The IBS Times : 199th issue; May 2017

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Industry Analysis – Real Estate By – Antra Bharti

MOUNTING PROBLEMS FOR EUROPEAN UNION By - Jeet PC 1

ISSUE NO. 199 MAY 2017,

3 LETTER FROM EDITOR

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CHINA’s GROWTH TRIM OF 2017

QUARTERLY REPORT ANALYSIS

9 Cover Story

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15 Cover Story

UNION BUDGET 2016-2017

MOUNTING PROBLEMS FOR EUROPEAN UNION

TAX ADMINISTRATION REFLECTIVE CHANGES

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20 Cover Story

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REAL ESTATE -INDUSTRY ANALYSIS

Economic Survey and Fiscal Management

Jio! – Strategizing in right direction

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30 Vriddhi Research

One Nation One Tax (Continued)

Union Budget 2016-17

What’s Inside!!

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INTELLIGENCE BEYOND SUCCESS LETTER FROM THE EDITOR

TEAM IBS TIMES SHILPAM DUBEY (EDITOR-IN-CHIEF) SNEHA TIBREWAL (MANAGING EDITOR)

Dear Readers, Does the world impact India, or India impact the world?

ANTRA BHARATI DEBANJAN PAUL

The year 2016 was not a simple year when it comes to the economic developments,

DIXITA REDDY

starting from the fulfillment of ever-awaited hopes of GST, to witnessing

GAGAN KAPOOR

unexpected turn of events- demonetization in the domestic front, Brexit and the

JEET PC

arrival of Trump on the international, to name just few. Yet, amidst all these, India

RADHIKA GUPTA

performed surprisingly well. But, who to turn up to when the growth numbers itself

SHREYA RANI

are questioned? Jim Rogers, an American businessman, investor and financial

SMRITI PATODIA SRUJANA NAIK UTSAV CHANGOIWALA

commentator recently said in an interview that most people don’t trust GDP numbers, also adding “I’ve learnt over the years that if you are sitting and watching government numbers, and do your investments based on that, you are not going to make much money.”

India’s growth in the last quarter of 2016 as calculated by the CSO turned out to be 7%, more than what most of the economists predicted. As demonetization crippled the economy, the growth rate was questioned by a lot of analysts arguing that informal sector, which was most hit by the demonetization, was not well accounted in the calculations of GDP. We cover India’s macroeconomic state in the Quarterly review and Budget 2017. Meanwhile, China cuts its 2017 growth target to 6.5% on account of rising debts and slowing credit.

We have seen Reliance Jio strategy turning the tables and disrupting the whole telecom sector. We cover it in our article “Jio! - Strategising in the right direction”.

On the fiscal front again, we cover latest progress in the GST’s latest roll-out.

Internationally, we see ever increasing European financial troubles whether its Italian Banks witnessing rise in their bad loans or Greece piling up domestic debt problem. We cover it in our article “Mounting problems for European Union”.

Shilpam Dubey Team FinStreet

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CHINA’s GROWTH TRIM OF 2017 - Srujana Naik China, which experienced an amazing growth in the last few years that launched the country to become the world’s second largest economy. China started its program of economic reforms in 1978 and it was ranked 9th in nominal GDP with USD 214 billion.

Today after 35 years it has made up to 2nd place with a nominal GDP of USD 9.2 trillion.

Such is a huge growth which China has experienced.

Economic Overview Since 1978, China has become the world’s manufacturing hub, contributing to the largest share of GDP. Chinese were able to withstand the global economic crisis in far more better way than most of the countries. In 2008, the State council revealed a USD 585 billion stimulus package in an attempt to shield the country from worst effects of the financial crisis. This paved the way for the growth of economy through huge investments projects, which caused concerns that the country could have been building up asset bubbles, excess capacity in industries and over investment.

But the solid fiscal position of the Chinese government, the prompt measures did not bother China’s public finances. The global downturn and the slowdown in demand did affect the external sector and the current surplus has continuously decreased since the financial crisis.

However, China exited the financial crisis in good condition, with GDP growing above 9%, low inflation and a decent fiscal position.

The economic policies which were implemented during the crisis to encourage economic growth aggravated the country’s macroeconomic imbalances. This boosted investment, while household’s consumption was relatively low. To overcome these imbalances, the new administration of President Xi Jinping and Premier Li Keqiang beginning in 2012, have presented economic measures aimed at promoting a balanced economic model at the expense of the once-sacred rapid economic growth.

Fiscal Policy In initial days, before 1978, China followed a centralized fiscal system. The central government collected all the revenues and allocated all the spending of the public institutions and administration. Then in 1994, the government came up with a bold fiscal policy in order to overcome a rapid decline in the tax and GDP ratio, which decreased the government’s ability to conduct macroeconomic policies.

Then they introduced a new taxation system which were were administered by the central government.

This resulted in increase in revenues and the GDP jumped from 10.8% in 1994 to 22.7% in 2013. The fiscal deficit was also kept in check. In 2015, public debt amounted to 15.6% of GDP. Monetary Policy The People’s Bank of China (PBOC) under the guidance of the State Council formulates and implements monetary policy, resolves the 4

financial risk and maintains financial stability.

The PBOC’s main aims are ensuring domestic price stability, managing the exchange rate and promoting economic growth. At the beginning of the year, the State Council establishes guiding targets for GDP, the Consumer Price Index (CPI), money supply (M2) and credit growth. The one-year lending rate is PBOC’s policy rate. The Central Bank recently promised to maintain a “prudent” monetary policy while conducting policy fine-tuning at an appropriate time during the National People’s Congress (NPC) in March 2016.

The Central Bank manages money supply through Open Market Operations (OMO), which are conducted with both domestic and foreign currencies and has repo and reverse repo, government securities and PBOC bills.

The Bank also uses the reserve requirement ratio to influence liquidity and lending. Other instruments that the Central Bank uses to handle and adjust liquidity in the banking system are short-term loans, short-term liquidity and standing lending facility operations. The objective of China’s top authorities includes bold reforms on interest rate and monetary policy management in order to adopt a more market-driven approach.

Trimming the growth rate On 5th March, 2017 a government report released at the inaugural session of country’s parliament said that China reduced its growth forecast to 6.5% for the year 2017. The

inflation target for this year is 3.0%, matching the target in the previous 2 years. Analysts say that China is basically concentrating on maintaining a prudent monetary policy and a proactive fiscal policy. The main fiscal goals for the government for this year will be strengthening investment in public infrastructure, social welfare and social housing. However, the fiscal deficit target remains unchanged at 3.05% of GDP and the government will continue its proactive fiscal stance, the authorities will incur more debt than previously forecasted after lifting the planned issuance of local government bonds from CNY 400 billion to CNY 800 billion.

Also, the government heavily is dependent on quasi-fiscal measures to fund infrastructure projects, which are not included in the budget target. On the fiscal front, the Chinese government also revealed tax reductions for small business and a higher deduction for research and development among other initiatives to encourage private activity. The authorities are also focused to follow potential financial risks, including shadow financing and non-performing loans.

To reduce overcapacity mainly in steel and coal production is also on the agenda, but the targets were scaled down following last year’s huge production cuts in some sectors.

Reforms to State-Owned Enterprises (SOE) will continue this year focusing on mixed ownership in the oil, electricity, natural gas and railway sectors. Li also announced a speedy approach of encouraging home purchases in tier 3 and 4 cities, while increasing and supply and keeping restrictions in cities that have experienced a strong rise in prices.

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Although, the shadow of a trade war between China and the United States hung over the summit, the authorities did not reveal any significant changes to trade policy. And Li also mentioned that China does not want trade war with US, in fact he is keen on meeting Donald Trump and Xi Jinping in April. Li vowed to initiate the “One Belt One Road” to strengthen China’s ties with its Asian neighbours. The Chinese are keen to achieve the employment objective with this growth and has announced job plans to ensure that at least every family has one breadwinner, Chinese expects 11 million new urban jobs to be created this year. Analysts say that China is trying to maintain a balance between growth and liquidity while following reforms and breaking unruly financial forces.

Key targets from Li’s remarks ➢ ➢ ➢ ➢

GDP target of 6.5% CPI target of 3% Budget deficit target at 3% of GDP M2 growth target of 12 percent However, China has definitely set a lot more goals with this cut down of growth.

But it’s the time that will answer how successful will it be in its transformation to a consumer driven economy and to see if they can make the skies blue again.

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QUARTERLY REPORT ANALYSIS India grew 7% despite demonetization - Radhika Gupta Demonetization, a decision taken by Modi government announced on 8th November, had a major impact on the lives of people.

Demonetization was a ban on currency notes of Rs. 500 and Rs. 1000 as to eradicate corruption from the country. This initiative was taken by Modi to remove black money from the country and fight terrorism. But this decision affected people a lot and there was a shortage of currency in short run. People had to leave their jobs and businesses to go for currency exchange. Many shopkeepers faced loss because it reduced the purchasing power of the customers. But still the country had 7% growth in GDP despite on the ban of notes.

negative impact but if showed a positive growth. RBI lowered the GDP growth for this fiscal to 6.9% but the same time projected a rebound in the next fiscal at 7.4%.

According to the annual reports of IMF it was expected that the GDP growth will slow to 6.6% in 2016-17 due to temporary disruptions caused by demonetization. But it also said the impact will be temporary, later on it will increase more than 8% in next few years.

In spite the note ban agriculture sector was doing well, and helped India to retain the tag of world’s fastest growing major economy.

India’ growth was higher than china’s growth for this quarter.

The growth in GVA from manufacturing sector was estimated to be 7.7% compared to 10.6% in 2015-16. Private final consumption is estimated to be 103818 as compared to 94178 during 2015-16 with the growth rate of 8.9%. The country did not see negative inflation. The transactions which were hampered by the shortage of currency in fourth quarter were addressed in the first quarter of 2016-17.

The deadline for the exchange of currency notes and deposit of the defunct notes was 31st December across the nation. It hit the business operations. As people projected a

The 'agriculture, forestry and fishing' sector is likely to show 4.4% growth in its GVA during 2016-17, as against the previous year's growth of 0.8%.

In terms of GDP, the rates of PFCE at current and constant prices during 2016-17 are estimated at 58% and 56.1%, respectively, as against the corresponding rates of 57.8% and 56.1%, respectively in 2015-16.

The reasons behind the growth of country despite of demonetization are, the growth of good kharif crop this year which did not let down the agriculture sector. Secondly, RBI replaced the bank notes with a good speed, 7

due to that the anticipated decline in growth rate did not occur.

The growth rate is calculated using statistical methods. India and China are considered as major investment destinations of the present day world. FDI investment might increase once the things get settle down.

Out of this 7 percent much has been contributed by the primary sector. As 2016-17 was a god monsoon year therefore the growth of primary sector was good. Earlier the growth of service sector was very good because the condition of service sector before liberalization was pathetic. So, any rise in the service sector was reflected in the growth rate.

Since the agricultural growth is good, the agro based economies are bound to have performed well, which is good for employment consideration but this has hardly any reflection in IIP. The basic, heavy and key industries, iron and steel industry, heavy engineering industry, automobile industry, power industry, FMCG, etc. are the real elephants who need to move upwards so that the IIP moves in real sense. Again GDP is not the only indicator of growth because whatever the GDP growth rate is the same should be ‘self-sustainable.’

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UNION BUDGET 2016-2017 Financial Sector, Digital Economy and Infrastructure - Debanjan Paul The next big thing that India was waiting for after the Demonetization move was the Union Budget 2017. It was a challenging time for the Indian economy and amidst these circumstances our Finance Minister Mr Arun Jaitley presented the budget on February 1st, 2017. It was indeed an intimidating challenge in the hands of Mr Jaitley as much was expected from him.

The budget was distinctly divided into 10 themes: ● Farmers ● Rural Population ● Energizing youth, poor and underprivileged ● Infrastructure ● Financial sector ● Digital Economy ● Public service ● Prudent Fiscal management ● Tax administration In this article we will discuss about the three major sectors which has the ability to take our country to the next stage of development. We will discuss about the Financial sector, Digital Economy and Infrastructure.

The Budget 2017 has mainly focused on the financial sector as it has been identified as the key driver of economy. The following are the major announcements made by Mr Arun Jaitley: ● The Foreign Investment Promotion Board (FIPB) will be phased-out in the next fiscal and a bill will be soon tabled in the Parliament to protect the poor and gullible investors ● He has informed that more than 90% of the total FDI inflows will be through automatic routes ● It has been proposed that NBFCs with high net worth can also participate in IPOs just like the banks and insurance companies ● A common application form will be introduced for registration, opening of bank and demat accounts and issue of PAN will be introduced for Foreign Portfolio Investors (FPIs) ● The commodities and securities market will be further integrated by combining the participants, brokers, and operational frameworks ● The threshold limit has been raised from 1 crore to 2 crore for audit of business entities that opt for presumptive income scheme ● The threshold for the maintenance of books for HUF has been proposed to be increased from turnover of 10 lakhs to 25 lakhs or income from Rs 1.2 lakhs to Rs 2.5 lakhs 9

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The Category I & II of Foreign Portfolio Investor (FPI) will be exempted from indirect transfer provision under the IT act The insurance agents will be exempted from the deduction of 5% of TDS provision from commission payable after filling a self declaration that their income is below taxable limit The shares of Railay Public Sector Enterprises (PSEs) like IRCTC, IRFC and IRCON are to be listed in stock exchanges The budget target has been doubled to 2.44 lakh crores under the Pradhan Mantri Mudra Yojana (PMMY) Rs 10000 crores has been earmarked for recapitalization of banks 2017-18 and the Finance Minister also assured need based additional allocation It has also been proposed to create an integrated public sector ‘oil major’, which will be able to match the performance of international and domestic private sector oil and gas companies

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Now coming to Infrastructure, our Finance Minister has underlined its importance in the context of Indian economy. Moreover, this is for the first time in 92 years that a combined budget has been presented after the merger of the railway budget with the Union Budget.

Budget 2017 has given a major push towards the Infrastructure sector. Let us see the major decisions being taken by FM Mr Arun Jaitley in his budget speech:

Construction of one crore houses by 2019 for the homeless The Awas Yojana allocation has been raised from Rs 15,000 crores to Rs 23,000 crores 27,000 cr to be spend on Pradhan Mantri Gram Sadak Yojana (PMGSY) 100 pc electrification of villages to be completed by May 2018 133-km road per day constructed under Pradhan Mantri Gram Sadak Yojana as against 73-km in 2011-14 A new metro rail policy will be announced, this will also open up new jobs for the youth as quoted by FM Jaitley It has also been announced that two new All India Institute of Medical Sciences(AIIMS) will be set up in the state of Jharkhand and Gujarat Some select airports in tier-II cities to be taken up for operations, development on Public-private partnership (PPP) mode 500 railway stations will be differently abled by providing lifts and escalators Railway line of 3,500 km will be commissioned in 2017-18 as against 2,800 km in 2016-17

With India being regarded as the fastest growing economy by IMF, it remains to be seen where does this new Budget on infrastructure takes us.

The third and final topic of discussion takes us to the new productivity platform that some experts regard as the third industrial 10

revolution i.e. Digital Revolution. As the Government is pushing towards less-cash economy after the big bang measure of demonetization, Budget 2017 has taken some crucial steps to replace cash with digital transactions. Let us have a look at the few important measures taken by our Finance Minister in Budget 2017 to widen the digital economy: ● More than 125 lakh people have adopted the BHIM app so far.

Moreover, the government will launch two new schemes to promote the usage of BHIM— one is the Referral Bonus Scheme for individuals and the other is a Cashback Scheme for merchants ● Aadhar Pay, a merchant version of Aadhar Enabled Payment System, will be launched shortly ● A mission with a large target of 2,500 crores digital transactions for 2017-18 will be set up through UPI, USSD, Aadhar Pay, IMPS and Debit Cards ● A proposal has been made to mandate all government receipts through digital means, beyond a prescribed limit ● Banks have targeted to introduce additional 10 lakhs new POS terminals

by March 2017. They will be encouraged to introduce 20 lakh Aadhar based POS by September 2017 ● The government will set up a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems

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Presumptive income for small and medium taxpayers whose turnover is upto Rs 2 crores, the present, 8 per cent of their turnover which is counted as presumptive income is reduced to 6% in respect of turnover which is by non-cash means Transactions over and above Rs. 3 lakh would not be permitted in cash subject to certain exceptions Manufacturing miniaturised POS card reader for m-POS (other than mobile phones or tablet computers), micro ATM standards versions 1.5.1, fingerprint readers/scanners and iris scanners and their parts and components are exempted from BCD, excise/CV duty and SAD

The Budget 2017 hasn’t been taken positively by many in the political world as former Finance Minister Mr P Chidambaram has labelled it as ‘Dumb Squib’. However, we haven’t seen much reforms in the past either.

So, there is a lot to look forward to. Within limited room, the Budget 2017 is much more positive and progressive and it is tipped to offset pain of cash crisis.

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MOUNTING PROBLEMS FOR EUROPEAN UNION Rising NPAs of Italian banks and Greece Debt Problems - Jeet P C The European Union is a unique economic and political union between 28 European countries that together cover much of the continent. The EU was created in the aftermath of the Second World War. The first steps were to foster economic cooperation: the idea being that countries that trade with one another become economically interdependent and so more likely to avoid conflict. From humble beginnings, the European Union has become a supra-national entity that at least superficially resembles a federal state, but which lacks sovereign power. It has its own flag, anthem, currency, President (five of them, actually) and a diplomatic service.

Today, the EU is trying to grasp new powers, while, paradoxically, it is also facing mounting opposition and a growing probability of collapse. These are days of great tension in European markets: prices of collapsing actions, in addition to the difficulties of bank bond markets to price the bail-in, saving inside of the bank with the partial imposition of losses on creditors and bondholders. Italian banks in particular are under fire by investors. Monte dei Paschi has lost more than half of its value since the beginning of year and hovers so much uncertainty that many commentators rely on the black hand of international speculation. A more plausible truth is that Italy is facing a combination of external factors, such as the bail-in, and the interior, with the failures of the government and supervisory institutions accumulated over time.

The issue of non-performing loans of Italian banks is not new. It was talked about it already in 2009, with the first crisis of Monte dei Paschi di Siena, and then in 2011, when

Italy faced sales on government bonds guided political and economic uncertainty. In early 2012, neither the 1% of liquidity from ECB obtained by Italian banks was able to spur the government in defining a saving plan in the case of a possible bank crisis. In mid-2012, the European Commission proposes new rules on the resolution of banks’ problems, including the new bail-in, where Italy signed with no constraint on the creation of common financial protection of the banking union, in other words, the European fiscal backstop. In December 2014, the 18 finance ministers of the euro area guiding the ESM approved the Direct Recapitalization Mechanism. What comes out from the ESM is very disappointing compared to what is called for in 2012. It should have provided a ceiling of €60 billion for the entire fund, while only with the Spanish Indirect Recapitalization were blocked €100 billion. The fund could only intervene for large financial institutions and only if direct state intervention could damage the fiscal sustainability. The procedure, however, has not been formally activated and the result would have been an Indirect Recapitalization the same, considering insufficient the resources of the bail-in and of the resolution fund, even if with a government loan.

The result of this management of European policies is that today Italy is located on a corner by itself mistakes (and without a plan B), asking the Commission to approve a bad bank (that was refused) and for a new plan to be applied. Everyone is giving attention to Italy’s situation, because, through its political way of functioning, there could be the serious possibility to derail the European project for 12

real. If Italy continues on its current bad trajectory, it will drag the whole structuredown. Basically, the main problem of Italy is its stagnant level of GDP which can be related to the concept of “Japanification� of the economy, which is eventually correlated to the concept of deflation experienced by Japan that should bring to a decrease of expenditures concomitantly to the fall in prices of the services rendered, but it has never happened, and Japan was blocked in a situation of revenue/national GDP deflation.

In these recent times, Italy is experiencing the same situation, facing the problems related to keeping up with the current public expenditure, or in other words, the government consumption. The investments, that could be easily be lowered today without any difficulties, reached a very high level, and by having revenue flat lines and the current expenditures keep rising, the shortfall comes because of the huge level of debt contracted.

And now, the difference between the future prospects and flat lining revenues is really hard to be fixed without undertaking sacrifices which will lead no pay-out in the following years. So, as the Japan, Italy is locked in a situation of stagnant nominal GDP against growing debt due to the current expenditures which are sustained by law and enforced by an ageing population with a feeling of entitlement.

The Italian government has presented a plan which is not so suited for the markets because they are constrained by the EU regulation which tries to make possible to attain something that could benefit Italian banks.

And now a new bail-out comes, forcing bail-in of debt holders and unsecured depositors before any state aid can be provided to banks. But, there is the need to take in consideration that the typical Italian and European bureaucrats approach is a sort

of extend-and-pretend option as long as it is available for them, and there will be a reaction only when it is so clear that it will be really hard for them to recover from the situation created by themselves. In other words, a real change comes only when there is the need to define an ultimate monetary end-game.

While the monetarization of bad assets can be considered as the way out for Italy because in this way the banks can expand again their balance sheets, let the nominal GDP growth and keep under control the ratio between debt contracted and GDP; there is the need to take in consideration that Italy can be seen as a train going to crush in slow motion, this is because its consumption overcomes the production, the capital base is being eroded, the labour capital is declining and the living standards are stagnant; the only thing that keeps this thing running is its ability to roll-over and issue debt.

When the Greek debt crisis broke in 2010, Athens turned to the EU for help. Assistance to Greece to this day has been contingent on Athens making domestically unpopular reforms. Nearly seven years, 13 austerity packages, and three bailouts (worth a running total of $366 billion) later, the Greek economy is still struggling. The debt burden now registers at about 177 percent of GDP. Non-performing loans total $119 billion, accounting for 45 percent of the country’s loans. Unemployment is still around 23 percent, and about three-fourths of unemployed people have been jobless for at least a year. The Greek government regularly finds itself in a catch-22. Either it carries out unpopular European Central Bank (ECB) reforms, or it tries to keep the economy running without full backing from the EU. The very institution Athens initially looked to

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for help is now seen as dubious and problematic. The Eurogroup (the finance ministers of the 19 Eurozone countries) recently met in Brussels and offered Greece some immediate short-term relief for its debt burden. The measures are supposed to facilitate debt repayments and forego an interest rate hike planned for next year. If all goes to plan, these measures will reduce Greece’s debt burden by one-fifth by 2060.

While this maybe, a practical timetable given the size of the debt, it is not the most realistic solution. A lot can happen in 43 years. The proposal also does not give Greece the debt relief it seeks for the immediate term. Equally important is what didn’t happen at this meeting. Greece wanted the Eurogroup to sign off on a second review of the current bailout program. Athens and Brussels once again find themselves at an impasse over proposed reforms. The Greek government wants to reintroduce collective bargaining and layoffs, as well as reduce the primary budget target to 2.5 percent of GDP in 2018. EU creditors are against the labour reforms and call for a budgetary surplus target of 3.5 percent in 2018. Yet again, a standoff. A successful bailout review would have opened two additional means through which Athens could access more credit. Athens was looking to use a successful review to justify the inclusion of Greek bonds in the EU’s quantitative easing program next year. Such a move would better position Greece to return to bond markets when its austerity package ends in mid-2018.

The review would also pave the way for International Monetary Fund participation in bailouts with Greece. The IMF did not commit to the 2015 bailout but has been closely accompanying the program. The fund said it would participate in the program if this proves to be the final bailout, if Greece’s debt is deemed sustainable in the long term, and if Greece receives debt-relief

measures. The IMF argues the 3.5 percent target set by the EU is not sustainable in the medium term and either the target should be lowered or Greece would need more austerity measures. It has also called for a fixed-interest rate average of 1.5 percent for Eurozone loans to Greece for the next 30 to 40 years.

Additionally, the fund suggested the EU free Greece from all payments on bailout loans until 2040.

The forecasting of how the current these problems are dealt by the EU will become very serious if there will not be a creative intervention by the other European countries.

The current results do not provide positive perspectives, and if it will continue on this way, it could be possible to have a crisis with the same characteristics of the Britain’s one, but with wider and worse effects. But currently, authorities assure the public that the banks are well capitalized and, though it may take some time, solutions will be realized.

Italian Prime Minister Renzi states that “The situation is much less serious than the market thinks.” Which itself is a paradox in its making.

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ANALYSIS OF UNION BUDGET TAX ADMINISTRATION REFLECTIVE CHANGES (FY 2015-16 to 2016-17) - Shreya Rani Narendra Modi after coming to power in May 2014 promised a justifiable and stable tax regime to investors. Since then, initiation of the government has been reflected in its budget to reduce tax disputes, litigation, and flippant tax. It brought into key tax reforms such as the goods and services tax. Still, some of the legacy issues were left to be resolved.

Union Budgets are forgotten quickly.

Nevertheless, it may be interesting to test by comparison and contrast this government’s Budgets. Did government intensify or abandon their earlier goals, shifting policy stance or are they consistent? With this motive, I’m considering selected aspects from the 2015-16 and 2016-17 Union Budgets.

The primary concerns in Budget 2015-16 was to address negative aspects of taxation introduced during 2009-12 that led to domestic and foreign investment decisions away from Indian market. Various retrospective modifications that dragged India into a global depth creating an image of a poor place to invest. The government when in opposition had coined the term “tax terrorism”, has very rightly made announcements in the tax area that was promising and reassuring, including that the recommendations of the TARC (Tax Administration Reform Commission) was implemented during the year.

Union Budget 2016-17 shifted the focus, claiming high GDP growth despite the downfall in exports and zero growth in the non-financial non-oil sector. They also declared an impossibility that farmers’ incomes would be doubled in five years. Yet there was no statement about the earlier promised Minimum Support Price (MSP) of

50 per cent above cost. In essence, the amiable objective of a shift towards the farmer did not stand on firm ground. Another aspect was the allocation of ~25,000 crore for the recapitalization of banks.

Budget 2017-18 was noteworthy in two respects, first for the undependability of GDP statistics with its sectoral components drawing attention of several commentators and, second, for the non-mention of tax administration reform, thus, revealing a fundamental shift in policy stance. Indeed, soon thereafter, a stringent search and convulsion approach to tax collection was announced, standing apart from TARC’s internationally benchmarked approach and recommendations. Further, claims made about GDP growth failed to reflect the economic environment reported in the Economic Survey. Third, the government allocated ~10,000 crore for bank recapitalization, an amount lower than the previous year and less than calculations of needs. It must be recognized, however, that justification for recapitalization is not easy if the profile of defaulters being heavily weighted towards an economically unproductive, newly emerged, socially exploitative, and unrepresentative wealthy class. In fact, the question should be, why do banks lend to these class and why shouldn’t they bear the cost themselves.

On one hand, there prevails uncertainty in statistics on the other, there is an exact match of target with turnout of the fiscal deficit 3.9% of GDP in 2015-16, 3.5 per cent in 2016-17, and meter set at 3.2 per cent in 2017-18. Also eye catching are the higher turnouts than budgeted ratios of tax/GDP: 10.3 per cent budgeted versus 10.8 per cent turnout in 2015-16, 10.8 per cent versus 11.3 15

per cent in 2016-17, and marked again at 11.3 per cent in 2017-18.

Let’s focus on tax administration of 2016-17 year’s budget compared with the 2015-16: Income Tax Slab: In 2015-16, the government did no changes in the IT slab.

2016-17 year government continued with the earlier slab, but gave relaxation to the salaried person by raising the ceiling of tax rebate from Rs 2,000 to Rs. 5,000 (under Section 87A ) only if taxable income is less than 5 lakhs. Adding to this, house rent paid hiked from 24,000 to 60,000 (under section 80 GG) giving relief to people living in rented houses.

Increase in excise duty/service tax: The finance minister (FM) last year hiked the excise duty on tobacco products, cigarettes, peanut butter, condensed milk, making them expensive. The excise duty on cigarettes was hiked by 15% to 25%. However, on leather footwear excise duty costing above Rs 1,000 was reduced from 12% to 6% and also for LED drivers.

Year 2016-17, the FM has continued to increase the excise duty by 10-15% for tobacco products, except bidi.

Also on purchase of goods and services in cash excise duty of 1% has been imposed (exceeding 2 lakhs). Additionally, on branded garments excise duty of 2% to 5% was imposed making them dearer. Aerated water and mineral waters was also charged an excise duty of 18% to 21%.

In year 2015-16, service tax was hiked from 12.3% to 14% making several services including beauty parlor, cabs, eating out, mobile, DTH, charges all expensive. In year 2016-17, buying car became expensive with the implementation of 1% to 4% infrastructure cess varying on the vehicle.

Surcharge on income of super-rich: Budget 2015-16 had increased surcharge for the super-rich with income of more than 1 crore to 12%. In year 2016-17, an additional surcharge of 3% (total of 15%) has been levied.

Corporate Tax: Budget 2015-16 promised a reduction in headline corporate income tax (CIT) rate from 30% to 25% over a period of 4 years (in accordance with expected higher revenue from GST) and abolition of wealth tax that yielded insignificant revenue. Standing on its promise the government in 2016-17 fixed the corporate tax for new manufacturing units at 25% and presented to lower the corporate IT rate for small companies with turnover of less than Rs 5 crore.

Tax on withdrawal of EPF deposits: The major shift from a long-running tradition of exemption at all stages on EPF, Budget 2016-17 has made 60% of interest earned on employee-contributed EPF corpus taxable on all contributions made by employees after 1st April, 2016. PPF will remain tax-exempt.

Parthasarathi Shome:

Incentives for investing in infrastructure was a positive initiation. However, the FM stated that the Direct Tax Code (DTC) has been dropped on the basis that most DTC proposals were already in the Income Tax Act. This was a diplomatic error since it was far from 16

reality. By Budget 2016-17, begun with the introduction of another tax pardon scheme and an absence of the promised CIT reduction path.

Yet Budget 2017-18 enhanced the tax policy stance in selected aspects comprising a reduction to 25% in the CIT rate for 96% of return filing companies. Whereas, the other four per cent larger companies are already benefited with lower effective tax rates. MAT loss carry-over was extended from 10 to 15 years thus improving the ability to even out tax payments and also strengthening MAT’s acceptance. However, there are many non-salutary topics, including changing the long-term capital gains term from 3 to 2 years, and reduction in the individual income tax rate by five per cent for the ~2.5-5 lakh range.

In tax policy details, Budget 2015-16 attempted to reduce uncertainty by focusing on various issues. It postponed the General Anti-Avoidance Rules (GAAR) for another two years and indicated prospective application. FM announced that the taxation of indirect transfers of India-based assets that take place abroad will be addressed by CBDT through clarificatory circular.

The introduction of GST in 2016 was also announced. Yet Budget 2016-17, rather than fundamental reform, introduced distortions to make up for tax revenue loss, thus tripling Security Transaction Tax (STT) on options, giving profit-based incentives for start-ups, tinkering with rules and duties, and projecting heavy dependence on non-tax revenue to achieve the fiscal deficit target. The budgeted ~56,000 crore from disinvestment was a target never achieved earlier. However, Budget 2017-18 undertook little rectifications such as demolishing the taxation of indirect transfers by foreign portfolio investors.

Regarding tax administration, in Budget 2015-16, while FM highlighted that TARC.

recommendations would be implemented but no road map was given. In the following Budget 2016-17, a little meaningful reference was made to TARC. Instead, by Budget 2017-18 has not mentioned for officer training for GAAR application from April 1 despite of earlier adverse experience with TP (transfer pricing) application by the tax department when judged internationally. And soon after, the government issued new search and takeover rules that minimize taxpayer rights and basically moves distinctly away from TARC recommendations.

To draw a broad conclusions, the first Budget indicated good policy intentions in tax and expenditure zone. It was followed by a visible erosion in Budget 2016-17. The worsening was somewhat rectified in the latest 2017-18 Budget. However, a cloud has appeared regarding the reliability of accompanying numbers and GDP. Perhaps somewhat relatedly, India’s position in the World Bank’s index of Ease of Doing Business (130/131 out of 190) or Ease of Paying Taxes (172 out of 190) has not yet improved in the guidance of the new government. Therefore, if the Prime Minister’s 2022: Vision for the poor and middle class is to be realized then it has to seek new flight path over and above the Union Budget process.

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REAL ESTATE –INDUSTRY ANALYSIS - Antra Bharati With India emerging as a preferred investment destination, the country is expected to witness nearly $4.2 billion new capital in the realty sector in 2017, says Cushman & Wakefield.

India’s real estate market is expected to reach US$ 180 billion by 2020 from US$ 93.8 billion in 2014. Emergence of nuclear families, rapid urbanisation and rising household income are likely to remain the key drivers for growth in all spheres of real estate, including residential, commercial and retail.

For the period January-September 2016, total private equity (PE) investments in the real estate sector were recorded at US$ 4.24 billion, showing a 22 per cent increase compared to the same period last year. During the third quarter of 2016, cumulative investment in residential assets increased at 9 per cent on a quarter-on-quarter basis.

Segments in Real Estate Sector Residential space - Residential segment contributes ~80 per cent of the real estate sector.

Demand to grow at a CAGR of 2.0 per cent over the period 2013-17 across top 8 cities in India • NCR is expected to generate maximum demand in MIG and HIG category followed

by Bengaluru • Developers now focussing on affordable and mid-range categories to meet the huge demand • During the period January-June 2016, residential sector commanded the largest share of PE investments with a total value of USD 1.29 billion (44 per cent) • During the third quarter of 2016, cumulative investment in residential assets increased at 9

per cent on q-o-q basis.

Commercial space - Over 40.2 million sq. ft. of corporate real estate space was absorbed in by top seven cities of the country during 2015.

Mumbai, NCR and Bengaluru account for 60 per cent of total office space demand in India by 2017 ● Bengaluru is likely to experience highest demand over 2013-17 followed by Mumbai and NCR ● Business activity shifting from CBDs to SBDs, Tier 1 to Tier 2 cities ● As on September 2016, the total prime office space absorption across seven leading cities in the country was about 28 million sq. ft.

Retail space - Currently, retail accounts for a small portion of the Indian real estate market.

Organised retailers are few, and the organised retail space is mostly developed by residential/office space developers. ● NCR accounts for about 49 per cent of the total upcoming mall supply ● Total mall vacancy is 14.1 per cent across 8 cities ● Total 213 malls are operational in India ● Demand for retail space on high streets is quite high, as well as increase in FDI limit for multi brand retail will lead to significantly higher demand for retail space.

Hospitality space - As of 30 July 2015, the country had 972 approved hotels with 63715 rooms.NCR and Mumbai are by far the biggest hospitality markets in India, followed

by Bengaluru, Hyderabad and Chennai ● Government initiatives to promote tourism in Tier 2 and Tier 3 cities is 18

generating significant demand for hotels in such cities, especially for budget hotels In 2015, 8 million foreign tourists arrived in India, whereas, Foreign tourists arriving in India (million) from January 2016 to November 2016, foreign tourists in India reached to 7.8 million1 The number of foreign tourists arriving in India is expected to increase at a CAGR of 7.1 per cent during 2007–25 India’s tourism & hospitality industry is anticipated to touch USD 418.9 billion by 2022.

SEZs - As of FY16, the government has formally approved 415 SEZs, of which 205 are in operation. ● Majority of the SEZs are in the IT/ ITeS sector. ● 100 per cent FDI permitted in real estate projects within Share of SEZ exports in total exports of India Special Economic Zone (SEZ). ● 100 per cent FDI permitted for developing townships within SEZs with residential areas, markets, playgrounds, clubs, recreation centres, etc. ● In FY16, exports from SEZs accounted for 27 per cent of total exports. ● Industry players, including realtors and property analysts, are rooting for the creation of "Special Residential Zones" (SRZs), along the lines of SEZs. Market size of Real estate in India Real estate contribution to India’s GDP is estimated to increase to about 13 per cent by 2028 The market size of real estate in India is expected to increase at a CAGR of 15.2 per cent during FY2008 – 2028 and is estimated to be worth USD 853 billion by 2028 Increasing share of real estate in the GDP would be supported by increasing industrial activity, improving income level &

urbanisation Mumbai & Bengaluru have been rated as the top real investment destinations in Asia.

Urbanisation -India’s urban population as a percentage of total population is around 32.7 per cent in 2015 and is expected to rise to 40 per cent by 2030 Better wages and better standard of living is expected to result in an increase in urban population in India to above 600 million by 2031 from 429 million in 2015. Urbanisation and growing household incomes are driving demand for residential real estate and growth in the retail sector.

FDI - The government has allowed 100 per cent FDI for townships and settlements development projects. Provision for reduction in minimum capitalisation for FDI investment from USD10 million to USD5 million which would help in boosting urbanisation.

Land Acquisition Bill - In December 2014, the government passed an ordinance amending the Land Acquisition Bill. This ordinance would help speeding up the process for industrial corridors, social infra, rural infra, housing for the poor and defence capabilities.

Ease in housing finances - A deduction for additional interest of USD 746.8 per annum for loans upto USD0.05 million was sanctioned during 2016-17, in case of first time home buyers, where the cost of house is less than USD0.07 million. Increase in exemption limit from USD 3317 to USD 4147 will help in household savings.

Housing for economically weaker sections • During June 2016 to March 2019, 100 per cent deduction for profits would be approved for undertaking housing project of flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities • As per section 80GG, increase the limit of deduction of rent paid from USD358 to USD896 per annum, was allowed for the people living on rent 19

PRECOCIOUS AND CLEAVAGED INDIA Economic Survey and Fiscal Management - Shilpam Dubey Economic Survey 2016-17 has talked about, “Precocious and Cleavaged India”, referring to a state which even after so many years of independence is having a shoddy infrastructure, where the property rights are still a matter of debate, where the public sector is still not working to its full capacity, and where there is growth in numbers but is highly skewed. The country has managed somehow towards a growth trajectory, this year too despite demonetization. But the reality is far different from what these numbers showcase. Amartya Sen and Jean Dreze’s book “An Uncertain Glory-India and its Contradictions” published back then in 2013 depicted how India is embarrassingly backward in all its social indicators, comparable to those of Sub-Saharan African countries. Four years later there is not substantial, visible change. But, as urgent as it is, let’s not even get started with the India’s poverty problem, it would eat up the whole space here and still not be enough.

Macroeconomic Snapshot

On the positive side, economy witnessed recovery in exports which was mainly led by recovery of the world economy in the second half of the year. The trade deficit reduced by 23.5 percent in the April-Dec quarter of 2016 driven by both due to falling import and rising export. But, fall in trade deficit is not as much a good news as the contraction in the imports was steeper than the rise in the exports. In the first half of the fiscal year, both financial service exports and software service exports declined. Also, the net remittances declined due to falling oil prices. Below figure shows growth of imports and exports volume in percentage (3 months MA).

The GDP growth remained on the lower side of the projection made in the Economic Survey 2015-16, with 7.2 percent in the first half and lower than 7.6 percent in the second half. Stressed assets continued to take a toll on the balance sheets of the corporates. Due to better monsoons, there was in improvement in the agricultural sector, industrial sector witnessed moderate growth.

The th implementation of the 7 Pay Commission added to the buoyancy of the economy in the second half.

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Fiscal Management and Debt to GDP Ratio The issue which is always the bone of contention between the governments and the advisory committees, though no one disagrees with the fact that fiscal deficit need to be reduced, but this has almost become like a morally correct, preachy advice and most of the times governments fail to implement. It’s almost like the environment issues which are ignored so unapologetically while the policies are implemented.

But, to not take the criticism too far, Central government is committed to achieve its fiscal deficit target of 3.5%. This is praiseworthy as it’s a tougher target as compared to 3.9% percentage in the FY 2015-16. Revenues increased more than the budget estimations partly due to the rise in tax collections after demonetization. But, it could have been even higher if public sector enterprises would have performed better.

Fiscal Activism After the global financial crisis of 2008-09, world has gone through many paradigm shifts.

The monetary policies have become loose with more quantitative easing, rock-bottom interest rates, sometimes even negative interest rates. In the fiscal front, the major shit has been the use of fiscal policy, now legitimately for counter-cyclical effects, and with low interest rate regime it is supposed to increase the multiplier effect, with the assumption that the since fiscal policy will lead to increase in the GDP it will offset the increase in the debt levels by increasing tax revenues. It is this assumption where the problem begins.

India has not been heavily dependent on the counter-cyclical effects of fiscal spending and has maintained a culture of reducing debt, especially if its compared to advanced economies, debt to GDP ratio of United States stands at 108.2 , that of Japan with whopping 250.4 , Canada at 92.1 percent. But, considering the current economic state of the country with slow credit growth, falling investments and twin balance sheet problem, should India be dependent on the counter-cyclical effects of the fiscal policy?

Depending on counter-cyclical effects of fiscal policy would mean that India will have to focus on spending by running more deficits like advanced economies and reduce its focus on maintaining debt. Since the FRBM (Fiscal Responsibility and Budget Management Act) of 2003, India has tried to reduce the level of deficits. Slowly but steadily, government is trying to reduce the fiscal deficit from 4.5% in 2013-14, declined to 4.1, then to 3.9 and 3.5% over successive years. Below figure shows Gross Fiscal Deficit of Central government as a percentage of GDP.

21

India’s debt to GDP ratio stands at 68.5 percent, so far level of debt reached is 83 percent of GDP, when its compares with emerging nations, its higher. Debt to GDP ratio of emerging markets and middle-income economies is 47.3 percent, and that of China is 46.3 which is far less than India, South Africa’s debt to GDP ratio is 51.7 percent.

But, India has not defaulted on its debt even in difficult economic times. So when it comes to fiscal commitment India has performed fairly well.

India’s approach towards growth has clearly remained different from the advanced economies in the fiscal front. But, in this dynamic world will this approach always remain the same is still a question. When the FRBM Act was made in 2003, India was different, not as open as it is right now. Will India change its stance regarding fiscal discipline in future? On the other hand, we are seeing advanced economies again changing their stance with President Donald Trump indication that America will reduce its fiscal spending and will rather focus on reducing debt. At such a volatile surroundings, nothing can really be answered.

22

JIO! – Strategizing in Right Direction - Gagan Kapoor

India is home to the world's second biggest telecom client base and the third most noteworthy number of internet clients.

Justifiably, the telecom segment in the nation is hyper-aggressive, with various organizations competing to catch the biggest bit of the pie. Reliance Jio Infocomm Limited or Jio is the freshest player to enter the battle, and it's not recently winning but rather changing the principles in and out.

Reliance Jio's business commenced in September 2016 produced shockwaves through the Indian telecom industry. The Mukesh Ambani-drove organization propelled their product with a staggering inaugural offer of free 4G unlimited access, voice calls, and SMS for each one of its clients. Ambani declared that even after the finish of the trial period, Jio would never charge for voice calls and that the rates for its data packs would be among the most minimal in this entire world.

Frightful of the uncontested mastery such an offer would manage the cost of Jio (around 70 percent of the business' incomes originated from voice), India's greatest telecom system providers claimed its wrongness to the Telecom Regulatory Authority of India (TRAI). Be that as it may, TRAI observed Jio's offer to be legitimate and rather exacted enormous fines on Bharti Airtel, Vodafone, and Idea Cellular for attempting to undermine the Reliance Industries Limited (RIL) backup by not giving adequate purposes of interconnect to its SIM card clients.

One question that is by all accounts at the forefront of everybody's thoughts however, is the manner by which Jio will make a benefit when their rates are so low as to resist conviction. To answer this question, one needs to comprehend Mukesh Ambani's terrific desire, not for the present, but rather what's to come.

The establishment Reliance Jio was established on Ambani's conviction that telecom is the progressive innovation of this century. And keeping in mind that it will without a doubt experience numerous changes, the center innovation will continue as before, and in that lies the essence of his arrangement.

Fuelled by a venture of Rs 1,50,000 crore and sponsored by organizations with eight worldwide bearers — British Telecom,

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Deutsche Telecom, Millicom, MTS, Orange, Rogers, TeliaSonera and Tim — Jio has effectively made the biggest just 4G and LTE systems in India, as well as on the planet. A 2,50,000 kilometers course of fiber optic links and 90,000 eco-accommodating 4G towers work to give unmatchable 4G scope in the majority of India's 22 telecom circles (call zones which separate amongst neighborhood and STD calls).

While all the current system suppliers are utilizing an altered 2G/3G foundation to give 4G in India, Jio has set up a Greenfield arrange (made without any preparation) that offers higher transfer speed and quicker speeds. The Jio system is likewise future-confirmation and equipped for offering 5G and 6G availability as and when the innovation emerges.

Reliance Jio is additionally the primary teleco to dispatch a 'VoLTE-just' (Voice over LTE) arrange in India. This innovation shuns the vacillations of the 2G/3G organize for fast information exchange which considers more strong network and clearer voice calls.

Subsequent to building up this framework, Reliance Jio's next obstacle was securing clients. What's more, they did it by offering the Indian populace what they painfully required: rapid versatile web that was reasonable. Prior to the business dispatch of Jio, under 15 percent of India had admittance to 4G availability, a figure the teleco wishes to push to an astounding 90 percent before the finish of 2017.

Moderateness and quality are the main things that make a man need to switch their versatile system. For the present system suppliers in India, the month to month normal income per client (ARPU) is around Rs 150, and clients who spend over Rs 250 every month are viewed as 'high esteem' clients. Jio's tax arrange, considering just those packs with 28 days legitimacy, starts at Rs 149 and offers clients 0.3GB of 4G access (in addition to boundless data allowance during the evening) other than free voice calls, both local and STD. These rates are tiny when contrasted with the ones charged by telecommunication giants like Airtel and Vodafone. What's more, since there have been no dissensions about quality, an ever increasing number of individuals are doing the change over to Jio. By utilizing the requirement for moderate web in each one of India's various social strata, Jio has begun disassembling other system suppliers with its invasion into the market and as of late hit a client base of 100 million.

The greater part of RIL's endeavors on Jio are a piece of a more noteworthy entire in which

24

the organization arrangements to accomplish national, and universal, mastery in the field of portable web. What's more, what they're doing now is establishing the framework on which they will assemble the business' most prominent landmark.

message with the setting up of Jionet Wi-Fi hotspots in numerous urban communities — Mumbai, Kolkata, Surat, Ahmedabad, Indore, Mussoorie, and Lucknow are among the urban communities which as of now highlight these hotspots in select areas.

What's to come

Recent Releases

Prompt income is of no worry to Mukesh Ambani. The Reliance Jio attempt is a major wager on the future, and the organization's available point is to build up the perfect eco-framework for when that future arrives.

In spite of having an enormous client base, web entrance and speed in India is woefully low when contrasted with different nations.

Just around 24.3 percent of the Indian populace got to the web through cell phones in 2016. Yet, the figure is relied upon to ascend to 37.4 percent in 2021 as the Indian populace, especially in provincial ranges, turns out to be continuously 'computerized'.

As an expanding number of individuals will require versatile and web network in the coming decade, Reliance Jio will be in the prime position to catch the enormous undiscovered market.

Jio's desire aren't restricted solely to internet usage through mobile. The organization arrangements to round up benefits from its LYF image cell phones, broadband web offerings, and Jio versatile applications — the whole suite, which incorporates applications like Jio Music, Jio TV, Jio Cinema, and a computerized wallet, will be charged as a Rs 15,000-every year membership. Reliance additionally plans to unite its 'Digital India'

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●

●

●

The company on March 31 in a statement said: "Every Jio Prime member, when they make their first paid recharge prior to April 15 using Jio's Rs 303 plan (or any higher value plan), will get services for the initial three months on a complimentary basis. The paid tariff plan will be applied only in July, after the expiry of the complimentary service."

On April 6, 2017 TRAI advised JIO to withdraw this 3 month complimentary scheme immediately and JIO followed the ordered while keeping the order continued for those who had converted to prime already.

On April 11, 2017 After withdrawing the Summer Surprise offer, Reliance Jio announced its Dhan Dhana Dhan offer starting at Rs 309 and Rs. 509.

The new plans offer 1 GB and 2 GB data per day with a validity of 84 days respectively.

On April 18, 2017 ISD wars began when Jio announced the plan where you make international calls at Rs 3/minute

Worldwide desires Internet of Things (IoT) has been broadly touted as a standout amongst the most 25

encouraging advances of the not so distant future. Understanding the capability of this prospering segment, RIL in November went into an association with US-based General Electric (GE) to enter the modern IoT space

organization will probably round-up grand incomes later on.

The association, under which RIL will purportedly create programming applications for GE's Predix cloud stage, will give IoT answers for clients in different businesses, for example, telecom, medicinal services, oil and gas, and power among others. Driven by the ventures' requirement for expanding operational proficiency and the across the board utilization of information investigation, RIL will produce inconceivable new income streams in India, as well as around the globe.

High hazard high rewards Mukesh Ambani's business logic is a basic one — 'nothing wandered, nothing picked up.'

He has perceived versatile web to be the most beneficial wander over the long haul and has thusly contributed significant time and cash to make RIL the preeminent organization in the segment.

RIL's, and by augmentation Jio's, philosophy is established on the rule that a business needs a reason past simply making benefits. As Ambani told ET in a meeting, "I trust that in the event that you make societal esteem, in the event that you make client esteem and worker esteem, and in the event that you concentrate on these, then shareholder and financial return is a by-item."

Furthermore, passing by the present situation, in which Reliance Jio is unquestionably making societal and client esteem, the 26

ONE NATION ONE TAX (Continued) - Sneha Tibrewal The introduction of the Goods and Services

up reports specifically on exemptions and

Tax (GST) would be a very important step in

thresholds, taxation of services and taxation of

the area of ​indirect tax reforms in India. By

inter-State supplies. Based on discussions

merging a large number of central and state

within and between it and the Central

taxes into a single tax, it would greatly

Government, the EC released its First

mitigate the waterfall or double taxation and

Discussion

pave the way for a common national market.

November, 2009. This spells out the features

From the consumer point of view, the greatest

of the proposed GST and has formed the basis

advantage would be the reduction of the

for discussion between the Centre and the

overall tax burden on goods, which is

States sofar. GST and Centre-State Financial

currently estimated at around 25-30%. The

Relations

introduction of GST would also make Indian

Currently, fiscal powers between the Centre

products

and

and the States are clearly demarcated in the

international markets. Studies show that this

Constitution with almost no overlap between

would have a positive impact on economic

the respective domains. The Centre has the

growth. Last but not least, this tax, because of

powers to levy tax on the manufacture of

its transparency and self-control, would be

goods (except alcoholic liquor for human

easier to administer.

consumption, opium, narcotics etc.) while the

The idea of moving towards the GST was first

States have the powers to levy tax on sale of

mooted by the then Union Finance Minister in

goods. In case of inter-State sales, the Centre

his Budget for 2007-08. Initially, it was

has the power to levy a tax (the Central Sales

proposed that GST would be introduced from

Tax) but, the tax is collected and retained

1stApril, 2010. The Empowered Committee

entirely by the originating States. As for

of State Finance Ministers (EC) which had

services, it is the Centre alone that is

formulated the design of State VAT was

empowered to levy service tax. Since the

requested to come up with a roadmap and

States are not empowered to levy any tax on

structure for the GST. Joint Working Groups

the sale or purchase of goods in the course of

of officials having representatives of the

their Page 2 of 12 importation into or

States as well as the Centre were set up to

exportation from India, the Centre levies and

examine various aspects of the GST and draw

collects this tax as additional duties of

competitive

in

domestic

Paper

(FDP)

on

GST

in

27

customs, which is in addition to the Basic Customs Duty. This additional duty of customs (commonly known as CVD and SAD) counter balances excise duties, sales tax, State VAT and other taxes levied on the like domestic product. Introduction of GST would require amendments in the Constitution so as to concurrently empower the Centre and the States to levy and collect the GST. The assignment of concurrent jurisdiction to the Center and the States for the levy of GST would require a unique institutional mechanism that would ensure that decisions about the structure, design and operation of GST are taken jointly by the two. For it to be effective, such a mechanism also needs to have Constitutional force.

Few things you need to know about the new tax Constitution amended for GST : The government amended the Constitution, which requires approval from two-thirds of members in both Lok Sabha and Rajya Sabha, to switch over to GST from the present tax regime at the Center and states.

The Lok Sabha passed the Constitution (One Hundred Twenty Second Amendment) Bill on May 6, 2015.

The BJP-led National Democratic Alliance took months to bring all opposition parties on board and moved the Bill in Rajya Sabha where the ruling party does not enjoy a majority.

On August 3, 2016, the Rajya Sabha approved the Bill after a marathon debate and with some changes. On August 8, the Lok Sabha approved the amended bill.

India as a common market with one tax : The GST will unify India into a common market with one tax across all states, which will eliminate the present cascading impact of a plethora of central taxes.

Central taxes such as Central Excise Duty, Additional Excise Duty, Additional Customs Duty and Tax Service will all be merged into one CGST. State levies such as VAT, sales tax, entertainment tax, purchase tax, mandi tax, luxury tax, octroi and entry tax, will be subsumed into SGST. The Center will levy the Central GST and Integrated GST, while states will impose the SGST. GST structure of four plates : The new regime will have a structure of four slabs of 5%, 12%, 18% and 28%.

There will be no tax on various items, including rice, wheat and other essential items, which is 50% of the CPI inflation basket.

The lowest tax rate of 5% is proposed for mass consumption items used by common people like spices, tea and mustard oil.

There will be two "standard" types of 12% and 18% covering most manufactured goods and services.

The highest tax rate of 28% will be imposed on items such as luxury cars, bread masala, tobacco and soft drinks. These items are currently attracting a 27-31% tax.

States to obtain compensation if there is loss of income : The Compensation Act will ensure that states will receive full compensation for the first five years if there is a loss of income after the GST is developed.

The money for this compensation will come from the compensation fund created after the cessation that the Center will charge on certain assets.

Double control over taxpayer assessment : The Center and the States will evaluate taxpayers with an annual turnover of Rs 1.5 crore 28

States will have the power to assess taxpayers below Rs 1.5 million in turnover.

For the Northeastern states, those with an annual turnover of Rs 10 lakh or less will be exempt from the scope of GST, for the rest of India this limit is Rs 20 lakh.

All services such as registrations, returns and payments will be available to taxpayers online, which would make compliance easy and transparent.

GST will help India improve its ranking in the ease of doing business.

Will the tax burden of GST be reduced?

GST will be a single tax on the supply of goods and services, from the manufacturer to the consumer. The input tax credits paid at each stage will be available at the later stage of adding value.

Therefore, the final consumer will only be charged with the GST tax applied by the last distributor in the supply chain, with compensation benefits in all previous stages.

Revenue Secretary Hasmukh Adhia has said that the GST will reduce the tax burden for the common man, but everything will depend on where the goods and services are included in the GST plates.

Impact of GST on inflation Initially, the GST can lead to higher inflation, as many services and manufactured products are more expensive and compliance improves.

However, the GST will help moderate inflation in the medium to long term as the cascading impact of the going taxes.

Does the GST help the economy?

The GST is widely perceived to help accelerate economic growth by 1-2 percentage points, as it increases the revenues of the Center and the states, which can be invested in infrastructure and social plans.

How will consumers benefit Consumers now pay higher taxes as multiple fines are imposed --- one over the other --- at various stages from production to retail sales.

The GST will be a unique and transparent tax proportional to the value of goods and services.

The GST will eliminate the cascade impact of multiple indirect taxes collected by the Center and the states, with incomplete tax credits or no contributions available in the progressive stages of adding value.

Will the GST industry benefit?

For India Inc, GST will ensure easier compliance through the GST Network (GSTN) platform. A transparent system of tax credit throughout the value chain and in all states will ensure that there is a minimum tax cascade. This would reduce the hidden costs of doing business.

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Vriddhi Research BUDGET 2017-18 - Avijit Mitra Presentation of Budget FY18 contained 3 major reforms: ● Presentation of Budget was advanced by a month to 1st February. ● Merger of Railways Budget with the Finance Bill. ● Removal of planned and unplanned classification of expenditure to Revenue and Capital Expenditure.

The Budget for 2017-18 focused around 10 distinct themes to map out a clear path for policy making: 1.

Farmers 2.

Rural Population 3.

Youth 4.

The Poor and Underprivileged 5.

Infrastructure 6.

Financial Sector 7.

Digital Economy 8.

Public Service, 9.

Prudent Fiscal Management 10.

Tax Administration FARMERS : ● Agricultural credit for FY18 has been fixed at ₹10 lakh Cr, up from ₹9 lakh Cr in FY17. ● Under Fasal Bima Yojna, a provision of ₹9,000 Cr has been made in the budget. ● Under NABARD, Long term Irrigation Fund with a corpus of ₹40,000 Cr has been set up.

RURAL POPULATION : ● Under MGNREGA, ₹48,000 Cr has been allotted, against ₹47,500 Cr in FY17 RE, with a target of 5 lakh farm ponds to be constructed during 2017-18.

●

●

Allocation under Pradhan Mantri Awaas Yojna increased to ₹23,000 Cr with a target to complete 1 Cr houses by 2019.

Total allocation for Rural, Agriculture and Allied sectors is ₹1,87,223 crores.

YOUTH : ● Skill Acquisition and Knowledge Awareness for Livelihood Promotion programme (SANKALP) to be launched at a cost of ₹4,000 crores.

SANKALP will provide market relevant training to 3.5 Cr youth. ● Pradhan Mantri Kaushal Kendras to be extended to more than 600 districts across the country. 100 India International Skills Centres will be established across the country.

THE POOR & UNDERPRIVILEGED : ● Mahila Shakti Kendra will be set up with an allocation of ₹500 Cr in 14 lakh ICDS Anganwadi Centres. This will provide opportunities for skill development, employment, digital literacy, health & nutrition to Rural Women. ● The allocation for Scheduled Castes has been increased by 35% compared to 2016-17(BE) budget estimates. The allocation for Scheduled Tribes has been increased to ₹31,920 Cr and for Minority Affairs to ₹4,195 Cr. ● Under Maternity Benefit Scheme ₹6,000 each will be transferred directly to the bank accounts of pregnant women.

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INFRASTRUCTURE ● The total capital and development expenditure of Railways has been pegged at ₹1,31,000 Cr. This includes ₹55,000 Cr provided by the Government. ● For passenger safety, a Rashtriya Rail Sanraksha Kosh will be created with a corpus of Rs.1 lakh crores over a period of 5 years. ● In the road sector, Budget allocation for highways has been set at ₹64,900 crores in 2017-18. ● Strategic crude oil reserves at Chandikhol, Odisha and Bikaner, Rajasthan has been proposed.

FINANCIAL SECTOR : ● A Committee will be constituted to study and promote creation of an operational and legal framework to integrate spot market and derivatives market in the agricultural sector, for commodities trading. ● Lending target under Pradhan Mantri Mudra Yojana to be set at ₹2.44 lakh Cr. ● ₹10,000 Cr for recapitalisation of Banks to be allocated under Indradhanush Yojna in the current year.

DIGITAL ECONOMY : ● Proposal to create a Payments Regulatory Board in the RBI by replacing the existing ● Board for Regulation and Supervision of Payment and Settlement Systems. ● No transaction above ₹3 lakh would be permitted in cash, subject to certain exceptions.

PUBLIC SERVICE : ● To utilise the Head Post Offices as front offices for rendering passport services. ● A Centralised Defence Travel System has been developed through which travel tickets can be booked online by our soldiers and officers.

PRUDENT FISCAL MANAGEMENT : ● Fiscal deficit for 2017-18 is targeted at 3.2% of GDP, with a target to achieve 3% in the following year. ● Revenue Deficit of 2.3% in 2016-17BE stands reduced to 2.1% in the Revised Estimates. The Revenue Deficit for next year is pegged at 1.9%, against 2% mandated by the FRBM Act. TAX MANAGEMENT : ● The government reduced the tax rate for individuals earning between ₹2,50,000 and ₹5,00,000 per annum from 10% to 5%. .

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Assesse with a taxable income between ₹50 lakhs and ₹1 Cr will be liable to pay a surcharge of 10% of tax payable.

Corporate tax was reduced by 500bps to 25% for the companies generating revenues upto ₹50 Cr. Almost 96% of 31

companies (6,67,000) filing taxes will benefit.

Key Features Government Spending at 12.7% of GDP, Lowest in decades ● Given the context of muted private

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Revenue Expenditure (Rev-ex) is estimated to fall to 10.9% of GDP next year, marking the lowest level in 33 years.

Fiscal Deficit for FY18 pegged at 3.2%, primarily due to Interest payments ● Revised estimates for FY17 are kept at 3.5%. Government net market borrowings were revised down significantly due to unprecedented inflows in small savings.

Cap-ex investment cycle, the onus of driving investment rests on the government. Thus, the FM is budgeting for another year of double-digit (10.7%) Capex growth in FY18, with higher allocation toward Roads, Railways, Rural Housing, Affordable Housing, Agriculture, Social sector, etc.

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For FY18, the government believes small savings could finance 18% of fiscal deficit, and thus, the share of net

market borrowings is expected to fall from 85% in FY16 to 64% in FY18 Disinvestment targeted at ₹72,500 Cr, ambitious as always

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Total spending is budgeted to grow at 6.6%, squeezing revenue expenditure and keeping inflationary factors in check. Overall spending will fall to 12.7% of GDP, marking the lowest level since mid-1970s.

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Although the majority of receipts appear to be realistic-to-conservative, the disinvestment target of ₹61,500 Cr (and another ₹11,000 Cr from listing of insurance companies) appears ambitious.

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Brief Analysis : The Union Budget for FY18 was presented during a period of sustained weak domestic and global cues. Uncertainties regarding Fed rates, US administration policies impacting jobs and exports, effects of demonetization & rise in commodity prices were felt across industries.

Hence, there was growing expectation of massive freebies with a dose of populism, either in form of subsidies or tax reliefs.

With these prevailing challenges, government managed to find a fine balance and follow the path of fiscal prudence. The budget continued its focus on fixed capital formation, digitization and disinvestment. Despite a fall in allocated government spending, the government has shown a clear strategy towards policy making and hunger for reforms, as was visible with electoral funding reforms.

In the coming months, if the government is able to meet the 1st July target of GST implementation, find a definite solutions to NPAs, it will give a huge confidence boost to the investors and keep the India’s growth story running.

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FINANCIAL TRIVIA In 1790, to pay for war debt, the federal government refinanced all federal and state Revolutionary War debt by issuing $80 million in bonds.

These become the first major issues of publicly-traded securities and marked the birth of the U.S. investment markets.

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