Flawed or visionary: Fiscal regime & Foreign Trade Agreements – by ankit bhatia

Good evening all !!

Apparently  ..  fiscal regime, fiscal intellect  ..  all seem to be rendering a manifestation in February  ..  in the air  ..  Isn’t it  ..

Well  ..  the trade deficit and fiscal policies and consequent intellectual pondering – seem to be in vogue in portfolio season – even with non technical editorials of prominent media 🙂

It was only in the vicinity of this current time that my scribbles were being attributed to core issues of ‘trade deficit’ with countries and the ‘flawed fiscal policies’, consequent upon which certain adverse consequences were being incurred by India – alike of impeding domestic growth and value enhancement, wealth distribution and so on..

And, to my dismay, the aforesaid flawed fiscal regime’s consequences have only intensified towards deterioration – and manifested themselves via some more contemporary developments in the arena of fiscal regime and policy systems.

Well  ..  to our dismay !!

In one of my contemporary blogs  ..  had recently expressed concern over certain flawed developments in fiscal policy & tariff structures – governing the fiscal regime towards the Indian territory – whereby flawed fiscal regime was being rather misused – employing as a stepping stone – by non resident corporations to import in SKD (semi knocked down) format – which was a virtual ‘finished’ form – however, attributing to technicalities, exploiting fiscal technical flaws – to enter Indian territory – incurring minimal fiscal levies – thereby evading Indian fiscal share of the transaction – & in addendum – not to mitigate the companion consequence of impeding domestic industry – by unfair advantage to non-resident corporations & possible global dumping to hamper domestic industries – via cheaper imports into Indian jurisdictions as well as evading any investments via manufacturing/assembly plants in Indian territory – which would have generated economic stimuli – to offset impairment caused by impediments to domestic growth.

Well  ..  as if the aforesaid flaws did not suffice to impede domestic value addition and domestic growth objectives  ..  deterioration has arrived  ..

Perusing some of my legal publications  ..  Indian Customs Act, Customs Tariff related newsletters  ..  grossly startled to peruse this development  ..

the government is in discussion with the European Union (EU) and Australia for FTAs (free trade agreements). The country already has such trade pacts with Asean.

Why are we persisting with flawed fiscal regime ??

One shore, we are granting gross, irrational fiscal abatement in direct fiscal levies, sans any stipulations to invest any part of net-assets towards any pro Indian jurisdiction, to global corporations operating in India, on other hand, we are strengthening them with lower cost for entering Indian jurisdiction for trade & commerce ?? – & not to mitigate worse repercussions of their cheap entry – on domestic value addition & economy !

The jurisprudence revolving around FTAs has persisted in its intellectual criticism in fiscal circles – as in – FTA could be summarized by that – FTA renders the raw imports fiscal levies – worse vs levies on finished deliverable !! FTAs ensure grossly lenient fiscal levies on the finished product arriving in Indian jurisdiction – vs the raw format – soliciting for further value enhancement / investments in India !

Do we even consider the trade deficit figures in the negative for India vs others ?

If yes  ..  considering that – it is remotely inconceivable – as to why fiscal regime systems would encourage even more incoming commerce – in form of finished product – which would deprive India even off the local investment / economic activity – rather than – fiscl regime employed & driven towards encouraging domestic value addition – by granting maximum fiscal abatement to raw imports – which would consequently encourage domestic investment too.

On the contrary  ..  I applaud granting extreme fiscal abatement to SEZs (notified special economic zones)  ..  since that is manifestation of rational fiscal intellect – via promoting domestic value addition and investments.

Grant a Perusal to legal summary of gross fiscal abatement fiscal provisions attributable to – notified Special Economic Zones (SEZ) ..  SEZs are entitled to even refund of any sort of Central Excise Duty under Central Excise Act/ Countervailing Duty under Customs / Service Tax paid under Finance Act 1994 – on any inputs / input services. There are even provisions of refund of local VAT refund on imports. Thats fiscal prudent regime. SEZ is manifesting more investments into Indian jurisdiction, jobs, economic stimulation of specific low developed areas, hence, such abatement to SEZs deserve applause.

On the contrary, Foreign Trade Agreements would impede local domestic industry, and consequently, whole domestic economic value chain. Consider for instance, 75k crore Auto industry. If all dominant players alike Toyota, Ford etc granted fiscal abatement on finished commodities (manufactured in some cheap chinese plant) into Indian jurisdiction (which otherwise we could argue for ‘Anti Dumping Duty’) and local industry incurs exorbitant fiscal levies on raw (which is enhancing domestic value addition objective) & is rendered incompetent – how could the same – even remotely conceivable to be in congruence with national development or fiscal rationale ??

Well  ..  fiscal regime certainly deserves rebellious overhaul  ..

Till then  ..  its a state of flawed policy regime & consequent dismay !!