Category: Economic outlook

Demonetization – were banks used to convert black into white?

Dwelling on the success of demonetization [announced on November 8, 2016], Prime Minister Modi informed the nation from the ramparts of historic Red Fort on August 15, 2017 that the government had cancelled the registration of over 200,000 shell companies [nick name for entities which are engaged in laundering black money]. He reiterated this on October 5, 2017 in his speech at the annual function of the Institute of Company Secretaries of India [ICSI] alluding to the axe falling on another about 100,000 such companies. These companies were identified while examining data on deposits made post-demonetization using advanced data analytics technique. Taking the process forward – in its all out war against black money and corruption – the government had...
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Taking on willful defaulters – Modi’s knock-out punch

The union government has promulgated an ordinance seeking to amend the Insolvency and Bankruptcy Code [IBC] – a law that was passed by the parliament last year aimed at faster and time-bound resolution of non-performing assets [NPAs] of commercial banks nearly 75% of which are with public sector banks [PSBs]. The resolution process involves the lender [read: bank] – under directions from the Reserve Bank of India [RBI] – making a reference of defaulting borrower to the National Company Law Tribunal [NCLT] which appoints interim resolution professional [IRP] for conducting the process. Under it, potential bidders make a bid for the company and the amount thus realized is used to pay back the loan. The process involves banks taking a...
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Anti-profiteering Authority: an unworkable mechanism

In mid-November, the Union Cabinet approved setting up of a National Anti-profiteering Authority (NAA) under the Goods and Services Tax (GST) so as to ensure that the benefit of lower taxes reaches consumers. If a consumer feels that the reduction in the incidence of tax under GST is not being passed on, she can register a complaint with the authority. The anti-profiteering mechanism provides for setting up of a ‘screening committee’ at the state-level and a ‘standing committee’ at the national level. The complaints will be first sent to ‘screening/standing committee’, depending on whether it is of local nature or of national import. If the complaint has merit, the respective committee would refer the case for further investigation to the...
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Anti-profiteering Authority – will it deliver or just a postmortem

On November 16, 2017, the Union Cabinet approved setting up of a National Anti-profiteering Authority [NAA] under Goods and Services Tax [GST] so as to ensure the benefit of the tax reaches consumers. Besides, the chairman, it will include four technical members. A five-member committee, under Cabinet Secretary P K Sinha, has been entrusted to finalize the list. If, a consumer feels that the reduction in the incidence of tax under GST dispensation is not being passed on, he/she can register a complaint with the authority. The anti-profiteering mechanism provides for setting up of ‘screening committee’ at the state-level and ‘Standing Committee’ at national level. The complaints will be first sent to ‘screening committee’/‘Standing Committee’ depending on whether it is of...
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Fiscal glide path, to change or not – Jaitely’s dilemma

Having stuck to the fiscal consolidation road-map for three consecutive years beginning 2014-15 and put up a brave front in regard to remaining on course during the current year at least until recently, finance minister has now alluded to what he termed as ‘changing the glide path to meet the challenges emerging from structural reforms’. The statement was made at Morgan Stanley investor meet in Singapore. However, in the wake of Moody’s Investors Service revising India’s sovereign rating from Baa3 to Baa2 and outlook from ‘positive’ to ‘stable’, Jaitely has retracted from the above and exuded confidence that the government will stick to fiscal consolidation road-map. Yet, it is necessary to analyze the reasons for his discomfiture and assess whether...
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GST – single rate, key to harnessing its potential

In its meeting held on November 9/10, 2017, GST Council has brought about a major restructuring of GST architecture. It has moved 180 items from the 28% slab [178 to 18% and 2 to 12%] leaving only 50 items in the highest slab. Besides, there has been some shuffling of items in other slabs: 19 items from 18% [13 to 12% and 6 to 5%]; 8 items from 12% to 5% and 6 items from 5% to zero. The exodus of items en mass from the 28% slab – a large number of these being items of common use such as detergents, soaps, shampoos, chocolates, nutrition food etc shows that there was something fundamentally wrong in designing architecture in the...
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Demonetization – Modi changed goal post, really!

The opposition parties observed November 8 – the day demonetization was announced by Prime Minister, Modi last year – as a black day. It has castigated the government for changing the goal post if only to camouflage its alleged failures. A senior member of the Congress observed that increase in search and seizure, de-registration of shell companies, increase in the number of persons filing income-tax returns, digitalization etc have nothing to do with demonetization. They aver that the original objective of the exercise was only to destroy the black money which has not been achieved. Nothing could be farther from the truth. True, the government had estimated that Rs 300,000 crores won’t come back to the system thereby representing a...
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Subsidy reforms: even Modi won’t take that risk

Recently, Delhi Chief Minister Arvind Kejriwal vehemently opposed the hike in fares for travel by Metro Rail and offered to share the financial burden equally with the Union government to ensure that commuters are not affected. About three years ago, he had decided to give heavily subsidised power to households consuming up to 400 units a month. Then, too, he vowed to bear its financial burden out of the state budget. Kejriwal is not alone in giving subsidies using taxpayers’ money. During the last five decades of governance – be it at the Centre or in the states – successive political establishments have built a super-structure of subsidies, such as on fertilisers, food, kerosene, LPG, irrigation, power, credit, seeds, etc....
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RBI OBSESSION WITH INFLATION HINDERING RECOVERY

The Reserve Bank of India has yet again cautioned the Government against excessive public expenditure as it could lead to fiscal consolidation and prove to be inflationary In its fourth bi-monthly monetary policy review for the current year (announced on October 4), the Reserve Bank of India (RBI) has kept the policy rate (rate at which the central bank lends money to commercial banks) unchanged at 6.0 per cent. This has come as a rude shock to industries and businesses especially the small and medium enterprises (SMEs) which were anxiously looking forward to a cut for giving a much-needed fillip to growth. The SMEs are at the core of Prime Minister Narendra Modi’s agenda for promoting growth, creating jobs and increasing income....
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