October , 2017
12:01 pm

Dr. H. P. Kanoria

Dear Reader,

India-Bharat is blessed by Lord Ganesh and Mother Lakshmi who help remove all obstacles and grant the boons of abundance, prosperity and happiness as well as the spirit of unity amidst diversity. Lord Ganesh and Mother Lakshmi are for all beings irrespective of caste and religion.

Food, clothing and housing are basic requirements of human beings. Garments have been produced in various cottage industries, handlooms, power looms and small, medium and large textile mills. The size of garments market in India is around USD 137 billion (as on 2016) which is expected to grow to USD 226 billion by 2023. An extremely labour-intensive industry, it employs about 45 million workers.
About 20% production of the production is in the organised sector.

The textile industry has been facing tough competition from China, Bangladesh, Vietnam, Sri Lanka, Cambodia and Pakistan. Low production, high labour cost, high rate of interest, appreciation of Indian Rupee (INR) and manifold rules and laws are affecting the industries. Utilisation of capacity is less than 50%. Demonetization and implementation of GST have also adversely affected this industry.

Garments of foreign brands are attracting even middle class consumers. Their sales are rising. This trend has hit domestic employment, self-employment, cottage, khadi and handloom sectors. Efforts are being made to revive them. Those who care for the country must also buy clothes from indigenous textile sector. Over 4.3 million people are directly involved in the handloom sector, which is the second largest employer in the rural area. Handloom products are known for their unique designs. The colour, fabric quality, variety, embroidery and beauty of Indian textiles are exceptional. The USA is the major importer of Indian textiles along with several other countries.

It is a pity that with a population of over 1.25 billion and being a renowned producer of finest clothes for centuries, India could not become the top exporter of apparels. In 2016, the largest apparel exporting countries were China (USD 161 billion), Bangladesh (USD 28 billion) and India (USD 18 billion). Besides clothes, textiles have several other uses. Fabrics are made from cotton, animal hair, silk, grass, rush, hemp, peepal, jute, bamboo, wood, petroleum, pineapple, fibre and minerals. The government needs to remove all fetters to increase exports. Theoretical and popular approaches will not boost exports. High tax rate should be imposed on imported apparels and fabrics.

Prime Minister Narendra Modi has assured of macro-economic stability, no retrospective investigations, and investor-friendly initiatives. Structural reforms have been undertaken for long lasting economic growth. The government will create an environment to encourage honest business practices. Tax authorities will not hound businesses. He will not mortgage the country’s future to secure his present through populism. His government is committed to reverse the slowdown in economic growth. To this end, the PM has reconstituted the Economic Advisory Council under the Chairmanship of NITI Ayog member Bibek Debroy. So far this year, Rs. 1.48 lakh crore of extra spending has taken place. Such front-loading of expenditure has pushed fiscal deficit to 96% of the estimated target. There has been a decline in the capital expenditure by the government. Some economists view that the government should undertake meaningful structural reforms and not go for misguided reforms / policies / fiscal expansion. Interest rates need to be reduced.

Nomura, a Japanese financial services major, reports that the Indian economy will have cyclical recovery with gross value added (GVA) growth averaging 6.7%, slightly higher than 6.6% in 2016-17. India needs to seize the opportunity of global recovery as suggested by the International Monetary Fund (IMF) Chief Christine Lagarde. The World Bank President, Jim Yong Kim said that the slowdown of the Indian economy is temporary due to the GST, which will have positive impact on the economy in the long-term. The RBI’s forecast lowers GVA to 6.7% from 7.3% in 2016-17. The repo rate is maintained, not lowered, ignoring the need to boost growth. As a result, investment demand will take longer to revive. Growth is essential for job creation. The RBI is concerned about inflation. The GST is one of the causes of inflation. In rainy season, due to increased cost of logistics and flood etc. price of some commodities increase leading to inflation.

To have a more realistic and pragmatic approach to the GST, the Finance Minister Arun Jaitley has announced some changes to counter the havoc caused to the economy. Implications of GST, SGST, IGST, many rates of tax on almost all types of commodities, all merchandise, services, etc. have created confusion and panic leading to slowdown of production, trading, and fall in consumer spending. The impact assessment of the GST was not practically made before the new tax system was imposed. It has loopholes allowing for corruption and shadow economy.

The prices of branded products have increased due to the GST. Agri products which are perishable are being processed more than 30%. Agri produce is wasted. As such, the government is promoting process industries. About 70% flour mills are facing closure threat. As their branded products are under the GST regime, whereas earlier there was no
excise duty. In 1985-86, more than 400 flour mills employing more than two lakh workers were closed due to the government's policies. Don’t blame promoters and entrepreneurs.

Now, the government is drastically planning to come with lower tax rates and pruning the item list. Analysts say that the GST should have been levied on few luxury items and services and its scope should have been widened slowly. Initially rates should have been low and gradually these could have been increased. Obtaining Way Bills for movement of goods will lead to corruption, delay and hamper logistics. Consuming states have benefited whereas manufacturing states have suffered. The government promises speedy tax refund to exporters. But it is not going to happen. The government has to think of a mechanism of self-adjustment or self-credit system of tax. Officers should be accountable for delay in refunds. However, the government claims that as the GST is based on the destination principle, it frees exporters from indirect tax burden on inputs.

However, China’s exports to India have grown almost 17% year-on-year.

The government proposes to lower the number of public sector banks (PSBs) to 10-15 from 21-22 public sector banks. This consolidation would not be good. Let there be competition. Larger number of banks with independent boards and executives will be better suited for the Indian scenario.

Unlike corporate governance reviews of the past that sought to look elsewhere and adopt governance mechanisms prevalent in developed country jurisdictions, the Kotak Committee has conducted an introspective exercise and attempted to devise customized solutions for local problems. But, the committee recommendation is hard hitting to corporate sectors is significantly sick, ailing, small and medium subsidiary companies.

Proposal to split CMD post for NSE listed firm will add to overhead cost. More than 326 companies
would need to change the composition of their board and this will increase overheads and increase the number of Directors.

The Sensex has recovered from a short bear pull down. Foreign portfolio investors continue to be cautious. Equity Fund Managers have large cash pile with them chasing few stocks. Deploying liquid
und is becoming a challenge as markets inch higher despite no signs of any major improvement in key growth parameters.

May Diwali usher in renewed energy and may our Nation be blessed with wisdom, peace
and abundance.

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