The Union Budget 2021, announced last week by Union Finance Minister Nirmala Sitharaman, is being lauded for its growth-oriented approach. Many corporate analysts of note and senior leaders of the Indian professional community have analysed every detail of this Budget and offered astute observations on its short and long-term implications. Gautam Khaitan, Senior Corporate Advocate, speaks to The Sunday Guardian on the subject, especially the legal implications of the Budget on corporate entities.
Khaitan began his legal journey in 1991, at a time when India was witnessing its worst economic crises. His background and practice over the years, has made him an authority on economic subjects related to the affairs of our country. “I remember when India was badly struggling with the twin deficit. Everyone was pessimistic about the future of the Indian economy. I was a young boy with many dreams and aspirations. Back in those days, when I was an entrepreneur, India was politically unstable,” recalls Khaitan.
While the whole country was in turmoil in 1991, Khaitan remembers things changing with the formation of a new government at the Centre, under the leadership of P.V. Narsimha Rao. “First the formation of the new government, followed by the opening of the Indian economy, was a big relief to us,” he says.
His father and eminent lawyer, late O.P. Khaitan, foresaw the underlying boom in the corporate world with the liberalisation of the Indian economy. At the same time, he established his own legal firm—O.P. Khaitan & Co—to exploit the immense opportunities that were sure to arise. Gautam Khaitan joined the firm in 1993.
Before long, there was an immense rise in foreign investment in India, which further led to international disputes and foreign arbitration. O.P. Khaitan & Co. emerged as one of the primary law firms working on high level mergers and acquisitions in India. In fact, within a decade, the firm had gone international, handling litigation for corporate behemoths outside India.
Through a long and strategic career, Khaitan has made a prominent name for himself in the corporate legal fraternity. He is currently the Managing Partner of the firm and heads its corporate division. His forte lies in corporate and litigation work for various leading multinational and national companies, banks, and financial institutions, including but not limited to mergers, demergers, acquisitions, joint ventures, structuring transactions, collaborations, Facility Documentation, External Commercial Borrowings, and arbitrations. He also serves as director of various leading corporate houses.
As an affirmed authority on the legal implications of the budget for corporates, he shares his thoughts on this year’s plan by saying, “The most significant change for corporate entities is the disallowance of depreciation on goodwill for present and future deals. Further, the depreciation on goodwill on deals done earlier cannot be claimed from 2020-21 onwards. This step will hurt the profitability of several listed and unlisted companies. Some other changes that have implications for corporate entities include the classification of the Manufacturing and Service Sector as ‘Small Scale Industries’; the decriminalisation of the Limited Liability Partnership Act in line with the Companies Act; the exemption of Stamp Duty on transfer of business or immovable properties by Government Companies in case of disinvestment; and the provision of major incentives for startups.”
Khaitan is particularly optimistic that this Union Budget will boost corporate investment to a great degree. According to him, “Significant measures have been put in place to boost corporate investment including an increase in Foreign Direct Investment in the insurance sector; the proposal of a stake sale by the government in public sector companies and financial institutions, including two public sector banks and one insurance company; allowing FPIs to provide debt funding to InvITS and REITS; enhancing digital payments; and encouraging the use of artificial intelligence in governance. The consolidation of securities laws and the proposed decriminalization under the LLP Act marks an important move. Reducing the timelines for reopening past tax cases will reduce tax litigation however, not allowing the depreciation on goodwill will be a major dampener for M&A transactions.”
This year’s Union Budget seems clearly aimed at an economy severely impacted by Covid-19, evident from the detailed action plan for ‘Aatmanirbhar Bharat’. Khaitan asserts that there are some positive points, such as, “the focus on capital investment to push growth, the re-introduction of Developmental Financial Institutions, special allocations for Covid vaccination programs, the decision to expand fiscal deficit to provide growth impetus, all of which indicate a long-term vision to make a self-reliant India.”
However, he also highlights certain issues that have not been addressed by this year’s Budget. “It does not offer any relief to those who suffered massive income loss owing to the coronavirus pandemic. It would have been nice to see some emphasis on the needs of the poor, working class migrants, agricultural labourers, etc. Further, the unexpectedly large fiscal deficit numbers entail huge borrowings, much beyond market expectations. Government bond yields have hardened too. The Finance ministry and the RBI will have to work closely together to check the rise in yields and ensure that the budget does not ultimately result in a sharp rise in borrowing costs across the board.”
Overall, from the viewpoint of corporate entities, Gautam Khaitan lauds this year’s Union Budget as being growth-oriented and well-thought.
The writer is a lawyer who pens articles for various newspapers and publications, and on her blog www.nooranandchawla.com. She can be reached on nooranand@gmail.com.