IASToppers-Current-Affairs-Analysis-3rd-Feb-2016
Current Affairs Analysis

3rd February 2016 Current Affairs Analysis

By IT's Current Affairs Analysis Team
February 03, 2016

Contents

Economy

  • Companies Law Committee submits report to Government
  • New U.S. rule a blow to Indian pharma exporters
  • RBI relaxes FDI norms to boost start-ups
  • Govt sets up 2 panels to ensure consistency in tax policies

International Relations

  • India, Brunei discuss South China Sea dispute
  • China revamps military command structure


Economy


Companies Law Committee submits report to Government

 

The Companies Law Committee — constituted in June 2015 to make recommendations on the issues related to implementation of the Companies Act, 2013 — has submitted its report to the Government.

Details:

  • The Committee has proposed changes in 78 sections of the Companies Act, 2013 which, along with consequential changes, would result in about 100 amendments to the Act. Approximately 50 amendments to the Rules have also been proposed.
  • The recommendations cover significant areas of the Act, including definitions, raising of capital, accounts and audit, corporate governance, managerial remuneration, companies incorporated outside India and offences/ penalties.
  • The Committee has endeavoured to reconcile the competing interests of the various stakeholders keeping in mind the difficulties and challenges expressed by them and also being mindful of the government’s objective of furthering ease of doing business, encouraging start-ups and the need for harmonising various laws.

The Committee was chaired by Secretary, Ministry of Corporate Affairs.

Various recommendations by the committee:

  • Some of the key changes proposed are regarding managerial remuneration to be approved by shareholders and modification of definition of associate company and subsidiary company.
  • Private placement process should be substantially simplified and incorporation process made easier.
  • The suggestions also include omitting provisions relating to forward dealing and insider trading from Companies Act.
  • Companies may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement.
  • Restriction on layers of subsidiaries and investment companies could be removed.
  • Auditor will report on internal financial controls with regard to financial statements.
  • Frauds less than Rs. 10 lakh could be compoundable offences, according to the statement. Other frauds can be continued to be non-compoundable.
  • Requirement for a managerial person to be resident in India for 12 months prior to appointment may be done away with, it said. ESOPs may be allowed to promoters working as employees/directors.

[Ref: Hindu]

 

New U.S. rule a blow to Indian pharma exporters

 

In a move that will further inflate prices of drugs in the United States — already a burning issue in the current presidential campaign — the U.S. government has made it mandatory for Active Pharmaceutical Ingredients (APIs) to be manufactured locally.

Scenario before the new norms:

  • Before the new norms came into effect, U.S.-based companies were allowed to procure APIs from countries like India and China, make the fixed formulations (final product) in the U.S. and sell the drugs to the U.S. government.
  • At present, nearly 80 per cent of drug raw material requirement is met by India or China.
  • It is worth noting that Indian companies are not allowed to quote for government contracts in the U.S. since India is not a signatory to the WTO’s government procurement agreement.

Impact of new norms on Indian pharma:

  • The decision has already sent Indian pharmaceutical exporters into a tizzy, as it will significantly impact Indian drug exports.
  • But having to manufacture APIs in the U.S. will be a difficult requirement to meet for many of these Indian generic drug manufacturers.
  • This change will affect companies which have subsidiaries in the U.S. that procure APIs from their Indian counterparts and make the finished product in the U.S.

Pharmexcil — India’s pharmaceutical Export Promotion Council — has approached the Commerce Ministry, requesting authorities to intervene and resolve the issue.

Impact on U.S. pharma:

  • The decision would impact availability of affordable generics in the United States. This would seriously impact availability and prices of medicines in the United States.
  • As things stand, nearly 80 per cent of the U.S. requirement for APIs is imported and due to these norms, the U.S. government procurement prices will go up significantly.

India’s future course of action:

  • India will take up this issue with the U.S. The Indian government would first try to resolve this issue bilaterally, failing which it would consider approaching the World Trade Organisation’s dispute settlement panel.

[Ref: Hindu]

 

RBI relaxes FDI norms to boost start-ups

 

The Reserve Bank of India (RBI) has relaxed several rules including foreign direct investment norms to boost start-up activity in the country.

New norms:

  • Start-ups are now allowed to receive foreign venture capital investment irrespective of the sector in which they operate.
  • The new norms will enable transfer of shares from foreign venture capital investors to other residents or non-residents. Currently only Venture Capital Funds (VCF) and Indian Venture Capital Undertakings (IVCU) are eligible to raise foreign venture capital investments.
  • The central bank has also permitted, in case of transfer of ownership of a start-up enterprises, receipt of the consideration amount on a deferred basis as also enabling escrow arrangement or indemnity arrangement up to a period of 18 months.
  • The central bank simplified the process of dealing with delayed reporting of foreign direct investment (FDI)-related transaction by building a penalty structure into the regulations itself.
  • RBI has tried to address the regulatory difficulties being faced by the promoters of a start-up by proposing to permit receipt of deferred consideration and enabling an escrow/indemnity arrangement. These clauses are generally insisted upon by an investor and the regulatory restrictions (under the current regime) act as a roadblock for the start-ups.

[Ref: Hindu]

 

Govt sets up 2 panels to ensure consistency in tax policies

 

With a view to bring about consistency in taxation policy, Finance Ministry has set up two committees – one under Finance Minister and other under Revenue Secretary.      

Reasons for set up:

  • The Tax Administration Reform Commission (TARC) have in their First Report, identified handling of tax policy and related legislation as one of the areas which needs structural modifications.
  • Observing that currently, this is handled in the two Boards i.e. CBDT and CBEC, independently in the Tax Research Unit (TRU) and Tax Policy and Legislation (TPL) wings, the proposals of the Boards reach the Finance Minister in separate channels.
  • To bring consistency, multidisciplinary inputs, and coherence in policy making, TARC has recommended that a Tax Council supported by a common Tax Policy and Analysis (TPA) unit should be established to cater to needs of both direct and indirect taxes.
  • Comprising tax administrators, economists, and other specialists such as statisticians, tax law experts, operation research specialists and social researchers should be set-up for both the Boards.

Considering the above, the Government has created two committees:

  • Tax Policy Research Unit (TPRU) and
  • Tax Policy Council

(1) Tax Policy Research Unit (TPRU):

       The Tax Policy Research Unit (TPRU) will be headed by the Revenue Secretary and will be a multi disciplinary body.

  • Carry-out studies on various topics of fiscal and tax policies referred to it by CBDT and CBEC  and will provide independent analysis on such  topics;
  • TPRU will prepare for every tax proposal an analysis of legislative intent, expected increase/decrease in tax collection and economic impact.
  • TPRU will comprise of officers from CBDT, CBEC as well as economists, statisticians, researchers and legal experts.
  • It will assist Tax Policy Council chaired by FM in taking appropriate tax policy decisions; and
  • Liaise with State Commercial Tax Departments.

(2) Tax Policy Council:

It will be headed by the Union Finance Minister and will take important policy decisions.

  • The TPC would have nine members – Minister of State for Finance, NITI Aayog Vice-Chairman, Commerce Minister, Chief Economic Advisor and Finance Secretary. It would also have secretaries from the department of Revenue, DEA, DIPP and Ministry of Commerce.
  • The TPC aims to have a consistent and coherent approach to the issue of tax policy and will look at all the research findings coming from TPRU and suggest broad policy measures for taxation.

[Ref: PIB]

 

International Relations

 

India, Brunei discuss South China Sea dispute

 

Brunei has recently held discussion with an Indian delegation led by Vice-President Hamid Ansari on Chinese territorial claims in the South China Sea following the conclusion of a bilateral defence agreement between India and Brunei

  • Brunei briefed India on the negotiation under way for the Code of Conduct for the South China Sea.
  • India supports a negotiated settlement of Brunei’s maritime dispute with China which has the potential to affect free maritime traffic in Southeast Asia.
  • India and Brunei have signed three Memoranda of Understanding (MoU) to cooperate in the fields of defence, health and youth affairs & sports.

Defence pacts:

  • The pact is aimed at ensuring uninterrupted energy lanes between India and Southeast Asia.
  • The defence cooperation will provide both sides the institutional foundation for more collaborative work on maritime security and secure India’s energy lanes to Brunei.

Issue of South China Sea:

  • China claims the South China Sea and 90 per cent of the islands including major shipping lanes that dot it. Brunei, along with other ASEAN members like Malaysia, Philippines and Vietnam, has been also staking claims in the South China Sea. 
  • The SCS is a major shipping lane. Over half of the world’s commercial cargo passes through the Indo-Pacific waterways. 
  • Brunei’s main port, Muara — one of the main ports in Southeast Asia through which the bulk of the country’s oil and gas exports to India take place — is in the South China Sea region and will become a major component of India’s growing maritime partnership with Brunei. India has taken note of the growing Chinese influence on Muara.
  • The part of South China Sea that Brunei claims is largely “unexplored” and might contain hydrocarbon reserves vital for the country’s economy.

Location of Brunei:

  • Bruneiis a sovereign state located on the north coast of the island of Borneo in Southeast Asia.
  • Apart from its coastline with the South China Sea, the country is completely surrounded by the state of Sarawak, Malaysia.
  • Brunei is the only sovereign state completely on the island of Borneo; the remainder of the island’s territory is divided between the nations of Malaysia and Indonesia.

IASToppers-Current-Affairs-map_southeast_asia field site

[Ref: Hindu, ET, Wiki]

 

China revamps military command structure

 

In a major military reform, Chinese President Xi Jinping recently reorganised four army headquarters by replacing them with 15 new agencies under the Central Military Commission (CMC) headed by him, tightening his control over the world’s largest force.

  • The overhaul is aimed at moving away from an army-centric system towards a Western-style joint command in which the army, navy and air force are equally represented.
  • This is part of major reforms initiated by Xi to revamp the 2.3 million-strong and the world largest military, the People’s Liberation Army (PLA).

Details:

  • The new structure includes new commissions – discipline inspection, politics and law and science and technology – as well as the general office.
  • The reform includes formation of five more divisions, administration, auditing, international cooperation, reform, organisational structure and strategic planning.
  • There are six new departments, joint staff, political work, logistical support, equipment development, training, and national defence.
  • According to the new changes, the Eastern, Western, Northern, Southern and Central theatre commands will focus on joint combat. The CMC will exercise overall political, supervisory and administrative control over the armed forces.
  • The unified joint command system will end the army dominated set up with more role for air force and navy.

Possible reasons for this overhaul:

A move may have acquired fresh urgency on account of the “Pivot to Asia” doctrine of the U.S. and recent political changes in Taiwan.

  • Observers say the “Pivot to Asia” doctrine, envisaging bulk concentration of U.S. forces in the Asia-Pacific, has imparted urgency to China’s military modernisation.
  • Some observers say that due to strong nationalism among Chinese people, Mr. Xi and his party will become entirely unpopular if they fail to take Taiwan by force if Taiwan pursues independence.
  • The real war Xi is preparing is the war to unify Taiwan with China. Xi cannot be sure that Taiwan will not pursue independence with a pro-independence President in power. Nor is he sure that the U.S. will not interfere if China takes Taiwan by force.

In the broader context, the President visualises military reforms as a core element of an ongoing effort to realise the “Chinese dream”.

[Ref: Hindu, ToI]

 

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