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India's economy has outperformed expectations, aided significantly by multinational investments, and stressed the need for greater tax certainty to sustain higher long-term growth said a taxation expert at Shardul Amarchand Mangaldas & Co while speaking with ANI on Wednesday.
"India's economy has outperformed expectations, aided significantly by multinational investments, and stressed the need for greater tax certainty to sustain higher long-term growth," said Aayush Nagpal, Partner at Shardul Amarchand Mangaldas & Co. Nagpal said the last year's Economic Survey had projected India's growth at 6.4-6.8 per cent, but current indicators point to growth of around 7.3 per cent. "The economy has grown strongly over the past year, and a substantial contribution has come from multinationals setting up operations and making investments across sectors," he said. Nagpal credited government initiatives such as production-linked incentive (PLI) schemes and supportive fiscal policies implemented by both central and state governments for attracting global companies. Nagpal also highlighted the Make in India programme and the focus on domestic manufacturing as key growth drivers, noting that the setting up of semiconductor operations in India is a positive step toward self-sufficiency. However, he cautioned that sustaining higher growth would require long-term policy support. "To achieve the vision of Viksit Bharat by 2047, India needs to grow at around 8 per cent. That kind of growth cannot come overnight," he said. While replying on the expectations from the Union Budget 2026, Nagpal said the government could consider expanding PLI schemes beyond the existing 14 sunrise sectors and strengthening the ecosystem for industries that have already received incentives. He also noted that the government is reviewing the current incremental sales- and investment-linked incentive model, as several companies were unable to meet prescribed thresholds, leading to lower disbursements. On taxation, Nagpal emphasized that greater tax certainty is critical for increasing multinational participation. He pointed to concerns faced by global capability centres (GCCs) and service-sector entities operating on cost-plus models, where transfer pricing audits often expect margins of 20-30 per cent, which he described as difficult to justify. He also flagged issues related to disallowance of payments for technical know-how and permanent establishment (PE) risks arising from short-term travel to India, calling for a more balanced and rational approach. "There needs to be ease of movement of technology and people if multinationals are to develop and innovate from India," he said. Commenting on dispute resolution mechanisms, Nagpal said Advance Pricing Agreements (APAs) have emerged as a strong tool for tax certainty. He noted that India has concluded over 700 APAs since the programme began in 2012, making it one of the most successful APA regimes globally. However, he said there is scope for improvement in timelines, data-driven assessments, and negotiation flexibility. Speaking on safe harbour rules, Nagpal said while thresholds were marginally increased last year, the framework still requires rationalisation, expansion to more industries, and simplification of compliance requirements to make it more attractive to taxpayers. Nagpal added that while initiatives such as Vivaad Se Vishwas, APAs and Mutual Agreement Procedures demonstrate the government's intent to improve certainty, challenges remain at the initial assessment stage, where taxpayers often face significant adjustments and upfront tax demands. "For companies entering India on day one, understanding tax risk is crucial. They need clarity before bringing in technology or making payments, not years later after disputes arise," he said, adding that a predictable and supportive tax ecosystem would help India strengthen its position as a global services and innovation hub. (ANI)
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