Saturday, August 6, 2011

Switzerland is drying up as Indian investors fleeing; New safe heavens are being hunted

Harish Gupta. NEW DELHI

It may sound strange, but true. The day Swiss government announced lifting veil of secrecy on all banking transactions required by the Indian authorities after April 1, 2011, there was huge withdrawal of money by investors from the tax-heaven nation. From April 1, 2011, the foreign investments virtually dried up from Switzerland as much as $700 million (Rs 2895 crores) has been withdrawn.

Latest figures revealed that if $3 billion came from Switzerland during the past two years, there was a net out-flow of $700 million in the first two months of the current financial year (April & May 2011). For the first time during the past ten years, there has been a negative flow and a net withdrawal of Rs 2895 crores took place, said a worried finance ministry official.

It is also revealed that nine other tax heaven countries have witnessed virtual non-activity in respect of investing money in India. For example, investors from British Virginia invested nearly $1.5 billion (Rs. 5812 crores) during the last two years. But the first two months of the year data revealed the amount was less than Rs two crores. The Caymen Islands, considered a huge tax-heaven for investors invested a mere Rs 1.70 crores in the first two months of the current financial year compared to Rs 6326.47 crores during the last two years.

The story remains the same for other six popular countries which used to invest heavily in India. In all, these ten nations invested Rs 754.15 crores during April 2011. But May was a shocker as the net out-flow was Rs 2850 crores.

Obviously, the mounting pressure on tax-heaven countries to disclose details of flow of funds has sounded an alarm bells and reverse flow of funds has begun in a big way. The Swiss Central bank is not wide off-the-mark when it said that Indians have $2.5 billions deposits in various Swiss banks. Obviously, the wiser Indian investors have started taking monies out of these tax-heavens and taking it to other safe destinations.

If the investments from these countries has fallen, the flow of funds from Mauritius jumped to almost double.

Since Mauritius has signaled that it will take some more time in re-negotiating the controversial Double Taxation Avoidance Agreement (DTAA), the round-tripping is now through the Iceland country.

Investments from Mauritius broke all records in foreign investments as it sent more than $2.1 billion (Rs 9300 crores) to India during the first two months of the current financial year.

As much as 42% ($55 billion) of the entire foreign investments whether in the FDI or FII ($130 billion) has been routed through Mauritius between 2000-2011.

Wednesday, August 3, 2011

Chinese making inroads in a big way in India

Harish Gupta. New Delhi

Even as security agencies are sounding alarm bells over China’s designs along the borders, Chinese companies are penetrating in the Indian infrastructure sector in a big way. While the Heavy Industries Ministry has raised alarm over how Chinese power equipment suppliers outwit PSUs like BHEL and BEL and also in the telecom sectors, the Chinese have made inroads into constructing Indian highways in a big way.

The Chinese companies have already completed 10 big projects in various parts of the country, they are also partners in the construction of Srinagar-Banihal road project.

The Chinese companies are also constructing six laning of the Vadakkancherry-Thrissure section. The project was awarded to KMC Cnstruction which partnered with the China Railway 18th Bureau Group (CR18G) consortium.

The Panvel-Indapur, Piprakothi-Motihari-Raxaul and Jaipur-Reengus projects are among the major national highway projects which are under construction. Surprisingly, the Chinese hold 26% equity in all these road construction projects.

According to official sources security clearances was obtained for engaging the Chinese firms in awarding the contract in Jammu and Kashmir and Bihar. Mr Jitin Prasada, Minister of State in Road Transport and Highways, said in reply to an unstarred question that the firms given the contract were selected on international bidding competition.

The Chinese companies have completed as many as ten Road projects in the country.  These projects are as under:

  • Salem to Karur
  • Radhanpur to Gagodhar
  • Jetpur to Bhiladi
  • Shivpuri bypass & upto Madhya Pradesh / Rajasthan Border
  • Chittorgarh bypass (Rajasthan)
  • Kota to Chittorgarh (Rajasthan)
  • Hyderabad Bangalore Section  (Four Projects)

Monday, August 1, 2011

Mauritius defers DTAA talks again, Investments from tax-heaven jumps to a record 80% high

Harish Gupta. NEW DELHI
Irrespective of nation-wide concerns over black money stashed abroad and Indian governments repeated assurances to bring it back, Mauritius has refused to yield. The Mauritius authorities have ducked talks scheduled in July and signaled that the discussions will take place sometime in August- September.

Since Mauritius is the most crucial destination in the entire gamut of Foreign Direct Investments (FDI) and Foreign Institutional Investments (FII) due to its massive size, the Indian authorities had said that talks to re-negotiate controversial Double Taxation Avoidance Agreement (DTAA) will take place in July. Even Finance Minister Pranab Mukherjee had stated on record that talks are scheduled for July. But these have been postponed again at the instance of the Iceland country. The government has indicated that it would be in a position to hold the same in August-September now.

Highly placed sources in the finance ministry said that talks will now be held sometime in late August or early September to amend the DTAA.

The tiny scenic island which is a leading Off-Shore Financial Centre (OFC) has given Indian regulators nightmares. As much as 42%  ($55 billion) of the entire foreign investments whether in the FDI or FII ($130 billion) has been routed through Mauritius between 2000-2011.

But what has shocked Indian agencies is that investments from Mauritius  has risen to more than 80% during the first two months of the current financial year. Despite huge ruckus in India and ED and CBI officials rushing to the tax-heaven country, the flow of investments from Mauritius has beaten  17 other known tax heaven countries.

Investments from Mauritius broke all records in foreign investments as it sent more than $2.1 billion (Rs 9300 crores) to India compared to other 17 tax-heaven countries put together. They together accounted for a mere $1.8 billion (Rs.7520 crores). The other 17 countries are Switzerland, Singapore, Cyprus, Caymen Islands, British Virginia, Luxembourg, Panama, British Isles, St. Kitts, Bahamas, Iceland, Seychelles, Isle of Man, Virgin Island, Liechtenstein, UAE  and Hong Kong. While DTAA has been re-negotiated with some of these countries, the process is still on. But foreign investments from Mauritius touching a record high of 80% has surprised investigators.

It may be mentioned that the Narasimha Rao government in 1991 had opened the FII investments route in the wake of the foreign exchange crisis under the DTAA. The DTAA provided that there will be no Capital gains tax on companies/persons who are holding residence permits in Mauritius. Since there is no Capital gains tax in Mauritius, the companies enjoyed huge tax benefits. 

The Mauritius government is reluctant to re-negotiate the DTAA as it earns through other means though it doesn’t charge capital gains tax. It did tighten norms for issuance of residence certificate after a hue and cry is raised in India and at one time the authorities even threatened to cancel DTAA suo-moto. Experts questioned the decision of the Indian government not to act when Indonesia  which also a similar treaty with Mauritius, canceled it saying investments are nothing but round tripping. Sources in the finance ministry explain that there is a lurking fear that once the DTAA canceled, the FDI will take a big hit and FII will companies will vanish.