Through the Looking Glass

Financial Express Building liquidity infrastructure and solution and protecting incomes required in the short-term; rebuilding trust in the long-term We looked at some of the possible impacts of social distancing in the previous article . As various supply chains get disrupted due to sudden convulsions of demand and supply, the impact will be as much social as economic. The public health systems across the world are gearing up to cope with the challenges of the virus. We detail some of the steps that policy makers, industries and companies can take to tackle the uncertainties arising from this unprecedented way of living. The fundamental premise of social distancing is that individuals keep distance from one another. The premise of human economic activity in the modern world is based on the division of labour which intricately links up the economy to social interactions. Any lack of social interaction can create significant break-ups in the economic links. This flows through not...

Financial Express What the virus spread has revealed is that it is difficult to predict where it might emerge next and with what ferocity What has surprised the world about the new Coronavirus, Covid-19, is how quickly it engulfed the globe and how the unlikeliest of places emerged as hotspots for the epidemic. Starting in a deep interior region of China, it quickly spread across the world and became an epidemic in places that one would not have imagined have a link with the original location. The globalized world of air travel and deep, cross-linked supply chains meant that the virus was able to quickly spread out. It took root in a few places (even as it was quickly contained in Singapore) finding fertile ground in Iran and Italy. The jury is out on whether this can be safely contained in other places where the outbreak is starting to be reported like the USA, Europe, the UK, India, and other countries. What the virus spread has revealed is that it is difficult to predict wher...

Financial Express Development and Progress go hand-in-hand; getting on and remaining on the ladders key to economic growth for individuals and nations As India changed and economically progressed, it brought hope. There was indeed a pathway out of the poverty that the slow growth of the many decades had foisted upon the society. There was now a way to get out of ration queues to become tax-payers – from being dependent on the State to giving back to the country. A sliver of the population would jump right off the subsistence farms and move to the cities. The pathway was to get into one the burgeoning services sectors: get into IT to bring in the moolah or become an air-hostess to serve the customer flying in and out of the country; sell the young generation a home, or the loan and insurance on it. One needs to have found the right steps on the Ladder of Development to eventually get on the Ladder of Progress. The Ladder of Development The ladder of development is basically a...

Budget 2020 cares for people’s economic aspirations, says Axis Bank’s Akhilesh Tilotia Financial Express India’s response to its dilemma will determine whether budgets of the next decade will have larger incomes to tax or larger taxes on incomes. This Budget Speech of the finance minister was one of the longest in recent history. Her previous Budget speech in July last year was around 11,000 words. This one was more than 13,000. Part A of the speech went from 8,000 words to 9,000. Part B went from 3,000 to 4,000. This depicts the relative importance attributed to the plans and schemes of the government and changing tax structures. The FM’s pictorial depiction of the bouquet of government schemes held by two caring hands of governance and financial sector reinforces the work required in building and unclogging the plumbing of the BFSI sector. There are many proposals that build on the agenda of liberalisation and privatisation such as the proposed Initial Public Offering (IP...

India may end up implicitly choosing a stance of preferring capital flows over current account flows, if it sets a GDP target in a foreign currency Financial Express A currency serves two purposes: medium of exchange and store of value. We have explored this idea in these pages in a different context earlier when we looked at the relationship between legacy finance firms and fintech companies. Today, we explore the implication of this definition and purpose of a currency in the context of a country’s financial relationships with other countries. For a country, its relationship with the world flows through two accounts: capital account and current account. For sake of simplicity, capital account refers to all the monies transferred on account of buying or selling of assets like equity, debt, property, etc, and current account includes all the trade in goods and services including investment incomes and remittances. It can readily be seen that when a country engages with the world...

As the Centre and States try to find GST compensation cess monies, it is time to look beyond the present, to see how the future could unfold for State finances Financial Express The financial relationship between states and the Centre has been in news recently. The Fifteenth Finance Commission submitted its report to the president; there have been some delays in payment of the GST compensation cess, and there were some discussions on whether the Centre will honour its commitment of assuring a 14% revenue growth in the agreed-upon transition period. Constitutionally, Centre-State fiscal relations come up for review quinquennially (once every five years). States have ceded significant taxing powers to the Centre via GST. Earlier, the states had their own tax bases and could manage revenues by juggling taxation policies. This led to a large number of state-specific tax rates, a lack of uniformity in the tax structure in the country, and sometimes, a race to very low-tax regimes to...

The evolution of India’s tax-to-GDP ratio will require significant political and social consensus—a strategic modelling and planning of tax POLICIES is required Financial Express India’s tax-to-GDP ratio at the government level has hovered around 18-19% of GDP over the last few years (between FY17 and FY20E). Coupled with disinvestments, dividends, and other receipts, the central government mops up another 5-6% of GDP, taking the total revenues of the government to about a quarter of GDP. The government is committed to spend, on account of both revenue and capital expenditure, 29-30% of the country’s GDP, leaving it with a fiscal deficit in the 4-6% range. The revenue percentages for the government have remained reasonably sticky, and the expenditure items are also committed. As India works its way towards a $5 trillion economy, or double its current size, in the next few years, it is worth considering what the fiscal landscape could look like. As Esteban Ortiz-Ospina and Max R...