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Sep 16
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gst rise in india

What Will Be The GST Rise in India For Multinationals Means?

By Economy, Others No Comments

GST Rise in India For Multinationals

India is a country where multinationals usually find their future quite uncertain and rapidly changing. Given the democracy that India is, with a government that considers regulation as its strong suit, such a thing can be expected. In the latest turn of events, the tax department in India has targeted or rather pointed towards the new regime of taxes that can be levied on the multinational fast food and hotel chains and tech companies. These are those multinationals or tech companies that effectively operate through the model of the franchisee in India.

But what part of their income has come under the taxmen’s lenses this time? Under scrutiny, this time is the royalty income of such multinationals. Here, the indirect tax department has emphatically raised questions on the pertinent nature of the agreement of these multinationals with their franchisees. It is here to be noted that the income tax department is effectively demanding higher GST given the nature of agreements that have been signed between the multinationals and the franchise.
But this might give rise to a pertinent question how is a multinational different from its own franchise? The answer is that it isn’t. it is here to be noted that under these franchisee models the multinationals allow Indian companies to actually operate them. These could lead to the management of hotels, entities, and stores by Indian companies under their global brand name. Against this arrangement or franchise model, these multinational companies charge a percentage of profit or you can effectively call them royalty or any other income.

But is this amount paid invariably? Not quite. This royalty tax that is being earned by these multinationals comes under the regulatory ambit of the Indian authorities. According to reports, most multinationals pay up to 12% Goods and Services Tax on such royalties. But, given the present scrutinization, the tax department is emphatically is trying to impose an 18% GST on such royalties.

Why such scrutinization?

The alleged revised GST collection of tax leads to a pertinent question what gave rise to such an analysis? It is to be noted that higher tax is being sought as the GST for payments that come under the “right to use” of the brand name is a mere 12 percent, but when this is compared to “transfer of the right to use”, the GST tax rate is actually18 percent. Thus, all the multinationals that were paying the applicable GST of 12% were because they claimed that they had not transferred the brand name or had effectively allowed the Indian entities to use their brand name permanently.

gst rise in india meansThis mainly comes due to the controversy that prevails between the terms ’use rights’ and ’transfer of use rights. What actually leads to the discrepancy is that the tax department actually considers taxing both categories differently.

It is to be also noted that in India, not one but several multinational companies effectively operate under varied franchise models.

One other characteristic that is responsible for the taxman’s lenses on the multinationals is that most multinational chains mainly fast-food chains, tend to operate in grant microgeographic-based exclusivity. This effectively means that various franchise stalls can be installed at various geographical locations. Not only the fast-food franchise works or operates on this model, but mobile phone companies also try to adopt similar franchise models in terms of “exclusive brand stores” or “app stores”.

The tax department alleges that such models that are usually adopted by multinationals are used to essentially save taxes and escape the tax ambit of India. On the other hand, the tax department effectively wants to want to scrutinize the multinationals using the hardcore principles of “entity over form”.

As per the reports the newer taxes can also be levied on the software companies. Such a tax that can be levied on the multinationals will effectively lead to ambiguity in the Indian tax law that cannot be too accommodative for foreign investments. Given that India is currently recuperating from the covid debacle, FDIs are crucial for momentum.

What makes this matter even more intricate is that in this situation it is very crucial to firstly distinguish between goods, effectively known as permanent transfer, and service, known as a temporary transfer.

As aforementioned, this could materialize into a thorny issue as tax applicability is a sensitive issue for the multinationals that effectively operate in countries where such high taxes can be skipped. India being the most sought-after investment destination can put many multinationals in troubled waters with its uncertain tax laws regulating them.

gst tax rateIt is not the first time that the Indian tax department has touched upon this sensitive issue. Previously, the Indirect Tax Department had beseeched or inquired some multinational corporations and foreign banks whether they will allow their entities and subsidiaries to use the brand name. Consequently, in the interest of the Indian entities, the inquiry was made into whether compensation had been duly paid for the use of the brand by a subsidiary.

For a long time, now many multinational companies and foreign banks have been under the tax department scanners. However, the issue was not carried forward due to the pandemic disrupting the functioning of the department. But with now the situation stabilized, the Income Tax department is ready for its sleuthing. What will be the future of the multinationals in India will be something we will decipher only in the future.

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Sep 16
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competition law in india

Why Tech Startups Should Worry As India Strengthens Its Competition Law

By Corporate Law, Others No Comments

Why Tech Startups in India Worry About Competition Law

Competition Law: It is quite undeniable to state that an individual’s life revolves around new tech especially given the odious times of the pandemic. with its increased usage in our daily lives, companies like Facebook and Google seem to be omnipresent. Thus the influence they present on anybody’s life is tremendous and sometimes unwarranted.

This especially presents a problem for the individual if such an undeniably tremendous power goes unchecked and unregulated. Given the burgeoning influence it has on society and the catastrophic circumstances it might have in the future given the spread of fake information, the Government has taken matters into its own hand. This has led to the initiation of newer regulations and rules with regard to competition.

These laws are more geared to deal with the burgeoning, unchecked power of big tech firms. It can, in fact, be stated that such laws are being passed to curtail the growing influence and power of the big techs.

Historical Development of The MRTP Act

the monopolies and restrictive trade practices law was passed in 1962 to regulate and curtail the monopolistic trade in the Indian economy. It is here to be noted that initially it was initially had a socialistic character and did not apply to the public sectors.

It was due to this attribute of non-regulation of the public-owned entities like the banks, corporations, etc. that led to the passage of the Competition Act in 2002. Its main objective was to emphatically deal with anti-competitive agreements. In compliance, it also wanted to end the abuse of a dominant position and the acquisitions in the economy.

But what actually led to the debacle of the MRTP act? It was mainly due to the inefficiency that had crept into the system due to bias that had seeped into the system. It had led to a bias against the private sector which wasn’t quite accommodating. On the other hand, the liberalization in 1991 had shaken the foundation of the robust MRTP structure in the Indian economy. It was also perhaps due to a lack of clarity on a variety of definitions that made it quite ambiguous.  

Thus with liberalization in trade, robust competition law was effectively needed as trade and competition are effectively intertwined. But this also meant that Competition laws had effectively monitored the cutthroat competition that was presented by the foreign corporations to promote healthy competition and protect consumer interest. 

competition law in indiaIt is to be noted that with increasing Competition law regulation, the system has become reductant and crippling. It with its regulatory authority has started to emphatically affect the tech companies in big ways in order to regulate their size and market dominance.

In fact, internationally, the authority of Google and  Microsoft has been challenged. Coupled with it the Indian authorities have also invariably placed allegations against Flipkart and Amazon for their increasing discount sales in the economy. On the other hand, allegations have been filed against Facebook for renewing it’s it investment with Reliance Jio.

Though the government in India is emphatically trying to control the competition and monopoly in India, its measures are increasingly becoming reluctant.

It is to be noted that free trade is itself a competition regulator where the inefficient move out of the market. With extra ostentatious and complex competition laws for a developing country, these are usually crippling. Competition laws are a luxury for the developed country that developing countries like India can ill afford.

On the other hand, the government’s new attitude towards regulating the big tech firms has been strongly reflected in the new amendment bill of 2020. This emphatically molds and changes the regulatory structure of the CCI in restructuring procedures for effectively regulating the guidelines. The new bill also increasingly seeks to expand the Act to invariably and quite detestably include the digital markets.

A recent example of the same is the heavy regulations that have been proposed for the arrangement and buyers cartel. With various reductant measures to regulate the digital world with the chief compliance officer and a series of measures, inefficiency is bound to seep in.

With the increasing popularity of the tech companies and corporations, it has been seen that how the tech world is increasingly dealing with the cases such as the ola uber pricing issue and the other google antitrust allegations.

Talking about the mergers laws and the applicability of the competition laws, it is to be noted that the current merger control framework is traditional and hence reductant as CCI approval is needed if the two companies involved in the merger cross a certain limit of assets and turnover thresholds. But given the nature of the tech firms, these are very asset-light and might actually not earn revenue for many years.

This is due to the fact that the company’s more immediate goals are to expand and gain a consumer base in the market. Thus, this might lead to overlooking high-value transactions that might escape scrutiny.  

In fact, the regulation of the digital framework regulation by just CCI will not help. This is due to the fact that it might also require the help of a data protection bill and more importantly the broadcast company of India. Thus, the increasing number of regulations is not the need of the hour but the accommodation of the same is. 

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Sep 15
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hospitality business

Investment in The Hospitality Business Dries Up Due To Regulatory and Covid Concerns

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Hospitality Business Dries Up Due To Regulatory & COVID

It is no news that the pandemic has taken the world by storm. The economies around the world have kneeled under the pressure of economic disparities and havoc that were inflicted on their growth. Many countries saw an unprecedented contraction, of which India was effectively one of the worst-hit counties which had been hard hit by the pandemic.

But the effects and spread of the devastation caused by the pandemic were unevenly spread across various sectors. It can be rightly stated that these were effectively exacerbated in some sectors like hospitality and MSME sectors that are contacted intensive sectors.

 As the virulent and highly recurring COVID-19 spread across the entire world, the primary and sole focus of the businesses and governments got diverted towards the safety of the public. Though such measures will be continued in the long run, implications for economic growth have been severe. This is due to the fact that the sharp corporate profits have effectively led to a sharp sell-off in equity markets across the globe. It is to be noted that there has been an immense impact on both supply chains and revenue.

The hospitality sector has been effectively affected also due to restrictions in the traveling sector. The decision that was taken to effectively shut down restaurants, hotels, cinemas, and theme parks all have had a significant impact on the worldwide tourism and hospitality industry.

The Discovery of New Ventures

Given the maturity level that was exhibited by the hospitality sector offering their venue available for hospital employees and beds has led to an effective rise in newer business opportunities and models that can take the world by storm if developed carefully. But given the present circumstances, it will be sagacious to maintain that the economy is in the nascent stage of recovery.

Given robust predictions of the third wave for India, it is quite likely that the hospitality sector will have to bear the brunt yet again. On the other hand, the consumer and producers’ confidence are at an all-time low. this does not spark much confidence in the future prospects of the hospitality sector.

Given, that the financial standing of the public has been crippled by the odious pandemic, healthcare spending, and burgeoning inflation in the economy, the hospitality sector for many can still be an item of luxury. Thus, such low demand responses in terms of the services of the hospitality sector don’t provide much encouragement to the investors to invest and help the hospitality sector recuperate.

What could help mitigate the disaster?

Various economists and analysts have recommended that having an extended cash flow for the next six months will be quite prudent for the sector in mitigating the debacle. On the other hand, developing resilience is the need of the hour. Given covid 19 has the characteristic of recurring, developing resilience through robust supply chains and amicably managing operators through payments to suppliers would indeed be effective.

In the scenario that presents itself, it is quite sagacious to cut down on all discretionary operational and capital expenditure. Thus, postponing maintenance and other not-so-important capital expenditure will effectively conserve cash.

the hospitality businessThough the pandemic might have crippled the service-oriented sector like the hospitality sector quite immensely, it is to be noted that the second source of woes in the sector is related to the government. This is due to the Government’s interventions that are significantly leading to uncertainty in the business. It can be rightly stated that given the government’s policies to revive the economy, there has been a great deal of ambiguity in the market.

The ambiguity is in the context of the economic and non-economic consequences that the government interventions might cause. In addition, the fear that has gripped the public’s attention is the uncertainty about whether the government has planned more future interventions that might effectively stall the business again.

In this spirit, various empirical studies have projected and shown that increased government policies ambiguity and spending have a direct correlation with the steady state of many macroeconomic variables. These macroeconomic variables include variables like GDP, debt, and consumption.

To summarize the arduous and odious problem, it can be rightly stated that during a crisis, the government has the most crucial role in reviving the economy. It is when the uncertainty prevails in the market or producers’ and consumers’ confidence is at a record low, that government investments need to be made. This is due to a very pertinent fact that the government faces the leading challenge in reducing both types of uncertainty i.e. economic and confidence.

Also, doing so is quite crucial and vital for industries as they are particularly sensitive to such uncertainties, such as the hospitality sector. To mitigate the ambiguity crisis, policymakers might as well just impose measures with detailed transparency even if they are long-term plans. This will promote certainty in the market. Certainty is quite crucial as ambiguity is loathed by businesses. Thus, ambiguity about future and current government spending including the stimulus packages even creates uncertainty in the volatile stock market.

This effectively disrupts, as aforementioned, many macroeconomic variables such as the GDP, debt, and consumption. In addition to its hospitality revival scheme, the government should also fine-tune its aid policy and help the tourism sector, as both, are interconnected. This will emphatically provide much-needed support for the hospitality sector.

For the consumers, the first step to reviving their confidence can be cutting taxes on fuel and managing inflation. This will help them prepare better for possible future government interventions if similar, subsequent epidemics such as COVID-19 plague the system ever again.

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Sep 15
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neo bank india

NEO Bank Legal Blocks in India

By Corporate Law, Banking, Others No Comments

NEO Bank in India

With the rise of easy credit and convenience in the economy, NEO banks can be seen on the path to a successful trajectory. The financial woes being exacerbated by the pandemic, it has been the major contributor to the successful launch and trajectory of the NEO banks in India.

With higher digitization penetration in India and growing usage of mobile technology, the country has seen a paradigm shift from archaic physical banks to online banking being offered by NEO banks. Thus, it can be rightly stated that the pandemic has ushered the paradigm and a seismic shift in the banking and payments industry in India.

A NEO bank is a bank that operates bank exclusively online. With its newer system of operation, it does not have any traditional physical branch networks. Thus it can quite rightly be stated as a new entrant in the digital payments space.

The detestable hurdles

Talking about the NEO banks in the Indian context, neo-banks are not directly regulated by the banking regulator. This is mainly due to the fact that RBI does not grant licenses for operating virtual banks in India. It is interesting to note that it effectively has permitted conventional banks to outsource certain functions.

This has been done under the guidelines on managing code of conduct and risks in outsourcing financial services. This was back in 2006. With the newer regulations, the association or the ability to partner with cooperative banks has been limited and has been curtailed. The ability to partner with the NEO banks has been done in the case of serving the unbanked or underbanked sectors.

It is to be noted that there are certain sectors like agriculture that are underbanked or underserved by the banks. But with the curtailment of the partnership of the co-operative banks and the Neo banks, has curtailed and restricted outsourcing of core management functions.

It is to be noted that Indian neo-banks typically enter into partnerships with Cooperative banks to outsource arrangements in order to provide a host of products and services to various sectors. Thus, since the banks have been barred to outsource core management functions such as compliance functions, internal audits, and decision-making functions, they will be barred from offering some key banking services.

This is mainly due to the fact that most crucial core management functions have been denied to the NEO banks like compliance with know your customer (KYC) norms and sanctioning loans and investment portfolio management, which are quite crucial for any entity that is effectively offering banking services.

Now, it is to be noted that NEO banks are of strategic importance in the economy. First, as aforementioned, it finances the unbanked sectors that have a hard time getting loans for functioning. This includes some crucial sectors like agriculture which is the largest contributor to the economy.

Secondly, the Neo-banks have been targeting both the retail and the business sector. Given that these sectors were the worst hit during the pandemic and are still reeling under the effect of the pandemic, NEO has taken the central stage in rebuilding the economy.

NEO banks have been helping the retail sector and the MSMEs to effectively open digital savings or current bank accounts. But with the latest amendments of RBI, such an ambition might be hazy. Additionally, NEO banks are best suited for facilitating money transfers efficiently using existing payment rails. This is mainly done by Neo-banks to support their customers in availing credit lines; thus they often act as a direct selling agent for financial institutions. Thus, NEO banks’ attributes are quite crucial.

Given the aforementioned detestable attributes, several other factors contribute to the block in the NEO banks’ functioning. The main hurdle is the ambiguity that is offered by the RBI. This is due to the fact that the RBI does not entirely recognize virtual banks. On the other hand, it does not even regulate neo-banks. As a matter of fact, many neo-banks choose to act as business correspondents of various conventional banks. This is effectively leading the entities to further financial inclusion in remote areas. This is due to the fact that in order to act as BCs, companies need to effectively have widespread retail outlets.

Secondly, the biggest discrepancy that NEO banks are facing is the threat to security. this is due to the fact that conventional banks would emphatically expect infrastructure and security practices of neo-banks. This would be effectively needed before partnering with them.

neo bank blocksThus in pursuit of a successful partnership, NEO banks will have to definitely upgrade their systems so that safer services can be provided. Lastly, the most important cornerstone of the whole structure is data privacy. It is to be noted that for secure online transactions and payment systems, ensuring data privacy is the key.

Thus, given various roadblocks in the future of the NEO banks, it is quite hard to decipher the future of the same at the moment. Perhaps, bringing the NEO banks under the ambit of the RBI regulations will be a start. With regulations in place, credit debacle or bubble can be avoided, which can prove quite crucial for the upcoming future of the upcoming digital payments system.

On the other hand, with the onslaught of the pandemic, the RBI should emphatically consider fully embracing virtual or branch-banking services. Thus, what will be the stance of the government or the RBI is something we’ll have to wait and watch.

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Sep 15
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regulations on social media

Impact of The Newer Regulations on Social Media Companies in India

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New Regulations on Social Media Companies in India

If you are an avid spectator of government policies that are contentious and debatable, chances are that you have, in-depth, learned about the Indian government and WhatsApp, the fakebook fiasco that had materialled recently. With India’s new social media rules unveiled, it is quite a fact that other countries such as the US, the UK, and Australia will be impacted.

This is mainly due to the fact that various international social media platforms work in India and with the newer regulations, the impact on such platforms is bound to be emphatic and immense.


The topic of online regulations is not novel. Various western countries have been emphatically pressing for the imposition of laws that can lead the social networks to take rightful responsibility for the content that is published on their platforms. But given the contentious nature of such laws, various experts have expressed their concern regarding the matters of infringement of freedom of expression and privacy.

government regulation of social media in indiaIndia, the third-largest economy in Asia, is among the top three internet markets. According to reports, it has close to 700 million users which make the matter quite significant and intricate. With such a humungous consumer base, it can quite rightly be said that content that is consumed by the public needs to be scrutinized for the very basic purposes of monitoring hate speech and fake news.


Talking about the US digital forms like Facebook, it oi to be noted that they have been placed under fire concerning the spread of false narratives and propaganda online. With tighter regulations, the companies have much to lose not only In India but also across the world.

This is due to the fact that if companies effectively accede to government diktats in India, they can’t particularly refuse to abide by the same laws across the globe. Such an assumption can be corroborated by the fact that India’s ban of the Chinese Tok-Tok app had nudged the US government to order a similar halt on the Byte dance-owned company.

Thus, with the enforcement of laws in India, it can quite be rightly stated that various countries such as the US, UK, and Australia will follow suit. This will definitely lead the US social media platforms to face challenges in India and across the world.


Amongst all the dissenters opposing the recent IT laws, WhatsApp too has picked up its sword of dissent. This can be emphatically witnessed in the ongoing battle between the government and WhatsApp in court. Given the commitment of the Indian government to enforce such laws, it can be deciphered that it will be a long battle for WhatsApp. This is mainly due to the rise of assertion and acceptability of such laws by various other countries.

The newer Indian laws for traceability have also emphatically and significantly found resonance in countries such as the US, the UK, and Australia. In addition to the woes of such social media companies, is the fact that India is a strategic location for their functioning. It is due to the large consumer base that India has to offer such platforms which are quite lucrative.


The firms also presume the system to be quite arduous as the new social media rules don’t just require firms to just enable traceability but also expect them to establish local offices that are well-staffed with senior officials. This is being done to oversee the law enforcement and user grievances. It is her to be noted that the luxury of such regulations cannot be afforded by everyone that is using the platform. Thus, it can lead to a dwindling consumer base and thus low profitability of such platforms.

Thus, it can be rightfully stated that the new IT ruling will pose severe challenges for giants like Twitter, Google, Facebook, and Netflix in Asia’s third-largest economy. Even though the battle is ongoing, it is to be noted that the outcome of the same, at the moment is quite ambiguous. This is mainly due to the fact that both sides have credibility and authenticity that are attached to their case.

In the case of the government, the spread of fake propaganda and narratives need to be halted to sustain communal and social harmony in India. As for the social media platforms, a good argument of infringement of fundamental rights and speech will work in their favor. Thus in what direction and in whose favor the tables will turn is quite ambiguous and needs to be analyzed.


Social media platforms can gain traction through their propaganda and arguments of unwanted identification that can lead to infringement of not only freedom of speech but also the right to privacy. Such tools of regulations can definitely be used to call short and suppress descent in a democratic country like India.

 This claim can be corroborated by the fact that the newer regulations contain rules like altering the interface to clearly distinguish verified users from others. This is in addition to the setting up of automated tools for content filtration. However, it is to be noted that the newer rules in India are a part of the global shift that started after the detestable mass shooting that was carried out in New Zealand and was live-streamed by the gunman on the social media platform Facebook.

The incident had taken a diabolical turn when the US executive order had to emphatically revisit a law that had given absolute immunity to social media platforms. This had led to the alteration of stances of many governments around the world.

Thus, given the contentious matter of regulations with both sides having something valuable to offer, bringing both the parties to the negotiation table is necessary. But how will such a solution materialize is yet to be deciphered.

 

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Sep 14
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right to privacy

Digital System Needs a Regulatory Rethink

By Others No Comments

Digital System – The Digital Payment System in India

A decade ago, the rise of the digital world was considered quite amusing by the public and regulators. But today it is no news that the rise of digital platforms has taken the world by storm. With newer innovations cropping up in the system, which is leading to the removal of intermediaries and bottlenecks, on one hand, it is providing immense new economic opportunities to the public but on the other, it is leading to a credit bubble in the economy.


The effective removal of intermediaries has led to lower scrutinization of easy credit flowing in the economy. This emphatically is creating an economic bubble, which coupled with an economic slump, if busted, will lead to economic catastrophe in the economy. Tighter regulations have also become mandatory as given, a handful of companies now control unimaginable portions of the world’s investment capital and economic activity.

Not only this, but various economies also suffer from the threat of digital monopolies that can lead to unfair practices in the economy. The IT rules for effectively regulating social media, Advisory Council for Open Network for digital Commerce Rules 2021, will help shape the digital economy for the better.


It is to be noted that the few thousand digital platforms are effectively operated by some SMEs and big corporations. This often leads to larger players calling the shots in the market and setting commercial conditions in a monopolistic manner.

digital system paymentsAs a result, a sense of urgency has corrupted the market. India’s broad-based idea to regulate the e-commerce industry will effectively lead to complications in matters of digital services. To put this into perspective let’s scrutinize “e-commerce” and “marketplace e-commerce stability” and take them into the scope of analysis. These definitions effectively include all possible commercial sectors like banks, academia, health, capital markets, and the IT service spectrum into consideration. 

It is to be noted here that such broad definitions lead to confusion and do more harm than good to the regulation of such platforms. This is due to the fact that the proposed e-commerce rules effectively treat every other entity including Flipkart, Jio Mart, Amazon, Zomato, etc. on the very same footing.


Additionally, the government e-Marketplace hosts roughly about a million sellers but on the other hand, over two million SMEs, artisans, and business and commerce companies are included as well.  Thus, the various requirements relating to the specific appointment of the nodal officer, grievance, and compliance officers will create specific and arduous complications and hindrances in the working of the e-commerce industry.

On the other hand, penalties on individual entrepreneurs and corporations will also lead to added hindrance in the smooth functioning of the e-commerce market.  Thus, contrary to the government’s objective we’ll witness the rise of specific, large companies that can afford the unnecessary restrictions of the government.

Thus, quite opposite to the government’s agenda, it will lead to the rise of monopolies in the market. This will be in contrast to the government’s agenda to curb monopolies’ power in the e-commerce sector and its strategy can backfire.

Though it is a fact that India has its antitrust laws in place, given that the consumer protection rules are loose, nothing much can be gained from such robust antitrust laws. What the need of the hour is that all the stakeholders, that carry out trade from the offline or online mode should effectively retain their economic freedom and entrepreneur freedom based on effective non-discriminating principles, which current rules don’t provide.

This will not only reduce ambiguity in the market but also enhance the legal certainty of the business and lead to an increase in consumer and producers’ confidence.

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Thus, it can be rightly stated that all the newer regulations setting nodal grievance and compliance officers, will strategically do more harm than good to the economy and especially the e-commerce sector. It is to be noted here that the e-commerce sector has been the bright light in the detestable pandemic. On the other hand, it is worthy of mentioning here that the economy is currently in its nascent stage of recovery.

Thus monopolies developing at the cost of the small business, that the e-commerce platform houses, will lead to quite an odious problem of unemployment in the economy. Not only this, given the government’s several requirements and penalties, the business environment will also become quite nonaccommodative and unruly for the investors. 

digital india payment systemBut, as every coin has two sides, this does too. Given the rise of the BNPL sector in the finance world, it can be seen that the credit bubble in the economy is rising. This needs to be rectified by the government authorities if another economic and financial debacle is to be tackled and averted. Given, that no credit checks are being carried out in the industry, this strategy will work in the short run and will be quite accommodative to financially worse off people. But any downturn will definitely lead to defaulting and havoc in the economy. 

Additionally, it is to be noted that a vicious cycle of double debt is in the making. This is due to the fact that in order to finance one debt, more loans will be availed in the economy. This will cause specific harm to the Indian banking system, which can ill afford them at the moment.

Also, it is interesting to know, that RBI doesn’t really have a strategic policy to govern such a detestable attribute of the industry. Thus, an unnecessary hindrance on one part to the negligence of the economic credit bubble on the other is the RBI’s not-so-secret recipe for disaster that can spell doom for the economy. 

Thus, newer, strategic rules are needed to be placed and formulated keeping in mind the digital strategy and approach to regulating the digital market. But what stance the government takes is yet a mystery.   

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Sep 14
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debt laden lelecom player

Banks to Discuss Next Course of Action on Debt Laden Vodafone Idea

By Telecom, Banking, Others No Comments

Action on Debt Laden Vodafone Idea

What is Debt laden Vodafone Idea? Call it an ill-omened debacle or a case of poor strategy but Vodafone has brought its investors to the front of a despicable negotiation table. Negotiations that will include talks about the future course of action in regard to their exposure to the debt laden telecom player. It is to be noted that the telecom player is currently struggling to stay afloat.

Given the debt-ridden state of the telecom giant, quite rationally the investors and promoters have denied infusing cash into Vodafone’s Idea. Additionally, in much interesting turn of events, the apex Court has recently dismissed a plea for rectification of alleged miscalculation adjusted for gross revenue dues.

The revenue has to be played by the company to the government which is quite an aversive situation for the telecom giant. The Supreme court has also actively condemned the telecom operator to bankruptcy and has recommended that it can raise fresh capital. It is to be noted, that given Vodafone’s bankruptcy status, it quite unlikely that it will be able to raise cash in the market. As for its investors and promoters, they have denied infusing extra cash in the telecom giants to get it out of troubled waters.

As aforementioned, the prospects of fundraising for the company look quite bleak. But why are Vodafone investors actually denying the only chance to save the telecom giant? It is due to a pertinent fact that any new strategic investor will be pouring billions of dollars into the government coffers. This effectively means that the funds will not be strategically or effectively reinvested in the company to prepare it for the new 5G world but will be redirected to the government.

debt laden telecomIn addition to court proceedings, another potential discouragement that has come for various other investors is that Kumar Mangalam Birla has stepped down as non-executive director and non-executive chairman of Vodafone Idea. Additionally, much to the dismay of the telecom giant and its investors, he has offered the government to buy out Aditya Birla’s group’s stake in the company. Aditya Birla Group Chairman has effectively offered to hand over his stake in VIL to the government or any other entity so that Vodafone remains functional.

Given all the aforementioned, aversive situations, Vodafone’s Idea is highly unlikely to be able to service its gross debt. It is to be noted that the telecom giant’s debt stands at a whopping Rs 1.8 lakh crore. According to reports, the telecom operator owes at least Rs 28,700 crore to several state-owned lenders. If official data is scrutinized thoroughly, it can be noted that VIL had an adjusted gross revenue liability of Rs 58,254 crore. But it is to be remembered that the telecom operator has paid Rs 7,854.37 crore.

Given a major telecom giant is under immense financial stress, it is to be noted that Section 10 of the Insolvency and Bankruptcy Code can be used as a preference. The Sector 10 of IBC allows a company to file for insolvency after a payment default. But such a voluntary application requires a maximum shareholder approval I.e. of 75 percent. It is to be noted that the default required to trigger IBC can be a failure to repay bonds, a loan, or an operational debt.

In the case of Vodafone, it crippled the financial state of the company. Thus, given Vodafone’s delay in payment of financial dues, it can surely use IBC as a reason for default, or the AGR liability.

It is to be noted here that if Vodafone opts for this step, Section 10 might actually offer a protective umbrella because that is what it is intended for. This is quite apt for a company as it can trigger the proceedings under legitimate business failure.

On the other hand, it will not come as a surprise to many but banks in India have started marking Vodafone as a stressed company. IDFC is the first Bank that has marked Vodafone’s Idea as stressed. Additionally, the bank has also provided for 15 percent of the outstanding debt.

Given the Vodafone debacle, it can be seen in the near future that it could have a bearing on the earnings performance of these banks. This will be due to the fact that the banks will have to make hefty provisions against these ill-omened loan accounts.

Given that another telecom giant is defaulting on the economy, various concerns in the banking sector have been raised. Such claims have also been corroborated by S S Mallikarjuna Rao the MD and CEO of Punjab National Bank. The developments in the last few days, in the case of Vodafone, have led to concern for the banking industry, referring to the AGR-related issues for the telecom players.

telecom player debt ladenHowever, banks that are already marred with a huge number of defaulters like PNB will not be highly affected by such a debacle. This is due to the fact that PNB’s stake in the company is not very high, thus, it is not going to impact PNB’s balance sheet.

The whole debacle comes after the apex court had asked the telecom players to settle their AGR-related dues. The AGR-related dues were worth Rs 93,520 crore to the government which needed to be settled over a period of 10 years.

Concerns for the same were risen by Birla in a letter to Cabinet Secretary Rajiv Gauba in the month of June. Birla, who holds a significant 27 percent stake in VIL had aired his concerns that investors were not willing to invest in the company. The hesitancy was due to the absence of clarity on AGR liability.

Additionally, ambiguity regarding an adequate moratorium on spectrum payments was also a potential deterrent. But most importantly floor pricing regime being above the cost of service was the main reason for hesitancy amongst the investors.

Compared to its peers,  the aggregate gross revenue liability of Bharti Airtel stands at Rs 43,980 crore. Similarly for the Tata group, its AGR liability stands at Rs 16,798 crore. BSNL has an AGR liability of Rs 5,835.85 crore and MTNL has Rs 4,352.09 crore.

Thus, given the huge telecom debacle, it might come as no surprise that SBI was the worst Nifty50 performer today and was down by 3.3 percent. Similarly, no one needs to wonder why shares of IDFC First Bank have tanked over 5 percent recently. Similarly, shares of YES Bank have plummeted by 2 percent.

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Sep 14
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sebi aif regulations

SEBI’s New AIF regulations

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SEBI AIF Regulations 2021

SEBI AIR Regulations: India, a developing economy is all set to accommodate investments in the economy. Given the outrage against the Chinese government for its pandemic containment policy, many companies have been leaving China for alternative business investments. Thus, it can be rightly stated that the pandemic has presented India with a golden opportunity to attract investments in its economy.

It is to be noted that this has been materialized in some sense as the FDI equity investments in the economy in the last quarter jumped by 168 percent.


Now, to make the investment environment more accommodative, SEBI has stepped up with its investment accommodation policy. Recently, in a meeting held, the Securities and Exchange Board of India approved various accommodating amendments to the regulations.

These regulations were brought into force to facilitate alternative investment funds in the economy. It is to be noted that the regulations by the SEBI will effectively ease compliance needed for Alternate Investment funds. On the other hand with flexibility in ease of compliance, such regulations will also foster investment flexibility that will ramp up further investments and will streamline regulatory processes.

Talking about the recent announcement compared to the earlier archaic regulations, it is to be noted that as per SEBI’s amendments made to Alternative Investment Funds Regulations, 2012, Venture Capital Funds will need to invest at least 75 percent of investable funds.


But it is to be noted that in a partial relief that has been provided by SEBI to alternative investment funds, it has provided the Investments certain exemptions. Such exemptions come in regard to the investment committee. It is duly noted that under the recent norms, AIF members of an investment committee will no longer be effectively responsible for any investment decisions.

Also, as aforementioned, compliance will be made flexible as members of the committee would not be effectively liable for the compliance of the AIF investments. This will be in relation to governing documents, the regulatory provisions, and other applicable laws. This will emphatically take off the burden from AIF investments that will see an inflow in the coming months.

sebi aif regulationsIt is to be noted that due to the recent amendments, existing investment restrictions in investable funds of VCFs will be happily done away with. As per the newer regulations, Social Venture Funds that lead to the minimum amount of grant of ₹25 lakh that has been stipulated for Category I AIFs shall not be applicable anymore.

However, it is to be noted that such exemptions come with certain conditionalities. According to the recent amendments, the exemption in the AIF rule is conditional upon capital commitment. As aforementioned, the rule states that the capital commitment of at least ₹70 crores from each investor will be accompanied by a suitable waiver. 

However, the effectiveness is somewhat thwarted as the exemptions are quite limited to an AIF in which effectively each investor other than the sponsor, directors, manager, and employees of the AIF or employees has effectively and emphatically committed to investing not less than ₹70 crores. This is what puts certain conditionalities in investments which can present some kind of hindrance in the promotion of investments.

Secondly, the waiver that has been furnished for the AIF is in respect of compliance with the said clauses and is effective in the manner specified by the board. Thus, even with investment promotion, certain conditionalities with the same have been imposed.

But it is to be noted that such investment promotion comes in a series of steps. In October amendments were passed by Sebi that had amended the AIF regulations. This provided the recommendation and regulation for shared responsibilities for the members of the investment committee.

These responsibilities were to be shared with the investment manager. This has been done to bring efficiency and accountability to the system as prior to this only fund managers were effectively responsible and accountable for investment decisions.

Thus, it can be rightly stated that such an amendment provided an accommodative opportunity for equal responsibility for the members of the IC and the investment managers with regard to the investment decisions of the AIF.

aif regulationsAlso, such joint accountability will lead to AIF’s compliance with the regulations. This will also help in doable compliance with the private placement memorandum and the applicable law.

Scrutinizing the newer regulations it is to be noted that the newer AIF fund that is established or incorporated in India and is a privately pooled investment vehicle that emphatically and effectively collects funds from foreign or Indian investors, will invest in accordance with a defined investment policy.

This will effectively lead to the benefit of its investors and thus it can be rightly stated that such amendments have led to the upholding of investors’ rights which will again foster confidence and will call for an increased inflow of investments in the economy.

In fact, given the data released by the SEBI such regulations led AIFs to witness a surge in commitments worth ₹82,228 crores in the financial year 2021. Such investments found their way from family offices, institutions, and high net-worth individuals.

Sep 13
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pharma regulatory compliance

Pharma Regulatory Bottlenecks and Vaccination Delays

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Pharma Regulatory Bottlenecks

The world is grappling with the inefficiencies that have plagued the healthcare system since covid has wreaked havoc. The unprecedented loss of human lives could have been prevented if vaccine diplomacy was robust and supported by more affluent nations. Half of the inefficiencies and disparities that plague the healthcare and pharma sector are due to political inefficiencies. 

It is to be noted that since the arrival of covid, businesses have learned to be resilient and flexible given the changing scenario of demand and the government’s regulatory whims in the economy. But given the inefficiencies in the system, why has this mechanism not worked to mitigate them effectively, especially in the sector which needed it the most: the pharma sector? This is due to the fact that businesses can adapt to the environment only when government regulations and procedures are simple enough and not pressing or crippling. 

It is worthy of mentioning here that various governments around the world have taken various regulatory measures to considerably improve the supply of medical resources and facilities. Such regulations have in many ways ranged from abolishing IPR rights to fast-tracking approvals for robust and faster manufacturing and distribution to significant importing of PPE. Such measures also included a temporary realigning certification that was immediately required for medical equipment and life-saving drugs. In fact, different nations’ scientific approach has even tried to facilitate telemedicine.

But what is the real catch here is that many and most of the measures aforementioned are of temporary nature and quite selfish. Various countries are pursuing options to facilitate their personal interest at the cost of the have-nots and the developing countries.  Though, such immediate measures do point toward the fact that such fast measures serve as a great example of how governments can actually facilitate business activities if they needed to. 

pharma regulatory complianceThus, in order to adequately support the COVID-19 crisis management in the current scenario and in the future, the developing governments should definitely reconsider their odious or rather authoritative broader regulatory requirements. It should be done to effectively remove any unnecessary barriers that might plague or mitigate the effectiveness of the business operations. In addition, it should be done complementary to safeguarding public goods like the environment and the overall health of human resources.  

A mechanism like a fast-tracking approval system for various significant companies should be placed in order to effectively redirect the services and activities of manufacturing and importing more effectively and faster. This will surely effectively shorten the time process of vaccine distribution and will mitigate the crisis of vaccine shortage. 

For India, the United States model can work too.  An effective strategy to issue emergency authorizations for PPE manufacturing approvals should be given. Given, that India had been ravaged by the PPE and Medical supply and resources shortage during the second wave, it would be highly sagacious to tamper with political inefficacies and complacency that currently plagues the Indian medical system.

In addition to fast-tracking approvals, investment in the healthcare industry infrastructure and large-scale manufacturing of medical resources can also be opted for. Another effective strategy can also be lifting the moratorium on taking any regulatory action against various businesses that are engaging in the production of PPE. This can at least be done for the duration of the public health emergency.

It has been rightly said that distress and need give rise to innovation because necessity is the mother of invention. Thus, effective, temporary approvals can be provided for equipment such as respirators as they are facing acute supply shortages in the economy due to whooping demand. 

This will significantly help address a major lack of supply. The restrictions can be lifted for the effective authorization of expired respirators, whose use will be effectively restricted during normal times. Similarly, valid certification of similar equipment that can be significantly used as ventilators can be given. The approvals for pressure breathing devices and anesthesia gas machines can be given. 

On the other hand, robust vaccine diplomacy and accommodative stance of the global agencies can help inequitable distribution or allotment of the vaccines to the haves and have-nots. Also given the vaccine hesitancy that significantly mitigates the positive impact of the campaigns of governments, it is to be noted that government schemes to help eradicate the same can be done. Complementary to robust vaccinations, faster testing also holds the key to the gradual return of employees and people to work.

This can be effectively done by putting in place various accommodative measures to effectively speed up the market approval of COVID-19 antibody test kits and diagnostic tests. Thus, strategic accelerated assessment and conditional marketing authorizations can help the government to facilitate the pharmaceutical sector immensely which in the long run will bear fruit for the economy.

pharma regulationsAlso in order to effectively and emphatically eliminate the unnecessary patient contact and to reduce the arduous burden on the healthcare sector, relaxation of the norms provision of telemedicine services can be done.

Thus, it is quite mandatory that several governments do away with their cumbersome regulatory stance and measures. As such environmental or business regulations can really exacerbate a crisis like the odious COVID-19, which the governments cannot afford at the moment.  Thus, there is an urgent requirement to effectively create an emphatic and sensible regulatory framework to support the healthcare sector which at the moment is reeling under the effects of the pandemic.

In addition to facilitating such speedy measures and the pandemic can also serve as a fortunate opportunity to emphatically eliminate many regulatory barriers. Thus, it will be interesting to see what stance the governments around the world take: to effectively deal with the crisis or to once again scum to political inefficiencies that have already inflicted much harm on the society.

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Sep 13
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zomato ipo details

Zomato’s IPO and its implications on FoodTech Companies

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Zomato IPO Implications on FoodTech Companies

Zomato IPO: The effects of Covid-19 have been kind on the food delivery space which is witnessed to be growing in leaps and bounds. Amidst the IPO listing festival, the entry of the online food delivery company Zomato Ltd.’s initial public offering made quite a stir in the markets as it is the first online delivery company to get listed on the stock exchange, thereby could be a trendsetter. It could also set the tone for the rival companies and their valuations in the public markets. 

Zomato began its journey in 2010 as a FoodTech unicorn start-up and the primary focus of the company is catered to online food delivery services and disseminating restaurant information along with reviews which is mainly a business to customer (B2C) offering.

The Company did incur large losses during the 2020 and 2021 Covid-19 lockdown phase; however, it was able to secure a large number of food delivery orders also. Zomato saw a significant increase in its gross order value till December 2020. Zomato’s rising average order value (AOV) also helped it gain innumerable profits. 

Zomato certainly made a breakthrough start with its initial public offering with an initial price band of Rs 72 to Rs 76 per share. Also, the company saw a dynamic subscription rate of 38.5 times which makes it the highest subscribed IPO in the last 13 years among IPOs worth more than Rs 5,000 Crore also with a demand worth Rs 2.1 Trillion.

As Zomato is notably the first-of-kind firm to debut on the stock exchange with a sweeping opening, the question that arises is as to the implications its IPO shall have on other rival FoodTech companies such as Swiggy, Rebel Foods, and Ola Foods. 

The powerful opening of Zomato.Ltd set a high chance of a constructive impact on the companies running on similar business lines as Zomato. Moreover, Zomato’s first-day growth indicates the inclusiveness of the food technology sector and the startup sector. It underlines the fact that the markets are startup-friendly and this binds the trust of the investors. Furthermore, this boosts the startup and food tech sector’s confidence and pushes more companies belonging to the same sector to walk the path of Zomato.

The outlook of having a long-run potential and bright future for the company can be seen in the IPO market capital of Zomato which stands at Rs 60,000 Crores. This is nothing but an indication of a robust burning competition between the firms within this sector such as Swiggy, Zomato, Dunzo, Ola Foods, and Rebel Foods. 

Furthermore, the Covid-19 pandemic is here to stay, food technology companies such as Swiggy, Olafoods, Rebel foods, etc. have a good scope to enhance. As public movement is restricted, services such as home delivery, pick up drop, etc. have become a priority for the public, hence have prospered. Therefore, the chances of these FoodTechs following Zomato’s footsteps is likely. 

However, one major drawback which can be witnessed in this situation is that Zomato has set a benchmark for all the Food Technology game players who wish to go public. While this definitely is a good opportunity for them, it also makes up an implied rule to follow Zomato’s valuation. Another major challenge that can affect Zomato’s profits can be sustaining itself when the pandemic tones down.

Even though the long-run aspect of food technology companies promises a bright future, the entry of newer players and the normalizing and opening up of public space post the pandemic are likely to affect the huge growth of Zomato during the Covid- 19 pandemic restrictions. In any case, currently, Zomato and Swiggy are firmly holding on to the food delivery industry. 

Therefore, Zomato’s decision to convert itself into a public company is certainly a welcome move. As the effects of Covid-19 have been kind on the food delivery space which is witnessed to be growing in leaps and bounds; hence this decision would enable the shareholders as well as the promoters of the company to thrive.

Furthermore, internet-based companies like Zomato deciding to go public could be an encouraging indicator for capital flow in the booming start-up scene of India. However, the cutthroat competition in the industry will be the ultimate deciding factor in its success.

 

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