Needless to say, it is the crucial time for India in order project itself as a developed economy in future. Theory says, the commendable GDP growth that is being witnessed is the following of the precedence set by many developed economies during their past. But still investors are made to think many a times due to highly volatile policy environment.
An investor gets attracted to the SEZ (Special Economic Zone) model that is put on the table by Indian Government to encourage FDI, establish a unit and start operations. Before establishment, the financial projections done by the company takes into account, the prevailing tax laws and other parameters. Hoping fewer changes in policies and amendments, things begin. But it is only in a country like India (Out of all developing economies), amendments and bills can be grossly beyond the expected volatility in policy environment.
The recent financial bill and Direct Tax Code 2010 (DTC 2010) both support levying huge MAT (Minimum Alternate Tax) upon SEZ companies. This dilutes the very purpose of tax holiday and encouragement of FDIs, projecting India as a country with more “Country Risk” (POLICY RISK to be precise) as important policies keep on changing very frequently.
Media quote 2011 as year of financial reforms in the country. It would have been much better if things are in place by now. Hope the silver rain of high growth sustains till the time stable Acts like DTC, GST (Goods and Service Tax) come in place. And again let world not say..”Indians are always late” …
PS: High volatility in policies, bills, acts might not exactly come under country risk, but there is no word in semantics to describe this risk precisely. And here we coined a term “Policy Risk”.
Policy Risk: Risk due to frequent grossly unexpected changes in policies, bill and acts that affect the business.
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