Monetary Policy 08 Nov 2016 by Tojo Jose

India may experience a ‘monetary bandh’ on November 9

India may experience a ‘monetary bandh’ on November 9

With no banks, no ATM, no shop to receive two of the highest denominations, India can experience a monetary bandh on November 9. With the disappearance of Rs 1000 and Rs 500 notes, 83% of India’s currency note value in circulation are withdrawn. According to the RBI, Rs 1000 and Rs 500 notes account for 83% of the total value of notes circulated in the economy. Inconvenience will be prevailing on transaction front though government has made several arrangements including acceptance of the notes for important purposes. Some of the issues and timing will make the government’s good effort more painful for the public. An example is that after an off day for banks and ATM

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Fiscal Policy 05 Nov 2016 by Tojo Jose

GST rate structure is progressive but complexity is a weak point

GST rate structure is progressive but complexity is a weak point

The new born tax structure of GST is remarkably anti-inflationary and progressive but scores negative on other few sides. One is the extent of complexity that a four-tier tax structure may bring. Few decades ago India’s indirect tax system was infamously called as tax jungle because of the complexities existed during the before the pre - CENVAT. Higher the number of tax rates higher will be complexities. Adding to the four rate will be the cess that also may fall differentially on goods. Impact of such a multiple tax rate structure on producers and sale entities is to be well evaluated. In this format, there is every chance that frictions and litigations will dominate tax a

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Fiscal Policy 03 Nov 2016 by Tojo Jose

GST Council ratifies two standard rates; service tax rate will go up to 18%

GST Council ratifies two standard rates; service tax rate will go up to 18%

The most difficult decision for the implementation of the GST – consensus on GST rates were reached by the powerful GST Council according to Finance Minister Arun Jaitely. Decision is to adopt a four tier GST tax structure with two standard rates. The four rates are 5, 12, 18 and 28 and the new tax will be rolled out by April 2017.  Interestingly, there are two standard rates 12% and 18%. Details about the application of standard rates and the relevant goods and services are yet to be known. Essential items including food will be taxed at a zero rate. The lowest rate of 5 per cent would be applied on goods of common use. Both these tax rate implies that inflation conte

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Fiscal Policy 28 Oct 2016 by Tojo Jose

Cabinet approves strategic sale in PSUs

Cabinet approves strategic sale in PSUs

The Union Cabinet has approved the higher order disinvestment called strategic sale of PSU shares. Under strategic disinvestment or sale, government gives ownership control of a PSU firm to a private sector partner. The private sector strategic partner will get substantial share in the PSU and may get even higher than 51% share. According to the latest Cabinet decision, disinvestment which would include transfer of at least 50% shares would be decided on a case by case basis. The strategic sale amounts to full scale privatization unlike selling minority shares in the usual way. No strategic sale has taken place during the last thirteen years. Decision for strategic sale was anno

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Fiscal Policy 19 Oct 2016 by Tojo Jose

States disagrees on GST rates as center tries to retain cess

States disagrees on GST rates as center tries to retain cess

The crucial second meeting of the GST Council ended a day before its schedule as states put resistance on center’s attempt to introduce cess on certain types of goods. An inevitable part of the GST reform was the elimination of cess. The cess revenue was solely gone to center and states sees its retention as an effort to reduce state’s revenue. In the discussion, centre has proposed the introduction of a cess over and above the GST on ultra-luxury items such as big cars. Earlier, centre has proposed a strange looking four tier tax rate – 4%, 12%, 18% and 26%. Of these, 12% and 18% will function as the standard rate. There is no specification on what will be the

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Fiscal Policy 18 Oct 2016 by Tojo Jose

Government to appoint committees for more credible macro data generation including GDP

Government to appoint committees for more credible macro data generation including GDP

The Government is planning to make extra steps to ensure credibility of macro-economic data like the GDP estimation. A big renovation of existing statistical data collection and processing procedure will be made with the appointment of five new committees. The new exercise of modifying the existing statistical compilation is because of inflation, industrial production, consumption employment and most importantly GDP estimate. Impetus for the review of the existing system come into importance after several questions were raised about the credibility of the new methodology of calculating GDP. New GDP estimation methodology came under severe criticism and several methodological ques

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Fiscal Policy 17 Oct 2016 by Tojo Jose

GST Council meets tomorrow to decide the crucial tax rate

GST Council meets tomorrow to decide the crucial tax rate

The GST Council is starting its second meeting tomorrow to confront the most difficult task of fixing the standard GST rate.  Meeting will extend for three days. First meeting of the Council took pace last month where some easy works like exempting some states on the basis of geographical difficulty was decided. The North East and hilly states were awarded exemptions on several fronts.                 The Finance Ministry has made November 22 as the deadline for settling big issues in front of the Council. More than that, next budget date has been set backward at around the first week of February. So c

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Fiscal Policy 10 Oct 2016 by Tojo Jose

Budget will be presented during the first week of February

Budget will be presented during the first week of February

After making some fundamental changes in budget procedures, the center has decided to present the annual budget before February 9th. Finance Ministry is aiming February 2nd as the date though Republic Day and few other engagements are expected to make it tough. Usually, the three most important days with the budget session are the days of presentation of the Railway budget, Economic Survey and the General Budget. But this year, the Railway budget will be merged with the general budget. Railway’s budgetary details will be added in four or five pages under the general budget. The fiscal impact of adding the railways budget will be made minimal though the government will stop

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Monetary Policy 04 Oct 2016 by Tojo Jose

Debutants- MPC and Patel make a rocking start with rate cut

Debutants- MPC and Patel make a rocking start with rate cut

The first monetary policy review after takeover of the Monetary Policy Committee and the new Governor Urjit Patel has made a 25 basis cut in the policy rate. The repo rate is now brought down to 6.25% - the lowest rate in six years. The new policy rate decision marks a new era in India’s central banking with the takeover of the monetary policy decision by a body -the Monetary Policy Committee (MPC). It is a half-government and half central bank body – where the RBI Governor enjoys a meager privilege of casting vote.  Formalities in monetary policy reviews also changed with the new body as the decision notes to be published immediately. With MPC, the finance mini

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Fiscal Policy 01 Oct 2016 by Tojo Jose

Government’s surgical operation against black money brings out Rs 67000 crores

Government’s surgical operation against black money brings out Rs 67000 crores

The government’s black money chase has produced a notable achievement as the domestic black money disclosure scheme has brought out black income of around Rs 65250 crore. This means that the government will get Rs 29362 crore in tax revenues. The scheme’s four-month disclosure window period ended on September 30. People who disclosed black money will get more time to pay the tax and penalties. The Income Disclosure scheme had a package of tax and penalty of 45% aggregate for people/entities disclosing domestic black income and assets. The cleansing programme The Income Discourse Scheme was the second one targeted to cleanse the economy by bringing black money under t

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