DAILY NEWS ANALYSIS 5th FEBRUARY 2022

1. India-UK Free Trade Agreement

India and the UK have launched the formal Free Trade Agreement (FTA) negotiations, that both countries envisage concluding by the end of 2022.

• Aim to double bilateral trade by 2030 which is currently at 23billion.
• The UK is one of the largest investors in India, among the G20 countries.
• India is already a big investor in UK such as fintech, electric vehicles etc.
• India was the 2^nd largest source of investment in UK.

Importance of FTA:

Export:

• Trade deals with the UK could boost exports for large job-creating sectors such as textiles, leather goods, and footwear.
• India can expect to register a quantum jump in the export of Marine Products through the recognition of 56 marine units of India.

Services:

• Great potential for increasing exports in service sectors like IT/ITES, Nursing, education, healthcare, including AYUSH and audio-visual services.

Strategic advantage:

• Strengthening bonds with the trade would seek UKs support at global issues like standoff with China in the Ladakh sector of the Line of Actual Control (LAC) and claim for permanent seat at UNSC.

Growth:

• FTA would add around 14.8bn to the GDP of India and UK combined by 2035.
• It will diversify supply chains and make services and goods affordable.
• Lower barriers would incentivize new MSME to export.

Issues:

• Visa restrictions have been a key issue for India to boost services trade.
• Significant delays in achieving comprehensive FTA.
• Interim FTA do not graduate into full FTAs can also face challenges from other countries at the World Trade Organization(WTO)- The WTO rules only permit members to give preferential terms to other countries if they have bilateral agreements.

India is one of the fastest-growing large economies of the world and FTA with the UK has played a significant role in enhancing the trade volume of the country. There is a need for a detailed assessment of FTAs in terms of goods, services and investment flows by all the stakeholders involved.

2. A Disjointed Response

• Union Budget 2022-23 introduced a taxation regime for virtual digital assets —cryptocurrencies, codes and non-fungible tokens. It has proposed to tax all profits from transactions in such assets at 30% along with the applicable surcharge and cess, and a 1% tax to be deducted by buyers while trading in any virtual digital asset beyond a threshold.
• No deductions will be allowed on account of setting off losses from such trading or from any other capital losses. The only deduction permitted would be the cost of acquiring the asset.
• The government is also introducing a central bank digital currency, or popularly known as CBDCs, powered by blockchain technology in 2022-23.

• The term ‘property’ under the I-T Act is being expanded to include virtual digital assets so that such assets received as a gift shall be taxable except when received from relatives.
• Further, loss from transfer of virtual digital assets cannot be set off against any other income.

Benefits:

• The Government may still not consider them fully legit, yet the tax regime indicates the hard option of an outright ban.
• 10 crore Indians may already have investments exceeding a total of $10 million in them- It can substantially increase revenue of government while tackling tax evasion.
• A market is emerging where payment for the transfer of a virtual digital asset can be made through another such asset- The imposition of TDS suggests a policy resolve to track the monetary trail in a sector that has so far been outside the purview of regulatory supervision or tax administration.
• The cost of issuing digital currencies will be far lower than the cost of incurred during printing and distribution of physical cash. The RBI would be able to create and distribute the digital rupee at almost zero cost.
• Digital currency will also reduce instances of corruption and fraud as the digital rupee will be monitored by RBI and hence can be easily tracked.

 Issues:

• The delay in arriving at a decision also pre-empts Indian start-ups and innovators from developing products and ideas that can be scaled up globally given the nature of these assets.
• If an investor has mined his crypto, then could the cost of his mining setup be set off against the sale of crypto?
• A lot of small investors seem to think that tax can be avoided by doing peer-to-peer or P2P transactions and going through decentralised exchanges where tracking of transactions will be very difficult or impossible for the government.

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