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.