Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) launched by Government of India

Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) launched by Government of India

Minister of Mines & Steel calls it a revolutionary and unprecedented scheme

The Central Government today announced the launch of the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY). This is a new programme meant to provide for the welfare of areas and people affected by mining related operations, using the funds generated by District Mineral Foundations (DMFs).

Minister of Mines and Steel Shri Narendra Singh Tomar said, “PMKKKY is a revolutionary and unprecedented scheme of its kind, which will transform the lives of people living in areas which are affected directly or indirectly by mining.”

The objective of PMKKKY scheme will be (a) to implement various developmental and welfare projects/programs in mining affected areas that complement the existing ongoing schemes/projects of State and Central Government; (b) to minimize/mitigate the adverse impacts, during and after mining, on the environment, health and socio-economics of people in mining districts; and (c) to ensure long-term sustainable livelihoods for the affected people in mining areas. Care has been taken to include all aspects of living, to ensure substantial improvement in the quality of life. High priority areas like drinking water supply, health care, sanitation, education, skill development, women and child care, welfare of aged and disabled people, skill development and environment conservation will get at least 60 % share of the funds. For creating a supportive and conducive living environment, balance funds will be spent on making roads, bridges, railways, waterways projects, irrigation and alternative energy sources. This way, government is facilitating mainstreaming of the people from lower strata of society, tribals and forest-dwellers who have no wherewithal and are affected the most from mining activities.

The Mines and Minerals (Development & Regulation) Amendment Act, 2015, mandated the setting up of District Mineral Foundations (DMFs) in all districts in the country affected by mining related operations. The Central Government today notified the rates of contribution payable by miners to the DMFs. In case of all mining leases executed before 12th January, 2015 (the date of coming into force of the Amendment Act) miners will have to contribute an amount equal to 30% of the royalty payable by them to the DMFs. Where mining leases are granted after 12.01.2015, the rate of contribution would be 10% of the royalty payable. Using the funds generated by this contribution, the DMFs are expected to implement the PMKKKY.

The Central Government has issued a directive to the State Governments, under Section 20A of the MMDR Act, 1957, laying down the guidelines for implementation of PMKKKY and directing the States to incorporate the same in the rules framed by them for the DMFs.

The DMFs have also been directed to maintain the utmost transparency in their functioning and provide periodic reports on the various projects and schemes taken up by them. 

Revitalising rural economy

Revitalising rural economy
Mahatma Gandhi famously said that India lives in its villages. The fact that urban population constituted merely 11% of the total Indian population in the early decades of the 20th century gave power to his grassroots Swadeshi movement. One that envisioned an India which did not merely replace imperialist rule with self-rule, but also energised the national economy and culture by revitalising its villages. From an economic point of view, the Swadeshi philosophy envisaged self-reliance for villages and empowerment so that they could generate their own livelihood, have the skill-sets to manufacture their own products, farm their own lands, and live in harmony with the environment. Gandhi’s social movements were as much a call for the freedom of India as for holistic development of the nation—a battle cries against illiteracy and poverty, and everything that shackled the growth of the rural economy.

Gandhi’s vision for holistic development of rural India is relevant even today. India still lives in its villages—the ICE 360 Survey 2014 estimates that there are nearly 5.97 million villages and an overwhelming 57% of these have a population size less than 1,000. While urban societies continue to grow and provide tremendous impetus for India’s economic growth, the significance of a vibrant and healthy rural economy cannot be undermined. Especially in the context of declining agricultural productivity and distressed rural households, which continue to eke out a livelihood from agriculture. A huge 63% rural households are dependent on the meagre incomes that farm-related activities generate. Growth in rural wages, which averaged 18% in the last few years, dropped sharply to 5% in September last year.

These developments are not just impacting rural Indians, but the economic well-being of the nation as well.

Road and public transport

Linkages between good road networks and economic development are well-established. Transportation plays a multifaceted role in enhancing incomes and well-being, as it is vital for marketing and efficient distribution of agricultural produce, mobility of people and material resources, and contributes towards access to educational, healthcare and financial services. Therefore, rural areas with low standards of living are most likely to be ones with poor road and transportation linkages.

Small villages, in terms of population size (less than 1,000), are the ones that are relatively poor and backward. It’s not surprising that these are also the ones that have poor road connectivity: only 35% small villages (with population size of 1,000-5,000) have access to pucca roads within a kilometre radius compared to 70% large villages (population size of more than 10,000). A majority of large villages are connected with all-weather roads compared to 64% small villages. The average distance from the village to the nearest railway station is about 15 km for large villages and 35 km for small villages.

Basic amenities

According to the World Bank, rural electrification is fundamental for economic development. It affects the welfare of rural households as it reduces time-consuming household chores. Assured electricity supply leads to the development of local agriculture-based industries such as rice and wheat milling, production of oil from oilseeds, repair and welding of agricultural implements, etc, which can supplement the incomes of families dependent on farm incomes. The quality of energy supply has a major impact on economic activities, a fact that is often ignored by the government in its drive to increase rural electrification without any thought to the quality of power that is being supplied. Even though a majority of the villages surveyed have electric connections, they only receive about 10-12 hours of power and just 44% households are satisfied with the quality/quantity of electricity they receive.

The major source of drinking water across all village-sizes is either hand-pump or tube-well. Only 30% households reported they have access to piped water. Firewood (51%) followed by dung cakes (20%) are major cooking fuel sources across all village types. Only 17% villages use LPG and, of these, 28% are households living in large villages compared to 15% in small ones.

Public services

Since agriculture-based activities form a huge chunk of income for rural households, access to banks and mandis is integral for smooth functioning of the rural economy. The presence of public distribution shops (PDS)—which are the major source of subsidised food items and kerosene—is also a key indicator of a village’s status on the welfare continuum.

Where do Indian farmers sell their produce? Significantly, 40% villages sell their farm produce to retailers. A little less than a quarter (23%) of Indian villages can do business with wholesale traders and only 20% sell directly in the mandis. The average distance to the nearest commercial bank is 10 km. About 44% villages have PDS shops; of these, only 30% small villages boast of PDS shops while 89% large villages can access them inside village boundaries.

Education and health

The drive towards increasing literacy has had significant impact on access to educational facilities—particularly at the primary level—in the wake of the Sarva Shiksha Abhiyan. However, the quality of education continues to be a major concern. Most villages have access to middle level school within a radius of 1 kilometre. But access to higher levels of education is more prominent in large villages: nearly 60% of such villages have secondary and higher secondary schools compared to just 20% in small villages.

On the healthcare front, while campaigns such as polio and smallpox eradication have resulted in major successes, and significant progress has been achieved in the areas of infant and maternal mortality, universal healthcare is still out of reach for most rural Indians. Issues about inefficient and poor quality of healthcare services, and the high cost, continue to pose major challenges.

As has been observed with other amenities, large villages benefit from access to better health facilities compared to their cousins in small villages. Nearly 60% large villages have primary health centres against just 6% in small villages. Similarly, nearly half of large villages have a pharmacy or a chemist shop while only 11% in the small ones have them.

Clearly, rural development is a non-linear and highly-contextual process. While various government programmes such as Pradhan Mantri Adarsh Gram Yojana, Sansad Adarsh Gram Yojana, Smart Village (Andhra Pradesh), the Provision of Urban Amenities to Rural Areas (PURA) model and many others are steps in the right direction, there is a need to pool resources and collective wisdom to achieve the targeted results. Corporate and NGO best practices can be garnered to give rural development a much-needed fillip and also achieve Gandhi’s vision of an empowered and self-sustaining rural India.

Bridging the trust deficit

The new dispensation in Sri Lanka is seen as a strong votary of closer India-Sri Lanka ties, but there are many contentious issues on which the two countries have to walk the tightrope.

Sri Lankan Prime Minister Ranil Wickremesinghe arrived in New Delhi yesterday (September 14) on a three-day bilateral visit, his first international visit after taking over as Prime Minister last month. Mr. Wickremesinghe’s United National Party (UNP) together with its allies secured a near-majority in the parliamentary election last month. Sri Lankan President Maithripala Sirisena engineered a division in the ranks of the Sri Lanka Freedom Party (SLFP), thus effectively isolating former President Mahinda Rajapaksa.

Ram Madhav

The result was the formation of a national government under the prime ministership of Mr. Wickremesinghe, with both UNP and SLFP as partners. With the two main parties coming together to form the government, the opposition space has been left to the third largest group in Parliament, the Tamil National Alliance (TNA).

The new dispensation is considered to be a strong votary of closer India-Sri Lanka relations. The President, the Prime Minister as well as the Leader of Opposition are all seen as friends by India. The last few years have seen a trust deficit between the two countries. Many in India suspected the Sri Lankan leadership of encouraging forces inimical to its interests in its vicinity. Unfortunately, the Rajapaksa government did precious little to alleviate India’s misgivings.

Challenges for the government

The new government in Sri Lanka has many challenges to face: the country’s economy is sagging; the United Nations Human Rights Council is going to take up a resolution on war crimes in Sri Lanka for discussion later this month — a very sensitive issue for both the Tamil and Sinhala population in the country. The government has to walk a tightrope on the issue.

It is in these circumstances that Mr. Wickremesinghe is visiting India. A Comprehensive Economic Partnership Agreement (CEPA) will be one of the important issues that India would like to clinch during this visit. However, there is considerable concern about, if not vocal opposition to, the agreement in the Sri Lankan business circles. India needs to correct the perception that CEPA will only benefit the Indian side and the non-tariff barriers in India will be an obstacle to Sri Lankan businessmen.

The other perception problem that India needs to address is that it doesn’t walk the talk on big-ticket projects. The Sampur coal-fired power plant is one such project which has lingered for more than a decade. The delay in its implementation has led to several new problems. Its revival is mired in land and environment-related controversies. Within the 500-acre power plant area, there are around 30 Tamil families who have been living for many years. They have to be rehabilitated elsewhere with proper compensation. In addition, more than a thousand Tamil families, who have been additionally settled just on the periphery, may also raise objections to the project coming up. Some of them have lands inside the power plant area. Environmentalists are also opposed to the power plant. They might go to court. While India may argue that it has technologies that address pollution concerns, these issues have the potential to get entangled in legal problems.

Another issue which is more than a decade old, on which India has not made much progress, is that of oil tank farms on the east coast. These British vintage storage farms give India enormous scope for oil trade in the whole of South East Asia. India should quickly operationalise these oil tank farms. It must not forget that the previous government in Colombo had offered them to the Americans. It should start negotiations for setting up a refinery in Trinco area to treat crude oil.

India’s strategic and economic priority should be to develop the east coast of Sri Lanka, especially the Trincomalee-Batticaloa belt. The Trinco belt has an enormous potential for trade, tourism, industry and commerce. It has vast stretches of virgin beaches. The Trinco port can be developed into a major port. A new airport can be developed in the area and can be connected directly with Tamil Nadu for the benefit of the Tamils in the north and east of Sri Lanka. Most importantly, by entering Trinco coast, India will be making a big presence in the trade routes of the Indian Ocean.

There are a couple of contentious issues on which India and Sri Lanka might have to be cautious. The Tamils of the north and east must be complimented for their overwhelming support to the TNA in the parliamentary elections that has helped the party secure 16 seats. TNA leader R. Sampanthan has become the Leader of the Opposition. TNA fought the elections on the principle of greater constitutional rights to Tamils for just and honourable place in the Sri Lanka constitutional mechanism. The radical elements have been rejected by the Tamil voters there. The Sri Lankan government should gratefully acknowledge this huge contribution of the TNA and move forward with specific steps to address the Tamil issue. Granting more constitutional powers to the provinces is the first important step.

The UNHRC resolution on war crimes is another important issue on which both the countries have to reach an understanding. Sri Lanka can gain from the expertise available in countries like the U.S., India, and so on, to facilitate a credible investigation by its agencies. It is important for justice to be seen by the Tamils and the international community to be delivered.

Dispute over fishing

Another contentious issue that defies any immediate answers is that of fishermen. The historic waters between India and Sri Lanka have become a battleground between the Tamil fishermen on both sides, leading to frequent clashes, incarcerations, and even deaths. A negotiated solution needs to be found on this issue. Pending the dispute over fishing, the adverse ecological impact of bottom trawling must also be addressed.

Prime Minister Narendra Modi’s visit to Colombo early this year raised the hopes in that country of a stable and reliable friendship. Lakshman Kadirgamar, former Foreign Minister of Sri Lanka and a great friend of India, had once described India-Sri Lanka relations as “irreversible excellence”. Centuries-old cultural and religious ties make the relationship irreversible. But the challenge is to make it ‘excellent’. It is too important a relationship to be left to the officials alone. Sri Lanka requires political handling.

World Bank ranks Gujarat as most investor-friendly State

Gujarat has come out on top in the World Bank’s first ever ranking of States on the ease of doing business in India.

States were assessed on the implementation, over a six-month period from January to June, of a 98-point reforms agenda.

Chief Secretaries of States participating in the “Make in India” workshop inaugurated by Prime Minister Modi in New Delhi last December finalised this action plan on “Ease of Doing Business”.

It was decided later to evaluate States to assess progress by June 2015.

BJP-governed States dominate the top ranks. Gujarat implemented 71.14 per cent of the reforms, according to the assessment. Andhra Pradesh came second with a score of 70.12 per cent, Jharkhand third at 63.09 per cent, Chhattisgarh fourth with 62.45 per cent and Madhya Pradesh fifth with 62 per cent.

The largest recipients of foreign investments, Maharashtra and Tamil Nadu, are ranked eighth and twelfth with less than 50 per cent scores.

Annual exercise 

“The rankings reflect the ease of doing business in these States by the small and medium enterprises rather than foreign investors,” said World Bank Country Director Onno Ruhl.

The Union Department of Industrial Policy and Promotion, the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry (CII) and KPMG were involved in the exercise.

The rankings of States will be released annually.

“It is expected that investments will begin to flow to States that make it easier to do business, seeing which the low-rank States could be encouraged to take up reforms,” said former CII president Sunil Munjal at the release of the report.

The focus of the study is on eight key areas: The setting up of a business, allotment of land and obtaining construction permit, complying with environment procedures, complying with labour regulations, obtaining infrastructure-related utilities, registering and complying with tax procedures, carrying out inspections and enforcing contracts. States made good progress in terms of tax reforms, the report stated.

Punjab emerged the best performer in the category ‘setting up a business’ and Maharashtra in ‘obtaining infrastructure-related utilities’. Madhya Pradesh topped ‘allotment of land and obtaining construction permit’ and Karnataka ‘registering and complying with tax procedures’. Gujarat was assessed as the best for ‘complying with environment procedures’. Jharkhand is the best in two categories: ‘carrying out inspections’ as well as ‘enforcing contracts’.

“While the World Bank has been working for many years with officials of the Government of India, this gained traction only in the last one year thanks to the political commitment coupled with renewed efforts of officials of Central and State governments to make India an easy and simple place to do business,” said Mr. Ruhl.

State	State Score
Gujarat	71.14%
Andhra Pradesh	70.12%
Jharkhand	63.09%
Chhattisgarh	62.45%
Madhya Pradesh	62.00%
Rajasthan	61.04%
Odisha	52.12%
Maharashtra	49.43%
Karnataka	48.50%
Uttar Pradesh	47.37%
West Bengal	46.90%
Tamil Nadu	44.58%
Telangana	42.45%
Haryana	40.66%
Delhi	37.35%
Punjab	36.73%
Himachal Pradesh	23.95%
Kerala	22.87%
Goa	21.74%
Puducherry	17.72%
Bihar	16.41%
Assam	14.84%
Uttarakhand	13.36%
Chandigarh	10.04%
Andaman and Nicobar Islands	9.73%
Tripura	9.29%
Sikkim	7.23%
Mizoram	6.37%
Jammu and Kashmir	5.93%
Meghalaya	4.38%
Nagaland	3.41%
Arunachal Pradesh	1.23%

The comprehensive healthcare alternative

Rescuing Maternal and Child Health-only systems, which have become under-resourced and have built a very high-cost but low-performance culture, will be a challenging task.

Given the rising burden of non-communicable diseases, there is an increasing demand to build health systems that can address these concerns. However, given how large the unfinished agenda of the Millennium Development Goals is, the Indian government has chosen to stay focussed on Maternal and Child Health (MCH). But is the most effective way to deliver on the MCH goals to build an MCH-only health system, or does it need a completely different approach?

Medical and staffing issues

Medically, since the most important drivers of infant, child, and maternal mortality are haemorrhage, sepsis, abortion-related complications and hypertensive disorders, it is clear that it is no longer adequate for a health system to focus on preventive-promotive messages and limited facility-based treatment options. Instead, at the community level, there needs to be clinic-based obstetric and emergency care on offer, and, within a reasonable travel distance, hospital-based emergency care. If recent data relating to infant mortality rate (IMR) and maternal mortality rate (MMR) are examined, it appears that higher availability of more advanced medical care at proximate hospitals in, for example, Kerala and Tamil Nadu, is indeed associated with much better MMR and IMR outcomes. Equally wealthy States such as Himachal Pradesh, which do not have these advanced facilities at proximate locations, are not able to show similar rates of improvement despite spending more money per capita on healthcare.

Recognising this issue, the Indian government has recently mooted the concept of a health and wellness centre (HWC) that is intended to be more comprehensive rather than merely connoting “first contact care or symptomatic treatment for simple illness with some elements of care for pregnancy and immunisation included”. And, if indeed the HWCs (the erstwhile sub-centres) are able to address all of the necessary MCH conditions, then it becomes possible for the next level centre to provide a much broader range of care upon referral by the HWC. Clearly, building such a system to serve only MCH needs will not be cost-effective nor will it keep all of the necessary personnel gainfully employed. Having a much wider range of conditions would be the only sustainable way to address this concern.

Building such a broad-based system will need a substantial amount of investment for which political commitment has not been very forthcoming. Because of this, in addition to resource shortage, front line personnel such as nurses and doctors often offer low-quality services and display a high degree of absenteeism without fear of political reprimand. While there are a number of reasons for this, one of them is the fact that the Indian (MCH-focussed) health system is currently able to cope only with conditions that account for fewer than 25 per cent of the Years of Life Lost (YLL). Even in high-fertility States such as Bihar, in a typical year, fewer than 20 per cent of the households are likely to have maternity-related needs. Broader health systems which are able to address a much larger proportion of conditions have the potential to engage a much larger number of voters. Arguably, the politician under such a system is much more likely to both allocate more resources as well as monitor performance. The health system thus develops the capability of handling a wider range of issues, while simultaneously positively impacting the MCH agenda.

The difficulty that health systems in India unfortunately face is that since they were designed as MCH-only systems, they have become chronically under-resourced and have now built a very high- cost but low-performance culture and a concomitant reputation. Rescuing these systems may now become very challenging. Politicians have shown a strong reluctance to provide additional funds to the government-run health system “driven by the idea that it does not make sense to throw money at a system that hardly works, performs or is a big black hole.” They instead prefer to put additional investments into fragmented and “cheap” in-patient insurance and ambulance schemes that are operated by the private sector but are funded by the government. Such an approach is resulting in significant fragmentation of the health system, with a low-quality, skeletal MCH-focussed government-run primary care and secondary care system. There is also a separate, private sector-owned secondary and tertiary care system with very high variations in the levels of quality, which is accessed by low-income families through government-sponsored insurance programmes and by everybody else using out-of-pocket payments. This prevents the evolution of both an integrated government health system or a privately run managed care system. This is an example of a situation where building an MCH-only health system has actually hurt our ability to grow it into a well-functioning health system of any kind, including one that fully serves MCH needs.

For various good reasons, 68 countries, including low income and middle income countries, have chosen to use health-specific taxation such as mandatory payroll deduction. For countries such as India and China, which also have a large informal sector, since mandatory payroll deduction is not an available option for a large segment of the population, the direct sale of healthcare packages or insurance becomes additionally necessary. This is much more difficult to do, but not impossible. This is because while it is clear that health shocks have a very large impact on those below the poverty line, it is also clear that even those at the 90th percentile are not very far above the poverty line, and a health shock can indeed quickly send such a family down to the lowest one per cent in terms of income and wealth. However, unlike families below the poverty line, those above it do have the financial ability to pre-pay for healthcare services because it is not their average out-of-pocket expenditure that is their problem, but their inability to obtain proper care when needed and the high variability of actual expenditures. However, getting the non-poor populations to participate in financing through pre-payment (by, for example, requiring the purchase of a comprehensive family health cover along with auto-insurance for all vehicles, including two wheelers), an integrated delivery system is going to need a much broader health system and one that performs at a much higher level than it currently does. But, unfortunately, once again the decision to build a MCH-only health system, which performs at a poor level of delivered quality, has left consumers with low confidence in government-run health systems. To now persuade the non-poor to pay-in to a health system that is operated by the government is likely to be an uphill task.

Historic opportunity

For the States, the larger availability of untied funds from the Centre presents a historic opportunity to design health systems that far more closely reflect their own objective ground realities. While centrally sponsored health schemes have offered a number of benefits, they also came with the associated baggage of standardised design. Bihar, for example, continues to battle with high levels of IMR and MMR and a high level of poverty. Tamil Nadu and Kerala have brought those rates under control but, unlike Bihar, are seeing a climbing suicide mortality rate, particularly amongst their 15-25 year olds. Himachal Pradesh, which has a much smaller and significantly wealthier population and over five times higher per capita income, has very similar IMR and MMR numbers to Bihar, combined with a high accident mortality rate. Building comprehensive healthcare systems which reflect the realities of each State will not only yield strong benefits on problems such as IMR and MMR but will also, over time, help build health systems that respond to a much a wider set of concerns. Narrowly focussed health systems on the other hand risk falling short not only on their goals but also make it difficult, if not impossible, to build broader health systems for the future.

IISc, IIT-D in top 200 rankings MIT and Harvard hold the top two positions in the world university rankings

IISc, IIT-D in top 200 rankings
MIT and Harvard hold the top two positions in the world university rankings

India has made its debut in the Quacquarelli Symonds’ (QS) list of top 200 universities globally. The Indian Institute of Science, Bangalore and the Indian Institute of Technology Delhi (IIT-D) have been placed 147 and 179 respectively in the QS World University Rankings for 2015-16, which has the Massachusetts Institute of Technology (MIT) and Harvard at the top two positions.

While IIT-D has improved its position from the previous years’ rank of 235, IISC Bangalore is a new entry in the ranking list. None of the Indian universities has made it to the QS’ top 200 in the previous editions.
According to the QS list, there are 14 Indian institutions in the World University Rankings and half of them are among the global 400. “While the IITs and the Institute of Science have all progressed in this edition, the large comprehensive universities, such as the University of Delhi and the University of Mumbai have lost ground, principally because of the normalisation by faculty applied to the research indicator but also due to deterioration in other dimensions as well,” the QS says in its release.

In the list of top 300 are, IIT Bombay, which was placed at 222 last year has moved up to 202, IIT Madras up from 321 to 254 and IIT Kanpur at 271 from 300.

Jawaharlal Nehru University leads the Indian universities in Arts and Humanities table placed at 168th position while the University of Delhi is placed at 191 in this section and 191 in the Social Sciences and Management section.

Speaking to The Hindu, IIT-D Director K. Gupta said the improvement in the ranking was a result of the institute’s dedicated emphasis on improving the quality and quantum of research. “We are dedicated to excellence in teaching, research and innovation and we pay attention to the maintaining the best possible standards in these fields,” he said.

A step forward: IISc

“The rankings are largely due to our first undergraduate batch graduating this year. This was one of the criteria needed to feature in the global rankings,” said Anurag Kumar, Director, IISc, adding that the institute had ensured information was given in the correct format to facilitate proper reflection of the performance of the institute on the global stage. He believed the debut was a “step forward” for the institute. “Our performance has remained high. Other universities are catching up due to the impetus given to research in their regions. For us to be in the top 50, we need investment and support for our faculty,” he said.

Going beyond MAT on FIIs

As anticipated, the recently released Justice AP Shah Panel report strengthens the government’s resolve to put to rest the contentious issue of the imposition of minimum alternate tax (MAT) on foreign institutional investors (FII). Its prompt acceptance by the government undoubtedly communicates a firm message to the international community that it is willing to make changes to dispel the concerns on retrospective taxation.

The vexed issue of levy of MAT on FIIs arose due to an ambitious interpretation by the administration. While the primary issue with such levy and its validity has been a subject matter of a writ before the Mumbai High Court, the administration justified it by drawing from the order of the Authority for Advance Rulings (AAR) in the case of Castleton. Revenue had appealed at the Supreme Court against other orders of AAR which favoured the foreign companies’ stand in the matter. With the MAT-levy, most FIIs and FII associations skipped the administrative appeals option and instead sought constitutional remedy by filing writs at the high court level, and ultimately, at the apex court level.

An interpretational aspect on levy assumed significance after the introduction of Section 9A to the Income Tax Act (vide Finance Act, 2015), which clarified that having an investment fund manager will not render an FII to be deemed as having a place of business in India, the condition that triggers applicability of MAT. The said amendment was a progressive approach that encourages the presence of a fund manager in India to bolster FII investments without the latter having to worry about onerous tax obligations such as MAT—a demand the FII fraternity has raised with successive regimes at the Centre.

The interpretation by the taxman that the amendment is effective only April 1, 2015, onwards was erroneous on various counts. First, FII taxation has been in the statute since 1993, and the levy of MAT has never been a matter of debate. A simplified FII taxation, by way of fixed capital gains tax levy, was put in place by the law-makers to provide not just certainty to encourage flow of foreign funds, but enable fund managers to compute the precise return on investments for investors in such funds. The tax administration’s argument for MAT on foreign companies in general (those that aren’t FIIs) was dismissed by the AAR (in the Timken and Praxair cases) and Revenue did not by pursue appealing to higher courts, thereby indicating its finality.

An interpretation of Section 9A ought to be read as clarificatory in nature and nothing more. Courts have successively held that even if a clarification is prospective, it is supposed to be declaratory and has retrospective applicability. The argument that FIIs being exempt from MAT does not apply retrospectively is meaningless if the 2015 amended law itself is to be read as clarificatory. An argument that a similar case with respect for levy of MAT on a foreign company—Castleton is not an FII—is before the SC also did not justify MAT levy on FIIs. The matter before the SC against the AAR order is applicable to facts of Castleton and not binding on other foreign companies and certainly not on FIIs, which are subject to an independent tax regime.

That said, the government in its wisdom felt appropriate to constitute a committee chaired by Law Commission chairman Justice AP Shah. The key issues which Shah Panel examined were whether the MAT provisions extended to foreign companies, whether the FIIs could be considered to have a place of business in India notwithstanding that they do not have physical presence, and whether MAT provisions override the provisions of double taxation avoidance agreements.

Having analysed the legislative history and intent behind MAT, the panel concluded that MAT cannot be levied on FIIs. In doing so, it observed that MAT levy was introduced to plug an abuse by book-profit-making companies declaring dividends but not paying corporate tax due to tax concessions. Such intent was evident from successive Budget speeches, circulars issued by the CBDT explaining its introduction and numerous amendments. The panel reasoned that the MAT provisions would not apply to companies which do not have a place of business in India.

Since FIIs do not have a place of business in India and carry out their decision-making activities overseas (a concession made in 2015 budget to encourage fund managers to be present in India), the panel concluded that there cannot be a case for MAT levy. The panel concluded that MAT provisions cannot override the benefits under the tax treaties. The committee has recommended amendments to the law and clarifications indicating the inapplicability of the MAT provisions to FIIs prior to April 1, 2015.  It recommendations have been accepted by the government, and as an immediate relief (pending amendment to law), the Central Board of Direct Taxes has issued instructions to its officers to keep the proceedings in abeyance.

Interestingly, the committee has stopped short of recommendations on applicability of MAT on other foreign companies. Besides, nothing precludes a foreign company which doesn’t have a place of business in India from taking a position based on the panel’s recommendations. It should, however, not deter the government from treating non-FII foreign companies on the same footing as FIIs, thereby burying the entire debate. The implications of MAT controversy are a good reason for the government to conduct a comprehensive review of taxation of capital markets transaction. The Shome panel in 2013 made some useful recommendations, including a simplified regime and consistent tax rates agnostic to status of investors1institutional or private, domestic or foreign. I trust these recommendations will find way in successive budgets, given the importance of institutional investors to the growth of Indian capital markets.