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Five Policy Changes That May Significantly Impact Business In Modi 2.0

By : Advaya Team

In the largest democratic exercise in the world that concluded recently, India voted back the incumbent government led by Prime Minister Modi. As Modi takes charge for a second term, what should businesses expect from the new government? We take a look at the key policy changes that are on the cards:

1. Governance reform – In its first term, the government had emphasized on “ease of doing business” and introduced a number of reforms. From 142 in 2014, India moved to a record 77th position in 2018 in the World Bank’s Ease of Doing Business rankings. The government is now looking to break into the top 50 in these rankings. The onus will be on streamlining regulatory norms around the setup, operation, expansion and shut down of a business in India.

2. Tax reform – The introduction of a single indirect tax, Goods and Services Tax (GST), in 2017 was a game-changer as all central and state indirect taxes were subsumed under a unified tax regime to make India a single market for goods and services. However, initial implementation issues and onerous compliances with multiple slab rates confounded businesses and the taxmen alike. The government is looking to simplify compliances and rationalize tax slabs. On the direct tax side, we may well see the roll-out of a new Direct Tax Code that will be in line with international best practices.

3. Labour law reforms – With a labour force of nearly 530 million and a young demographic profile (over 55% of the population in the working age group of 15-59), it is widely acknowledged that the socialist-era labour laws are hurting India’s growth prospects. While India has gradually moved away from a strict license/inspection regime to a self-certification regime, the revamp of archaic regulations has not happened. One of the game-changing moves expected this year is the consolidation of over 35 labour legislations into four codes, broadly covering wages, industrial relations, social security and employee safety/working conditions. Besides reducing the number of laws that employers have to comply with, this codification exercise is aimed at phasing out obsolete regulations and replacing them with laws that meet the needs of the workforce and businesses in the technology age. The Code on Wages expected to be tabled in Parliament soon intends to simplify various laws governing payment of wages, minimum wages, bonus and equal remuneration for different categories of workers besides providing for a national minimum wage ceiling and prohibiting gender discrimination in wage payment.

4. Push to make India a hub of international arbitration – One of the areas in which India has performed poorly over the years has been the enforceability of contracts. Pursuing legal action in Indian courts is a slow and expensive process. Various steps are now being taken to enable speedy resolution of disputes including the establishment of commercial courts and the move to establish independent institutions to resolve international and domestic commercial disputes through alternative dispute resolution mechanisms. Taking inspiration from the success of the Singapore International Arbitration Centre, there have been a slew of measures proposed to make India a hub of international arbitration by developing the arbitration infrastructure in Mumbai and New Delhi. A legislation to establish the New Delhi International Arbitration Centre as an independent and autonomous institution for resolving international and domestic commercial disputes is expected to be passed soon.

5. New data protection law – With privacy recognized as a fundamental right by the Supreme Court of India, the much-awaited draft of The Personal Data Protection Bill, 2018 (Bill) is expected to be tabled soon in Parliament. On the lines of EU’s GDPR, the Bill provides a comprehensive framework for the management and protection of personal data. Emphasizing on data security and data sovereignty, the Bill also proposes onerous restrictions on cross-border data transfers, i.e., transfer of personal data outside India and requires data localization. In fact, the draft National E-Commerce Policy released in February 2019 further built on this theme of protecting data by declaring data generated in India as a “national asset”. This has been a cause of concern for the tech multinationals operating in India.

With global trade witnessing a slowdown and the international multilateral trading system enshrined in the World Trade Organisation facing an existential threat, it is hoped that these policy measures will play a critical role in upping the “attractiveness quotient” of India for multinational companies.

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