Politics & Economy: GST Rates
It is a settled principle of indirect taxation that the best structure is one that is based on a single and moderate rate of tax, with no exclusions and exceptions. Diluting this principle will always lead to sub-optimal outcomes. In India’s case, one might have argued that this principle was difficult to follow at the time of the GST’s introduction because of political and economic pressures that prevailed then. However, things are very different now and an overhaul of the GST regime is needed if the economy is to stand any chance of coming out of its recession in a reasonable time frame. Frankly, the decades-old socialist mindset that remains entrenched in India’s policy making needs to be revisited. Adit Jain shares his insights.
US Presidential Elections
The outcome of the Presidential elections in the United States is perhaps the most significant issue bearing down upon global geopolitics. The divisions between Republicans and Democrats go way beyond domestic issues and encompass positions on international affairs, multilateral institutions, global security arrangements and even America’s policy towards individual nation states, including China and India. The popular belief favours a victory for the Democrats at this time. But there are six months still to go and four critical issues will ultimately determine which way the penny will drop. Adit Jain shares his insights.
Debt and Economy
As economic analysts, our job is to apprise business managers of risks and opportunities stemming from macroeconomic or global developments. These impact the market prospects for businesses and industries in a very tangible way, albeit sometimes indirectly. But if businesses can anticipate such trends through early warning signals, it can enable them to take suitable steps proactively. In the current environment, the public debt to GDP ratio is one such factor that needs to be closely watched. Beyond certain thresholds, it has the potential to threaten economic growth and, by extension, consumption and market demand. Adit Jain shares his views.
Covid Compensation Survey
An issue many companies have been grappling with, in the context of the lockdown-induced slowdown, is the policy to adopt on compensation and related HR issues. A few days ago, IMA ran a survey to examine the steps companies are taking in this area, covering bonus payouts, salary increments and cuts, layoffs and hiring. The survey received a strong response with over 300 participants, allowing us to analyse the data at a high level of segmented detail. The attached paper provides some of the findings from the exercise. The full report is available for purchase at a nominal price through this link.
Federal governments borrow money to fund their spending programme through bonds issued by their central bank. The bonds carry a fixed coupon and come with the assurance of an income stream that concludes when the principal is repaid at the end of the bond’s tenor. The tenor ranges from a few weeks at the short end to 10, 20 or even 30 years at the long end.
Perpetual Bonds, on the other hand, carry no tenor and are never repaid. This one feature sets them apart from the others in more ways than may be immediately apparent. At a time like this, they can be a valuable addition to the central bank’s arsenal. Adit Jain shares his insights.
Fire-breath of the dragon: India China border
The Johnson Line runs through the Karakoram Pass, extends North East of the Karakoram Mountains through Aksai Chin to the Kunlun Range, and represents a demarcation between India and Tibet. Despite historical evidence suggesting that Indian territory actually extended beyond it, India has accepted the Johnson Line as the official boundary. China’s recent move to station thousands of troops close to this border and, in fact, to transgress into Indian territory is, therefore, a worrisome development. Its aggression, and India’s response to it, will have both geo-security and economic implications, as the attached paper explains.
Yuan as a reserve currency
Economists often debate the prospects of the Chinese yuan growing into a global reserve currency to rival, if not replace, the US dollar. After all, they argue, it is only logical that the world’s second-largest economy and largest trading nation have a currency commensurate with its economic clout. Although the yuan is still some distance from assuming this status, the fact is, China has made significant progress towards achieving this ultimate goal. Adit Jain shares is views.
US listing of Chinese companies: Just go
US Senator John Kennedy introduced a bill to prevent companies owned or controlled by the Chinese Government from listing on American stock exchanges. It was greeted with unusually fulsome bipartisan support in Congress, reflecting the growing anti-China sentiment seething in America. Regardless of whether the bill ultimately gets signed into law, it is becoming increasingly clear that further conflict lies ahead between the world’s two largest economies. Collateral damage is inevitable.
Victims of Expectation
The lockdown, while unfortunate from many perspectives, has benefited the environment in ways never seen before. It has effectively served as the largest ever experiment in checking global pollution and offers an insight into what a low carbon future could be like. Whilst the current gains may turn out to be short-lived, they do point to the urgent need to rekindle a global political dialogue on sustainability. If not, nature may react even more angrily in the future. It remains to be seen if this lesson has been learnt. Adit Jain shares his observation.
US China Relations - A New Cold War
Geopolitical equations were delicately poised at the time of the virus outbreak a few months ago. Relations between the world’s two largest economies were particularly terse. As with many other things, Covid-19 has made Sino American relations even worse. This will affect everything from the US presidential election to the operations of global multinationals going forward. Adit Jain shares his observations.
The Way Forward
With societal and economic anxieties growing, the Government has taken cautious steps to begin dismantling the restrictions. It is fully aware that doing so may cause a spike in infections, particularly on account of return migration, but on balance this is a risk it is perhaps being forced to take. The next 1-2 weeks will need to be closely watched as they will determine how quickly we return to any form of normalcy. Adit Jain shares his view on the way forward.
China Supply Chain - Reality or Rhetoric
Global supply chains remain totally China-centric as the supply chain clusters that China offer remain almost impossible to replicate. The idea of forced ‘decoupling’ started gathering steam during the US-China trade war. However, the current pandemic is a wake-up call about the need to decouple from China. Is it even possible to decouple from China? Does it hold any economic reality or is it a political bluff? Adit Jain shares his views.
Badly Shaken - May 2020
Last week, the Government extended the national lockdown but allowed the limited resumption of human activity in low risk areas. Whilst this may bring relief to some segments of society and industry, most others remain worried. The Indian economy has been badly shaken and is precariously perched on a precipice. If suitable action is not taken quickly, it may well fall over and find it hard to recover. This is not only about fiscal stimulus, for which the Government understandably has limited ammunition, but about the right kind of policy measures. Adit Jain shares his assessment.
Rivers of Death
Once symbols of purity and life for India's teeming millions, India's rivers are today foul receptacles of sewage and toxic waste. If the poisoning of our rivers is not stopped more disease and death seem inevitable. Adit Jain highlights the alarming condition of India’s rivers and the urgent need for measures to clean them to avoid a calamity of pandemic proportion.
The fear of missing out has often driven investments in startups over the years. Traditional benchmarks of cash flows and profitability were replaced with ‘growth at any cost’. The Covid-19 pandemic, however, has changed this, triggering a flight of capital to safety. With startup funding dried up, many startup founders stare at an existential crisis about business continuity while counting remaining pennies. Adit Jain provides insights on the startup funding ecosystem and why the old practices will not work in the ‘new normal’.
Industry Deserves a future
Given the clampdown on economic activity in the past few weeks due to Covid-19 outbreak, a vast number of micro, small and medium enterprises (MSMEs) will be severely impacted, possibly to the point of a perpetual closure. MSMEs are the backbone of the Indian economy, contributing 70% of industrial manufacturing and generating the bulk of urban employment. They deserve urgent financial stimulus and a safety net. Adit Jain provides his views on some of the policy measures that the government could take to help the Indian MSME sector.
Laws of society
Our societal customs are forced to change in the wake of Covid-19 pandemic. If adopted for long enough, they become a habit and a part of our guidelines of engagement. Laws and legislation often follows. Perhaps a longer term impact of these trying times will translate into new practices at workplaces and in dealing with customers. Adit Jain shares his opinions.
Back to the Here and Now
In the current crisis, CEOs need to shift their focus from the long-term to the short-term. Everything today is about the ‘here and now’ and CEOs will need to be completely hands-on in terms of managing the business’s day-to-day operations. Adit Jain provides his views on the four heads that CEOs should focus on during these tough times. His observations are based on the insights shared by Alan Jope, Chairman of Unilever, in a recent article that appeared in the Economist.