“It’s not enough just to be busy; so are the ants. Thereal question is: What are you busy about ?”

- Henry David Thoreau

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Editorial Board

Timeline & Activities

Business Affairs

RBI Operational Independence

Buying the Rumour

Facts & Figures 3

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Rev. Fr. Josekutty P DPrincipal

Rev. Fr. Augustine GeorgeVice Principal

Dr. Aloysius Edward JDean

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2000- The genesisThe Department of Commerce commences

2010, 2011, 2012, 2013Declared one among the Top Ten, Best Commerce Colleges in Bangalore City

2013BCom Professional introduced,with special impetus for CA & CS

2015Introduced BCom with ACCA (Integrated)

2015Declared the 16th BestCommerce College in India& The 3rd Best in Bangalore

2016Secured the Esteemed NationalExcellence Award, ASSOCHAMHigher Education Summit

2017Declared to be the 9th BestCommerce College in India

(All ranks declared as per India Today, Nielsen Survey)

2010, 2011, 2012, 2013Declared The Best Emerging Commerce College in India

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Jai HindAug 16

Excelsior festAug 25

Pratibimba ParvaSept 27

Yaan festSept 26

Pratibimba Parva Fest

The quote 'Imagination is the highest kite one can fly' holds true for the kite-flyingfest. The spectacular competition still heralds the beginning of a colourful journeyto the heights. Just as the eagle soars above the storm, the kite fest embodies the inner quest toreach for the stars, building healthy competition and creativity. Hosted by the tourism sections ofthe Department in parallel with Yaan, as a festivity of colours raised to the wind, it stood as asymbol of Light and Prosperity- the vision of Kristu Jayanti College, hoisting its flag to the sky.

Sept 27

Jai Hind Programme

Soaked in patriotic fervour, the Independence Day brought forth thememories of the sacrifices made by our freedom fighters. Embarking on

its essence celebrating the cultural heritage of our land with a host of events and competitionstogether with Patriotic songs, dances, speeches of our freedom fighters, fashion shows and muchmore aimed at stirring up the youth for an inner awakening as they gathered in one accord to theservice of our nation as the bud of the country’s future found a fragrant blooming in the hands of itsyouth. It was, indeed, a time of culmination where many individually shouldered the responsibility inthe revival of India, Thus, fanning the flame and rekindling the hope of the nation.

Aug 16

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Excelsior Intra-collegiate Fest

Excelsior is the annual intra-collegiate commerce fest presenting a versatile platformwhereby students unleash their latent talents and showcase their skills and expertise.While the world today is infested with VUCA- an acronym describing the present Volatility,Uncertainty, Complexity and Ambiguity, it gives students the exposure to the intricacies of thecorporate world in landscaping the scenario by connect the dots. The theme for the year was“OLYMPUS- Race for Ace” offering its tribute to the foundation of the present day Olympics withthe witnessed this year- Best Manager, Public Relations, Entrepreneurship, Marketing, Finance,Human Resource events, Business Quiz, Mock Stock and Travel Guide scenarios, passing on thebaton in the economic relay to the next generation of students in the race for the ace.

Aug 25

Yaan Fest

The Yann Fest acted as an opportunity for students to showcase their talents in a multi-cultural and culinary exhibition through numerous food and handicraft stalls highlighting the

ethos of many nations all across the globe under the banner of “Unity in Diversity”. Being grantedthe prospect of developing their intellect as future tycoons and their creativity as entrepreneurs, thestudents each had their own stalls, selling many items of handicrafts, fashion jewellery, curios as wellas variety of culinary delights as successful business houses within the campus of the college.

Sept 26

Vanijya DarpanJan 20

ICIBGSDFeb 22

AdroitFeb 17

Vanijya Darpan

Vanijya Darpan- the annual Intra Collegiate Commerce Exhibitionallowing facilitating students to demonstrate and array of talents

bringing out their creativity in the application academic knowledge. The premise of experientiallearning was formed allowing individuals create real and plausible scenarios seen through thetransformation of their live experiences into existing cognitive frameworks, thus causing students tochange the way they think and express towards a better learning experience. The students the UGCommerce Department participated in the event, in large numbers with great enthusiasm explainingbusiness models highlighting the evolution of commerce from the traditional barter system leading toemerging trade patterns and openings to new possibilities in the world of Commerce within and farbeyond the borders of the nation as a tribute to the India in the Global Financial System.

Jan 20

Adroit Inter-collegiate Fest

Adroit is an Annual National-level inter-collegiate Fest hosted by the Departmentwith the objective of building a conceptual model as a bridge between theory andpractice towards imparting the skills of leadership to the students in the handling of different crises,time management between different events and rounds, adaptability in managing between diversesituations, team building through a wide range of synergy bands, communication in presentationand diplomacy in negotiation with complete professionalism in management and interaction. Thefest hosted a series of events such as Torch Bearer, Voice of the Ages, Eonian Impresario,Inevitable, Expresso, Horace, Merchandiser and Arbitrager. The participants from colleges acrossthe country, gathered in large numbers and the events saw the competitors wage a tough fightagainst each other battling for victory under the theme “48 hours- The Future is You”

Feb 17

International Conference on Inclusive Business Growth & Sustainable Development

The ICIBGSD held on 22nd and 23rd February, 2017 was the first two-day internationalconference hosted by the UG Department of Commerce under the banner of Inclusive

Business Growth and Sustainable Development in association with the ACCA and ISDC, hosting over150 participants from 57 institutions and 14 universities including arts and science colleges, private &Public B schools at state & centre, featuring the works of more than 82 academicians, 13 researchscholars and 60 students across the globe as a stage to present as well as publish their respectiveresearch papers on several topics under the theme set forth. It was held with the objective ofenlightening young minds with the meaning and importance of inclusive business financing andsustainable development for the benefit of the environment, and long lasting progress, to expediteIndia and the world with citizens who are aware of the current situation and the difficulties faced bythe smaller business houses in terms of financing and for sustainable planning towards the bettergood of the environment and economy on both Indian and Global terms in long-term planning.

Feb 22

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Session on Financial Planning & InvestmentSrinivasan Lakshmi Narayanan, Financial Planner, Life Transformers India

The session commenced on the note that nothing is impossible leading on to how eventhe middle class can save crores of Rupees over just a few years as aggressive investorswithin a few years without having to be tangled in a web of loan accounts. He workedout the ways commercial banks earn interest when customers take loans such as EMIand explained the methods used by financial institutions on the deposits of retailinvestors. He clarified that the salaried class could, in fact, buy the same items in lesstime and without debt simply by dividing and allocating his funds appropriately,following the simple equation of : “Income – Savings = Expenditure”, towardsplanning out the savings of the household by shifting the focus from expenditure toInvestment for higher returns even when income earned is constant by trading directlyin the stock market or indirectly through mutual funds and other investment portals.

Dec 14

Workshop on Filing of Income Tax ReturnsCA Maninder Singh, Tax and Audit Manager

The speaker demonstrated the types of e-filing on income tax returns both with andwithout the Digital Signature Certificate (DSC) and the steps of verification and revisionof the same. He mentioned on the types of Income Tax Returns for different individualpersons depending on the variety of sources of their respective incomes highlighting themany aspects and instances of tax planning in the calculation process in filing of returnsto lower a person’s tax. The workshop described the procedure of Filing, Types ofReturns, and requirements of filing returns on the official website without the need ofan intermediary from the step of registration and logging in to submission,acknowledgement and verification of filing. He also covered a few basic steps in taxplanning to lower the overall Tax Liability of Individuals using the deductions allowedunder the Income Tax Rules for students to continue along similar lines in the future.

Mar 08

Filing of Income Tax Returns

Financial Planning & Investment

Dec14

Mar08

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June21

July14

Aug03

Future Prospects of ACCA

Importance of ACCA Career prospects in

Tourism & HospitalityFeb03

Investor Awareness in Stock Trading

Investor Awareness in Stock TradingMrs. Merina Jose Kanjikal, Resource Personnel, BSE-IPF

The session threw light on trends in stock and share trading processes along with theprecautions required to be taken related to fraud and insider trading. The speakerwent into the interpretation of market trends with reference to sudden changes instock prices made by panic sales as well as gradual changes in prices varying activelywith economic variables as their intrinsic value.

Feb 03

Career prospects in Tourism and Hospitality IndustryProf. Vijayakumar Shivaraman, Oman Tourism College

The speaker emphasised the essential qualities of tourism professionals and the diverseprospects of Tourism and Hospitality Industry and its impacts on the home economy.He further discussed the various impacts of Tourism Industry with the studentstowards familiarising the students with the importance and scope of their careeropportunities in Tourism and Hospitality industry in India and across the globe.

Aug 03

Session on the Importance of ACCAMr. Ravindran Balakrishnan, ACCA & CIMA

The session made mention of the general aspects of ACCA and it’s benefits tointernational business also, emphasising the importance of ethics in the organisation asan Auditor. Mr. Ravindran spoke about the areas of accounting which include-Management, Finance and Statutory Accounting in terms of the monetary benefit tothe organisation and the stock market.

July 14

Session on Financial Planning & InvestmentProf. Mohammed Sajid Khan, Head of International Development, ACCA

Mr. Khan encouraged the students on the path of ACCA stressing on the opportunityin the career prospects and respect in its title as a professional qualification. He alsopointed out the flexibility of ACCA as a course and its global relevance in givingpractical exposure along with knowledge on the subjects to students to develop theirskills as accounting professionals during the course of their study.

June 21

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Feb 24

Feb 10

June 21

Natural Tourism in Tamil Nadu

The week of natural tourism in the Tamil Nadu organised with an intention tointroduce various historical and natural tourism resources of the state to students stateto apply theoretical knowledge of what was gained in class room lectures into practicetowards better understanding the natural equatorial environment in Tamil Nadu. Thetour was at the meeting of the Western and Eastern Ghats with the Nilgiri Hills,making it the state an ecological haven for students to study the historical relevance,architectural sites and the rich heritage of Tamil Nadu as a state and Tamil as aclassical language, apart from the region’s natural landscaping.

Feb 24

Field Trip in South India

A five day trip to the various monuments and temples across South India, with themain focus on creating awareness among students regarding the cultural heritage ofthe land presented in various palaces and temples across the four states as theevolution of their culture from the pre-independence to post-independence age. Thestudents had the opportunity to study the ancient architecture, trade and fine arts inthe culture of South India presented in many tourist areas including temples, aashrams,palaces, national parks and other heritage sites.

Feb 10

Study Tour to Hampi

A four day study tour where students were taken to the city of Hampi in NorthKarnataka, to visit the ancient temple ruins from the times of the Kingdom ofVijayanagara, understand the historical significance of its tourist sites and itsarchitectural relevance to the culture and practices of people in that era, showing thestudents the riches of the city while it was once the richest cities and one of thelargest trade centres in the world. The tourism students of the department had theopportunity to study this UNESCO world heritage site as a part of their curriculumand skill development activity.

June 21

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GST is a single unified indirect tax for the supply of goods & services, for

the whole nation towards making India a common market applied on July 1st. It allows

for taxing all parties right from the manufacturer to the consumer based on the value

added and the increase in price per stage for what is traded.

Business firms and their accountsdepartments now have dealings with onlyone transparent authority instead of thefour authorities of VAT, CST, Excise Dutyand any other Countervailing Duty for TaxPayment and Credit on a monthly basis.This makes their transactions with theGovernment for indirect taxes far simpler.

The procedure for filing GST on stock issimplified and digitalised. This makes it fareasier for many business firms to pay taxon goods sold and permits companies toclaim input tax credit seamlessly betweendifferent suppliers.

Since filing on GST returns can be doneonly online, the whole process can becompleted through an accounting softwareat both ends of the payment so that thereis no possibility of human error in thecalculation and payment of the tax ongoods sold.

GST allows for the a seamless flow ofgoods and services across the countrybetween different states developing thenational market in allowing business firmsto claim a seamless tax credit as paid bythe supplier and thus prevent cascading oftaxes paid, including on sales and purchasereturns treated as sales and purchases.

It provides a uniformity of tax rates acrossfive different slabs for goods and servicesrather than different rates for differentproducts by State and Centre. However,cess is chargeable on certain super-luxurygoods.

In general, the cost of many necessary andessential goods used by common man willbe lowered under the GST regime whilethe rich would bear the burden. It wouldalso allow exporters the advantage ofcompetitive pricing in the internationalmarket.

OPERATIONAL CHANGES TO BUSINESSES

Subsumed at

State Level

State

Sales

Tax

Value

Added

Tax

Entertainment

Tax

Octroi &

Entry TaxPurchase

Tax

Luxury

Tax

Tax on

Betting &

Gambling

Subsumed at

National Level

Additional

Excise

Duty

Service

Tax

Central

Sales Tax

Special

Additional

Customs

Duty

Countervailing

Duty

Central

Excise

Duty

Levels of Tax under GST :

State GSTCentre GSTIntegrated GSTUT GST

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Since GST is filed online, and even smallfirms have to maintain inventory regularlyand file the same on a monthly basis.Having the whole process digitalised wouldinvolve a cost of about ₹1 lakh a year forthe maintenance of a computer with aninternet connection, the basic softwareneeded for GST and the salary to a paidaccountant for inventory maintenance andtax filing.

The capital costs of the infrastructurerequired to digitalise the whole inventoryand accounting process would be anadditional burden to the businessman if hedoesn’t already have a computeriseddatabase.

If the firm is already registered underVAT, he would not incur excessiveexpenditure in registering under GST andIf any firm is not registered under GST, itbecomes less competitive as a seller thatinput credit cannot be claimed by hisdealers and also less profitable as abusiness that it pays the whole amount oftax instead of claiming tax credit on whatsuppliers paid.

The benefit of MSMEs registering underGST is that their business becomes morecompetitive in this regard and even the ₹1lakh of compliance cost will becompensated in claiming input tax creditand the competitiveness of the businessfirms against the unregistered firms.

In the past, Input Credit on VAT could beclaimed by business houses if theythemselves paid VAT on the value added

by them, but now, GST Input Credit canbe claimed by the firm only if the supplierhas paid GST for his part.

Therefore, it prevents leakage of tax in thevalue chain by ensuring that input taxcredit is claimed only where the tax is paidon the previous transaction, thus giving theonus of tax collection to business firmsthemselves as inspectors of their ownsuppliers.

It acts as a leveller between Larger andSmaller Enterprises that previously thosefirms with turnover of ₹1.5 crore now tothose below ₹20 lakh turnover are exemptfrom VAT or excise duty.

There is a lower cost and price of goodsand services leading to less inflationarypressure in the economy. Even now CPI isat 1.54% under GST for the month of June2017.

The increased economic activity throughGST and it’s prevention of leakage in thevalue chain will increase GDP andEmployment towards increased economicactivity and investment, also worker as aboost to the ‘Make in India’ campaign.

The GST Suvidha Provider (GSP)appointed by the GSTN (GST Network) tointegrate with the indirect taxinfrastructure and develop a digital andonline interface for taxpayers to interactdirectly within the network, ensuringassistance and clarity to the business firms,allowing for more efficient and effectiveimplementation of the new indirect tax bythe Government of India.

SMALL BUSINESSES

Credits of taxes paid on inputs at each stage are available to the next dealer in the

subsequent stage of value addition, so that the net payment obligation of each dealer is

only the tax on value added to the goods/services. The final consumer thus bears only

the GST charged by the last dealer in the supply chain, which would set off the benefits

received by every preceding dealer including the manufacturer and suppliers.

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The question of unavailability of CENVATCredit on pre-GST stock with dealerstends to create a lot of commotion amongbusiness houses. However, to the benefitof customers with pre-GST sales, excessivediscounts even to the lowest profit margin.This would only show that themanufacturer hasn't paid Central Excise, orthat the firm doesn't have the invoicestating the same, which would otherwiseallow them to avail 100% credit ofCENVAT on pre GST stock irrespectiveof whether or not they themselves areregistered under central excise.

The Central Excise Invoice is the invoicehaving prescribed particulars in terms ofCentral Excise Rules stating that CentralExcise Duty has been paid on the goodsmanufactured. Such an invoice would havebeen issued within 12 months immediatelypreceding the date of GSTimplementation.

Allowance is still given even if they arenot in possession of the ‘Central ExciseInvoice’ to claim credit at 40% of theCGST applicable on supply of pre GSTstock within six months only after paymentof CGST or IGST.

Presently most storage depots, warehouses,consignees and agents of manymanufacturing companies are yet notregistered under Central Excise. Thereforetheir distributors will be not be eligible toclaim 100% credit of Central Excise dutyon pre-GST closing stock. They will beentitled to input tax credit to the extent ofonly 40% of CGST paid because theywould not be in a possession of theCentral Excise Invoice showing payment ofCentral Excise duty.

A dealer in possession of the CentralExcise Invoice will be allowed credit onthe stock where he has already filed form'GST Tran-1' within sixty days of GSTimplementation. The businessman will haveto specify the details of stock held on thedate of GST implementation. Howeverinput credit will be allowed only afterCGST is paid on the supply of such stock,allowed only upto a six month period witha statement in ‘Form GST Tran’ at theend of each of the six tax periods duringwhich the GST is in operation indicatingthe details of supplies of such goodseffected during the tax period for whichthe stock is sold or held.

PRE-GST STOCK

GST RATESThe slabs for GST are exemption at 0%,with rates at 5%, 12%, 18% and 28% onmore than a hundred categories of goodsand services depending on theirconsumption patterns as per how theyvary between necessities to essentials toluxury’s.

More than 80% of the categories listed fallunder the 18% and less rates to benefit thecommon man.

The prices of necessities and essentialsremain within 12% while luxuries are at28%, some with cess added even upto 40%.

Reverse Charge has also been introducedwith GST on certain demerit goods so thatthe dealer or receiver of the goods isequally liable to pay tax on the item at astated rate, just as was implemented incase of service tax under the previousregime.

Under SGST, the Central Government hasassured the compensation of loss inrevenue, if any, to the states for the firstfive years GST implementation under theproposed GST (Compensation to Statesfor Loss of Revenue) Bill, 2016.

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The long-standing bubble of Globalism isnow on the verge of collapse, affectingForeign Investments, International Tradeand the Integration of India with theGlobal Economy with the onset ofProtectionism in the global economy setby Brexit and Trump administration.

The US Federal Reserve's intention toincrease policy rates in 2017, may lead to

lower capital inflows and higher outflowsfrom the emerging economies bydecreasing the value of the rupee againstthe dollar.

Uncertainty around commodity prices,especially that of crude oil, hasimplications for the fiscal situation ofemerging economies, along with India’sself-inflicted setbacks of Demonetisation.

Inflation is brought under control. CPI-based inflation has declined from 6% inJuly 2016 to 3.4% by the end of 2016, andto 2.2% this quarter.

The Economy has moved on a high growthpath with India’s Current Account Deficitdeclined from about 1% of GDP last year

to 0.3% of GDP within the first half of2016-17.

FDI grew by 36% in Q1 2016-17 over 2015-16, despite 5% a reduction in global FDIinflows while Foreign exchange reserveshave reached 361 billion US Dollars byJanuary.

The government has moved forward onits attempt of fiscal consolidation withoutcompromising on public investment,hoping for better implementation ofBudget Policies.

Total expenditure is ₹21,47,000 crore withprimary focus on capital expenditure,which will be at 25.4 % over the previousyear 2016-17.

Total resources being transferred to theStates and the Union Territories withLegislatures is ₹4.11 lakh crores, against₹3.60 lakh crores in the previous financialyear 2016-17

₹3,000 crore will be allotted to the

Department of Economic Affairs, Ministryof Finance for the implementation of theBudget, including expenditure for scienceand technology is ₹37,435 crore.

Fiscal deficit for the current year 2017-18 is3.2% of GDP, and aimed to reach therecommended 3% for the next three years,keeping in mind the sustainable debt targetand need for public investment towardseconomic development.

Revenue Deficit of 2.3% of last year 2016-17 stands reduced to 2.1% in the RevisedEstimates. The Revenue Deficit for nextyear is pegged at 1.9% , against 2%mandated by the FRBM Act.

CHALLENGES

FISCAL POLICY

ACHIEVEMENTS

FEBRUARY 1st

Where the Railroad

meets the City

Buried under the tonnes of sheets of Budget documents, is the Government’s first formal

acknowledgement about ISRO's two new bold sojourns to Earth's immediate neighbours

where it will drop off a full load of 104 satellites on a single mission to Venus and Mars.

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Realty Stocks in the Indian Industry surged with affordable housing having attained the

Infrastructure Status with Tax Benefits in this year’s Budget along with the provisions

granted by the Real Estate (Regulation and Development) Act, 2016.

More than 90% of the total FDI inflows arenow through the automatic route withfurther liberalisation under considerationreaching $3405 million in May 2017. TheForeign Investment Promotion Board(FIPB) has successfully implemented e-filingand online processing and will now bephased out from the year 2017-18 for theRBI to begin building FDI policy.

A Bill relating to curtail the menace ofillicit deposit schemes with and withoutKYC norms complied will be introducedrelating to resolution of financial firms inthe current Budget Session of Parliament,the stability and resilience of our financialsystem.

Commodities markets require furtherreforms for the benefit of farmers. An

expert committee will be constituted tostudy and promote creation of anoperational and legal framework tointegrate spot market and derivativesmarket for commodities trading to benefitthe primary sector leading to fairer prices.

The focus on resolution of stressed legacyaccounts with non-performing assets ofBanks yet continues to this year. The legalframework has been strengthened tofacilitate resolution, through theenactment of the Insolvency andBankruptcy Code, 2016, and theamendments to the SARFAESI and DebtRecovery Tribunal Acts, the governmenthopes to make the banking sector moreprofitable and encourage growth of creditsecurity.

An allocation of ₹39,61,354 crore is madefor infrastructure. For the transportationsector as a whole, including rail, roads,shipping, provision of ₹2,41,387 crores hasbeen made in 2017-18 as capital anddevelopment expenditure of Railways at₹1,31,000 crores.

Tariffs of Railways would be fixed, takinginto consideration costs, quality of serviceand competition from other forms oftransport. The Railways will focus on fourmajor areas of Passenger safety, Capitaland development works, Cleanliness andaccounting reforms.

Besides seed capital from the Government,the Railways will arrange resources fromtheir own revenues and other sourcestowards a better network.

Budget allocation for highways is increasedfrom ₹57,976 crores to ₹64,900 crores in2017-18. 2,000kms of coastal connectivityroads have taken for construction anddevelopment facilitating connectivity withports and remote villages.

A specific programme towards thedevelopment of multi-modal logisticsparks, with multi modal transport facilities,will be drawn up and implementedtowards making the economy moreefficient in the transport of Goods.

It is proposed to feed about 7,000 stationswith solar power in the medium term. Abeginning has already been made in 300stations. Works will be taken up for 2,000railway stations as part of 1000 MW solarmission.

TRANSPORT INFRASTRUCTURE

FINANCIAL SECTOR

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NATIONAL BANK FOR AGRICULTURE

RURAL DEVELOPMENT

AGRICULTURE & RURAL DEVELOPMENTThe Government is now committed todoubling the income of farmers in the next5 years and has initiated many stepstowards making this a reality.

NABARD has been authorised to providecredit targeted at ₹10 lakh crores for thisyear along with a 60 days interest waiveron the loans through Primary AgricultureCredit Societies.

The Fasal Bima Yojana launched by theGovernment is a major step towardsproviding Insurance for Farmers. Thecoverage of this scheme will be increasedfrom 30% of cropped area in 2016-17 to40% in 2017-18 and 50% in 2018-19 forwhich the budget provision is 13,240crores.

A Long Term Irrigation Fund has alreadybeen set up in NABARD with a totalcorpus of this Fund to ₹40,000 crores. Adedicated Micro Irrigation Fund will be setup with the bank to achieve the goal of‘per drop more crop’ with an initial corpusof ₹5,000 crores.

A model law on contract farming wouldalso be prepared and circulated among theStates for adoption as well as the waiver ofloan for many indebted farmers.

The Government will attempt to bring onecrore households out of poverty and tomake 50,000 gram panchayats poverty freeby 2019. This mission will work with afocused micro plan for sustainablelivelihood for every deprived household.

The Government has made a consciouseffort to reorient MGNREGA to supportthe resolution to double farmers’ incomein India. While providing at least 100 daysemployment to every rural household,MGNREGA should create productiveassets to improve farm productivity andincomes including the participation ofwomen in MGNREGA up to 55%.

The government proposes to complete theconstruction of 1 crore houses by 2019 forthe houseless and those living inundeveloped and thatched huts, steppingup the allocation for Pradhan MantriAwaas Yojana Gramin from ₹15,000 croresin the previous year 2016-17 to ₹23,000crores in 2017-18.

The Pradhan Mantri Gram Sadak Yojana(PMGSY) is now being implemented asnever before towards connecting differentvillages in India and is committed tocomplete the current target under PMGSYby 2019 with the allocation of ₹19,000crore for the year.

The Government is well on the way toachieving its target of 100% villageelectrification by 1st May 2018. Anincreased allocation of ₹4,814 crores hasbeen proposed under the DeendayalUpadhyaya Gram Jyoti Yojana to achievethe same in this financial year 2017-18.

Swachh Bharat (Gramin) made tremendousprogress in promoting safe sanitation andprovision of drinking water under theNational Rural Drinking Water Scheme.

The Government will continue to workclosely with the farmers and rural areastowards improving life and environment.The total allocation for the rural,agriculture and allied sectors in 2017-18 is₹1,87,223 crores, which is 24% higher thanthe previous year.

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The net tax revenue of 2013-14 was ₹11.38lakh crores. This grew by 9.4% in 2014-15and 17% in 2015-16. As per the year of2016-17, The government will end the yearwith a high growth rate of 17% for thesecond year in a row, especially during theIncome Declaration Scheme, 2016 andDemonetisation. Due to changes in policyof the Modi Government, the rate ofgrowth of advance tax in income tax in thefirst three quarters of the 2016-17 was 34.8%.

While the Government is trying to bringwithin the tax net more people who areevading taxes, the present burden oftaxation is mainly on honest tax payersand salaried employees who file theirreturns correctly. Therefore, post-demonetisation, there is a legitimateexpectation of this class of people toreduce their burden of taxation. Also anargument is made that if a nominal rate oftaxation is kept for lower slab, many morepeople will prefer to come in the tax net.

This budget has reduced the existing rateof taxation for individual assesses betweenincome of ₹2.5 lakhs to ₹5 lakhs to 5%

from the present rate of 10%. This wouldreduce the tax liability of all persons below₹5 lakh income either to zero (with rebate)or 50% of their existing liability. In ordernot to have duplication of benefit, theexisting benefit of rebate available to thesame group of beneficiaries is beingreduced to ₹2500 available only toassessees upto income of ₹3.5 lakhs. Thecombined effect of both these measureswill mean that there would be zero taxliability for people getting income upto ₹3lakhs p.a. and the tax liability will only be₹2,500 for people with income between ₹3and ₹3.5 lakhs.

In order to make good some of therevenue lost on account of this relief, TheGovernment has decided to levy asurcharge of 10% of tax payable oncategories of individuals whose annualtaxable income is between ₹50 lakhs and₹1 crore. The existing surcharge of 15% oftax on those earning more than ₹1 crorewill continue as before. Which is, in fact,likely to generate an additional revenue of₹2,700 crores to the Government.

INCOME TAX REFORMS

For businesses with a turnover of less than ₹50 crore, the applicable tax rate has

been brought down to 25% from 30%, which would bring significant relief to medium

and small enterprises, especially those lost in the informal economy hit hard by

demonetisation. However, there has been no such relief granted for larger corporates.

From this year 2017-18, the deductionunder loss from house property as interestloan to is reduced merely ₹2 lakh, whilethe remaining unabsorbed loss from houseproperty can be carried forward for 8years instead of the 10-15 years that itwould otherwise take to pay back theinterest on house loan considering regularcash inflows of an individual under regularcircumstances.

Also, tenants are now required to deductTDS at 5% of rent paid where rent isabove ₹50,000 a month. If the landlord isunwilling for such an provision for TDS tobe deducted from what he would receive,it is likely that finding houses for rent willbe more difficult, leading to part paymentsin terms of cash to reduce tax liabilitythereby, contributing the to paralleleconomy.

INCOME FROM HOUSE PROPERTY

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The Government continues focussing on the early reporting of the

income by the tax payers to facilitate revenue assessment for prompt the decision

making. Working towards this objective, Finance Minister Arun Jaitley has been

proposing changes in the income tax law with respect to various aspects of filing of the

income tax return by individuals and HUFs.

So far, the Income Tax Act has providedthat where a person was required to filehis income tax return under Section 139(1)but failed to do so by the end of theassessment year, the ITO could levy apenalty of ₹5,000, after giving adequateopportunity to listen to the assessee's sideof the story. However, now there is amandatory fine to be paid under selfassessment in filing of the income taxreturn without having to wait for anycommunication from the assessing officer.The amount of fees would rest on on thequantum of delay and quantum of yourincome.

In case the income exceeds ₹5 lakh perannum, the assessee will have to pay a feeof ₹5000 if the income tax return is filedbeyond 31st July but by 31st December ofthe assessment year. For filing the returnof income beyond that but within the 31stof March it will be a fee of ₹10,000. Theamount of fee, however, would berestricted to ₹1,000 in case taxable incomedoes not exceed ₹5 lakh for the year.

Prior to the amendment of Section 139 bylast year's Finance Act, an assessee was notallowed to revise his income tax returnagainst any errors noticed later unless thesame was filed before the due date. So youcould revise income tax return even if the

original return was filed by the due date,within a period of one year from the endof the assessment year or by thecompletion of the assessment, whichever isearlier. The finance minister has nowproposed to cut back the time limitpermitted for revising it by a whole yearsuch that now a person is allowed to filehis revised return by the end of the yearonly.

So technically, the time limit for filing andrevising the original Income Tax Returnremains the same. This will apply for theincome tax returns to be filed for theassessment year 2018-2019. So, forexample, where a person files is originalreturn for the assessment year 2018-2019on 31st March 2019 so it cannot be revisedbeyond 31st March, 2019 itself.

After the linking of Aadhar card with thePAN Card made compulsory for filing ITreturns under the rule of Finance MinisterArun Jaitley, the government has evengreater access to the personal details ofcitizens with regard to their incomes inaddition to what was already made knownto them under KYC norms by bankdeposits, especially applicable to thosemade during the demonetisation periodmade mandatory to report suchtransactions for assessment year 2017-18.

There is now a new provision to enable a secondary transfer pricing adjustment made

to an MNC’s income to recalculate profit at arm’s length price of goods and services

provided including loans. This reallocation of income is now not only with the Indian

subsidiary, but with regard to the foreign parent company as well. Its done with an

upward primary adjustment to the Indian firm’s income, which results in higher taxes

in India. However, the adjustment adversely affecting the cash flow of MNCs themselves.

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?

When PM Modi hit

THE WHY- CASHLESS TO DIGITALThe government has longed to crackdownon counterfeit currency producers on amassive scale. Making a suddenannouncement of removing them from thestatus of legal tender, the governmentmade sure not let those with black moneystored in cash get away or forgers bybringing in the forged currency intocirculation. A sudden announcementbrought huge losses to these people andalso to various terror outfits which can besaid to be a huge victory for the country !

Prime Minister Narendra Modi aimed tohit at the black money flooding theshadow economy of the country, whichwas perceived to be at about 23% of thetransactions of white money in the countrythat every 5th transaction is in blackmoney.

With high denomination bank notes usedas a means of storage of unaccountedwealth evidenced by large recoveries madeby law enforcement agents in differentparts.

The CBI made a soft estimate that blackmoney of India is around ₹25 lakh crore,

equal to the size for the IndianGovernment to execute two year’s budgetwithout any tax or borrowing, or theinvestment in the infrastructure sector forthe entire Eleventh five year plan.

Pure cash is used as a mode of payment inillicit transactions and financing ofunlawful activities due to their non-traceability, so the Government, thus,intended hit the core of the paralleleconomy.

The second intent of demonetisation is thepresence of counterfeit money to thevalue of ₹400 crore. Now, 250 of everymillion notes said to be fake yet, areincreasingly difficult for most people torecognise.

Going into demonetisation as a decisionagainst money laundering in the countryagainst corruption, the Government hasconsiderably disrupted the operations ofmany such parties.

Another reason cited by the notification isagainst counterfeit money used in drugtrafficking and terrorist financing, as aninitiative of the Government.

THE EXCHANGESpecified notes could be exchanged up to₹4000 for any other Denomination of BankNotes with the deposit of specified notesallowed to an unlimited extent credited todepositor’s or third party account, exceptwhere KYC compliance is incomplete, themaximum transfer allowed was only₹50,000.

OTC withdrawal was permitted to ₹10,000per day and upto ₹20,000 per week whilewithdrawal from ATMs were permittedupto ₹2,000 per day upto 18th November,and later raised to ₹4,000 from 19th

November for exchange and withdrawal.

However, there were no restrictions onnon-cash or electronic methods of transferbetween different account holders.

A grace period was allowed above the firstlimit of December 31st, upto March 31st2017 for residents who were not able todeposit their savings during the 50 days,and upto June 30th for non-residents.

Commercial Banks were shut down fromother business activity on 9th to preparefor exchange from 11th onwards with theirATMs shut down on 9th and 10th ofNovember to prepare to dispense moneyto the public.

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POSSIBLY COUNTER-PRODUCTIVEConsidering a 90% cash economy suddenlygoing digital at the onset of 86% of it’scurrency value ceasing to be legal tenderwould seems one of the most incrediblethings that the Government could do.

Bearing in mind that the Governmentwhich calls itself an ‘Aam Aadmi Sarkaar’hardly mourned for the loss of more thana hundred of its citizens who passed in thehardships of demonetisation, not onlyoutside banks in long queues, but sinceessential services refused to accept oldcurrency notes in exchange for services,the state governments were led to givecompensation to the families of thoseaffected while the Centre looked forwardto the ‘Greater good of the Country’ inthe wake of events.

Most of the black money from India isn’teven kept in the country, let alone in cash,apart from land and jewellery.Demonetisation didn’t have any effect onthe 95% of black money stored in Swissand other foreign bank accounts.

Up to 97% of the demonetised bank noteshave been deposited into banks whichhave received a total of ₹14.97 lakh crore

as on December 30 out of the ₹15.4 lakhcrore that was demonetised. This is againstthe government's initial estimate that ₹3lakh crore would not return to the Indianfinancial system.

Further more, the decision of invalidatinghigh denomination notes of ₹500 & ₹1000only to introduce a ₹2000 note wouldindeed be counter-productive to the long-term economic objectives of the decision.

The fact that the Demonetisation drivewas known to many ministers in advancedraws substantial speculation from thepublic that some corrupt politiciansactually got to keep their ill-gotten gainswhile most of the public lost out on theirs.

Economic growth and many economicactivities were stunted and halted inNovember and continued sluggishlyafterwards while the World Bank’sestimates of India’s GDP had fallen from7.6% to 7.1%.

The practical aspects of cash shortages,disruption to general banking work and thelong queues while the RBI hadn’t yetprinted sufficient notes in time broughteconomic figures further down.

INTEREST RATESWith unproductive cash brought back intothe Indian Financial System, Investmentscan now be made in Commerce andIndustry towards rebuilding the economyafter demonetisation.

The deposits made into banks during thedemonetisation period have now givenhigh liquidity to banks as savings in theorganised financial sector building up thebanking industry after its disruption.

Now that supply of money for the bankhas exceeded it’s demand, the interestrates on deposits are brought down.

When interest rates on deposits arebrought down, the banks can grant creditat a lower rate.

This credit will be invested in economicactivities towards boosting India’s GDPand creating more employment.

With the increase in economic activity, thedisinflationary cash crunch will have onlyshort-term effects in the country.

The government’s investments will alsoincrease with the RBI’s Statutory LiquidityRatio required from banks havingincreased.

When PM Modi hit

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PAYMENTSWith no restrictions on bank deposits andstringent limits on exchange of currencynotes, the country was forced to moveonward to the next stage of electronicmoney with payments made withelectronic fund transfers and other bankaccount transfers.

The growth of payment wallets hadincreased drastically with Paytm taking thelead right from small time shopkeepers tothe Delhi and Mumbai Metros.

With the decrease in Black money, therehas been considerable moderation incurrency circulation within the countryleading to short-term deflation.

With banks having high liquidity withdeposits with high supply of money tothem, the RBI is better fit to implementmonetary policy and set credit rates atwhat is beneficial for growth.

During and after demonetisation, there hasbeen creation of Bank Accounts in RuralAreas under the Pradhan Mantri Jan DhanYojana for rural integration in micro-finance.

The payment and settlement system inIndia has been improving steadily underthe RBI with greater trackability intransactions, and this time, demonetisationhas given a boost to the financial system.

GOVERNMENT REVENUEContrary to the CBI’s expectations, 97% ofdemonetised currency did, in fact, re-enterthe financial system through deposits inAssam, Repayment of loans, Purchase ofluxury goods, Illicit agents and othermethods.

From the very onset to the end of theIncome Declaration Scheme, 2016 thegovernment’s tax revenue had steadilyincreased. However, this time, thegovernment’s income as the RBI’sdividend is from the scrapped notes whichwere never redeemed.

The revenue that the Governmentreceived from demonetisation has allowedit to reduce income tax rates for the first

slab against the infrastructure for theimplementation of GST.

It has also facilitated a lower budget deficitunder Fiscal Responsibility and BudgetManagement Act, 2003 to a mere 3.2% ofGDP as opposed to over 4 years ago% .

The Government exceeds it’s 2016-17 taxcollection target, revenue jumps by 18%.The Direct tax mop-up grew 14.2% at₹8.47 trillion with Net personal income taxcollections after refunds grew at 21%.

The Government is also able to spend agreater sum on economic and socialinfrastructure from the amounts that wererecovered after demonetisation as thecurrency not exchanged.

The fact of the matter is that there is no such alleged shortage of financial resources in

India, the problem only lies in where the money is placed, stored, invested and what it is

used for even in Government agencies. The Income Declaration Scheme, 2016, now

extended to September, 2017 was the predecessor to the government’s plans to claim its

black money from the public- the warning of a last chance before the unclaimed became

worthless altogether !

When PM Modi hit

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26

On the 8th day of November, 2016, Presidential candidate Donald Trump

was elected to the Oval Office by less than 58% of the nation. He assumed office on

January 20th, 2017 on the fulfilment of a pledge to Make America Great Again.

Even allowing for the probability thatcelebrity simply beat substance, Trump hadtwo major facts about the Americanelectorate working in his favour. The firstbeing that most Republicans would votefor him simply because they didn’t wantHillary to be their president, and thesecond that the swing voters whoultimately decide who will win the generalelection tend to be low-information votersanyway.

As a brash and unpredictable candidate,Trump positioned himself as an agent ofchange using Clinton’s extensiveexperience in the White House against herby citing it as evidence that she wouldstand for to carry on the status quo.

Many of the votes for Trump were actuallyvotes against Clinton’s policies of waragainst Iran, to stop the US from enteringan era of wars against terrorist nations. FBIdirector Comey’s letter regarding Hillary’semail correspondence on a private serverfurther set off voters against her, that shemight have exchanged secret andconfidential information.

Trump hit at what the US electoratewanted most, along the lines of thepreceding Brexit, towards reduceimmigration and get their jobs back fromChina and India.

The dare to slash US’ role in the NAFTAand possibly renegotiate its place in theWTO as well showed his electoral collegehis seriousness in making the nation greatonce again and in keeping it that way.

Turning to build a great wall of America,separating Mexico, preventing anddeporting illegal immigrants builds furtheron Trumps personal brand as a builder, aman of action aimed at solving America’sproblems in overhauling the system ratherthan merely patching it up.

Trump’s populist rhetoric and opencontempt for civility and basic standards ofchivalry enabled him to connect with theRepublican base like no other candidatesince Ronald Reagan. Trump didn’t play bythe normal rules of politics, and his votersloved him for it.

In an effort to make popular his nativismand expand protectionist policies hecampaigned with the words ‘BuyAmerican, Hire American’ towardsbuilding faith in the American Dream in aGovernment of the people, by the peopleand for the people towards the greatergood of the nation.

Trump proposed slashing tax rates forbusinesses to 15% from the current 35% forpublic corporations, and 39.6% for smallbusinesses, and also to reduce individualincome tax rates from the present seventax brackets to just three with rates of 10%,25% and 35% as well as granting a widerstandard for deductions.

Trumps campaign was targeted to workingclasses besides the first four voting states,Iowa, New Hampshire, South Carolina andNevada, Trump rallied mainly in the Southwith scattered rallies in the Northeast andMidwest, converting the Blue states to Redas a pro-middle class person.

Mrs. Hillary Clinton, Presidential Candidateand Former Secretary of State

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He is aimed at cracking down on skilledworker visa abuse and forcing USgovernment agencies to hire domesticworkers and so, Trump introduced a billfor the minimum income limits of the H1-Bguest worker visa to be doubled to$130,000, more than what the parallelAmerican worker would be paid, so thatcompanies would discourage outsourcingand expatriate cheap labour for Americanjobs and build the job market supply inThe United States.

He intends to build a wall along theMexican border and deport 11 millionunauthorised immigrants, prevent entry ofillegal drugs, and lower crime rates in the

southern states. Trump suggested buildingsolar panels along the wall to create energyso that the wall would be a source ofrevenue and pay for itself since the USmet stiff resistance in getting Mexico topay for the construction of the wall.

Trump now enforces an executive orderProtecting the Nation from ForeignTerrorist Entry into the United States as aRadical Muslim ban preventingimmigration from countries with a Muslim-majority- Iran, Iraq, Libya, Somalia, Sudan,Syria and Yemen as well as blocked theentry of Syrian Refugees, towardspreventing the entry of threats into thecountry that their soldiers fight overseas.

IMMIGRATION

The Buy American and Hire American executive order signed on April 18th, 2017 is

aimed at cracking down on skilled worker visa abuse and compelling US Government

agencies to give preference to domestically produced products to the utmost potential.

Trump bet his whole campaign on the ideathat popular hostility to liberal immigrationand free trade policies would propel himto the White House.

The Government wants to have strict auditand a counter-checking clamp down onfraud or misuse of the visas earmarking20% of small and start-up employersincluding the removal of country-wiseallotment towards ensuring equitabledistribution. The department of labourinsists that Firms hiring H-1B visa holdersneed to make an effort of good faith torecruit Americans first if not, itselfcracking down on outsourcing companiesthat import workers for temporary trainingand then send them back home to do thesame job.

The order raises the bar for foreign guestworkers used by US and Indian companies

to do work that American workers werethought to be unable to do, taking aim atfiltering out poorly-qualified, low-skilledworkers that flood America's economysubstituting its own citizens.

The US grants 85,000 temporary visasincluding H1-B annually to high-skilledforeigners with 65,000 hired from abroadand the rest from among foreignersenrolled in American colleges.

Indians are by far the largest recipients ofthese visas, having the Chinese in a distantbeing second with 70% in 2015 allottedprimarily to the Indian IT industry.

Technology companies in whose activitiesare outsourced from the USA, primarilyIndia, are now amidst of a massiverestructuring drive to downsize their firmssince the visas would not be applicable tomany of their employees.

H1-B VISAS

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He also pledged to scrap the USA's role inbilateral and multilateral free tradeagreements where they affected thedomestic industry adversely withoutbenefits to counteract the import of goods.

He even promised to revoke the NAFTA,that once paved the way for the creationof high-paying export-related jobs andstrong economic growth throughout NorthAmerica, but now leads to high imports forthe US, affecting the domestic industryand taking production away fromAmerican citizens.

Donald Trump sees the WTO as a disasterthat more 70,000 factories in the US haveclosed and shifted to East Asia since Chinajoint. Furious at the Chinese industry’staking over of American manufacturing at

lower costs, Trump is willing to go as far asrevising USA's terms of membership in theWTO.

He sneered at the United States being theworld’s largest steel importer, importing30.1 million metric tons from Canada,Brazil and Asia despite its being merely 1%of the total goods imported. He wanted tobring the coal jobs back rather than havingto continue importing coal from SouthAmerican states.

However the protectionist bark may nothold much of a bite, since America itselfhas been strengthened over the years byGlobal trade and has only been a part ofthe global supply chain rather than actuallyheading it with many of America’s MNCsmanufacturing in developing economies.

TRADE

Trump wanted to stop the outsourcing ofAmerican jobs affecting the domesticindustry and increasing unemploymentrates to even 10% in 2009.

It was also about blue-collar jobs that hadbeen outsourced to manufacturers andinsourced with both skilled and unskilledlabour. Trump was speaking to the blue-collar market, which has been underservedby politicians both theoretically and in fact.He wanted to stop guest visas from beingabused.

A lot of his policies are aimed towardsimproving the lives of the lower andmiddle classes although there are

possibilities of his even repealingObamacare. Trump won his majority byimplementing many of the Democraticpolicies in a Republican Government.

After being elected with the promise ofoverhauling the existing system ofincreased costs of living and terribleinequality, Trump has played intofrustrations among many Americans overtheir sense of financial insecurity, he hasbeen working towards a massive taxreduction for working and middle-incomeAmericans and eliminating income for thelow-income groups, while ensuring that therich pay their fair share.

WORKING CLASSES

Behind the ‘Make America Great Again ’cap was the story of a factory shutting down

planning to move its operations to China, before Trump came in to save the day. He

tasked the firm with manufacturing the caps to be produced domestically- 100% Made

in America as the core concept of his campaign towards resurrecting the Lost

American Dream to build the country reaching its former glory.

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During his presidential campaign, US President Donald Trump

famously declared ‘I am a big fan of Hindu. I am a big fan of India.’ Did he mean it or

was it merely superficial campaign rhetoric with 2.7 million Asian Voters in New Jersy ?

The question now is as to whether the India would really have a big friend in the White

House as Trump trumped while they roll out the red carpet for PM Modi working

towards a strong Asia-Pacific Partnership.

The immediate concern for India with the‘Buy American, Hire American’ executiveorder was the upgrade of the H1-B guestworker visas doubled to $130,000, which ismore than what the parallel Americanworker would be paid. With more than65% of these visas being allotted to IndianIT professionals, especially Infosys, mostIndian employees working as cheap labourwould henceforward no longer qualify fortheir ticket to a better life in American soiland cheap labour imported for the company.

Many tech companies in Silicon Valleytend to hire Indians in technical roleseither directly or through outsourcingfirms. Critics of the H-1B system have longsaid that the system was set up forcompanies to exploit and hire low-wageforeign workers in place of Americans.Now Trump has revamped it from arandom lottery to a merit and senioritybased allotment going to the most skilledand highly paid applicants hired to by firmsthat would not use it to replace Americans.

GUEST WORKER VISAS

With the US’ largest trade partners beingCanada and Mexico, India is a distant 9th inplace of trade volume, however their tradeaccount with the South-east Asian giants isa deficit. Increased trade protectionism inthe United States would hurt Indianexports to the west includingpharmaceuticals, textiles and auto-products, and even jewellery. Yet, givenIndia's domestic demand-driven economyas well as a high demand for theseproducts in other western nations, theimpact of US trade policy would berelatively low compared to other trade-oriented emerging markets.

The United States Trump administrationcould be a very difficult trade partner forIndia to work with, despite the US’presently being the largest investor in thecountry and India’s second largest tradepartner after China.

With India's exports to the US at morethan $46,000 million and exports from theUS at $21,500 million, the US' deficit of

Indian Trade stood at about $24 thousandmillion last year as its 9th largest tradepartner under an open skies agreement in2005 leading to better air connectivity.Trump’s objective is to change thosefigures for India and China towardscompletely removing the deficit of tradewith these nations.

Without any agreement on free trade orany hope for such an arrangement underthe Trump administration, there are highimport customs between the two countriesalong with multiple trade quotas,restrictions and other non-tariff barriers,thus preventing favourable market accessor potential to either country.

India is, in itself, not a part of the Asia-Pacific Economic Co-operation (APEC) buthas recently shown interest in being thenext ideal member, allowing othereconomies to benefit from its wide marketand robust supply of labour towardsincreasing foreign investment within India,including from the USA.

TRADE WITH INDIA

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The Indo-US civil nuclear deal is expectedto figure during talks between PM Modiand Trump, for an agreement between theToshiba-owned Westinghouse and theNuclear Power Corporation of India Ltd(NPCIL) to build six nuclear power reactorsin Andhra Pradesh hoped to be completed.

When completed, this was to be the firstoperational of the India-U.S. civil nucleardeal announced in 2008. The nucleararrangement hinged on the completion of

the India-Japan Nuclear Co-operationAgreement, as Toshiba and other suppliersfor reactor parts are bound by Japaneselaws and by the actual contract to benegotiated by the White House.

However, Westinghouse Electric, itself filedfor bankruptcy protecting in March, thusleaving the deal at a standstill, unlikely tobe completed within the next 3 months,when, in fact, it was deemed to have beencompleted over two years ago.

NUCLEAR AGREEMENT

India could either be the USA’s Trojanhorse to Asia against the rise of theChinese economic and military superpowerand the treat of Pakistan’s terrorism, or beits donkey in Donald Trump’s ‘AmericaFirst’ goal. This time, India’s fate lies in thehands of PM Modi.

From the very 1st day of his term, theTrump administration has steered towardsgreater trade protectionism, a tougherstance on immigration and called for areassessment of U.S. foreign policypositions which raise concerns about theimpact they will have on other countries,particularly among emerging markets.

Since the Trump administration is keen onbilateral treaties instead of multilateraltrade deals, it may be a tangible outcomeif the two largest democracies in the worldset their sights on negotiating a bilateralinvestment treaty, considering thatAmerica is already the largest Investor in

India, who is working towards a greaterease of doing business.

On the other hand, it paves way for Indiaas an emerging economy, to enjoy thebenefits of globalisation when asuperpower like America makesdeliberately puts itself in isolation.

India is fundamentally in a strong positiondue to sharply lower fiscal and currentaccount deficits since the taper tantrum in2013, lower inflation over the recent yearsand better sustainable growth prospects onaccount of continued productivityenhancing reforms instituted by the ModiGovernment. Considering the prevalenceof equity over debt flows to India, itshould be able to cushion the impact of astrong dollar or higher bond rates inWashington while India continues todevelop as an economy taking advantageof Globalism even while Britain andAmerica retract from it.

THE GAME PLAN

After several slashes of war against Iran, Afghanistan, Russia, North Korea and ISIS

and recovery from its recession,America has made its choice in voting for Trump to

enter a period of nativism, a respite before the next major episode. The Trump

administration is not the cause of America’s attitude to a global retreat, rather a mere

symptom of it, and an agent of change stepping in to make America great again.

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32

The factors involved in Brexiters decisions as a whole emerged from the continuing

apprehension of their residences, work environments, mobility of labour, social and

economic infrastructure, being adversely affected by high immigration of more than 3

lakh a year forming nearly 0.5% of their population and growing further.

As per European Union policy, EU citizensare allowed mostly free mobility betweenEU countries. The problem of immigrationwas recognised by Britain decades ago, butwas intensified with the entry of Turkeyinto the EU. Brexit campaigners hadportrayed a multitude a Syrians crossingthe border into London city calling uponfeelings of racism from inflow of refugeesand fears of rise in crime for Britain toraise its own flag high.

The blame of a nearly 9% unemploymentin 2012 was on immigration that other EUnationals had taken the jobs available inboth high and low skilled job requirementsfor lower pay, while it was also related tothe repercussions of the global recession asa reflection of the global market.

The high immigration from low-incomecountries in Europe was held responsiblefor the higher cost of social security toBritish citizens, when, on the contrary, thetaxes and other charges received fromimmigrants had contributed to a lower coston social security, which brought down theactual amount paid by citizens for betterservices as well as development.

Furthermore, the dread of citizenship andcitizen rights being granted to EU nationalsand thus having political and economicpolicies set in favour of the EuropeanUnion and naturalised citizens rather thancitizens having their innate right to theirvery own soil, left a lasting impressionagainst EU nationals in the minds of manyBritish citizens.

IMMIGRATION

After the deregulation of the LabourMarket in UK, there was an great absenceof job security among working classes.With the much corporate downsizingduring the great recession, unemploymentwas at more than 5% in the beginning of2016 with the build-up of decentralisationand privatisation.

The availability of cheap labour from otherEU nationals to British firms with thecountry as a part of a single labour marketbrought greater fear among British workersthat their jobs would continue to beclaimed by immigrants.

In many parts of the UK, where both theGovernment investment and privatebusiness spending were low without

sufficient economic infrastructure tosupport much commerce, trade andindustry, the vote in favour of Brexit washigher. Therefore, it was generally heldthat high immigration is directly related tothe level of poverty and unemploymentfaced by British residents.

With a 10-year high 5% inflation during thegreat recession, low investment and highunemployment in the UK, the British weretrapped in poverty, for which immigrantswere ultimately held responsible.

The working classes finally revolted withBrexit as their weapon of choice, to leaveEuropean economics and reach back towhat had always worked out for them- theprototype to the upcoming POTUS.

WORKING CLASSES

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Having to be a part of the customs unionbrought many restrictions upon thecountry from drafting its own laws ontrade outside the EU as well as enforcingfree trade with other EU states, removingBritain’s autonomy to set its own tradelaws and foreign policy in this regard.

With the UK's trade policies having tocoincide with the European Union'smultilateral trade agreements, the currentaccount deficit was at 5.2% of GDP, thehighest deficit among developed countries.Having to be a part of the EuropeanCommon Market claimed its price onBritain's Pound bringing it to the value of€1.1 from a €1.5 average over the years.

With a weak monetary policy to supportthis level of BOP deficit, during thefinancial recession, the European EconomicCommunity adopted fiscal austerity inreducing Government expenditure duringthe great recession and thereafter, whichadversely affected UK's economy while,

Britain instead wanted to supportquantitative easing to build up theeconomy after the 2008 recession.

The greater instability of credit during theglobal crisis led to the downturn of manymajor banks in the UK, including theGovernment bailout of Northern Rock,Lloyds TSB and The Royal Bank ofScotland, while the Bank of England, UK’scentral bank cut interest rates even furtherto fix the economy, and encourage creditextending the existing £50 billion SpecialLiquidity Scheme to £200 billion, while afurther £250 billion was pumped in under abank debt guarantee scheme, all towardsreducing the savings-investment gap againstthe financial downturn.

While Brussels continued to engulf theUK’s funds through various membershipfees, loans and donations; the UK itselfwas in dire need of funds to recover itsfinancial markets and continue publicinvestment and build up the economy.

ECONOMIC POLICES

The deal created an emergency brakemechanism allowing a member state tolimit access to in-work benefits for new EUimmigrants upto four years of theirresidence in the UK, as opposed to theexisting rule permitting an EU immigrantto claim the social security benefits whichare granted to a UK national includingJobseeker's Allowance, Child benefit orChild tax credit. This was however, notlikely to considerably reduce the inflow ofEU nationals to England and Wales.

The right to issue a Red Card to Brusselsto revise any law would be allowed amember of the EU council with thesupport of 15 other member states. Itwould not act as a single veto, since EU

lawmakers still be able to press forward ifthe concerns raised where they aredeemed to have been addressed reasonably.

The UK was to be exempted from any lawforming an even closer union in terms oftrade, economics and politics, as per itsown discretion, also allowing them toobject to laws passed against their interestsas non-Eurozone members.

The internal dynamics of ConservativeParty politics could push Cameron todemand the unobtainable and so derail therenegotiation, yet Britain fought against itand risked it all in the renegotiation, withthe higher hand of Britain during the Euro-crisis with every ill-tempered emergencysummit called.

MAJOR RENEGOTIATIONS WITH THE EU

34

In 2016, the UK Government paid £13.1 billion to the EU budget,

as its fourth largest contributor after Germany, France and Italy, while the EU’s spending

on the UK was forecast to be a mere £4.5 billion making their support estimated at about

£8.6 billion as £35 million a day to the EU, which could well be spent on economic and

social infrastructure of Great Britain’s own citizens, rather than the support of the EU.

With the UK Independence Party havingcampaigned to leave the EU for manyyears before the referendum, and FormerPrime Minister David Cameron during theUK General Election, 2015, havingpromised for a renegotiation with Brusselsregarding Britain's terms of membership,and a referendum of whether or not toremain with the Union thereafter, thecards were set for negotiations to be made.

With the continuation of the EuropeanDebt crisis, the renegotiations were finallysigned on February 19th, 2016 by DavidCameron and Donald Tusk towardsforming a Union with a greatly detachedBritain, which would have led to thefurther disintegration of the Union with itsother top contributors, if executed withBritain’s stay.

As on October 2015, there was an officiallyrecognised cross-party group campaigningfor Britain to remain a member, calledBritain Stronger in Europe while on theother hand, there were two groupspromoting exit which sought to be theofficial Leave campaign: ‘Leave EU’(supported by most of UKIP, includingNigel Farage), and ‘Vote Leave’ (supportedby Conservative Party Eurosceptic).

The UK government's official positionunder the leadership of David Cameron, asignatory of the renegotiation withBrussels, was to support the remain option,since renegotiations were reasonably infavour of the UK's membership.

Nonetheless, Prime Minister DavidCameron granted his ministers and MPsthe freedom to campaign as per their owndiscretion in the interest of the UK. In anexception to the usual rule of cabinetcollective responsibility, PM Cameron

allowed cabinet ministers to campaignpublicly for EU withdrawal despite theirown Government working toward the veryopposite.

Despite the controversial campaign toremain in the European Union, on 23rdJune, 2016 the United Kingdom, on anational turnout of 72% of the electoralcollege for the United Kingdom EuropeanUnion membership referendum, 2016,voted by 51.9% to 48.1% to leave theEuropean Union and thus, rejected theterms of a modified membershipagreement, due to which the changes inthe EU were never implemented, in fact,for the better benefit of the EU.

David Cameron then gave his unpredictedresignation from the office of PrimeMinister on the 13th of July, 2016 thereby,making way for his successor in the Party,Theresa May to step in to draft the Brexitblueprint for the nation, negotiating termswith Brussels, since no contingency plan ofBrexit had been drafted even until then.

The European Union (Notification ofWithdrawal) Act, 2017 passed in Marchgranted the UK Government to give theofficial notice to Brussels under Section50(2) of the Treaty of the European Unionin less than 140 words, and so it was doneby the new Prime Minister.

With UK general elections held on June8th, 2017 the Conservative party wonmajority allowing Theresa May to hold inher post in completing Brexit negotiationsthrough their Brexit Secretary David Davisstarting discussions on June 19th with theEuropean Union’s chief diplomacy agentMichel Barnier both working towards a softBrexit for the better good of all Europeand the rest of the world.

35

Britain yielded to the EU on the openingday of the Brexit talks, June 19th,when itagreed to settle its divorce, defining therights of 3 million EU nationals in the UK,starting from June 19th before trying tonegotiate a future trade deal. In a majordefeat, Brexit Secretary David Davis wasforced to drop his central demand for thetwo rays of Brexit negotiations to bestaged in parallel, within hours of arrivingin Brussels.

Europe may offer soft Brexit and let UKstay in Single Market, if done on thejurisdiction of the European Court, thusallowing Theresa May to fulfil her pledgeto end its jurisdiction while also meetingthe EU’s requirements of the UK, justwhen the cabinet was nearly divided overwhether to adopt a softer jobs-first Brexitslant, or pursue the Prime Minister’s toughimmigration-centred strategy which,eventually, failed to win the Conservatives

a Commons majority, in the 2017 generalelections.

For the EU, Brexit is its worst and mostapprehended break-up: discussing theterms of the divorce first, then therelationship where they could still befriends. The EU has long said that the UKwill not be allowed to start trade talks untilit agrees an outline deal on citizens’ rights,money and the matter of the border ofIreland as a part of Brexit.

The Great Repeal Act will be passed onthe conclusion of Brexit towards repealingall EU laws adopted by Britain under theEuropean Communities Act, 1972 andenforce certain EU laws by their ownsovereign power. This would concludeBrexit as it comes into force in terms ofcitizen rights and trade. Thus, the rights ofEU nationals living in the UK would finallybe lost unless granted independently underBrexit or the UK itself.

NEGOTIATIONS WITH THE EU

With Britain’s change in trade patterns andthe EU to begin charging import duty onUK goods, as well as the TransatlanticTrade & Investment Partnership as abilateral agreement to be worked out withTrump, Europe will be able to wean itselfof the UK by expanding its trade networkbetween its own emerging markets anddeveloped countries in the continent itself.

Even with Brexit, the UK is not America’sand the world’s only passage to Europe.America’s trade with the rest of Europeitself is 5 times more than with Britainalone, giving the impression that the USdoesn’t stand in need of the UnitedKingdom- money or influence.

The trade between Asia and other EUcountries itself leads to a deficit of tradefor the EU with greater imports than

exports even without the UK, in more thanmerely crude oil and other roughcommodities.

With China’s 21st century Silk Route Beltand Road Plan expanding to Europe andheading west thereafter, the UK’s role isalmost negligible besides its own bilateralagreements.

With the loss of free mobility of EUnationals in the UK, companies wouldhesitate to invest or remove investmentfrom there to other EU nations, affectingemployment as well.

With 50% of UK exports by value aredelivered to other European trade partnersas a part of EU multilateral agreements.With their imports from UK falling, Indiaand other Asian countries would be themost likely beneficiaries.

SILK ROUTE TO BYPASS THE UK

36

In a market that buys the rumour and sellsthe fact, Brexit’s hit fell hard on the Poundpulling it down by 15% to a 31 year low to1.1, thus bringing inflation to 2.3%, furtherlowered by the thoughts of a secondScottish Independence Referendum.However The pound has jumped to €1.140after dipping to €1.131 before the Queen’sspeech at parliament.

The English Stock Market FTSE 100crashed at the onset of Britain’suncertainty in Global Finances, but is now

has risen by about 100% from that date,working towards a full recovery fromBrexit ridding itself of the thorn of Europe.

The Bank of England lowered bank interestrates to boost economic activity during thetime of the campaigning and after Brexit,but has now raised the rates once again tostimulate investment and production

With the EU’s disappointment in the Brexitreferendum as the loss of its fourth largestfinancer, the Euro also fell against thedollar, yet is on the way to recovery.

EXCHANGE RATES

With America now on the verge of losingits trojan horse passing through the gate ofEurope, it would now looks for astronghold in Europe through Germanyand France and in Asia through India as itsrival against the rise of the Chinesesuperpower and spread of terrorism.

With the UK having shaken off its shacklesof trade restrictions from the EuropeanCommon Market, it is free to form its owntrade policies with various non-Europeancountries, including India. With the UKfacing an uncertain future within Europefrom a business perspective, relationshipswith other markets are gaining attention.

UK contributes a mere 2.36% to worldGDP with its exports mainly to the dutyfree EU market. With its clamp to the restof Europe now having lost of its grip, itturns its hopes to the United States as a

trading partner through the proposedTransatlantic Trade & Investment Treaty asa partnership with the west.

However, since Trump in his Americannativism seeks to protect his economyfrom imports as far as possible, Britain islikely turn from the US to Asia’s ownIndia and China in building a Trade &Investment Partnership within the Asianbloc with India already as the third largestinvestor in the UK with over 800companies established.

India has a greater scope in Europe fortrade and investment as an emergingmarket now that the UK is seen to haveresigned from its European and Globaleconomics, while Britain also has manyinvestors in India under the Make in Indiacampaign and even prior to the entry ofthe Modi Government.

STRATEGIC OUTCOME

Brexit has now opened the EU’s dormant Pandora’s Box of the grudges that its

members have held against its practices for decades now. Macron and Marine both say

that EU must reform or face 'Frexit’ from it’s second largest contributor. Since France,

wishes to regain its territorial sovereignty as a nation, should there be a Frexit, we

would be welcoming back the Franc as Government debt reconverted from the Euro.

37

- Prof. Geentajali Patel- Prof. Preethi S J G

38

"The central bank needs to be

able to make policy without

short term political

concerns"

- Ben Bernanke

Operational independence is the autonomouscapacity of a central bank to pursue itsobjectives without intervention or pressurefrom third parties. It is not a binary variablebut a matter of degree and a high degree ofoperational independence is difficult toachieve. Operational independence existswhen no one can tell the central bank what todo.

Central bank independence is usually assuredby legislation and the institutional frameworkgoverning the bank's relationship with electedofficials, particularly the minister of finance. InIndia the RBI Act provides for operationalindependence to RBI. But, the RBI is notconstitutionally independent, as the 1934 Actgoverning its operation gives the government

power to direct it. The government appointsthe central bank governor and four deputies.The Governor of RBI appointed by theCentral Government for a term not exceedingfive years is eligible for reappointment. TheCentral Government has powers to removethe Governor as per Section 11(1) of the RBIAct which does not provide for any reasonsfor removal. The present Act does not specifythe reasons for which the Governor can beremoved. The law also does not place anyobligation on the government to make thereasons for removal public.

“The Central Government may from time totime give such directions to the Bank as itmay, after consultation with the Governor ofthe Bank, consider necessary in the publicinterest,” the Act says. Technically, thegovernment is also permitted by the Act tosupersede the central bank if it believes theRBI has failed to carry out its obligations. RBIis so constituted and financed that itsautonomy and independence are not diluted.

It conducts effective supervision and oversightwithout facing any limitations and is able toraise the required resources therefor. TheCentral Government, however, reserves theright to issue directions to RBI from time totime in public interest. There is no indicationof industry intervention in its operations andthere is no limitation in procurement andorganising the resources needed for carryingout its obligation.

One of the post-demonetisation concerns

by many of those who stood against the

decision is about the autonomy and

institutional integrity of the Reserve Bank

of India (RBI). They are blaming the RBI for

giving up to the government’s dictate and

surrendering its independence. While

assessing the autonomy of the RBI, it

should recognised that RBI is not a pure

monetary authority but as a central bank, is

responsible for several other functions too.

First reported in Livemint

39

PRESENT SCENARIOThe RBI has now moved into a new phase ofmonetary policy formulation. With the PMNarendra Modi government demonetisinghigh-value banknotes in November, RBI beganfacing questions not just on its autonomy butalso on its competence. RBI’s employees’union and former governors joined thedebate, expressing alarm over the dent to theinstitution’s credibility and autonomy. In suchan environment, criticism of the MonetaryPolicy Committee (MPC) must have been likethe proverbial last straw on RBI’s back, forcinga response from the powers-that-be at thecentral bank, even if the response wascouched in typical central bank speak.

The debate over the independence of RBImay have been rekindled only in the recentpast, but the debate is as old as the centralbank itself. The concept of an independentcentral bank for India “on a level of authoritywith the treasury” was first spelled out by oneof the greatest economists of the 20th century,John Maynard Keynes. But Keynes’s wish foran independent RBI did not amuse thelegendary chief of the English central bank,Montagu Norman. Norman was quite blunt inhis assessment of how RBI should bestructured, and proclaimed “a Hindoomarriage” between the Bank of England (thedominant spouse) and RBI (the subservientwife), whereby in return for formal advisoryservices, RBI was to yield to the Bank ofEngland the right to determine the dispositionof its funds.

Mr. Anand Chandavarkar, who served as aneconomist with RBI’s research department,

observed that RBI was in fact moreindependent in the British Raj than in thepost-independence period. As RBI assumedquasi-fiscal mandates in order to fulfil plantargets set by the powerful PlanningCommission, it became an “emasculated fiscalagency”, in his words.

In the post-liberalisation period, RBI regaineda semblance of autonomy, partly owing to thechemistry between successive finance ministersand RBI governors, as one of RBI’s officialhistorians, T C A Srinivasa Raghavan, notes inhis latest book, “Dialogue of the Deaf: TheGovernment and the RBI”.

As India opened itself up to the globaleconomy, and the notion of having anindependent central bank became part ofconventional economic wisdom in the West,the RBI too began to enjoy greater clout, andsignificantly greater autonomy than before.The end to the automatic monetisation of thefiscal deficit under Governor C Rangarajan,supplemented later by the enactment of theFiscal Responsibility and Budget Management(FRBM) Act, 2003 helped RBI gain greateroperational autonomy outside theGovernment of India, atleast for the timebeing, in theory.

This phase ended after the great crash of

2008, as successive governors since

then allowed the government to wrest

back the autonomy RBI had begun

enjoying in the post-liberalisation era.

RENOVATION VS RECONSTRUCTIONEconomists have long argued that interferenceby the government in the functioning of thecentral bank could lead to low interest ratesand stoke the fires of inflation. Governmentsdriven by electoral calculations could, forinstance, favour lowering of interest rates justbefore elections to provide a short-term boostto growth even if it comes at the cost of long-term inflation. Thus, there is a risk thatmonetary policy would become volatile, andlose credibility and effectiveness.

Chandavarkar, in his essay, had argued for anew commission that would re-examine the

role of RBI in independent India, and suggestways to give constitutional protection to RBI’sautonomy, and legislate a federal structure forthe bank with representation from differentregions, which may be impacted differently bymonetary policies.

Legislating autonomy can also work only whenthe Indian economy does not have as muchfiscal dominance as it has today. As theeconomist Ignacio Mas of the World Bankargued in a 1994 research paper, simplyproclaiming central bank independencewithout imposing fiscal discipline might lead

40

to a “game of chicken” between the centralbank and the government. In such a scenario,the central bank will try and raise interestrates to discourage fiscal profligacy by thegovernment, while the government willcontinue to spend and borrow, testing thecentral bank’s resolve to raise interest ratesfor monetary policy towards economic growth.

Legislating autonomy in an economy such asIndia is also difficult as a large part of thebanking system is state-owned and functionsunder the directions of the finance ministry. If

RBI is at loggerheads with the ministry, andthe finance minister is unable to remove theRBI governor, it is possible for him or her tofrustrate the efforts of RBI through directivesissued by the banking division of the financeministry.

How autonomous RBI would become in thenear or distant future will depend not just onhow and who is appointed governor, but alsoon how it is decided, to iron out theseinstitutional wrinkles, before it becomes toolate.

TOLERANCE AND RESPECT FOR ECONOMIC PROGRESSThe eternal question of why India’s tradition ofdebate and an open spirit of enquiry is criticalfor its economic progress was answered byformer RBI Governor Raghuram Rajan in hisspeech to an assembly of college graduates in aplea for tolerance within the nation.

The bulk of economic growth did not comefrom putting more factors of production suchas labour and capital to work. Instead, it camefrom putting those factors of productiontogether more tactfully, that is, from what hecalled total factor productivity growth. Putdifferently, new ideas, new methods ofproduction and better logistics are what leadto sustained economic growth. But moreintelligent ways of working will enable thecountry to leapfrog old methods and soonerreach the production possibility frontier, just asthe software industry. Once society is at thefrontier and using the best methods in theworld, the only way to grow is to innovate andbe even better than others in the world. This iswhat our software firms are now trying.

What this rules out is anyone imposing aparticular view or ideology because of theirpower. Instead, all ideas should be scrutinised

critically, no matter whether they originatedomestically or abroad, whether they havematured over thousands of years or a fewminutes, whether they come from anuntutored student or from a professor.

The Government sets the long-term objectivesof the economy upon which the Reserve Bankbuilds the framework of its policy. It comes tofar more than hiking and lowering interestrates to deal with inflation and supply ofmoney. The freedom of the RBI to take thesedecisions lies in consultation with the Ministryof Finance of the Central Government.

Where the Government sets a target and givesthe RBI a target to enforce, then it is theGovernment’s part to stop second-guessinghow the RBI is to do it and let them performit in their best judgement. To do anything lessthan that and to continue to instruct the RBIhow to do it would be trespassing on theirdomain and undermining the fact that it is theReserve Bank’s job to perform it. Undertakinganything more than setting the objective andgiving guidelines would only bring theGovernment to redouble its effort while losingsight of its goal.

It’s the job of the central bank to take of measured risks as a necessary evil to

promote economic growth in the long-term. Policy making is about deciding in the face

of uncertainty, after weighing the alternatives as best as one can. There is always a

need for Macro-economic Stability. Growth is good, but growth with stability is better,

especially in a developing country where so many people live at the margin. For the

RBI, it means ensuring growth does not exceed its potential, adopting prudential

policies that reduce our risk, and building sufficient buffers that the country is

protected against shocks.

41

42

When an existing company creates hype abouta new product, new management or any othernew and material development, that themarket will receive it and that its industry willbe revolutionised or atleast changed, evenslightly for the better or worse, The stocktrends higher for a few weeks where the newsis presumed to be positive, right up until thedetails of the new product are revealed anduntil its release into the market and thereaction of consumers is witnessed by thestock market.

One of these cases will come to play when itcomes down to the wire and the product is

finally brought to the consumer market, forthe profitability of the firm to be shown in themarket price:

i. The product is announced, and the marketreception is great. However, the stock stillsells off since many investors were planningon hitting the exits as soon as details of theproduct were released, because they knowthat it's smart to ‘buy the rumour, sell thefact’. Moreover, it is nearly impossible forthe product announcement to live up tothe hype that it created, so the stock sellsoff.

ii. On the other hand, if the productannouncement is underwhelming, short-term investors sell as well. Not a goodthing- the worst case scenario for acompany.

iii. The product unveiling is a massive hit, andinvestors pile into the stock because theproduct is so revolutionary, sending thestock even higher. This is a pretty rareoccurrence.

What happened hence, in these cases, is thatthe market had played itself out. The investorsrelied on the news even before the event tookplace. Supply and Demand for the stock tookplace as per the prediction assuming that ithad already come to pass.

“One of the greatest things

about the stock market is that

every time one person buys,

another sells, and both think

they are astute.”

- William Feather

Investors who try to profit from breaking

news must answer this one question: How

many other have already capitalised on

the news? This core element is related to

insider trading and asymmetric

information based on the fact that the

news may not have spread completely.

Once a critical number of investors have

already traded on the news will be

considered baked in the cake and no

longer essential information.

43

Speculators and other stock traders buy onthe rumour, they treat forecasts prepared byeconomists and analysts as though the eventhad already happened, precisely as predicted.In the sense that they ‘build in’ the forecast tothe price, creating the very high on the pricebar that the onset news would in itselfproduce on the price of the stock.

To sell on the fact relates to the outbreak ofthe event itself. The market sometimes getsthe seeming paradox of a price reaching a newhigh immediately prior to the event andfalling lower immediately after it, even whenthe news matches the forecast. The lowerprice comes about because the early birdstake profit on the up move that theythemselves engineered. The new low is usuallyshort-lived. In any case, the forecast was forgood news and the good news occurred, so

the news was properly built in and the newhigh is the appropriate price.

News traders would rely on short-termreactions drive the market in a particulardirection and can look at historical data topredict how future news can affect prices.

If the news is much better than forecast,

though, traders don’t take profit because

better-than-expected news draws in new

players and sends the price higher still.

Then the early birds are positioned to

make even better profits. If the news fails

to match expectations, traders and

investors alike sell, and the dip may turn

into a longer-lasting price drop.

DEMAND & SUPPLYWhatever happens in buying and sellingdetermines the prices of the stock. Assumingthe stock market to be a perfect capitalmarket, the prices of corporate stock aredetermined by their demand and supply.Where the demand for the share rises, theprice of the share rises against the demand.When the supply, even when new stock maybe issued, of the stock in the market is high,the price of the stock falls since there isinsufficient demand against the supply tosupport the previously high price if therumours surrounding the project do not bringabout a rise in price by the news.

The demand for a company’s shares orfloating bonds is determined by the profit thatinvestors expect to receive from it in the formof dividend or capital appreciation. When thecompany performs well or is expected toperform well, investors expect a higher profitand thus a higher return on the investment ineither form. So investors buy the stock leadingto higher demand for the stock against itssupply since investors who own the stockwould continue to hold them in hope ofcapital appreciation. Thus, the rise of demandagainst supply leads to an increase in theprice.

In an investor driven market, prices of thestock are determined by the actions of market

traders, including speculators. When news ispublished about the company or insiderinformation leaks away or public speculationplays its way into the company, investorsexpect it to have either a positive or anegative effect on the profitability of thecompany.

So, they act on this information in one of thetwo- buying the stock or selling it, not tomention the possibility of investors holdingthe stock in their possession. Thus, traderscapitalise on the news creating demand orsupply by their very own actions. In acting onthe news of the company, industry oreconomy, the investors have already impartedthe effect of the news in the pricing of thestock since demand and supply have waiveredaccordingly with a reasonable volume andnumber of investors.

So, the current price of the share fullyincorporates all relevant information of theasset as the share of a company since thereare already many people to take advantage ofa mispricing of stocks or any availableasymmetric spread of information andcapitalise on these opportunities such that therumour is bought before its happening, andthe fact is sold no sooner than the pricereflects it, which would bring down the priceof the share.

44

45

6.37%

8.35%

10.88%11.99%

8.86% 9.31%10.91%

6.65%

4.91% 4.94%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Average Inflation Rate

Inflation as measured by the Consumer Price Index (CPI) reflects the annual percentage changein the cost to the average consumer of acquiring a basket of goods and services that may befixed or changed at specified intervals, annually, biannually or monthly. The Laspeyres formulais generally used with the base year of 2011-12.

A higher inflation rate, can indicate a pick up demand and stronger economic activity, drivenby higher spending on goods such as cars and greater discretionary expenses on eating out andrecreation. Bank Interest Rates will have to slide down structurally over the next 6-12 monthsgiven the macro-economic dispensation India has arrived at. For 2017-18, The Reserve Bank hasprojected retail inflation to average 4.5% in the first half and 5% in the second half of the year.The question is as to whether the Modi Government has been hiding behind statistics for threeyears even as the cracks are becoming visible.

RBI may have an inflation target of 4% but what it should be really worried about is the cost ofachieving and maintaining a very low inflation rate. For every one percentage point decrease ininflation, the government risks destroying 3.4 percentage points of growth. With the ConsumerPrice Index based inflation coming in at 2.18% for the month of May and continuing to decreasein June in terms of retail inflation including food inflation, the question that arises is: Is there acost to keeping inflation so low? The Reserve Bank of India may have an inflation target of 4%but what it should be really worried about is the cost of achieving and maintaining a very lowinflation rate against the treat of losing growth in the economy.

7.79%8.35%

5.91%

3.96% 3.32%

2.11%1.37%

0.53%

2.01%1.93%

0.31%

-1.05%

-2.12%-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

June2016

July Aug Sept Oct Nov Dec Jan 2017 Feb Mar Apr June

Food Inflation Rate

Source : Tradingeconomics.com | Ministry of Statistics and Programme Implementation, GOI

Source : World Bank Data

First reported in Livemint

46

The rates of regular savings deposit have remained constant at 4% as per RBI bank rates,however, commercial banks have not always passed on this rate to the public. While FixedDeposit Rates have varied to slightly between 9% and 7% over the last few years, banksdifferentiate between the purpose, type and term of loans in determining the rate of interestchanged in case of lending to the public. The RBI shifted the stance of the policy fromaccommodative to neutral and left the repo rate unchanged at 6.25%, but the three-monthtreasury bill is now trading at 5.7% and one-year treasury bill at 6.10%, much below the reporate, thus, undermining the signalling rate. The cause of it is liquidity of banks allowing them tolend more easily- with over ₹4 lakh crore excess money following demonetisation that replacedroughly 86% of ₹17.97 lakh crore worth of currency in circulation in seven weeks betweenNovember and December.

The surplus in the banking system at ₹5 lakh crore was inching closer to the maximumabsorption capacity of the central bank. RBI had ₹7.5 lakh crore of GOI securities prior todemonetisation drive, which act as collateral to absorb banking system surplus through thereverse repo window. RBI’s estimate of deposit accretion going forward might have promptedthem to announce a large CRR hike which would obviate any discussion around RBI runningshort of G-secs. On the other hand, the liquidity scenarios may not exactly comparable, as thetotal deposits in the banking system was far less then and banks’ Cash Reserve Ratio (CRR) washigher. Since February 2013, CRR has been fixed at 4%, increased after demonetisation to anincremental CRR of 100%. This way, it sucked out around ₹3.24 lakh crore excess liquidity fromthe system.

The Cash Reserve Ratio (CRR) has been pegged at 4% of the Time and Demand Liabilities ofBanks under the RBI with Statutory Liquidity Ratio (SLR) reaching 21.25% from the former20.5%. Policy Repo Rate is 6% with Reverse Repo Rate at 6.5% and Bank Rate reaching 7% fromthe previous 6.5%. The Banking Regulation (Amendment) Ordinance, 2017 had come into forcein May and will soon become an act, working towards reducing the level of stressed assetswithin the formal banking system incorporating the changes in the Insolvency and BankruptcyCode, 2016 to initiate the insolvency resolution process towards better availability of credit andbalance the interests of all the stakeholders including alteration in the order of priority ofpayment of dues as well as to establish The Insolvency and Bankruptcy Board of India.

3.5% 4%4%

8.38% 8.25%7%

8.50% 9.13% 8.88% 8.93% 8.63%

7.25% 7.25%

14% 14.13%13.38%

8.88%10.38% 9.98% 10.13% 10.13%

9.50%9.03%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

RBI Monetary Policy-Interest Rates

Savings Deposit Fixed Deposit (3-5yrs) Lending Rate

Source : Reserve Bank of India Data

47

Annual percentage growth rate of GDP per capita based on constant local currency.Aggregates are based on constant 2010 U.S. dollars. GDP per capita is gross domestic productdivided by midyear population. GDP at purchaser's prices is the sum of gross value added byall resident producers in the economy plus any product taxes and minus any subsidies notincluded in the value of the products. It is calculated without making deductions fordepreciation of fabricated assets or for depletion and degradation of natural resources.

The latest data on economic growth have, however, punctured that narrative reasonablyeffectively. While full-year growth for 2016-17 came in at a respectable 7.1%, the numbers havebenefited from a change in how inflation is measured. The real news is that fourth-quarter GDPgrowth fell to 6.1% — lower than China’s. India is no longer the fastest growing large economyin the world, and Government ministers are going to need a new first line for their speeches toattract foreign investment. India's GDP is presently at $2.074 lakh crore.

It would be easy to blame this on PM Narendra Modi’s decision, to withdraw 86% of India’scurrency from circulation, which however, did wipe out black money that stood still in theform of cash and put the rest to productive investment.

Partly, that’s because the Government has simply not moved swiftly or decisively enough overthe decade in addressing India’s mountain of bad loans beyond passing a bankruptcy law and,more recently, giving the Central Bank additional power to force resolutions in the mostpressing cases. Much of Indian investment, even for large-scale, growth-enhancinginfrastructure projects, is routed through banks. And public-sector banks, struggling with theirbalance sheets, are reluctant to lend. Bank credit growth has recently hit multi-decade lows.

Despite decline in growth rate, there is a silver lining for the Indian economy. The decline inGDP growth rate may lead to an announcement of a cut in lending rates by the Reserve Bankof India (RBI) by September, Industry is already demanding it. The growth forecast for thecurrent fiscal year remains between 7 and 8%. Many observers predict a boost after the roll outof the Goods and Services Tax (GST) from July 1st this year.

The reason of why decline in GDP growth rate is good news for Indian economy is that thedeclining GDP growth rate may not be actually be a negative signal for the government andIndian economy since demonetisation seems to have curbed the use of black money in thesectors that have been hit harder in manufacturing, mining, trade, hotels, transport,communication, services related to broadcasting, financial, real estate and professional servicesin the fourth quarter. a greater portion of unorganised pockets of economy will make a shift toformal economy, which may see better figures in the next quarter and fiscal year.

6.99%

2.38%

6.95%

8.75%

5.23%4.14%

5.22%5.87%

6.64%7.10%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Source : World Bank Data

First reported in India Today

48

16.54%18.66% 18.88%

17.18%18.58%

21.77%23.22% 22.67% 23.40%

26.39%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

External BorrowingsGross Domestic Income Ratio

Total external debt stocks to gross national income. Total external debt is debt owed to non-residents repayable in currency, goods, or services. Total external debt is the sum of public,publicly guaranteed, and private nonguaranteed long-term debt, use of IMF credit, and short-term debt. Short-term debt includes all debt having an original maturity of one year or less andinterest in arrears on long-term debt. GNI (formerly GNP) is the sum of value added by allresident producers plus any product taxes (less subsidies) not included in the valuation of outputplus net receipts of primary income (compensation of employees and property income) fromabroad.

At 23% in 2015, India had one of the lowest foreign debt-GDP ratios among 83 emerging market(EM) countries, although it had risen from 17% in 2005. Even among the Asian countriescovered in an analysis by global ratings major Moody's Investors Service, compared to anaverage debt-GDP ratio of 47%, India's was less than half that number. India’s external debtstock fell by $29.0 billion (6.0%) to $456.1 billion, at end-December 2016 over the level at end-March 2016. The decline in external debt during the period was due to the fall in long-termexternal debt. On a sequential basis, total external debt at end-December 2016 declined by $28.1billion, a whole 5.8% from the end-September 2016 level.

Source : Department of Economic Affairs, MOF, GOI

Commercial Borrowings

37.40%

Short-Term Debt

18.40%

NRI Deposits

24.10%Multilateral Debt

11.70%

Bilateral Debt

4.80%

Export Credit

2.20%IMF

1.20%

Rupee Debt

0.20%

Other

8.40%

Components ofExternal Borrowings

49

$1 = ₹64.5288 €1 = ₹73.3757 ¥1 = ₹54.4400 £1 = ₹82.6614

0

20

40

60

80

100

120

Value of the RupeeIn comparison with other currencies

USD GBP EURO YEN

The Indian Rupee hit a 16-month high against the US dollar on Wednesday, ahead of the USFederal Reserve’s decision on interest rates. The Indian economy has good fundamentals, lowshort term external debt, and sizeable foreign exchange reserves. These should stand thecountry in good stead in the days to come.

Since Trump had taken office on January 20th, the Rupee has appreciated nearly 4% against theUS dollar, partly to do with the winding down of the ‘Trump-trade’ and loss in the dollarworld-wide. With market participants having grown more and more sceptical about Trump’s‘America First’ agenda and how he intends to implement it, many have mowing down theirlong-dollar positions while emerging market currencies gained this year against US’ exit fromthe globalism bubble.

In the meantime, there has been a multitude of factors on the domestic front leading tosubstantial gains in the Rupee. Following the BJP’s victory in the elections in 2014, foreigninvestors have come to be more optimistic on the Indian equities. Since the announcement ofthe election results on March 13th, FIIs have poured in $3.4 billion into Indian markets,compared to an outflow of similar magnitude in the first ten months of FY17.

Another major change has been in the outlook of the policy rate with the RBI’s change in itsstance from an accommodative to a neutral leading to the rise in bond yields creating an inflowof foreign capital into the Indian debt market. In addition, the GDP growth for the third quarterof FY17 has been much better than expected and has helped alleviate some of the earlier fearsrelated to demonetisation and GST to be introduced which would benefit the Indian economygiving it a better ease of doing business as a newly industrialised country with the fastestdeveloping service sector, now building up to becoming a superpower in the near future.

Source : Reserve Bank of India Data

50

25,606.62

26,667.96

26,999.72

28,051.86

28,452.17

27,865.96

27,930.21

26,652.81

26,626.46

27,655.96

28,743.32

29,620.50

29,918.40

31,145.80

30,921.61

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

S&P BSE SENSEX

7,849.80

8,160.10

8,287.75

8,638.50

8,786.20

8,611.15

8,625.70

8,224.50

8,185.80

8,561.30

8,879.60

9,173.75

9,304.05

9,621.25

9,520.90

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

NIFTY 50

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