Reasons as to why fdi decision was taken in india
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FDI limits in new sectors, we need to see which Indian markets will work for them
Keen about convincing global investors that India isn’t a lost cause for FDI (foreign direct investment), the Government has been at pains to reassure them in the ongoing India Economic Summit. So you have the Finance Minister dutifully mentioning all the hot button issues that are said to vex foreign investors: retrospective taxation, land acquisition laws, mining rights, labour reforms.
But will this lead to an FDI surge? Don’t be too sure.
In recent years, there have been a number of marquee global names who have either reviewed their India plans or have scaled down their operations here: Nokia, Posco, ArcelorMittal in manufacturing, Fidelity, AIG, ING, New York Life in financial services, Walmart and Carrefour in retail.
Studying these cases suggests that when a foreign firm decides to pack up and leave the country, it is seldom because of a single pain point. Some serious research into each case is essential for the Centre to gain a better insight into what really drives FDI decisions.
Tax terrorism, really?
Take the case of Nokia, which recently shuttered its mobile phone manufacturing unit near Chennai, at one time one of its largest facilities worldwide. The reason most often cited for this is the unresolved tax dispute with Indian authorities.
In 2013, the Central Board of Direct Taxes (CBDT) raised a tax demand on this unit for not deducting tax on the royalty payments it made to its Finnish parent for software used in mobile handsets. The issue went into litigation and by the time Nokia’s parent had inked a deal to sell the business to Microsoft, the disputed amount of ₹3,000 crore had inexplicably swelled to ₹21,000 crore. With the CBDT freezing the unit’s assets, it was left out of the deal and Nokia finally decided to mothball it this week.
The tax authorities have certainly not acquitted themselves well in this case. It is difficult to explain why they waited for seven years after the unit commenced or why they raised such an exorbitant demand. But if this seems like a straightforward case of ‘tax terrorism’ bringing a global firm to its knees, there were other factors at play too.
Keen about convincing global investors that India isn’t a lost cause for FDI (foreign direct investment), the Government has been at pains to reassure them in the ongoing India Economic Summit. So you have the Finance Minister dutifully mentioning all the hot button issues that are said to vex foreign investors: retrospective taxation, land acquisition laws, mining rights, labour reforms.
But will this lead to an FDI surge? Don’t be too sure.
In recent years, there have been a number of marquee global names who have either reviewed their India plans or have scaled down their operations here: Nokia, Posco, ArcelorMittal in manufacturing, Fidelity, AIG, ING, New York Life in financial services, Walmart and Carrefour in retail.
Studying these cases suggests that when a foreign firm decides to pack up and leave the country, it is seldom because of a single pain point. Some serious research into each case is essential for the Centre to gain a better insight into what really drives FDI decisions.
Tax terrorism, really?
Take the case of Nokia, which recently shuttered its mobile phone manufacturing unit near Chennai, at one time one of its largest facilities worldwide. The reason most often cited for this is the unresolved tax dispute with Indian authorities.
In 2013, the Central Board of Direct Taxes (CBDT) raised a tax demand on this unit for not deducting tax on the royalty payments it made to its Finnish parent for software used in mobile handsets. The issue went into litigation and by the time Nokia’s parent had inked a deal to sell the business to Microsoft, the disputed amount of ₹3,000 crore had inexplicably swelled to ₹21,000 crore. With the CBDT freezing the unit’s assets, it was left out of the deal and Nokia finally decided to mothball it this week.
The tax authorities have certainly not acquitted themselves well in this case. It is difficult to explain why they waited for seven years after the unit commenced or why they raised such an exorbitant demand. But if this seems like a straightforward case of ‘tax terrorism’ bringing a global firm to its knees, there were other factors at play too.
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