Earlier this month India’s drug pricing regulator, the National Pharmaceuticals Pricing Authority (NPPA), reviewed coronary stent prices after a year of having slashed them by as much as 85 per cent.(Illustration: C R Sasikumar)
For a government that had laid down the dictum of “Minimum Government, Maximum Governance” upon taking office, the spate of administrative intrusions for tweaking rules for businesses across sectors seems to be in clear divergence with its stated motto.
The latest in a growing list of such interventions is the draft IRDA (reinsurance) Regulations, 2018, which, instead of further opening up the sector, explicitly proposes an “order of preference” that places the country’s largest reinsurer, GIC Re, at the top of the pecking list in several areas of business, followed by foreign reinsurance branches (FRBs) in India in the second tier, while the third preference, in case both Indian reinsurers and the FRBs concur, would go to cross-border reinsurers. The provision of the first right of refusal for Indian reinsurers and FBR, as provided in the draft, clearly tightens the regulatory framework in favour of players already established in the country.
Earlier this month India’s drug pricing regulator, the National Pharmaceuticals Pricing Authority (NPPA), reviewed coronary stent prices after a year of having slashed them by as much as 85 per cent. Despite overwhelming evidence that the price caps were not working, instead of letting the market decide prices, the NPPA further tightened the price of drug eluting and biodegradable stents, while marginally relaxing the cap on bare metal stents. In addition to stents, it also capped the prices of other products used in stenting, including the guidewire, balloon catheter, etc.
There have been other interventions in the medical sector. On January 28, 2016, the finance ministry withdrew concessional customs duties on 76 specified drugs through a notification “to eliminate the disadvantage to the domestic manufacturers of such drugs”. Subsequently, with the Ministry of Health and Family Welfare citing an impact of the move on the prices and availability of these drugs, the concession of customs duties on three drugs — Octreotide; Somatropin; and Anti-Haemophilic factor concentrate VIII & IX — was restored through another notification on February 17, 2016.
Incidentally, the provision announced in this Budget that assured a wide range of crops a profit of 50 per cent over the cost of inputs and imputed labour through minimum support prices is a throwback to cost-plus approaches of earlier decades that clearly failed in the agriculture sector. While this deviates from the principle of subsidising the farmer and not the crop, this comes at a time when other sectors such as power that have followed the cost-plus interventions have now shifted to the market-based auction route for tariff determination. The Budget interventions such as the hike in Customs duties on 46 items too marked a “calibrated departure” from the underlying policy of reducing import duty over the last two decades, while thwarting a proposal to further harmonise the peak customs duty at 7 per cent with the aim of both bringing the import tariffs in line with ASEAN duties and addressing the issue of “duty inversion” — when the tariffs on finished goods are lower than that on components and raw materials — that hurts domestic manufacturing.
The duty hikes in the Budget were not isolated instances of interventions by the government. Earlier, on June 30, 2017, a notification was issued to slap a basic customs duty on smartphones of 10 per cent effective from July 1, making imported devices more expensive than locally made ones. The department of revenue said that the government took the decision “on being satisfied that it is necessary in the public interest so to do.” The duty covered cellular mobile phones and specified parts of cellular mobile phones like charger, battery, wire headset, Microphone and Receiver, keypad, USB Cable etc.
Then on December 16, 2017, another notification was issued to raise customs duty on imported mobile phones, television sets, digital cameras, microwave ovens, LED bulbs and a number of other electronics goods. The duty on push-button phones and mobile handsets was raised to 15 per cent from 10 per cent and that on TV sets to 20 per cent from 15 per cent.
A senior government official had defended the decision by stating that this was being done “to protect our MSME” and that there was “a marginal rate increase”. “The idea is that there are countries of the world…who try to systematically dump those goods, which are manufactured only by MSMEs in India…that’s why the government has to proactively protect their interest by marginal increase in the customs duty,” the official had told The Indian Express.
Experts, however, said that the customs duty interventions will certainly affect trade. “The customs duty interventions by the government both by the duty increases announced in the Budget and the changes announced on certain products after the Budget would certainly have an impact on trade. While the ostensible reason appears to be promotion of manufacturing in India, which may take some time depending on the product, businesses will need to grapple with the short term effects of the changes,” M.S.Mani, Partner, Deloitte India said.
There have also been duty interventions in the solar power sector, despite protests from the nodal ministry. In September 2017, a duty on solar panels was imposed following a notification from the Central Board of Excise and Customs in September 2016, under which solar panels and modules generating power have been classified alongside “electrical motors and generators” under the Customs Act, thereby attracting a 7.5 per cent duty. They were earlier listed with “diodes, transistors and similar semiconductor devices, photosensitive semiconductor devices, including photovoltaic cells, whether or not assembled in modules or made up into panels,” where import were duty free. The implementation of this levy began a year later in September 2017 at some ports and comes despite opposition from the New and Renewable Energy ministry.
The stock markets too have resorted to interventions that queer the level-playing field. The two premier exchanges in India, BSE and NSE, have joined hands to end licensing agreements with all foreign exchanges. Consequently, NSE and BSE will stop offering live prices with Singapore and Dubai exchanges, respectively, the main aim of the move is to stop Singapore Exchange (SGX) from starting stock futures.
Under the new indirect tax regime of Goods and Services Tax (GST), even as the taxpayers got an upper hand for self-compliance in the returns filing process, the government acted against profiteering by companies. Consumer goods companies such as Hindustan Unilever Ltd were served anti-profiteering notices, following which HUL even deposited an amount of Rs 119 crore with the anti-profiteering authority. As per the latest official figures, 221 anti-profiteering applications have been received by the Standing Committee and State Screening Committees as on January 31, 2018 and notices of initiation of investigation have been issued in 9 cases involving 52 applications.
Industry has been seeking more clarity regarding the anti-profiteering rules, especially the applicability of the anti-profiteering provision in case the input costs went up or the businesses suffered genuine losses in the transition to the new indirect tax regime. It was this fear of return of inspector Raj which had prompted the Chief Economic Adviser Arvind Subramanian to suggest a sunset clause for anti-profiteering when it was initially proposed in the GST Council meeting in June last year. Subramanian had then moved a suggestion seeking the insertion of a sunset clause of nine months or a year in the anti-profiteering rules to limit the provision citing fear of return of a “raid raj”. Subsequently, a sunset clause of two years was incorporated in the anti-profiteering rules.
On the direct tax front, the Budget announcement to levy Long Term Capital Gains (LTCG) tax also attracted criticism from several quarters including the indirect reference by the Reserve Bank of India Governor Urjit Patel. Patel, in the central bank’s sixth bi-monthly policy press conference on February 7, said that multiple taxes on capital impact investment and savings decisions. “The other thing that we need to keep in mind is that the taxation on capital in India is from several sources and I think that at the marginal rate it absorbs. So, just from the back of the envelope, you have a corporate tax rate, you have a dividend distribution tax rate, for dividend income above 10 lakhs you have the marginal tax rate, which is, whatever bracket people come in, that would be at the highest level, you have a securities transaction tax and you have a capital gains tax. So, there are five taxes on capital and that would obviously also have an impact on investment and savings decisions,” Patel had said.
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