Cooling Inflation Raise Hopes For Interest Rate Cut In India

(MENAFN- Khaleej Times) Question: Is there any possibility of interest rates coming down in India? I have been planning to invest in a property with some part of the finance being borrowed from a bank.

ANSWER: The Reserve bank of India has kept the interest rates on hold and not reduced them as was expected by the market. Recently, retail inflation has come down to a five-year low of 3.5 per cent in July on account of moderation in prices of fruits, vegetables and other items of household consumption.

This has triggered hopes of a cut in interest rates before the end of this financial year. The National Statistical Office has reported that the rural inflation rate was 4.1 per cent while the urban inflation rate was three per cent. The rate may come down further as in the current sowing season the acreage has gone up by 1.4 per cent which augurs well for the kharif crops as a good monsoon is expected during September due to the development of La Nina conditions. With inflation showing a declining trend, interest rates are expected to be reduced by the fourth quarter of this fiscal year, giving a further boost to the economy and relief to borrowers.

Question: India is well-known for its software developers but software is mainly exported to advanced countries. Is India itself using the software for its own development and bringing benefit to its own people?

ANSWER: India has not only increased investments in physical and tangible assets but has overtaken many advanced countries in the creation of intangible assets encompassing knowhow, design, software and data, and brands. All these assets interact with intellectual property in some form or the other. Despite their intangible nature, such assets have the power to create immense value for companies, economies and societies benefitting people across the spectrum.

According to the World Intellectual Property Organisation (WIPO), India has recorded the fastest rate of growth in intangible investments mainly driven by its strength in data, software, new financial products and domestic brands. According to the World Intangible Investment Report, for the nine-year period 2011-2020, India is ahead of the United States, France, Germany and the United Kingdom in investments in intangible assets. The most noteworthy finding of the report is that India's performance equals that of high income countries like Germany and Japan. Intangible investments in 2019 were more than 10 per cent of India's GDP. As a result, India's intangible investment intensity has been found to be considerably higher than what would be expected relative to its level of development.

Question: My brother is a senior partner of a mid-sized firm of chartered accountants. He is exploring the possibility of merging his firm with another so that the merged firm can have access to large corporations. Are there any regulatory hurdles in achieving this objective?

ANSWER: The Government is actively considering amending the law pertaining to limited liability partnerships which would help create domestic audit firms similar to the big four international entities which are currently the bright stars of the accounting profession. The Government is in dialogue with The Institute of Chartered Accountants of India while framing the new regulatory mechanism to facilitate aggregation of two or more accounting firms.

This would enable the larger entity to acquire scale and competence which is required to conduct accounting, auditing and other complex work for large conglomerates. The ICAI has reviewed its merger and demerger guidelines for accounting firms intending to merge. The firms will now be able to separate after merger within ten years, instead of the current five years, and they will be able to retain their earlier names after separating. It has also been decided by ICAI not to charge fees for freezing the names with the corresponding registration number.

It is expected that this proposal will motivate smaller firms to come together in order to explore the full potential of a larger partnership and take a final decision of merger within the ten year time frame. It is also proposed that a LLP can now become a member of another and both can jointly take up accounting and auditing work of large corporates while retaining their original identities. This would enable both firms to pool in their manpower, resources and technology and bid for larger professional assignments. The Government is anxious to promote the vision of the Prime Minister who had suggested that chartered accountants should come together to create at least four large domestic firms to be able to meet the challenges of the corporate world.

HP Ranina is a practicing lawyer, specializing in corporate and tax laws of India.

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