Comparison: Chinese Foreign-Owned Enterprises Versus Private Limited Companies in India

In China, a wholly foreign-owned enterprise (WFOE) is a limited liability company (LLC) formed solely by one or more foreign investor(s) with no mandatory requirements to have a domestic partner. The flexibility afforded to a WFOE through Chinese policies makes it a popular form of foreign investment in China.

Foreign investors increasingly believe that China’s economic and legal development make it unnecessary to over-rely on guidance from a local partner.

Many factors make the establishment of WFOEs attractive in China, especially for businesses engaged in manufacturing or trade.

These include:

  • 100 percent foreign ownership and control;
  • Security guaranteed to technology and intellectual property rights;
  • Ability to develop own internal structure;
  • Capacity to retain organizational culture even on foreign land;
  • Access to China’s large market; and
  • The ability to repatriate funds to holding company.

Under Indian law, foreign investors are able to establish wholly-owned subsidiary companies (WOS) in the form of private limited companies if they operate in sectors that permit 100 percent foreign direct investment (FDI).

WOS in India work in a similar manner to Chinese WFOEs, with a few key distinctions. The specifications for establishing a wholly-owned subsidiary in India can be found here and for establishing a WFOE in China can be found here.

Regulation of foreign-owned companies in India, China

In India, both 100 percent foreign-owned private limited companies and joint venture companies are governed by the same regulations. The Companies Act, 2013, regulates joint ventures (JVs) and wholly-owned subsidiaries in India.

In China, too, JVs and WFOEs are subject to the same general laws, such as the Company Law, 2013 and the Measures of Record-Filing for Establishment and Change of FIEs. However, there are other specific measures regulating each type of legal entity as well.

For example, a corporate JV in China, whether it is a limited liability company or a joint-stock limited company, is subject to Company Law, 2013. In addition, corporate JVs with foreign investments must also comply with the Sino-Foreign Equity Joint Ventures Law and the Sino-Foreign Co-operative Joint Ventures Law.

Different types of WFOEs have different registration criteria depending on their area of operation and category of industry. Some entities need pre-approval before setting up, trading WFOEs need to register with the customs department, manufacturing WFOEs need to pass an environmental impact report, among others. This is similar to the regulatory landscape in India.

The specifications for establishing joint ventures in India are discussed here.

Securing approvals for FDI in India

Foreign investment in India is regulated under the Foreign Exchange Management Act (FEMA), and is allowed under two different routes – the automatic and the government approval routes. (See the Consolidated FDI Policy published in August 2017 here. This has been amended in January 2018, which can be seen here.)

In both India and China, the scope of the business – the company’s intended activities – dictate the need to establish either a 100 percent foreign ownership or the requirement of additional national investors.

For example, any sector in India that attracts an equity cap or falls under the 49 percent government approval route for FDI needs an Indian investor to be involved within the business.

A business eligible for 100 percent automatic FDI requires no prior approval.

Setting up in India versus China

Setting up a private limited company / wholly-owned subsidiary in India differs substantially from the WFOE set-up in China.

The standard setting up process in India is known as the ‘automatic route’, which involves a comparatively easy establishment process.

Under this route, 100 percent investment is allowed in certain sectors, as per the Master Directions issued by the Reserve Bank of India (RBI).

For these sectors, no specific approval is required prior to setting up the entity, making the establishment process quite simple.

The investors are only required to notify the RBI within 30 days of the receipt of inward remittances and file the required documents with that office within 60 days of the issuance of shares to foreign investors.

For sectors that fall under the approval route, sectoral investment caps are defined, and investment requires government approval.

In this case, there is a separate set of procedures to be followed.

Among other things, the company must obtain approval for investment from respective ministries or administrative departments through the Department of Industrial Policy and Promotion (DIPP).

To improve the ease of doing business in India, the Indian government now allows 100 percent automatic FDI in most sectors.

In China, more industries are being opened up to FDI, such as the automotive and insurance sectors. The country released its latest Negative List in July 2018 reducing the restrictive measures from 63 to 48, and for a Negative List for Free Trade Zones, where restrictions were brought down from 95 to 45.

Major industries that are highly restricted because of FDI caps or other laws or practices in China include finance, telecommunications, education, healthcare, internet businesses, and any industry engaged in the extraction or processing of natural resources.

In India, the FDI regime is more liberal.

In its foreign investment policy released in January 2018, the government allowed 100 percent FDI under the automatic route for single brand retail trading and construction development sectors besides introducing relaxations for investing in power exchanges and the medical devices sector.

As mentioned earlier, most sectors in India allow 100 percent foreign investment without the need for specific government approval.

Industries were FDI restrictions apply include mining, defence, petroleum refining, broadcasting services, print media, and air transport services. However, even in these sectors, investments beyond regulated caps can be made after securing government approval.

Difference in organizational requirements 

Foreign investors interested in setting up a WFOE in China or a WOS in India must follow the government’s organization structure guidelines. However, distinctions exist here as well.

A WFOE set-up requires an executive director or board of directors, at least one supervisor, and a general manager.

The Indian WOS, on the other hand, must have a minimum of two directors and between two and 200 shareholders. A shareholder can be another legal entity, such as a Hindu Undivided Family (HUF), whereas directorship is held only by individuals.

As in the case of China, the amount of paid-up capital required should be a financial exercise to determine the business’ start-up and cash flow needs. For a WOS in India, there is a minimum share capital requirement of INR 100,000 (approximately US$1,500). This has been relaxed under the Companies (Amendment) Act, 2015.

Taxation of WFOE versus WOS


India does not charge a tax on profit repatriation whereas China levies a 10 percent tax on the value of repatriated funds. Additionally, China’s labour welfare costs are higher.

However, it is also important to note that domestic companies in India are liable to pay dividend distribution tax, levied at 16.995 percent of dividend payout, which is deducted from their reserve or surplus.

Foreign investors whose countries have double tax avoidance agreements (DTAAs) with India will need to calculate their respective tax liability according to the terms of the respective DTAA.

India DTAAs Part 1India DTAAs Part 2

Why India May Get ‘Limited Waiver’ From Trump to Keep Buying Iranian Crude

India will very likely get a ‘limited waiver’ from the US to keep buying Iranian crude – albeit at decreasing levels into 2019. A 6-7 September “2+2” strategic dialogue between US Secretary of State Mike Pompeo and Secretary of Defense Jim Mattis with their Indian counterparts will likely result in India receiving a limited waiver in recognition of the immense geostrategic considerations at stake in the bilateral relations between the US and India. India will likely commit to gradually reducing its purchases of Iranian crude oil into 2019. While Brent briefly flirting with $70 per barrel on demand concerns this summer increasing focus on both supply reductions from Iran and the potential for ever greater military tensions in the Gulf will provide support for Brent prices as we head toward the 4 November US-imposed deadline for implementing the US sanctions. China will probably stand alone as the market of last resort to take increased volumes of distressed Iranian oil.

The complex context of the US-India relationship at present makes the decisions of both Indian and US policymakers on implementing US secondary sanctions very difficult. On the surface, there seems to be an impasse as the 2+2 ministerial meeting approaches. The US has made clear that there will be little flexibility shown in terms of granting waivers of US sanctions for countries which continue to buy Iranian crude after 4 November, and certainly no “blanket waivers” which would allow countries to continue doing business as usual with Iran in the physical oil market. For their part, Indian officials’ public statements have hewn closely to their tradition of foreign policy independence, making clear that they feel bound to comply only with sanctions endorsed by the UN Security Council.

However, despite the stated Indian policy, there seems to be accumulating evidence of an unstated policy. Shortly after the initial response, there were anonymous comments in the early summer from Indian refinery managers in the press suggesting that government officials had discussed with them the possible need to reduce Iranian crude oil supplies. More concrete support for this has emerged recently in the preliminary data from Bloomberg, with a steep drop in Indian imports from Iran in August, from 787,000 bpd in July to 376,000 bpd in August. To be sure, there are significant monthly fluctuations in normal times, but with the approach of the deadline this seems to be too large a drop to be coincidence. It also is clearly not driven by other bilateral issues, which has happened before, such as over a dispute between Iranian and Indian parastatal firms over development of a gas field. One Indian refiner, part of the huge Reliance Industries conglomerate, already has halted purchases from Iran due to the exposure of other Reliance Industries’ business lines to the US market. The big question is around the parastatal refiners IOC, HPCL, and BPCL, which own the bulk of India’s refining capacity.

Given India’s very independent foreign policy orientation, the US demand to cut off oil purchases from Iran is a significant irritant in bilateral relations. Even when similar sanctions were implemented in 2012 by President Obama prior to the 2015 nuclear deal, India never formally said it was complying with US wishes – but somehow Indian purchases declined by 20%, which Asian importers had been told would get them a waiver.

In this case, the Trump administration is taking a harder stance – trying to cut Iranian exports to zero. There also have been other irritants in the relationship besides sanctions, including social media chatter in the Indian press alleging that President Trump has mocked Prime Minister Modi’s Indian-accented English in private, and lectured him in their summit meeting about the need to ‘buy American,’ and restricted access to US visas for Indian technology workers.

Countering that, however, is that Indian-US relations have continued to grow closer under the Trump administration, propelled by the perceived need for India to balance a rising China along with the US and Japan. Recent Chinese moves to invest and strengthen relationships with Sri Lanka, the Maldives, and Nepal have added to longstanding Indian concerns about Chinese ties to Pakistan. The geopolitical pull of rising Chinese military power is a very strong force on both sides of the US-India relationship. It has led to a surge in US-India defense contracts – with India currently having $18 billion in defense sector trade with the US, and Russia falling well behind into second place. That geopolitical pull also will influence the US side. Japan and South Korea will halt purchases of Iranian crude entirely, but if there is a country with the geopolitical weight to get a waiver from the US for some level of reduced imports, it is India.

We will not know the outcome of the talks on this issue immediately after the meeting ends this week, as there is no way India will take a formal policy decision to comply, and there also is no way the Trump administration will telegraph a decision on the issuance of a waiver so far in advance of the deadline. What will be telling is the reaction next week from Indian refiners, which should come out in the press in due time, as well as the tanker loading schedule into the fall.

As outlined in previous notes, the US could tap its Strategic Petroleum Reserve (SPR) to temporarily offset the bullish price trend, but they will probably hold off and use that only as a last resort. If the market is knocking against $80 per barrel in early October, or above, that is the most likely time for President Trump to pull the trigger, for maximum effect on the 6 November midterm elections in the US.

India And Hong Kong Finalize Double Tax Avoidance Agreement After Years Of Negotiation

India and the Hong Kong Special Administrative Region (HKSAR) of China recently entered into a double tax avoidance agreement (DTAA). After years of negotiation, the bilateral DTAA was approved on November 10, 2017.

When it comes into force, the India-Hong Kong DTAA will hold important tax implications for international businesses operating in both countries. The agreement will also benefit trading companies that do not have a permanent presence in India but service to an India-based entity.

What is DTAA?

Non-resident Indians (NRIs) and foreign nationals doing business in India make profits in India as well as in other countries of operation. Such businesses often have to pay tax twice on the same source of earned income or profit in India.

As a general principle, international businesses in other countries are taxed on their territorial income, which is the income generated within the territory of that country. India, on the other hand, imposes a corporate income tax on the worldwide income of business enterprises that have a permanent presence in India. As a result, India-based multinational companies deriving income from other countries face double taxation on their earned income.

A DTAA creates a fair and certain tax environment for business activities carried out between two countries. It prevents international businesses from paying tax in the country where the income or profits are generated. Or, in some cases, it allows the country to deduct tax at source, and offers businesses a foreign tax credit to reflect that the tax has already been paid.

The methodology for double taxation avoidance, however, varies from country to country.

India’s DTAA with Hong Kong

India has over 86 DTAAs in force with various countries, which provide tax relief on transactions carried out between India and those countries. Each DTAA specifies the agreed rates of tax and the jurisdiction on the specified types of income involved.

The India-Hong Kong DTAA offers similar provisions. The DTAA will give protection against double taxation to over 1,500 Indian companies and businesses that have a presence in Hong Kong as well as to Hong Kong-based companies providing services in India. It will provide clarity to businesses regarding tax rates and tax jurisdictions, as they will now be taxed in only one of the signatory countries. This will allow investors to be more confident about their investment decisions.

Aside from tax relief, there are several other benefits that the India-Hong Kong DTAA will offer to the concerned businesses. These include:

  • Lower withholding tax (tax deducted at source or TDS) rates, which can be as high as 40 percent in the absence of a DTAA;
  • Lower dividend distribution tax (DDT), which is an additional tax levied on foreign investors besides the corporate income tax; and
  • In certain circumstances, credits for taxes paid on the double-taxed income that can be encashed at a later date.

Other details regarding the DTAA are yet to be announced.

Chris Devonshire-Elllis of Dezan Shira & Associates comments: “Hong Kong has a very well established Indian diaspora that has been there for decades and has much wealth and business influence within the territory. It is a very positive sign that the DTAA has been agreed as businesses in both India and Hong Kong have finally been given better financial incentives work together and increase trade and prosperity in both their respective areas”.


Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Why Italian Companies Are Investing In India’s Smart Cities And Second Tier Manufacturing Hubs

During the 2015 financial year (FY), Italian companies invested US$334.7 million into India. In the first half of the 2016FY – according to India’s Department of Industrial Policy and Promotion (DIPP) – Italian investments into India already reached US$319.6 million.

Indeed, cumulative Italian investment into India is set to reach US$2 billion by 2020.

Italian companies are taking notice of India’s manufacturing capabilities and growing domestic consumer market. Italian companies are investing in India’s urban growth: participating in India’s Smart Cities Initiative while utilizing the country’s burgeoning tier II cities as strategic manufacturing sites.

Foreign direct investment in India

Since 2014, India’s Prime Minister Narendra Modi has promoted India as an investment destination and global hub for manufacturing, design, and innovation.

India is streamlining bureaucracy and eliminating regulatory bottlenecks, appealing to foreign investors who are impressed with India’s rapid growth but weary of the country’s notorious red tape. In the last three years, the Indian government has eased 87 rules governing foreign direct investment (FDI) across 21 sectors including traditionally conservative sectors such as railway infrastructure and defense.

These reforms are paying off.

In the 2016FY India reported US$62.3 billion in FDI inflow – retaining its ‘crown’ as the top location for greenfield investment for the second consecutive year. In October, 2017, the World Bank ranked India at 100 in its Ease of Doing Business global rankings, a commendable improvement from its 130 ranking in 2016.

 Italian companies look to tier II cities

According to the Italian Embassy in India, there are approximately 600 Italian companies currently operating in the country. To put this figure in perspective, 1,500 German companies and 750 French companies are also active in India.

The highest FDI inflows from Italy to India sector wise include:

  • Automobile at 54 percent;
  • Services at 6 percent; and
  • Railways at 4 percent.

Traditionally, Italian companies have gravitated towards India’s major cities such as Delhi and Mumbai. But, with rapid urban growth, Italian manufacturers are identifying India’s growing tier II cities as strategic sites for doing business. These smaller cities offer competitive labor and real estate prices and are making dramatic improvements in connectivity and infrastructure.

For instance, Bonfiglioli, an Italian manufacturer of gearboxes and gear motors, will be investing US$13 million by February 2018 in order to expand their existing manufacturing plants near the southern city of Chennai as well as to establish a new facility in the western city of Pune.

Manufacturing in India’s tier II cities not only provides foreign companies with more direct access to India’s domestic market but serves as an export base to neighboring Asian countries.

‘Smart Cities’ offers new opportunities for Italian companies

During his recent diplomatic visit to India, Italian Prime Minister Paolo Gentiloni identified India’s ‘Smart City Mission’ as an important site for cooperation between the two nations. In 2014, the Indian government announced ambitious plans to transform 100 tier II and tier III cities into ‘Smart Cities’ by drastically improving connectivity and digitization, adequate housing, mobility, and waste management.

Italy currently has one of the highest number of ‘Smart Cites’ in Europe. As Gentiloni commented, Italian companies offer solutions in areas of urban rehabilitation, technological design, waste management, affordable housing, and energy management.

By investing in India’s planned urban growth, Italian companies are simultaneously improving their own opportunities in urban centers where they operate. Improving connectivity and infrastructure in tier II cities will increase the productivity of Italian manufactures while making their products more mobile.

As Indian cities continue to grow, Italian investors can both shape and harness this momentum – expanding their presence not just in India but in nearby Asian markets.

Urbanizing India an ideal investment destination

India is becoming an increasingly important investment destination for Italian companies. Italy’s government and private sector are working together to create deeper economic ties between the two nations. In April 2017, Italy’s largest business delegation to date visited India led by Ivan Scalfarotto, deputy minister for economic development.

Diplomatic visits and business delegations will only shine a brighter spotlight on India’s market potential. As investment into India’s urban growth continues, Italian companies will view India as a strategic manufacturing hub – providing competitive rates and direct access to growing markets.


Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

5 Indian Companies Set To Gain Most From Moody’s Rating Upgrade

Moody’s upgrades India

Global Credit Rating agency Moody’s upgraded India’s sovereign credit rating by one notch from Baa3, the lowest investment grade rating to Baa2 on November 17. Moody’s also changed its outlook on the country from stable to positive, sending out an optimistic note to foreign investors interested in the country. Further, the agency also upgraded India’s local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3. 

Following the announcement, Indian stock markets rallied and the currency appreciated. The benchmark Nifty Index gained 0.7% while the Bank Nifty hit record highs after a 1.1% surge. The rupee appreciated 0.9%. It also sent bond yields lower as a rating upgrade means further confidence in the government’s ability to service its debt obligations, thereby warranting low risks on sovereign bonds. Additionally, it also leads to a lower cost of borrowing for the government as well as Indian companies seeking funds from abroad at a time when interest rates in the domestic market remain high.

Companies to gain most

Export-oriented companies that need dollar-denominated debt stand to benefit most, as a higher credit rating would lead to favorable risk profile thereby lowering their cost of borrowings. Moody’s also upgraded long-term credit ratings of Export-Import Bank of India, HDFC Bank, Indian Railway Finance Corporation Limited (IRFC), SBI, BPCL, HPCL, Indian Oil , and Petronet LNG from Baa3 to Baa2.

Aashish Kamat of UBS India expects large-cap stocks like HDFC (HDB) and Reliance Industries and public sector banks like State Bank of India and Bank of Baroda to be the top beneficiaries from Moody’s rating upgrade. In a note to investors he stated, “There could be a direct 20 basis points to 50 basis points lowering in the overseas rate of borrowing for these companies.” In 2017 till date, these stocks have returned 52.3%, 69.7%, 36.1% and 20% respectively.

Kaku Nakhate, India country head, Bank of America believes the upgrade will give public sector enterprises, and banks a significant advantage to operate with lower interest rates. Further, it will also enable to the Indian government to borrow at cheaper interest rates to put their infrastructure related projects into action.

Ashish Vaidya, head of markets for India at DBS Bank expects Moody’s upgrade to drive flows to India’s bond markets. “A new set of investors may start participating in their bond sales particular after the rating upgrade,” he said.

“Top-rated Indian companies will be able to take advantage of the rating upgrade. These companies are likely to see marginal cost benefits when they will raise money from overseas markets.”

The biggest Indian companies by market cap are Reliance Industries, Tata Consultancy Services, HDFC Bank, ITC Limited and State Bank of India. These stocks have market caps of $91 billion, $79.8 billion, $72.7 billion, $48.4 billion and $44.9 billion respectively. In 2017 so far, these stocks have gained 69.7%, 16.7%, 52.3%, 8.4% and 36.1%.

ETFs offering exposure to India

Year to date, the MSCI India Index has surged 24.5% while the Indian benchmark Nifty 50 Index has gained 26%, outperforming most emerging markets.

Foreign investors seeking exposure in India could invest in country-focused ETFs that offer diversification through investment in a single US security. Alternatively, investors wanting direct exposure could consider ADRs of Indian companies.

Investors looking to make the most of the India growth wave through ETFs can consider the iShares MSCI India ETF (INDA), iShares India 50 ETF (INDY) and the PowerShares India Portfolio (PIN). YTD, these ETFs have returned 30.2%, 31.4%, and 30.7% respectively.



Demonetization In India: Masterstroke Or Gross Miscalculation?

Last year, India’s federal government led by Prime Minister Narendra Modi announced the demonetization of high value currency. This was a drastic economic measure introduced and implemented overnight, without any public consultation.

This year, November 8 marked the one year anniversary of the policy announcement: it was commemorated alternately as ‘Anti-Black Money Day’ by the federal government and a ‘Black Day’ by the political opposition.

One year on, the impact of demonetization continues to be felt across the Indian economy, as analysts attribute the slowdown of industrial activity, job losses, and lagging trade and commerce to its surprise implementation. Here we take stock of the policy’s genesis and its major outcomes.

Demonetization of Indian currency – Ground zero

On November 8, 2016, Modi announced live on national television that the existing banknotes of denominations – US$7.50 (Rs 500) and US$15.34 (Rs 1000) – would be invalidated as legal tender from the very next day.

He also announced that new banknotes of denominations – US$7.50 (Rs 500) and US$30.69 (Rs 2000) – would be issued in their place. Holders of demonetized currency would be given a limited window of time to make bank deposits or exchange their old currency for new from scheduled banks.

The abrupt announcement shook India, and the next eight weeks saw chaos as the entire country bore the full brunt of demonetization without key institutional buffers in place.

In order to appreciate the scale and impact of the decision, a few vital facts must be laid bare.

First, the demonetized currency accounted for 86 percent of Indian cash in circulation, and were the largest denominations of banknotes at the time.

Second, India’s economy and transaction behavior has historically dealt with and favored cash, both in rural and urban areas.

Third, the RBI was ill-equipped and slow to issue the quantum of new currency required in the first six weeks of demonetization; banks and ATMs were either unprepared or unable to meet the frantic demand for cash.

Further, in the weeks following demonetization, quantitative restrictions were imposed on a daily basis on the withdrawals allowed from ATMs and banks. In essence, the government restricted people from accessing their own hard earned money as cash in circulation had decreased.

Business as usual, across the length and breadth of the country, came to a grinding halt for months following demonetization. Employers were unable to pay daily wage workers, and were forced to retrench them en masse. In some cases, trade unions sued employers and writ petitions were filed against the federal government – challenging the constitutionality of the measure.

In extreme situations, patients died in hospitals due to shortage of cash to make payments; other fatalities were observed as people stood in long queues in banks and ATMs. At the same time, ATM machines were not properly calibrated in advance due to the secrecy around the decision, and were, consequently, unable to dispense the new currency in the initial weeks.

Eradicating black money: The promise and the price

Curiously, despite numerous discomforts, the majority of Indians adopted a rather submissive attitude towards demonetization. Instead, they supported what they perceived to be Modi’s bold initiative to curb black money, remove forged currency responsible for terrorist financing, and end corruption.

Barring a few short lived protests from the opposition, most people suffered in silence, in hopes that their sacrifices would expose those who held unaccounted wealth and rid India’s economy of its black monies. This faith was overwhelmingly used by Modi and his associates in their defense of the drastic and economically irrational move.

Essentially, Modi based the cash bust on a fundamentally flawed premise: that the chunk of black money in India was stashed away in the form of high value currency, and demonetization would render all black money worthless, in a single blow.

In recent weeks, the Reserve Bank of India (RBI) report that 99 percent of the country’s demonetized currency has returned to its coffers – exposes just how farcical the logic behind demonetization was. The RBI report  raises two inferences: either the amount of black money in the economy was grossly overestimated or those who held such wealth successfully evaded the consequences of demonetization by outwitting the government’s simplistic plan.

The latter appears to be more probable. It shows that demonetization was indeed poorly formulated and executed, and failed to achieve its primary objective – black money eradication. This could be because black money in India is usually stored in the form of immovable property and jewelry, making demonetization an entirely misguided exercise.

In addition, soon after the new currency printed by the RBI entered the market, rampant forgery followed. This showcased the inefficiency of demonetization in its failure to dismantle the structures and facilitators of corruption. Raids carried out across the country unearthed larges stashes of forged new currency. At the same time, the taxpayer’s money was heavily spent on printing of new banknotes even as the average person could only withdraw small amounts from ATMs and banks.

Meanwhile, demonetization was meant to be planned in absolute secrecy; only a handful of top government officials had prior knowledge. The government placed huge importance on the element of surprise, hoping to catch money launderers unawares. Yet, subsequent reports indicated that the news had spread through informal channels: those with political connections were forewarned months ahead, enabling them to convert their black money by purchasing high value assets and making discrete bank deposits.

Unintended outcomes of demonetization

Demonetization was replete with unintended consequences. Among these, were some positive ones, such as the timely interventions by digital payment apps like Paytm and Mobikwik. This somewhat eased the stress of a section of India’s smartphone enabled population.

Public-private partnership in the fintech sector also witnessed the integration of Google’s first ever India centric digital payment app ‘Google Tez’ with the federal government’s own app, BHIM (Bharat Interface for Money). Catalyzed by demonetization induced digitization, the fintech sector continues to flourish in India. The RBI recently allowed non-banking financial companies to operate peer to peer (P2P) lending platforms.

Bolstered by these upshots, the federal government became obsessed with digitizing India, and in the weeks after demonetization, introduced a number of reforms aiming to digitize tax, labor, and other key business compliances in line with Modi’s catchphrase – “less cash first, cashless society next”.

Another significant impact of demonetization has been financial inclusion. In the weeks following demonetization, tens of thousands of bank accounts had to be opened across the country by people who were previously outside of the banking and financial system, particularly in rural areas.

Today, the government hopes to enhance financial stability and accountability in the economy with its drive to link the Aadhaar number with all identification documentation. This is in addition to all bank accounts compulsorily linked to the Permanent Account Number (PAN) and Tax Account Deduction Number (TAN). Overall, these outcomes have widened the national tax base, providing a boost to public finance.

Nevertheless, even before India’s economy fully stabilized from the aftermath of demonetization, the Modi government introduced its landmark legislation: the Goods and Services Tax (GST). Since coming into effect on July 1, the GST system has run into an inordinate number of operational glitches due to improper planning and faulty administration. This has caused all manner of avoidable disruptions for business and traders, and sharpened monetary distress.

India is not the first country to have demonetized its currency. Several other economies have done the same thing for the same reasons. However, countries like New Zealand demonetized their currencies in a phased manner, and after prior consultation with stakeholders.

Regardless of the conclusion of demonetization, much of the distress in the Indian economy could have been avoided through the prior exchange of information among critical stakeholders. As facts stand, in August this year, India’s GDP growth fell to 5.7 percent from 7.9 percent, the same time last year. Finally, as shown by the RBI’s latest report, it is clear that the primary objective behind demonetization was ultimately a failure.

Nevertheless, despite the debacle of demonetization, one message rings loud and clear in India: the Modi government is serious in its stance against all forms of corruption, a departure from its predecessor government. Businesses in the country need to be conscious of their exposure to risks such as the under-reporting of assets, establishment of shell companies, lack of due diligence while negotiating new partnerships, or grey area tax practices.



Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

Make In India: Still Falling Short After Three Years

Make in India is the government’s flagship program to revitalize the country’s flaccid manufacturing sector. When it was launched in 2014, Make in India stole headlines across the world – Prime Minister Narendra Modi and his government would finally make manufacturing in India viable. The initiative would attract foreign investment to grow the manufacturing sector, and create jobs for those that need employment. Many India hands thought Make in India would help the economy realize breakout growth.

Wieden + Kennedy deserve a lot of credit – Make in India set the stage for the new government. The broad policy direction was everything that India’s economy seemingly needed: removing barriers to foreign investment, improving the ease of doing business, as well as encouraging the development of infrastructure and the workforce. But after three years, what has changed?

The government removed most FDI barriers, but shock (demonetization) and poorly implemented (GST) reforms have caused some foreign investors to feel uncertain about India. The Smart Cities and Skill India initiatives – designed to create modern infrastructure and up-skill the labor pool, respectively, are great ideas, but have become social media bait for online trolls.

In a more competitive policy environment, Make in India would likely have been deemed a failure. This government is still struggling with basic industrialization and mass employment when other governments – like China – are developing technology-driven industry. The now-in-opposition Congress party had set the bar very low by 2014, making Modi’s Make in India platform look like a godsend, but India now needs something more than a good public relations campaign.

Make in India: A bird’s eye view

Make in India can count relaxed FDI Norms, improved investor perception, and a surge in automotive and electronics manufacturing among its successes.

The government liberalized FDI policy by allowing automatic route for over 50 percent investment in 25 sectors including railways, defense, medical instruments, and telecom. Consequently, the FDI inflow grew by 20 percent in 2014-15 and 2015-16.

In 2016-17, the country attracted its highest ever FDI of US$60 billion. Significantly, the manufacturing sector saw a 38 percent increase in investment in 2016-17.

Major firms including General Motors, Apple, and Foxconn name-checked Make in India when announcing big ticket manufacturing projects in the country, while countries including Japan, South Korea, Sweden, and Germany have pledged larger investments and technical support to India. In the most recent example, the Japanese Prime Minister committed to investing across sectors – automotive manufacturingstartups, and infrastructure.

Manufacturing activity has certainly picked up in the country. Data published by DIPP in December 2016 shows that industrial activity rose by 29 percent during 2015-16 over the previous fiscal. Much of this growth is concentrated in three states – KarnatakaMadhya Pradesh, and Maharashtra, which were in any case already established manufacturing bases.

Ultimately, however, Make in India has not resolved all the issues that it set out to do.

India’s manufacturing and transport infrastructure is also severely inadequate to enable businesses to conduct their operations smoothly. The government has initiated six major industrial corridors, dedicated railway freight corridors, and port development projects, but none of them are operational – optimists project 2019 as possible.

FDI inflows show that much of the funds are diverted towards stressed assets or brownfield projects. In 2015, nearly 23 percent of the total FDI inflow were invested in brownfield projects, increasing to 48 percent in 2016. Indeed, several global companies including US-based JC Flower and Apollo Global Management; Canadian fund Brookfield Asset Management; and, China’s Shanghai Fosun Pharmaceutical have set up joint ventures in India to buy up stressed assets.

India’s rank in the World Bank’s Ease of Doing Business has risen, but not many businesspeople will say that business in India has gotten any easier. As an example, there has also been a spurt in the number of stalled economic activities since September 2016. Economic projects – including in the infrastructure, manufacturing, and services sectors – are often stalled due to lack of government clearances, funds, raw materials, and other resources.

As of September 2017, the value of stalled projects stood at US$204.26 billion (Rs 13.22 trillion). In percentage terms, about 13 percent of all projects have been stalled, two-thirds of which are in the private sector. In the manufacturing sector, the stalled projects constitute about 25 percent of all activities in the sector. This trend has disturbed prospective investors, and resulted in a significant drop in the number of new projects announced this year.

Sudden, and at times contradicting, policy measures by the government is affecting businesses’ ability to plan their processes in advance. For instance, frequent changes in the GST rules is causing an environment of confusion and uncertainty in the economy. In another recent example, the luxury auto industry was blindsided by the government when the maximum levy was almost doubled, immediately after GST rates were set. Last year’s demonetization exercise also crippled manufacturing supply chains, leading to reduced industrial and shrinking retail activity.

Make in India overlooks broader manufacturing transformation

Make in India has had a patchy, and rather subdued, impact on the Indian economy so far. While the initiative succeeded in creating new interest for investing in India, it has not been able to transform it into any significant rise in manufacturing activity. In fact, recent economic shocks delivered by a poorly implemented demonetization and GST have dampened investor sentiment, neutralizing Make in India’s impact.

Further, the global value chains that ushered in manufacturing hubs in East Asia are now rapidly transforming. Businesses no longer rely on cheap labor for production purposes, but are instead adopting technologies such as 3D printing and smart automation. The technology-driven ‘fourth industrial revolution’ or Industry 4.0 is changing the fundamentals of manufacturing processes. World over, major manufacturing giants are rapidly adopting robotics in industrial units. Robotics in Chinese manufacturing units, for example, is likely to grow by 150 percent in 2018.

Recent political developments have also increased protectionism in Western economies, which were traditionally the destination for goods made in East Asia. Export-dependent manufacturing may no longer be a viable economic model for emerging economies to emulate.

India must quickly adapt its policies to reflect the changing nature of the industry. The government is already revamping the National Manufacturing Policy, and revising Make in India to accommodate these changes. It is seeking to modernize its digital infrastructure to support the new era of manufacturing. But is it too little, too late?

The country cannot rely on big-ticket industrial units alone to transform into a manufacturing hub. It must create a positive environment for small and micro businesses to function and grow in. Policies for these businesses must include flexible credit instruments, good industrial linkages, relaxed labor norms, and provision of some managerial assistance for scaling up businesses.

Until the government develops the political willpower to take up these challenges, the burden will remain on the private sector to find trusted partners on the ground in India.


Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

How to Buy Into India’s Tech and Internet Boom with ETFs?

The Indian stock market has delivered strong returns to investors in YTD 2017 with the MSCI India index up 31.5% until the end of October, and local benchmark indices S&P BSE Sensex and NSE Nifty 50 having touched record high levels.

Though financials have long dominated Indian stock markets, technology stocks have been making their presence felt of late.

There are 11 India-focused equity exchange-traded products available on US exchanges. Among these, one is a leveraged ETF (INDL), one is an exchange-traded note (INP), and two don’t invest in the tech sector (INCO) (INXX) due to their investment objective.

The remaining seven maintain exposures to the information technology sector (GICS classification) according to the graph below.

Including the internet boom

Some of the ETFs in the graph above provide exposure to blue-chip Indian tech companies such as Infosys (INFY) and Wipro (WIT). However, with the internet boom that India is undergoing due to new entrant Reliance Jio, it would be in investors’ interest to consider investing in the telecom services sector along with the tech sector.

When combined, the following three ETFs provide the highest exposure to the exciting telecom and IT sectors combined:

PowerShares India Portfolio (PIN): The fund tracks the Indus India Index which is comprised of 50 stocks. The information technology and telecom services sectors form a combined 18.7% of the fund’s portfolio.

Apart from INFY and WIT, the fund provides exposure to stocks of Tata Consultancy Services (532540.BO) and HCL Technologies (532281.BO) in the tech space; and Bharti Airtel (BHARTIARTL.NS) and Idea Cellular (IDEA.NS) in the telecom services space.

The fund has an expense ratio of 0.8% and has returned 33.8% in YTD 2017.

WisdomTree India Earnings Fund (EPI): The underlying benchmark of the fund is the WisdomTree India Earnings Index and is one of only three India-focused ETFs with over $1 billion in assets ($1.8 billion). The information technology and telecom services sectors form a combined 17.5% of the fund’s portfolio.

Its holdings from the tech sector include INFY and HCL Technologies along with smaller companies like Mindtree (MINDTREE.NS) and MphasiS (MPHASIS.NS). Meanwhile, its top two holdings from the four in the telecom services sector are Bharti Airtel and Bharti Infratel (INFRATEL.NS).

The fund has an expense ratio of 0.84% and has returned 34% in YTD 2017.

iShares MSCI India ETF (INDA): The fund is by far the largest US-listed ETF with assets of $5.3 billion. The information technology and telecom services sectors combined form a little over 16% of the fund’s assets.

It provides exposure to the four biggest names in India’s tech space – INFY, WIT, HCL Technologies, and Tata Consultancy Services. In telecom services, the fund is invested in Bharti Airtel and Idea Cellular. On the software side of telecom (as classified by the fund house), it has exposure to Tech Mahindra (TECHM.NS).

The fund tracks the MSCI India Total Return Index, is invested across 78 stocks, has an expense ratio of 0.71% and has returned 31.1% in YTD 2017.

The iShares India 50 ETF (INDY) is a distant fourth among these ETFs with a combined exposure to information technology and telecom services sector of about 13%.

INXX, VanEck Vectors India Small-Cap Index ETF (SCIF), and Columbia India Small Cap ETF (SCIN) are funds which have a tenth of their portfolio invested in the tech and telecom services sectors combined. However, while the entire 13% exposure of the INXX is towards telecom, the SCIF and SCIN, due to their investment objective, are not invested in blue-chip stocks from either of the sectors. KPIT Technologies (KPIT.NS) and NIIT Technologies (NIITTECH.NS) are among the chief holdings of SCIF and SCIN from the tech sector.

Though the SCIF has returned an impressive 52.7% in YTD 2017 and the SCIN has risen 51.9% in the same period, investors should be careful while investing in these and similar funds due to their focus on the relatively volatile small-cap investment universe.

Massive Data Breaches In India Leave Many Companies Vulnerable To Cyber-Attacks

India’s digital infrastructure, user base, and accessibility are rapidly improving. However, proper cyber security measures have yet to keep up with India’s digital push – leaving many companies vulnerable to cyber-attacks.

According to the Ministry of Electronics and Information Technology, India witnessed over 27,000 cyber security threats in the first half of 2017. These threats include ransomware attacks, website intrusions or defacement, phishing attacks, and data breaches.

Foreign businesses entering the Indian market should be aware of the increasingly commonplace nature of cyber-attacks in the country, and craft proactive measures to anticipate and respond to these threats.

Government’s cyber vulnerabilities affect private sector in IRNN hack

A recent report by Seqrite Intelligence Labs, the enterprise security solutions brand of Quick Heal Technologies, disclosed an advertisement they discovered on the Darknet (a small portion of the internet hidden from search engines). The advertisement announced secret access to the servers and databases of over 6,000 Indian organizations – including internet service providers (ISPs) as well as public and private sector organizations. The hacker offered this information for 15 bitcoin (equivalent to approximately USD$73,000). The hacker subsequently offered to execute further cyber-attacks against the listed companies for an undisclosed price.

Seqrite Cyber Intelligence Labs, along with its partner seQtree InfoServices, called it one of the biggest breaches affecting Indian organizations. Seqrite and seQtree reported that the Indian Registry for Internet Names and Numbers (IRINN), which comes under the National Internet Exchange of India, was the organization that hackers had compromised.

After discovering the advertisement, Seqrite and seQtree teams started gathering background research on the hacker but were unable to identify the perpetrator. The research team then contacted the hacker for further details, posing as an interested buyer. The hacker shared a sample of their stolen data, which included an email address of a prominent Indian technology firm and information linked back to the Indian government.

According to Seqrite Intelligence Labs, this hacker may have the capacity to create serious service outages in India. The entities affected by the data breach include the Bombay Stock Exchange, the Reserve Bank of India, the Indian Space Research Organization, Wipro, Mastercard, Visa, Hathaway, IDBI Bank, and Ernst & Young.

According to researchers, the seller claims to have the ability to tamper the IP allocation pool, which could result in a serious outage or distributed denial of service (DDoS) condition.

Recent cyber threats in India

In May 2017, the WannaCry ransomware attack disrupted operations at hospitals, telecommunication firms, and several other sectors worldwide. The ransomware required only one computer in the entire network to be affected. Once the malware was installed it quickly spread to the entire network – locking out all users. The perpetrators behind WannaCry demanded ransom money in the form of bitcoin to unlock their system.

India was the third worst affected country by the WannaCry ransomware attacks. Major urban centers to be targeted included Bengaluru, Chennai, Hyderabad, and Mumbai. ATMs in India are particularly vulnerable to cyber-attacks as they often rely on retrograde versions of Microsoft, which are easy for hackers to infiltrate.

According to the Indian Computer Emergency Response Team (CERT-In), almost 11,000 networks in India were victims of probe-scanning between March 2016 and May 2017. Probing and scanning are usually the initial steps used by a hacker to monitor a system before the malware or ransomware is installed on the network.

On June 28, 2017, the Petya global cyber-attack disrupted cyber services in Russia, Ukraine, India, and Australia. India’s largest port, Jawaharlal Nehru Port Trust (JNPT), near Mumbai, had to be temporarily shut down as a result of the attack; the virus affected computers running Microsoft software for the second time after the WannaCry attack.

While all countries are vulnerable to cyber-threats, hackers are taking notice of India’s growing prosperity and weak cyber security infrastructure, making the country an easy target for cyber-attacks.

Is India equipped to tackle cyber breaches?

After the recent Wannacry and Petya attacks, Ravi Shankar Prasad, the Information Technology Minister of India, claimed that cyber-attacks against India were at a minimum. However, cyber security experts believe that the data breach targeting over 6,000 companies confirms the credibility of cyber security risks in the country.

The recent attacks have shown that aggressive hackers from across the globe are capable of shutting down critical government and corporate infrastructure. Worse, hackers can use government websites – which often lack critical cyber-security infrastructure – to access private business’ information.

India was ranked the fifth most vulnerable country for cyber breaches in 2016 by Symantec’s Internet Cyber Security Threat Report of 2017. Cyber-attack cases in India are usually under-reported because people tend to rely on software to protect them from a breach, rather than cyber security agencies. Moreover, unlike the U.S., India has no legal requirement to report the incident, nor is there a legal obligation to let victims know that their data has been compromised.

How foreign businesses can protect themselves in India

The Indian government remains reluctant to acknowledge both its own vulnerabilities to cyber-attacks and the country’s appeal to hackers. Foreign companies doing business in India must safeguard their data with robust and well-maintained cyber security infrastructure. Otherwise, the promise of Digital India can be eclipsed by hackers, ransomware, and data breaches.

Foreign companies entering the Indian market should consider cyber security an increasingly important requisite for success. When approaching cyber security, businesses should consider the following:

  • Risk analysis: In order to build a strong defense, an organization needs to identify its weak points and usual entry spots for hackers. An in-depth understanding of the risks involved help in the implementation of strong hardware, office, and internet security policies by the organization.
  • Regular software and hardware updates: The organization needs to invest in a reputed software solution that offers frequent anti-virus updates. Moreover, all employees have to be trained to install updates on real time basis. The main servers should always have the latest versions of firewall and anti-virus systems. This will significantly reduce the feasibility of any cyber-attack.
  • Cloud-storage: Decentralizing data storage substantially reduces its vulnerability. Leading cloud storage providers ensure advanced cyber security measures, thereby ensuring that all crucial information has multiple layers of protection.
  • Data encryption: Encryption safeguards for company information on hard drives prevent unauthorized access.
  • IT support: Organizations can consider building an in-house IT support department or outsourcing it to established service providers. This will enable the enterprise to design a robust defense system that both protects the business and ensures its continuity.


Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

This Insurer Just Became India’s Second-Largest IPO Ever: Here Are 4 Other Competitors To Buy

India’s second largest IPO

State-owned Indian re-insurer General Insurance Corporation of India Ltd’s (GICRE.NS) recently raised $1.8 billion in a public issue, making it the second-largest IPO in India’s history. The largest IPO in India remains state-owned Coal India Ltd’s $3.4 billion (Rs15,200 crore) share sale in 2010.The government will offload 12.2% stake in General Insurance Corporation of India Ltd through 100.8 million shares while the company will sell another 10.7 million shares to improve its capital base. The company will offer a total of 14.2% of its post-issue share capital, or 124.7 million shares. Citi, Axis Capital, Deutsche Bank, HSBC and Kotak Investment Banking are the book-runners for the offer.

GIC has fixed a price band of Rs 855-912 per share for the issue, valuing it at $11.75 billion to $12.3 billion (Rs75,000-80,000 crore). The IPO was subscribed 1.37 times by retail investors. The portion reserved for institutional investors was 2.25x subscribed.

Analysts are bullish on GIC in the long-term based upon the company’s solid fundamentals and fair valuations. At the upper price band of Rs 912 the stock is available at a P/E of 24.9x based on FY17 EPS of Rs 36.52. Indian brokerage firm Prabhudas Lilladher believes that the GIC’s price band of Rs885-912 per share implies a valuation of 25.7-27.4 times based on its March 2017 EPS of Rs 36.52 which it believes is a fair price.

In terms of gross premiums, GIC is the largest reinsurance provider in India, offering its products in key areas like fire (property), marine, motor, engineering, agriculture, aviation, health, liability, credit and financial liability, and life insurance. The company accounted for 60% of premiums earned by Indian insurers in FY2017 according to CRISIL.Between FY15-FY17, the company’s gross premium (GWP) grew at a CAGR of 48.6%. In FY 17, the company reported GWPs of $5.2 billion (Rs 337,407.91 million) and a combined ratio of 100.2%.

Insurance stocks to consider

Year-to-date, the MSCI Insurance Index has surged 16% while the MSCI India Index has gained 23%. The iShares MSCI India ETF (INDA) invests 22% of its portfolio in Indian Financial stocks. For 2017 year-to-date, this ETF has returned 29%. Comparatively, the MSCI India Financials Index has returned 30% during the same period.

The largest Insurance stocks in India by market capitalization are Bajaj Finserv, SBI Life Insurance, ICICI Prudential Life Insurance and ICICI Lombard General Insurance. Currently, these stocks have market caps of $12.9 billion, $10.4 billion, $8.7 billion and $5 billion respectively.

Year-to-date, shares of these companies have returned 74%, -6.3%, 29% and -0.2% respectively.

Bajaj Finserv

Bajaj Finserv, is an India-based financial services company engaged in lending, asset management, wealth management and insurance products. The company is also involved in wind power generation.

Bajaj Finserv operates through joint ventures and subsidiaries and has established a nationwide presence across more than 1,400 locations in India.

Currently, it provides life insurance and general insurance products through its joint venture Bajaj Allianz. In FY17, the company was the second largest private general insurer in terms of GWPs, and is among the top 5 private life insurance providers in the country.

In FY17, Bajaj Finserv reported revenues of $3.7 billion and gross written premiums of $951 million in its life insurance business and $1.2 billion in its general insurance business. The company’s general insurance segment reported a combined ratio of 96.8%.

Shares of Bajaj Finserv are listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchanges with tickers BAJAJFINSV.NSE and BAJAJFINSV.BO respectively. Year-to-date, shares of the company have returned 74%, outperforming the Indian benchmark index Nifty (NSEI). Comparatively, the Nifty Index has gained 26% in value in 2017 so far.

SBI Life insurance

SBI Life Insurance is a joint venture between India’s largest state-owned bank State Bank of India and French multinational bank BNP Paribas. SBI owns a 70.1% stake in SBI Life Insurance while BNP Paribas Cardiff owns 26% stake. Other investors Value Line Pte. Ltd. and MacRitchie Investments Pte. Ltd., hold a 1.95% stake each.

SBI Life Insurance is a leading private life insurance provider in India. The Company’s individual plans include unit-linked plans, child plans, retirement plans, protection plans and savings plans. Its group plans include Corporate Solutions, Group Loan Protection Products and Group Micro Insurance Plans.

In FY17, SBI Life Insurance reported revenues of $158 million and gross written premiums of $3.2 billion. The company added 1.28 million new policies during the financial year.

Shares of SBI Life Insurance are listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchanges with tickers SBILIFE.NS and SBILIFE.BO respectively. Year-to-date, shares of the company have returned -6.3%, underperforming its peers and the Indian benchmark index Nifty (NSEI). Comparatively, the Nifty Index has gained 26% in value in 2017 so far.

ICICI Prudential

ICICI Prudential Life Insurance provides life insurance in India. The company was formed in 2000 as a result of a joint venture between India-based ICICI Bank and UK-based financial services group Prudential PLC. ICICI Bank Ltd. and Prudential hold stakes of 68% and 32% respectively in the company. ICICI Prudential was among the first private sector insurance providers to receive approval from the Insurance Regulatory and Development Authority of India to operate in India. ICICI Prudential Life was the first private life insurer to attain assets under management of Rs 1 trillion and in-force sum assured of over Rs 3 trillion.

In FY17, ICICI Prudential Life Insurance reported revenues of $5.8 billion and gross written premiums of $3.3 billion.

ICICI Prudential Life was the first insurance company in India to be listed on NSE and BSE. The company’s shares have been listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchanges since 2016 with tickers ICICIPRULI.NS and ICICIPRULI.BO respectively. Year-to-date, shares of the company have returned 29%, outperforming its peers and the Indian benchmark index Nifty (NSEI). Comparatively, the Nifty Index has gained 26% in value in 2017 so far.

ICICI Lombard General Insurance Company

ICICI Lombard General Insurance Company Limited is one of the leading private sector general insurance companies in India. Formed in 2001, ICICI Lombard General Insurance Company is a joint-venture between India’s second largest bank, ICICI Bank, and the Canadian financial services company, Fairfax Financial Holdings Limited.  ICICI bank has a 64% stake, while Fairfax holds 35% of ICICI Lombard General Insurance. It is currently the largest private sector general insurance company in India with 249 branches spread across the country.

In FY16, ICICI Lombard reported gross written premiums of $14.9 billion and a combined ratio of 106.2%.

ICICI Lombard’s shares are listed on both the National Stock Exchange of India (NSE) and the Bombay Stock Exchanges since September 2017 with tickers ICICIGI.NS and ICICIGI.BO respectively. Since their listing, shares of the company have returned -0.2%.

Modi’s BJP Now Has Power To Push Major Structural Reform, But Are They Bold Enough?

Since Narendra Modi became Prime Minister in 2014 the BJP has rapidly consolidated power, taking control of key positions and states. This power, which is only expected to increase, gives him the ability to enact substantial reforms. Whether he will make the necessary structural reforms or not, however, is another question.

The Bharatiya Janata Party (BJP) has rapidly cemented its position as the unrivalled leader of Indian politics. Pushing forward on a platform that combines reform and Hindu nationalism the BJP, with Prime Minister Narendra Modi at its head, has made massive gains across India, beating back the Congress Party, its rival, at nearly every turn.

Big tax reforms

Modi’s power and popularity have made significant reforms possible, the biggest of which is perhaps the passing and implementation of the Goods and Services Tax (GST), akin to a value-added tax. The GST was designed to simplify and unite India’s tax system – eliminating complex tax rates established on a state by state basis and replacing it with a pan-Indian tax scheme that would allow India to operate as a single market.

Modi hasn’t been entirely successful, however. The end result of the GST, a complex multi-banded system far from the single tax rate envisioned by businesses, may be indicative of his political limitations. And in many cases, Modi has called on states to implement reforms themselves and make states more attractive for business investment. But as the BJP widens the breadth of its control there will be fewer excuses for not putting forth powerful reform.

Significant electoral victories

The BJP’s most recent rise began in 2014 with its general election win led by Modi. Since then it has held its momentum and cemented its gains in state legislatures and in key positions in the federal government. In 2014 the BJP and the coalition it leads, the National Democratic Alliance (NDA), held only six states. Today they control 18.

Two of the most significant victories made by the BJP were their wins in Uttar Pradesh, often referred to as UP, and Bihar. In UP the BJP won the state legislature in a landslide victory, claiming 325 seats out of 403. The victory is significant because UP is the largest of the Indian states with a population of more than 200 million people. This victory will translate into greater power in the Upper House of India’s parliament which is elected by state legislatures.

The second victory was not made at the ballot box but instead took form when the chief minister of Bihar, Nitish Kumar, abandoned the coalition formed to defeat the BJP in favour of the NDA, the BJP-led coalition. These two victories represent the growing popularity and power of the BJP across Indian state legislatures – a crucial factor for implementing change in a largely federalist system.

The BJP has also managed to win key federal positions. On 25 July the BJP candidate, Ram Nath Kovind, was inaugurated as president and on 6 August Venkaiah Naidu, also a BJP candidate, won the election for vice president and will be inaugurated on 11 August. Although the office of the president is largely symbolic it does have critical powers such as the ability to dissolve the Lower House of Parliament and return a bill passed by parliament.

Control of numerous state legislatures, the Lower House of Parliament, and India’s three highest political positions gives the BJP both the power and the mandate to implement sorely needed reforms. It is possible that by 2019 or 2020 the NDA will have a majority in the Upper House, thus eliminating the final excuse for inaction.

What will Modi do with his newfound power?

India’s large youth population (more than half of its population is under the age of 25) will mean that reforms will be essential for providing the necessary job growth. Loosening labor regulation and liberalizing land and capital would certainly help. For example, in most states, firms in certain industries employing more than 100 workers must seek government permission before downsizing, creating a strong incentive for firms to stay small. Making the reforms, however, would require Modi to face down a number of vested interests.

With general elections coming up in 2019, Modi may be hesitant to implement any reforms that cause damage in the short run. But the more power the BJP has, the more it will be held to account to use it effectively.

Peter Hays is an Analyst at Global Risk Insights. Article as appears on Global Risk Insights:

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.

India’s Biometric Identification Programme Sparks Loss Of Privacy Concerns

India’s biometric identification programme, known as Aadhaar, has gone from an optional program to a mandatory one, and is collecting more data than ever expected. In light of private information being published by government sources and lack of clarity on a number of fundamental issues, many are concerned about the security of the program and associated loss of privacy.

The World’s Largest Biometric Database

Over the last seven years India has been building up the world’s largest biometric database. 1.17 billion people, nearly 90% of India’s population, have been registered in the Aadhaar database. By linking individuals to their biometric details, India has provided a form of identification for rural Indians, making it easier for them to register for bank accounts, get a driver’s license, or receive government subsidies. Registered users need only scan a fingerprint or retina to confirm their identity and access government or even private services. That is at least how the scheme was supposed to work – a voluntary system which would improve the livelihood of rural Indians.

Since its inception the scope of Aadhaar has expanded massively – it has become a de facto requirement for participating in even the simplest aspects of daily life. It began as a facilitating tool for certain activities, such as setting up a bank account, and is now mandatory as a form of identification. In June, the government made it mandatory for banks to link their customers’ Aadhaar information with their bank accounts. Any accounts not linked by the 31st December 2017 will be shut down until the account has been linked. SIM cards will also have to be linked to Aadhar by February 2018 or else be deactivated.

Each extension in the scope of the project is explained as boosting efficiency or combating criminality. The government claims that by linking bank accounts to Aadhaar it will be able to prevent money laundering and tax evasion since it will be able to tie every transaction to an individual and every individual to their transactions. By linking SIM cards to Aadhaar, the system would further be able to prevent criminals and terrorists from using unverified mobile phones (the government has yet to come up with a plan for verifying pre-paid mobile phone users who make up 90% of total users).

Private Data Made Public

The expansion of Aadhaar’s scope is alarming to many, however. Critics claim that the government is invading the privacy of citizens, and/or failing to adequately protect their data. Under Aadhaar, data from nearly every aspect daily life is aggregated and can in theory be analysed to build a comprehensive profile of Indian citizens. Adding to the concern is the fact that the data is largely managed by private firms and certain parts of it can be accessed for businesses purposes.

The system  seeks to be embedded in nearly every aspect of life, but it is not yet clear that the data is sufficiently protected, or that citizens have a method of recourse if data is leaked. There have already been several instances in which personally identifiable information (PII) has been published by government sources. Online portals managed by the National Social Assistance Programme and the National Rural Employment Guarantee Act, both part of the Ministry of Rural Development, published databases containing PII including names, Aadhaar numbers and bank account numbers among other things. Two government portals of the state of Andhra Pradesh also published a collection of PII. The total number of Aadhaar numbers published by these four portals is estimated to be between 130-135 million.

The issue in these cases was not just that data was leaked, but rather that it was being published online in easily accessible and usable forms. The problem therefore pertains to the lack of regulation or standardization across the various governmental departments that manage Aadhaar data. The variety and number of government departments managing Aadhaar data complicates matters, but in a program as far-reaching as Aadhaar a greater degree of forethought in regards to managing and protecting data is expected.

A published Aadhaar number or bank account number is not a risk in itself, but it does have the potential to make identity fraud or social engineering much easier to commit. Though not associated with any tangible loss, there is a clear erosion of privacy – personal data can be used by either the government or private firms to understand habits, preferences, and perhaps risk profiles of individual Indian citizens.

The government has taken down the aforementioned Aadhaar data and sought to clarify the ways that Aadhaar is protected. But the belated management of critical security concerns and procedures is troublesome. Many other important questions are likely to arise such as “what happens to individuals whose Aadhaar accounts are compromised?”

The Future of Biometric Identification

Aadhaar undoubtedly has its benefits. It would certainly make the delivery of benefits and services to Indian citizens more efficient. It also has the potential to reduce corruption and tax evasion. But the loss of privacy is equally great and it remains unclear as to whether the data will be sufficiently protected.

More transparent rules and better enforcement mechanisms will certainly help but fundamental questions have yet to be answered. India’s Supreme Court recently ruled that Indian citizens have a fundamental right to privacy – but it is not clear precisely what those rights entail. The government itself has published Aadhaar data – but are there procedures for holding it accountable? Can private businesses be held accountable if they publish data, or if they fail to sufficiently protect that data?

Other countries are now looking to India for guidance on implementing their own Aadhaar style systems. Singapore and Bangladesh have biometric identification programs but have not yet expanded their scope to the degree that India has. How Aadhaar performs and the precedents it sets are likely to guide future biometric systems.


Peter Hays is an Analyst at Global Risk Insights. Article as appears on Global Risk Insights:

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.