Knowledge Update July'22

Updated: Jul 19

Table of Content

 

Economy

1. Triggers behind Rupee’s lifetime low

The rupee plunged to a new lifetime low of 78.38 to a dollar on 22nd June, 2022 as global recession worries resurfaced, pushing investors to sell emerging market securities afresh just two days after a member of the US Federal Reserve discounted the likelihood of a pronounced an economic slump in the largest economy on the planet. The RBI is estimated to have sold about $1.5 billion through a mix of spot and forward-market interventions using multiple state-run banks. The rupee became the 3rd worst performing Asian currency after the Philippine peso and Thai Baht. According to Sushant Mohanty, General Manager – Treasury, Bank of Baroda, “The rupee is likely to remain volatile touching new lifetime lows amid a bout of fund outflows from India. Unless oil prices come down, fears of a global recession will continue to haunt the financial markets.”

The elevated crude oil prices are likely to fall only when OPEC, the apex body of oil producing nations, decides to increase production. Moreover, speculation is rife that the US may cut sanctions on Iran, a large oil producing country. Brent Crude oil has been hovering in the broad range of $105-125 per barrel in the past four weeks. High global oil prices are detrimental to India’s economy as the nation imports four-fifths of its oil needs.

As opined by Anindya Banerjee, Currency Analyst, Kotak Securities, although the RBI is seen cutting the rupee’s loss against the dollar, it is unlikely to sustain any level as sacrosanct as India is not immune to global emerging market trends. The central bank has intervened in the currency market via two legs. While select banks were seen selling dollars in the spot, they were backing up such action via buy-sell swaps. The move protects forex reserves and helps maintain rupee liquidity in the system. At the current spot levels, Bank of America expects the rupee to touch ₹81, revised from ₹79 earlier, by the end of the calendar year.


2. Indian M&E Industry on path to witness robust growth

According to PwC's Global Entertainment & Media Outlook 2022-2026, India’s media and entertainment (M&E) industry is expected to grow at an 8.8% CAGR to reach ₹4,30,401 crores by 2026. As per projections, India will see an increase in total newspaper revenue at a 2.7% CAGR from ₹26,378 crore in 2021 to ₹29,945 crore in 2026 indicating that India will overtake both France and the UK to become the fifth-biggest newspaper market by 2026 and will also be the only country to grow total newspaper print revenue consistently across the five-year forecast period. Among other key findings, the report notes that the OTT market will still expand at an impressive 14.1% CAGR to reach ₹21,032 crores in 2026. It is subscription services that are driving this rapid growth, accounting for 90.5% of revenue in 2021 and set to account for 95% in 2026. India is also the third fastest-growing video games market in the world, after Turkey and Pakistan even though the market is fairly small given the country’s size and population. India's video games market is predominantly geared towards social/casual gaming. With revenue of ₹13,244 crores, social/casual gaming made up 83.9% of India’s total video games and esports revenue in 2021. Expanding at a 20.6% CAGR, social/casual gaming revenue is expected to reach ₹34,581 crore by 2026 with the emergence of 5G technology being a significant facilitator of this segment. India’s TV advertising market segment grew by 16.9% to INR 32,374 crore in 2021. The market will expand further at a 6.3% CAGR to reach ₹43,410 crores by 2026 making India the fifth-largest TV advertising market globally, after the US, Japan, China and the UK. In cinema, India was the third-biggest market globally in terms of admissions after China and the US in 2021, selling more than 379 million tickets which showcased a healthy growth year-on-year on the 278

million admissions in 2020. It is set to grow at the highest growth rate amongst all the segments at 38.3% CAGR in the forecast period to reach ₹16,198 crores by 2026.

India’s Internet advertising market is set to increase at a 12.1% CAGR to reach ₹28,234 crores by 2026. Given India’s mobile-first Internet access market, the mobile sector dominates the country’s Internet advertising market, accounting for 60.1% of total revenue in 2021, rising to 69.3% by 2026.

India’s music, radio and podcast segment grew at 18% in 2021 and is set to grow at 9.8% CAGR to reach INR 11,536 crore by 2026. India’s Recorded Music industry, which is a key sub-segment, is making steady progress at a CAGR of 13.6%,thanks to streaming models. Here the revenue has grown from ₹1,663 crores in 2017 to ₹2,568 crores in 2021 and is expected to continue on this path to ₹4,849 crores by 2026.

India’s wired Internet access revenue amounted to INR 6,379 crore in 2021, which is predicted to increase at a 6.3% CAGR to reach INR 8,829 crore by 2026.


 

Green Economy

1. India’s Potential for Green Jobs

According to the International Labour Organization (ILO), India’s movement to a green economy by the next decade would alone create about 3 million jobs in the renewable energy sector. The renewable energy sector created about 47,000 new jobs in 2017 accounting for a 12% increase in just the span of a year.

Further, the Skill Council for Green Jobs believes that awareness and training individuals regarding green jobs skills will ensure limiting greenhouse gas emissions, minimizing waste and pollution, protect and restore ecosystems, support adaptation to the effects of climate change.

‘Green jobs’ refer to a class of jobs that directly have a positive impact on the planet and contribute to the overall environmental welfare. Jobs involving renewable energy, conservation of resources, ensuring energy efficient means are categorized under the same. In all, they’re aimed at reducing the negative environmental impact of economic sectors and furthering the process of creating a low-carbon economy.


2. Dream for a Decarbonized India

On India’s 75th Independence Day i.e., on August 15, 2021, the Honorable Prime Minister Narendra Modi launched the ambitious National Hydrogen Mission. This is aimed at decarbonizing India and thus meet its climate targets.

Cut to 2022, the ambitious mission has seen billions of dollars being invested in India’s hydrogen powerplay. An ICRA research suggests that in order to enhance green hydrogen production, India will investment ₹4 Lakh Crore after factoring in renewable energy capacity addition of 60 GW and investment in electrolyser manufacturing facilities.

One notable example is the recent investment by the French oil major TotalEnergies SE to buy 25% stake in Adani New Industries Ltd (ANIL) for an undisclosed sum. The venture has a target of producing one million tonnes of green hydrogen per year by 2030. Further ANIL is slated to invest more than US$ 50 Billion over the next ten years.

Other major investments or tie ups in the green hydrogen space is as follows:

  • JSW Group has collaborated with Australia based Fortescue Future Industries for decarbonising its steel manufacturing operations.

  • A joint venture between Larsen & Toubro, ReNew Power and Indian Oil Corporation.

  • An alliance between Oil India Limited and homiHydrogen.

  • Reliance Industries will be investing a big portion of the ₹75,000 crores for renewable energy in manufacturing electrolysers and hydrogen fuel cells.

 

Direct Tax

1. Perquisites Given to Directors set to attract TDS

The Central Board of Direct Taxes (CBDT) on Thursday issued detailed guidelines on deduction of tax at source under Section 194R of the Income Tax Act. It requires deduction of TDS at the rate of 10% by any person providing any benefit or perquisite, exceeding ₹20,000 in a year to a resident.

As per the guidelines, TDS is required to be deducted even where benefits or perquisites may be used by owner, director, employee of the recipient entity, or their relatives who in their individual capacity may not be carrying on business or exercising a profession. TDS will be applicable in case of capital assets including allotment of shares or cars to directors. The guidelines, however, exempt government hospitals.

Additionally, the provision will not be applicable on sales discount, cash discount or rebates offered to customers, but will apply on the seller providing incentives other than discount or rebate, which are in cash or kind. These could be, for instance, car, TV, computers, gold coin, cell phone, sponsored trip, free ticket, or medicine samples to medical practitioners.

Business conferences will be exempt from TDS, with a rider that they do not include leisure component and family members accompanying participants stay before or beyond conference day.

Further, the guidelines said that the calculation of value would be considered from 1st April.

Chargeability of TDS on VDA

The Central Board of Direct Taxes (CBDT) released detailed guidelines about the taxability of transfers of virtual digital assets (VDA) by issuing Circular No. 13/2022 on June 22, 2022 explaining how tax will be deducted on transfer of cryptocurrencies. The new rules of TDS on VDA and crypto will come into effect from July 1, 2022.

As per the new law, the purchaser of a VDA is required to deduct 1% of the amount paid to the resident Indian seller as income tax deducted at source (TDS) under section 194S. The tax is required to be deducted at the time of credit of amount or at the time of payment to the resident individual, whichever is earlier. The tax will be deducted only if the amount paid exceeds the specified limit.

As per the circular issued by CBDT, the TDS on transfer of VDA, crypto will be applicable if:

  • If the amount paid (single or on aggregate basis) by the 'specified person’ i.e. the buyer exceeds ₹50,000 during the financial year; or

  • The amount paid (single or on aggregate basis) by any other person/buyer (other than 'specified person' as mentioned above) exceeds ₹10,000 during the financial year.

The following are defined as specified person for the purposes of this provision:

  • An individual or Hindu undivided family (HUF) who does not have any income under the head “profit and gains of business or profession”; and

  • An individual or HUF having income under the head “profits and gains of business or profession”, whose total sales/gross receipts/turnover from business carried on by him does not exceed ₹1,00,00,000 or in case of profession exercised by him does not exceed ₹50,00,000. This threshold is to be seen in the financial year immediately preceding the financial year in which the VDA is transferred.

 

Indirect Tax

Maharashtra AAR makes an Important Ruling

In an advance ruling under GST, the Maharashtra AAR has ruled that the amount received under lease rental services for residential purposes will be outside the ambit of GST. The ruling was made after M/S Kasturi and Sons Ltd approached the AAR that the Jurisdictional officer had ruled that giving properties on rent to LIC would not be residential in nature since, “LIC is not a natural person and LIC is profit making company. So, in order to increase profit, the facility of accommodation is given to employees, which is for commercial use and not for residential use.” Kasturi and Sons maintained that the properties were residential apartments and it proposed to let out on Leave and License basis to LIC of India specifically for the residential purpose of their staff members on fixed rentals / license fee basis.

Kasturi and Sons approached the AAR to know if they would be eligible for the exemption from payment of GST on the monthly license fee to be received by them on the proposed letting out on Leave and License Basis of their residential building.

In its ruling, the AAR held that GST exemption is provided by the nature of the property and its usage and not by the status of the recipient. Only if a residential property was either used or let out for commercial purposes then it would be classified as a service provided and attract GST whereas, property let out for residential purposes will be exempt from the GST ambit, said the AAR.

The GST applicability is not decided by the nature of the property but by the purpose for which it is used i.e. it is not the nature of the property, but the nature of the end use that will determine whether it is a commercial rent or residential rent, it added.

The AAR held that Kasturi and Sons would be eligible for the exemption from payment of GST on the monthly license fee to be received on the proposed letting out on Leave and License basis of their residential building.

Key Highlights of 47th GST Council Meeting

Tax exemptions were withdrawn and now taxed for:-

  • Cheques at 18%

  • Pre-packaged and pre-labeled items such as curd, lassi, and buttermilk at 5%

  • Maps at 12%

Also, capital goods used in petroleum and coal bed methane exploration will now be taxed at 12% instead of 5%.

Hotels with rent below ₹1,000 a night will attract 12%, and non-ICU hospital rooms with rent above ₹5,000 will be taxed at 5% without the input tax credit and more which were referred to in the chart below.

Online traders will now be treated on par with offline traders for GST registration requirements with respect to intra-state trade (subject to exemption limit). Whereas assessees registered in the composition scheme will also be allowed to make intra-state sales through e-commerce operators, effective from 1st January 2023.

The Council could not arrive at a decision for which it gave 15 days more to the Conrad Sangma panel to give a fresh hearing to the industry and states on the taxation of online gaming, horse racing, and casinos.

The GST Council will meet next in Madurai in August to decide on this issue and on setting up GST tribunals.


 

Business Management

Eviternal Management Lessons inspired by Arthashastra

Arthashastra, the treatise on Economic Administration is the first ever book written on Practice of Management, penned by Kautilya. Kautilya wrote this treatise for king Chandragupta Maurya and stated in its preface that it has been written as a guide for “those who govern”. It is astonishing to observe that several concepts of present day management theories have been explicitly explained by Kautilya in his work.

From the point of view of management of the kingdom, Kautilya’s recommendations to Chandragupta Maurya which are still applicable to the corporate world of the 21st century are as follows:

  • The king should run a diversified economy actively, efficiently, profitably and prudently.

  • Efficient management means setting up of realistic targets and meeting targets without using overzealous methods.

  • Wealth lies in economic activities. Proper direction and guidance from the king will ensure current prosperity and future gains. Inactivity of the king in economic sphere will bring the kingdom close to destruction.

  • The king must bear in his mind that a king with depleted treasury is a weak king and the easiest target for a takeover.

  • Profitability should not only mean surplus over costs. It should also mean provision of investment for future growth.

  • The king should take proper care in appointing advisors. He should have clarity in terms of qualities an advisor should possess. Most important being practical experience, thinking prowess, sound judgement and ability to differ while keeping total devotion to the king.

Arthashastra contains some really thought-provoking observations which can be rightfully construed as pearls of wisdom:

  • Knowledge: Knowledge is important. Knowledge is cumulative. Once it exists, it grows. Every new piece of knowledge reveals connections with other areas of knowledge. Each breakthrough in knowledge creates new opportunities that expand and multiply.

  • Planning: By failing to plan, an individual is planning to fail. Every effective performance is based on thorough preparation. An Individual should be firm about individual goal, but flexible about the process of reaching the goal.

  • Leadership: A great leader shows ability to make decision and act boldly in the face of setbacks and adversity. Power goes to the person who uses it most effectively. Leaders are sensitive to and are aware of the needs, feelings and motivation of those they lead. Foundation of leadership consists of honesty, truthfulness and straight dealing. Leaders develop ability to predict and anticipate the future. Self-discipline is the most important personal quality of a leader.

  • Success: Success needs action. Action needs initiative. For sustaining success, initiative to collect feedback is important. Feedback allows you to take corrective action, which sustains success. For every effect, there is a specific cause. Success is not an accident. Success is not based on chance. Success is not a matter of luck. Success is the result of well thought out action.

 

What's Buzzing ?

Future of SEZs lie in DESH

India is proposing to transform its narrow export-focused special economic zones (SEZs) into comprehensive economic hubs known as Development of Enterprise and Service Hubs (DESH).

  • The draft law for such revamp has met the services industry’s long-standing demand to allow partial denotification. The commerce & industry ministry has initiated the process to ease the process of de-notifying empty spaces of above 100 million square feet built-up area worth ₹30,000 crores in all the SEZs combined. Thus, the areas no more in demand can be used for industrial or other purposes.

  • The draft DESH bill also contains the establishment and maintenance of an online portal within 6 months from the date of commencement of the Act. It will serve as the single window clearance mechanism for the grant of time-bound approvals for the establishment and operation of Development Hubs, including the single application forms and returns.

  • The industrial units located in these hubs may be allowed to sell in the domestic market and also contract manufacture for those outside these zones. An equalisation levy may be imposed on goods or services supplied to the domestic tariff area to bring taxes on them at par with those provided by units outside the zones. However, concerns have been raised over the proposed equalisation levy that it might lead to instability.

  • Although the draft allows for disputes to be resolved through mediation, it also states arbitration to be the route "where the commercial dispute could not be settled or has been settled only in part by mediation". It also suggests the states looking to set up such zones will be able to set up boards for oversight which will also include private sector participation with one representative nominated by the developer concerned.

Fretful Time for Fintech Players

The Reserve Bank of India (RBI) had last year issued a master direction on prepaid payment instruments (PPI) in which it had barred fintech companies from loading prepaid payment instruments with credit lines. The RBI stated that the master direction only permits for these instruments “to be loaded/reloaded by cash, debit to a bank account, credit and debit cards, PPIs (as permitted from time to time) and other payment instruments issued by regulated entities in India and shall be in INR only".

According to Investopedia, a credit line is a flexible loan from a bank or financial institution. It is similar to a credit card that offers you a limited amount of funds — funds that you can use when, if, and how you wish — a line of credit is a defined amount of money that you can access as needed and then repay immediately or over a prespecified period of time.

Now, what are PPIs? According to the master direction, PPIs are the instruments that facilitate purchase of goods and services, financial services, remittance facilities, etc., against the value stored therein. As per the RBI, PPIs are classified under two types — small PPIs, and full-KYC PPIs. Small PPIs are issued by banks and non-banks after obtaining minimum details of the PPI holder. They can be used only for the purchase of goods and services, whereas funds transfer or cash withdrawal from such PPIs shall not be permitted.


Full-KYC PPIs are issued by banks and non-banks after completing Know Your Customer (KYC) of the PPI holder. These PPIs shall be used for purchase of goods and services, funds transfer or cash withdrawal.

After the Digital Lenders’ Association of India (DLAI) reached out to the government last week, the Payments Council of India (PCI) is urging the government to step into the matter. It was further reported that the RBI’s circular had come after many commercial banks raised concerns over likely breach of rules including anti-money laundering (AML) and KYC guidelines, by the fintech companies.

Now PCI says that wallets that comply fully with KYC norms should be treated on par with bank accounts and that they should be allowed to disburse credit. Further, it has argued that the current model of disbursing loans through PPI has led to greater financial inclusion and has helped the country move towards a cashless future.

The RBI’s latest move will significantly affect credit line-linked wallets and prepaid cards that allowed ‘Buy Now, Pay Later’.

Editorial Board: Ankush Pathak, Shubham Chy, Risesh Sinha, Tamojit Sengupta, Sonu Gupta.

 

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