Revisiting GST – Part II

By CL -

February 21, 2019

Tax on under-construction property is another case similar to restaurants. While the tax rate here is 12%, the effective outgo would be lower, as builders should pass on the tax credit received on input material. However, builders have not passed on the benefit; and therefore, buyers prefer buying resale properties, which do not attract this tax. The Council is actively considering levying a flat 5% tax, without any input tax benefit.

To reduce the hassles of maintaining records and filing returns for small entities in the manufacturing industry, the Council has increased the minimum turnover limit eligible for the composition scheme. As per this scheme, a business entity does not need to maintain (or file) detailed entries; and can just pay a fixed rate of tax, currently 2%, if its turnover is below the threshold. However, in that case, the business cannot collect tax from its buyers, nor can it claim input tax credit.

The current threshold stands at INR 1.5 crore, revised upward from INR 75 lakh earlier. While the scheme is not available for suppliers, the next Council meeting is expected to take up this proposal. The scheme has drawn attention as a convenient and hassle-free option; and almost 20% of the registered businesses have opted for it.

However, from a tax collection perspective, the tax rate may need to be increased, as the tax mobilization through the scheme is very low. As per data released by the Press Information Bureau (PIB), GST collected through the scheme was just INR 580 crore in April’18, against a total collection of over INR 1 lakh crore.

GST also has an arrangement called reverse-charge mechanism. applicable when the seller is not liable to collect tax (as mentioned in the case above), or if the seller is not a registered entity. In that case, the buyer has to pay tax through this mechanism. To help the economy get used adequately to the taxation, the tax has been postponed to Sept’19 (from Oct’18).

Other than the operational issues, the Council has also taken an important decision of taking control of GSTN (GST Network). GSTN is the IT backbone, which stores the data of all registered entities; and through which, all tax payments and returns filing are done. GSTN was earlier registered as a private limited company in which the government had partial stake. The change was felt necessary, considering the sensitive nature of task being handled by it.

GST has, indeed, made substantial progress towards the objective of formalization. Other than about 65 lakh businesses, which migrated from the earlier indirect tax regime, another nearly 50 lakh entities have registered for GST, implying significant increase in formalization. While there is a chance that these entities have registered only as a legal requirement—and are not making any significant contribution to the revenue—yet, it is an important development.

Despite the substantial rate cuts, GST collection has moved up from an average of about INR 90,000 crore in FY ’18 to over INR 96,000 crore in the current financial year, so far. The revenue collection has exceeded the projections (based on earlier collection pattern) for many of the states.

However, some important issues are still pending. One of these is bringing petroleum products under the purview of GST. Since the government derives substantial revenue from oil taxes, it would be interesting to see at what rate slab these products are brought in. Another issue relates to maintaining and filing returns.

To conclude, despite all the changes, the system still has inadequacies; and may need some more tweaking to stabilize.

[Note: The objective of this post is to provide elementary information about GST, primarily to beginners. A business entity must consult a GST practitioner to understand the fine prints on actual compliance requirements]

Ashish Agrawal
Founder, India Business Analysis | IIT Roorkee, IIM-C alumnus

Revisiting GST – Part I

By CL -

February 21, 2019

The Goods & Services Tax (GST) has completed 18 months of its implementation; and the developments so far have been encouraging. After the initial months of excessive hassles related to filings, complaints of high tax rates, inconvenience to small entities, and so on, the taxation regime appears to have reduced these glitches substantially. Still, it is a work-in-progress — both operationally, and in terms of its potential to enable formalization of economy, widen tax base, and most importantly, bring about a cultural change from tax avoidance to tax compliance.

The tax information is also expected to help banks assess the credit worthiness of a business (especially small entities), and make lending more efficient and less risky. This should also, going forward, help assess the economic growth in a more effective manner.

Here is a look at its progress and the changes after implementation. Other than the technical glitches, the bigger worry was high tax rates, which threatened the survival of many small businesses. The GST Council has acted quite proactively on this matter; and received substantial praise by cutting rates liberally.

Almost 75% of items saw their tax rates come down from the initial 28% to 18% slab in Nov. ’17, providing a huge relief (the initial rate was based on the then-existing effective tax rate). The Committee has been pruning the list in almost all of its meetings; and just about 27 items remain in the top slab of 28% — from the original 200+ items.

Items, such as, washing machine, small TVs, air-conditioners which cannot exactly be called common-use items, have also seen the tax rates come down from 28% to 18%. Most of the items remaining in the 28% slab are what are called ‘demerit goods’, such as tobacco, etc., and luxury items.

An interesting drawback of GST is that the tax rate looks quite high, especially in the case of the 28% slab, even though this is less than the effective tax rate of 40% earlier (as in the case of automobiles). Since the taxes were levied at different stages, the aggregate tax impact was not getting reflected.

The tax rate cut was followed by measures to ensure that the benefits are passed on to the consumer. GST has a unique anti-profiteering provision, whereby it can levy penalty on a company if it does not pass on the gains of lower tax rate to its customers. Even though it may not be easy to use this provision effectively, it acts as an important deterrent. The anti-profiteering agency has imposed a penalty on a leading FMCG company recently and the case is under litigation currently. The special focus of the GST Council has been to ensure that the gains arising out of GST percolate to the consumers; and do not get cornered by the business entities. This is evident from the modification related to taxation on restaurants. The original scheme involved 12/18% tax rate, with the restaurants getting the tax credit on inputs (this means that in a bill of, say, INR 1,500, if the cost of input was INR 600, the restaurant would have to pay tax on INR 900 only, and not on INR 1,500).

However, this benefit was not being passed on to the consumer. To ensure that restaurants do not get this undue benefit, the tax rate was reduced to 5% WITHOUT giving them the benefit of input tax credit. The measure was a smart one; and shows the alacrity with which the Council has been managing the transition.

Ashish Agrawal
Founder, India Business Analysis | IIT Roorkee, IIM-C alumnus

The Value of IFRS

By CL -

February 21, 2019

In the world of business, accounting—whose concepts can be applied to almost all job specialties—is a highly prized discipline. With the focus on the domain gaining in prominence, the career prospects of an accountant too have become brighter.

In addition, the emergence of International Financial Reporting Standards (IFRS) as a global yardstick for accounting standards has transformed financial markets—both across the world and in India. IFRS comprises a set of rules on how accounting events like transactions, etc., should be reported in financial statements. The objective behind these Standards is to bring in elements of credibility and transparency, which, in turn, help investors, among others, take informed financial decisions.

In this modern world where every individual is rapidly progressing towards a “one world” in accounting, auditing, and corporate governance, IFRS is now being considered as a mandatory requirement in the Corporate field. No wonder then, in an economy like India, whose financial markets have witnessed a phased implementation of IFRS, knowledge of these Standards is being treated as invaluable. In fact, majority of finance companies operating in India today have implemented IFRS in their workplace.

So, whether you are an established CA, an accountant, or someone who dreams of a career in accounting, to keep pace with the changes in global reporting & accounting standards, you need to be proficient in the practice of IFRS.

And if you are looking for a training program on IFRS, Career Launcher offers a 4-month course, the details of which you can find here.

Trupti Patil
FinSchool Product Lead, Career Launcher

Automobile Industry Analysis: Dynamics & Financials

By CL -

February 21, 2019

The Indian automobile industry witnessed subdued sales during November and December 2018 due to the slowdown in NBFC’s loan disbursal and certain other issues. If the trend persists, that could be one more setback for an industry already bracing itself to meet the BS-VI norms from April 2020. This is over and above the potential disruption that may be caused by electric vehicles and changing customers’ preferences. These factors, together, pose substantial uncertainty, especially in the passenger vehicle space, even though the industry has been performing reasonably in recent years.

The automobile sector is classified into the following segments: 2/3-wheelers, 4-wheelers (PVs), and commercial vehicles (CVs). As per SIAM (Society of Indian Automobile Manufacturers), sales during FY’18 stood at a little over 2 crore units for 2 wheelers, 33 lakh passenger vehicles, 8.6 lakh commercial vehicles, and 6.4 lakh 3-wheelers. Interestingly, all the four segments recorded sales growth in the range of 7–8% during FY’14–18. Other than domestic consumption, the industry is quite active in exports market also, especially in the 3-wheelers segment, where almost 40% of production is exported. The share of exports in PV segment is 20%.

Despite being clubbed together, each segment has its own unique dynamics and market drivers. While the rural income is a primary determinant for 2-wheelers’ sales, 4-wheelers are almost wholly dependent on urban disposable income. On the other hand, commercial vehicles are driven by aggregate economic activity, whereas 3-wheelers are driven by economic activity, increasing urbanization, and lately, entry of app-based aggregators, which are changing the dynamics of the market. The entry of these players and scrapping of the permit system for running 3-wheelers across major cities in Maharashtra and some other states in 2017 have given a major boost to this segment.

Even though the industry is dominated by a few large players, it is highly competitive in nature. So much so that even attempts by players from one segment to enter another have not been significantly successful. For instance, Tata Motors has been struggling in the passenger vehicle segment with less than 5% market share despite having 45% share in the commercial vehicle segment. The competitive nature of the industry is more evident in case of the passenger vehicle segment due to presence of a number of smaller players backed by global majors. In fact, the failure of these companies to create a position for themselves in the market could be an interesting case study.

While there could be a variety of factors, the most important one is not ceding the market by the market leader which has leveraged its first mover’s advantage beautifully. While many of them tried to crack the market through a JV with domestic players, it did not give them any real breakthrough; and a large number of these JVs were terminated. With increasingly more stringent regulatory norms, it would not be surprising if some of them exit the market, like in the case of the telecom sector.

A look at the financials shows that the total domestic sales of the industry were over INR 3.5 lakh crore in FY’18 with net profit of about INR 28,000 crore (this figure does not include JLR sales owned by Tata Motors). Sales show an impressive growth of 11% CAGR during FY’14–18. More importantly, profits have risen at an even better 19% CAGR.

However, as they say, one person’s profit is another person’s loss. Large part of this improved profitability is attributable to the decline in steel prices, as a result of sharp increase in imports from China. Raw material cost for the sector grew by barely 8.7%, leading to 5 percentage point decline in RM/sales ratio. While the operating margin for the sector is a modest 16.7%, due to low interest and depreciation (I&D) charges, just 5.4% of the sales helped it record a net profit margin of 7.5%. I&D charges for steel industry stands as high as 12.5%, and is 8.2% for the cement industry. Even though the segment does invest a good amount of money in product development, the capital investment required for actual production is somewhat low, leading to low I&D charges. Even though the third quarter is looking challenging, results for half year ending Sept’18 was even better than the previous years’ performance. While sales rose by 21%, profits recorded an even higher growth of 34%. The profit growth has been aided by the performance of Tata Motors, which moved from a loss of about INR 700 crore to profits of INR 1,300 crore this half year.

While the near-term growth of the industry looks reasonable, the passenger vehicle is staring at a significantly challenging future in the medium term. The biggest of these is the change in the very notion of 4-wheelers carrying aspirational value, and the consumer shifting from ownership to on-demand transportation. As per a report quoted in Tata Motors’ annual report, millennials in the Asia-Pacific region are 49% more likely to use shared mobility solutions. This, coupled with increasingly more stringent regulations, emphasis on stronger public transport system, etc., can change the industry structure in unimaginable ways; and it would be interesting to watch out for that!

Ashish Agrawal Founder,
India Business Analysis | IIT Roorkee, IIM-C alumnus

Operationalizing Brexit – What is at Stake?

By CL -

February 21, 2019

The process of withdrawal of the United Kingdom from the European Union has become nerve-wracking, with the British Parliament expressing serious reservations. While the negotiations between the EU and the UK had not been as tough as in the earlier case of the much-feared Greek exit, the deal seems to have got stuck in the British Parliament. As per the current legal statute, the UK would exit the EU on March 29, 2019; and both the parties have to enter into a deal before that to avoid disruption to businesses and life, in general.

Here is a look at the economic aspect of the withdrawal, and why an orderly withdrawal matters. The economic separation could be classified into three groups: separation of trade in goods, trade in non-financial services, and trade in financial services. A look at the goods trade shows that it is the EU, which stands to lose more from the separation, contrary to general perception that the UK would be affected more.

This is because the EU’s export to the UK is more than the imports. As per a WTO report, the EU accounts for 53% of $644 bn of goods imported by the UK. Against this, of the total goods export of $445 bn from the UK, only 48% goes to the EU. This implies a trade surplus of about $130 bn for the EU, which may partially come back to the UK after the withdrawal.

However, trade in total commercial services (such as travel, transport, financial services, services linked to goods, etc.) gives a small surplus of $23 bn to the UK. While the UK exports 37% of $347 bn of services to the EU, it imports half of $210 bn from the EU.

Within commercial service comes financial service, which is small in value but is the most complicated of the three segments (while a separate figure for exports to the EU is not available, it could be about half of $83 bn of total exports of financial services from the UK). This is because the integration is much deeper; and unlike other segments, it is largely B2C. More importantly, the net value of exports does not indicate the total exposure, which is capital in nature, or notional in value.

To begin with, as per an IMF report, the UK banks provide around half of banking services to EU customers. Similarly, UK-based insurance companies have liabilities of £55 billion towards nearly 4 crore customers in the EU, whereas EU-based companies’ exposure in the UK stands at £27 billion and 1 crore customers.

The capital nature of exposure is reflected in the fact that the total Assets under Management (AUM) in the UK for EU clients is close to $1.4 trillion (as per the latest Financial Services Trade & Promotion Board, UK’s report). It is the fear of outflow of this capital, which drove down the British currency after the referendum; and continues to put pressure even now (the UK has total AUM of close to $7 trillion, which includes UK, EU, and rest of the world clients). The notional exposure refers to the servicing of derivative contracts, which is the most complicated of all. As per the IMF report mentioned above, contracts with a notional value of around £16 trillion maturing after March 2019 is being handled in the UK for EU clients. Similarly, UK-based clearing agents handle nearly 90% of euro-denominated interest rate swaps with a notional amount of around £38 trillion for EU customers. In the absence of clearly defined permission, the validity of these contracts could be in jeopardy.

An important risk-mitigation measure undertaken by the UK government is that it has agreed to bring in stopgap legislation. That would give temporary permission to EU-based financial companies to continue providing financial services to UK citizens. That would help avoid disruption of services being received by UK citizens from EU companies.

Even after the agreement is reached, both sides would need to get the necessary legislation passed by their respective Parliament, and operationalize the agreement. Subsequently, the companies operating across the border may accordingly need to secure permissions, registrations, and so on. The sequence of events before implementation of GST could give some idea of what to expect in the months to come.

And at the end of this all, one is left wondering, was the separation worth all this?

Ashish Agrawal Founder,
India Business Analysis | IIT Roorkee, IIM-C alumnus

ONGC: A Look at its Businesses, Financials, and Strategy

By CL -

February 21, 2019

Last year, ONGC (Oil and Natural Gas Corporation Ltd) acquired government’s majority stake in Hindustan Petroleum Corporation Ltd (HPCL). The company, with consolidated revenue of INR 3.6 lakh crore and assets of INR 4.6 lakh crore in FY18, seems to have moved away from its original objective of exploration and development of oil resources. Whether the diversification helps it de-risk its business and undertake exploration work more aggressively, or diffuses its attention from the core objective would be interesting to watch out for.

ONGC is a diversified oil sector company, originally formed as an Oil & Gas Exploration and Production (E&P) company. Oil exploration is a challenging and risky business beginning with study of seismic data, which gives an initial idea of presence of oil/gas underground. Actual exploration begins with digging of wells approximately 40-50cm in diameter and at least 2,000m in depth. If no oil/gas is found in the well, the amount spent is accounted as ‘sunk cost’, to be recovered from revenues generated from other operating wells. It is to be noted that exploration business can be carried out only in the area for which license is given by the government, either on nomination basis or through auction.

Other than domestic E&P, it has a foreign subsidiary, ONGC Videsh Ltd (OVL), to participate in oil blocks available in the international market. Since its inception, total investment in OVL is almost INR 1.5 lakh crore, a substantial amount. The company also acquired Gujarat State Petroleum Corporation’s (GSPC) exploration assets in KG basin during FY18 for a consideration of INR 7,700 crore.

Besides the core business, it has substantial exposure to downstream refining & petrochemicals business also. This is managed by its subsidiaries Mangalore Refining & Petrochemicals Ltd (MRPL) acquired in 2003, and Hindustan Petroleum Corporation Ltd (HPCL) — majority stake acquired in FY18. MRPL is expected to be merged with HPCL to create a single refining entity with total capacity of nearly 40 MTPA. With the acquisition of HPCL, contribution of refining business to total revenue has gone up to almost 50% with core E&P business accounting for nearly 30%.

The company also has subsidiaries ONGC Petro additions (OPaL) involving an investment of over INR 30,000 crore and ONGC Mangalore Petrochemicals (OMPL) engaged in petrochemicals business, largely to process by-products produced by the company which is not fetching enough value otherwise. The strategy, or compulsion, of entering into a non-core business is visible in another subsidiary, ONGC Tripura Power Company (OTPC), the power generation JV, which operates a 726 MW gas-based power plant. The plant has been built solely to utilize the gas produced from its fields in North-East, which was, otherwise, getting flared.

ONGC has total 2P (proven and probable) reserves of 800 million tons of oil and 1,000 million tons of gas. Of these, about 40% is owned by OVL. The company produced a total of 35 million tons of oil and 29 billion cubic meters of natural gas during FY18. Share of ONGC Videsh Ltd (OVL) stands at roughly 40% in oil and 20% in gas. The company also receives about 4 MMtoe from its JVs. Despite efforts, the company has not been able to achieve any breakthrough, either domestic or overseas, in enhancing its production. Its efforts are reflected in the fact that total capex stands at almost INR 2 lakh crore over the last five years.

ONGC’s consolidated balance sheet shows total assets of INR 4.6 lakh crore, which is much larger than Indian Oil, the public sector giant engaged in the oil refining segment. Of this, almost INR 2.2 lakh crore has come in the form of equity, implying a comfortable debt-equity ratio. Assets are spread across a number of heads, with oil & gas assets accounting for INR 1.4 lakh crore; and other property, plant & equipment accounting for INR 70,000 crore. Almost INR 40,000 crore is invested in wells under exploration, classified as “intangible assets”. This is the amount at risk, since exploration may not necessarily lead to finding an oil or gas reserve. Investment under development work, the phase after exploration and finding gas, is relatively low, at INR 20,000 crore, possibly a result of relative ease of development in comparison to exploration.

Total income for the company stood at INR 3.6 lakh crore in FY18, nearly a 10% increase over the previous year. However, this includes INR 1.2 lakh crore of purchase of stock-in-trade, largely a pass-through item without much value addition. The major cost item is production, transportation, selling & distribution, clubbed together at INR 1.75 lakh crore. The cost, including change in inventory, has risen from INR 1.2 lakh crore in the previous year. An important item in the expense side is “exploration cost written off” at about INR 7,500 crore. This is the amount spent, but has not yielded any gain to the company. Interest cost is quite low at INR 5,000 crore as a result of limited borrowings. Net profit for the company stood at INR 22,000 crore, a decline of 10% due to higher costs.

ONGC has come a long way from its original mandate, with its core business now accounting for just about 30% of its revenues. While there is nothing seriously wrong with moving up the value chain — most of the world’s mega companies in the field do that — it is important to ensure that the diversification does not diffuse its attention from the core objective. The concern carries more weight since the company has not been able to add much to its oil production over the years. The diversification may help it add to the bottom line and save it from having to answer for not enhancing oil production.

Ashish Agrawal Founder,
India Business Analysis | IIT Roorkee, IIM-C alumnus

Agricultural Distress: Challenges & Remedies

By CL -

February 21, 2019

Ashish Agrawal
Founder, India Business Analysis | IIT Roorkee, IIM-C alumnus

The distress being faced by India’s agricultural sector has become a part of the mainstream agenda; and rightly so. Despite supporting almost half of India’s population, the rural economy remains in a dire state, and policy initiatives have failed to provide any breakthrough. The report published by the Swaminathan Committee more than 10 years ago remains the most comprehensive document dealing with the issue.

Here is a brief attempt to understand the issues, taking inputs from the report. The growth rate of agriculture has always lagged behind that of the other sectors. Against GDP growth rate of about 7.5% over the last 10 years, agriculture has grown at barely 3.5%. As a result, its share in the GDP has come down from about 19% to just about 12%.

The decline is agriculture’s share would not have been a problem if it had been accompanied with sufficient increase in employment opportunities in the other sectors. However, that has not happened; leading to continued high dependency of population, and therefore, higher distress. Measures required to reduce agricultural distress can be clubbed into three broad groups: increasing productivity of farmland, increasing profitability of farm produce, and most importantly, reducing the number of people dependent on agriculture. Productivity improvement is directly linked to investment in fixed assets, like in any other industry. This, itself, is linked to availability of credit.

Nearly 65% of fixed assets created in the industrial sector has been financed with bank credit. In case of agriculture, not only is the share of credit low, that of long-term credit is even lower. As per an RBI report, share of agriculture in total loan disbursed is just 7%, of which share of long-term loan is less than 1%. Clearly, the focus has been on firefighting, rather than on capacity building.

Agriculture is dependent on a large number of factors, such as availability of land, water, fertilizers & other input materials, access to finance, crop insurance, access to market and pricing, mechanization, soil health, and so on.

Water is the most critical resource for agriculture. The impact of irrigation on agricultural performance is evident from the fact that regions such as western UP, Haryana, and Punjab which have achieved 80–100% irrigation have a cropping intensity of 160–180%. Cropping intensity refers to the number of times crop is planted in an area during the year. On the other hand, Maharashtra, Jharkhand, and Chhattisgarh have less than 20% irrigated area; and therefore, are prone to maximum agricultural distress.

However, productivity enhancement has its limitations; and small farms cannot achieve the productivity level of large farms. The issue has ramifications, since almost 80% of the farm families belong to the marginal and small farmer categories.

The issue can be addressed by developing Self Help Groups (SHGs), which can bring together small holdings into an Estate model covering both the production and post-harvest phase, incentivizing agri-processing industries to tie up with these farmers, and more importantly, wean away these households to other occupations, such as livestock rearing.

A NABARD report on rural income pattern provides an interesting perspective. While households with less than 0.01 hectare of land derive about 17% of their income from livelihood, the share is only 8% for the 0.01–0.4 ha group. The impact of this income supplementation is such that households with smaller land have higher income than the next group!

The second group of intervention involves improving profitability, calling for reducing the length of supply chain, better price discovery, and reducing middlemen’s margin. The current government intervention revolves around fixing a minimum support price (MSP), which, however, is not applicable to all crops, and is physically not possible for all farmers to access.

The role of the Agricultural Produce Market Committee (APMC) Act across the states needs to be understood in this context. It was enacted during the times of scarcity to keep a tab on the quantity of food being produced, and to ensure optimal distribution within a state. With increase in food production, the shortages have largely disappeared. However, farmers were — until sometime back — forced to sell their produce through the APMC, where they also had to pay a substantial amount of fees, making it a buyers’, rather than a sellers’, market.

States have woken up to the inefficiencies caused as a result; and most of them have repealed/modified the Act in the last 2–3 years. While private procurement has been picking up, these are still localized, and do not seem to be geared towards becoming national agencies. To enable better price discovery, and develop the entire nation as one market, the central government had launched the eNAM portal (electronic National Agriculture Market) linking all the APMCs. Another innovative intervention is Bhavantar Bhugtan Yojana, introduced by the Madhya Pradesh government in 2017, whereby the farmer is paid the difference between his actual sale price and the notified price, thus eliminating the price risk. While the scheme has significant potential, it is still early days.

However, farmers are not able to derive full benefit of the schemes due to lack of knowledge and limited perceived power to command prices. About half of the surplus of small/marginal farmers is disposed of in distress sale, where he gets a lower price. As per various estimates, farmers get no more than 10–25% of the final price of their produce. The issue needs to be addressed through local bodies, which would play the role of middlemen. The Swaminathan report calls for at least one female and one male member of every one of about 250,000 Panchayats to be trained by district/state-level professional management; and help them play this role. Similarly, farmers’ organizations should be promoted to facilitate direct farmer-consumer linkage. These organizations should also be trained to handle all issues, such as choice of crop, sourcing of seeds, use of technology, handling losses in farm storage, packaging, transportation, and so on.

Yet, none of these interventions can really work unless the number of people dependent on the farmland is reduced. The problem is more acute in case of landless labor, who are reliant on farming. However, that is an issue the entire nation grapples with; and achieving a breakthrough is difficult to visualize.

Afghanistan or Talibanistan?

By CL -

February 21, 2019

Afghanistan, a country with a rich history of immense cultural significance, is perhaps now facing oblivion curse because of barbaric actions, which have destroyed it to the core.

Not only has the Taliban contributed to this long painful saga but also the intervention of US and NATO forces have failed to bring Afghanistan back from the brink. The US assumed that Operation Enduring Freedom, launched in 2001, would be a silver bullet to bring the Taliban down. However, all it left behind was a bloody trail of chaos, pain, instability, and insecurity.

With the resurrection of a Taliban that is more powerful and with a stronger foothold, it appears that the protracted efforts towards making Afghanistan a self-sufficient & stable democracy has been badly defeated. A study conducted by the BBC on the present presence of Taliban in Afghanistan leaves one spellbound. It states that the Taliban threatens at least 70% of the country’s territory. Thus, the militants are at their strongest since 2001.

According to the American news website FDD’s The Long War Journal, the militants are in complete control of at least 13% of the Afghan provinces; and are contesting for control in 50%.

The image below will help us understand the situation better:

Courtesy: Al Jazeera

Source: The Long War Journal

Some experts opine that gradually Afghanistan is turning into Talibanistan, owing to expansion of the Taliban.

After the withdrawal of the US troops from the region, it is pertinent to reflect on the situation from the context of which country would try to emulate the US—if not in terms of deploying the military but towards strengthening the social and political scenario of the country.

India and China, together with Pakistan, should try to provide a permanent solution to Afghanistan’s precarious situation by reviving her economy, improving the educational institutions, and enhancing the health infrastructure. An eye-for-an-eye attitude towards the Taliban will only act as a Band-Aid; the real solution is to resuscitate the country by not letting it become Talibanistan.

Sherry A Singh
Product Anchor, Civil Services, Career Launcher

The Important Proposals

By CL -

February 21, 2019

Ashish Agrawal Founder,
India Business Analysis | IIT Roorkee, IIM-C alumnus

The Union Budget presented yesterday was keenly watched to find out if the government sticks to the path of fiscal prudence, or makes populist announcements. The speech, while making some important and pathbreaking announcements, thankfully, did not go overboard with its proposals. It has recommended a total expenditure of INR 27.8 lakh crore during 2019–20, an increase of more than 13.3% over revised estimates of INR 24.6 lakh crore in 2018–19.

The three most important proposals of this year’s budget are introduction of minimum income support to small/marginal farmers, introduction of pension scheme for unorganized sector employees, and introduction of the concept of “rural industrialization”.

Here are the details on these, and other budget proposals.

The budget this year generated a lot of interest on whether it would be a full budget or an ‘interim” one. “Interim”, or “vote on account”, means the government is not seeking funds from the Parliament to meet its full year’s expenditure but only for four months. The full budget will be presented after the new government is formed at the center.

In a first initiative of its kind, the government has proposed to provide an income support of INR 6,000 per person to all small and marginal farmers. The move will cost about INR 72,000 crore annually, as the estimated number of such farmers is about 12 crore. While the political angle of the move is debatable, the scheme would go a long way in helping these farmers meet their basic needs. Further, this should also act as an opportunity to look at the efficacy of another similar mega scheme, MGNREGA, and tweak it to make it more productive.

The pension scheme is largely similar to the one existing for the organized sector employees; and proposes a monthly pension of INR 3,000 to workers in the unorganized sector on attaining the age of 60. However, it will be applicable only for those earning up to INR 15,000 per month. The scheme is not free, but based on contribution by the worker concerned to the tune of INR 100 per month (if his age at the time of joining the scheme is 29 years) and INR 55 (if the age is 18 years). The Government will contribute an equal amount to the scheme; and the total sum involved could be about INR 15,000 crore.

It is expected that about one-fourth of the 43 crore workers engaged in the unorganized sector will enroll for the scheme, which is certainly far-reaching, as it provides a much-needed safety net to these small-time workers. It may be further tweaked to provide an option to the workers to deposit amounts in excess of the minimum for additional benefits (like those available in the current PF scheme), loan against these deposits, lumpsum payment in case of untimely death of the worker, and so on.

The budget speech talks about 10 dimensions, which would propel India’s growth over the next decade to help it become a $10 trillion economy. The most important of these is introduction of the concept of “rural industrialization”, which would not only help generate employment and provide a fillip to the rural economy but also prevent the exodus of population to urban centers. MSME industries at the grassroot level, comprising agro-processing, other village specific industries, etc., are critical to meet the basic level of rural income and wean people away from agriculture. Public sector enterprises, which helped India develop competency in heavy industries can act as engines of growth here too. The initiative can be clubbed with rural digitalization initiatives to help rural India emerge also as digital service providers. However, it is just a concept at the moment; and will need a focused strategy so that it does not get lost like the concept of ‘smart cities’.

An important element of budget announcements used to be changes in the indirect tax rates. GST seems to have taken away the charm from budget speeches, where consumers and corporate alike watched keenly to know these changes, and whether the stock market would react to likely winners and losers!

However, some changes in direct tax regime were brought in this year, the most important one being rebate to taxpayers with income up to INR 5 lakh (from the earlier INR 2.5 lakh). Since, this is a tax rebate, and not a change in the tax slab, tax payers with income over INR 5 lakh get no direct relief.

Among other segmental initiatives is the provision of 2% interest rebate on loan of up to INR 1 crore to SME units, which are GST registered. The measure is a smart one, as it not only provides an incentive to the segment, but also pushes them to register and enter the formal economy.

Budget 2019: Reformist or Populist?

By CL -

February 21, 2019

The Interim Budget 2019–2020 has stirred both good and bad emotions equally. Some opine it as a politician’s budget, whereas others believe it to be financially prudent. Barring the Opposition, the ruling party, at the verge of General Elections, is singing hosannas about it.

The hackneyed themes of farmers’ welfare, middle classes’ development, and financial inclusion were dealt well by the Finance Minister Piyush Goyal. Refreshed promise of prosperity (Achhe Din) was again highlighted by Prime Minister Narendra Modi, who referred the benefits ushered in by the annual financial statement as a “trailer”, thus hinting towards a great movie.

With grand schemes like the Pradhan Mantri Kisan Samman Yojana Nidhi (PM-KISAN), an assured income support scheme for small and marginal farmers across the country (for those having cultivable land of up to 2 acres); relief for small taxpayers (with income of up to INR 5 lakh is exempted); bank interest (exempted from TDS); and pension scheme for the unorganized sector (with INR 30,000 per month envisaged after 60 years of age) the question is how to manage the fiscal deficit.

Goyal said that fiscal deficit would remain at 3.4% of the GDP in FY’19 and FY’20. Thus, India is perhaps on a “glide path” to achieve the original target of 3%. On assuming office in 2014, the BJP had promised to hit 3% by FY’18. So, a politician may give 10/10 to this budget, but an economist would hesitate to do so.

Also, the PM-KISAN scheme is applicable only for landowners and not for tenant farmers. Although, the tax and expenditure reforms are a new beginning with direct income support to the Indian farmers, the reforms are delayed—and perhaps marred—due to apprehension regarding the upcoming elections. These positive changes should have come earlier, with more focus on their implementation.

Therefore, even though it is a reformist budget, it is being debated as ‘Populist’, ‘Propaganda’, and ‘The Mother of Election Budgets’.

Sherry A Singh
Product Anchor, Civil Services, Career Launcher

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