Current Affairs for IAS Exams - 12 May 2015

:: International ::

:: Business ::

KV Kamath appointed head of BRICS bank

"K.V. Kamath will head the New Development Bank (NDB), created by the BRICS group.
The appointment will become effective when he becomes free from his current
assignments, finance secretary Rajiv Mehrishi.
Kamath, 67, is credited with catapulting ICICI Bank Ltd to the status of Indias second-
largest lender. He headed the bank for 13 years until 2009 and is now its non-executive
chairman. Also the non-executive chairman of Infosys Ltd, Indias second-biggest software
services exporter, and is now expected to step down from its board.
Kamath spent 8 years at the Asian Development Bank (ADB) in Manila between 1988 and
1996, where he was part of the private sector department.
NDB by extending finance to infrastructure projects and helping avert economic crises, is
expected to pose a credible challenge to the 70-year-old Bretton Woods institutionsthe
World Bank and the International Monetary Fund.
The BRICS countriesBrazil, Russia, India, China and South Africafinalized setting up
of the NDB at the groups summit in Fortaleza, Brazil in 2014.
The proposal to have a bank was floated by India at the New Delhi summit in 2012.
China garnered the groups support for bank to be based in Shanghai, India got the right to
appoint the first president.
India will hold the presidency of the NDB for the first six years. Indias presidency will be
followed by Brazil and Russia, a five-year term each under an agreement reached after
negotiations among the five countries.
Bank is expected to get operational in about two years.
China has already nominated the vice-president (Zhu Xian)
While the NDB has moved at a slower pace, the China-led Asian Infrastructure Investment
Bank (AIIB) has garnered a lot more traction with 57 countries applying for founding
membership.
However, Rathin Roy (National Institute of Public Finance and Policy) said while the NDB
is a global bank, AIIB is a regional lender. They are not competitors to each other, he said.
On the contrary, there can be huge complementaries between the two.
As per the agreement among BRICS countries, each of the five members will contribute $10
billion to create a capital base of $50 billion for NDB.
The five emerging economies also signed a pact to establish the BRICS Contingent Reserve
Arrangement (CRA), with an initial corpus of $100 billion, to help countries guard against
actual or potential short-term BOP pressures, which is expected to be an alternative
arrangement to IMF aid.
The NDB is expected to mobilize resources for infrastructure and sustainable development
projects in the BRICS and other emerging economies, to supplement existing efforts of
multilateral and regional financial institutions for global growth and development.
Signing of the agreement for the establishment of the NDB is expected to allow India to
raise and obtain more resources for much-needed infrastructure development, the lack of
which is coming in the way of inclusiveness and growth. Besides, the governance structure
and decision-making in the bank will be equitable unlike existing multilateral development
 banks, stated the cabinet note clearing the proposal in February.
Developing economies have been unhappy with the progress of reforms at multilateral
institutions. The IMF has been unable to implement the 2010 agreement for governance and
quota reforms, scheduled to be completed by the 2012 annual meetings, because they have
not been ratified by the US.

Govt blinks in tax tussle with foreign investors

The revenue department will not act on demands for minimum alternate tax (MAT) it has
already slapped on foreign portfolio investors (FPIs) nor will it make any fresh MAT claims.
The embargo will prevail until a committee headed by Law Commission chairman A.P. Shah
submits its report to the government on the applicability of MAT on foreign investors, an
official circular issued by the tax department said.
This will this provide a respite to FPIs and long-term investors like private equity and
venture capital funds.
The instruction follows finance minister Arun Jaitleys statement last week in the Rajya
Sabha, where he announced the setting up of a committee under Shah, a former Delhi high
court chief justice, to look into so-called legacy cases inherited by the National Democratic
Alliance government from its predecessor.
Issues of fresh notices for reopening of cases as also completion of assessment should also
be put on hold unless the case is getting barred by limitation, the circular said.
The income tax department had started issuing notices to foreign investors for levy of MAT
on capital gains accruing to them from sale of shares, citing a August 2012 order by the
Authority for Advance Rulings in the case of Castleton Investment Ltd that MAT is
applicable on both domestic and foreign companies.
MAT is a tax levied on profit-making entities that dont pay corporate income tax because of
exemptions and incentives.
Foreign investors opposed these notices, arguing that MAT can be levied on book profits of
companies and that they do not maintain book of profits in India.
The tax department has sent notices to 68 FPIs demanding a combined Rs.608 crore as
MAT.
Looking to end the dispute, Jaitley said in his budget speech that MAT will not be applicable
on capital gains accruing to FPIs from sale of shares starting in 2015-16. He went on to
provide further relief on the MAT front by exempting interest income, royalty, technical fees
and capital gains accruing to foreign companies from the MAT net by moving amendments
to the Finance Bill 2015.
But the finance minister refrained from giving any blanket protection for the previous years,
saying the matter should be decided by judicial authorities. That led to concerns about
prolonged litigation and lingering uncertainty for foreign investors.
The government and foreign investors are now waiting for the Supreme Court to decide on
the applicability of MAT in an appeal filed by Castleton. Both sides have agreed on an early
hearing of the case.
The Castleton case is now set up for early hearing by the Supreme Court in August. The
Instruction issued puts on hold any fresh reassessment notices being issued and proceedings,
unless they are getting time-barred and potential collection of demands. So in that sense, it is
a welcome step.