Recession? What recession? Business in India is booming. Forbes is reporting that India’s Billionaire Club nearly doubled in the past year. According to the Forbes special report, India’s 100 Richest, the nation is now home to 52 Billionaires, up from 27 last year. According to the report:
The combined fortune of India’s 100 richest is $276 billion, almost one-fourth the country’s GDP. That is well below the total worth of $775 billion for the 100 richest Americans, but well ahead of the equivalent sum for China’s top 100. Although China has more billionaires–79 vs. India’s 52–India’s wealthiest are worth over $100 billion more than the $170 billion total net worth of their Chinese counterparts.
You can read more about India’s good fortune in the Financial Times in the article India Billionaires Outstrip US Counterparts.
Proposed Business Laws May Undercut India’s Recent Performance
While India’s robust economy continues to outpace much of the world, proposed legislation may undercut its recent performance. Starting next month, the Indian Parliament is set to consider a major overhaul of the nation’s business laws. There are three legislative proposals in particular that will fundamentally change the way business is conducted in India. These proposals are the Goods and Services Act, the Companies Bill and the Direct Taxes Code.
- The Goods and Services Act: Slated to take effect in April, 2010, the Goods and Services Tax (GST) will abolish the ‘central sales tax’ and include services under ‘value added tax’ (VAT). For the first time, state governments will be able to tax services. The GST will have a uniform tax rate structure throughout the country and will create a common market within India for the first time.
- The Companies Bill: Currently being examined by a parliamentary committee, the new bill seeks to overhaul several issues such as insider trading, independent directors, class action suits, public deposits, fair valuation, consolidation of financial statements, mergers & acquisitions and special courts.
- The Direct Taxes Code: India’s Income Tax Code is set for a major overhaul with the introduction of the Direct Taxes Code proposed to be launched by April, 2011. In its current form, the Code proposes lower tax rates on the basis that lower rates improve compliance. However there are significant disagreement concerning income from salaries and capital gains; taxation of charitable organisations, minimum alternate tax based on assets and international taxation.
The Proposals Are Silent on Key Issues
While I welcome any change that will eliminate red tape, reduce tax liability and allow businesses to operate more efficiently, these proposed laws are silent on key issues. For example, how will state tax revenue be allocated to overhaul India’s impossibly overburdened infrastructure–considered among the worst in the developed world?
Also, does the introduction of the Direct Taxes Code translate into higher taxes on capital gains, assets and international taxation? Finally, how will an overhaul of the securities laws impact the robust pace of mergers and acquisitions—one of the primary mechanisms for business expansion and wealth accumulation?
Conclusion
The increase in the number of India’s Billionaires is a sure sign of the nation’s economic strength. However, the proposed business laws are silent on key issues that may affect the vitality of India’s economy. It remains to be seen whether the proposed changes will have an immediate impact on the growth of business in India.
Trend to Watch: India will continue on its current path unless the proposals burden the business sector with higher taxes and increase restrictions in the securities markets.