India's Report Card: Top Business Reforms 2017

India's Report Card: Top Business Reforms 2017

"Reform, Perform and Transform is Our Mantra" said India's Prime Minister Mr. Narendra Modi

Talking about current rankings as reported by World Bank's Doing Business Report, India stands at 100th rank (previous ranking 130) overall, at 103rd rank (previous ranking 136) for resolving Insolvency, at 119th rank (previous ranking 172) for paying taxes, at 4th rank (previous ranking 13) for protecting minority interest and at 29th rank (previous ranking 44) for getting credit. The improvement in the rankings deserve much applause.

It was mainly possible due to following reforms done by the India Government under leadership of Mr. Narendra Modi:

• Payment of ESIC and EPFO contributions made fully online
• GST rolled out on 1st July'17
• Corporate Tax Rate reduced to 25% (from 30% for companies with turnover of upto INR 50 cr.)
• Greater transparency requirements for interested parties transactions
• Greater shareholder protection through constitution of National Company Law Tribunal (NCLT)
• Fast track resolution of commercial disputes
• Doing away with requirement of company seal and minimum paid up capital while starting a business
• Single Window Interface for Facilitating Trade (SWIFT) implemented integrating 6 departments which made cross border trade easier
• Insolvency and Bankruptcy Code introduced of international standards
• Important decision making roles assigned to creditors in restructuring of insolvent companies
• Secured creditors are given priority over government dues for recovery
• Time taken for new electricity connections reduced from 106 days to 46 days
• 90% reduction in cost of water and sewer connection in national capital (Delhi)

While there are many more reforms in place targeting ease of business doing (& better rankings next year), a simultaneous focus is on attracting more foreign investments and targeting better employment opportunities for a better India.

Source: ET

IndiaStack: Four steps at a time by Indian Government

What is IndiaStack?

IndiaStack is a set of APIs that allows governments, businesses, start-ups and developers to utilise a unique digital Infrastructure to solve India’s hard problems towards presence-less, paperless, and cashless service delivery. The Open API team at iSPIRT has been a pro-bono partner in the development, evolution, and evangelisation of these APIs and systems. 

How IndiaStack evolved?

                    

Why IndiaStack?

What factors support IndiaStack initiative?:

• Focus of government on Digital India
• Aadhar card enabled benefits
• India is the 2^nd largest user of smartphones
• Affordable data plans
• Jan Dhan accounts
• UPI and BHIM app
• Bharat Bill Payment System

Source: https://indiastack.org

Is China Ready To Become A Free Trade Champion?

“Pursuing protectionism is just like locking one’s self in a dark room. Wind and rain may be kept outside, but so are light and air.” Chinese President Xi Jinping’s eloquence at the World Economic Forum in Davos last week.

It seems like, Under Donald Trump's leadership, the US may well turn inward and abandon its global economic leadership role, leaving a space that China is looking to fill.

I studied China's economy in detail during Emerging Market and Economies course and the study makes few points very clear where China had sown wrong seeds and reaped undesired & painful results. If China is to become a free trade champion it must deal with several challenges. 

The first is the trifecta of state subsidies, zombie companies and oversupply. The problem dates back to 2008 and the financial crisis when Beijing excessively used state-owned enterprises (SOEs) as agents of state policy. Despite of bad history with SOEs around 1990s, Chinese banks threw loans at them that were used for irrational capital expenditure, creating housing and infrastructure bubbles, as well as seeding the steel oversupply problem that has become a trade flashpoint over the past few years.

In the late 1990s, Beijing had reformed SOEs aggressively for almost a decade. But that would mean layoffs numbering in the millions. An authoritarian regime delivering double-digits economic growth during the previous round of reforms could absorb that. Thus, instead of shutting down SOEs or privatizing them, Beijing is taking the merger route instead. This does little to address oversupply and trade-distorting subsidies.

Next on the list is the Renminbi and capital controls. In 2015, when the International Monetary Fund’s (IMF) approved including the Chinese currency in the Special Drawing Right (SDR) basket, it was supposed to be the renminbi’s coming out party; instead, it has stagnated since. Capital outflows due to concerns about China’s economic performance have led to significant depreciation.

The third problem is plain old-fashioned protectionism. Take China’s surging technology sector, one of the areas of focus for Beijing as it attempts to shift the economy from smokestack industries and export-led growth. Domestic companies like Baidu and Weibo are protected by a thicket of regulations that make it impossible for global giants such as Google, Facebook and their ilk to compete effectively.

There is a common theme of attempting to extend political control in China, and it’s no coincidence. Reaching back to Deng Xiaoping, successive administrations have prioritised pragmatism over ideology, moving away from Mao’s cult of personality brand of politics. Xi has broken with this trend emphatically. He is now held to be China’s most powerful—and authoritarian—leader in the post-Mao era.

Can globalization and free trade go hand in hand with authoritarianism and rigid political control? 

(Few facts based on own study of the subject and remaining as highlighted in an article of Live Mint)

An IPO wave in India

What is an IPO?

An initial public offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded

Why IPO?

An IPO also may be used by founding individuals as an exit strategy. Many venture capitalists have used IPOs to cash in on successful companies that they helped start-up. The financial benefit in the form of raising capital is the most distinct advantage. Capital can be used to fund research and development, fund capital expenditure or even used to pay off existing debt. Another advantage is an increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers.

The Risk of Investing in an IPO

IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data to use to analyze the company. Also, most IPOs are for companies that are going through a transitory growth period, which means that they are subject to additional uncertainty regarding their future values.

List of companies in India which successfully issued shares through IPO in India (2016) 

Source: investopedia.com, chittorgarh.com

Reporting F&O trading in your income tax return

(F&O: Future and Options)

As per Indian tax laws, incomes are reported under five heads—salary, house property, capital gains, business and profession and other sources (any residual income that cannot be classified in other heads).

Many people get confused when they have more than one type of dealing in the stock market. Some do intra-day stock transactions along with F&O trades. Some may hold stocks as long-term investments and also invest in mutual funds. In such a situation, you should calculate your business income from all of these separately.

Income from F&O deals is almost always treated as business income. That may come as a surprise if you are salaried and have never run a business. Taxpayers who have business income have to file ITR-4

Businesses may be speculative or non-speculative, and the tax treatment is different. The income tax Act says that F&O trade is considered as a non-speculative business. Intra-day stock trades are treated as a speculative business. Since F&O trades are considered a business, tax rules of capital gains rules do not apply

Reporting F&O trade as a business means:

*You can claim expenses from your business income

*As a result you may earn a profit or incur a loss

*Losses must be reported and losses have tax benefits

*Your total income (from all five heads) continues to be taxed at slab rates.

The first hurdle is to prepare your business’s profit and loss details. To calculate gross income from F&O trades, take your transaction statement for the whole year. Look at your receipts; these may be a positive or a negative value. Sum these up for the whole year. Expenses can be deducted from your gross income. Some expenses that you can deduct include rent or maintenance expenses of premises used for the business; mobile or telephone; internet charges; demat account charges; broker commission; depreciation on laptop used for trading; and any other expense directly related to your work.

Business income is calculated for the financial year for which you are filing your return. You will also have to prepare a balance sheet which is reported in ITR-4. It is basically a statement of your assets and liabilities.

Some may hold stocks as long-term investments and also invest in mutual funds. In such a situation, you should calculate your business income from all of these separately. F&O trade income and intra-day stock trading will have separate expenses. Don’t worry if you have consolidated expenses; for example, you use the same premises to trade in both, or use a single phone. Simply bifurcate these expenses on a reasonable basis. You can allocate them using a ratio based on time spent.

 Losses from F&O can be set off from income from other heads (except salary income). Say, your loss from F&O business is Rs.1 lakh, salary income is Rs.5 lakh, income from rent is Rs.2 lakh, and interest income is Rs.50,000. Your total taxable income shall be Rs.6.5 lakh.

If you have F&O loss, you must get your accounts audited. Audit is also mandatory if your turnover exceeds Rs.1 crore. If accounts are not audited, a minimum penalty of 0.5% of turnover may be levied (maximum Rs.1.5 lakh). The due date of filing of tax returns for financial year 2015-16, where audit is mandatory, is 30 September 2016.

Source: Cleartax founder Mr. Archit Gupta

Masala Bonds: Yes you heard it right !!

Masala Bonds: Yes you heard it right !!

Housing Development Finance Corp (HDFC) has raised INR 3000 crore by issuing masala bonds; the first company to do so since the RBI green-flagged it in September last year.

Here is all you need to know about it:

What exactly are masala bonds?

These are rupee-denominated borrowings by Indian entities in overseas markets. Usually, while borrowing in overseas markets, the currency is a globally accepted one like dollar, euro or yen.

What is the advantage of borrowing abroad in rupees?

Companies issuing masala bonds do not have to worry about rupee depreciation, which is usually a big worry while raising money in overseas markets. If the rupee weakens by the time the bonds come up for redemption, the borrower (company) will need to shell out more rupees to repay the dollars.

Is that a big enough advantage?

Surely yes as quite a few Indian companies that had raised money abroad in 2007 by issuing Foreign Currency Convertible Bonds (FCCBs) found themselves in a soup when the rupee depreciated sharply following the global financial crisis. Didn’t understand how??

Suppose a company raised 100 USD through FCCBs in 2007 when foreign exchange was INR 55/ USD (assume). Total money raised in INR terms is 5500. Now, at time of maturity which was post 2008 financial crises, the rupee had weakened, let’s say, foreign exchange at time of maturity is INR 60/ USD. So, the company has to arrange for INR 6000 to repay 100 USD at time of maturity. Therefore, an adverse impact of INR 500 due to domestic currency depreciation.

If you raise money in INR you have to repay in INR. No risk of currency depreciation!!

What is in it for the buyer of the bond?

The buyer will earn a higher yield (coupon rate) to compensate for the risk of currency depreciation.

What is the tenor and coupon rate on the HDFC Masala bonds?

The bond bears a fixed semi-annual coupon of 7.875 percent per annum and has a tenor of 3 years and 1 month. The bonds have been issued at a price of 99.24% of the par value and will be redeemed at par. The all-in annualised yield to the investors is 8.33 percent per annum.

Is it first a first attempt to sell masala bonds?

This is not the first time that an attempt is being made to sell masala bonds. In 2015, both HDFC and state-owned power generator NTPC scrapped their plans after international road shows where investors were demanding higher premium to buy these bonds due to the inherent currency risk. Bankers were lobbying for the removal of the withholding tax of 5 per cent on the interest payment and to permit Indian institutions to buy these bonds in the overseas market to lessen the fear of liquidity. However, they failed to get it done!!

Will the bonds be traded?

Yes, but on the London Stock Exchange, not in India. But any global turmoil in financial markets may upset its plans.

Will there be more such bond issuances by other companies?

According to few industry experts and the bankers to the HDFC issue — post Brexit, both Asian and European investors are hunting for yield and masala bonds seem to be offering them an attractive yield pickup.

Underwriters and lead arrangers for these bonds- Axis Bank, Credit Suisse and Nomura

Fat Tax: A good beginning or a misfire?

Fat Tax: A good beginning or a misfire?

A study published in the medical journal Lancet in 2014 says that India is only behind the United States of America and China in the global hazard list of top ten countries with the highest number of obese people.

I think this study caught attention of the Kerala government a few days back!! And we almost have a first "fat tax" in India!!

Kerala’s finance minister TM Thomas Issac proposed a "fat tax" of 14.5 % on food articles like burgers, pizzas, pasta, doughnuts and sandwiches sold at quick delivery chains and other branded restaurants in the maiden Budget.

It seems like an attempt to regulate the junk food habits of the younger generation in the state. But the fact that there are few such outlets in Kerala, despite being the second most urbanized state in the country, makes one wonder if it would really make much of a difference.

In layman’s terms, the "fat tax" would raise the cost of a medium chicken pizza from rupees 350 to 400. It may not affect more than 90 % of Keralites as people in the state are spoilt for choice when it comes to eating out.

Kerala happens to be home to the second largest population of obese people in India behind Punjab, and just ahead of Delhi with 17.8 % of men and 28.1 % of women reporting a Body Mass Index (BMI) above 25 and this would have to be checked sooner than later.

Industry viewpoint and affected brands

"The move is business-unfriendly. It calls out the organised, eating out sector. We cannot pass the burden entirely to consumers," Pizza Hut managing director Unnat Varma said. 

Industry estimates suggest there are 50-60 outlets of organised fast-food restaurant chains in Kerala, including global brands McDonald's, Burger King, Pizza Hut, Domino's Pizza and Subway. 

Shares of Jubilant Food Works, which has the master franchise rights for US chain Domino's Pizza and Dunkin' Donuts, and Westlife Development, the operator of McDonald's restaurants in the south and west, lost more than 2 % each on the BSE after the news was out.

Who bears the burden?

Depends !!

It's a tax on multinationals, and not one that is genuinely aimed at curtailing the intake of fat.

The tax clearly singles out multinational brands. What about local Indian brands — some of their products are that much unhealthier and many do not follow basic hygiene standards.

Executives at Yum Restaurants, which has franchise rights for Pizza Hut and KFC, said the tax burden would be passed on to consumers selectively though the firm would try to mitigate the impact. However, G Gopinath, president of the Approved and Classified Hotels of Kerala which has 900 hotel members said “We cannot pass it on to the consumers; we have to accept it as another regular expense.”

Benefit to government

The government expects to raise Rs. 10 crore annually through the new cess.

So what's your take on this new "Fat Tax"??