ECONOMY by VIVEK SINGH

2021-08-06 06:48:30 Taxation Laws (Amendment) Bill 2021 (Retrospective Taxation)
In chronological order

1) In 2012, Govt. of India lost Vodafone tax case (in Supreme Court) related to its 2007 $11 billion acquisition of 67% stake in Indian mobile phone business by Hutchinson.

2) Subsequently, UPA Govt. brings in retrospective amendment to the Income Tax Act,1961 to overturn Supreme Court order.

3) The retrospective tax rule (which was an amendment to the Income-Tax Act, 1961) which received the President’s assent in May 2012, allowed the Govt. to ask companies to pay taxes on mergers and acquisitions and sale of assets (resulting in capital gain tax) that happened before that date (May 2012).

4) Through this retrospective taxation rule, Govt. raised a tax demand against "Carin Energy" also, which is a UK based company.

5) But then Cairn Energy moved to international arbitration (against this retrospective rule) in 2020 and Govt. of India lost international arbitration with Cairn recently. And a similar arbitration ruling is expected (arbitration is going on) in Vodafone case also over retrospective taxation in a similar case.

6) And because of the above two cases, the NDA Govt. had proposed to withdraw the infamous retrospective tax law, which hounded big foreign companies with billions of dollars of tax demands.

7) The "Taxation Laws (Amendment) Bill 2021" introduced in Lok Sabha yesterday, is basically on that line and will withdraw the law that allowed the government to raise tax demands with retrospective effect for the sale of assets before May 2012.

Those who are interested to know about the Vodafone and Cairn tax case can follow the link below but as such not required.
https://t.me/VivekSingh_Economy/2426
https://t.me/VivekSingh_Economy/3077 Open / Comment

2021-08-05 06:19:39 Term of the day: Public Float

Company's shares are held by its owners and the owners can be promoters (having control of the company), company officers, governments or other investors. When a company gets listed on the stock exchange then at least some percentage of shares must be allowed for trade on the stock exchange. The percentage of shares that are traded on the stock exchange is called 'Public Float' and the investors holding these shares are called 'Public Investors'; rest of the shares remain locked-in (not traded) and may be held by promoters, governments, company officers etc.

'Public Float' is an indication of how many shares are actually available to be bought and sold by the general investing public. There is an inverse correlation between the size of a company's public float and the volatility of the stock's price. This is because greater the number of shares available for trade, the less volatility the stock will experience because the harder it will be for a smaller number of shares to move the price. So, more 'public float' enables better share price discovery and liquidity (easily bought and sold).

As per SEBI, all listed companies are required to comply with the minimum public shareholding requirement of 25% within three years of their listing and those launching an IPO need to sell at least 10% of the shares outstanding in the IPO initially.

Last year, the government had proposed to increase the minimum public float from the current 25 per cent to 35 per cent. It had met with opposition, forcing the government to drop the plan.

As per yesterday's news, "Central government may, in the public interest, exempt any listed public sector company from any or all of the provisions of this rule” of increasing minimum public shareholding to 25 per cent. Open / Comment

2021-08-04 08:30:38 Nothing relevant in the newspapers today.

A new Economy Module (Pre cum Mains) Online course with fresh lecture recordings will start very soon. The date will be announced shortly.
The previous course got completed on 30th July and admissions are closed in that. Open / Comment

2021-08-03 08:01:18 Recently Parliament passed "Factoring Regulation (Amendment) Bill, 2021". You do not need to go into the details of the Bill but you must understand the term 'factoring'.

First understand 'Receivables': If I have sold some product to a company (my customer) and I have raised a bill for the same then the bill amount (dues) which I am expecting to receive from the company is called 'Receivables'.

Factoring is a transaction where an entity (like MSMEs) sells its receivables (the dues from the corporate) to a third party (a 'factor' like a bank or NBFC) for immediate funds. So, the bank/NBFCs will provide immediate funds to MSMEs and they purchase the receivables of MSMEs, and the banks/NBFCs will be able to get the money from the corporate through the receivables that they (banks/NBFCs) will now be holding. Note that credit facilities provided by a bank against the security/collateral of receivables are not considered as factoring business. In case of 'factoring' the receivables (the dues) are sold rather than kept as collateral to raise finance.

Factoring is done on an online TReDS (Trade Receivables Discounting System) platform initiated by RBI.

Earlier Factoring could be done by the banks or NBFCs that have a factoring licence ( those who do over 50 per cent of business through factoring). Now, all NBFCs have been allowed to do factoring business, irrespective of proportion of income from factoring. This, therefore, will bring liquidity into factoring business.

NBFCs’ lending to MSMEs is typically against the balance sheet strength of these smaller companies, leading to interest rates that can be higher than 16 per cent. But in the case of factoring, the NBFC is taking a risk on the customer of the MSME who is larger corporate, leading to lower (nearly halving) interest costs. Open / Comment

2021-08-02 08:48:00 The above is news from Indian Express. Just read the highlighted part properly and follow my explanation below..... u will understand everything.

When I used to work in IBM (Bangalore), our company used to give us "food coupons" worth some Rupees let us say (Rs. 50). We used to give this food coupon to the various food contractors (IBM had selected those contractors) who used to supply food in the IBM campus and in return we used to get lunch. So, here there are three parties... the IBM employees (beneficiaries), IBM (the Sponsor) and the Contractor (Service provider).

IBM gave us 'food coupons' rather than money (rupee note) because IBM wanted to give its employees some benefit BUT only in the form of consumption of lunch/dinner. If IBM would have given us Rs. 50... then we would have consumed something else also. So, these food vouchers are not Rupee notes rather they are BACKED by rupee and can be used only for specific purpose. So, these two things 'specificity' and 'not rupee but backed by rupee' makes these food vouchers different from 'Indian Rupee'.

So, IBM was giving us Rs. 50 benefit on a daily basis (in the form of food coupons). If this kind of voucher (food coupons) is given by Govt. to all the farmers through which they can purchase fertilizers from specific shops at the market price. So, let us say if Govt. wants to give Rs. 3000 fertilizer subsidy to every farmer then it can give 'fertilizer vouchers' to all farmers and the farmers can use these vouchers to purchase fertilizer from specific shops. (Right now shops sell fertilizers at below market price and govt transfers money into shops account). Fertilizers prices will be deregulated and leakage will also get removed.

Now, e-RUPI is just a digital form of 'voucher'. e-RUPI can be in the form of 'QR Code' or 'SMS String' and will be delivered to the mobile phones of individuals, to whom the benefit/subsidy has to be given.
So, now if Ministry of Fertilizer wants to give fertilizer subsidy to Indian farmers then, the Ministry will approach partner banks and the ministry will have to provide the farmers mobile no. to the banks and the banks will deliver these vouchers (e-RUPI) to the farmers mobile in the form of 'QR Code' or 'SMS String'. Whatever value of 'e-RUPI' (vouchers) will be allocated to the farmers, the same amount Ministry will have to transfer to partner banks. Now, when the farmers will go to the specific shops to purchase fertilizers and rather than paying cash they will scan the 'e-RUPI' (sms String or QR code), then the fertilizer shops will receive the payment from the partner banks and farmers will be able to purchase the fertilizer.

e-RUPI has been developed by National Payments Corporation of India (NPCI) on its UPI platform. Open / Comment

2021-08-02 08:15:13 Open / Comment

2021-08-02 08:07:16 The answer to the above question is (b).
No need to give explanation as all the points have already been discussed in the above article. Open / Comment

2021-08-01 08:12:06 Question of the Day:

Consider the following statements regarding Central Bank Digital Currency (CBDC): (keeping in mind its a general question and exact details may be known only after RBI creates its own CBDC)

(i) It is a fiat currency and legal tender and does not have intrinsic value
(ii) It exists only in digital form
(iii) People holding CBDCs will be reflected as liability on the RBI balance sheet rather than banks
(iv) People will earn interest while holding CBDC
(v) It could lead to instantaneous payment without any processing delays
(vi) It could lead to reduction in lending by banks Open / Comment

2021-08-01 07:51:07 The above is an article from Hindu. You can understand everything about Central Bank Digital Currency (CBDC) by reading my following note which I posted few days back on the channel. https://t.me/VivekSingh_Economy/3098

Few lines at the end of the article I have erased as it may lead to confusion and that may not happen in near future or would be clear only when RBI launches its CBDC. So, do not read that.

Would like to add/explain few points from today's newspaper:

1) CBDCs are just like cash but the only thing is it exists in digital form only. Just like u keep cash with yourself, you can keep CBDC in your e-wallets and it will be liability of RBI towards you and nothing to do with banks. When u keep your cash in bank deposits then its liability of Bank towards you (and its not liability of RBI towards you). If bank goes bankrupt your money is gone.

2) When we deposit Rs. 100 cash in bank then bank keeps only a fraction let us say 20% i.e. Rs. 20 with itself as reserves and it can lend Rs. 80 to someone else and this step creates the money. Because when you were holding Rs. 100 cash, the money supply in the economy was Rs. 100 but when you deposit Rs. 100 in bank then still money with you (in deposit form and not cash form) is Rs. 100 but because of lending some other person also gets Rs. 80, so total money supply becomes Rs. 100 + 80 = Rs. 180. When this person who borrowed Rs. 80 cash from the bank, will again go to bank to deposit then again bank will hold only 20% of Rs. 80 in reserves and rest it will lend and this process continues and money gets created much more than what was the initial cash (printed by RBI).

If because of CBDCs.. people do not deposit cash in bank (or less deposits) and hold the currency in digital form then banks won't be able to lend BUT when people will hold CBDC with them then they will not get interest, just like when you hold cash you do not get interest.

My previous note and today's one covers everything about CBDC and no need to read any other article till RBI actually creates its CBDC. Open / Comment