The HINDU Notes – 24th August 2019 - VISION

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Saturday, August 24, 2019

The HINDU Notes – 24th August 2019

πŸ“° China announces new tariffs on $75 bn worth U.S. imports

•China announced Friday it will hit US soybeans, lobsters, peanut butter and other imports worth $75 billion with new tariffs in retaliation for Washington's planned duty hikes, further intensifying the bruising trade war between the world's top two economies.

•The punitive tariffs of 5 to 10 percent will apply to 5,078 items from the US, starting September 1 and December 15, China's state council tariff office said.

•Beijing also announced it will reimpose a 25 percent tariff on US autos and a 5 percent tariff on auto parts, also starting December 15. China had lifted those tariffs earlier this year as a goodwill measure while trade talks were underway.

•The escalating trade war is adding to growing fears of a possible recession in the US, with the tariffs weighing on global trade and both countries' growth.

•US President Donald Trump has imposed steep tariffs on $250 billion in Chinese goods, with a further $300 billion in imports targeted for new duties in two more rounds, September 1 and December 15.

•Meanwhile China has hit back with duties on around $110 billion of US goods -- or nearly all of the $120 billion worth of American goods it imported last year.

•Some of those goods will now have their tariff rates raised even further.

•China's commerce ministry said it will hit American frozen lobster, frozen chicken feet, peanut butter and 914 other goods with new 10 percent punitive tariffs starting September 1.

•Soybeans, crude oil and other energy goods face 5 percent tariffs.

•The US actions "have led to the continuous escalation of China-US economic and trade frictions, violating the consensus reached by the two heads of state in Argentina and the consensus reached in Osaka," China's State Council Tariff Commission Office said in a statement.

•"China's adoption of punitive tariff measures is forced under the pressure of US unilateralism and trade protectionism," the office said.

•US-made mango juice, electric buses and chemical products face 10 percent duties XX come mid-December while smaller aircraft, hand pumps and bearings will be hit with 5 percent taxes.

- 'The chosen one' -

•Wall Street stocks opened lower Friday after Beijing's announcement.

•Also on Friday Federal Reserve Chair Jerome Powell warned that trade tensions were exacerbating the global slowdown and the Fed didn't have a "rulebook" for dealing with the fallout.

•Those comments came after Trump proclaimed himself "the Chosen One" Wednesday as he defended his trade war against China, indicating that it was his destiny to take on Beijing.

•An alarm bell went off in the US Treasury bond market last week when 10-year bond yields briefly fell below the yields offered on a two-year bond -- the inverse of what normally happens.

•US officials have said in recent days that trade talks with China will continue face-to-face next month.

•However China's commerce ministry spokesman Gao Feng said Thursday he had no information on the next round of meetings, while noting the two sides remain in contact.

•The two economic giants are squaring off in an increasing number of areas with officials and spokespeople taking daily shots at each other over trade, territorial disputes in the South China Sea, protests in Hong Kong and US actions against Chinese tech giant Huawei.

πŸ“° With Amazon forest on fire, Brazil faces global backlash

•The Amazon rainforest, often referred to as the lungs of the Earth, has been ravaged by a record number of fires this year, sparking global outrage over Brazil’s environmental policies.

•World leaders, environmental groups and celebrities have publicly decried the vast swaths of forest being destroyed by the fires, while satellite images of dark smoke billowing out of the Amazon has been shared on social media by space agency NASA.

•An intensifying wave of international criticism comes shortly after Brazil’s research center, the National Institute for Space Research (INPE), reportedthat it had detected 72,843 fires in the world’s largest rainforest so far this year.

•That marked an 84% rise when compared to 2018 and the highest since records began in 2013.

What have world leaders said?

•French President Emmanuel Macron has described the phenomenon as an “international crisis” that needs to be top of the agenda at this weekend’s Group of Seven (G-7) summit.

•“Our house is burning. Literally,” Macron said via Twitter on Thursday, highlighting that the world’s largest rainforest produces 20% of the world’s oxygen.

•Canadian Prime Minister Justin Trudeau said he “couldn’t agree more” with Macron’s call to raise the issue at the G-7 summit, saying world leaders needed to act for the Amazon.

•In response, Brazil’s firebrand right-wing President Jair Bolsonaro has angrily told foreign powers not to interfere with his country’s sovereignty, despite admitting his country is not equipped to fight the fires.

•He also accused non-governmental organizations (NGOs) of starting some of the fires, but admitted he had no evidence to support this claim.

•On Twitter, Bolsonaro singled out Macron and accused him of sensationalizing the issue for personal political gain.

•The long-time climate sceptic added that the prospect of the Amazon fires being discussed at the upcoming G-7 summit, without the participation of any Amazonian countries, evoked a “misplaced colonialist mindset.”

What makes the Amazon unique?

•The Amazon rainforest produces around 20% of the world’s fresh water and serves as the habitat of more than 34 million people, according to the World Wide Fund for Nature (WWF).

•It covers roughly 5.5 million square kilometers — about half the size of Europe.

•“We have so much to lose with the Amazon burning and yet not enough action is being taken to stop its destruction!” the WWF said via Twitter.

•The Amazon is critical in absorbing the planet’s carbon dioxide — making it a vital bulwark against an intensifying climate crisis.

•The United Nations (UN) has recognized climate change as “the defining issue of our time,” with a recent report calling the crisis “the greatest challenge to sustainable development.”

•“In the midst of the global climate crisis, we cannot afford more damage to a major source of oxygen and biodiversity. The Amazon must be protected,” UN Secretary-General Antonio Guterres said via Twitter, adding that he was “deeply concerned” about the fires.

•Actor and environmental activist Leonardo DiCaprio said in an Instagram post published Thursday that “the lungs of the Earth are in flames,” calling on his 34 million followers to become more environmentally conscious.

What caused these fires?

•Although fires in the Amazon basin are a regular and natural occurrence during the dry season at this time of the year, environmental activists have blamed the sharp rise on farmers setting alight clear land to pasture.

•Richard Mello, head of the WWF Amazon Programme, told the BBC that the fires were “a consequence of the increase in deforestation seen in recent figures.”

•Bolsonaro, who came to power in January, has repeatedly said he believes Brazil should open the Amazon up to business interests. This would allow mining, agricultural and logging companies to exploit its natural resources.

•During his campaign for president, Bolsonaro said he would seek to limit fines for damaging the Amazon and weaken the influence of the environment agency.

•Brazil’s president also warned he could withdraw the country from a landmark climate agreement restricting global efforts to cut carbon, saying the requirements of the Paris Agreement compromise Brazil’s sovereignty over the Amazon region.

πŸ“° Terror funding watchdog FATF Asia-Pacific Group ‘blacklists’ Pakistan

The Financial Action Task Force (FATF) has already greylisted Pakistan for failing to curb anti-terror financing.

•Pakistan has been placed on the lowest rung, or “blacklist”, of the Financial Action Task Force’s Asia Pacific Group (APG) for non-compliance and non-enforcement of safeguards against terror financing and money laundering.

•The APG, one of nine regional affiliates of the FATF, met in Canberra from August 18 to 23 to discuss a five-year review of the Mutual Evaluation Report (MER) for Pakistan, and decided to place it among countries requiring “enhanced, expedited follow-up”. 

Quarterly reporting 

•While the placing does not bring any new punitive measures on Pakistan, it will mean quarterly reporting to the group on improvement in its financial safeguards.

•While the APG’s final report will be published in October, the group said in a statement that it had “adopted a number of follow-up reports for APG members and for joint APG/FATF members and also agreed on revised evaluation procedures for the coming year reflecting recent changes to global procedures”. Countries under review during the current session included China, Chinese Taipei, Hong Kong, China, Pakistan, the Philippines and the Solomon Islands 

•The APG process is one of three review processes that Pakistan faces in the next few months. On September 5, the APG will meet again, to take forward the main 15-month process of Pakistan’s FATF evaluation, which will present its recommendations for the FATF plenary session in Paris from October 18 to 23. At present, Pakistan is on the “greylist” of the FATF, a common group for countries that are termed “high risk and non-cooperative jurisdictions”. 

•The Paris plenary will decide whether to remove Pakistan from the greylist, continue the listing, or downgrade it to a blacklist of non-cooperative countries. Officials said the downgrade might not occur, given that any three countries in the FATF can veto it, and Pakistan is likely to secure the backing of China, Turkey and Malaysia. However, the APG decision on Friday would make it difficult for Pakistan to extricate itself from the greylist. 

‘Wrong terminology’

•In a statement, Pakistan’s Finance Ministry accepted that it had been placed in the enhanced follow-up, which requires it to report on a quarterly basis, but said that the term “blacklist” did not apply to the APG process, calling the terminology “incorrect and baseless”. 

•Pakistani officials said that since the APG process only looked at Pakistan’s actions till October 2018, it did not represent the decisions taken in the past year, which will be considered by the next two reviews. The Imran Khan government has claimed to have successfully shut down terror financing channels for groups banned by the UNSC like the Lashkar e Toiba and Jaish e Mohammad, charging leaders like Hafiz Saeed under the Counter-Terrorism Department’s terror financing laws, and amending its Anti-Terrorism Act to align it with the FATF’s requirements. These actions have been included in Pakistan’s 450-page compliance document submitted this week for the FATF process. 

•According to sources, at the APG Canberra meet, Pakistan failed in 32 of 40 ‘compliance’ parameters for its legal and financial systems, and failed 10 of 11 ‘effectiveness’ parameters for enforcing safeguards against terror-financing and money-laundering by UN-sanctioned entities and other non-government outfits.

•“Despite its efforts, the Pakistani delegation could not convince the [APG] to upgrade its status on any parameter,” a government source said.

πŸ“° An end to arms control consensus

An end to the New START in 2021 will leave the arsenals of the two major nuclear powers unencumbered by any pact

•The countdown on the U.S.-Russia Intermediate Range Nuclear Forces (INF) Treaty began last October when President Donald Trump announced that U.S. was considering a withdrawal. On August 2, the U.S. formally quit the pact. Concluded in 1987, the agreement had obliged the two countries to eliminate all ground-based missiles of ranges between 500 and 5,500 km, an objective achieved by 1991.

•At risk is the New START (Strategic Arms Reduction Treaty) signed in 2010 and due to lapse in February 2021. It has a provision for a five-year extension but Mr. Trump has already labelled it “a bad deal negotiated by the [Barack] Obama administration.”

•In May, Director of the Defence Intelligence Agency Lt. Gen. Robert Ashley declared that “Russia probably is not adhering to the nuclear testing moratorium in a manner consistent with the ‘zero-yield’ standard” imposed by the Comprehensive Test Ban Treaty (CTBT). The CTBT has not entered into force but the U.S. is a signatory and Russia has signed and ratified it. Many have interpreted Lt. Gen. Ashley’s statement as preparing the ground for a resumption of nuclear explosives testing. Taken together, these ominous pointers indicate the beginning of a new nuclear arms race.

•The decade of the 1980s saw heightened Cold War tensions. Soviet military intervention in Afghanistan in 1979 provided the U.S. an opportunity to fund a (barely) covert jihad with the help of Pakistan. President Ronald Reagan called the USSR “an evil empire” and launched his space war initiative. Soviet deployments in Europe of SS-20 missiles were matched by the U.S. with Pershing II and cruise missiles.

Cold War talks

•In 1985, the two countries entered into arms control negotiations on three tracks. The first dealt with strategic weapons with ranges of over 5,500 km, leading to the START agreement in 1991 that limited both sides to 1,600 strategic delivery vehicles and 6,000 warheads. A second track dealt with intermediate-range missiles, of particular concern to the Europeans, and this led to the INF Treaty in 1987. A third track, Nuclear and Space Talks, was intended to address Soviet concerns regarding the U.S.’s Strategic Defence Initiative (SDI) but this did not yield any concrete outcome.

•The INF Treaty was hailed as a great disarmament pact even though no nuclear warheads were dismantled and similar range air-launched and sea-launched missiles were not constrained. Further, since it was a bilateral agreement, the treaty did not restrict other countries, but this hardly mattered as it was an age of bipolarity and the U.S.-USSR nuclear equation was the only one that counted. By 1991, the INF had been implemented. The USSR destroyed a total of 1,846 missiles and the U.S. did the same with 846 Pershing and cruise missiles. Associated production facilities were also closed down. In keeping with Reagan’s dictum of ‘trust but verify’, the INF Treaty was the first pact to include intensive verification measures, including on-site inspections.

•With the end of the Cold War and the break-up of the USSR in end-1991, the arms race was over. Former Soviet allies were now joining the North Atlantic Treaty Organization (NATO) and negotiating to become European Union (EU) members. The U.S. was investing in missile defence and conventional global precision strike capabilities to expand its technological lead. Importantly, some of these were blurring the nuclear-conventional divide.

U.S. withdrawal from ABM

•In 2001, when the U.S. announced its unilateral withdrawal from the 1972 Anti Ballistic Missile Treaty (ABM Treaty), a keystone of bilateral nuclear arms control was removed.

•The INF Treaty had been under threat for some time. The U.S. had started voicing concerns about the Novator 9M729 missile tests nearly a decade ago. As Russia began production, formal allegations of violation of the INF Treaty were raised by the Obama administration in 2014. Russia denied the allegations and blamed the U.S. for deploying missile defence interceptors in Poland and Romania, using dual-purpose launchers that could be quickly reconfigured to launch Tomahawk missiles.

•Basically, Russia believes that nuclear stability began getting upset since the U.S.’s unilateral withdrawal from the ABM Treaty. As the U.S. used its technological lead to gain advantage, Russia became more dependent on its offensive nuclear arsenal and began its modernisation and diversification.

•The U.S.’s 2017 National Security Strategy and the Nuclear Posture Review (NPR) the following year reflected harsher-than-before assessment of its security environment and sought a more expansive role for nuclear weapons, in a break from the policies that had been followed since the end of the Cold War. Russia was seen as a ‘disruptive power’ pushing for a re-ordering of security and economic structures in Europe and West Asia in its favour. China was identified for the first time as a strategic competitor that was seeking regional hegemony in the Indo-Pacific region in the near-term and “displacement of the U.S. to achieve global pre-eminence in the future”.

•With the geopolitical shift to the Indo-Pacific, the U.S. believes that the INF Treaty was putting it at a disadvantage compared to China which is rapidly modernising and currently has 95% of its ballistic and cruise missile inventory in the INF range. Against this political backdrop, the demise of the agreement was a foregone conclusion.

•The 2011 New START was a successor to the START framework of 1991 and limited both sides to 700 strategic launchers and 1,550 operational warheads. It lapses in February 2021 unless extended for a five-year period. Mr. Trump has indicated that a decision on the agreement will be taken in January 2021, after the 2020 election. Given his dislike for it, if he is re-elected, it is clear that the New START will also meet the fate of the INF Treaty. This means that, for the first time since 1972, when the Strategic Arms Limitation Act (SALT) I concluded, strategic arsenals from the U.S. and Russia will not be constrained by any arms control agreement.

Testing of low-yield weapons

•The 2018 NPR envisaged development of new nuclear weapons, including low-yield weapons. The Nevada test site, which has been silent since 1992, is being readied to resume testing with a six-month notice. The U.S. Senate had rejected the CTBT in 1999 but as a signatory the U.S. has observed it. In addition to pointing the finger at Russian violations, Lt. Gen. Ashley declared that “China is possibly preparing to operate its test site year-round in a development that speaks directly to China’s goals for its nuclear force”. He suggested that China cannot achieve such progress “without activities inconsistent with the CTBT”. Since the CTBT requires ratification by U.S., China, Iran, Israel and Egypt and adherence by India, Pakistan and North Korea, it is unlikely to ever enter into force. Resumption of testing by the U.S. would effectively ensure its demise.

•A new nuclear arms race could just be the beginning. Unlike the bipolar equation of the Cold War, this time it will be complicated because of multiple countries being involved. Technological changes are bringing cyber and space domains into contention. All this raises the risks of escalation and could even strain the most important achievement of nuclear arms control — the taboo against the use of nuclear weapons that has stood since 1945.

πŸ“° 13 States, UTs improve their water management practices

Gujarat tops rankings for second time

•Thirteen of the 27 States and Union Territories have improved their water management practices from last year, an analysis by the NITI Aayog has revealed.

•Gujarat, though it dropped a point, topped the rankings for the second year in a row with a score of 75 out of a maximum possible 100.

•Six States did worse than last year — with Delhi, which was evaluated for the first time this year garnering the lowest score — and three maintained their position from last year, according to the Composite Water Management Index, a ranking tool developed by the NITI Aayog and unveiled last year.

•The ‘index’ aims at capturing how well States have done on groundwater and surface water restoration, implementing major and medium irrigation projects, watershed development, participatory irrigation management, on-farm water use, rural and urban water supply, and policy and governance.

•These indicators were broken down into 28 objective indicators that include determining whether the State had policies and infrastructure in place to conserve groundwater, or its performance in providing piped water to villages.

•Sixteen out of the 27 States and UTs assessed last year scored less than 50% of total achievable score, and remained in the ‘low-performing’ category. The average improvement among the low-performing States stood at 3.1 points, lower than the 5.2-point average improvement observed across States in the last three years. Haryana, Goa and Uttarakhand made remarkable gains from last year, the report noted.

•The 16 low-performing States collectively account for 48% of the population, 40% of agricultural produce, and 35% of economic output for India.

•For the index, States were required to fill out the necessary data on a NITI Aayog portal and this data was validated by an independent firm called IPE Global.

•“The results of this year’s exercise reveal an overall improvement in State performance, but severe disparities remain between states, and across themes, which must be bridged,” the report noted.

•Rajiv Kumar, Vice Chairman, NITI Aayog said that those States growing crops that consumed excess water need to refrain from doing so and progress would come about only through “inter-State cooperation.”

•Last year, the NITI Aayog report painted an ominous picture. Nearly 600 million Indians faced high to extreme water stress and about 2,00,000 people died every year due to inadequate access to safe water. It warned of unsustainable groundwater extraction and loss to India's GDP if steps weren’t taken.

πŸ“° Centre responds to downturn with steps to boost growth

Centre responds to downturn with steps to boost growth
Controversial surcharge on Foreign Portfolio Investors withdrawn.

•The government on Friday came out on the front foot to try to boost private sector sentiments, with Finance Minister Nirmala Sitharaman announcing a slew of measures to reduce the burden on the sector, including withdrawing the controversial surcharge on Foreign Portfolio Investors (FPIs) and reiterating the Prime Minister’s statement that the government “respects all wealth creators”.

•Ms. Sitharaman told a press conference that the government will not treat corporate social responsibility violations as criminal offences, as it had earlier said.

•“In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by the Finance Act (No 2) Act 2019 on long and short term capital gains arising from the transfer of equity shares,” the Finance Minister announced. “In other words, the enhanced surcharge on FPIs goes and the pre-Budget position is restored.”

•She, however, clarified that the increased surcharge announced in the Budget would still apply to high net-worth individuals earning more than ₹2 crore a year.

•This, she said, would be the case till India’s 75th Independence Day, when the decision will be reviewed.

•In keeping with the overall push to allay private sector concerns, the Finance Minister also stressed that the government was in favour of penalties rather than prosecution. This would also extend to violations of the CSR rules, which it had earlier said could attract a jail term of up to three years along with a fine. The decision had earlier spooked India Inc, and the rollback should now come as a relief.

•The government also decided to front-load the ₹70,000 crore of capital infusion in public sector banks that was announced in the Budget, a move aimed at increasing private investment by facilitating greater credit disbursal by the banks. According to the government, this ₹70,000 crore will lead to about ₹5 lakh crore of fresh liquidity that can be loaned out.

•In what amounts to a short-term bailout of the auto industry, Ms. Sitharaman also announced that the government had rescinded its ban on the purchase of new vehicles by its departments to replace old ones. Vehicles bought till March 31, 2020 will also be eligible for an additional 15% depreciation. The proposal to enhance registration fees for new vehicles will also be kept on hold till June 2020.

Taxmen reined in

•The government has also significantly reined in the discretionary powers of the tax authorities. Ms. Sitharaman announced that from October 1 onwards, all notices and summons by the Income Tax Department would be generated by a centralised computer and would carry a unique code.

•“I have also held meetings with the tax officials at various locations in the country and told them that our tax collection targets are realistic and that there was no need for overreach,” Ms. Sitharaman said.

•What should cheer prospective homeowners is that the Centre has announced an additional ₹20,000 crore of liquidity to the housing finance companies, over and above the ₹10,000 crore earlier announced.

πŸ“° Centre takes steps to control onion prices

Govt. warns of strict action against hoarders and profiteers

•With heavy rain in key onion-growing States, such as Maharashtra and Karnataka, fanning fears of a price rise, the Centre has taken steps to control onion rates in Delhi and warned of strict action against hoarders and profiteers.

•With onions selling at ₹35-40 per kg at many retail outlets in the Capital, the Department of Consumer Affairs has directed government-owned Mother Dairy to sell onions at its own Safal shops at no more than ₹23.90 per kg for Grade-A variety. This was the prevailing price at Safal outlets on Wednesday, according to an official statement. The decision was taken following a meeting reviewing onion prices in the Capital chaired by Consumer Affairs Secretary Avinash K. Srivastava.

•Safal, which owns about 400 outlets in the National Capital Region, is already being provided onions for sale from the government stock built under the Price Stabilisation Fund.

•The National Agricultural Cooperative Marketing Federation of India and the National Cooperative Consumers Federation of India have also been directed to retail onions at similar rates. Onions from the government buffer will be offered at cost price to large retailers as well.

•“Government will also consider strict action against hoarding and profiteering activities and evaluate the need for imposing minimum export price on onion if the situation so demands,” added the statement.

πŸ“° Govt. takes steps to ease ‘doing business’

Expediting GST refunds for the MSME sector and scrapping angel tax for startups are some of the key measures announced by the Centre.

•The government on Friday announced several decisions to ease doing business in India, including scrapping the ‘angel tax’ for registered startups, expediting GST refunds for the MSME sector, as well as setting a time-bound window for the payment of delayed dues by public sector companies.

•“In order to mitigate genuine difficulties of startups and their investors, it has been decided that the relevant provisions of Section 56 of the Income Tax Act, which is commonly called the ‘angel tax’, shall not be applicable to a startup registered with the Department for Promotion of Industry and Internal Trade,” Finance Minister Nirmala Sitharaman said while addressing a press conference to announce the decisions.

•The angel tax provision has been a pain point for start-ups who have repeatedly complained that the tax burden was slowing down the angel investments made in new companies.

•The government will also set up a dedicated cell under a member of the Central Board of Direct Taxes to address the problems of the startups relating to income tax.

•“Exempting startups from the application of the ‘angel tax’ is a good development,” Rohinton Sidhwa, Partner at Deloitte India said. “Previously, the Government has provided this exemption only for investment below a threshold and where only accredited investors were involved. It appears now that the exemption would be cast wider and will cover all ‘registered’ startups.”

•Ms Sitharaman also announced that all pending Goods and Services Tax refunds to MSMEs would be made within 30 days, and that all future refunds will be paid within 60 days. This is expected to free up a lot of capital that was otherwise locked up for the MSME sector. The government will also look into amending the MSME Act to arrive at a single definition for MSMEs, to avoid the confusion created by various Ministries and Departments using different definitions.

•She also said that the pending payments by Central Public Sector Enterprises (CPSE) to services providers would be expedited and that the delayed payments would be monitored by the Department of Expenditure and the performance would be reviewed by the Cabinet Secretariat.

•Further, in a bid to ease the plight of borrowers, Ms Sitharaman said that the public sector banks will ensure the mandated return of loan documents within 15 days of the closure of the loan. Customers will also be able to track online the status of their loans in order to ease transparency.

•“To support decision-making and to prevent harassment for genuine commercial decisions by bankers, the Central Vigilance Commissioner has issued directions that the Internal Advisory Committee (IAC) in banks will classify cases as vigilance and non-vigilance,” Ms Sitharaman said. “The decision of the IAC is to be treated as final.”

•This move is expected to increase credit outflow by banks as several banks have said that credit decisions have been held up because bank officials have been wary of taking even genuine decisions that could later be hauled up for undue scrutiny.

•In a bid to ease the loan disbursal process for the non-banking financial companies, the government has also allowed them to use the Aadhaar-linked Know Your Customer (KYC) details with banks, instead of having to do the KYC process again themselves.

•In what should come as considerable relief for the taxpayer, Ms Sitharaman also said that from October 1, 2019, all notices, summons, or orders by the Income Tax authorities will be issued through a centralised computer system and will contain a computer-generated unique Document Identification Number (DIN).

•Notices or orders that do not carry this DIN will be treated as invalid, she said, which should go a long way in addressing the instances of alleged harassment by income tax officials.

πŸ“° Sentiment booster: On govt response to slowdown

In rolling back some measures, the government shows it listens to feedback

•For an economy that is downbeat in growth and in sentiment, the comprehensive package of measures announced by Finance Minister Nirmala Sitharaman on Friday may just be the right boost. They address growth slowdown concerns; free up funds for investment and spending by banks, housing finance companies and MSMEs; and importantly, undo some controversial proposals, in the budget and outside it, which were affecting sentiment in the markets and the corporate sector. And, importantly, these have all been done without any significant financial burden on the government. Some of the measures promote the ease of doing business and even the ease of living for ordinary citizens. The auto sector’s biggest demand — that of reduction in GST rate — may not have been conceded, but Ms. Sitharaman has given the sector enough to cheer about. The accelerated depreciation of 15% (in addition to the existing 15%) for all vehicles acquired till March 31, 2020 and the deferment of the proposed increase in registration fee for new vehicles to June 2020 are positive measures that will boost sentiment and, it is to be hoped, translate into demand. As the festive season sets in, banks will have more space to increase their lending consequent to the upfront funding of ₹70,000 crore (announced in the budget) that they will get from the government towards recapitalisation. This, together with the strong push for repo rate linked loan products, is likely to benefit consumers borrowing to buy new homes, vehicles and durables.

•The roll-back of the capital gains tax imposed in the budget on foreign portfolio investors, the withdrawal of angel tax on start-ups and the promise that non-compliance with corporate social responsibility (CSR) norms will be decriminalised show a government that is willing to listen to feedback from the ground. Much of the mayhem in the markets could have been avoided though if only the Finance Minister had acted earlier on the negative feedback to the FPI tax proposal. Some of the smaller steps can go a long way. Expediting delayed payments by government departments and public sector units is alone expected to release a massive ₹60,000 crore into the economy. The assurance that all pending GST refunds to MSMEs will be paid within 30 days and going forward such refunds will be made within 60 days is a great relief for the sector. This will ease the cash flows of MSMEs who often work with stretched finances. The most significant takeaway though from Ms. Sitharaman’s announcements is the fact that the government is no longer scared of the suit-boot ki sarkarjibe. She declared upfront that the government respects “wealth creators” and the measures are aimed at helping them. Will these measures put GDP growth back on the rails? Will they restore the jobs lost in the last few months? The answers to these are in the hands of the wealth creators now. The government did what it could; it is now up to India Inc to take the ball and run.

πŸ“° Angel tax relief brings much needed respite to start-ups

A large number of start-ups had received notices from the tax department

•Finance Minister Nirmala Sitharaman has provided the much-needed relief for the start-up community by announcing that angel tax will not be applicable on entities registered with the Department for Promotion of Industry and Internal Trade (DPIIT).

•While announcing a slew of measures to boost the economy, Ms. Sitharaman said while Sec 56(2) (viib) of the Income Tax Act — under which the tax is levied — would stay, it would not be applicable on start-ups that register with the DPIIT.

•Industry players were unanimous in welcoming the move as the angel tax was looked upon as a major hindrance for early stage start-ups that were looking to attract funding from angel investors and other entities.

•“It is immensely delightful for funded and bootstrapped MSMEs (micro, small and medium enterprises) that the government has considered to waive off 'angel tax' and simplify the flow of risk capital for young companies, which will allow early-stage ventures to raise seed capital,” said Srikanth Iyer, CEO and founder,

Ease of doing business

•“Furthermore, their decision to fast-track GST refunds in 30 days and CBDT’s move towards setting up a dedicated cell to address tax problems will further ease business environment,” he added.

•Angel tax is imposed on the excess share capital raised by an unlisted firm, over and above the fair market value of its shares. This tax usually impacts start-ups and the angel investments they attract.

•While aimed at curbing money-laundering, the angel tax also resulted in a large number of genuine start-ups receiving notices from the tax department.

•“Acknowledging the widespread criticism faced by the tax authorities for their enthusiasm to tax start-ups, the government has finally decided to put a full stop to it,” said S R Patnaik, Partner & Head – Taxation, Cyril Amarchand Mangaldas.

•“Today’s decision means once you are registered as a start-up with the DPIIT, you will not be bothered by the tax authorities,” he added.

πŸ“° ‘Development finance institution to fill infrastructure funding gap’

Banks don’t have long-term funds for projects, bankers said.

•The government’s proposal to set up a development financial institution (DFI) is expected to solve the infrastructure financing needs of the country, since banks do not have the long-term funds to finance such projects, bankers said.

•Finance Minister Nirmala Sitharaman announced a host of measures on Friday to boost economic growth that also included increasing capital flows and energising capital markets.

•Commenting that there was a need to deepen bond markets, Ms. Sitharaman said, “In order to improve access to long-term finance, it is proposed to establish an organisation to provide credit enhancement for infrastructure and housing projects, particularly in the context of India now not having a development bank and also for the need for us to have a institutional mechanism. So, this will enhance debt flow toward such projects.”

•She said the name of the organisation will be disclosed in ‘a day or two.’

•“Banks do not have long-term funds. The maturity of our liabilities are five years, on an average. So, funding infrastructure projects is difficult for us,” said a top official from a public sector bank.

Merger with banks

•Over the years, some of the major development financial institutions were merged with their banking outfits such as ICICI and IDBI.

•Reserve Bank of India had released a discussion paper on wholesale and long-term finance banks in 2017 in which it was observed that there was a decline in the share of the long-term assets, relative to total assets, on the banks’ balance sheets.

•The RBI had said that specialised banks could cater to the wholesale and long-term financing needs of the growing economy and possibly fill the gap in long-term financing.

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