MCA amends definition of small companies, allows NRIs to incorporate One Person Companies – The Economic Times

Clipped from: https://economictimes.indiatimes.com/small-biz/policy-trends/mca-amends-definition-of-small-companies-allows-nris-to-incorporate-one-person-companies/articleshow/80664903.cmsSynopsis

The changes, announced by finance minister Nirmala Sitharaman during her budget speech on Monday, will come into effect from April 1, according to the notifications. “Paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively,” the notification said.

Related

The ministry of corporate affairs (MCA) amended the Companies Rules to revise the definition of a small company and to allow non-resident Indians (NRIs) to incorporate one person companies (OPCs) in India.

The changes, announced by finance minister Nirmala Sitharaman during her budget speech on Monday, will come into effect from April 1, according to the notifications.

“Paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively,” the notification said.

The previous definition was based on thresholds defined by the Companies Act which mentioned a maximum paid up capital of Rs 50 lakh and turnover of Rs 2 crore for the immediately preceding fiscal.

Amendments to the Act in 2018, contained provisions for increasing the paid up capital and turnover thresholds for small companies up to Rs 10 crore and Rs 100 crore, respectively.

The move is expected to lighten the compliance burden of about 200,000 companies, Sitharaman had said.

With regard to OPCs, the amendment has substituted the words “whether resident in India or otherwise” to the clause that earlier stipulated that only an Indian resident could incorporate an OPC.

The notification also reduced the number of days a person has to stay in India to qualify as a resident as per these rules to 120 days of the previous year, from 182 earlier.

Further, the MCA allowed voluntary conversion of OPCs to a private or public company, subject to the minimum requirements of board members and paid up capital as prescribed by the Companies Act.

The finance minister had said the move would benefit startups. Experts felt the move would augment investments from NRIs while incentivising more unorganised sector players to conduct their businesses through a legally set up entity.

Read More News on

small companiesmcaUnion Budget 2021One person companiesbudget 2021NRIsDownload The Economic Times News App to get Daily Market Updates & Live Business News.

FM Sitharaman has loosened the purse strings in Budget: How will it fast-track India’s growth?

Synopsis

Chief Economic Adviser Krishnamurthy V Subramanian argues that Budget 2021 will not only propel growth in the next fiscal but also lay the foundation for the coming decade. He highlights the massive spend on healthcare and core sector projects as well as reforms in the financial sector.

The coronavirus pandemic seems to be on the wane in India and vaccination is well underway. The glimmer of light that we are waiting for at the end of a long pandemic year is still not visible but it could be close by, possibly around the bend.

In her budget speech on February 1, Finance Minister Nirmala Sitharaman quoted from Rabindranath Tagore’s Fireflies, “Faith is the bird that feels the light when the dawn is still dark,” adding that India is well-poised to be the land of promise and hope at first light.

In pursuit of that, the finance minister has loosened the purse strings, winking at fiscal discipline for now. Even more surprisingly, she has slashed subsidies, a politically sensitive decision, while massively enhancing the Centre’s capital expenditure to Rs 5.54 lakh crore, a rise of 34.5% over the last budget’s estimate. Compared with the revised estimate of the current fiscal, it’s a 26% increase.

Speaking to ET Magazine, Chief Economic Adviser Krishnamurthy V Subramanian argues that Budget 2021 will not only propel growth in the next fiscal but also lay the foundation for the coming decade. He highlights the massive spend on healthcare and core sector projects as well as reforms in the financial sector, including a bold decision to sell two public sector banks and insurance company.

“If government spends rupee on infrastructure, Rs 2.5 is generated in the economy. That means, the budget outlay of 2.5% of GDP in infrastructure alone can give us a 6.25% growth out of 11% that we have projected,” says Subramanian.

For Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister, the budget was an attempt to teach a man to fish instead of offering him a fish, a quote ascribed to Chinese philosopher Confucius. FM Sitharaman, points out Debroy, has favoured spending on infrastructure over income transfers. He says, “The former ensures growth and employment and eliminates the need for doles.”

On MGNREGA, or Mahatma Gandhi National Rural Employment Guarantee Scheme, the FM has budgeted only Rs 72,034 crore, a 34% cut in the revised estimate of current fiscal. “Something like MGNREGA is demand-driven. If there is demand, funds will always be available, subsequently. It’s more important not to have that demand for MGNREGA, by eliminating its need,” says Debroy, arguing that infrastructure-led growth will create jobs.

1

This fiscal has been a turbulent year which witnessed a massive reverse migration of workers due to the pandemic and the lockdown. This created a huge demand for jobs in rural India, which is likely to decline in the coming year.

Overall, the government is going to spend much more in the next fiscal year over the current fiscal. Total budgeted expenditure is pegged at Rs 34.83 lakh crore, up from the budget estimate of Rs 30.42 lakh crore and revised estimate of Rs 34.5 lakh crore for the current year. The budget has also estimated fiscal deficit at 6.8% of gross domestic product (GDP), although FM reiterated in her speech that the government would continue on its path of fiscal consolidation, intending to reach a fiscal deficit level below 4.5% of GDP by 2025-26.

2

In the government’s expenditure statement, what stand out are an impressive expansion of the health budget and a massive outlay of capital expenditure. As far as expenditure on health is concerned, the government has widened the definition of health by bringing in water and sanitation into it and calling it a budget for “health and wellbeing”, earmarking Rs 2.23 lakh crore. While there is enhanced allocation for health, the highlight of a 137% hike from the last budget ( Rs 94,452 crore) in the FM’s speech is technically misleading as the next year’s expenditure, as shown in the Annexure, also includes Finance Commission’s grant for water and sanitation (Rs 36,022 crore). As far as the health ministry’s budget (including health research) is concerned, the allocation is up from Rs 63,425 crore to Rs 74,602 crore, a hike of 17%, according to the budget document. In addition, Rs 35,000 crore has been earmarked for Covid-19 vaccination, with FM making it clear that she will grant more as and when required

Health experts have welcomed the enhanced allocation. “Increased focus on and allocation for health budget is a very welcome move. The pandemic has taught us what our priorities should be,” says Dr Naresh Trehan, cardiovascular surgeon and chairman of Medanta. He also has a suggestion for the government. “When the much-needed health infrastructure is built, the government should focus on having more doctors, nurses and paramedical staff.”

3
4

On infrastructure spending, the salient features in the budget transcend enhanced allocations. The FM, for example, has earmarked a separate allocation for projects and programmes that show good progress on capital expenditure and are in need of further funds. “Out of a total corpus for capital expenditure, Rs 44,000 crore will be given to efficient spenders, as an incentive,” says Shailesh Pathak, CEO of L&T Infrastructure Development Projects, adding that spending on infrastructure propels growth, both immediate and long-term, because of multiplier effect.

Also, as an incentive for states to spend more on core sector projects, the finance minister highlighted in her speech that the Centre would be providing more than Rs 2 lakh crore to states and autonomous bodies for their capital expenditure.

Amit Syngle, MD and CEO of Asian Paints, argues that a renewed attention on economically weaker states is needed to increase household income which in turn will help in achieving robust growth. “Government should put its capital expenditure programme on fast track, boost the manufacturing sector and evolve a mechanism to attract industries to economically weaker states which will increase household income and spur growth,” he says.

Unquestionably, the budget has made resources handy for infrastructure. But that may not be enough. Paperwork and bureaucratic bottlenecks in the release of funds as well as pre-construction approvals such as land acquisition may stand between FM’s intent and actual work on the ground.

No doubt, India will register a massive growth next fiscal, partly due to low base effect and partly due to robust capital expenditure. The question is whether the momentum will roll over into the following years.

Bibek Debroy Chairman, Economic Advisory Council to the PM

Teaching people to fish: Bibek Debroy Chairman, Economic Advisory Council to the PM

Any budget is a balancing exercise, matching receipts against expenditure. Traditionally, budgets have been identified with tax reductions (or changes). Tax policy, both direct and indirect, should be stable, not subject to annual changes. In the weeks before Union Budget 2021-22, there were (a) expectations of tax reductions/concessions (personal and corporate); (b) fears of a Covid cess. Desirably, neither has occurred. On (a) and expansionary fiscal policy, any undergraduate textbook on macroeconomics will demonstrate that an expenditure multiplier is superior (in impact on growth and employment) to a tax reduction multiplier. However, expenditure is constrained by receipts (revenue and capital). There are limits to government borrowing to bridge the gap. Debt has to be repaid. That’s the reason fiscal consolidation is important, not as a fetish. Had circumstances been normal, fiscal deficit/GDP ratio would have been less than 4.5% in 2025-26. This budget’s numbers are more honest and transparent than some historical budgets. (A) subsidy to FCI is no longer off-budget; (b) Projected nominal GDP growth is 14.4%, not an overly optimistic number to window-dress the budget; (c) Disinvestment receipts (Rs 175,000 crore) are credible, again not window-dressed.

The question then becomes one of deciding the composition of expenditure. Ideally, one should spend on the capital account, not revenue expenditure, because the former leads to generation of productive capacity. But it’s not that simple. Grants in aid can lead to creation of capital assets. In practice, though not de jure, Finance Commission recommendations on tax devolution to states are mandatory. Review of centrally sponsored schemes (CSS-s) and pruning deadwood there will take time. (Some CSS-s also have legislative backing.) One can’t default on pension and interest payments and some establishment expenses are fixed. Food subsidy has a legislative angle, too. Defence and health (read vaccination, since health is a state subject in Seventh Schedule) are important. Once these considerations have pruned degrees of freedom, the tradeoff is distilled to one of spending on infrastructure (primarily transport) or income transfers. The former ensures growth and employment and eliminates the need for doles. This is like the famous quote ascribed to Confucius on teaching a man to fish, as opposed to giving him a fish.

Something like MGNREGA is demanddriven. If there is demand, funds will always be available, subsequently. It’s more important not to have that demand for MGNREGA, by eliminating its need. Besides, with an unorganised, informal and self-employment-driven labour market (with identification more serious in urban areas), no advocate has quite explained how an income support programme will be implemented.

With the circumscribed degrees of freedom, critics should probably sit down with details of the expenditure budget. (“Outlay on Major Schemes” in “Budget at a Glance” will provide a start.) They should then ask — what would they spend on, assuming they were the FM. MGNREGA, water, health, education, PM-Kisan, food subsidy, power, roads, railways and defence can presumably not be junked. In the process, ignoring implementation problems, they will probably find resources for an income transfer by eliminating the urea subsidy. That being unpalatable, they will do precisely what FM has done. Alternatively, they will advocate hikes in income tax rates, with or without subterfuge of a cess. We have erred along that route, in the past. A budget that teaches people to fish is preferable to fishy criticism.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s