Miscellaneous

1.         Further Liberalization of ECB Policy

Given
the ailments afflicting the civil aviation sector in India, the Reserve Bank of
India (RBI) has allowed
external commercial borrowings (ECBs) in that sector even where the end-use of
funds is for working capital requirements. This is permissible under the
approval route, and is subject to several conditions stipulated by the RBI.

Earlier,
the RBI also announced
relaxations in the ECB regulations governing certain infrastructure sectors
such as power and toll roads and highways.

2.         Tax Treaties: Mauritius vs. Singapore

This report
in the Economic Times suggests that Singapore is becoming an
increasingly attractive option for investment funds focusing on India, and that
the importance of Mauritius is likely to wane in the future. India’s tax
treaties with both Singapore and Mauritius provide substantially the same
benefits as far as taxation with respect to Indian investments are concerned.
While the advantage of Singapore is that it is an established financial centre
with substantial presence requirements for investors, Mauritius has a
first-mover advantage and the availability of treaty benefits has been tried
and tested successfully before the Indian courts, including in the form of the Azadi
Bachao Andolan case ([2003] 132 Taxman 373 (SC)).

3.         Breakout Nations

In the last decade or so, India has enjoyed the branding
of an “emerging market” and has also been an integral part of the “BRIC” nations. However, a new
book seeks to demystify some of these notions and
challenges the continued relevance of these labels and branding. The book, Breakout
Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma, has
been reviewed in the
Economist, with the following being some extracts from the review:

“EMERGING markets” is a useful term precisely because it
is imprecise. Coined for the convenience of investors looking for somewhere
exciting to put their money, it covers a bewildering range of economies with
little in common, except that they are not too rich, not too poor and not too
closed to foreign capital.

The invention of “emerging markets” as an asset class
required the invention of experts to manage those assets; experts who could
discourse confidently about places as far apart as South Korea and South
Africa. It might seem impossible to say anything coherent about such an
eclectic mix of places. But in fact emerging markets have shadowed each other
surprisingly closely in recent years, as Ruchir Sharma of Morgan Stanley points
out in his new book, “Breakout Nations”.

Mr Sharma argues that emerging-market funds have lost
sight of local idiosyncrasies in their fixation with global macroeconomic
forces. Because of this “macro mania”, funds make “little or no distinction
between Poland and Peru, India and Indonesia”, which he suggests further
synchronises these markets. Emerging markets may have little in common except
the funds created to invest in them, but that in itself creates a powerful
affinity between them. The term “emerging markets” has helped to create the
world it named.

The review concludes with the following observations:

Mr Sharma does not believe the shared success of emerging
economies can continue. Some countries will break out from the pack, others
will disappoint. The very concept of emerging markets may lose its appeal, he
writes, as investors discover they need to distinguish between them: “These
economies are now too big to be lumped into one marginal class, and are better
understood as individual nations.” …