November has been an eventful month with lots of events both within India and on the global front too. In contrast to the not so pleasant memories of the 26/11 attack; we have had several happy moments where India has scored and fared well. Let us look at some of them.
Moody’s upgrade was possibly the most eagerly anticipated and positive news. After 14 long years, Moody’s revised India’s sovereign rating to Baa2 from Baa3, putting it ahead of Russia, Brazil and South Africa; but behind China.The new rating – India’s highest ever will pave the way for capital inflows into the country and will provide a tremendous boost to the Modi government. The Sensex spiralled upwards and the rupee strengthened reflecting the upgrade.
Kumar M. Birla, Chairman of the Aditya Birla Group and also a Chartered Accountant says, “Moody’s upgrade is a hugely welcome endorsement of the government’s reform policies and the economy’s enormous potential.” The Government’s aggressive and impressive track record in devising and implementing tough economic initiatives is finally paying off. Demonetisation, GST, direct transfer bank accounts, insolvency & resolution laws and recapitalising the banks have all been stepping stones to achieving the new upgrade.
However, Standard & Poor’s maintained a more cautious approach than Moody's, having kept India at the current rating of BBB-minus. S&P would need to see more evidence that the ongoing reforms would "markedly improve" the government's finances and reduce its net general government debt to justify an upgrade.
Ease of Doing Business is another benchmark in which India has surprised the world, declining 30 places to reach the top 100 club. Last year, India moved just one spot reaching the 130th position. Realising the importance of scoring in the ease of doing business arena, the government rolled up its sleeves and faced the challenge. The spectacular ascent up the list has now caught the attention of governments and multinational corporations.
The GST Council has been responsive to the difficulties faced by the tax payers in implementation of GST by bringing in the necessary measures. However, many of these including transitional provisions, clarity of provisions, preparedness of IT infrastructure among others could have been envisaged by the Council and even postponed for implementation thereby helping the index of ease of doing business in India.
The Ease of Doing Business Report 2018 is now in its 15th year and currently ranks 190 nations on various parameters. The report mentions that since 2003, India has adopted 37 reforms, out of which nearly half have been implemented in the last four years. On the ten parameters considered, India improved on eight, helping propel its rank upwards. The Insolvency & Bankruptcy Code, 2016 which accelerates the process of winding up loss-making companies has been pivotal to India’s ranking this year. Starting a business, dealing with construction permits, getting credit, protecting minority investors, paying taxes and trading across borders were areas in which India showed great commitment and reform. Enforcing contracts, labour market regulation and getting electricity too were areas in which India made considerable headway and sustained improvement.
Russia tops the BRICS countries ranking 35th, while China retains its 78th place on the list. India has surprised the authors of the list, who say it’s very rare that a major economy makes a massive jump in a single year. India has done it, but Prime Minister Modi is not yet satisfied...he has set a goal of achieving the 50th rank!
Interestingly, recently India got the 1st rank in the Miss World Contest. Manushi Chhillar was recently crowned as Miss World after a gap of 17 years which brought glory to the Nation.
Non-Performing Assets (NPAs) have become a buzz word in Indian banking. The sky-rocketing NPAs have turned the banking industry into a giant problem and the rot is so deep it threatens the buoyancy of the economy. Estimates peg the NPAs at around Rs. 8-10 lakh crore with the biggest defaulters being in the power, steel, infrastructure and textile industry.
In a bid to jumpstart the industry, the government has approved Rs 2.11 lakh crore plans to recapitalise public sector banks. Rs.1.35 lakh crore would come from recapitalisation bonds and 76,000 crore would come from the government or by banks tapping the financial markets. The news sent the public sector banks stock prices shooting up. Moody’s and Fitch hailed the move...so did many corporate veterans.
The big challenge ahead is which of the 22 public sector banks are going to be recapitalised. And more importantly, from where is the money going to come. It will be tough to raise capital for banks that have been for long projected as loss-making and sinking. The other big question is, who will issue the bonds...who will subscribe to these bonds and who will pay the interest on the bonds.
In addition to recapitalising the banks, major reforms are the essential need of the hour, particularly in governance and accountability. The ‘extend and pretend’ policy practised by the banks over so many years has today snowballed into a giant problem because of a lack of accountability. Also most of the loan defaulters – the creators of the NPAs are politically connected individuals who could not be refused! Independence and accountability should become the thrust of reform for a healthy public sector banking industry.
The government’s decision to set up a Committee to review the Income Tax Act, 1961, is unexceptionable. The current statute is bulky, and with multiple court rulings over the past five decades have made Indian tax law confusing and opaque. In any case, direct taxes do need a dosage of reforms to bring them in line with current needs and international best practices. This could include incorporating the latest provisions of base erosion profit shifting (BEPS) and clarity on taxation of new types of business models and digital transactions. Apart from rates and rules, the critical demand from trade and industry is for a sea change in the nature of tax administration, from being enforcement oriented to focusing on simplicity and clarity. The focus should be to address the concerns of uncertainties and needless tax litigation rather than going through another elaborate exercise. The Committee is expected to submit its report within six months.
Last but not the least, I would like to compliment the Income Tax Department for their concerted and well-planned efforts in effectively managing “Operation Clean Money” The key steps taken in the wake of demonetisation were strengthening of data collection and focussed enforcement actions. The mission was to “create a tax compliant society, through a fair, transparent and non-intrusive tax administration, where every Indian takes pride in paying taxes.” I think they have started well and wish them all success in executing their endeavour.
Wishing You All a Merry Christmas and A Happy and Joyous New Year-2018! I urge members to take a well-deserved break and spend quality time with their near and dear ones to start afresh with renewed vigour for the New Year.
Feel free to write to me on firstname.lastname@example.org
With kind regards
CA. Narayan Pasari