India: unveiled the new Finance Bill

New Finance in India: on March 16, Indian Finance Minister Pranab Mukherjee unveiled the Budget (programmatic instrument of the Indian government equivalent to our budget) for the coming financial year 2012/13.

In addition to presenting the measures that will be implemented in the new fiscal year, the minister took stock of the performance of the Indian economy. The figures provided for 2011-2012 differed from what was announced in the previous year: growth stood at +6.9%, a lower figure when compared to the GDP of 2010-2011 (in which an increase of 8.4% was experienced) and to the forecasts of the previous budget, which indicated +9%. Despite the global crisis, which has had even if slight repercussions on the Indian economy, the Subcontinent still ranks among the top five economies in the world in terms of growth, and forecasts indicate a +7.6% for the coming fiscal year 2012-2013, and a +8.6% for the following year.

In order to continue on the growth path it has embarked on, the 2012-2013 Budget basically identified five points that will aim to consolidate economic growth:

• Strengthening domestic demand
• Creating the conditions to increase private investment
• Ensure support for some strategically important sectors, such as agriculture, energy, transportation, infrastructure;
• Undertake measures aimed at social development, for the eradication of the long-standing problems of poverty and malnutrition
• Combat the problem of corruption and lack of transparency in public life.

In terms of sectors, Mukherjee intends to push on infrastructure development, a crucial sector for India's growth: in this regard, a total of about €770 billion will be allocated, both by the public sector and private investors. In order to ensure more efficient transportation, capable of enabling faster movement of goods, the government has decided to expand the road line by a length of 8,800 km, or 14% more than the previous year's budget, with an investment of about €4 billion.

The agricultural sector, which continues to be considered a priority by the government, will also be heavily subsidized: in fact, an increase in credit for farmers to €88 billion has been proposed so that they can have easier access to modern agricultural equipment. In addition, with the new budget, the implementation of the National Mission on Food Processing, a program that should encourage stronger growth in the food processing sector, will be initiated.

Mukherjee also said that the government intends to seriously consider two important proposals: the first concerns the possibility of allowing foreign airlines to hold up to 49% in the capital of an air transport company; the second concerns the willingness to come to an agreement to grant FDI in multi-brand retail up to 51%, and this would be a truly crucial measure for the country, given the recent obstacles that have not allowed total liberalization of the sector. The minister also proposed establishing a €770 million fund to give micro, small and medium-sized enterprises access to credit.

Further measures concern interventions some social reforms (launch of the National Urban Health Mssion program and housing intervention for the weaker segments of the population), the textile sector, and the financial sector: precisely for the latter, the Rajiv Gandhi Equity Savings Scheme, program that provides tax deduction for investors in the retail sector.

From a fiscal point of view, the minister promised initiatives to combat the problem of corruption and increased excise duty (equivalent to our VAT) and service tax. The absence of a proposal to reduce the corporate tax rate (called corporate tax) does not satisfy businesses, but the government has tried to remedy this by proposing a series of measures to promote investment through tax relief in various sectors, including agriculture, infrastructure, mining, railways and roads, civil aviation, welfare and environment.

Also in order to cut down tax litigation and provide tax certainty for foreign investors, the government has decided to introduce the Advance Pricing Agreement from this year. The APA, within the framework of the transfer pricing framework, is an agreement between the taxpayer and the tax administration, which addresses transfer pricing issues within a group of transactions between enterprises for a certain period, defining appropriate methodologies, terms and conditions.

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