Introduction

Author: | Published: 1 Aug 2012
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The 2012 edition of the India Annual Review could not be more timely. While the potential of India has, to-date, proven sufficiently alluring for investors, this year's first quarter growth rate of 5.3% – the lowest recorded in nine years – was a sobering reminder that even Asia's third-largest economy is not immune to volatility in the global financial markets.

The Q1 rate comes during what has been described as a "rough patch" for India. Fiscal and trade deficits are soaring, the rupee has fallen almost 25% against the US dollar, reforms have stalled due to a hesitant government, inflation is high and investment and consumption are down.

This has all led to the ratings agencies downgrading their outlook for the Indian economy, with Standard & Poor's warning that India may lose its investment-grade status.

And yet, data released by the Department of Industrial Policy & Promotion (DIPP) showed that FDI inflows into India for the period April 1 2011 to February 29 2012 were up by nearly 50% from the previous financial year to US$28.4 billion.

In addition, Prime Minister Manmohan Singh has unveiled a series of projects to further boost investment – including plans to build new highways, airports and ports during this fiscal year – with much importance being given to public-private partnerships in order to help foot the bill.

And the limit on foreign investment in government bonds has been increased in an effort to prop up the rupee – with sovereign wealth funds, endowment funds, pension funds and foreign central banks all now permitted to invest in government bonds.

Other key developments affecting investors include the new Takeover Code, which provides some much-needed clarity to the law relating to takeovers. In addition to simplifying the takeover process, the Code enables investors to acquire larger stakes in Indian-listed companies without attracting open offer obligations. However, some aspects of the Code remain open to interpretation, which investors will not welcome.

There has also been a rise in judicial activism in Indian politics. For example, the Hon'ble Supreme Court's judgment in the 2G spectrum allocation case has led to much uncertainty in the investment environment. Yet its judgment in the Vodafone case helped clear uncertainty over the taxation of cross-border transactions.

Taxation is one of two new chapters in this expanded edition of the India Annual Review, and it is an area of the law that has witnessed much controversy over the last 12 months.

The Government of India (GOI) intends to aggressively go after those who try to avoid paying Indian taxes, as demonstrated by its proposed retrospective amendment to the 1961 Income Tax Act. Meanwhile, foreign investors have expressed concern over the introduction of the General Anti-Avoidance Rules (GAAR). While the Mauritius route for investment was recently reconfirmed by the Authority for Advance Ruling, the controversy over whether GAAR provisions override double taxation avoidance agreements will resurface once the provisions come into force on April 1 2013.

Investors need guidance on all of these developments and, for this reason, IFLR and Asialaw are proud to publish the 2012 edition of the India Annual Review.

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