Service Tax-Negative list in focus

The indirect tax proposals announced in the Budget are on expected lines. The thrust of these changes is to generate more tax revenues and take the indirect tax legislation closer to the GST regime. The most significant change is the increase in the excise duty and service tax rate from 10 per cent to 12 per cent. The peak customs duty rate for non-agricultural products remained unchanged. While generating more tax revenues for the Government, this measure is likely to increase the cost of most goods and services for the common man. Most of the remaining changes in the indirect tax regime relate to service tax, as discussed subsequently.

NEGATIVE LIST APPROACH

The most important change under service tax is the proposed introduction of the negative list for taxation of services. The negative list approach would be a paradigm shift in the manner the services are taxed. Presently, service tax is levied on a list of approximately 120 services. As a result, all services provided in India will become taxable, barring a short list of 17 services which will be kept out of the service tax net. The key services which have been proposed to be kept out of the service tax net are government services besides those which compete with the private sector, pre-school and school education, recognised education at higher levels and approved vocational education, renting of residential dwellings, entertainment and amusement services etc.

While the introduction of the negative list approach was expected, it entails sweeping changes to the service tax legislation. As a result, every service provider will be required to have a relook at its business, to determine aspects like point of taxation, availability of CENVAT credit, determination of place of supply vis-à-vis export or import of service etc. The Budget also proposed various measures which may bring happiness to assessees.

SIMPLIFIED REGISTRATION

As part of an effort to harmonise Central Excise and Service Tax, a common simplified registration form and common returns for Central Excise and Service Tax have been introduced. This is a welcome measure, even though the frequency of compliances of service tax assessees may increase from a six-monthly to a monthly basis. Refund of service tax has always been a subject matter of concern, both for the assessee and the department. In order to get rid of the cumbersome paper work and verification, this Budget has sought to replace the refund provision with a seemingly more simplified provision. However, a specific notification prescribing the detailed procedure and safeguards in this regard would be issued shortly. One will need to wait and watch if this will actually simplify grant of refund to service exporters.

The Point of Taxation Rules, which were introduced in 2011, had various ambiguities and issues on practical implementation. Certain amendments have been made in these rules to provide greater clarity and remove the ambiguous provisions. Perhaps, one area where the industry has been left disappointed is widening of the definition of ‘input service'. There was strong expectation that the definition of ‘input service' would be given a broader coverage and made more liberal. Besides an amendment pertaining to services relating to motor vehicles, no further amendment has been proposed in this Budget on ‘input services'. A word of appreciation for the efforts of the Tax Research Unit is in order. They have come out with a detailed yet extremely simple note, to guide assessees on the sweeping changes sought to be introduced under service tax, like the negative list, place of supply rules etc.

(The authors are Tax Partner, and Associate Director, Ernst & Young, respectively.) 

NPR Project Likely to be Completed within Next Two Years

The Scheme to create National Population Register (NPR) is likely to be completed within the next two years. The Government is also considering a proposal of issuing Resident Identity Cards bearing the Aadhar numbers to all residents who are of age 18 years and above to help in the e-governance initiatives. This was announced in the 2012-13 Budget. Under the NPR project, the demographic data of more than a billion people has been completed through a house to house enumeration. The scanning of all the filled-in NPR schedules has been completed. The details required for the NPR has therefore been collected. The work of creation of the digital database and collection of biometrics is now going on. The data entry (in English and Regional language) of more than 54 crore persons has been completed till date. The entire work is expected to be completed by mid 2013.The capture of biometrics of more than 1.4 crore persons has been completed. The entire biometric enrolment is also expected to be completed by mid 2013. The NPR database consisting of demographic and biometric data will be sent to Unique Identification Authority of India (UIDAI) for de-duplication and issue of UID Numbers (Aadhaar). After this, the Local Register of Usual Residents (LRUR) alongwith Aadhaar number would be published in the local areas for inviting objections and claims. The LRUR would also be placed before the Gram Sabha/ Ward Committee for social vetting. The claims and objections would be dealt with by revenue officials like Patwari, Tehsildars and Collectors/ DMs who are designated as the Local Registrars, Sub-district Registrars and District Registrars, respectively. The Government is also considering a proposal of issuing Resident Identity (smart) Cards (RICs) bearing the Aadhaar numbers to all usual residents who are of age 18 years and above in the country. This would be helpful in the e-governance initiatives, that are contemplated based on the Aadhaar platform. Under the NPR scheme all the usual residents in the country, who are of age 18 years and above will be issued Resident Identity (smart) Cards (RICs). The first phase of this scheme is under implementation in 3331 coastal villages and Port Blair Town (Andaman and Nicobar Islands) in 13 coastal States/UTs. A proposal to roll out the scheme in the rest of the country has been given ín principal clearance by the Planning Commission.

Budget India 2012: Devil in the fine print

TNN | Mar 17, 2012, 07.02AM IST

Here are some googlies Pranabda has bowled... Caring and sharing will now come with riders!! Cash donations above Rs 10,000 towards scientific research or rural development or to certain funds, charitable institutions will not be eligible for tax benefits under section 80G and 80GGA of the Act.

The new mantra: 

"Everyone should contribute to the exchequer even if there is no taxable income" !! - Alternate Minimum Tax (' AMT' ) @ 18.5% would be applicable to all persons (eg partnership firms, sole proprietorships, association of persons, etc). The only silver lining is that AMT would apply only if adjusted total income exceeds Rs 20 lakh. India Inc is already on the MAT, now others join the party. An independent director in a company ? Watch-out ! Director fees would now be subject to TDS! The taxman is also interested in any asset (including financial interest in any entity) owned by you outside India. Now, you need to file a return of income if you own any asset outside India or even if you are a mere signatory for any off shore account!!

This, even if you do not have any taxable income. In case you earned any income from such assets, the taxman has power to reassess such income for a period of 16 years. Happy that you can now invest long term capital gains from sale of house property in a company that qualifies as small and medium enterprise (' SME' ) to save tax, hold on. You should own at least 50% (share capital or voting power) in such newly set up SME which should be engaged in manufacturing and the investments must be made in the prescribed manner. The taxman does not find any distinction between intentional or unintentional mistakes: furnishing of incorrect information in TDS statements (even unintentional) could result in levy of penalty ranging from Rs 10,000 to Rs 100,000! Domestic transactions are now international transactions.

Confused? Transfer pricing provisions will now also apply to specified domestic transactions with related parties if the aggregate value of specified domestic transactions exceeds Rs 5 crores. The taxman is superior to the Courts! A plethora of amendments (many of them applicable with retrospective effect) have been introduced to overrule judicial precedents in favor of tax payers: Consideration for right to use or right to use computer software is now royalty income , subject to withholding tax in India. This puts to rest the ongoing litigation in case of import of shrink wrapped software.

Consideration for transmission services by satellite, cable, optic fibre or any other similar technology shall be regarded as royalty subject to tax withholding. Transfer now also includes indirect transfer: any share or interest in a company or any entity registered or incorporated outside India shall be deemed to have been situated in India if substantial assets related to such share or interest are located in India.

Tax residency certificate may not be enough to access tax treaty benefits. Non-residents may henceforth be liable to pay advance tax even if the income was subject to tax deduction at source if the payer has failed to deduct TDS. Readymade garments may be cheaper with the effective excise duty coming down from 4.6% to 3.7%. But tailoring now attracts a service tax of 12.36%. The cost of parts for hybrid cars has come down with excise duty down from 10.3% to 6.18%, but ironically the excise duty on the car itself is up.

WITH INPUTS FROM ERNST & YOUNG 

China’s Defence Budget 2012: Implication’s For India’s Security – Analysis

source: Eurasia Review

Written by SAAG

March 15, 2012

By Dr Subhash Kapila
‘However, its less the size of China’s defense budget than its composition that alarms beyond its borders. China’s military spending privileges the navy, air force and strategic nuclear forces—instruments of advanced power projection—rather than traditional defensive capabilities. No Chinese leader has yet explained how these capabilities contribute to China’s peaceful rise”. — Daniel Twining, Washington, USA.

Introductory Observations

China’s Defence Budget 2012 announced in the first week of March 2012 significantly draws global and regional attention in that China has shot through its defence expenditure over the $ 100 billion mark, making China’s military expenditure at the global level, second only to that of the United States, even though there exists a wide differential between the two.
In terms of global concerns, China’s hikes in defence expenditures in 2012 military budget come under sharper scrutiny when China’s defence hikes are placed in the context of a sharp drop in United States defence budget by about $ 380 billion necessitated by US Congressional mandates. Though President Obama has reiterated that the Asia Pacific regional military posture of the United States would not be in the purview of budgetary cuts because of the new US strategic pivot to Asia Pacific, what cannot be ruled out is that in case of a sudden Middle East contingency, the United States would be forced to redirect US Forces from its strengthened posture against a fast militarily rising China.
Regionally in Asia, steep hikes in Chinese military expenditure cause multiple strategic and military concerns for China’s neighbours. Contextually, China’s recent aggressiveness and military assertion (facilitated by China’s military rise, fuelled by expanding economic resources) on territorial disputes foisted by China on virtually all its neighbours, multiply these concerns.

China - India Relations

China’s military hikes would have been understandable had China’s peripheries on land and sea would have been threatening to China’s security. Such is not the case because the military balance is overwhelmingly in favour of China. China could convert this military balance in its favour for the last two decades because of United States earlier permissiveness to tolerate China’s military build-up as it suited United States and in the last decade because of the military and strategic distractions in Iraq and Afghanistan.
China’s expanded military budget comes immediately after President Obama’s announcement of the policy of a strategic pivot to Asia Pacific. China denies that the two are connected. In this connection it needs to be pointed out that China would continue to increase its military expenditure irrespective of any strategic steps of the United States. China’s strategic aims are to emerge as the undisputed military power in Asia and a rival power centre on the global strategic calculus.
In this connexion, it needs to be pointed out that scientific projections have been made which state that China’s military budget hikes are expected to total $ 238.2 billion by 2015 which when translated amounts to more than doubling China’s military expenditure in just another three years. China’s existing military profile a before the announcement of Budget 2012 is considerably powerful and would become more powerful with $106 billion planned for this year. Doubling of the budget by 2015 would facilitate China’s military profile to emerge so powerful that no Asian country, not even India, can ever hope to militarily catch up with China.
India’s defence budget in the year ending was about $36 billion—a fraction of China’s military budget. Shockingly, a former Defence Secretary was quoted in the media that every year the Finance Ministry would demand in March that the Defence Ministry surrender Rs 5,000 crores or so to balance the deficit in the Union Budget. He further added that for the last ten years the Defence Ministry was being made to surrender such amounts. This would total to Rs 50,000 crores cut from announced Defence budgets. This year the news has come that the Defence Ministry has been ordered not to sign existing defence purchases agreements till after 31 March 2012 including the order to purchase the 126 fighter planes badly needed by the Indian Air Force. It is distressing that to balance the Finance Ministry books and Union budget deficits arising from exorbitantly wasteful schemes, the Government plays around with India’s war preparedness in an extremely hostile environment.
India should be more than seriously concerned about China’s hiked defence expenditures considering that ‘The China Threat’ to India is more real than to other nations, simply because China perceives that India is its sizeable and comparable strategic and military Asian rival and could impede China’s rise and emergence as the undisputed military power in Asia. Strategically, it is ironic that despite the credibility and potency of ‘The China Threat’, India’s political leadership and apex national security establishment traditionally disconnected from its Armed Forces who manage ‘The China Threat’, continue to de-emphasize this threat and get tricked into China’s protestations that China’s rise is a ‘peaceful rise’.
Against such a backdrop it becomes incumbent on India’s strategic community to highlight and reiterate the implications arising for India’s national security of China’s rising military expenditures. This Paper intends to do so under the following heads:

• China Defence Budget 2012: Salient Features and Thrust Areas for Military Up- gradation

• India’s National Security: Implications of China Defence Budget 2012

• Can India Ever Militarily Check-mate China?

China Defence Budget 2012: Salient Features and Thrust Areas for Military Up-gradation

Statistical data and comparative analyses of China Defence Budget abound in the international media and are not going to be repeated here. The aim in this Paper is to provide a macro-level overview the Chinese defence budget for 2012 and the issues arising from the salient features that will be examined. This part of the Paper intends to examine it under the following heads; (1) Chinese Defence Budget 2012 –salient details of increased military expenditure (2) Chinese official explanations for the increased military spending (3) Analytical explanations for China’s increased military spending, and (4) Main thrust areas for Chinese military up-gradation.
Very briefly, Chinese military spending in 2012 is planned to increase by 11.2% to $106.4billion from $ 95.6 billion last year. China has on the average registered an annual increase of 12% in its defence spending. Between 2006 and 2011 China doubled its defence spending and by 2015 it will again be doubled. That indicates the colossal military expenditures that China has indulged in and what is going to be spent by China in the next three years. The strategic and political implications for the United States, China’s Asian neighbours and particularly India are serious, deep-rooted and long-range.
China’s official explanations are the traditional choreographed ones of defending national sovereignty, internal security and the requirement of protecting China’s long borders with fourteen countries and China’s long coastline. However, some official explanations forthcoming need to be quoted verbatim, and these are as follows:

• Chinese Prime Minister Wen Jiao Bao: “We will enhance the armed forces capacity to accomplish a wide range of tasks, the most important of which is to win local wars under information age conditions”.

• China NPC Official spokesperson and Former Foreign Minister Xao Zhing: “China’s limited military power is for the sake of national sovereignty, security and territorial integrity. Fundamentally, it constitutes no threat to other countries”.

• Professor Su Hao, Chinese Foreign Ministry University, Beijing: “There are new issues (that need funding) like the protection of citizens and investments overseas”

The stress on winning local wars needs to be noted as this is reference to China’s peripheries where territorial disputes abound and which notably includes India. The ‘new issues’ are significant as it is a pointer to China’s expansion of force-projection capabilities without which protection of Chinese citizens and Chinese investments abroad cannot be undertaken. Is China signalling its future intentions of military interventions being undertaken much beyond China’s peripheries?
Analytically, one can advance a number of explanations for China’s increased military expenditures, the chief of which being are: (1) China’s present increase in military expenditure and doubling of that figure by 2015 is predictable in light of the United States strategic pivot to Asia Pacific which China perceives as US fencing-in of China (2) Chinese increased defence expenditures are aimed at upgrading of China’s military capabilities to deter any possible US military intervention against China or making it prohibitive (3) China’s quest for equal strategic weight with the United States would involve China’s military up- gradation to reduce the differential in the US-China military power.
China’s main thrusts in military up-gradation of its capabilities is obviously US-Centric in that China is aiming to dilute US military superiorities which can come in play militarily against China. However, Chinese enhancement in relation to the United States has more than disproportionate strategic impact on India. Contextually, in light of the preceding analysis China’s main thrust areas for sizeable military investments will be concentrated on the following:

• Second Artillery Corps which is entrusted with the management and operational use of China’s nuclear weapons arsenal and ballistic missiles arsenal. New generation of ICBMs and other missiles with greater emphasis on range and increased accuracy are in the pipeline.

• China Navy: China’s first aircraft carrier will be operational by the end of this year. China is planning to induct at least four aircraft carriers in the next few years. In terms of force projection, China is inducting amphibious warfare ships and logistics tenders. In terms of Chinese “anti-access and area denial” strategies against any United States possible military intervention, the Chinese Navy is planning introduction of land-based long range anti-ship missiles against US aircraft carriers, greater number of nuclear attack submarines, increased maritime reconnaissance and patrolling, and an overall increase in number of naval combat ships.

• China Air Force: China has planned a complete turn-over of its fighter aircraft fleet. Introduction of the J-20 Stealth Fighter planes is being speeded up. China has also expressed interest in the acquisition of the Russian SU-35 latest combat aircraft which competed for the Indian Air Force competition also. Up gradation of the bomber fleet and heavy lift strategic transport aircraft akin to the US C-17.-are in the pipeline to augment Chinese force-projection capabilities.

In addition to the above China is investing significantly in space warfare capabilities. China is working on anti-satellite weapons designed to neutralize US spy, targeting, navigation and communication satellites. China’s cyber warfare increasing capabilities have become a strategic headache for the United States military.
Not to be forgotten in terms of China’s military up-gradation is an increase of Chinese nuclear weapons arsenal. So far Chinese nuclear weapons arsenal has not been subjected to any strategic arms limitation treaty or any other scrutiny. The United States while raising hype on Chinese military up-gradations has steadfastly been muted on the subject of the increasing nuclear weapons stockpile of China.
Also to be noted is that China’s arms imports have shown a decrease indicating an increase in greater sophistication of its own R&D technological expertise and expanding defence production capabilities.

India’s National Security: Implications of China Defence Budget 2012 Analysed

India’s national security has consistently stood compromised by the persistent annual double digit increases in Chinese defence expenditure, and China Defence Budget 2012 is no exception. China crossing the $ 100 billion mark in defence expenditure in military plans for 2012 further accentuates and highlights India’s military unpreparedness to meet any possible Chinese military adventurism against India. In military budget comparisons itself, the Indian defence budget at about $36 billion pales into insignificance against China’s earmarked figure of $ 106.4 billion for 2012. The comparison gets more sombre when in comparison China faces no credible military threat from any global power or Asian power whereas India has pronounced military threats from an ever-military rising China and its strategic ally Pakistan, with comparable long and sea frontiers to protect against them—both of them having a record of military adventurism and an expanding nuclear weapons arsenal.
Dispelling notions that one is advocating an arms race with China, it however needs to be noted and commonly understood within India and by Indians is that India’s defence postures against China are grossly inadequate both in terms of conventional military power and nuclear weapons and ballistic missiles. Suffice it to say that India today lacks both nuclear deterrence and conventional military deterrence against China. There is no such thing as minimum credible deterrence. Credible deterrence is relative to the adversaries strike capabilities to be effective.
In this Paper, I have no intention to draw a detailed comparative military balance between a military powerful China and an India where military up -gradations and effective war preparedness are at best given notional attention by the political leadership and apex national security establishment at best, and at worst a strategic obliviousness by both these entities arising from their strategic naivety in benign reading of Chinas military intentions underlying its recurrent and relentless military build-up.
The aim is to educate the India that exists outside the sphere of India’s apex national security decision-makers and the Indian Armed Forces hierarchy which gets disconnected from its political masters by Nehru’s archaic interposing of a strategic culture-deficit civilian bureaucracy of India’s Ministry of Defence.
India in relation to war preparedness to effectively meet ‘The China Threat’ can be said to be in the same repeat Nehruvian strategic mind-set of de-emphasis and under-playing of ‘The China Threat’ as that existed in the run-up to India’s 1962 military debacle foisted on the gallant Indian Army by its political leadership and its civilian bureaucracy. This assertion can be substantiated by Indian TV channels, particularly which stands reported having been pressurised to downplay Chinese intrusions into Indian Territory and not give them prominence.
The Chinese Prime Minister has reiterated this month and is quoted above, that China’s strategic aim is to win local wars under information age conditions and that is significant in relation to India for obvious reasons. Recently a high-powered committee in its report has been quoted in the media as having expressed that China is likely to make a military grab for portions of Ladakh and Arunachal Pradesh. This belated recognition of ‘The China Threat’ against India provides the setting for the succeeding brief examination of our ‘Defensive Postures” against China across the entire military spectrum. It is intended to do so under the following heads (1) India’s Nuclear weapons and missiles arsenal (2) Military postures in Ladakh and Arunachal Pradesh reviewed (3) Indian Air Force-the major voids (4) Indian Navy- Need for wholesale expansion (5) Strategic infrastructure along Himalayan Borders sadly neglected.
India’s nuclear deterrence against China is woefully inadequate both in terms of numbers and reach.Intrnational reports indicate that even Pakistan is outstripping India in this sphere. China accorded delayed grudging strategic respect to India only after the 1998 nuclear weaponization of India. The crying need is to make India’s ICBM operational which so far has been held back by India’s strategic timidity against US pressures. That materialization would greatly offset India’s current lack of dissuasive conventional military deterrence.
Military postures in Ladakh and Arunachal Pradesh have been analysed in fair detail in my earlier Papers. Briefly to be highlighted is that both the Ladakh and Arunachal Pradesh Sectors require force accretions in addition to those planned by an additional mountain division each and integral limited offensive capability. Protecting India’s national sovereignty involves boots-on-the-ground along the Himalayan borders which cannot be replicated by high technology. To that extent the argument of those who advocate a ‘leaner meaner military machine’ does not hold ground.
India’s skies stand naked against Indian military adversaries today with voids of nearly 150 combat fighter aircraft. It took the Indian decision-makers ten years to clear the choice of the next MRCA and even now the agreement is on hold due to Finance Ministry’s budget-deficit balancing. India’s transport aircraft fleet has out-lived its normal operational life and no replacements are in view. The switch to US inventories would carry its own problems. The Indian Air Force both in wartime and in peacetime too needs to be maintained at optimum levels in terms of its authorised aircraft holdings. Case exists for increasing the Indian Air Force combat squadrons to 45 squadrons—a figure that was recommended immediately in the wake of 1962 military debacle.
China has made no secret of its naval ambitions on a strong Chinese naval presence in the Indian Ocean and is working in a focused manner towards that ambition. China’s acquisition of four to six aircraft carriers, nuclear attack submarines and amphibious warfare capabilities, makes a strategic call on Indian decision-makers to embark on a wholesale fast-track expansion of the Indian Navy assets. India cannot afford to await 10-12 years lead times for materialization of naval orders to Indian shipyards. The biggest worry is the slippage allowed in replacement of the current fleet of submarines.
India’s’ strategic infrastructure along the Himalayan borders is sadly neglected The Prime Minister should have made a personal push in this direction as critical lifelines are 3-5 years behind schedule due to inter-ministerial wrangling. After the 1962 War with China some notable projects which needed speedy implementation were a double road artery to Tawang and Bumla in Arunachal Pradesh, a road tunnel under the Rohtang Pass for the alternative road to Ladakh, widening of the Rangli road axis to Jelep La in Sikkim and a major bypass of Gangtok with a highway to Nathu La. Space does not permit greater elaboration.
Lastly India’s decision making elite should answer as to why the Indian aeronautical industry which goes back to around 1943 has not been encouraged to become capable of fast-track development of Indian Air Force requirements of fighter aircraft and transport aircraft within the country.

Can India Ever Militarily Checkmate China?

Strategic analysis would suggest that it should be a pressing strategic imperative for Indian decision-makers to work towards a military checkmating of China to neutralise ‘The China Threat’ and in turn the Pakistan threat assiduously nurtured militarily by China. But the follow-up question is whether India can ever hope to militarily checkmate China and improve India’s security environment?
Going by current trends of the Indian political leadership and the apex national security establishment of investing more on diplomacy than military preparedness to ward off ‘The China Threat’, the analytical answer is a big NO.
Checkmating China by India involves two major questions. Firstly, the political will and strategic audacity of India’s leadership to adopt a ‘hands-on’ approach to checkmate China, not as a strategic subsidiary of the United States but standing tall on its own two legs. Secondly, does India have adequate financial resources to bankroll increased defence expenditure to acquire substantial nuclear and conventional military deterrence to checkmate China from its current strategy in South Asia?
The answer to the first question is that it is unlikely that the existing mind-sets of India’s political leadership and apex national security establishment would undergo a change. Both these entities are likely to concentrate all strategic decision-making with themselves bypassing institutional inputs. Also keeping the Indian Armed Forces hierarchy out of apex level national security decision-making and more vitally nuclear weapons decision-making by these two entities leads to ‘mentally challenged’ strategic policy decisions. Political will and strategic audacity therefore cannot blossom in such a truncated decision-making environment.
The second question pertains to financial resources to bankroll sizeable defence expenditure to acquire substantial nuclear and conventional military deterrence against China. Financial resources are no longer a problem today for India. The Indian problem on increased defence expenditure is that massive amounts of the Indian budget are earmarked for non-productive political-populist schemes like NREGA and other subsidies which lead to substantial budget deficits and to offset which the Defence Budget becomes the notable casualty in terms of being asked to surrender thousands of crores of rupees every year before the presentation of the Budget.
The existing mind-set of underwriting wasteful expenditures on political-populist measures at the cost of Indian national security requires a complete transformation of policy approaches.
So the final answer is that India will never be able to militarily checkmate China’s enhanced military postures impinging on Indian security. If India’s political leadership under different political dispensations had been imbued with the will of checkmating China, they would not have allowed India’s slippage in its defensive postures and war preparedness, and kept pace with China’s constant military expenditure increases, not in an arms race, but in a sincere effort to not to allow the strategic and military chasm between China and India in terms of nuclear and conventional military deterrence differentials to grow.

Concluding Observations

China’s defence budgets every year have registered double-digit increases over the last two decades. This has facilitated China to emerge as the dominant military power in Asia and a contender capable of a serious challenge to United States global military predominance. China has achieved this posture by spending significant amounts on military expenditure facilitated by a booming economy.
India in contrast also has a booming economy but it has been niggardly in its defence expenditures as defence expenditure is made subservient to political-populist schemes. Capital acquisition of critical military hardware are delayed for decades due to political indecision, bureaucratic lethargy and other considerations which view capital acquisitions of critical military equipment from abroad with extraneous perspectives.
Resulting from the above is the stark strategic reality that India will not be able to militarily checkmate China. In 1962, China militarily humiliated India due to lack of Indian defence preparedness in the preceding two decades. In 2012, with existing mind-sets at the highest-level in India and the slippage that has taken place in defence outlays in the last two decades, India risks a similar repeat 1962 performance of not a military debacle (thanks to the Indian Armed Forces used to making-do with military hardware available with them to defend India) but of a “strategic diminishment” of India on the global stage which India aspires to ascend.

Budget 2012-13: Everything you need to know about personal taxes

Arnav Pandya, Financial Advisor
Individuals have a small amount of benefit on the tax front but the overall situation will end up being negative as higher expenses in the form of additional service and excise eats up a larger part of their household budget. At the same time there are also a lot of gains on the procedural front that should not be forgotten.
Starting with the tax gain there is a small benefit that is available in terms of the rise in the basic exemption limit that has been increased to Rs 2 lakh for individuals. This means a savings of Rs 2,000 in tax for male individuals and a savings of Rs 1,000 for female individuals. There is no extra benefit for female taxpayers as the basic exemption limit for everyone stands at Rs 2 lakh so this difference has now been eliminated.
The real benefit on the tax front is for anyone who has a higher amount of income as the 20 per cent tax slab has been increased from Rs 8 lakh to Rs 10 lakh.  This will give a straight and flat tax relief to the extent of Rs 20,000 for anyone who has income in excess of Rs 10 lakh. Taken together with the earlier benefit the total figure for a male individual will go upto Rs 22,000 and for a female individual to Rs 21,000.
There is a benefit that will be available for new investors into a scheme called Rajiv Gandhi Equity Saving Scheme. This will provide for a deduction of 50 per cent upto Rs 50,000 of investment made but there will be a 3 year lock in. Further details would come in due course and these will list out whether the conditions required to meet the qualification are easy enough to let many new investors take the benefit.  What is also important is the manner in which the funds will be managed as investors want tax benefits with returns on the investment.
There is a big relief on the administrative front as having to collect small details about interest on savings banks interest and then paying tax on this has been tackled. There is a deduction of Rs 10,000 for income earned as savings bank interest so most people will gain on this front and it will make the filing of the returns easier as there will not be any extra tax to be paid. The salaried will benefit the most as they need not pay any additional amount of tax when there is a full deduction on all the other income in the form of tax deducted at source.
Investors will be able to reduce their expenses when they are investing due to the reduction in the securities transaction tax on delivery based transactions. While the figure has been reduced marginally the impact of this will be extremely small for the investors who undertake equity investing so it is more of a sentiment boosting measure.
Contributing capital to a Hindu Undivided Family has also become easier and this will make it an option that a lot more people can explore. Contribution made by a member in the form of property or sum to a HUF will be excluded from taxation while earlier this could be classified as a gift and then taxed since it was not from an exempted source.
A deduction of the expense made on preventive checkups has been proposed upto Rs 5,000 in the year. While this will encourage individuals to go in for preventive checkups and get a tax benefit for the same there is no extra benefit as the figure is within the overall limit present for payment of health insurance premium. So this is just another route to get the health expense deduction and is nothing additional.
Senior citizens might not have gained in terms of a higher tax benefit this year but they will have a lower administrative compliance requirement due to the fact that there is a proposal which says that they will not need to pay advance tax when they do not have business income in their portfolio. This is a good thing and they will be spared from the unnecessary interest cost and other compliance problems of remembering and making advance tax payments. Further the senior citizens definition has been streamlined across many areas to make it consistent at 60 years of age so this will not ensure that some benefit gets held up due to the wordings of an individual section.
The bad news is that there has to be a Tax Deduction at Source on the sale of the property when the value of this exceeds Rs 50 lakh in specified urban agglomeration and Rs 20 lakh in other areas. Since this has been introduced it will lead to a lot of situations where normal individuals will also have to pay tax on transactions that they undertake.  The transferee has to deduct and pay the tax so the person who is buying the property is the one who has to undertake the process. This is expected to be completed smoothly as there will be a one page challan for payment and the person who is the transferee will not even have to take a tax deduction number for this purpose as this would be a one time transaction.
Ensuring that your life insurance policies qualify for a tax deduction just got easier as earlier the premium paid should not exceed 20 per cent of the sum assured. Now this figure has been reduced to 10 per cent so it means that a larger number of policies will qualify for tax benefits.  One final thing while making a donation to get tax benefit ensures that the cash component is limited to just Rs 10,000 as the tax benefit for the cash part has been restriction to this figure.
source;Moneycontrol.com

Gross National Happiness in Bhutan: A Policy in Making

IDSA COMMENT by Medha Bisht

Gross National Happiness (GNH), a concept largely identified with Brand Bhutan, is set to become a key referent point in shaping Bhutan’s economic and development policies. This became evident during a recent speech delivered by Prime Minister Thinley on February 10, 2012. The speech was on the relevance of GNH and in response to the publication of a new study titled “Initial Estimate of Value of Ecosystem Services in Bhutan”. The study concludes that the country’s ecosystem is worth Nu 700 billion (approximately US $14 billion) and that 53 per cent of the benefits of this ecosystem are actually enjoyed by the people living outside Bhutan. This is the first time that the national accounting system in Bhutan has evaluated natural, social, cultural and human wealth. Significantly, the emphasis is on consequent benefits. The report explicitly mentions benefits in terms of clean air, healthy soil, recreation etc. with an addendum that the benefit largely comes from climate regulation, protection of watersheds and carbon storage, which is estimated to be about Nu 171.5 billion ($3.4 billion).

Putting monetary value to the ecosystem is an idea that was initiated by The Economics of Ecosystem and Biodiversity (TEEB) Study. The TEEB study was commissioned by the G-8+5 and was launched in 2007 by Germany and the European Commission. TEEB was inspired by the Stern review on climate change, which emphasised upon an economic case for biodiversity with benefits being evaluated at the local, regional and global levels.

With mitigation being the central point, the rationale for the economics of ecosystem and biodiversity seems to be at work in Bhutan. This is not only reflected at national level initiatives where payment for ecosystem services has been applied in the hydrological and tourism sectors, but also at the international level where Bhutan has been taking an active lead on the Reducing Emissions from Deforestation and Forest Degradation plus (REDD+) mechanism.1 Bhutan became a member of the UN REDD programme with an observer status in April 2010. In December 2010, Bhutan initiated a scoping study, which showed that it was feasible to implement REDD-plus projects.

The REDD plus programme includes financial compensation for the role of conservation, sustainable management of forests and enhancement of carbon stock in developing countries. In consonance with its declared stand at the Copenhagen summit, 2009, that it would “remain carbon neutral for all times to come”, Bhutan’s National Environment Commission is presently involved in developing a carbon neutral policy at the national level.

Initiatives such as payment for eco-system services and REDD plus reveal how a small country can leverage its strengths when it comes to environmental issues. Also, by synchronising these developments within the broad parameters of GNH, the concept is well on its way to be institutionalised. This process of institutionalisation needs attention as it contains important policy pointers for understanding Bhutan. It is therefore important to understand what constitutes GNH, as it will have a long term impact in shaping Bhutan’s economic and development agendas.

The evolution of the concept of GNH in its present form has been a gradual one. The term was coined by the fourth King Jigme Singye Wangchuk in 1972 and was broadly understood through the four key pillars of sustainable and equitable socio-economic development, conservation of the environment, preservation and promotion of culture, and promotion of good governance. Taking the legacy forward, the fifth king, Jigme Khesar Namgyal Wangchuk, in his coronation address on November 7, 2008, announced that the essence of GNH needs to be maintained and one of the most important goals should be to secure the happiness of the people of Bhutan. The relevance of GNH is further underlined in the Constitution of Bhutan, particularly Article 9, which states that “the State shall strive to promote those conditions that will enable the pursuit of Gross National Happiness.”

Post 2008, institutionally, the concept has been mainstreamed through the Gross National Happiness Commission (GNHC). GNHC ensures that GNH is incorporated into the planning, policy making and implementation process by evaluating their relevance to the GNH framework. The methodology followed by GNHC has 26 indicators, based upon the nine domains identified by the Centre of Bhutan Studies. The nine domains are: health, education, living standards, environmental sustainability, good governance, psychological well being, community vitality, cultural diversity, and time use. GNH has also been identified as the main criterion in the Economic Development Policy, 2010, which stipulates that the broad vision is to promote a green and self reliant economy guided by the philosophy of GNH.

While national dialogues on Gross National Happiness have been taking place since 2008, the concept has recently gained visibility at the international level as well. In 2011 the United Nations passed a non-binding resolution on “Happiness: Towards a holistic approach to Development.” The resolution invites Bhutan to convene a panel discussion on the theme of happiness and well being. The resolution broadly aimed to highlight Bhutan's model of GNH as a development indicator. Given the pace of its evolution and the attention it has received at the national and international levels, the concept will become relevant in all the important sectors of Bhutan. For the time being its most visible manifestation is in the environmental policies and its posture on mitigation measures under the United Nations Convention on Climate Change and the Kyoto Protocol.

Thus, these developments reveal that the philosophy of gross national happiness is in the making—not only at the ideational level, but also at the institutional level and as a tool of diplomatic engagement to construct a brand unique to Bhutan. While there are reservations regarding the intangibility of GNH indicators, Bhutan is set to overcome this impediment in the years to come. The National Accounting System is an example of translating the idea into operational reality. Components of the National Accounting System include: economic capital, cultural capital, social capital, human capital, ecological capital and economic capital.

As the idea of Gross National Happiness shapes up, it is important for Indian policy makers to engage with it in a pro-active manner. The understanding of GNH at present remains vague in India. Ideas do play an important role in informing policies. An engagement at the ideational level is important as India and Bhutan are major trade and development partners. Thus, India would be indirectly involved with the realisation of the GNH approach. While in the past India and Bhutan have held dialogues on GNH, India could adapt the GNH index in Indian states which share a similar eco-system as Bhutan—particularly the North Eastern states. Adopting the GNH prism (with local/state specific variations) to evaluate policies in ecologically fragile areas would prove beneficial to the region as a whole. Meghalaya for one has already expressed its willingness to develop GNH indicators for the state. India has an existing tradition of economically rewarding local community participation for preserving ecological services. Such practices could be included within the broader discourse of GNH, thus encouraging the sharing of best practices between the two countries. GNH has already been recognised as a new approach to development at the international level; a regional initiative, however, could prove useful in familiarising South Asian countries with the concept of GNH – an issue that becomes important given the pace of its institutionalisation in Bhutan.

At the international level, India has been supporting Bhutan on the REDD plus mechanism, an issue which benefits the debate on conservation credits and ecological good. The 11th meeting of the Conference of Parties to the Convention on Biological Diversity will be held in Hyderabad in October 2012. The platform could be used to discuss some of these measures. This discourse should also be taken to the regional and sub-regional levels, whereby other South Asian countries could give their country perspectives on GNH. India should thus take a regional lead to push Bhutan’s idea of ecological preservation forward, an action which will further generate goodwill and understanding between the two countries. Such activities could also contribute to a common posture regarding mitigation activities taken by South Asian countries.

source: IDSA

Partner universities to research in cryosphere and climate change

 March 15, 2012

 

Jammu, March 15 (Scoop News) The Institute of Himalayan Glaciology, University of Jammu signed MoU with Jawaharlal Nehru University, Sikkim University and University of Kashmir on February 13, 2012 to set up an Inter-University Consortium on Cryosphere and Climate Change (IUCCCC). Prof. S.K.Sopory, Vice-Chancellor Jawaharlal Nehru University, Prof. Mahendra P Lama, Vice-Chancellor Sikkim University, Prof. Talat Ahmed, Vice- Chancellor University of Kashmir, and Prof. R.K. Ganjoo, Director, Institute of Himalayan Glaciology, University of Jammu representing the Vice-Chancellor,University of Jammu placed their signatures on the instrument of agreement.

Prof. R.K.Ganjoo,Director, IHG in a statement said that  the mandate of the consortium is to pursue and foster inter-disciplinary research programmes in applied environmental sciences with a focus on societal needs. The four partner universities of the consortium shall develop joint research programmes pertaining to research and training in cryosphere and climate change. The IUCCCC shall serve as a platform to approach various national and international funding agencies and make efforts to acquire funds for the research programmes and strengthening of the already existing infrastructure at these partner universities. It shall be the focus of the IUCCCC to attain the ‘centre of excellence’ in the field of cryosphere and climate change studies for the partner universities who are already engaged in research in this field for past over two decades.

He said that the IUCCCC shall facilitate the exchange of expertise and research scholars engaged in the field of cryosphere and climate change among the partner universities. The consortium shall initially be for a period of five years and the period shall be extended on mutual agreement among the partners. It is the pride privilege of the Institute of Himalayan Glaciology, University of Jammu to be a part of the consortium and share state-of-art laboratories and research facilities with partner universities. The Institute of Himalayan Glaciology (IHG), University of Jammu has been engaged in the research on cryosphere and climate change for past over two decades.

The IHG had studied half a dozen glaciers situated in Kinnuar District, Himachal Pradesh

and Zanskar and Nubra valleys of Ladakh (J & K state) in past two decades with

emphasis on the impact of climate change on the health of glaciers. The research work of

the IHG has been published in the scientific journals of national and international

repute,he said.

Prof. R.K.Ganjoo said that the Ministry of Environment and Forests (MoEF), Government of India had acknowledged the research work on the glaciers of Ladakh in their document titled“MoEF Discussion paper on Himalayan Glaciers: A state-of-art review of glacial studies, glacial retreat and climate change”.

Six months after the quake, tourists throng Sikkim again

Ayan Pramanik

Source:thehindubusinessline

   

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Kolkata, March 15: 

Nearly six months after the devastating earthquake in September, tourists are back in the Himalayan State of Sikkim in full strength. In addition to its scenic beauty, especially in the Northern part of the State, the North-Eastern border State is also India's only casino destination.

Sikkim has witnessed a steady increase in tourist traffic over the last couple of months, Mr Hari Nair, chief executive officer of Bangalore-based HolidayIQ, told Business Line. The online travel portal has tie-ups with more than 300 hotels and tour operators in Sikkim.

“We expect 50 per cent increase in business this summer (April-May) when compared with the same period last year,” he said.

Fully booked

Bookings have already been closed in a super luxury hotel in Gangtok till April. “We have no rooms available till the end of April. And, it has been the case for the last two months as well,” a spokesperson of MayFair Hotels and Resorts, said.

Mr Kaushik Ghosh, director, Zest India Tours, also said the tourist flow was expected to increase by more than 30 per cent in April. As on March 15, nearly 80 per cent of the hotel rooms in Gangtok-Pelling corridor in South Sikkim are booked for the April-May period.

Interestingly, according to Mr Ghosh, there is a substantial rise in tourist flow to the North Sikkim destinations such as Lachen and Lachung where road conditions are still far from satisfactory. North Sikkim was worst affected in the earthquake destroying major roads in the region.

Earthquake impact

Earlier, tourist arrivals were seriously impacted in the festive seasons of October and November. According to HolidayIQ, the tourist flow was reduced to nearly half in the peak holiday season in November.

Zest India Tours lost nearly Rs 70 lakh as almost all the bookings were cancelled for one week after the earthquake, Mr Ghosh said.

The small-scale industry was largely affected by the declining traffic during the period. “As the tourist flow was affected badly during the end of the last season, the small industries dependent on tourism in the State went through tough times,” he added.

ayan.pramanik@thehindu.co.in

Tata Power, SN Power group to buy stake in Sarda Energy’s project

The partners aim to have 2,000MW under construction or in operation by 2015, and a total of 4,000MW by 2020

Utpal Bhaskar

New Delhi: A consortium comprising Tata Power Co. Ltd and SN Power Norway is in talks to buy a significant stake in a 96 megawatts (MW) hydropower project in Sikkim from Sarda Energy and Minerals Ltd in a transaction valued at about Rs. 200 crore, according to two people aware of the development.

By Bloomberg

Deloitte Touche Tohmatsu India Pvt. Ltd has been appointed by Sarda Energy to advise it on the stake sale, said one of the two people cited above, requesting anonymity. The second person, who also declined to be named, confirmed that the consortium plans to acquire a significant stake in the Sikkim project.
The consortium, formed in in 2009, plans to “set up joint ventures for developing hydropower projects in India and Nepal”, according to the information available on Tata Power’s website.
It also states that “the partners aim to have 2,000MW under construction or in operation by 2015, and a total of 4,000MW by 2020.” Currently, the consortium is developing the 236MW Dugar hydroelectric project in Himachal Pradesh’s Chenab valley and the 880MW Tamakoshi-III project in Nepal, for which it has an exploratory licence.
A Tata Power spokesperson said in an email that the company does not respond to market speculation, but added that “we are evaluating various options to create shareholder value”. An SN Power spokesperson did not respond to emailed queries till press time.
A spokesperson for Deloitte declined to comment.
A Sarda Energy spokesperson said the firm is looking for investors. “The construction on the project has started. The amount of equity that we will divest will depend upon the discussions. Things are at a preliminary stage.”
India’s power sector plans may come unstuck in the absence of adequate funding. The sector will need an additional $400 billion (around Rs. 20 trillion) investment in the 12th Five-Year Plan period that begins 1 April. The funding scarcity threatens to worsen an energy deficit that is seen as a key bottleneck in efforts to sustain and boost economic growth.
Hydropower projects come with their own set of problems. Their construction requires specialized technology and design. They also have to deal with geological surprises such as earthquakes, floods and landslides. With the share of hydropower generated in the country falling, the government is worried as the segment makes up only 38,848MW of the country’s total 187,550MW power generating capacity.
Though India has a hydropower potential of 300,000MW, of which around 145,000MW can be exploited, the Sikkim earthquake last year raised questions on the future of India’s hydropower development. The 18 September 6.8-magnitude earthquake on the Sikkim-Nepal border wreaked havoc in the Himalayan country and the Indian state. Scientists say the likelihood of a stronger earthquake in north India remains. At least 118 people were killed in Sikkim, West Bengal and Bihar in the quake.
The total hydropower generation potential of India’s north-eastern states and Bhutan is 58,000MW. Of this, Arunachal Pradesh alone accounts for 50,328MW. Sikkim as well as most of north India fall in seismic zones 4 and 5, regions classified as highly vulnerable to high-intensity quakes.
utpal.b@livemint.com

Sarda Energy denies any plans to sell Sikkim hydropower project Source: IRIS (15-MAR-12)

Sarda Energy & Minerals has clarified on ``consortium comprising Tata Power Co. and SN Power Norway is in talks to buy a significant stake in hydropower project in Sikkim from Sarda Energy & Minerals.`` Sarda Energy & Minerals has clarified that, ``We would like to inform you that there is no such proposal pending at the board level for consideration. However, in normal course of business we receive/ make proposals for investment in various projects/ opportunities,`` ``It is premature to comment on the news item as there is no concrete proposal at this stage. Further, the company is regularly exploring the various available business opportunities. As and when any concrete proposal is placed before the Board, necessary intimations are given/would be given to the appropriate authorities,`` it added. Shares of the company gained Rs 7, or 5.6%, to trade at Rs 132.00. The total volume of shares traded was 50,406 at the BSE (3.42 p.m., Thursday).

Noah Seelam/Agence France-Presse — Getty Images
India’s first air ambulance helicopter parked on the tarmac at Begumpet Airport in
 Hyderabad, Andhra Pradesh, during the India Aviation 2012 exhibition

Economic Survey: GDP to grow over 7.5% in 2012-13

India Orders Bayer to License a Patented Drug

Rafiq Maqbool/Associated Press

Bayer has filed a patent infringement suit against Cipla, a drug company in Mumbai, India.

Source: The Newyork Times

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MUMBAI, India — India’s government on Monday authorized a drug manufacturer to make and sell a generic copy of a patented Bayer cancer drug, saying that Bayer charged a price that was unaffordable to most of the nation.

Cipla makes an  inexpensive version of Bayer's Nexavar, a drug for liver and kidney cancer.

The decision by the controller general of patents, designs and trademarks was the first time a so-called compulsory license of a patented drug had been granted in India.

Legal specialists and patient advocates said it could open the door to a flood of other compulsory licenses in India and possibly in other developing countries, creating a new supply of cheap generic drugs.

According to the decision, Bayer must license the drug Nexavar, or sorafenib, to Natco Pharma, an Indian company. In exchange, Natco must pay Bayer a 6 percent royalty on its net sales and must sell the drug for 8,800 rupees ($176) a month, about 3 percent of the 280,000 rupees ($5,600) that Bayer charges for it in India. Natco’s drug will be for use only in India, the decision said.

Nexavar, which Bayer developed with Onyx Pharmaceuticals, a California biotechnology company, is used to treat advanced kidney cancer and liver cancer and has been shown to extend lives by a median of about three months. Fewer than 200 Indians used the drug, a tablet, in 2011. Advocates for cheaper generic medicines cheered the decision, which they said could provide a model for developing countries.

“I think it’s the way forward,” said Shamnad Basheer, a professor at West Bengal National University of Juridical Sciences, who has written extensively about the case. “In the entire debate about patents, this is the middle path.”

But Western drug companies are likely to see the decision as another example of how India does not provide the intellectual property protection necessary to recoup the cost of developing medicines. India did not grant patents on drugs at all for 35 years until 2005, helping its manufacturers become the world’s leading exporters of inexpensive generic pills.

In another closely watched case, India’s Supreme Court is expected late this month to hear an appeal by Novartis over the denial of a patent for the cancer drug Gleevec, a patent the company says has been granted by more than 40 countries. That case concerns eligibility for a patent, not the compulsory licensing of an already granted patent, as in the Bayer case.

Oliver Renner, a spokesman for Bayer at its headquarters in Leverkusen, Germany, said the company was disappointed by the decision and was “evaluating our legal options to continue to defend our intellectual property.”

Though multilateral agreements on patents allow compulsory licenses for drugs for public health reasons, only a handful of countries, including Brazil and Thailand, have issued such licenses, said Jamie Love, director of Knowledge Ecology International, a Washington group involved with patents and human rights. Most were for AIDS drugs, an area where drug companies have been pressed not to enforce patents.

India is only the second country, after Thailand, to grant a compulsory license to a cancer drug, Mr. Love said.

“The companies have really tried to draw the line very aggressively against cancer and other diseases being included,” he said. The United States government, through trade pressure and trade agreements, has also tried to limit use of compulsory licensing.

The decision on Monday activates a provision of Indian law that has not been tested since the country started granting patents for drugs in 2005. The provision states that a compulsory license may be granted if an invention is not available to the public at a “reasonably affordable price.”

In his decision, the patent controller, P. H. Kurian, said the paltry use of Nexavar in India clearly showed that the drug was unaffordable. He said a compulsory license could be granted because Bayer had not manufactured the drug in India and was treating only a tiny portion of Indians with liver or kidney cancer.

Bayer argued that the reasonableness of the price should reflect the development costs, not only the public’s buying power. It also said a compulsory license was not necessary because an inexpensive version of Nexavar was already being sold in India by another generic company that has said it does not need to recognize Bayer’s patent. Bayer has sued that company, Cipla, which is based in Mumbai, claiming patent infringement in a separate case that is pending.

Mr. Kurian rejected that argument, writing that Bayer was engaged in “two-facedness” by trying to fight Cipla’s drug while using it as a defense against Natco.

If Mr. Kurian’s ruling survives what is likely to be an appeal to the courts, other Western drugs might become vulnerable to compulsory licenses, because they typically cost more than many people in India can afford.

Leena Menghaney, a manager with Doctors Without Borders based in New Delhi, said a compulsory license could help significantly reduce the $1,800 her organization spends per patient annually to provide the AIDS drug raltegravir, which Merck sells under the brand name Isentress, to a group of patients in Mumbai.

Monday’s decision is likely to have little immediate financial impact on Bayer and Onyx, because so little Nexavar is being sold in India. Global sales of the drug in 2011 were 725 million euros, or about $950 million.

Still, with sales growth slowing in the United States and Western Europe, drug companies have been looking to emerging markets like India as sources of growth. 

Amit Bhargava for The New York Times
School students at a sit-in protest against the economic blocade imposed by 
Naga rebels, near Imphal, Manipur .

Now, Finance Ministry too is roping in GenNext

by K. Ram Kumar

   

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Wants refreshing ideas from brilliant young scholars

Mumbai, March 14: 

The Finance Ministry wants to get ‘refreshing ideas' from young scholars with brilliant academic background from reputed academic institutions.

Towards this end, the Department of Financial Services (DFS), Ministry of Finance, has decided to take interns from reputed economic institutes/schools, national management institutes and national law schools.

Young scholars, who usually tread the beaten path — joining investment banks or consulting firms or commercial banks — to do their internships, will now get a chance to dabble in policy-making. 

Natco ruling is a watershed

by P. T. JYOTHI DATTA

source: The hindubusinessline

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The Patent Controller has signalled that critical medicines should be reasonably priced.

Life-saving medicines can turn cheaper, once compulsory licences are issued for patents.

February 28: The day of the nation-wide trade union strike, few people are on the roads and in offices in Mumbai. But on the second floor of the Patent Controller's office, a handful of people sit around a horse-shoe-shaped table, in a post-lunch session. They are listening to final arguments on pharmaceutical company Natco's application, seeking a compulsory licence on Bayer's Nexavar, an advanced kidney cancer medicine. It is also the last hearing of Mr P. H. Kurian, as Patent Controller General.

Subsequently, at noon, on March 12, the news breaking and burning wires in cyberspace is — India grants its first-ever compulsory licence to pharmaceutical company Natco. The Hyderabad-based company can now make and sell its chemically-similar or generic copy of Nexavar to patients in India. And it will do so, at a price that is 97 per cent less than the price of the original medicine. The compulsory licensing (CL) judgment also pegs royalty that Natco will pay Bayer at six per cent of net sales.

Bayer sells Nexavar at Rs 2.8 lakh for a month's supply of 120 tablets, while Natco will sell that medicine at Rs 8,800. Also in the fray here is Cipla — which sells its generic version of Nexavar at Rs 28,000 per month — but the company is at present fighting a patent-infringement case filed against it by Bayer, at the Delhi High Court.

MATURE DECISION

The Patent Controller's judgment is a path-breaker, as it signals the Government's decision to cast its lot in favour of making a critical and expensive medicine more affordable to the public. It also reflects the maturing of the Patent office, as the intellectual property or IP-driven global community watches decisions coming from of India — since it shoulders the responsibility of being a pharmacy to the international community.

If the CL judgment will open the floodgates for more generic pharmacy companies to explore this route, is something only time will unravel. But it illustrates how the amended Patents Act (2005) is being put to test from different quarters.

The CL judgment also comes in the run-up to the final hearings on another long-drawn benchmark case, at the Supreme Court, on Novartis' cancer medicine Glivec. While Novartis contests the rejection of its patent application on Glivec — in the process, The Patents Act is being put through a high-profile and globally significant test.

PRICE CORNERSTONE

On Nexavar, it is expected that Bayer would go in for a legal review of the CL judgment. But that doesn't take away from the point being hammered home by the Government through the grant of the CL — there is no getting away from the reality of pricing medicines “reasonably”. The bargain is, if the medicine is for the public, what good is it if the public cannot access it, says intellectual property expert Mr Shamnad Basheer. The judgment, a baby step for Natco, is, in fact, a giant leap for rest of the generic pharmaceutical companies, he says. But the principle behind the judgment, to make a product accessible to a larger public, can be used for the rest of the sectors as well, he points out.

A CL is granted under the amended Indian Patents Act (2005), and in the pharmaceutical context, it allows a generic pharmaceutical company to make a copy of a patented medicine, on the payment of royalty to the innovator. Royalty payment is in recognition of the investments the innovator must have put into researching and developing the original medicine. Mr Basheer further clarifies the situations that trigger a CL. In the case of a health emergency, the Government steps in and overruns a company's patent, giving more companies the right to make the said medicine, if it is in the interest of public health.

During the anthrax scare in 2001, the United States government was at the brink of considering overrunning Bayer's patent on Ciprofloxacin, to get the antibiotic at lower prices from the rest of the companies, so more people could access it.

A patent allows a company or the inventor an exclusive monopoly on the product for 20 years — but the alternate situation, where a CL is issued, is when a third party knocks at the door of the Government, on the grounds that the patent-holder isn't serving the local market adequately, Basheer explains. In fact, the Nexavar CL judgment reasons that Bayer hadn't “worked” its patent or manufactured Nexavar locally, and its imported quantities weren't enough to serve the local market. In fact, it served only 2 per cent of more than 8,000 patients who needed the medicine locally, the judgment said.

Companies are allowed to import medicines, but you need to make it affordable to the public, says Dr Prabuddha Ganguli, a patent expert and head of Vision-IPR. Lauding the judgment, he points out that the patentee (Bayer) had conceded it didn't comply with the reasonable requirements of the public. “From that stand-point it is suicidal”, he says. The patent-holder should have voluntarily reduced prices, or given a voluntary licence, allowing another company to make the product at lower prices, but that too didn't happen.

The other “strategic error” on the part of the patentee is that it offered the medicine at a subsidised cost, but under certain conditions — to patients recommended by an oncologist. “Benevolence is no substitute to bypass the law,” Dr Ganguli says.

The lesson for patent-holders is to work their patents, as the Indian patent office has matured, and is taking a serious note of such issues, he points out. Also, multinational companies will now be more judicious in the declarations they are mandated to make to the Patent office — on what they are doing with their patents.

A price rethink is also in order, as MNCs increasingly slant to differential pricing for different countries. In fact, companies like GlaxoSmithKline, are already pricing products differently in different markets, depending on the paying capacity of the people.

But the Organisation of Pharmaceutical Producers of India (OPPI), a platform largely for foreign companies, is disappointed with the CL judgment. “Compulsory licences should be used only in exceptional circumstances, such as in times of a national health crisis. If used arbitrarily, compulsory licences will serve to undermine the innovative pharmaceutical industry and will be to the long-term detriment of the patient,” says Mr Ranjit Shahani, OPPI President, and the India-head of Novartis. For better access, you need improved healthcare infrastructure and distribution, he points out.

POWER AND RESPONSIBILITY

While the CL judgment gets debated threadbare, the man who scripted it — Mr Kurian, leaves the Patent office, “a satisfied man”. In his three-plus years as its head, he has cleaned it up, brought in more transparency, technology and efficiency, making the patent office more “friendly” to the public. The day the CL judgment was made public, Mr Kurian handed charge to the new man in, Mr Chaitanya Prasad.

Steering clear of discussing the piping-hot judgment, Mr Kurian instead pulls out a book from his black bag — Gurucharan Das' The difficulty of being good – On the subtle art of Dharma — from where he draws inspiration. Quoting Yudhishtra, Kurian explains his own actions: “I act because I must.”

Some see Mr Kurian's CL judgment as an exit in a blaze of glory. Some others say he leaves the office more transparent and efficient, than when he took charge. In Kurian's own words, quoting former British Prime Minister Benjamin Disraeli, he says, “Power is nothing but responsibility transferred to you and to be transferred to someone else… I consider power as a responsibility transferred to me, in this case, by the public, by the parliament, by public opinion.”

Or as Dr Ganguli puts it, it's more than the CL judgment. Mr Kurian leaves after having brought in a purpose and a sense of pride in the Patent office.

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