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  • Black Money Scenario in Startup World: A Detailed Analysis

    India is the birthplace of cultural, grassroots, and frugal innovation. The population of over one billion people makes this an exciting geography for startups to build repeatable and scalable business models. The beauty of startups is that they provide their employees freedom, the opportunity to innovate and explore rather than just to engage in unproductive work. There exists black money within this rising economy of startups.

    Introduction to Black Money in Startups
    Current Scenario and Analysis of Black Money in Startup World
    How Whitewashing of Black Money is Done?
    Impact of Whitewashing Black Money on the Economy
    Black Money in Startups – Conclusion
    Black Money in Startups – FAQs

    Introduction to Black Money in Startups

    “The Indian startup ecosystem is said to be the third largest in the world having added over 1,300 tech startups in 2019. Number of Indian unicorns could increase to 95-105 by 2025,” says Nasscom president Debjani Ghosh.

    Home of the largest e-commerce deal between Walmart and Flipkart, 31 unicorns and counting, and plenty of untapped opportunities — it shouldn’t come as a surprise that India has been home to some of the biggest startup success stories. Over the years, Indian startups have found success across sectors, with startups in enterprise tech, e-commerce and travel tech grabbing global attention. There has, however, been a grey cloud spanning the growing startup industry in recent years, something we are all familiar with – black money.

    Canadian-Indian writer Rohinton Mistry says, “It is so much a part of our white economy, a tumour in the centre of the brain — try to remove it and you kill the patient. A 2015 FICCI report estimated black money in India to be as high as 75 per cent of the GDP.”

    In today’s world, it is difficult to explain how a social anomaly could appear in the world of budding talent, making the next generation soar to the highest levels of recognition and profit. This anomaly increases the need for black money in startups or businesses. The purpose of this case study is to analyze the entry of black money into the industry, the factors that influence it, and how it is being whitewashed, as well as the impact this has on our economy.

    Current Scenario and Analysis of Black Money in Startup World

    Let’s look upon the case where a reputed startup lawyer (let’s name him ‘A’) in the capital has worked with startups including two well-known hotel room aggregators, a funded media startup and few e-commerce firms. He is also involved in deals with a well-known real estate group in the country that is trying to dabble into tech startups. He gives a shocking revelation: “Some expatriate businessmen are using startup investing as a way to move black money into India.”

    Here’s the underside, suppose you have $10 million cash parked in Mauritius. You look for tech startups where you can take a majority control or create an entity that can furnish a website, an app and a small team in place. You incorporate the company as a private limited entity and also register an overseas subsidiary. Once a legal structure is in place, you start routing the overseas money into that technology company.

    The routing can happen on the seed stage – A funding round. Now to embezzle the funds, from that startup money you can buy a luxury car and other assets, pay yourself, your kin huge sums as directors. You run that company for a period of two years or more till you’ve routed all the money into India. Once done, you can simply close that startup, declaring the company bankrupt and paying off creditors and share-holders which might be your own companies. Even if they have not routed the money overseas, dabbling in startups by opening up mentorship firms has become easy and a glam route to use that money legally.

    “Am not saying all such firms are using startups as a means to turn black money into white but this glamorous route has started to be misused in India,” says A, a managing partner of the law firm, requesting anonymity.

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    How Whitewashing of Black Money is Done?

    Another lawyer (let’s name him lawyer B) who is brokering deals for a Gurgaon-based fashion app and another small hotel rooms aggregator ratifies it. His firm which specializes in transaction advisory for tech startups says that there are many ways dishonest businessmen launder.

    • An unsavory investor makes his family members the board members of that startup.
    • Other companies of the same group act as vendors to that startup and quote ridiculous prices for that service or product.
    • These investors ask for too much equity and control of the startup (often over 70%). They wish to keep their kin on board.
    • They park the money in a trust-friendly jurisdiction, such as Switzerland, before it is moved to a tax-efficient country such as Cyprus, where the taxation levels are very low or have no taxes. It is then routed to a tax-friendly country like Mauritius, before reaching the final destination in India. India has a Double Taxation Avoidance Treaty (DTAA) with Mauritius.
    • Trade mispricing is a tool used to siphon off money, plays an important role in bringing money back into India. Instead of inflating invoices, a business can under-invoice and export machinery or software. One can open a company to sell bags or a restaurant. The business may not take off, but the owner can still show cash sales of Rs 1 lakh to Rs 2 lakh a day. Slowly, but surely, all money would be legitimate one day!

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    Impact of Whitewashing Black Money on the Economy

    Along with the economic effects, black money also has social consequences. Some of them are mentioned below:-

    • Loss of revenue to the government and running of parallel economy in the country – It is the increase and spread of black money that poses a serious economic threat since it leads to a decrease in government revenues. If only some part of the black money that has been in circulation in the economy could have been paid as taxes to the government, it would have benefitted the Indian economy to a large extent.
    • Vicious circle as a result of black money and corruption – Black money has added to corruption by the illegal transactions made to hide the black money. Bribes are given by the people to bureaucrats, government officials, etc. This forms a vicious circle which is never going to end unless some serious step is taken by the government.
    • Effects on national income and real capita income– Black money is a result of revealing low income to the government while paying tax by people which results in low national income of the country. The national income of the country will take a big leap if the amount of black money in circulation is backed up to the national economy of the country. This will also increase the quality of life for the whole country.
    • Higher taxation and inflation – The main reason behind the taxation is to earn revenues for the expenditures done by the government to make a balanced budget. Therefore, it is obvious that if the amount of black money which the people are hiding from the government is revealed and included in the budget of the government then the tax rate will surely come down as the revenues which the government wants to earn from the people by imposing high taxes will already be with the government. Therefore the amount of goods and services which were there in the market according to the accounted money gets a hike in their prices which results in inflation.
    • Difficulty in the formation of monetary and fiscal policy – This is an obvious impact as the government while making these policies is not able to count the exact national income because of the hidden black money which makes such policies unrealistic.
    • Increased criminal activities in society– Black money usually gives rise to various illegal activities in society and corruption is one of them. The duration of the election is also the time when the illegal use of black money can be seen. Various terrorist activities have backup power of hoarders of black money which is even harmful to the whole country. The illegal weapons with various groups of unsocial elements are usually bought up by the use of black money.

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    Black Money in Startups – Conclusion

    The problem of black money should be solved in a real sense and a very rational manner.

    • First of all the problem is to be dealt with morally. The morals of the people in the society must be raised.
    • The tax system should be realistic in nature.
    • The authority which is responsible for the collection of taxes should be honest, without any corruption.
    • Various incentives should be given so that people voluntarily agree to disclose their real income.
    • The Economic Intelligence unit must be maintained thoroughly and should be looked after.
    • The corruption in administration must be stopped at all levels.
    • Startups should be aware of individuals who ask for higher credit in the company.
    • Limited kin involvement should be allowed.
    • The accounts must be looked after by the team and not the angel investors.

    The government alone cannot curb this issue completely from society. Making different policies, laws, acts and legislation will not work alone. For the implementation of these laws and policies, every citizen has to come forward. People should understand why it is important to pay tax and should stop evading their income and should not lead to the generation of black income. Every citizen should make some contribution to the development of the country in the form of paying taxes. By doing this, the economy will definitely decrease its black money, as well as startups will not need black money to operate.

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    Black Money in Startups – FAQs

    Why do Startups have Black Money?

    The social anomaly could appear in the world of budding talent, making the next generation soar to the highest levels of recognition and profit. This anomaly increases the need for black money in startups or businesses.

    What is Black Money?

    Black Money is the money that is earned through illegal activity and that money is not recorded for tax purposes.

    Are Startups a way to convert black money into white?

    Not always, because even startups fail. So if the startup fails, say in 2 years, then your money is gone. But it can be a way to convert black money into white. As the Startups have to pay taxes on raised money.

    Can a person convert black money into white through the stock exchange?

    No, even the money that is invested in the stock market is invested via banks. So if one breaches their bank limit, it automatically catches the eye of IT officials.

    There is no other way to convert black money into white besides paying taxes. If there would have been a way then no person has to leave their native country and roam like a fugitive.

  • How Does Fuel Pricing Affects all the Industries?

    The price of fuel has always been a concerning issue in the country. When the pricing of Fuel rises, it majorly impacts the lives of the common man and the wholesome economy. And, soon after the latest round of fuel price hike by the OMCs (Oil Marketing Companies), the prices of petrol and diesel increased prominently. And if the prices keep on increasing, the lives of citizens and the economy will be highly affected.

    The price of Petrol has reached up to INR 90 per litre and in some places, it has crossed the limit of Rs 100. And The same case with the Diesel too.

    The increased fuel pricing has become such a problem that people are even smuggling from neighbouring countries. The rise in fuel price brings a devastating impact on the economy majorly, which is already suffering from the Covid crisis.

    The rise in fuel prices affects most transportation industries. Also, businesses depend on logistics and transportation chains.

    In this article, we have discussed the effects of increased fuel prices on the economy including other industries and to the lives of common people. Let’s get started!

    Effects of Increased Fuel Price
    How Increased Fuel Prices Affects Other Industries?
    Relationship between fuel prices and economy
    FAQ

    Effects of Increased Fuel Price

    When the fuel prices rise, we know businesses and households are affected broadly. However, it impacts majorly through two things- Inflation and reduced economic growth. Let’s get started with Inflation first,

    Inflation

    In inflation, the products made up of petroleum are affected directly. Moreover, it indirectly affects the industries of manufacturing, heating and transportation. This can lead to an increase in the price of many other products and services.

    And according to the increase in fuel price, the consumption price also increases based on the production.

    Reduced Economic Growth

    The increased price of oil highly affects the economy as well. It reduces the growth of the economy through the demands and merchandise of goods other than fuel. It reduces the demands of those goods because of the increased price of producing them.

    How Increased Fuel Prices Affects Other Industries?

    Retailers

    As fuel is the basic essential to transportation for every mankind. Therefore, they spend a large fraction of their income on fuel purchasing and due to this, the retailers suffer the most as the discretionary spending’s by customers become very low. And if the fuel prices rise, the supplier would deliver its products very rarely to the malls and shopping centres.

    And this would highly affect the marketing sector and increase every material’s price.

    Public Transportation

    When the fuel prices rise, people often prefer public transportation ridership. Because sharing the transport would cost less compared to driving your own vehicle with so expensive fuel in the tank. This also saves from the wastage of fuel in the traffic and would cost less for people. The usage of public transportation is becoming higher in every place with the increased fuel prices.

    Airlines

    Airlines’ largest operating cost goes to the fuel expenses which is directly related to oil procurement. When the fuel prices rise, the airlines are affected broadly from the core of their surface.

    Therefore, when the fuel prices rise the airlines are compelled to increase the charges on the flight tickets from their customers. This results in fewer airways travelling and a huge burden of expenses for the people.

    So when such a scenario happens, the airlines tend to buy or sell the future estimated fuel prices through the investment perspectives. This is called fuel hedging. Besides, this will protect the airlines against the increased fuel prices.

    Automobile Industry

    The automobile industry is widely dependent on fuel consumption. These industries would fall apart if the fuel prices keep increasing. That’s why the automobile industry put its main focus on the manufacturing of smaller, fuel-efficient vehicles such as electric or hybrid vehicles. These could travel up to 250 miles based on their charging extent.

    People have also highly preferred such modification and the purchasing of these vehicles has been increasing over time.

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    Relationship between Fuel prices and Economy

    In the 1970s, the two aforementioned huge fuel shocks were noted based on high unemployment and low growth. This period is also referred to as Stagflation. So it’s likely to say that the fuel prices are directly linked to the economy and anything if unusual happens, the economy is affected majorly. The fuel prices cause a wide fluctuation in the economy of the country.

    Looking back at history, the 1990s and 2000s were recorded as the most huge economic fluctuation period compared similarly to the fuel shocks of the 70s. The relationship between these two could be very convenient as well as challenging. This widely affected the GDP growth and unemployment rate in the country.

    Conclusion

    Over a long time, many economists and analysts have debated on the extent of the effect caused by the fuel prices on the economy of the country and the lives of common people. However, with the recorded research and data we can not deny the fact that the spending habits, consumers confidence correlates with the increased fuel prices.

    And when the price of fuel increases, the economy including many other industries are affected on a wide scale and results in some absolute alternatives or faces loss. The lives of normal people have affected the most and this benefits some industries as well as cause some major loss to others.

    Many surveys have been made on such situations and all those have proved some relation either direct or indirect between the fuel prices and economy of the country.

    FAQ

    Which industries are affected by the oil prices?

    Airlines, Transportation and Automobiles are some of the most affected sectors by the rising fuel prices.

    Why are fuel prices increasing in India?

    Fuel prices have been rising in India due to a rise in crude oil prices in the international market.

  • What is Flex-Fuel Engine | How will it impact the vehicle Industry in India?

    The fuel price in India has been rising for a very long time. This has risen concerns among individuals concerning the use of petrol for vehicles in the country. In major places, the price has seen a rise over INR 100 mark and this urges the need for alternative fuel. Let’s look at what is flex fuels and whether the automotive industry will see a shift in the usage of fuel.

    What are Flex Fuels?
    Flex Fuels in India
    Benefits of using Ethanol or Methanol
    The Major Reason to adapt Flex fuel
    FAQ

    What is a Flex Fuel Engine?

    A Flex Fuel engine is an internal combustion engine. This engine has the feature to run on more than one fuel or even a mixture of fuels. Generally, a mixture of Petrol with Ethanol or Methanol is used in these types of engines.

    The engine can adjust the mixture in any quantity that is provided which is mainly due to the suitable ECU programming and fuel composition sensor.

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    Flex Fuels in India

    The Government of India has announced on 21 June 2021, that it will decide on flex fuels in 8-10 days. The Union Minister has conveyed that Government is planning to make a flex-fuel engine compulsory for the automobile industry in the country. This move is expected to help the farmers as well as boost the economy of the country.

    The main reason stated by the Union Minister is the increase in the price of fuel in India. He conveyed that flex-fuel can be an alternative used by the citizens in order to reduce their expenses on fuel to around INR 30 to INR 35 as one litre petrol in India has crossed the mark of INR 100 per litre whereas Ethanol’s cost would be somewhere around INR 60 to INR 62 per litre.

    He also added that being the transport minister he is going to issue an order to the automobile industry to transform their engines into flex-fuel where the consumers will have a choice to choose whether they require 100 % petrol as fuel or 100 % Ethanol as fuel.

    Petrol Price in India in Rs
    Petrol Price in India in Rs

    Benefits of using Ethanol or Methanol

    Ethanol has a lower energy content and is considered to be better than petrol for the environment as the emissions produced by the vehicle will be relatively less. Also, the Carbon dioxide that is released from the vehicles is said to be absorbed by the plants in the environment that is used for growing the materials required to produce the fuel.

    The main advantage of this fuel is sustainability and another advantage for India regarding Ethanol or Methanol as fuel is that the raw materials are available in abundance. India is a country that has surplus sugar cane, surplus corn, and surplus wheat and the country is facing problems in finding storage places for these.

    The Major Reason to adapt Flex fuel

    One of the major reasons to adapt to this fuel is due to the rise in the import of crude oil into the country. The crude oil import bill currently is between 7 lakh crores to 8 lakh crores in the country. Air pollution and the increase in import of crude oil are the two major concerns faced by the country and adapting to green fuel is a must in India.

    However, petrol currently is already being mixed with Ethanol with around 10 – 15 % and compared to the current level production the idea is not very standard to achieve. In order to also increase the blend in the Ethanol production, there are certain modifications required in the engine. Hence, the automotive industry will have to make necessary changes and get behind the initiative.

    Conclusion

    Ethanol is considered to be a better fuel than petrol and is an important substitute, pollution free, indigenous and cost effective. The procurement of Ethanol has seen a rise from 28 crore litres to 320 crore litres.

    FAQ

    What Is Flex Fuel?

    Flex Fuel is a fuel mixture made of gasoline and between 51-83 percent ethanol.

    What Is a Flex Fuel Vehicle?

    A Flex Fuel Vehicle (FFV) is a vehicle that has been specifically designed to drive using Flex fuel.

    Can You Use Flex Fuel In a Regular Gas Vehicle?

    You should not use Flex fuel if the vehicle is not been designed to run on Flex fuel.

  • List of Economic Relief measures announced by the Government for Startups and Businesses

    The Covid-19 had created a huge impact on the Indian economy and the lockdown due to the second wave had left a lot of people unemployed and a lot of businesses around the country to be closed down. However, the Government has announced various Economic Reliefs to boost the economy concentrating on various businesses and startups. In this article let’s look at more information on the Economic Relief Measures.

    Economic Relief Measures – Latest News
    Loan Guarantee Scheme
    ECLGS
    Support to the Tourism Industry
    Atmanirbhar Bharat Rozgar Yojana
    Subsidy on Fertilizers
    Underwriting of Additional Projects
    Other Economic Relief Measures
    FAQ

    Economic Relief Measures – Latest News

    The Finance Minister of the country, Nirmala Sitharaman had addressed the press conference on 28 June 2021 and has discussed about various economic relief measures. The Finance Minister has addressed various reliefs for the sectors affected due to Covid-19.


    Loan Guarantee Scheme

    The Finance Minister has announced a Loan Guarantee Scheme for the affected sectors due to Covid-19 of around INR 1.1 lakh crore. The Government will provide a guarantee coverage that is 70% for new projects and around 50% for the expansion and the duration for the guarantee will be up to 3 years.

    This is concentrated on the health sectors and medical infra specially targeting the underserved areas would get an amount of INR 50,000 crore. Other sectors would get INR 60,000 crore and the interest rates would be around 8.25 % p.a.

    ECLGS

    The Emergency Credit Line Guarantee Scheme of an additional INR 1.5 lakh crore has been announced. The coverage on Contact-Intensive sectors will be continued and the loan amount that is proposed and the limit of admissible guarantee is expected to increase above 20%.

    Support to the Tourism Industry

    The Government has announced to provide support to the tourism industry by providing monetary support to more than 11,000 travel and tourism stakeholders and tourist guides. The tourism sector will also be provided with loans under the new loan guarantee scheme for areas affected due to Covid.

    The Government has announced that it would provide loans that are 100% guaranteed up to INR 10 lakhs for the Travel and Tourism sector agencies and an amount up to 1 lakh for the licensed tourist guides.

    The Finance Minister also announced that they would provide free tourist visas and conveyed that once the issuance of visas is restarted the first 5 lakh visas will be issued free of cost and that is offer will be available only once per person. This scheme will be valid till 31 March 2022 or until the number reached 5 lakh tourists.

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    Atmanirbhar Bharat Rozgar Yojana

    The Atmanirbhar Bharat Rozgar Yojana has been extended from 30 June 2021 to 21 March 2022. The scheme provides incentives for the employers in order to increase the new employment opportunities through EPPFO.

    The Government has also approved an outlay of INR 22,810 crore that is expected to benefit around 58.50 lakh beneficiaries by providing them with a monthly wage of around INR 15,000. So far, the benefits of around INR 902 crore have been given to around 79,577 beneficiary establishments.

    Nirmala Sitharaman also stated through the press release that through this scheme from the last October until 18 June 2021 around 2.14 million people have been benefited from around 79,577 establishments.

    Subsidy on Fertilizers

    An additional subsidy for P&K fertilizers and DAP fertilizers has been announced. The NBS subsidy has been increased to INR 42,275 crore in the FY 2021-22 from INR 27,000 crore in the FY 2020-21. An additional amount of INR 14,755 crore is announced to be provided for DAP as well as NPK based complex fertilizers.

    The Government has also conveyed that an amount of INR 85,413 crores has been paid to the farmers.

    Underwriting of Additional Projects

    The Finance Minister also said that there would be underwriting of the additional export projects through the EXIM bank that is worth around INR 33,000 crore. The Minister also conveyed that in the span of the next 5 years there would be an equity infusion in the Export Credit Guarantee Corp of INR 88,000 crore.

    Other Economic Relief Measures

    Some of the other announcements during the press release include providing a viability gap funding of INR 19,041 crore for broadband connectivity in villages through Public Private partnerships, flexibility in claiming incentives linked to production by the large-scale electronics manufacturers, etc.

    Conclusion

    Narendra Modi, the Prime Minister of India had tweeted that the announcements will help in stimulating the economic activities, boost the production and increase the exports as well as increase the employment opportunities.

    FAQ

    How did Covid 19 impacted Indian economy?

    The economic impact of the COVID-19 pandemic in India has been largely disruptive. India’s growth in the fourth quarter of the fiscal year 2020 went down to 3.1%

    Is the Visa free under the Economic relief measure by the government?

    The first 5 lakh visas will be issued free of cost and the offer is only available once per person.

  • Importance of Ethanol in Economy and why India is Spending $7 Billion in Ethanol production?

    India has been planning to shift more into a much greener source of energy. The country has decided to increase the production of Ethanol to increase the production by 2025. Let’s look at the importance of Ethanol in the economy and why India is planning to spend an amount of around USD 7 billion for the production of Ethanol.

    Ethanol Production in India – Latest News
    The reason why India is Spending $7 Billion in Ethanol production
    How Ethanol is made in India?
    How will Ethanol benefit Indian Economy?
    FAQ

    Ethanol Production in India – Latest News

    India has announced that the country is planning to spend an amount of USD 7 billion in order to boost Ethanol production as the country is planning to reduce the dependency on importing the foreign oil and to increase the roll out of much more greener sources of energy.

    India’s oil secretary, Tarun Kapoor had conveyed in an interview that in order to meet the 20 % ethanol blended fuel standard by the year 2025, there will be a requirement of 10 billion litres of Ethanol.

    The reason why India is Spending $7 Billion in Ethanol production

    The Ethanol production target is estimated to be more than triple the amount of Ethanol that is going to be produced as compared to the Ethanol production as of November 2021. As of now, Ethanol produces 9% of the gasoline blend added Tarun Kapoor.

    This move is expected to require around USD 500 billion for the investments in order to build new bio-refineries. The Prime Minister of India, Narendra Modi had also conveyed in the month of June 2021 that the target of the nation in order to make gasoline of 20 % ethanol by the span of 5 years by 2025 is expected to save a huge amount for the country.

    The increase in the Ethanol production is expected to save around USD 4 billion annually. This move will also help in increasing the use of renewable sources of energy as India is the world’s third largest importer of oil and this will help in turning the excess rice and damaged foods of the country into Ethanol.

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    How Ethanol is made in India?

    As of now, the majority of the country’s Ethanol output is made up of the molasses that is obtained from sugarcane. However, the South Asian nations are trying to push for much more production from sources other than sugar which is estimated to make only 10 % of the contribution to the Ethanol production.

    The Government has also conveyed that they would provide financial assistance for setting up the distillation units which will rely more on molasses and the grains for raw materials. According to Tarun Kapoor, the country is expected to reach a stage where the contribution for production of Ethanol will be 50 % grain based and 50 % sugar based.

    Production volume of ethanol in India
    Production volume of ethanol in India

    How will Ethanol benefit Indian Economy?

    The Ethanol industry will create a lot of jobs in the economy both direct and indirect jobs other than these the Ethanol will boost the rural economies; the co-product provides a valuable market for the corn grown.

    Ethanol also helps in reducing the dependency on energy dependence and will reduce the importing of oil barrels of the country. The Ethanol biorefineries also make more than the fuel they also contribute towards food by providing nutritious animal feed like distillers grains. This is one of the most sought-after animals feeds as it is very nutritious.

    Ethanol also contributes towards removing carbon from the environment which is expected to remove around pollution caused by 10 million cars on the road. It is also a cleaner and more greener option compared to the traditional fuel options.

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    Conclusion

    Ethanol has already been extensively adopted in the United States and has been contributing to the country’s economy. The approach taken by the Government of India towards increasing the production of Ethanol will be a significant step in the major sectors of the economy from Automobile to Agriculture.

    FAQ

    Who is the largest producer of ethanol in India?

    Uttar Pradesh has become on of the highest producer of ethanol in the country with the number of distilleries producing the solvent from heavy molasses, a by-product of cane juice.

    Is ethanol production profitable in India?

    The profit on ethanol production has come down to 5rs/litre.

    What is Ethanol used for?

    Ethanol is an industrial chemical; it is used as a solvent, in the synthesis of other organic chemicals, and as an additive to automotive gasoline (forming a mixture known as a gasohol).

  • Why Experts believe GDP of India will grow by 10% this Financial Year

    The major cities of India have been under lockdown from the month of April and most of them have increased the lockdown to 31 May 2021 as of now. Even after the economic shutdown the Indian business magnate Rakesh Jhunjhunwala has conveyed positive sentiments towards the Indian economy and stock market, whereas certain institutions have conveyed that they expect around 10% growth in the GDP of the country. Let’s look at what they have spoken about the growth of the GDP in India.

    Rakesh Jhunjhunwala on GDP of India
    Rakesh Jhunjhunwala on Future of Indian Economy
    Rakesh Jhunjhunwala on Centre’s economic management
    Other Analysts on GDP of India
    FAQ

    Rakesh Jhunjhunwala on GDP of India

    In an interview with a senior journalist, the Indian business magnate, Rakesh Jhunjhunwala has disapproved of the sentiments of the media and showed a positive approach to the Indian economy. The interviewer had spoken to Rakesh Jhunjhunwala about various issues faced by the country such as growth rate, investment and GDP and added that the country is facing an economic crisis.

    Rakesh Jhunjhunwala had conveyed down all the worries and said that he expects that the country would have a 10% growth for this fiscal year.

    He added that considering the unexpected situation faced by the country, he expects the market to revive by the month of July which is with the reduction in cases due to the second wave of the pandemic.

    Rakesh Jhunjhunwala on Future of Indian Economy

    While the journalist had expressed about the rise in economic problems in the country such as rise in unemployment, the decline in the purchasing power of the individuals and added a question asking when the citizens of the country are losing their lives, no money in their pocket and while the bodies are floating on the river how the stock market was doing well.

    To the question, Jhunjhunwala answered that the market works on reality and not on the basis of sentiments. He said that the GST collection in the country during the month of April was 1.41 lakh crores and there has been a rise in the income of all the major companies from the past 3-4 quarters.

    The journalist had asked another question asking if the market is being manipulated and how can there be a positive sentiment by the investors when the unemployment is increasing. To this, he answered by saying that investments are made based on the future projections and it looks promising.

    GDP of India
    GDP of India

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    Rakesh Jhunjhunwala on Centre’s Economic Management

    After ensuring that the country’s economy is far from sinking, Jhunjhunwala had conveyed that he would give a score of 9 out of 10 for the economic management of the Centre. He also added that the effect of introducing major reforms in the sector such as agricultural, mining, labor and power sectors will be seen later.

    He also pointed out the digitalization made by the government which has helped people to transfer money easily within minutes whereas a few years back people had to pay transactional fees and wait for a while to transfer the money.

    He said that the GDP growth is in the right direction and added that the only way to get rid of poverty is to increase in growth which will, in turn, increase the wealth of the people.

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    Other Analysts on GDP of India

    Whereas multiple analysts and financial agencies have downgraded the GDP for the country for the present fiscal year. Barclays had predicted the GDP growth of India to be more than 10% in the beginning but now they have lowered it to 10%. The latest forecast was done by JP Morgan who has lowered it to 9%.

    The Chief Economist of the SBI group has said that there is a possibility for the economy of India to grow to the sub of 10% during the FY 2022. He added that the month of April was somewhat a washout, while May has been a complete washout and June is also expected to have a little bit of washout.

    FAQ

    Is India doing good in GDP?

    India’s economy had expanded by 3.1 per cent in the March quarter and FY20 GDP growth was around 4.2 per cent.

    What is the growth rate of Indian economy in 2020?

    GDP at Current Prices or Nominal GDP in the year 2020-21 is estimated to attain a level of Rs 195.86 trillion, as against Rs 203.51 trillion in 2019-20

    Which sector is backbone of Indian economy?

    MSME is considered as a backbone of Indian Economy.

    Conclusion

    He said that when all these factors are being taken into consideration the situation of the country is not looking so good. SBI economists have also cut the forecasts of the Indian economy from 11% to 10% and he added that they are focusing on that number until 31 May 2021.

  • Why UN believes India should invest in its Infrastructure to Revive the Economy

    India’s economy has been heavily hit due to the ongoing coronavirus pandemic and before the economy could recover the second wave has taken the country towards a roller coaster ride. The major cities in the country have been under lockdown in order to contain the virus. UN has recently mentioned that investment in infrastructure will help the Indian economy. Let’s look at how that is possible.

    UN’s Solution to India to revive the economy
    Sectors Indian Government should prioritize
    Deficit financing and the Public Sector
    Economy of other countries
    State of India’s Economy
    Requirement for the Indian Economic Recovery
    FAQ

    UN’s Solution to India to revive the economy

    According to a UN expert, India has to heavily invest on its infrastructure if they want to recover from the widespread economic destruction faced by the country due to the coronavirus pandemic. The country will have to invest in infrastructure even if they have to go towards deficit financing.

    Hamid Rashid who is the head of the UN Development Research Branch had conveyed in an interview to IANS TV on 12 May 2021 that, A crisis is always considered as an opportunity and an investment made at the right time in the right sector will create a multiplier effect in recovering the economy and also would make a substantial difference in the lives of people.

    He added saying that seeing India’s condition right now would make us a little despondent but he conveyed that there is a silver lining in their view where he cited the opportunity for the public sectors to invest in vital areas and the signs of progress in containing the virus.

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    Sectors Indian Government should prioritize

    Hamid Rashid continues saying that developing countries like India do not have an option to finance a stimulus programme similar to the US but he added that the country can make proper investments through Public Sector in order to recover the economy.

    He added that the Government will have to prioritize two major sectors health and digital. This is expected to be considered as an opportunity for the government and the Public Sector to increase their investments in the health infrastructure and digital infrastructure. This will create more jobs in the economy and in turn increase the demand for goods and services which will lead to the recovery of the economy.

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    Deficit Financing and the Public Sector

    In India currently, the shortage of oxygen is a huge constraint for India in order to save lives. This is an opportunity to create the right environment so that the businesses can invest more in building the healthcare capacities.

    There is also a need to gaping the digital infrastructure in the country. The countries like India do not have an option to raise taxes in order to meet the infrastructure requirements of the country and hence will have to choose deficit financing. Deficit financing is basically borrowing money from the future.

    Hamid Rashid has said that deficit financing is not a bad idea if the investments are made right. He added that deficit financing is not just necessary but it’s a must. When the businesses can’t take risks, when the private sector or the hospitals can’t take risks, then the only entity that can take risks is the Government.

    So, he said that what we have seen crisis after crisis is Public sector Investments and these investments are the ones that brings countries out of the crisis.

    He also added that with deficit spending one has to be very careful because if the amount is not invested properly then it would create a huge financial burden for the government and this debt balloon will increase over time.

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    Economy of other countries

    He had provided information about the Chinese and the Western economy. China had used investments for economic recovery. He added that the western side approach to fight against the coronavirus pandemic was through creating a demand side support by giving money to the households.

    Whereas China had chosen to increase their investments during the pandemic and it led to the creation of more jobs and now the demand has been increasing and the economy of China has seen a recovery and is expecting a growth rate of 8.2 % this year.

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    State of India’s Economy

    Hamid Rashid’s branch is involved in making the economic forecasts which are used as a base for policy suggestions. The mid-year report which was released on 11 May 2021 has forecast that Indian economy would see a growth of 7.5% this year and would see a rebound of 10.3 % next year.

    When the report was being prepared it was just the beginning of the second wave in the country and if the figures were recalculated right now the growth would be even less optimistic because of certain downside risks.

    He added that there is still a huge opportunity for India for the recovery as they are just starting from a very low base. Last year there was a significant contraction of the economy and this is considered to be the recovering stage. If the pandemic is under control within a month according to assumptions then there would be chances for the growth.

    If the Covid-19 cases increase for several months or for a full quarter then this target would seem very difficult and would see a downfall when the numbers will be updated. He said that if we remain optimistic then a 7.5 % growth rate is still possible.

    India's GDP
    India’s GDP

    Requirement for the Indian Economic Recovery

    The most important element required for the recovery of the Indian economy is considered to be vaccination. This will increase the confidence of the consumers and the businesses as it is very vital for the recovery.

    The news reports create a fear in the minds of people which stops the businesses to invest more as they will have a pessimistic approach and the consumers would not spend more as they feel that there are more bad days coming.

    Hamid Rashid conveyed that this is about managing the expectations and the best way to manage the expectations of the people right now is by ensuring everyone gets vaccinated as soon as possible which will help in the recovery of the economy.

    FAQ

    Is India a mixed economy?

    Yes, India has adopted a mixed economy.

    What is the important sector of Indian economy?

    Agriculture is the most important sector of Indian economy.

    Is Indian economy growing or not?

    India’s economy is estimated to contract by 6.9 per cent due to the coronavirus pandemic.

    Conclusion

    Covid cases in the major cities have been reducing but there is still concern about the infections being spread to the rural areas. Vaccination, social distancing and other measures are expected to work even though it doesn’t create any magic but would help in containing the virus.

  • The Curious Case of Amazon, Flipkart & FDI – The Impact of New FDI Rules

    Rapid FDI stride is something India is boasting of since economic liberation in 1991, And indeed it brought in huge investments and millions of jobs alongside. No doubt market reforms placed the economy on the fast track of development. But on the flip side, soon after FDI in multi-brand retail got introduced in 2012 local businesses and trades took a hit quite as expected. Especially since gigantic foreign players like Amazon entered the market, Plenty of jobs were lost while micro & small retailers suffered significant losses.

    First Significant Change in FDI Policy That Hit Amazon/Flipkart
    Present Scenario and Government’s Role
    E-commerce/E-retail Growth in India
    Why E-commerce Regulation is Vital for Indian Economy
    Fresh Allegations Amidst Sensational Revelations
    What lies Ahead for Amazon & Flipkart
    FAQ

    First Significant Change in FDI Policy That Hit Amazon/Flipkart

    The ease & comfort of e-shopping has been intelligently multiplied in value by these global giants by offering heavy discounts. Therefore, to level out the playing field, Govt of India brought in a major policy shift Via FDI into e-commerce in Dec 2018. This change was persuaded by Indian brick-and-mortar retailers who were long unhappy with the supposed unfair trade practices of these multinational corporations.

    They contested that e-commerce retailers like Amazon & Walmart controlled Flipkart were creating complex business structures to smartly bypass foreign investment rules. They do it by finding a way around FDI rules to avoid complying with orders that are detrimental to these corporation’s interests & profits.

    US companies deny these charges, But govt of India had to look over the interests of Indian businesses first & so it did. Now, these giants were disallowed to sell products from sellers in whom they had an equity stake.

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    Present Scenario and Government’s Role

    However, this didn’t seem to deter these foreign participants from working around policies to keep competition from Indian retailers at bay. So the Govt of India again is revisiting the FDI rules off late to tweak it further and Prohibit even those sellers from selling on these platforms, in whom these e-commerce companies have indirect stake through their parent company.

    Prohibit sellers who purchase from the e-retailer or its group firm & intern sell on the e-commerce site (presently the seller is allowed to transact 25% of its inventory under this arrangement)

    Govt had earlier in 2020 tightened the noose on FDI from neighboring countries as well, who share land borders with us like China, who now will have to seek govt approval before investing. The objective behind was to protect opportunistic take-overs & acquisitions of Indian companies in distress by foreign giants, due to COVID-19 induced global recession.

    Henceforth, any new investments in any sector from these (restricted) countries namely China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan and Afghanistan will have to take the govt route, and not the automatic route which was open to it earlier.

    E-commerce/E-retail Growth in India

    Let us look at some fascinating facts & figures before we discuss this subject further:

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    Why E-commerce Regulation is Vital for Indian Economy

    According to an American market research firm, Amazon & Flipkart together occupy about 63% of the total e-commerce space in India. Now, if domestic retailers, online & offline i.e. physical brick-and-mortar stores have to have a fair share of the market or a fair competition at least govt has to devise a strategy to promote Indian e-commerce & Industry without discouraging FDI. It’s a tough proposition.

    FDI is looked over by Indian departments of commerce & industry. They formulate laws and regulate FDI inflow by framing new policies and/or modifying scrapping old policies & rules. While this is done to further the economy on a macro level, its ripple effect on the micro economy can’t be overlooked either.

    So it has to strike a fine balance between retail reforms, an open market which on one hand benefits end consumers and provides millions of jobs. On the other hand predatory pricing, deep discounting by online retailers makes small retailers(mainly owner-managed & run stores) fight for survival tougher.

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    Fresh Allegations Amidst Sensational Revelations

    A large growing economy like India, where low production costs and high-quality labor service lures investors from the world over, developed nations like the US, European and China, is also most prone to manipulations by foreign players if given a free run. As feared in this tweet by CAIT, Amazon India has been disrespecting laws reveals a recent Reuters investigation.


    In January 2020, India’s antitrust watchdog, the Competition Commission of India, announced it was investigating Amazon and Walmart Inc’s Flipkart following a complaint by an Indian trader group. The commission cited four alleged anti-competitive practices: exclusive launch of mobile phones by the e-commerce firms, promoting preferred sellers on their websites, deep discounting, and prioritizing some seller listings over others.

    What lies Ahead for Amazon & Flipkart

    While the colossal change in consumer behavior is unlikely to fade in near future, Amazon & Flipkart also maintain that they have been complying with Indian laws duly & are denying all charges. Govt is in talks with stakeholders for over a month. Therefore, for now, it is difficult to say what impact the policy changes, if any, will bring in, though e-retail unquestionably seems to have a bright future in the Indian market of a billion-plus.

    FAQ

    How much FDI is allowed in retail?

    51% FDI in multi-brand retail through automatic route i.e. without having to seek govt approval.

    Do online marketplaces like Amazon have their own products?

    Amazon and other multi-brand retail marketplaces are only allowed to connect sellers & buyers on their website in India. They are not allowed to purchase, hold, market and sell stocks as their own.

    Who started e-commerce in India?

    K Vaitheeswaran was the first person who opened the first online marketplace for Indian consumers called Fabmart.com in India in 1999, now rebranded as ‘More’.

  • Causes of fluctuations in Oil prices and its impact on economy

    Oil prices fluctuate quickly in response to new cycles, policy changes, and fluctuations in the world trades and it impacts the economy in certain ways . The recent change in oil prices has been driven by a number of factors which includes several years of upward surprises in the production of unconventional oil, weakening global demand, unwinding of some geopolitical risks and an upliftment of the U.S. dollar. Oil prices are also influenced by a variety of factors that are particularly responsible for the decisions made about output by OPEC, the Organization of Petroleum Exporting Countries. Oil, a commodity which tends to see larger fluctuations in price than more stable investments such as stocks and bonds.

    Like any other market product, the laws of product’s supply and demand influence its prices. The retainment of stable demand and oversupply has put pressure on Oil prices over the last five years.

    The drastic fall in oil prices since June 2014 is a significant but not a new event. Over the past three decades, the oil price declines of 30% or more in less than a year period occurred, coinciding with major changes in the global economy and oil markets. Natural disasters that could entirely disrupt production and political unrest in an oil-producing industries like the Middle East impacting its pricing.

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    How Oil prices are determined?

    All the relative factors of change in Oil prices is difficult to systematically pin down. Empirical estimates also indicate that supply factors have accounted for the greater share of the latest plunge in oil prices. Although the supply capacity of relatively high-cost and flexible producers, such as shale oil industries in the US, will need to adjust to lower prices. Most of the important factors point to lower oil prices with considerable volatility in global oil markets.

    Demand and Supply

    Like all the other commodities, the oil prices are also set by the study of demand and supply. The price of oil is actually fixed in the oil futures market. The oil futures contract is an agreement that gives one the right to purchase oil by the barrel at a predefined price on a particular set date in the future. Under a futures contract, both the buyer and seller are obligated to fulfill their side of the transaction on the specified date.

    Market sentiment

    One of the key factors in determining oil prices is sentiment. The mere belief that demand of Oil will increase dramatically in the future can result in a dramatic increase in Oil prices in the present, as speculators or hedgers alike snap up oil futures contracts. The opposite of this situation is also true. The belief that oil demand will decrease at some point in the near future can result in a dramatic decrease in oil prices in the present, which means that prices can fluctuate little more than market psychology at times.

    Natural Disasters

    Natural disasters are one of the factors that can determine oil prices. For instance, when Hurricane Katrina devastated the U.S. in 2005, affecting almost 20% of the U.S. oil supply, it caused the price per barrel of oil to rise by $13.56. In May 2011, the flooding of the Mississippi River also led to oil price fluctuation.

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    Causes of fluctuations in Oil prices

    Fluctuations in Oil prices
    Fluctuations in Oil prices

    Weather

    If the weather is too windy, the oil rigs and transport facilities in the US Gulf are likely to shut down or may even suffer damage. If there occurs loss of oil production, this may lead to higher oil prices because the region’s refineries, which depend on the Gulf’s output, are forced to seek crude oil elsewhere. Meanwhile, cold temperatures mean that the pipelines cannot be switched off, it is one of the reasons why it is difficult for Russia to support OPEC in cutting production during its winter.

    Extreme Warm and cold temperatures, especially for prolonged periods, can dramatically increase the demand for crude and heating oil for cooling and heating, respectively, as opposed to the softening effect of more moderate temperatures. If the climate is particularly hot then more crude oil is used in power generation, resulting in less available to be exported.

    The US dollar

    Most internationally traded commodities, even oil is priced in US dollars. The decrease in the value of the US dollar relative to a commodity buyer’s currency means that the buyer will need to spend less of their own country’s currency to buy a given amount of the commodity. As the commodity becomes less expensive, demand for the commodity rises, resulting increase in the price and vice versa.The relationship between oil prices and the US dollar works both ways.

    A weaker dollar can also act as a disincentive to producers to increase output. Depreciation in the US dollar against the Russian ruble can reduce profit margins for oil companies in Russia. All of the oil producers revenues will be received in US dollars, which will buy less rubles, but some proportion of the costs will be denominated in rubles and will remain constant. Hence, the prospect of a lower profit margin acts as an incentive to decrease the supply of oil.

    War and conflict

    A look at a simple oil price chart back to the 1970s reveals a series of bumps. Each of these can be pinpointed to wars and conflicts, whether it was the Iranian revolution, the Iraqi invasion of Kuwait or the US-led invasion of Iraq in the second Gulf War. Recently, Arab related uprisings in Libya or Egypt have also affected the oil price.

    Looking at the chart of first Gulf War is a good case study. The invasion of Kuwait by Iraq caused prices to plunge higher but then as soon as the US led invasion started oil prices fell back on speculation that the conflict would be brought to a concrete conclusion and that the military would secure oil manufacturing facilities.

    OPEC supply

    A statement of intent can often be enough to influence sentiment and result in higher prices during a period of weakness. Despite the influence, OPEC have a poor record of sticking with their agreements. The conflict between members and non-OPEC producers means that there is an incentive for individual members to overproduce.

    Unplanned outages

    Possible reasons of Unplanned outages include the weather, maintenance or civil unrest, etc.

    Stocks/Inventories

    Stocks act as a form of extras for both producers and consumers of a commodity. Falling stock levels, however, make a particular commodity market more vulnerable to an unanticipated disruption to supply or a sudden increase in demand. There is an inverse relation between stock levels and the price of oil.

    Impact of change in Oil prices

    Impact on Economy

    Monthly oil prices from 1990 to early 2008, using the spot oil price for West Texas intermediate and the U.S. retail gasoline price. The series track each other closely over time, increase in oil prices are accompanied by increase in gasoline prices.

    Global demand for oil has been sky-rocketing, outpacing any gains in oil production and excess capacity. The reason behind is that developing nations, especially China and India, have been growing rapidly. These countries have become increasingly industrialized, which contributed to an increase in the world demand for oil. Addition to it, in recent years fears of supply disruptions have been spurred by turmoil in oil-producing countries such as Nigeria, Venezuela, Iraq, and Iran.

    The astoundingly sharp increase in the price of oil in the last half of 2007 and first half of 2008 has led many to argue that increased speculation in markets has played a role and there is evidence of increased activity in these markets. However, the speculation is playing a role in high oil prices is open to debate. It is even useful to remember that both the demand and supply of oil react sluggishly to changes in prices in the short run, so very large changes in prices can be required to acquire equilibrium.

  • Government must Focus on Favorable Ecosystem in COVID-19 Crisis: Manu Rekhi

    The coronavirus pandemic has affected economy not only in India but all over the world. COVID-19 has already resulted into lay-offs which led to increasing unemployment. IMF predicts that India’s economy will contract by 4.5% in FY21. However to accommodate the growing need of jobs, the Government needs to implement good and fair policies. Thus, Manu Rekhi, Director at Inventus Capital Partners, speaks on why the Indian government needs to create a business-friendly ecosystem and what entrepreneurs need to focus on.

    Manu Rekhi of Inventus Capital Partners believes that the government should not finance startups or venture capitalists. Instead, it should focus on providing an ecosystem favorable for the startups by carrying out effective policies and practices. India needs to create jobs for 12 million graduates entering the workforce every year. Startups absorb nearly 57% of fresh graduates in the country.

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    Lobbying by big firms and Brain Drain

    Acknowledging the startup initiative and commenting in the greater influence held by the big companies, Manu Rekhi said,

    When the startup policy was being drafted, Startup Bridge India along with a consortium of organisations (TiE, Nasscom, FICCI, iSpirit and more) made 129 recommendations to make it easier for startups to grow in India, but only 10 percent of the recommendations were accepted. The policy has not created a level playing field for small companies and investors. There is too much lobbying by large firms who have a vested interest to limit competition.
    If this is the case, there will be a continued brain drain from India and startups will eventually move to places of efficiency. This is why we see a continued increase in company registrations in Singapore and Delaware from Indian startup founders. Patchwork like POEM just convince startups to pack up their bags and move to the west. It’s not unpatriotic to leave India, rather it is unpatriotic to not strive towards having the best environment for startups and encourage healthy competition in India.

    Unnecessary business regulations and taxes need to be done away with to let the startups breathe and survive.

    Calling out on the hostile business ecosystem, Manu Rekhi asserted

    The other important thing is that if a country is not business-friendly, startups have to change their origin of operations. You have to be ready to move to a market that supports your business ideas. Any country keen to create a great startup ecosystem should make it friendly to smaller businesses.

    Startups during their initial phase are vulnerable. Hence, government policies in India should provide a similar playing field. Burdensome and ineffective policies can lead startups to die a premature death.

    Earlier, Deep Kalra, chairman and CEO of MakeMyTrip, had warned about the global rivals taking over the Indian startup system. Home-grown companies are struggling to achieve share in the domestic market. Large foreign companies after merging with the local company create a stressful environment for the other potential local players.

    Also Read: These Companies are Laying Off due to COVID-19 Crisis

    Policies should be implemented to accommodate the capital requirement by small firms from foreign conglomerates but market security provisions should be rendered to make the local players competent enough to take on big firms. This can only be achieved by the putting place effective startup orientated regulations, thus promoting growth and enhancing the startup space in the country.