Union Budget 2017: Junking FIPB eases FDI policy in India, which has seen a 36% rise in inflows in first half of 2016-17

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Published: February 2, 2017 8:10:11 AM

The announcement to phase out FIPB is an important step in further liberalising the FDI policy for a country which has seen a 36% rise in FDI inflows in first half of 2016-17

Arun Jaitley, FDI policy,  Foreign Investment Promotion Board (FIPB),  Department of Economic Affairs, Department of Industrial Policy and Promotion (DIPP), Budget 2017The announcement to phase out FIPB is an important step in further liberalising the FDI policy for a country which has seen a 36% rise in FDI inflows in first half of 2016-17. (PTI)

As one sits back and reflects on the year gone by, the first thought that comes to mind is that there may not be any other year which has heralded so many and so significant changes as 2016! The sheer magnitude of changes, the spread of the changes through the globe, and the changes that we have seen in the tax arena are unparalleled. It would be trite to say that no one could have anticipated even a fraction of these changes at the beginning of the year; a year that will certainly go down in the annals of history as remarkable.

In wake of the above, the government has announced the much-awaited Union Budget 2017 which can be said to be a mixture of populist and reformist measures in order to strike a balance between expectations and fiscal prudence. On the frontier of a sluggish global economy coupled with several political changes which one has witnessed in the recent past, the Budget seems to have taken several steps in the right direction.

The reduction in corporate tax rate to 25% (from current tax rate of 30%) for smaller companies (having turnover of less than R50 crore) will certainly help the MSME sector to be more competitive vis-à-vis the large peers.

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The announcement to phase out FIPB is an important step in further liberalising the FDI policy for a country which has seen a 36% rise in FDI inflows in first half of 2016-17.

Also, the announcement to extend concessional tax rate on debt funding to July 1, 2020, coupled with its applicability to Rupee Denominated Bonds, is certainly welcome and should certainly help in garnering fresh debt inflows into India while reducing the cost of doing business.

The proposal that indirect transfer provisions will not be applicable to Category I/II FPIs also provides a much needed relief to this sector.

From an infrastructure standpoint, this Budget has provided a much-needed stimulus to the housing sector which has been reeling for growth in recent times. Grant of “infrastructure” status for affordable housing projects coupled with changes to tax exemption limits will provide a much-needed spur to India’s infrastructure.

Introduction of thin-capitalisation provisions (limiting interest deduction to 30% of the Ebitda) is also a watershed development in line with the global consensus on OECD’s project on Base Erosion and Profit Shifting.

As the ink dries on the Union Budget 2017, it would be interesting to examine these provisions which are critical and have much wider ramifications.

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