Saturday, May 21, 2016

ICAR initiatives in Modi era :: Transforming Agricultural India !

Recently launched schemes by Modiji last year as far as ICAR is concerned 

Farmer FIRST: 
The new proposed project – ‘Farmer FIRST’ is an ICAR initiative to move beyond the production and productivity and to privilege the complex, diverse & risk prone realities of majority of the farmers through enhancing farmers-scientists contact with multi stake holders-participation. 

The focus is on Farmer’s Farm, Innovations, Resources, Science and Technology (FIRST). Many aspects are multiple or multi; multiple stakeholders, multiple perspectives, multiple realities, multi-functional agriculture, multi-method approaches. There are concepts and domains that are new or new in emphasis like food systems, trade, market chains, value chains, innovation pathways and most of all innovation systems.
 The project is conceptualized to deal with focus on: 
i) Enabling involvement of researchers for continuous interaction with farm conditions, problem orientation, exchange of knowledge between farmers and other stakeholders, prioritization of problems and setting up of research agenda; 
ii) Integrating components of technology for application in different agro-ecosystems with focus on innovations and feedback; 
iii) Building partnerships involving different stakeholders; development of rural based institutions; agro-ecosystem and stakeholders analysis and impact studies and
iv) Using the platform of the project having commodity institutions as partners to develop commodity specific contents for e-enabled knowledge sharing. It is envisaged that project will provide a platform of creating linkages, capacity building, technology adaptation and application, on-site input management, feedback and institution building.
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Mera Gaon-Mera Gaurav: 

  • To enhance the direct interface of scientists with the farmers, an innovative initiative has been launched as “Mera Gaon- Mera Gaurav”  which will hasten the lab to land approach.  
  • The objective of this initiative is to provide farmers with required information, knowledge and advisories on regular basis. 
  • Under this scheme, groups of scientists will select villages and will remain in touch with that village and provide information to farmers on technical and other related aspects in a time frame through personal visits or through telecommunication. 
  • In this way, 20,000 scientists of National Agricultural Research and Education System (NARES) can work directly in villages.


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Attracting and Retaining Youth in Agriculture (ARYA): 
(Leftists will call this mnemonic as Sanskritization :D .. nyways)
Realizing the importance of rural youth in agricultural development especially from the point of view of food security of the country, ICAR has initiated a programme on “Attracting and Retaining Youth in Agriculture”. 
The objectives of ARYA project are :-
(i) To attract and empower the Youth in Rural Areas to take up various Agriculture, allied and service sector enterprises for sustainable income and gainful employment in selected districts, 
(ii) to enable the Farm Youth to establish network groups to take up resource and capital intensive activities like processing, value addition and marketing, and 
(iii) To demonstrate functional linkage with different institutions and stakeholders for convergence of opportunities available under various schemes/program for sustainable development of youth.
ARYA project will be implemented in 25 States through KVKs, one district from each State. In one district, 200-300 rural youths will be identified for their skill development in entrepreneurial activities and establishment of related micro-enterprise units in the area of Apiary, Mushroom, Seed Processing, Soil testing, Poultry, Dairy, Goatry, Carp-hatchery, Vermi-compost etc., KVKs will involve the Agricultural Universities and ICAR Institutes as Technology Partners. At KVKs also one or two enterprise units will be established so that they serve as entrepreneurial training units for farmers. The purpose is to establish economic models for youth in the villages so that youths get attracted in agriculture and overall rural situation is improved.
Skill development of rural youths will help in improving their confidence levels and encourage them to pursue farming as profession, generate additional employment opportunities to absorb under employed and unemployed rural youth in secondary agriculture and service related activities in rural areas. The concurrent monitoring, evaluation and mid-term correction will be an integral part of project implementation.
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STUDENT READY: 
  • The term READY refers to “Rural and Entrepreneurship Awareness Development Yojana”. 
  • Student READY is Skill development initiative to strengthen students with skills, so as to enable them to tackle global challenges, and to improve both their employability as well as ability to set up a venture. 
  • Student READY concept signifies this as a Finishing school for the undergraduate students.
  • The students get experience of working on farm in coordination with research stations and KVKs under RAWE Component. 
  • The students also stay in villages with farm families, agro based industries, cooperatives during phases of the RAWE programme to enable them to get real life field experience, understating of the problems and enable them to gain confidence to tackle these problems. 
  • Approximately, 25000 graduates as Student READY will be a mandatory requirement for the UG Degree
  • It is an all inclusive approach to strengthen the entrepreneurship development scenario in the country which is competent, quality conscious, market savvy, innovative and has globally competitive entrepreneurs shall be carefully mentored and encouraged.  
  • The programme will attract youth towards agriculture and allied sector and such ventures, when established will help improve economic conditions in rural areas.
 All out efforts are being made to raise profitability of agriculture for making it a really attractive occupation, especially for youth.
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Now let's see something other than this done by ICAR recently !!


  • Swarna Shreya, a new rice variety for drought–prone conditions was released.

  • Biofortified rice variety CR Dhan 310 was commercialized successfully in the Indo-Gangetic Plains belt 
  • A new fish species Clarias serratobrachium sp. nov. was discovered from the wetlands along Indo-Burma border. 
  • To beat drought, ICAR eyes GM sugarcane.GM sugarcane in water-stressed areas can offer hope in Maharashtra and other parts of India.





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Modi chale IRAN -- Chabahar Port -- An Analysis -- Can he provide for Sadat moment between Iran and Israel !

Pehle INDIA aur IRAN k beech ka Rishta Samaj le 
  • Delhi's relations with Tehran are multi-faceted and complex. The two countries share centuries-old cultural and linguistic links. In modern times, the relationship is more economic and strategic.
  • Tehran was the second biggest supplier of crude oil to India until 2011-12. Iran is also strategically located in the Gulf, and it offers an alternative trade route to Afghanistan and to Central Asia.
  • India is home to the world's second highest Shia population, next only to Iran. Iran's influence over an estimated 45 million Shias in India is regarded as significant. With Iran emerging after international sanctions, it offers great investment opportunities to Indian companies.
  • But the bilateral ties suffered setbacks following international sanctions on Tehran over its nuclear programme. As successive Indian governments moved closer to the US, their Iran policy took a back seat, much to the displeasure of the Iranians.
  • Iranians were dismayed when India voted against their country at a vote in the International Atomic Energy Agency in 2009. Then India significantly reduced oil imports from Tehran following US pressure.

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According foreign policy analysts, PM Modi’s focus will be on the following issues;



Chabahar Port: 
  • This is one of the most crucial deals between India and Iran which has been pending for years, mainly due to the sanctions imposed on Iran and India’s lack of diplomatic courage. 
  • Now that the world powers have lifted the sanctions, the deal is back on the table. 
  • Chabahar port is where India wants two berthing docks, which will make trade with Iran easier and also give India access to Central Asia. 
  • It will also help India compete with Pakistan’s Gwadar port, which is fully operated by China. 
  • Earlier this month, India announced its commitment to develop the port, promising an investment of $ 20 billion to make Chabahar a deep sea port.

Farzad B gas project: 
  • The Farzad B block gas field was discovered by Indian explorers in 2012 and therefore, India was awarded the development of the gas field. 
  • India even promised to invest $1 billion in the project, but it was later stalled due to the US-pressure on New Delhi in view of the sanctions. 
  • This deal will is now expected to be signed by October and establish the ‘development, financial and commercial’ terms.

India-Iran sub-sea gas pipeline: 
  • New Delhi is also going to push for a sub-sea gas pipeline between India and Iran, via Oman. 
  • The pipeline will connect the Chabahar port to Oman which will then connect to India. 
  • This is a huge project, which analysts believe, might prove to be very expensive, but will also pay major dividends, “if the right economic and political regulations and mechanisms are in place.”

Building on the cordial ties: 
  • The two countries have shared cordial ties throughout the sanctions-era, barring a few exceptions. 
  • India can rectify its previous failure to show spine and build on the shared historical and cultural ties between the two countries. India is major importer of oil and natural gas. 
  • A partnership stands to benefit both the Asian countries. 
  • India is also an important stakeholder in peace and prosperity in the West Asian region, given the fact that more than 7 million Indian work in the Middle East. 
  • Therefore, the issue to region peace and security is just as important as the economic benefits that the two countries hope to reap through this visit.

 Payment issue !

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Ok CHABAHAR port....many know it ...still for newbies !

  • India, Iran and Afghanistan are set to sign an agreement on developing Chabahar port and establishing a transit-transport corridor.
  • The establishment of a transit-transport corridor with Chabahar port in Iran’s Sistan-Baluchistan province at its heart will allow Afghanistan to bypass Pakistan for trade with India. 
  • It will also allow India and Afghanistan to access new markets in the Central Asian republics.
  • The Indian company will undertake the development of two jetties in Chabahar port for a period of 10 years and will transfer all cargo consignments except for oil products. 
  • From Chahbahar port, the existing Iranian road network can link up to Zaranj in Afghanistan, about 883 km from the port. The Zaranj-Delaram road constructed by India in 2009 can give access to Afghanistan's garland highway, thereby establishing road access to four major cities -- Afghanistan--Herat, Kandahar, Kabul and Mazar-e-sharif.



Issues involved as far as moving forward with the CHABAHAR port is concerned ?


  • First, it is in competition with the bigger and richer Bandar Abbas. It is closer by geographic proximity to Afghanistan for India’s dream access to West Afghanistan and to Central Asia. However, the port is virtually undeveloped and needs a huge investment besides the fact that it has virtually no connectivity to the overland areas of India’s interest. For all its strategic importance, it will require a huge investment by India but money, for the moment, seems to have dried up, both in the private and public sector.
  • Iran itself does not have the immediate interest or the money to feel excited by any development prospects. It is learned that China is also playing spoil sport just as it is on a host of other issues such as India’s entry into the Nuclear Supplier’s Group. Iran will not be easy to negotiate with and it will extract its advantage from any such deal. The presence of Afghanistan as a part of this upcoming deal will throw up greater interest in international circles. It will be an initiative in favor of the Afghan Government and its quest for improvement of its economy and overall stability.
  • PM Modi’s inking of a deal on Chabahar will of course be a huge positive but the implementation is not going to be easy. Financially, the project which could be a game changer, requires a Public Private Partnership (PPP) and more consortiums to develop the infrastructure inland.
  • Iran may not be in a position to financially invest in this, notwithstanding the $100 billion which was frozen in the US banks and will be released in due course. Its other two ports Bandar Abbas and Bandar Khomeini are apparently sufficient for its current needs. Chabahar has some other constraints such as the ongoing low level insurgency initiated by the Baluchs who also inhabit the Sistan Baluchistan region of Iran. The Iranian Republican Guard has been deployed there for long.
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Ok how can we exploit our CULTURAL TIES with IRAN ? ...u knw SOFT DIPLOMACY !!!

  • If there is anything in which a strong bond is evident it is the enduring Shia Islamic culture and faith in India. 
  • India’s Shias subscribe both to the Qum and Najaf schools of Islamic learning, the latter being in Iraq and the former in Iran. 
  • There is a great sense of pride in the Shia culture of Awadh with which Iran has historic ties. 
  • Hopefully, the PM’s delegation will factor this and have in it a representative of the Awadh Shias who epitomize like Iran a far greater level of tolerance in today’s radical Islamic world.
  • Prime Minister Modi will attend the inaugural session of the conference on May 23 which would be followed by a sitar concert. He will also release a manuscript called 'Kalileh wa Dimneh' - an old translation into Persian of Panchatantra and Jataka.The manuscript is perhaps the only ever-lasting and perpetual bridge which first connected Indo-Iranian community.


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How is Modi bhai's kutniti different from that of Nawaz chacha and Xi Jingping mamu ?

  • Indian diplomacy revels in being friends with everybody. 
  • Contrary to the actions of the Chinese president, Xi Jinping, and the Pakistani prime minister, Nawaz Sharif, both of whom chose to visit Saudi Arabia and Iran on one trip, Modi has carefully elected to pay separate visits to both countries. 
  • It is possibly due to differing agendas, but more probably to emphasize that one relationship cannot—and should not—be impacted by the other.
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Do you know the SADAT Moment ?



The ‘Sadat Moment’ alludes to the sudden change of heart that President Anwar Sadat had in 1978 which led to the Camp David peace process and ultimate rapprochement between Egypt and Israel; it altered equations for the better in the Middle East.

Can Modi provide the 'SADAT Moment' for Iran and Israel ?

No doubt India needs Israel !! -- 
  • India definitely needs Israel for the unencumbered and limitation free supply of crucial military hardware and technology for its military modernization program and other advancements.
On the other hand it just cannot IRAN too ..given it's strategic interests involved in West Afghanistan and entry in Central Asia  !

If India can promote a ‘Sadat Moment’ for Iran and Israel it can change the dynamics of the Middle East which will also help in the defeat of the Islamic State (Daesh).


For this Modiji will have to move an EXTRA MILE thinking beyond 'national interest' to act as a MEDIATOR. No doubt the relationship between Iran and Israel is dangerous but no effort at mediation has ever been made.

Modi's personal equations with Israeli counterpart Benjamin Netanyahu chacha are PERFECT ...he can leverage this best to calm down temperatures on the issue of PALESTINE ..which is root cause of TERRORISM around the world ..and can provide a long lasting stability to the WEST ASIA region. He can atleast urge Netanyahu to resume the peace process when he visits Israel later.

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Is this all friends strategy right for India as far as West Asia is concerned ?

  • It is true that countries with a more proactive foreign policy in West Asia (the United States, Russia or France) cannot claim to have achieved much success so far. 
  • However, if friendship with all is obviously better than an absence of friendship or enmity, it is clearly not enough as it has hardly yielded any influence in the region. 
  • For India to be relevant and, above all, not be taken for granted by its many “friends”, it needs to be more than a friend for the countries in West Asia. 
  • It needs to become a partner of interest, with a unique selling point. 
  • For instance, it must present its partners a huge market, qualified expertise in many fields – chiefly high technology and a joint fight against terrorism.

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Why is this visit important and not just a part of world tour as stupid people criticise ?
  • Mr. Modi’s visit assumes greater significance in the larger context of his own policy of enhanced engagement with West Asia. 
  • The Iran visit comes after his trips to the United Arab Emirates and Saudi Arabia and ahead of visits to Qatar and Israel. 
  • The government appears to be trying to reach out to the three poles of the region. 
  • While it will pursue good ties with the Sunni Gulf for energy supplies, Iran would act as a gateway to Central Asia besides enhancing India’s energy security. 
  • Israel remains one of India’s top defence and technology suppliers. 
  • The success of this policy depends on New Delhi’s capacity to do the balancing act. 
  • The Iran visit is an opportunity to restore equilibrium in India’s foreign policy, which, of late, was seen to be skewed towards Israel and Saudi Arabia.




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Friday, May 20, 2016

kahaani Mauritius se huye DTAA samjaute ki aur us kahaani me aane wali KARWAT ki !! (A 360° analysis)

Kahaani k Kirdaar !!

  • Mauritius.
  • Modiji and his visit to Mauritius.
  • Convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion.
  • Income Tax Department and CBDT
  • past UPA regime.
  • Ketan Parekh scam.
  • MoF and MEA.





toh kahaani 1982 se shuru hoti hai !!

  • The Convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion, relating to taxing income and capital gains, which was signed in August 1982, and notified by the Indian government in December 1983, when Indira Gandhi was Prime Minister and Pranab Mukherjee her Finance Minister.
  • In 1982, Mukherjee announced liberalisation of investment norms for NRIs, including buying into stocks of listed firms in India. 
  • Months later, fearing a coup in the island nation Mauritius with which India has had close historical and cultural links, India sent its troops to support Prime Minister Anerood Jugnauth. It is in keeping with the strategic interests of India in the Indian Ocean that the 1982 agreement was signed. 

  • As India opened up its stock markets to foreign funds and portfolio investors in 1992, many of them progressively started routing their investments through Mauritius

so what is the bone of contention ?
  • This DTAA has been at the centre of negotiations between the two countries for close to two decades — with concerns over the ABUSE of the treaty, and ROUND - TRIPPING of funds of Indians through Mauritius back to their home country in the form of foreign investment.


yaar what is this ROUND TRIPPING , DTAA and all stuff ...please explain in simple words and detail..how all this happens !! (here we go !)

  • Thirty three years back Government of India negotiated a Double Taxation Avoidance Agreement (DTAA) with Mauritius. Under this, tax payers who reside in one country and earn their income in another would not be taxed twice for the same income. However, this had, in effect, led to a situation where the entities concerned would avoid paying taxes in both countries.
  • This was because a Mauritian entity could avoid capital gains tax made in India, as India is not a ‘resident’ country, while not paying taxes in Mauritius as well, which does not levy the tax on its citizens.
  • India which levies capital gains tax on the sale of shares under the Income Tax Act, 1961, gave up this right under the DTAA.
  • This ushered in billions of investment into India in the last 15 years. Some reports indicate that investments in the last one and a half decades would be around Rs 4.63 lakh crore. It also led to more and more investors holding shares of Indian entities through a holding structure in Mauritius. As a result, real value was created in India, but the asset value accrued to Mauritius.
  • It worked like this: if you were to sell shares of an Indian entity, capital gains tax was payable. On the contrary if the shares of the holding entity in Mauritius were to be sold, which has no independent economic value other than the underlying value of the Indian subsidiary, it is exempt from capital gains tax both in India and in Mauritius!
  • Mauritius became a "tax haven" for investments both “foreign” and “domestic” (routed through foreign jurisdiction) to flow freely into India. A 10 per cent margin or saving on the cost of money was a huge incentive for investments.
  • It also potentially became a route for bringing in black money and terror funds and ‘round tripped’ money — local funds being squirreled out of India and returning as foreign capital, thereby avoiding taxes.
  • Thus good and evil started to co-exist as inevitable sesame twins in the Indian investment market. The Mauritius route worked well for politicians, smugglers, anti-nationals and terrorists and their associates. It was exploited to win elections, smuggle drugs, foment terrorism and promote human trafficking.



NDA government (Atal Bihari Time !)
  • Inflows started rising towards the end of that decade, and in the early part of the NDA government headed by Atal Bihari Vajpayee. 
  • But in April 2000, there was controversy after foreign institutional investors received notices from the Income-Tax Department demanding payments even though these investors argued that they were exempt under the tax treaty.
  • With FIIs selling and the government worried over stock markets tanking and the rupee taking a hit, the Central Board of Direct Taxes under the Finance Ministry headed then by Yashwant Sinha, issued a circular to clarify the law and virtually negate the Income-Tax orders. (vested interests probably..news reports of protecting his daughter in law !)
  • The Mauritius tax treaty came into sharper focus in 2001 when the stock market scam linked to Ketan Parekh blew up, leading to a probe by a Joint Parliamentary Committee. 
  • After the JPC report and criticism, the government started negotiations with the Mauritius government to review the double taxation avoidance agreement in an effort to plug some of the loopholes. 
  • India wanted its bilateral partner to put an end to what were known as “post-box companies”, which just served as addresses to help investors take advantage of the treaty to make substantial gains. 

MoF vs. MEA
  • While the Finance Ministry’s concern then and later was over the loss of revenue and misuse of the treaty, the Ministry of External Affairs had diplomatic and strategic interests in Mauritius as the gateway to Africa — leading to a pushback every time the issue was sought to be forced.

UPA regime ~!
  • After the UPA government came to power in 2004, policymakers decided to take another hard look at the tax treaty. Prime Minister Manmohan Singh assigned a group of officials headed by a senior Indian diplomat, Jaimini Bhagwati — who had worked earlier in the Ministry of Finance as a joint secretary handing the capital markets division — to discuss the issue with Mauritius. 
  • The team, which had representatives from the Revenue Department and tax officials, went to Mauritius for a couple of days, and submitted a report to the PMO on the provisions of the treaty including grandfathering or phasing out progressively the capital gains tax treatment so as not to rock the stock markets, and to avoid uncertainty.

[ok but what is this GRANDFATHERING  treaty/agreement/clause ?

  • grandfather clause (or grandfather policy) is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases. 
  • Those exempt from the new rule are said to have grandfather rights or acquired rights
  • Frequently, the exemption is limited; it may extend for a set time, or it may be lost under certain circumstances. 
  • For example, a "grandfathered power plant" might be exempt from new, more restrictive pollution laws, but the exception may be revoked and the new rules would apply if the plant were expanded. 
  • Often, such a provision is used as a compromise or out of practicality, to allow new rules to be enacted without upsetting a well-established logistical or political situation. 
  • This extends the idea of a rule not being retroactively applied.]


back to story
  • Yet, and despite senior delegations led by the CBDT chief also visiting Mauritius later for negotiations, there was resistance on a review of the agreement — with Finance Ministry officials hinting often that their stance was at variance with that of the External Affairs Ministry. 
  • Through the decade of the UPA government (POLICY PARALYSIS), the final step couldn’t be taken. 
  • What may have added to the caution was the fact that Mauritius had, over a decade or more, emerged as the top FDI destination for India, and as India’s top trading partner.


toh MODIJI k aane se kya ho gaya ji ? ..acche din aaye kya ?


  • A little after Prime Minister Narendra Modi visited Mauritius in March 2015, India’s negotiators are at work on redrawing a historic agreement signed over 30 years ago between the two governments.
  • So what will this redrawing/amendment do ? -- The amendment to the over three decade old Double Taxation Avoidance Treaty (DTAA) between India and Mauritius has been seen as a progressive and much overdue tax reform measure. In another two years, an entity which is a resident of Mauritius, cannot avoid paying income tax on capital gains arising in India. This is expected to plug a huge source of revenue leakage and capital flight.


So what are these key features like ?

Its key features are:
  • All investments up to March 31, 2017 will remain under the old regime i.e. ‘double non-taxation’. They will neither be taxed in India nor in Mauritius.
  • Between 2017 and 2019 capital gains would be taxed at 50 per cent of the domestic tax rate subject to the fulfilment of the Limitation of Benefits . The full rate would apply after 2019.
  • The interest arising in India to Mauritian resident banks will be subject to withholding tax in India at 7.5 per cent after March 31, 2017.



Ab chalte hai IMPACT ki taraf !!!

Will foreign investments as a whole witness a decline as a result of the move?
  • Since investments until March 31, 2017 have been exempted from capital gains tax, there is no risk of an immediate outflow of funds. 
  • However, the protocol will impact all prospective investments with effect from April 1, 2017. 
  • Also, the benefit of the two-year transition period will be limited to companies that are not regarded as a shell/conduit company, and their total expenditure on operations in Mauritius has been at least Rs 27 lakh in the preceding 12 months. 
  • Experts feel that while some investors who are bullish on India may advance their plans and invest before April 1, 2017 in order to save tax ( je toh acchi baat hai..fast investment..fast job creation...fast acche din ), many others will raise their due diligence procedure on investments, factoring in the tax cost in the returns they generate.


So, will investments through Singapore also get the grandfathering provision?


  • Article 6 of the protocol dated July 18, 2005 to the Singapore Tax Treaty says that the capital gains exemption under the Singapore Tax Treaty would remain in force only till the time Mauritius Tax Treaty provides for capital gains exemption on alienation of shares. 
  • Therefore, the benefits accorded under the Singapore Tax Treaty would fall away, unless amended. 
  • Now that Mauritius treaty stands revised, accordingly the Singapore treaty will also have to be revised.
  • While it is expected that benefits of the Singapore treaty would also be available until March 31, 2017, experts hope the government would provide a level playing field for investments, and avoid arbitrage between jurisdictions
  • The grandfathering provisions should, therefore, be built into the Singapore Tax Treaty as well.


Accha is any country likely to benefit as a result of the amendment?
  • Experts say the Netherlands may emerge as an alternative.Netherlands may emerge as an attractive destination for FPIs following the changes to the Mauritius treaty. 
  • The India-Netherlands treaty is a smart treaty, and it can emerge as a preferred alternative for FIIs especially those in Europe. 
  • The treaty provides that if a company based in Netherlands holds less than 10% equity in an Indian entity, it would not attract capital gains on the sale of those shares to residents or non-residents. 
  • Even if it were to own more than 10% equity in an Indian company, the treaty allows it to sell the shares to a non-resident without attracting tax.


Ok ....now lets become THE HINDU and CRITICISE and find LOOP HOLES !!


REDRAWING kar rahe ho...woh toh thik hai ...LEKIN ...LEKIN ?

  • a more disturbing question has been overlooked: Does the new protocol discriminate between money meant for bona fide economic activity and that which originates from dubious sources — shell companies, foundations and NGOs (remember 'intolerance saga') — with security implications? This issue needs to be closely examined.

At first glance, the protocol appears to be a panacea for all evils. But, a closer look reveals that this attempt would only eliminate good investments in the next three years..... kyun be ?

  • The Supreme Court while deciding on the Vodafone casedeclared that in deciding on taxation, the basic parameter should be whether the investment is being used for generating wealth and employment in legitimate business activities.
  • Therefore, funds associated with shell/conduit companies, charities, foundations and NGOs were not to be spared. 
  • The judgement significantly declared that the source of investment was not important, so long as it created wealth and employment. On the contrary, if the investment was dubious, it should be hunted down and brought to tax.

But what does this protocol seek to achieve? 
Legitimate and illegitimate investments do not share common traits. A legitimate investment into a business helps the economy progress. An illegitimate hawala transaction hurts it. The protocol pursues a limited economic objective of taxing a transaction which otherwise remained outside India’s realm.
This protocol is now going to serve as a washing machine (ohho remember 300 movie's sequeal :D !). 
  • Evil will now legally join the club of the good, so long as it chooses to pay capital gains tax. 
  • The only difference between the Vodafone judgement rendered by the Supreme Court and this protocol is that the former suggested exempting good money from taxation. 
  • Now, all that one has to factor in is a 10 per cent capital gains tax. 
  • Once that is paid, India can be flushed with illegitimate investments. 
  • This could lead to a legitimate investment with capital gains tax considering a different destination.


WAY FORWARD ?

The need of the hour is twofold. 
  • Without a doubt, share transfers which stood exempted from time immemorial need to be taxed. This protocol has rightly designed a progressive transformation.
  • But that is not sufficient. Coupled with this, the protocol should have added filters, check points and agencies and bodies to go into the very source and nature of investments
The idea cannot be to tax any investment, good or bad. A two-pronged attack could have been worked out: tax good money, which stood exempted till date, and prevent evil investments from entering India. A more likely consequence of this protocol is that good investment will start shrinking and illegitimate investments will thrive.

Moral of the Story !
  • Inspite of all this , it signals a major political achievement by the government. It is also a signal that India, now a $ 2 trillion economy with foreign exchange reserves of over $ 350 billion, doesn’t need hot money flows, and is more confident of attracting FDI. 
  • The new arrangement, marked by a concessional capital gains regime for two years, kicks in in 2017, and a new agreement by 2019. That will be the true test of capital flows and investment and investor confidence.



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