Value Added Tax: Really adding value?

VAT: As we all know VAT: Value added tax is a tax on the value added to the commodity or service by a business firm. From production till consumption there are various stages in all the stage there is some value getting added to it . Therefore, when a tax is imposed by the government on a business firm when it adds value to goods or services that it may have purchased from other firms, by handling them by their own labor or by processing them. In simple terms, the difference between the purchase value and the sales value is the value added.

Points to remember:

• An indirect tax.
• Belongs to the family of sales tax.
• Multi point tax keeping value as its base.
• First, it was introduced in France in 1954
• 21 out 24 OECD have accepted it. Currently, 130 countries have adopted it.

Merits:

• Neutral in allocation of resources
• Minimizes scope of tax evasion

Demerits

• Inflationary
• Not a simple tax system
• Burden on producers and shopkeepers

Thanks for the reading!

A sneak into Case of KYC Irregulation, Uncompliance and Rising NPAs : Surya Vinayak Industries.

Perfume wala Gas cylinder   !!

 A perfume making company Surya Vinayak Industries which is part of Floriana Group just evaporated with loans to the tune of INR 2,500 Cr from consortium led banks. The matter is under investigation with CBI and ED. The Matter raises concern on banks functioning today and who is accountable for such a Big Blunder and subsequent losses.

KYC : Popularly known as Know Your Customer is the ABCD for any banker that helps to profile a customer and here the matter of investigation is "company had diverted the funds"  on  large scale to wholly-owned overseas subsidiaries and "indulged in fraudulent activities" not with one bank but the consortium of 23 banks. 

The RBI has revealed - “The company did not export commodities in the case of export finance availed by it from consortium member banks. It diverted working capital funds to Falcon Jersey Pvt. Ltd., an entity controlled by it and various other accounts including current accounts of Sanjay Jain and Rajiv Jain (promoters of Surya Vinayak ),”.

Few trembling questions that follows are:

• Who is responsible as well as accountable for the NPA?
• How would the staff accountability be determined in such being a case?
• Are KYC regulations really observed in letter and spirit at the grass-root level.?
• 90 days of non-repayment of interest or principle : Are the criteria enough to put checks in such cases?
• As per bank records stocks valued INR 800 Cr, which was worth only for INR 4 Cr.
  
  
  How Stock valuation was done?
• Why were billing copies not checked since the export was being made to only one buyer ?
• The loan amount which banks gave was public money how would it be repaid ?
• The opportunity cost of INR 2500 is economic growth and welfare of Indian economy! Who is answerable ?
• And the final joke- Company has its registered office on record which is a : A Plot in Delhi !!!! : 


Surya Vinayak Industries Ltd 
Address: Zone H-4/5 Plot No 55, Suvidha Kunj, Pitampura, Pitampura, New Delhi, Delhi 110005
Phone:011 2703 3750

Such a stark case puts the question whether RBI's regulations and Compliance have been just put aside for mere Business !!

Gold is going cashless!!!

A decade ago one would have not even imagined to go market or on vacation without cash,  even going out from home without taking physical cash could have lent one in a troublesome situation but today it is possible rather it has become the habit of most of the people because just swipe the card and pay it after many days . 

The cashless system has been adopted by our society so well that probably there would be a time that paper notes would be shown only in museums .

     Taking it to the next level the government is planning to make gold transactions cashless , in order to put the check on black money now, govt is taking suggestions from business houses that how the gold can go cashless. 

As suggested Few basic point are:

• Only up to transactions of Rs 2 lacs would be in cash.
• Import of gold would be done only by banks , this would control smuggling
• Bullion trading would go cashless.

The govt has already launched its Gold schemes:

• Gold Monetization scheme : by depositing Gold would give you regular interest , but it would not be returned in the form you gave.
• Sovereign Gold bonds: Investor gets returns linked to gold price.
• Gold Coins.

The path ahead is tough , challenges ahead:

• Difficult to control the sarafa bazar , its already unhappy about 1% excise duty
• Controlling smuggling and black money 
• Sentiments of Indian household with regular Javeris
• Traditional habit pf purchasing from "Jaan pehchaan ka Sunaar"
• Matter of Trust
• Conservative approach of many people
• Ladies keeping gold as their own assets leads to idle gold
• Illiquid 
• Financial Illiteracy

The Gold and The Golden Shine in Papers !!

Gold is treated as the commodity but used as currency, Even the RBI has to keep gold reserves in order to print currency.

The printing of notes is done by central banks, for India it's RBI , The SecurityPrinting and Minting corporation of India limited does the printing of banknotes, coins, stamps etc for GOI. The company was established in 2006  Under MoF .

SPMCIL has four presses:

1: Currency Note Press (CNP), 1928, Nasik.

2:Bank Note Press (BNP), Mysore.

3:India Security Press, Nasik.

4: Security Printing, Hyderabad.

SPMCIL has four mints:

1: India Government Mint, Mumbai.

2:India Government Mint, Kolkata.

3:India Government Mint, Hyderabad. 

4: India Government Mint, Noida.

For producing coins, and medals and awards,

Security Paper Mill ,1968 Hoshangabad, Madhya Pradesh. For producing the papers for banknotes and non–judicial stamps.

Earlier Proportional reserve system was followed under which 2/5 minimum gold or sterling was to be provided and gold to be at least 40 crores. remaining 3/5 of the asset can be rupee coins.

 Minimum Reserve System

Whereas current scenario is that India is following Minimum Reserve System since 1956  Under which RBI Maintains at any point of time minimum of 200 cr of reserves out of which 115 crore has to be in the form of Gold . gold coins, gold bullion, and rest can be Foreign reserves, 

RBI under its monetary policy for expanding the money supply taking into consideration the economic growth and other factors issues currency to meet the transaction needs along with this RBO has to secure Reserves since printing new currency is always a liability , Decreasing CAD and increasing Foreign reserves are also related to it. 

A Teacher , Scholar , Learner , Economist, Politician, Best Speaker, Inspiration to youth and the list goes on.....

Now when I listen to Rajya Sabha discussions daily I hear a roaring sound of a lion sitting as an MP.

The person himself has become an institution. Looking back we see the pearls he has earned , Phd holder from Harvard, Assistant professor then associate professor , then visiting professor at Harvard and the list of colleges in India also is not short , I have attended his classes on Economics , and to be true those eight days and many seminars have been the best days of my academic days. The knowledge and command he holds are so crystal clear.

He is sixth time MP, the way he presents facts are amazing and i wonder from where he gets them :)

Be it 2G spectrum or National Herald case or inventions on EVMs or Temple cases no need to say that He is The Man !

Those who know him personally can say that he is the humblest person one would ever meet , but wrong intentions and behaviour are not at all accepted then you got to meet the Lion :p 

At last considering the present scenario, i would just say Dear Buddu Get ready ! and take care of Mumma !

Distribution of Powers : Its all about economy

The government of any nation enjoys power vested in the constitution, it may be written or unwritten .

The governments are of two types as per the distribution of power:

1: Unitary Government

2: Federal Government

In Unitary government, the power lies with the centre and the local governments derive power from it, whereas in federal government there is the provision in the constitution for distribution of powers between centre and the state governments.

The distribution of powers differs from country to country but usually, external affairs, foreign and inter-regional trade, defence, communication etc are taken care by central govt while states take care of local issues such as health , education, agriculture etc.

There is always coordination between both the governments and if not the role of judiciary comes into the picture . the issues may be between two or more states only , eg: water disputes in India between states.

The present drought situation in India brings it to our notice that how politics takes over the need for citizens and then immediate relief package demands!!

The UP govt denied taking water train for Bundelkhand and then asked for 10000 cr package

Now got to wait and watch how and when the Powers takes the action and the "Common Man " gets relief.

PepsiCo "Kurkure" goes "Namkeen"

Yatrigan kripya dhayan de Train no XXXXX Kurkure family Express , platform no 1 se ravana hone ko taiyar hai!!!!

This was probably the announcement at Delhi railway station on 5 May 2016 which will continue to be announced across 12 stations including Sawai Madhopur, Surat, Lokamanya Tilak Terminal, Pune, Tirupati, Chennai, Vijaywada, Bhubaneshwar, Chitpur, Mughalsarai and Kanpur central.

PepsiCo collaborated with Indian Railways for this eight days special train which would cover many parts of India . The method itself reflects the idea of bringing families together across India to chat and enjoy Kurkure. Parineeti Chopra and Kunal Kapoor the brand ambassador of Kurkure inaugurated the train

Targeting the hearts of families by making it a family snack , the way marketing is done by PepsiCo the idea is actually super, today, where everybody is occupied with digital tool, may be mobiles laptops taking a train tour is brilliant since it makes one cuts off from mobile and the internet for time being thanks to network in India , one gets time for people around. building relations with you loved ones is much easier when no disturbance is there. 

The company has taken care of cost as well in the marketing campaign the entire interior designing was done by students of arts colleges in India through a contest.

But wait a sec!  The train doesn't stop the journey here the marketing managers have thought something more lucrative and innovative idea to boost the brand Kurkure , The scheme is to have many recipe contests and the winners from each zone (East, West,North , South) would be given a tour package Europe as a prize.   “Families bonding over snacks and conversations have always been at the core of Kurkure,” said Partho Chakrabarti, vice president-snacks category, PepsiCo India.

The law of demand : Bandwagon effect ,Snob effect and Veblen Effect

The law of demand:

 The law of demand is the most universally valid concept in economics. It says that if the prices of a commodity go up the quantity demanded would come down and if the prices fall down the quantity demanded would go up. The demand curve is a negative slope curve since the quantity demanded and the price is inversely related keeping other things constant.  

The demand can be individual demand or market demand which the summation of all individual demands at a particular time in a marketplace. The consumption decisions of individuals  are independent. There are few more factors such as Taste, preference, climate, income of the consumers , societal trends, technological up gradation also impact the demand 

Bandwagon Effect: In the real world the situation differs from the theory , in theoretical aspects says there are no network externalities. Taste of individuals are different but many a times in real world what we see are the cases of positive network externalities which implies that just for being fashionable consumer will create demand for a particular product or just because everyone is having a particular product one would also purchase follow the trend , be among the masses and promote , take the example of hair styles/ some different clothes / a new kind of glasses and so on..

Snob Effect: The snob effect is just opposite of Bandwagon Effect , here consumers would want to be different from the mass , they try to be exclusive , they would not use the product if the prices fall. its negative network externalities, for example, if the price of a particular mobile handsets is comparatively low with the same feature than that of another brand then there would be a section of society which will prefer he later one.

Veblen Effects: This was proposed by Thorstein Veblen and that is why called Veblen effect in demand theory of economics. When purchasing is made in order to impress others then demand raised due to such motive is known as Veblen Effect. In my view expenses done in Indian Marriages are the best example for it .

Thanks for reading!

Nifty Bank : replica of banking industry trends

Nifty Bank

Bank Nifty is an Index to benchmark for Indian banking industry which represents 12 most liquid and largest capitalized stocks trading on National Stock Exchange from the Indian banking sector, Which is a free float market capitalization weighted index with a base date of 01-01-2000, the index base value is 1000. It's also known as CNX Bank Index. It was launched by India Index Service and product limited (IISL).

Banks are an integral part of Economy and the banking sector in India is facing tremendous challenges today which directly impacts the health of the Indian Economy . Being an Index from banking sector following challenges are impacting Bank Nifty :

·         The biggest issue which has always been a matter of concern and still is the Asset Quality of the bank business portfolio. Asset Quality has faced sustained pressure due to continued economic trends. The NPA levels are surging up. The gross NPA till Sept 15 was 5.1% which is remarkably high and continuously growing. 

·         Drought situation in India: This is the biggest cause impacting the health of balance sheets of Indian Banks. On one hand where it's mandatory to give PSL Advances on the other recovery gets extremely difficult from Agri loans due to climatic issue, which decreases the repaying capabilities of Indian farmers to the extent that the they commit suicide As per the data presented in Rajya Sabha on March 4, 2016:  3228 farmers committed suicide only in Maharashtra in 2015 and the average being 9 farmers per day!

·         Interest rate hike in US Markets: Hike in interest rates by US is also a concern for both domestic and international markets, Vaibhav Agrawal, VP and head of research, Angel Broking, said, “Indian equity markets would have external challenges to face, which includes concerns emanating from any slowdown in the global markets, announcement of rate hikes in the US.”

·         Capital Adequacy: The provisions makes banks keep money aside for unforeseen events such as defaults or NPA to be particular. Banks capital is measured by this ratio. The same is being a matter of concern for Indian public sector banks .

·         Regulatory aspects and Compliance: To run the business in such a competitive environment many times employees takes deviations from the policies and procedures which are a big matter of concerns it may be knowingly or unknowingly which ultimately leads to loss to the banking industry as a whole.

The above are not the only challenges banks are facing the list is still adding more issues. Nifty Bank being an index for the banking companies replicates the same trend.

Thanks for the reading ! Have a nice day.

Ten Years of Patanjali Ayurved Ltd : A business to learn

Indian culture is so rich , so vast from Ramayana to Gita, from Vedas to Upanishads its full of knowledge and a big source of enlightenment. Yoga by Patanjali has been an integral part of it . but somewhere somehow it was a forgotten part of history and by the efforts of Baba Ramdev Yog once again has reached to every house of India. It's so deep the Patanjali directly reminds every one of Baba Ramdev and not to forget "His" famous Kapalbhati and Anulom Vilom .

Patanjali Ayurved Ltd was started by Baba Ramdev and Acharya Balkrishna in the year 2006 , which today stands roughly as an Empire of INR 13000 cr. The revenue estimates only for fiscal 15-16 is INR 5000 cr. They are almost into every product we use today , giving tough competition of the Big boys out there in the market. From a small shop to big malls , online selling no stone of selling has been left unturned but this seems only the beginning , the beginning of a new phase of business in Indian Economy where saints were worshiped like Gods and today beating the big Tycoons in their area of specialization, professionalization, and perfection. The growth in the past ten years is remarkable.

What Marketing Lessons one may have from the story of Patanjali? Your valuable comments are most welcomed. But as far as I would say :
1: Know the subject in and out
2: Market Knowledge
3: Take the expertise
4: Keep the costs lower
5:Strong Distribution channel
6: Word of Mouth Marketing
7: Know the environment well , whether political/ economy
8:Touch the basic need of individuals
9: Promote the product.

The East Asian Crisis

ASEAN countries in the mid 1997 were majorly affected by the economic crisis called as EAST ASEAN CRISIS due to the fast decrease in the value of Thai Baht against US Dollar which spread quickly like wildfire in the other countries such as Malaysia, Indonesia, Hong Kong, Republic of Korea , The Phillippines , Japan, Vietnam, Australia, Singapore etc. The GDPs of these economies contracted , much affected was Indonesia.  There has been a chain reaction of the crisis.

The below are reasons for the same:
1 : Current account deficits.
2: Too much of short-term borrowings
3:Poor lending policies of the banks
4:Over investments and low transparency

The cheap labor in Thailand got investments from Japan and other countries.The Fixed exchange rate attracted more of investments and FDI resulted in over expansion of the real estate sector which had brought down the prices drastically. The theory of demand-supply applies here since Thai labor was in demand prices shot up and it became costlier which resulted in lesser exports and imports increased due to which current account deficit occurred. Then the common perception was that Thai baht would lose value and people converted the same into dollars and the crisis began since the money had to be devalued and the same got spread across the nations.

FINANCIAL INCLUSION IN INDIA: AN INCLUSIVE GROWTH STRATEGY BY REACHING AT THE BOTTOM OF THE PYRAMID

“The fortune at the bottom of pyramid”, the book written by C. K. Prahalad gives the notion for various growth strategies. The country has 1.2 bn of the population, but only 40% of which is having the access to the banking services, the statistics itself shows the need for financial inclusion in India for achieving the all around inclusive growth. RBI has already taken many initiatives from branchless banking to the use of technology to reach out at the grass-root level but constraints of adaptation, illiteracy and lack of interest of common man put the question mark. Indian economy has been growing at the rate of 7-8% for the past several years. The main contribution towards the growth has been from the Services industry. Statistics projects much more from others sectors as well, but the main hindrance is the access to affordable financial and banking facilities at the bottom of the pyramid; banking facilities increases the developmental opportunities for poorer section of the society. The World Bank had conducted a conference in March 2007 and in November 2007; the report titled “Finance for all”has been released. In India in the year 2004, RBI established “Khan Commission” to look at financial inclusion needs and the term financial inclusion1 was used by RBI for the first time in its annual policy statement of 2005-2006. Dr. C. Rangarajan committee (‘Report of the committee on financial inclusion in India”, 2008) defines it as: "Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost." In simplest means “reaching the unreached” which implies provide banking facilities to those people who have no access to financial product/service. Financial exclusion leads to serious societal problems. In the rural areas demand for financial and banking services is still untapped. This excluded section depends upon the informal sector (moneylender: sahukar and zamindars) to fulfill the banking needs; mainly credit facilities at exorbitant rates. It leads to a vicious cycle because to avail such finance cost is remarkably high and the person never come out of the debt since the major portion of the income goes to the moneylenders. Nonprice barriers also exclude them from mainstream banking such as the requirement of identity proofs for KYC norms.

RBI Initiatives For Financial Inclusion In India: (Policy Perspective) India lives in its villages, to reach out the huge rural population financial inclusion is the main task. Former UN Secretary – General Kofi Annan said: “The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives.” The holistic financial inclusion could be achieved by financial literacy.

RBI’s initiatives in the past 60 years can be divided into 4 phases.

I. 1950-70: The consolidation of the banking sector and facilitation of industry and trade has been the main process in this regards.

II. 1970-90: The main focus now shifted on the channeling of credit to neglected sectors and weaker sections of the society.

III. 1990-2005: These phases focused on strengthening of the financial institutions as part of financial sector reforms.

IV. Post-2005: Financial inclusion became one of the main policy objectives.

The report of the committee on financial inclusion has put forward targets for access to financial services, including credit, to be raised In order to achieve such a mammoth target RBI has taken many initiatives, which has led some notable developments:

I.                   Lead bank scheme.

II.                Microfinance and emergence of Self-help groups.

III.             Overdraft in savings bank accounts.

IV.             No-frills accounts.

V.                Simpler KYC norms.

VI.             Easier credit facility.

VII.          Use of information technology.

VIII.        Creation of special Funds.

IX.             Electronic benefit transfer (EBT) through banks

X.                Business correspondent (BC) model

XI.             Bank branch and ATM expansion Liberalized

XII.          Expansion of banks in the north-east

XIII.       Project financial literacy

XIV.       Financial literacy and credit counseling.

XV.          Jan Dhan Yojana and APY

Financial inclusion has always been given vital importance. For the development of rural masses in India, the reach of banking services is a must at the grass root level. Bottom of the pyramid has enormous opportunities for the same once the technology reaches to the masses,and communication improves. Mass banking at low cost would be possible if rural people are financially educated to use such technology. The government of India’s ambitious program of issuance of multi-purpose unique identity cards by Aadhar should be of great help in achieving financial inclusion. The target of achieving 100% financial inclusion implies serving millions of underserved people. Involvement of education sector in this regard is required.

Non Tariff Barriers : A strong Measure to control inflow of foreign goods

The international trade in present economic scenario faces many challenges . It is not about been the best or producing at lower cost or supplying at a competitive rate . There is something more which occurs into the growth path of developing nations . Trade barriers are well known to us.

To brief about trade barriers in layman terms : These are the measure to control imports and save the domestic market from more competitive players in the global market by imposing customs duties, setting up the quotas and much more by the governments.

But when we talk about Nontariff barriers it implies that with the above goal of reducing imports from different nations government uses some Administrative measures. These can be summarized as Traditional and NonTraditional Trade barriers.

1: Traditional Trade Barriers:

• Import Quotas
• Import Licensing
• Foreign Exchange regulations
• canalization of imports
• Production subsidies
• Export credit subsidies
• Tax concessions on exports
• Govt Procurement etc.

2: NonTraditional Trade Barriers: These are basically used by developed nations, the same is called VER: Voluntary Exports Restraints . Others are: administrative procedures, health, and sanitary issues 

They may put environmental issues/ Product standard/ technical barriers.

The above issue has been tried to resolve by the world economies by GATT, which based on nondiscrimination, elimination of nontariff barriers and consultation tries to avoid such issues among the nations  . But there is the lot more to be done for global economic welfare!

Theories of International Trade and 21st century

The theory of absolute advantage by the great Economist Adam Smith which states that the nation should produce the commodity in which it has absolute advantage and then import the commodity in which it doesnt have so. By doing so the world economies would benefit from trade . Later David

Ricardo came up with thought in his book "Principles of Political Economy and Taxation in 1817 that even tough any country do not have the absolute advantage but it still can gain by trade if it has comparative advantage in a good than that of other so it can gain by using both factors of production (L,K) in making of the good and trade .Import in which the one has comparatively more disadvantage.

Economist Haberler Explained the comparative advantage theory in context with opportunity cost based Returns of scale. 1: constant return case, 2: Diminishing return  to scale case, 3: increasing returns to scale.

The above are the basic theories for the scholar of International trade , which more or less talks and takes it for granted that trade results in Welfare of the economies . But in the 21st century today one more group of economist is coming up which takes a different view on it. When we talk about third world nations , developing countries and the countries which are not tech savvy yet the scene totally changes as they cant compete in the same manner . If we consider the crude oil as an exception then third world nations have not gained much from the trade and the gap between developed and developing nations is increasing in this era of technology!