Foreign Contribution (Regulation) Amendment Rules, 2024

The Union Home Ministry has announced the Foreign Contribution (Regulation) Amendment Rules, 2024, effective from January 1, 2025.

Background

• NGOs were encountering challenges in transferring FCRA components of funds from their non-FCRA accounts, especially concerning refunds of tax deducted at source (TDS).

Amendments to the Foreign Contribution Regulation Rules, 2011

• The new amendment introduces a proviso in Rule 5 allowing associations to carry forward the unspent part of allowable administrative expenses to the succeeding financial year.
• Reasons for carrying forward these expenses should be mentioned in Form FC-4.

Key Clarifications

• Form FC-4: This form will now address the transfer of foreign contribution parts from income-tax refunds from non-FCRA to FCRA bank accounts.
• Such transfers will not constitute a violation of Section 17 of the FCRA Act, 2010.

Accounting Treatment

• TDS Accounting: TDS deductions will be accounted as utilization of foreign contributions.
• Upon receiving a refund in the FCRA account, it should be recorded as "other income".

Defence Ministry Roadmap for 2025

The roadmap prepared by the defence ministry aims to streamline procurement processes, enhance integration between services, and foster public-private partnerships and technology transfer.

Key Focus Areas

• Procurement Streamlining:
  • Acquisition procedures will be made simpler and more time-sensitive.
  • An accelerated procurement procedure is to be introduced, inspired by emergency procurement models.
  • This new procedure aims to reduce selection and delivery times for weapon systems to the armed forces.
• Ease of Doing Business:
  • Promotion of technology transfer and public-private partnerships in defence.
  • Encouragement for public sector units to partner with private sectors, leveraging existing manufacturing infrastructure.
• Defence Exports and R&D:
  • Positioning India as a credible exporter of defence products.
  • Focus on research and development partnerships with foreign original equipment manufacturers.
  • Example: The Tata-Airbus partnership for manufacturing C295 aircraft in India.
• Integration and Collaboration:
  • Improving collaboration across stakeholders and fostering civil-military coordination.
  • Promoting jointness through the establishment of integrated theatre commands.
• Technology and Cyber Focus:
  • Special emphasis on cyber and space domains.
  • Focus on emerging technologies such as artificial intelligence, machine learning, hypersonics, and robotics.

The roadmap signifies a comprehensive approach towards reforming the defence sector, targeting specific areas for development and efficiency improvements to better position India on the global stage.

India's Organic Product Export Goals

India is targeting to surpass $1 billion in organic product exports in 2024, with a significant focus on enhancing export quality and acceptance through Mutual Recognition Agreements (MRAs), especially in sensitive sectors like fisheries.

Current Export Status

• Organic food exports have increased from $213 million in 2012-13 to $494.80 million in 2023-24.
• Major export destinations include the US, EU, Canada, UK, Switzerland, Australia, the Middle East, and Asian countries.

Challenges and Strategies

• Quality issues are a bigger concern than tariff barriers for export consignments.
• Over 300% increase in the number of labs and 200% increase in certification for exported food products in the past decade.
• Export rejections of Indian fisheries by the EU decreased from 15 in 2017 to 3 in 2024.

Mutual Recognition Agreements (MRAs)

• Existing MRAs with the EU, China, Bhutan, with ongoing talks with Qatar.

Infrastructure and Development

• The Export Inspection Council (EIC) plans to expand food testing infrastructure, increasing accredited labs from 21 in 2013-14 to 78.
• The number of export establishments approved through the EIC system rose to 1,446 from 794 in the last decade.
• Export certificates accepted by importing countries nearly doubled to over 120,000 from 61,000.

Tobacco Exports

• India's tobacco exports are expected to grow by 8%, reaching over ₹13,000 crore this year.
• India stands as the second-largest tobacco producer globally, after China.

India's Growing Export Sectors

India's export basket is diversifying beyond traditional sectors, with a focus on new products and markets. 

Emerging Export Products

• Banana and Agri Products:
  • Banana is identified among 20 agricultural products for boosting exports.
  • Other products include watermelons, ghee, guavas, green chilli, capsicum, okra, garlic, onions, and alcoholic beverages.
  • India aims to increase its global export share from 2.5% to 4-5%.
• Alcoholic Beverages:
  • Growing acceptance of Indian single malt whisky in the EU, US, and the Far East.
  • Alcoholic beverages exports rose 8% in the April-October period, with whisky exports up by 16%.
• Office Stationery:
  • Registers and diaries are popular in Nicaragua, El Salvador, and Cyprus.
• Solar PV Modules:
  • India is the sixth largest exporter of solar PV modules, with a share increase from 0.4% in 2013 to 2.51% in 2023.
  • In April-October, exports worth $711.95 million, with 96% to the US.
• Spices and Chemicals:
  • Growth in exports of spices like black pepper.
  • Exports of dyes, organic, and inorganic chemicals are projected to remain strong.

Strategic Focus on New Markets

• Target Markets:
  • France, Saudi Arabia, and Kenya for iron ore.
  • Latvia, Chad, and Montenegro for drugs and pharmaceuticals.
  • Greece and Croatia for engineering goods.
  • Guatemala and Morocco for cotton yarn.

Key Export Drivers

• Electronics and engineering goods supported by production-linked incentive (PLI) schemes.
• Automotive sector anticipating surge in export revenues due to global demand and diversification strategies.
• Apparel exports expected to maintain growth momentum.

Future Outlook

India aims to exceed $800 billion in goods and services exports in FY25, focusing on both traditional and emerging sectors to drive growth.

Clarifications by India's Central Board of Indirect Taxes and Customs (CBIC)

GST on Vouchers

• Transactions involving vouchers are not considered as supply of goods or services, hence, not liable to Goods and Services Tax (GST).
• GST applies to additional services related to vouchers, like marketing or commission-based distribution.
• Unredeemed vouchers, termed as 'breakage,' are not taxable as they do not represent consideration for any supply.

This clarification follows a decision by the GST Council, aimed at providing tax certainty and reducing litigation within the industry.

Input Tax Credit (ITC) on Ex-Works Contracts

• CBIC clarifies that businesses can claim ITC on goods purchased under "Ex-Works" contracts from the date on the invoice.
• In "Ex-Works" contracts, goods are considered delivered to the buyer once handed over to the transporter at the seller's factory gate.
• This clarification resolves confusion for industries like automotive, heavy engineering, and EPC contracts on claiming ITC.

Introduction of New Standards for Organic Agricultural Products

The government plans to introduce new standards for organic agricultural products, aligning them with the latest European Union (EU) grades. This initiative aims to enhance clarity, transparency, and regulatory oversight using data analytics.

Background and Purpose

•  Chairman of the Agricultural and Processed Food Products Export Development Authority (Apeda), announced updates to the National Programme for Organic Production (NPOP) 2014 to reflect changes in global organic markets.
• The new standards are set to be released on January 9.

Regulatory Framework

• NPOP regulates India's export of organic products, administered by the Department of Commerce, Ministry of Commerce and Industry, since 2001.
• In the domestic market, NPOP is recognized under the Food Safety and Standards (Organic Foods) Regulations, 2017.
• NPOP outlines standards for organic production, accreditation criteria for certification bodies, and governs the use of the India Organic logo.

International Recognition and Agreements

• NPOP standards for crop production are recognized by the European Commission, Switzerland, and Great Britain.
• A mutual recognition agreement (MRA) with Taiwan is effective from July 8, 2024, with Australia negotiations in advanced stages.

Implementation and Updates

• Apeda serves as the secretariat for NPOP implementation and oversees certification bodies.
• NPOP 2014 is being revised after a decade to enhance clarity and transparency and strengthen regulatory oversight.
• Key revisions focus on simplifying certification requirements and increasing transparency for certified organic operators.

Enhanced Transparency and Oversight

• Information about certified organic operators, including grower group farmers, will be made publicly accessible.
• A revamped traceability system with data analytics and a mobile application will be implemented for inspection and verification.

Growth of India's Organic Exports

• India has become a prominent supplier of organic products over the past two decades.
• Organic exports grew from $213 million in 2012-13 to $494.8 million in 2023-24.
• Major export destinations include the US, EU, Canada, and several Asian countries.

Conclusion

Since the implementation of NPOP in 2001, India has established its brand India Organic, driving significant growth in organic exports globally.

Bank Credit Growth Outlook

The expected scenario for bank credit growth this financial year indicates a moderation from the previous year's robust growth rate of 16%. This moderation is attributed to several key factors:

Key Factors for Moderation

• Statistical High-Base Effect:
  The strong growth rate observed in the last financial year sets a high benchmark, making it challenging to achieve similar growth percentages this year.
• RBI's Revision in Risk Weights:
  The Reserve Bank of India's decision to increase risk weights on bank lending, particularly to non-banking financial companies (NBFCs) and for unsecured loans, has resulted in reduced credit growth in these segments.
• Relatively Slower Economic Activity:
  There is an anticipation of slower economic activity, which is expected to contribute to the moderation in credit growth. Additionally, the country's gross domestic product (GDP) growth is expected to moderate, further impacting credit demand.

Conclusion

In summary, while last financial year witnessed significant credit growth driven by strong economic activity and retail credit demand, this year is expected to see a slower growth rate due to high base effects, regulatory changes by the RBI, and a general slowdown in economic activity.

Overview of Social Media Regulation Conflict

The debate over how social media platforms should regulate content is intensifying, with distinct differences between the United States and Europe.

U.S. Perspective

• Trump's Stance:
   
  • President-elect Donald J. Trump and his allies are focused on dismantling what they call an "online censorship cartel" targeting conservatives.
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  • Plans include stopping platforms like Facebook and YouTube from censoring content deemed offensive by the companies.
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  • Advertisers leaving platforms that are less restrictive could face punishment.
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• Regulatory Approach:
   
  • Brendan Carr, a Republican FCC member, plans to expand the agency's mandate and weaken Section 230 liability protections, exposing companies to more lawsuits for moderation decisions.
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• Free Speech:
   
  • The U.S. values free speech, protected by the First Amendment and Section 230 of the Communications Decency Act, which shields companies from liability for online content.
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European Perspective

• Regulatory Concerns:
   
  • Europe considers unfettered free speech a potential threat to democracy, focusing on preventing harm to public, especially minority groups.
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  • The Digital Services Act requires firms to remove illicit content swiftly, with penalties up to 6% of total revenue for non-compliance.
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• Recent Actions:
   
  • In response to riots fueled by misinformation, the British government jailed individuals for posts inciting violence.
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Impact and Concerns

• Global Tug of War:
   
  • Conflicting laws from democracies worldwide create a fractured internet experience, with varying content based on regional laws.
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• Potential Outcomes:
   
  • There is a concern about a divided approach to free speech affecting elections, public health, and discourse.
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The contrasting policies between the U.S. and Europe highlight differing global views on balancing free speech with public safety.

Quadrilateral Security Dialogue (Quad)

The Quadrilateral Security Dialogue, better known as Quad, evolved from the necessity to preserve a "free, open, and inclusive Pacific" in response to China's territorial assertiveness in the region.

Origins and Evolution

• The Quad was initially formed as an informal initiative by the United States, India, Australia, and Japan.
• Its origins trace back to cooperation among these nations to extend assistance to countries affected by the 2004 Tsunami.

Significance and Commitment

• The Quad is significant for its role in maintaining regional security and addressing strategic challenges posed by China's activities.
• On December 31, 2024, the foreign ministers of the four member nations reaffirmed their commitment to the Quad's aims, marking the 20th anniversary of their cooperation.

CBDT's PRUDENT Approach for 2025

The Central Board of Direct Taxes (CBDT) aims to enhance its operations in 2025 by adopting the 'PRUDENT' approach, as detailed by Chairman  in his address to the Income Tax Department.

Key Elements of PRUDENT

• P - Professionalism
• R - Responsible and Responsive
• U - Understanding transactions and businesses
• D - Dedication and Due Diligence
• E - Effective Enforcement
• N - Non-intrusive Administration
• T - Technology-based Tax Administration

Achievements and Future Commitment

• In the past year, over 2.4 lakh grievances were resolved, with 1.75 lakh through the E-nirvan platform.
• The department plans to enhance taxpayer services and strengthen trust in the tax system through technology.
• Chairman emphasized continuous improvement and maintaining excellence through collaborative efforts and timely grievance resolution.

Improvement and Training Initiatives

• Leveraging technology to encourage voluntary compliance and improve taxpayer services.
• Enhanced training programs and refined approaches to investigations and disputes.
• Undertaking a comprehensive review of the Income Tax Act with contributions from officers and stakeholders nationwide.

The focus for 2025 will be on building a productive and fulfilling workplace, enhancing taxpayer services, and addressing concerns effectively to build trust in the system.