The document discusses the impact of the Indian Union Budget 2015-16 on foreign portfolio investors and gold monetization schemes. Some key points: 1) The budget simplifies rules for foreign investment by removing the distinction between foreign institutional investors and foreign direct investment. This will help attract more foreign money. 2) Implementation of general anti-avoidance rules is postponed by two years, providing relief to foreign investors. 3) Foreign investment is allowed in alternative investment funds with tax passed through to investors rather than funds. 4) Clarity is provided on capital gains tax of indirect asset transfers located in India. 5) Gold monetization schemes like sovereign gold bonds and Indian gold coins are

1. TIRTHANKAR SUTRADHAR
INDIAN UNION BUDGET 2015-16
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TIRTHANKAR SUTRADHAR

2. TIRTHANKAR SUTRADHAR
INDIAN UNION BUDGET 2015-16
Impact of Union Budget 2015-16 on Foreign Portfolio Investors
Foreign investment is important for every country. Whether it is FDI or whether it is portfolio
investment, every country would make best efforts to draw as much foreign exchange as
possible.
For India, the past few years have seen a dramatic reduction in new investment coming
in from foreigners. Specifically, the FIIs (which are presently known as FPIs) have stayed far
from India insofar as new enlistments are concerned. One of the primary driver for this has
been the scaring tax laws that the past UPA government inflicted on everybody. Tax cases like
Vodafone, Shell & Nokia have battered India's reputation for being an investment destination
ue to unstable & irrational tax laws. In this foundation, when the NDA government came to
power with landslide majority in May 2014, there was significant elation amongst the capital
business players. It was by and large felt by all that India's image is in for a positive change
amongst foreign investors. The Budget that our Finance Minister Mr. Arun Jaitley introduced on
28th Feb 2015 was definitely anticipated by Indians as well as by outside foreign fund houses,
investors and tax experts. Everybody was holding up to see whether the business friendly Prime
Minister had the capacity put his unique stamp on the budget or not.
When Mr Jaitley finished his speech, the clear messages that came across were the
government is serious about assuring foreign investors that India is a good place to do business
in. Government proposes composite caps to streamline FDI regime. Portfolio and foreign direct
investments will be treated as one category and will have to comply with FDI norms. Following
are the key highlights of the Union budget 2015-16 on Foreign Portfolio Investors and the
impact of the budget upon the same:
A. First, the budget has further simplified the procedures for Indian corporate to attract
foreign investments. It has proposed to do away with the distinction between different
types of foreign investments, especially Foreign Institutional Investor (FII) that comes
under portfolio investments, and Foreign Direct Investment (FDI).
Impact: It will simplify the procedures for Indian companies to attract foreign investments.
The sectors which are already on a 100% automatic route would not be affected. Currently,
there are sectors where FDI and FII cap is clearly mentioned but on few others it was not.
The move would help in attracting foreign investments into the country.
During April-January period of the fiscal, FDI grew by 27% to $21.04 billion. Earlier, there
were confusions over the matter. This move seeks to do away with the different kinds of
overseas investment and bring about clarity in the norms and would also help in removing

3. TIRTHANKAR SUTRADHAR
ambiguity on application of sectoral caps, conditionalities and approval requirements in
different sectors.
B. Second, Jaitley has postponed the implementation of the General Anti-Avoidance Rules
(GAAR) by two years.
Impact: This will provide a respite for foreign investors who have been dreading
implementation of GAAR, which would empower the tax department to crack down on
entities that structure investments in such a way as to avoid paying tax
C. Third, Jaitley allowed foreign investments in alternative investment funds (AIFs) and a
tax pass-through on both Category-I and Category-AIFs
Impact: Tax will be levied on the investors in these funds and not on the funds per se. This
will help private equity (PE) investors mobilize more resources.
D. Lastly, the finance minister has also proposed to bring only those indirect transfer
transactions under the capital gains tax net where 50% of the value of all assets owned
and controlled are located in India. He has also stipulated that the value of such assets
should exceed Rs.10 crore.
Impact: This will provide clarity to foreign investors on the taxability of merger and
acquisition (M&A) transactions in India where shares are transferred outside India, though
the underlying asset is in India.
Impact of Union Budget 2015-16 on Gold Monetisation Scheme
India is one of the largest consumers of gold in the world and imports as much as 800-1,000
tonnes of gold each year. Though stocks of gold in India are estimated to be over 20,000
tonnes, mostly this gold is neither traded, nor monetised.
Gold imports in January has declined to 38 tonnes from 142 tonnes in April 2014. In 2012-
13, the country had imported 845 tonnes. Reduction in gold imports has brought down the
trade deficit to $118.37 billion during April-January this fiscal. Following are the key highlights
of the Union budget 2015-16 on Gold Monetisation Scheme and the impact of the budget upon
the same:
A. The Finance Minister proposed to develop an alternate financial asset, a sovereign gold
bond, as an alternative to purchasing metal gold. The bonds will carry a fixed rate of
interest, and also be redeemable in cash in terms of the face value of the gold, at the
time of redemption by the holder of the bond.
Impact: The proposed Gold Monetization Scheme will increase the availability of the yellow
metal in the domestic market and help jewelers. Moreover, according to me, there is a

4. TIRTHANKAR SUTRADHAR
possibility that the gold prices may come down whenever imports comes down which would
enable the end user to save on cost while buying gold jewelry.
I believe that the policy announcements on gold on budget 2015-16 are a step towards making
gold a part of the larger financial system as the proposed Gold Monetisation Scheme will
replace both the present Gold Deposit and Gold metal Loan Schemes. The new scheme will
allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain
loans in their metal account. Banks and other dealers would also be able to monetize this gold.
Gold monetisation Scheme will help in to reduce the demand of overseas gold and black
money. The amount generated by the government through Sovereign Gold Bond will help in to
build infrastructure.
B. The Government also proposed to commence work on developing an Indian gold coin,
which will carry the Ashok Chakra on its face.
Impact: Such an Indian gold coin would help reduce the demand for coins minted outside India
and also help to recycle the gold available in the country. Moreover, the introduction of India
branded gold coin is expected to have a healthy impact on the country’s gold sector, provided
the trade is liberalized without artificial curbs and higher duties. Standard India gold coins will
ensure gold availability aligned to customer preferences and will help curb the unofficial
market.
The Gold monetization scheme will give benefit to gold finance companies including
Manappuram Finance and Muthoot Finance. Though the demand for gold cannot be
wipedaway by supply curbs, the monetisation scheme will drive orderly recycling and enhance
transparency, as it has the potential to translate gold savings into economic investments. The
country would now be able to set in place a measured monetisation framework for gold from
the existing stocks in private hands worth over $1 trillion.