Of 97 bills that are languishing before India’s parliament, 10 would have a significant impact on business and investment, if passed. Chakshu Roy offers a foretaste of the key changes that can be expected
As the 15th Lok Sabha (the lower house of parliament) crosses the halfway point of its five-year term, it has a busy legislative agenda before it. There are 97 bills pending in the Indian parliament, each of which faces a potentially lengthy journey through the country’s legislative system.
For each bill, this journey begins with approval by the Union cabinet. The bill is then introduced by a minister, either in the Lok Sabha or the Rajya Sabha (the upper house of parliament). Money bills (relating to taxation matters or dealing with payment into or withdrawal of money from the consolidated fund of India) must be introduced in the Lok Sabha first, but all other bills can be introduced in either house of parliament.
The bill is then referred by the presiding officer of the house to a departmentally related standing committee for detailed examination. The committees are composed of members of parliament (MPs) from both houses and are usually given three months to submit a report. The committees invite representations – both oral and written – from the government, subject experts and interested citizens’ groups.
The standing committee’s report on the bill is made available to all MPs and is also put in the public domain. Then the bill is debated and passed in the house in which it was introduced, before moving on to the other house. After being passed in both houses, the bill is sent for presidential assent.
It is important to note that when a bill has been referred to a standing committee and the standing committee has yet to submit its report, the bill cannot be discussed in either house of parliament.
Of the 97 bills that are now pending before India’s parliament, 10 are particularly significant for domestic and international businesses. These are assessed below.
Companies Bill, 2011
The government has long planned to update the Companies Act, 1956. Bills were introduced in 2008, 2009 and 2011. The 2008 bill lapsed with the dissolution of the 14th Lok Sabha and the 2009 bill was withdrawn by the government to incorporate a series of recommendations made by the standing committee on finance. These recommendations were taken into account and a fresh bill was introduced in the Lok Sabha in December 2011. The 2011 bill was referred to the standing committee on finance at the beginning of this year and the committee was given three months to submit its report.
The bill aims to strengthen India’s corporate governance framework by introducing new provisions with respect to independent directors and auditors. If passed, it will increase the powers of creditors with respect to supervising a rescue plan, and restrict the powers of management in the rehabilitation of a sick company. The bill also introduces the concept of class action suits that can be filed by creditors and shareholders against a company for breaching the provisions of the
The bill enhances the quantum of all penalties that were provided in the act and contains a provision to establish special courts to try offences. The bill also establishes a National Company Law Tribunal to administer provisions under the new act.
The Direct Taxes Code Bill, 2010
This bill was introduced in August 2010 in the Lok Sabha and seeks to replace the Income Tax Act, 1961, and the Wealth Tax Act, 1957. It was referred to the Standing Committee on Finance for examination and the committee submitted its report on the bill last month.
The bill widens income tax slabs (brackets) for individuals and keeps most tax exemptions for them. It lowers tax rates and removes tax exemptions available to companies. The bill also removes the distinction between short-term and long-term capital gains for all assets except for securities listed on a stock exchange. It introduces general anti-avoidance rules (GAAR) to allow tax authorities to classify any arrangement as one that has been structured to evade taxes, but it does not specify in what situations the GAAR will be implemented.
The bill seeks to tax foreign companies if their place of “effective management” is in India at any time of the year, but it is unclear what would constitute “effective management” of a foreign company. The bill may also increase the burden of compliance by requiring different units of the same business to compute their tax liability separately.
The Goods and Services Tax Bill, 2011
This bill was introduced by India’s finance minister, Pranab Mukherjee, in the Lok Sabha in March 2011. It was referred to the Standing Committee on Finance in the same month. The committee has not yet finalized its report. The bill will not come up for debate in the Lok Sabha until the committee submits its report.
The Goods and Services Tax Bill seeks to amend the constitution to allow for a goods and services tax (GST) and grants the central and state governments simultaneous power to pass laws on the taxation of goods and services. It gives parliament the exclusive power to tax goods and services where supply of either occurs in inter-state trade or commerce. The bill exempts petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel, and alcoholic liquor for human consumption from the purview of GST.
It proposes to establish two authorities: (i) the Goods and Services Tax Council, which would structure GST in order to develop a harmonized national market of goods and services: and (ii) the Goods and Services Tax Dispute Settlement Authority, which would adjudicate disputes between the central government and state governments resulting in any loss in revenue or affecting the harmonized structure of the tax.
The Insurance Laws (Amendment) Bill, 2008
This bill was introduced in the Rajya Sabha in December 2008 and was referred to the Standing Committee on Finance. The committee delivered its report on the bill in December 2011.
The Insurance Laws (Amendment) Bill allows foreign investors to hold up to 49% of capital in an Indian insurance company and also allows nationalized insurance companies to raise funds from the capital markets. It specifies that a minimum of ₹1 billion (US$19 million) in equity capital is needed for private companies to enter the life and general insurance business and ₹500 million is required for companies to invest in the health insurance business. The bill mandates that insurance companies cannot challenge a life insurance policy for any reason after five years. It provides for a fine of ₹250 million for insurance companies that fail to meet their obligations with respect to underwriting third-party motor insurance, or underwriting policies in rural and social sectors or with vulnerable sections.
The bill includes Lloyd’s of London in the definition of a foreign company, but it does not clarify whether the members of Lloyd’s, who ultimately bear all risks of policies which are written, will be able to operate in the country.
The parliamentary standing committee recommended that the government should consider enabling foreign companies to tap the domestic market for capital requirements. The committee also proposed that those syndicates of Lloyd’s that have underwriting desks in India be covered under the definition of “foreign company”.
The Pension Fund Regulatory and Development Authority Bill, 2011
This bill was introduced in parliament in March 2011. The Standing Committee on Finance submitted its report in August 2011.
The bill was first introduced in 2005 but lapsed in 2009 following the dissolution of the 14th Lok Sabha. The 2011 bill seeks to give statutory powers to the Pension Fund Regulatory and Development Authority set up in 2003.
The bill also defines the powers and duties of this authority and sets the broad contours of the New Pension Scheme. The New Pension Scheme is a “defined contribution” scheme for all government employees who joined after 2004. In 2009 it was extended to all citizens through a central government notification. The bill specifies how the scheme would be implemented through a combination of retailers, pension fund managers, and a record keeper. It also proposes that every subscriber to the pension scheme will have an individual pension account, which will be portable across job changes. The subscribers will choose fund managers and schemes to manage their pension wealth and will have the option of switching schemes and fund managers.
The Forward Contracts (Regulation) Amendment Bill, 2010
This bill was introduced in the Lok Sabha in December 2010 and was referred to the Standing Committee on Food, Consumer Affairs and Public Distribution. The committee submitted its report on the bill in December 2011.
The bill allows for trading in all commodity derivatives and also options on goods and commodity derivatives. The bill changes the role of the Forwards Market Commission from a government department to that of an independent regulator and awards it statutory powers. It empowers the central government to prohibit forward contracts and or options in commodity derivatives in certain cases.
The government is also empowered to issue directions to the Forward Markets Commission on policy issues and to supersede it in certain cases. The bill prohibits any foreign intermediary from dealing in forward contracts in goods or options on commodity derivatives without a certificate of registration from the Forward Markets Commission.
The committee that examined the bill recommended that storage and infrastructure facilities be enhanced for the proper development of the futures markets. The committee recommended that foreign players should be prohibited as the forward markets are not yet ready for foreign participants.
The Commercial Division of High Courts Bill, 2009
This bill was passed by the Lok Sabha in December 2009 and is currently pending in the Rajya Sabha for consideration and passing.
The Commercial Division of High Courts Bill seeks to constitute a commercial division bench within each high court. These benches will have original jurisdiction in cases where the value in dispute exceeds ₹50 million, and may follow a fast-track procedure for such cases. As part of the fast-track procedure, the bill sets a time limit for filing documents and delivering judgements. It is proposed that the commercial division is carved out of the existing strength of judges in high courts. While this may speed up commercial disputes, it could lead to further delays in other categories of cases.
The Copyright (Amendment) Bill, 2010
This bill was introduced in the Rajya Sabha in April 2010. It was referred to the Standing Committee on Human Resource Development, which submitted its report in November 2010. The bill was listed for debate in the Rajya Sabha in December 2011, but could not be taken up on account of protests by MPs over India’s controversial anti-corruption legislation, the Lokpal Bill.
The Copyright (Amendment) Bill amends the Copyright Act, 1957, so that it conforms with international treaties. It expands the definition of “copyright” and introduces a system of statutory licensing to protect owners of literary or musical works. It includes a system of compulsory licensing of copyrighted works for the benefit of the disabled, with the prior approval of the Copyright Board. It also protects performers’ rights, including allowing performers to make sound or visual recordings of their performances and reproduce them in any medium, issue copies to the public and sell or rent copies of the recording.
The Land Acquisition, Rehabilitation and Resettlement Bill, 2011
This bill was put before the Lok Sabha in September 2011 and was referred to the Standing Committee on Rural Development. The committee has yet to submit its report.
In 2007, the government introduced an amendment bill to introduce changes to the Land Acquisition Act, 1894. Along with the amendment bill, it had also introduced a Rehabilitation and Resettlement Bill to provide relief to people displaced by forcible acquisition of land. Both these bills lapsed with the dissolution of the 14th Lok Sabha in 2009.
The current bill combines acquisition of land and rehabilitation mechanisms for all affected persons and replaces the Land Acquisition Act, 1894.
The provisions of the bill relating to land acquisition, rehabilitation and resettlement will apply when the government acquires land for “public purpose”, either for itself or on behalf of private companies. The bill specifies that private companies will provide for rehabilitation and resettlement if they purchase or acquire land through private negotiations. The bill also proposes that for every land acquisition, a social impact assessment would need to be conducted by an independent body. In addition, the bill proposes a formula to calculate the compensation and rehabilitation package for those displaced by land acquisition.
The Mines and Minerals (Development and Regulation) Bill, 2011
This bill was introduced in the Lok Sabha in December 2011 and given to a Standing Committee on Mines a month later. The committee has not submitted its report on the bill.
The bill proposes to replace the Mines Act, 1952, and consolidate the law relating to the scientific development and regulation of mines and minerals. Like the act, the bill specifies that reconnaissance, prospecting, exploration and mining activities can only be undertaken after obtaining licences for those activities or a mining lease. The bill introduces a new type of concession called “high-technology reconnaissance-cum-exploration licence” for technology and investment-intensive exploration exclusively for deep deposits.
The bill also provides compensation for families affected by mining operations. It specifies that mining companies will transfer 26% of profits to a fund which would be used for the benefit of affected families. In addition, mining companies would be required to allot one non-transferable share at par to each person of a family affected by mining-related operations.
Excluding routine financial bills, the Indian parliament passed 28 bills in 2011 and and 33 in 2010. Given the quantum of legislative work pending, the future of these bills depends on the seriousness with which parliament pursues its core mandate of lawmaking for the rest of its term.
Chakshu Roy works at PRS Legislative Research, an independent organization in New Delhi that provides non-partisan research support and analysis to members of parliament.