FOLLOWING up a GST with its new Insolvency and Bankruptcy Code, an amended Arbitration Act requiring faster settlement of commercial disputes, and recapitalisation of the banks has allowed the Modi Government to present a more enticing offering to international investors. The rules of the game have changed . . .
INDIA’S Modi Government has introduced game-changing corporate and taxation reform that could trigger far-reaching implications for its economy.It now has a goods and services tax (GST), an up-to-date Insolvency and Bankruptcy Code (IBC) and an amended Arbitration Act which requires the hearing and settlement of commercial disputes to be completed within a maximum of 18 months.According to key executives of one of India’s top legal firms, compared with three years ago, the investment climate is “100 per cent” better.
Pallavi Shroff, a Managing Partner of the Delhi-based Shardul Amarchand Mangaldas & Co (SAM), says the States are actually competing with each other for investment.
“They are trying to facilitate investment,” she says. “Approvals still take a bit of time, but the whole process is much simpler today.”
The impact of the changes is freeing up distressed assets, including manufacturing plants, for ownership transfer to new investors.
Until now, banks have been hamstrung by archaic legislation which protected the sponsors of companies. As a result, banks, particularly public sector entities, were weighed down by non-performing loans.
The changes have rekindled investor interest in India, a destination that was once difficult and unpredictable — in large part because of unhelpful Government policies.
The Modi Government, it seems, has done what its predecessors were unable to deliver — a single simplified taxation system — and has taken over the powers of the States to collect taxes. It has also reduced bureaucratic red tape.
It is early days yet with these reforms, but the first signs are promising. Investors are reassessing India. In just one sector alone – real estate – an estimated US$10 billion in new investment has flowed in.
Shardul Shroff, Executive Chairman of SAM, regards the GST legislation as India’s most far-reaching change yet.
“The Government has made Constitutional amendments giving it power to take over taxation from the States,” he told ATI. “In doing so it has reduced State authority and vested the Centre with the right to collect and distribute taxes between manufacturing States and consuming States.”