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The rising price of fuel is a serious concern for India’s economy and households. The country’s import bill gets inflated as it imports most of its crude requirements, while the pump shock affects household budgets—not just of commuters but also transporters who pass on higher fuel costs to companies who in turn pass it on to consumers.
This week’s meeting of the OPEC+ was expected to bring some news of an increase in production, as a response to the global economic recovery that is under way. News that the cartel had agreed to increase output by 400,000 barrels per day from August to December was a good sign. But the UAE raised objections to this plan. It also pushed for an extension of the phase-out period of the cuts undertaken post-pandemic from April 2022 to the end of 2022. That pushback saw the OPEC decision being deferred, with another meeting scheduled for Friday. What this powerful group of producers decides will partly determine how oil prices move in the near future.
In another collective action by world leaders, numbering 130, a global minimum corporate tax has been agreed upon. This has been in the works for some time now and even now, the finer details are yet to be worked out. But financial services and extractive industries (mining) have been left out of its ambit in a carve-out.
There are some countries that are opposing the deal, not surprisingly those that had benefited by offering low tax rates to companies to set up shop. It won’t be a surprise if these countries are also offered some sops—such as how UK managed to get a carve-out for its all-important financial services industry—to come on board.
India’s finance ministry announced that it is also a signatory to the deal and expects the country to benefit, but has also listed its own priorities. It wants “meaningful and sustainable revenue” to come into India’s kitty. While a win-win is what everyone wants, is it achievable?
Now, the OECD has been a leading proponent for years of a global minimum tax deal. But it acquired momentum only after the US pushed the deal and lobbied hard to bring more countries on board. The starting point of the tax distribution is that companies will first have to pay more tax, but without affecting them adversely. Deciding how this kitty is to be distributed could be a contentious issue, as everybody will want a higher share.
What India gets to keep will largely depend on the negotiations that will take place in coming months. It will also require legislative amendments. What this means for Indian companies should become clearer in the run-up to Budget 2022. There could even be a sting in the tail.
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Ravi AnanthanarayananMoneycontrol Pro