Knowledge Update Jan'20

1. Catching up with the Indian Economy

What's going wrong and where are we headed?


Over the past several quarters, India’s economic growth has been slowing steadily from 8% in Q1 FY19 to 4.55% in Q2 FY20. You ask why?

Weak consumer spending (especially in rural India), a shadow bank crisis and ripple effects from a slowdown in the global economy could be the primary reasons. Fall in consumption, which has majorly contributed to the slump, had an industry-wide snowballing effect, triggering large scale job cuts and reduction in capacity utilization.

Speaking of job cuts, In the month of October’19, unemployment rate in India touched a three-year high of 8.45%, which has by far reduced to 7.7% in December.


Expert’s views: Former RBI Governor, Raghuram Rajan says that the Modi government has inherited 5 burdens from the former UPA government, which have become the genesis of the economic crisis that India is currently facing. The 5 burdens being – stalled infrastructure projects, problems in the power sector, drying up of credit in the market, misguided agricultural sector and large number of unwanted middlemen in the agricultural sector. The solution you ask?

More flexibility in labour contracts, more power to ministers, regulatory stability, smarter disinvestment and assistance to farmers are among the 10 solutions proposed by Rajan.


While we’re here: A recent survey conducted by Business Standard among 50 Indian CEOs shows that more than half of them are of the view that the economy will not be able to recover in 2020.

Is that what you think too?

Write to us- kk@chunderkhator.in. Your response may be featured in our next issue.


So should we all just sit back? No! The GOI has already taken a slew of measures to boost the economy. Signs of improvement can be seen in mining and infrastructure. Unemployment rate in Rural India has fallen, indicating improved purchasing power which is expected to boost consumption side.

2. What to expect from Finance Bill'2020

Amidst heightened tension in the Indian Economy, businesses and individuals alike, have increased expectations from Budget 2020 to recover the economy once and for all. From the previous section (discussed above), it is clear that the Indian Economy requires a serious turnaround, which is expected to slingshot from the reforms proposed in the Finance Bill’20.

The Finance Ministry has initiated discussions with key stakeholders and invited suggestions from the industry and regulatory bodies. Smt. Nirmala Sithraman has said that reforms to boost the economy will continue and also hinted at tweaking the personal income tax rates in the upcoming budget.


Rewind to September’19: In the biggest reduction in 28 years, the government in September slashed corporate tax rates up to 10 percentage points as it looked to pull the economy out of a six-year low growth with a ₹1.45 trillion tax break.

While we’re here: In this line, The Institute of Chartered Accountants of India has made an array of propositions, some of which include:

  • To boost investment in Real Estate, the limit on set-off of ‘House Property Loss’ and reforms in tax provisions relating to Affordable Housing is proposed.

  • To boost savings amongst individuals and in turn aiding government spending, limit on contribution to PPF be increased from ₹1.5 Lakhs to ₹3 Lakhs.

  • Reform in tax provisions relating to Partnership firms and small businesses engaged in professional services is also proposed.

Our Take

In order to jumpstart the revival of economy, Govt. needs to take slew of measure combining short and long term (structural) measures. The adverse indications – fall in private consumption (constituting around 60% of the nation’s GDP), fall in credit offtake, fall in private investment – in itself point out the course correction solutions.

Govt. needs to put more money in the hands of people to boost consumption. This can be done by increasing farm labour income, raising procurement price, uplifting minimum amount not chargeable to tax. Increase in consumption will lead to increase in demand followed by increase in private investment. Govt’s recent release of plans to spend (over next 5 years, with front loading of ₹18 trillion in FY 20) ₹1.02 trillion on infrastructure will create jobs, improve ease of living and will also boost the economy.

Among the structural steps already taken by the Government are Merger of Public Sector Banks, Reduction in Corporate Tax Rates, Tax Incentives to setting up Manufacturing units. Such steps are likely to yield results over the next 1.5 years.

3. Learning from the Best

The Art of Negotiation


As an entrepreneur, there’s a lot riding on the outcome of your negotiations with potential investors. Here are a few tips that will help you avoid some of the most common blunders:

First, know what you really want. Make sure that you can clearly articulate the things that really matter to you – and these should include the questions about the amount of money that will be invested as well as control of the business. Don’t get stuck in the details. A few compromises are just part of the game but be sure that you know exactly what you want when it comes to money and influence. Moreover, set your own limits and know when to walk away from the negotiation table.

Second, knowing the VC’s targets and limitations helps you to develop a more nuanced strategy. Study your negotiating partners in order to recognize and respond to their styles.

Third, don’t trick your investors, transparency is key! These early negotiations are the foundation for long-lasting business relations, so both parties should ensure a positive outcome for everyone.

Fourth, discuss the possibility of investing with multiple potential investors. You can gain the upper hand by piquing the interest of several investors and letting them know there’s competition. However, never divulge the names of competing investors or the term sheets they’ve drafted. Doing so could allow them to collaborate and force you into a bad deal.

Fifth, if you don’t know what to do or say, then wait for them to act first. When you enter negotiations, no one knows exactly what the other wants, and it’s better to let the person on the other side of the table reveal her hand first. For example, always let the investor be the first to draft the term sheet. It’s possible that she might offer you something better than you might have realistically offered yourself, so let her play the hand first.

The complete file can be viewed here.

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