“Today there is a major aspirational class in India that wants to invest for growth….According to the Association of Mutual Funds, the assets under management of the mutual fund industry in India in 2014 were around 10 lakh crores. In these eight years, by June 2022, it has increased by 250 percent to 35 lakh crore. That is, people want to invest. They are ready for it”. This is Prime Minister Narendra Modi speaking at the inauguration of the International Bullion Exchange in GIFT City, Gandhinagar on July 29, 2022. These are not words that India has ever seen coming from the political leadership. To the contrary there has been a deep-seated suspicion of markets in general and stock markets in particular. This discomfort with markets has led to decades of sub-optimal investment options for Indians wanting to keep savings ahead of inflation.
A new-found confidence over the well-handled Covid-19 crisis found its way into Budget 2021. This is reflected in three aspects of the budget. One, the finance minister ignored suggestions to tax the rich with a higher surcharge or a Covid-19 cess. Two, the government has gone for growth with a large push on capital spending. Three, the FM has cleaned up the balance sheet of the government and removed the anomaly of using off-balance sheet items to show lower borrowings.
Prime Minister Narendra Modi interacted with leading economists of the country on charting the economic agenda in the post-COVID world and highlighted government’s commitment to developing world-class infrastructure and the economic potential set to be unleashed by National Optical Fibre Network.
He highlighted the faith shown by foreign investors in India’s growth story, with foreign direct investment growing by 11 per cent between April and October, despite a global recession.
The participants stressed the importance of investing in public health and education, as human capital would also likely emerge as a driver of growth, especially in the knowledge economy going forward. They also stressed on labour-intensive manufacturing given the success India has achieved in launching the PLI scheme in mobile manufacturing. The interaction was organised by Niti Aayog.
“Government expenditure on infrastructure was a point made by many participants as a driver of growth in the coming years, given the significant multiplier benefits that accrue to the economy from public investments in infrastructure. A focus on labour-intensive manufacturing was also mooted by participants, given the success India has achieved in launching the production linked incentives (PLI) scheme in mobile manufacturing,” a release by NITI Aayog said.
It said the participants agreed that high-frequency indicators were showing signs of a strong economic recovery and that too earlier than expected.
They were broadly in agreement that next year will see robust growth and suggested measures to maintain this growth rate to drive India’s socio-economic transformation.”
“The participants highlighted the strong structural reform measures that have been undertaken in the past few years and how they would help in the creation of an Atmanirbhar Bharat. Suggestions were made by participants on future reform areas,” the release said.
The Prime Minister explained his vision behind an Atmanirbhar Bharat, where Indian companies are integrated in global supply chains in a manner not seen before.
“PM Modi further highlighted the economic potential set to be unleashed by the National Optical Fibre Network, providing internet connectivity to some of India’s most remote areas. On infrastructure, the Prime Minister highlighted the National Infrastructure Pipeline as the government’s commitment to developing world-class infrastructure. The Prime Minister ended his talk by stating the importance of partnerships in achieving our goals, and that such consultations play a crucial role in setting the broader economic agenda,” the release.
Finance Minister Nirmala Sitharaman attended the meeting.
The leading economists who participated in the discussion included Arvind Panagariya, Arvind Virmani, Abhay Pethe, Ashok Lahiri, Abheek Barua, Ila Patnaik, KV Kamath, Monika Halan, Rajiv Mantri, Rakesh Mohan, Ravindra Dholakia, Saumya Kanti Ghosh, Shankar Acharya, Shekhar Shah, Sonal Varma and Sunil Jain. (ANI)
Bloomberg Opinion columnist Andy Mukherjee triggered a weekend storm with his loss of hope in India, as expressed here.
He has lost hope in India due to what he considers the “inept” authoritarian handling of the pandemic, arbitrariness of policy, decay of institutions, presence of zombie business houses, and the power of a few firms. He worries about a post-pandemic demand gap. He sees walls closing in: “[The] opportunity set for India is shrinking….”
His piece documents the stagnation of post-Independence India, its 1991 rebirth with reforms credited to Manmohan Singh (not Narasimha Rao), omitting to mention the International Monetary Fund gun held to our head, and how those reforms gradually lost focus and force, resulting in rampant corruption. But nowhere does he mention clearly the extent of the corruption, that had become a gouging under the United Progressive Alliance-2 regime. Mukherjee moves to the rising star of Prime Minister Narendra Modi and hopes of a muscular reform push under his leadership. And then he makes a surprising leap to connect the botched demonetization exercise with the “unquestioning devotion” of citizens, and links it to the start of allegedly whimsical decision-making, including India’s six-week lockdown. The rest of Mukherjee’s argument is mostly about how Modi has been able to mesmerize Indians so that they are willing to take any pain that he inflicts but remain steadfast in their faith.
A far more confident, poised and assertive Nirmala Sitharaman looked nothing like the fumbling FM just a few months ago when she announced the first fiscal package. The almost ₹1 trillion of spending plus infra push announced can be criticized by arguing that the government is not really spending anything much. And where is the ₹10 trillion that all the NRI economists are so fond of recommending? But if we stop being attached to seeing an actual spend from the government coffers and look at what the FM is trying to do, putting our political biases aside, then the story that emerges looks like this to me.
First, the package announced is this: Central government and central government enterprise employees can choose to either lapse their LTA this financial year or get the benefit in cash equal to leave encashment plus three times ticket fare. ₹10,000 worth of festival advance will be available for all such employees. State governments and the private sector can also do the same. For an infrastructure push, a ₹12,000 crore zero-interest 50-year loan to the states is being given and another ₹25,000 crore as a capital expenditure boost to the existing ₹4.13 trillion already announced in Budget 2020-21. The value of these measures is about ₹1 trillion. The sleight of hand is that this will be spent without the government actually spending that much more.
The year is 1992. I am in my first job and I don’t know it yet, but as a rookie business journalist, I’m watching India’s stock market balloon and then burst in a huge (for that time) ₹3,500 crore scam. As business journalists, we documented the setting up of India’s capital market regulator in 1992 and then its fight for teeth as the first chairman struggled to get powers to make the regulator effective. Setting up a new stock exchange to break the monopoly of the old one, moving to screen-based trading from the opaque open outcry system, getting brokers under some kind of regulation to demolish the closed club in which they operated and a whole universe of changes that really shook the way capital markets worked in India.
I remember having conversations with brokers and sub-brokers and arguing that corporatization was good and that transparency, rules of the game and investor interest would actually help the market grow. The insiders always resist change and the industry deeply believed that the business would end and everybody will lose. Investors will be orphaned in the new corporate system, went the argument. We resist in investor interest, they said.
The government wants banks, insurance firms, jewellers and others to report 11 transactions to the income tax department. In a move to catch tax evaders, the government wants disclosure of certain transactions, not by the tax payer but by the firms they deal with. Will this nudge the unwilling to pay their taxes? In this special series of Money with Monika, personal finance expert Monika Halan explains how the new notification works. Watch the full episode for Monika Halan’s advice. Monika Halan is consulting editor, Mint, and author of the book ‘Let’s Talk Money’.
A tweet from a government handle, now deleted, was the cause of much upset with social media going a little nuts on the increasing compliance burden on the Indian taxpayer and the increasing intrusion of big government into citizens’ lives. The tweet lists 11 categories of financial transactions that, if made, will trigger reporting by the receiver of the money to the income tax department. Already banks and mutual funds report transactions above a certain threshold. The scope of this reporting is set to expand.
The shops, banks, mutual funds, hotels and so on will make the disclosure to the tax department, and not the taxpayer. The government hopes to find a discrepancy between the income disclosed during the tax filing process and the spends made. As we file our tax returns for financial year 2019-20 (last year), we will see a box that only some people need to tick. These are people who claim that their gross taxable income (before applying any deductions) is ₹2.5 lakh or less, but have made transactions of ₹1 crore or more in a current account, have paid ₹1 lakh or more in electricity bills and have spent ₹2 lakh or more on foreign travel. We see these people around us, they are the ones pulling out wads of cash to pay for high-value gadgets, jewellery, hotel bills and more. They are the ones paying 50-70% of property purchases in cash.
Indian private sector and foreign banks are miffed with the Reserve Bank of India (RBI) for taking away the lucrative current account business from them. In the policy statement on 6 August 2020 , a five-page document titled Opening of Current Accounts by Banks—Need for Discipline (read here) became the focus of dark mutterings in the plush boardrooms of private and foreign banks. Very simply put, RBI has put restrictions on who can open a current account with which bank. A company that has borrowed from a bank cannot open a current account with another bank. It can open a current account with its lending banks under some circumstances, otherwise it is encouraged to use the cash credit and overdraft facilities under which it has borrowed (read here). A current account is like a savings bank account, but with many facilities for swift and multiple transactions, overdraft facilities and it carries no interest. Banks like to sell these accounts as they enjoy huge floats, or money that just sits with the bank waiting to be used by the depositing firms.
Indian investors periodically hit the headlines when there is a large blow-up of some product or market. We’ve seen recently a cooperative bank failure. Then a private scheduled commercial bank (those that usually are not allowed to fail) saw its operations and deposits frozen for a few days. Even as the depositors in Yes Bank got their money back, the investors in its AT1 bonds saw their money disappear. These high-risk bonds were mis-sold by Yes Bank managers as FDs to senior citizens among other low-risk investors. Debt mutual fund investors have seen money they thought safe being exposed to excessive risk as fund managers cut deals with promotors, introducing the risk of equity in debt funds. A series of bond downgrades have left retail investors booking large losses over the past year. The latest has been the Franklin Templeton story that saw a liquidity problem become the cause for shutting down six schemes. The matter is now sub-judice since one HNI got a stay. These are the stories that come into the public eye, but there are plenty others that don’t make news simply because the investor is not an HNI or does not belong to a strong group such as a broker lobby.