Kong registration
or links.
It has also been specified that
under the new facility, objections or issues also
can be communicated electronically through this site.
This website, along with the e-filing facility, would
be formally launched on March 12.
Explaining this, officials said
if either an Indian company which is a joint venture
partner or a foreign company had any issue regarding
the other, these could be flagged through the site.
These may pertain to Press Notes 1, 2 or 3, or others.
Press Note 1 of 2005 pertains to
objections of an Indian partner with the foreign partner
or vice versa if the other one proposes to pursue
the same line of business separately or with another
partner, different from the existing one. Press Notes
2, 3and 4 define the new mode of calculation for foreign
direct investment through direct or indirect holding.
TAKING GUARD
It will be mandatory for foreign
companies looking at investing in telecom, defence
and security services in India to provide details
of all directors
Newspaper: The Indian Express
Section: Business
Date: 11th Mar, 2010
Page: 15
Cabinet set to consider bill
on acts governing accounting work
ENSECONOMICBUREAU
NEWDELHI
PROFESSIONALS such as chartered accountants
and company secretaries would finally be able to reap
the benefits of the new form of business entity, Limited
Liability Partnership, as the government is likely
to put before the Cabinet the bill for amending the
acts governing these professions on Thursday.
The amendment would pave the way for the insertion
of the new business entity in the acts governing the
three professions —chartered accountants, company
secretaries and cost and work accountants. The amendment
bill for the Chartered Accountants Act, 1949, the
Company Secretaries Act, 1980, and the Cost and Works
Accountant Act, 1959, is likely to be presented before
the Cabinet on Thursday so that LLPs, introduced last
year, can be recognised by these acts.
The amendment comes at a time when the Finance Bill,
2010, has laid down the taxation rules for conversion
of companies and firms into LLPs. More entities are
expected to be interested in it as the conversion
would not attract capital gains tax. As of now, if
a firm or a company wants to convert into an LLP,
it has to pay capital gains tax as the transfer of
assets is considered to be a sale. LLP is a hybrid
of partnership and companies in the sense that it
has characteristics of both these entities.
The main advantage of an LLP is that the liability
of a partner is limited to the extent of stake held
by him in the LLP. Also, there can be unlimited number
of partners in an LLP. As of today, there are 994
registered LLPs in the country.
Newspaper: The Financial Express
Section: Front Page
Date: 11th Mar, 2010
Page: 1
Foreign partners to get creeping
acquisition nod
Rajat Guha, New Delhi
Foreign companies could soon be allowed
to incrementally raise eir stakes in Indian JVs rough
stock market deals. The policy relaxation would eanthatan
over seas company doesn't necessarily have to approach
the Foreign Investment Promotion Board or use e FII
route to increase its akein an Indian company ,as
ng as the deal can't potentially lead to its taking
control the company or breach the levant sectoral
FDI cap.
According to a proposal being considered by the government
and market regulator bi, acquisition of shares by
m foreign company from the cock market would be limit
to5%of the paid-up equity the Indian firm. The caveat
h expected to reduce the scope for hostile takeovers
t rough this route. Since such stock market always
would mean that the t nsent of Indian promoters F
would not be needed for a foreign company to hike
its stake a joint venture, it is expect that Sebi
would draw up a “the of rules to prevent hostile
hike overs through this route, an official sources
told FE. At present, two categories t non-resident
investors- RIs and FIIs -are allowed tr buy shares
of Indian com c market through stock exchange deals.
Analysts said the move is investor-friendly
and would help overseas firms to raise stake without
approaching the FIPB or going through the process
of a rights issue.
The move also signifies that the distinction between
FDI and FII is getting blurred with very passing day.
Said a senior official conversant with the matter:
“There are cases where FDI investor in an Indian
company picks up additional stake in the same company
through its associate registered as FII. It is also
no longer true that an FII does not seek controlling
interest.”
The official added that in practical
terms, there is neither pure FDI nor pure FII. “It
is only a matter of the explicit recognition of these
facts in the policy,” he added.
The department of industrial policy
and promotion and the finance ministry are currently
discussing this proposal to allow foreign investors—
who usually operate through the FDI window—to
access the portfolio investment scheme (PIS), which
is now open only for FIIs.
The proposal was also discussed
recently at an FIPB meeting. It has now been referred
to the market regulator, Securities and Exchange Board
of India for studying the proposal’s broader
implications.
Once Sebi gives its approval along with a set of guidelines,
it is expected that the department of industrial policy
and promotion and the department of economic affairs
in the finance ministry would formulate the final
policy.
According to current foreign investment
rules, NRIs are the only category of non-residentinvestorsallowedtoopenlyaccessthesecondarymarket.FIIsareregisteredwithSebi
under the portfolio investment scheme. Other categories
of investors access the secondary market through FIIs.
While foreign companies are not allowed to access
the stock exchanges, they are allowed to buy stake
in Indian companies through private placement. In
case such deals pertain to Indian companies operating
in sectors which are subject to a FDI ceiling, the
clearance from FIPB is mandatory.
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