Citizens' Issues
How the ‘Corridors of Power’ work in Delhi-Part 1
Liaison work has been going on since ages in every corridor of power across the world. The recent episode at Oil Ministry, however, points out the stark reality of liaison work turning into corporate espionage 
There is a big noise about corporate espionage in Delhi spilling over into spying and worse, currently with oil, defence and telecom. And this is expected to spill over to other sectors too, probably banking, transport and health, over the next few days.
However, this is not new. So first, there is a bit of a first-person account on the root of this industry, corporate espionage with spillovers.
There used to be a day and age, about 20-30 years ago, when I knew almost every corridor and room in the buildings that counted for all-India aspects of industrial survival and growth. Udyog Bhavan, Shastri Bhavan, Parivahan Bhavan, Rail Bhavan, Lok Nayak Bhavan, Hans Bhavan, Nirman Bhavan, Akbar Hotel, Mayur Bhavan, Oil Coordination Committee, Shastri Bhavan and more to name a few. Located within a radius of about three kms in Central Delhi, they provided the documentation required for pretty much everything that industrial existence in India needed from start-up to renewal to expansion to purchase of raw materials to sale of finished goods, even for permission to move semi-finished goods from one factory to another within the same compound.
In addition, there was the Steel Controller in Calcutta (Kolkata now) and the Reserve Bank of India in Bombay (Mumbai now), where again, I knew the corridors and offices too.
There was nothing I could not get done for the up-country companies, I represented for what was called ‘liaison work’. Tools of the trade were a telex machine in the garage, a single land-line shared by all at home, an Olivetti portable typewriter, a Bajaj Chetak scooter with a lockable ‘dickey’ for reliable transport and ease of parking in Delhi, a solid contact to get Indian Airline tickets converted from waiting list to confirmed, and a glib tongue.
This was the most important - a glib tongue, which apart from being able to deliver impeccable English in writing as well as oral submissions to senior officers, could also perform in very good Hindi assorted for Delhi, Bengali or Marathi for the other two cities. In addition were about 20 phrases of each one of the four main South Indian languages in case required. Since most of my customers were from South India, this helped with them also, and regular visits to their offices and factories helped me brush up on language skills there too.
In those days, you could drive up into these buildings and park pretty much anywhere because you knew all the paan-wallahs and were on good terms with the gent selling whatever was the snack of the season and region. You can breeze in without worrying about ‘passes’, if you did not want to register your presence because the guards knew that at the end of the year I would be generous with diaries and calendars. In any case, I distributed ‘imported’ disposable ball-pens like so much confetti (I was known for carrying dozens of six-colour disposable ball-pen sets, which were cheaper than the four-colour click type ball-pen but could only be found in and around Calcutta, Madras and Bombay docks, and carried the ‘imported’ tag so important in those days. Later on when ball-pens became commonly available, I started distributing felt pen sets, flat packs of 6, 10 or 12. "This is for your children", I used to say, always!)
The work was easy - find out how to do something for the companies, find out what the competition was doing, and find out what the SIA or DGTD or RBI or Railways or whoever else were likely to be doing. Find out how to motivate foreign exchange for everything from travel to import of raw materials, get this licence, or that permission, find out so much more - and then do it, deliver - one had to be a master of everything past, present and future.
I learnt so much about so many industries then that at times, I thought, I should pay them, my clients, for the privilege and education.
Nothing was illegal, everything was difficult, and one had to be totally solution oriented with a goal - by any means, get the job done. Beg, borrow, lend, bend, export, import, do whatever had to be done. (There are 7 more elements to this ditty, by the way, but a bit too raunchy here!) 
There was always a typist under a tree nearby, who already knew 90% of the ‘matter’ required for anything. There was always a small stall nearby selling juice or something, which would have not just a telephone to share and be a sort of ‘poste restante’ service but also provide the contact numbers and home addresses of everybody needed. There would always be a bookstore within the premises, which would provide information, tactics and follow-up services once mutual trust was established. And there would always be somebody, who would give long lectures on how honesty is the best policy and then deliver for the best prices if you listened to their religious monologues.
The most important element, however, was being able to start and end a conversation with utmost respect in their language. You had to know the correct salutations and at the same time be able to get the message across that you were in charge of the purse strings. And ‘presents’ had to be presented with utmost discretion; the game had to be played out like an opera, even if it took hours. Luckily, in those days of Indian Airlines only, you could bank on the last flights from Calcutta or Bombay to Delhi being very late; otherwise I have no idea how many times I would have had to spend overnights for what was essentially day-return kind of assignments.
In Bombay, for example, I have walked from RBI to VT and then travelled by local train till Dombivili, visiting that person's temple on the way to his house, where I would be offered a cup of tea before I would "do the needful". All the while essential to keep a discussion on something totally unconnected going, and then pelt back to Kurla, from where I would take a taxi to Santa Cruz only to find out that the last 8:40pm flight to Delhi was now delayed by four hours. But the all-important message from RBI to whichever office in Delhi needed to get that message would be out by 11am next morning, which is what counted.
If you were in "liaison work" in Delhi and you were good at it with a reasonable amount of honesty, which meant you never lied about the amounts paid or spent but spelt out your add-on fees in advance so that the industrialists could get a fix on the costs involved, then you were right up there with the best of society in Delhi. I worked for some of the biggest names in India in those days.
Then I got fed up, times changed and work often bordered on anti-National or direct illegal, and I moved on to other opportunities. In addition, forgive me for being naive; many of the people from the liaison industry in Delhi could see themselves being replaced by bigger entities. One of whom I worked for, for a couple of years, too. Right up there with the best internationally, where I learnt what the power of media and public relations (PR) combined were, in making governments do what they wanted them to do.
‘Media’ or ‘PR’ were not the kind of competition then that they are today, nor was the padding of expenses to a 10x or more level even considered, and there was a strange kind of honesty which kept what we thought was National Interest paramount and up front. This is very difficult to explain, but I knew many others in the same game, and one thing we never ever did was say or tolerate anything that we felt was anti-India.
I will provide specific examples. When foreign pharma companies came trundling into India and tried to get some of us to work towards literally sabotaging Indian pharma companies, I recall some of the biggest and best ‘liaison agents’ getting together at a restaurant near Palika Parking, and deciding to not do their job - partly also on the request of some senior civil servants, it was said. I was already working for a foreign liaison set-up then, saw what they were talking about, and moved on.
And yes, I knew Sabina and Shantanu Saikia then, too. They lived not far from where I did, in Defence Colony.
So when and how did "liaison work" become espionage, not just corporate, but worse?
(Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved in helping small and midsize family-run businesses re-invent themselves.)



Pushpesh Kumar Sharma

2 years ago

very true and hands on mr malik, i miss you at outlook money. though now i feel that monelife is more accurate and sharp. keep it up


2 years ago

changing times has not made the liaison work to deviate from the spy work anywhere in the world. This we have seen in recent times when old values were removed and in place has new weapons for the same work going uninterrupted. From where the whistle blowers and media gather the facts even before our great intelligence knew what is happening. The sad part of this is defence when our brave officers and Jawans sacrificed their lives for the country when some one else doing the spy work through liaison.

Narendra Doshi

2 years ago

Dear Veereshji,
Open heart comments.Enjoyed each word and now awaiting the next part, eagerly.

Rail Budget Highlights

Suresh Prabhu has set four goals to transform Indian Railways over the next five years, including delivery of a sustained and measurable improvement in customer experience and to make railway a safer means of travel


Presenting his maiden Railway Budget, Suresh Prabhu, the chartered accountant-turned politician, made several announcements to improve amenities and safety for passengers. Prabhu also announced an investment plan of over Rs1 lakh crore for FY2015-16.
Here are the highlights of the Railway Budget for 2015-16…
* No hike in passenger fares
* Speed of trains running at 110-130 kmph to be increased to 160-200 kmph
* Over 1,700 toilets on trains already replaced, another 17,000 to be replaced
* Toilets at stations need improvement; 650 additional toilets to be created in addition to 120 last year
* New department to keep stations clean
* Railways to Work on 'Swachh Rail - Swachh Bharat
* Defence travel system developed to eliminate system warrants
* SMS alerts to be introduced
* Paperless ticketing system to be developed
* Wi-Fi facility to be extended to category B stations (total 400 stations would be covered)
* Suburban network in Mumbai, Kolkata and Chennai to be augmented
* Announcement on new trains/frequencies to be made during current parliament session
* 10 cities identified for creating fully-functional satellite terminals to reduce congestion
* All newly-manufactured coaches to be braille-enabled
* Online booking for wheel chairs to be enabled
* Over 20,000 suggestions received on improving facilities
* Railways proposes to install Train Protection Warning System and Train Collision Avoidance System on select routes at the earliest
* During 2015-16, 970 ROBs/RUBs and other safety-related works to eliminate 3,438 level crossings at an expense of Rs6,581 crore sanctioned.
* Size of the plan budget has gone up by 52% to Rs1,00,011 crore in 2015-16 from Rs65,798 crore in 2014-15.
* Investment of Rs8.5 lakh crore in next five years
* Railways to increase daily passenger carrying capacity from 21 million to 30 million, increase track length by 20% from 1.14 lakh km to 1.38 lakh km, grow annual freight carrying capacity to 1.5 billion tonnes from one billion tonnes.
* Seventy-seven new projects worth Rs96,182 crore sanctioned
* Four goals: Deliver sustained improvement in customer facilities, Make railways safer means of travel, expand substantially, make Indian Railways self-sustainable
* Nine thrust areas: Railways to once again become prime mover of economy; resource mobilization for higher investments; decongestion of heavy haul routes and speeding up of trains; emphasis on gauge conversion, doubling, tripling and electrification; project delivery; passenger amenities, safety; transparency and system improvement; railways to continue to be the preferred mode of transport for the masses; sustainability
* Foreign rail technology co-operation scheme proposed to be launched
* New governance structure required; more decentralisation and deregulation; accounting system to be revamped
* Resources to be generated through public-private-partnerships
* Assets to be monetised rather than sold; land records being digitised
* Products made by self-help groups to be encouraged
* Railways cannot function in business-as-usual mode, have to keep up with changing times
* Green technology locomotives to be introduced
* Two dedicated freight corridors gathering steam
* Innovation Council and Technology Portal to be set up to invite suggestions on improvements
* MPs urged to use part of their funds for improving rail facilities
* Open bids to be invited from private parties to develop railway stations
* Operational ratio of 88.5% targetted
* Waste-to-energy conversion plants to be created
* Budget part of trilogy: White paper already tabled, this budget, vision document soon
* Railways backbone of national connectivity
* Will partner with private sector to improve last mile connectivity
* Railways unique integrator of modern India
* Facilities not improved substantially over past few decades
* Vicious cycle of under-investment must end
* 1,219 sections on network - most of them overworked


Taxation of investment vehicles: Will the Budget set right the distortions - II
Will Finance Minister Arun Jaitley provide some clarity on different and confused tax provisions, especially for investment vehicles such as mutual funds, trusts and private equities in the Budget 2015?
All over the world, there are clear rules for being eligible for pass-through status, but unfortunately, the principles on representative taxation in India have never been designed to tax collective investment devices. The least what Finance Minister Arun Jaitley should do, in Budget 2015, is to set right the highly distorted scene of taxation of investment vehicles, especially when international investors are invariably flummoxed about tax uncertainty. These vehicles include the private equity (PE) funds and venture capital funds (VCFs), collectively called alternative investment funds (AIFs), securitisation vehicles, real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).

CBDT circular and Bangalore ITAT ruling

A recent ruling of the Bangalore ITAT in the case of M/s India Advantage Fund –VII vs. Dy. Commissioner of Income Tax, examined the general representative tax principles in India, conditions of taxation of an AOP, tests for determinacy of beneficiaries in case of a trust, and was particularly helpful is expanding/ extending the benefit of a CBDT circular issued recently on 28 July 2014.
The CBDT circular had the effect of laying down, as most assessing officers would have believed, that a trust will be taken having determinate beneficiaries only if the beneficiaries were named in the trust deed. On the contrary, the ITAT rules that even if beneficiaries are added later, as long as beneficiaries could be ascertained with the help of the trust deed, the trust will still be a determinate trust. As a corollary, it may be safe to hold that even where beneficiaries change hands subsequently, the determinacy test will still be satisfied. 
The ITAT held on the issue that as long as the trust deed gives the details of the beneficiaries and the description of the person who is to be benefited, the beneficiaries cannot be said to be uncertain. Where the beneficiaries are determinable irrespective of the percentage share being prescribed at the inception, the business trust would be construed to be a determinate trust and the trust should be a pass-through. 
The ruling came as a spite in the much ambiguous tax environment pertaining to business trusts. However, a ruling is, after all, is a ruling, and it comes from a tribunal. Grapevine is that the Department has already gone in appeal against the ruling. The High Court’s decision, which normally may take quite a few years, may be a cliff hanger. In the meantime, tribunals from different other places may have different rulings to offer. And who knows how many years will this whole process take?
In the meantime, many of the AIFs would have been redeemed. The trustees or the asset managers may still be around. The Department’s action, or even show causes, may cause shockwaves among the asset managers. After all, the Vodafone episode clearly indicates that what international investors are invariably flummoxed about is tax uncertainty. Therefore, the investments into the country suffer.

Securitisation distribution tax has killed securitisation transactions:

The Union Budget for 2013-14 introduced taxation regime for securitisation transactions by inserting Chapter XII – EA in the Income Tax Act, 1961. Pursuant to the insertion any income distributed by the securitisation trust/ SPV was to suffer distribution tax. The tax provisions were similar to those applicable to mutual funds. The distribution tax regime adversely impacted the securitisation industry. The distribution tax applicable on income distributed by securitisation trusts has the following drawbacks:
a. The distribution tax is on the gross income. The investors in securitised instruments are all leveraged entities, who have their own expenses, primarily interest. The net income of such investors is only a small fraction of the gross income received by such entity. Clearly enough, if an investor in securitisation has to pay tax on gross incomes, not only is the tax offensive, it is also outright inequitable, as it fails to take into consideration the leverage of entities. At the same time, a tax based on gross income ignores the profits or losses of the investor, and becomes particularly inequitable in case of losses.
b. In the Indian context, investors in securitised debt instruments have generally been mutual funds, banks, financial institutions, non-banking financial companies and insurance companies.
i. The chapter exempts mutual funds from the applicability of distribution tax.
ii. For investors such as banks, insurance companies etc. the gross income from the investment would be taxed at a flat rate of, effectively, 28% / 34% at the trust level. Further investors would also suffer disallowance of expenses incurred in relation to the income from PTC’s under section 14A of the Act.
c. Such distribution tax regime would, generally, hold good where there are a number of retail investors earning income, as in the case of Mutual Fund paying income or a company paying dividend.  In such cases, admittedly, it is onerous to track if such income/ dividend is offered to tax by the investors.  However, contrary to this, securities issued by the SPV are, generally, subscribed to by institutional investors.  The number of investors in each SPV would, generally, range between 2 to 20.  Therefore, it is highly unlikely that the income earned by such large investors will go unreported.

REITs are a non-starter:

REITs, supposedly initiated by the Budget 2014, have been a non-starter. SEBI came up with its final regulations in September, 2014; however, REITs are yet to make a debut. Our interaction with the potential sponsors clearly indicates that tax issues are keeping them on the hold.
In fact, REITs are clearly a model adopted from the USA, which allows full tax transparency to REITs, subject to a mandatory norm for distribution of a minimum 90% of the taxable income. Interestingly, SEBI regulations still follow the 90% mandatory distribution norm but the tax pass-through is only in case of interest income. This appears quite queer, because in view of the nature of an REIT, it is unlikely that an REIT will have an interest income. The most likely source of income is rentals – and there is no tax pass through on rental income.

Ideal structure for investment conduits: A conditional pass through:

The ideal structure for investment conduits is conditional pass-through. The SPV is called a see-through conduit, as the tax laws can see the investors receiving the income through the SPVs. Pre-conditions for see through approach:
The SPV is a non-substantive body; investors are the real owners of the pool
The SPV’s organisational form does not matter
Trustees must have no discretion in application of income
The share of income received by the participants must mirror proportionate share in the income of the SPV – proportionate to the interest of the investors
See-through approach relates to gross income of the SPV and not residual income
Tranching amounts to re-allocation of income and disturbs the parity between income received by the SPV and distributed by the SPV
There must not be an equity class entitled to variable, residual income
If there conditions are satisfied with regard to any business trust, then the tax authorities must see through the SPVs to tax the ultimate investors making the funds structure more conducive for existence. 
(Vinod Kothari is a chartered accountant, trainer and author. Nidhi Bothra is executive vice president at Vinod Kothari Consultants Pvt Ltd)


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