The Hindu Editorial Analysis- 27th January, 2022 | Current Affairs: Daily, Weekly & Monthly - CLAT PDF Download

1. Taxing Drama: The Centre must Conclude the Retroactive Tax Disputes and Ensure Policy Predictability

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GS 3- Economy - Government Budgeting

Context: The British firm Cairn Energy has said it has concluded all steps prescribed by the Indian government in order to be eligible for the refund of a contentious retroactive tax levy.

• This should be the last act of a long and winding tax dispute drama.
• It should be the last act of a long and winding tax dispute drama.
• The firm, now rechristened as Capricorn Energy, expects to get back ₹7,900 crore.

The Dispute

• Cairn Energy was the second major firm pursued by the I-T Department for taxes it believed had accrued in the past, using retro-active legislative changes introduced in the 2012 Budget by then Finance Minister Pranab Mukherjee.
  • The original target for this move, that has sharply dented India’s credibility, was Vodafone, which had secured a Supreme Court verdict against the tax department’s demands for past transactions.
• Empowered to dig up similar transactions, involving the indirect transfer of assets situated in India, the I-T Department had, since 2014, pursued Cairn over a group restructuring undertaken in 2006, culminating in a tax demand of as much as ₹24,500 crore.
• Cairn and Vodafone had initiated arbitration proceedings against the Indian tax authorities’ actions, and won in late 2020.
• But in Cairn’s case, the taxman had recovered part of its ‘dues’ by forcibly selling its shares even as arbitration proceedings were pending — an action that led to The Hague awarding it penal damages of $1.2 billion.

A Compromise Formula in these Cases

• As part of the Government’s compromise formula worked out belatedly last August through amendments in the tax law, Cairn had to drop all legal proceedings seeking to enforce the arbitration award against India, forgo the damages and indemnify the Government against all future claims or liabilities.
• Last month, Vodafone also availed these provisions.
• The Government should, on its part, work swiftly to process their paperwork and preferably remit their dues before the financial year concludes.
• Even in the eight months following the loss of the Cairn arbitration, the government shuffled its feet, from denial and obfuscation to working out legal amendments to fix the mess.
• The only ostensible trigger for the change was global courts approving seizure of Indian assets as Cairn sought to enforce the arbitration award.

Way Forward in the Context of Tax Terrorism

• While this will be a necessary first step towards restoring some of the damage caused to Brand India, it may not be immediately sufficient — from labelling it as tax terrorism while in the Opposition, this government dithered on corrective action till its eighth year in office.
• Whether this was an outcome of bureaucratic bravado, official obstinacy, political paralysis or a combination of all three, India needs to abandon such fickleness and demonstrate greater certainty and predictability across economic policy, be it about GST or global trade engagement, in order to bolster its credentials as an ideal investment destination.

2. Unlock India’s Food Processing Potential: Growing Populations and Unrestricted use of Natural Resources must Push Nations to have an Efficient Food Value Chain

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GS 3- Food processing and related industries in India - scope and significance, location , upstream & downstream requirements, supply chain management.

Context: One of the largest producers of fruits and vegetables in the world to boost processed food in large quantities, India has formulated a unique Production-Linked Incentive Scheme (PLIS) which aims to incentivise incremental sales.

• However, The challenge to feed the 10 billion population by mid-century is therefore being deliberated on several fronts. It demands efficient ways of production that are both economically viable and ecologically sustainable.
• Fortunately, technologies are emerging that revamp the traditional approach of farm to fork and with a lower environmental footprint.

Progress so far in the Food Processing Industry

• Production-Linked Incentive Scheme (PLIS): A sum of ₹10,900 crore has been earmarked for the scheme and to date, 60 applicants have already been selected under Category 1 which incentivises firms for incremental sales and branding/marketing initiatives taken abroad.
• Beneficiaries have been obliged to commit a minimum investment while applying for the scheme.
• Assuming the committed investment as a fixed ratio of their sales and undertaking execution of at least 75% of the projects, the sector is likely to witness at least ₹6,500 crore worth of investment over the next two years.

Importance of this Investment

• A study in the United States concluded that a 1% increase in public infrastructure increased the food manufacturing output by 0.06% in the longer run.
  • This correlation holds good for India too as a higher investment is being concentrated in States such as Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu and Uttar Pradesh.
  • These States as reported by the Good Governance Index 2020-21, ranked among the highest in the ‘Public Infrastructure and Utilities’ parameter with ‘Connectivity to Rural Habitations’ showing the highest improvement .
• For the exports market, it is now established that sales promotion is positively related to increased sales volume, but inversely related to profitability.
  • To bridge this gap, of the 13 key sectors announced under the PLIS, the ‘Food Processing PLIS’ earmarks a dedicated Category 3 for supporting branding and marketing activities in foreign markets.
  • This ensures that India’s share of value-added products in the exports basket is improved, and it may leverage on its unique geographical proximity to the untapped markets of Europe, the Middle East/West Asia, Africa, Oceania and Japan.

Challenges

• Access to finance:  The access of MSMEs to finance is a perennial problem in the country, predominating due to a lack of proper credit history mechanism for MSMEs.

Improved Environment for Food Processing Industry

• Accelerated the demand for products from the ready-to-eat market which saw a rise of approximately 170% in sales volume between March-June 2020, due to the pandemic, as stated by Netscribes (global data and insights firm).
• Improved awareness: The pandemic has bolstered consumer awareness of functional foods, which is expected to provide a launchpad for health-orientated start-ups and micro-food processing units.
• Smart financing alternatives such as peer-to-peer (P2P) lending hold potential for micro-food processors as can be observed by the United Kingdom Government-owned British Business Bank (akin to India’s MUDRA Bank, or Micro Units Development and Refinance Agency Bank) which has helped more than 1,18,000 small businesses get access to more than U.S.$17.88 billion.
• TReDS System: Access to working capital has in theory been addressed by the Trade Receivables Discounting System (TReDS), a platform for facilitating the financing/discounting of trade receivables of MSMEs through multiple financiers. However, the platform requires considerable scaling-up and simultaneous enforcement of stringent measures for corporates to comply with.
• Potential to integrate GST & TReDS sytem: Integrating the TReDS platform with the Goods and Service Tax Network’s e-invoicing portal will make TReDS more attractive and give relief to financiers.
• A sustainable food ecosystem: With growing populations, changing food habits and unrestricted use of natural resources, nations must come together and lay out a road map for a common efficient food value chain.
• Focus on nutrients consumption: New alternatives are being explored which have immense potential in replacing the staples of rice and wheat in the form of Nutri-cereals, plant-based proteins, fermented foods, health bars and even fresh fortified foods for pets.

Way Forward
By welcoming the new brands in the category, PLIS aims to create an enabling ecosystem for innovation in both food products and processes. Post the 1929 Great Depression, hemlines of a skirt were indexed to predict the financial state. Almost a century later, luminosity and night lights data obtained from satellites indicate the extent of economic progress. No wonder, 50 years hence, the progress of nations will be benchmarked to their ability to sustainably feed their populations.