January 25, 2022, Delhi: The US-India Strategic Partnership Forum (USISPF) has released its recommendations and key policy issues for the 2022 Union Budget to be presented on February 1st by the Honorable Finance Minister, Ms. Nirmala Sitharaman. USISPF, a key bilateral association, headquartered in Washington, D.C. representing leading Fortune 500 companies, focused on several key policy recommendations related to tax and insurance with a focus to ease the regulatory environment and enable more foreign direct investments (FDI) coming into the country.
These measures seek to improve the efficiency and reach of the financial sector, the lifeblood of any successful economy. USISPF strongly endorses the government’s current efforts to strengthen the lending sector, support start-ups, and develop the International Financial Services Centres (IFSC). Similarly, we recommend urgent action to address the distortions and inefficiencies arising out of regulatory mandates in the banking sector. Our recommendations are as follows:
Promote Digital Payments
Budget 2022 should take specific steps to make it easier for customers and merchants to use digital solutions, including developing inter-operable QR codes, digitizing business to business (B2B) payments, ensuring the National Common Mobility Card (NCMC) is interoperable with global EMV standards, and expanding the digital payments backbone to underserved areas of the country.
Improve Insurance Sector
To broaden and deepen the domestic insurance sector and provide safer, cheaper, and more comprehensive coverage for Indian citizens, reforms should include eliminating the cap on foreign direct investment in the sector, permitting commercial credit cards for settlement of cashless claims to healthcare service providers and allowing insurance companies to set the commissions they pay to agents. We also urge full transparency in the upcoming sale of shares in Life Insurance Corporation of India (LIC).
Access to Finance for MSMEs
To increase access to finance for medium, small, and micro-enterprises (MSMEs) in India, specific steps should be taken to promote supply-chain financing, including to subsidize the insurance of MSME loans, improve the assessment of MSME credit risk and loan disbursement, and facilitate faster settlement of claims between healthcare providers and insurers.
Promote Foreign Investment
Attracting foreign capital is an important component of the Government’s plan to accelerate the economic growth of India. To improve the ease of doing business for institutional investors, the process to register as Qualified Foreign Institutional Investor (QFII) should be streamlined, and the ability to adopt a single window clearance will enable smoother setting up of companies in India.
Foreign investors can provide the billions in additional insurance equity capital needed to meet higher goals for insurance penetration, but existing restrictions discourage new foreign investment and undermine the 2021 reforms. Should the 74% cap on FDI remain, the GOI should address other complications like the three-party joint venture necessitated by the 20% limit of bank ownership in insurers.
Since FDI is also dependent on ease of doing business and tax certainty. USISPF recommends a single window clearance for setting up companies that would integrate Centre and State requirements. The cumbersome process of acquiring multiple licenses from different bodies not only delays the timeline of setting up operations but reduces India’s attractiveness as an investment destination. India remains an outlier amongst emerging market countries in the time it takes to secure QFII approval. USISPF recommends that the 2022 Budget eases the process of QFII Registration to attract foreign capital and accelerate economic growth of the country.
Budget 2022 should try to bring in tax stability and continuity, crucial factors in attracting investors. A commitment to global tax norm will keep multinationals assured of tax certainty as they setup shop in India. Functional bottlenecks, ever-increasing TDS/TCS compliances, and a lack of clarity on overseas listings also impact ease of doing business.
USISPF suggests that reducing the holding period of REIT/InvIT to one year for long term capital gains and extending Concessional Long Term Capital Gain rate to invest in startups. Customs duty relaxations on imports, including COVID supplies, complete units of electric vehicles and certain telecom products, would encourage India’s competitiveness and domestic efficiency.
Healthcare Insurance Reforms
Reforms on statutory limitations on management expenses and commissions in the insurance sector will promote growth and investment in the health insurance industry through the deeper penetration of healthcare coverage that results from improved customer access to healthcare. Affordable health services have a dual benefit in not only enabling India’s growth into a $5 trillion economy but fortifying the capacity of all Indian citizens to withstand health crises, such including the ongoing pandemic.
We applaud the Government of India for its ongoing economic reforms and look forward to working with our member companies to transform the 2022 Budget into actionable results to build on the country’s growth development and long-term potential.
About the U.S.-India Strategic Partnership Forum (USISPF):
The US-India Strategic Partnership Forum (USISPF) is committed to creating the most powerful partnership between the United States and India. As the only independent not-for-profit institution dedicated to strengthening the U.S.-India partnership in Washington, D.C. and in New Delhi, USISPF is the trusted partner for businesses, non-profit organizations, the diaspora, and the governments of India and the United States.
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