Week 8

Tax Collector đź’°

August 29, 2020

Good Morning,

Welcome! I hope you have your “Subah Kee Chai” ready and you're excited to read your weekly 10-minute digest. 

I want to start off by apologizing for a shorter than normal newsletter this week. 

This week covered the GST Council meeting, which resulted in two options for states to compensate for the lost tax revenue. In addition, the Indian Government released details regarding "Unlock 4" as the country slowly adapts to the new normal. Lastly, the "other news" section hosted some pretty unique stories this week. 

I hope you enjoy today's newsletter,

Now let’s get into the news.

Markets

Green, Green, Green! 

Both equity markets performed extremely well this week with Friday being the sixth consecutive daily increase.

were among the top gainers on Friday. On the contrary, Infosys, Powergrid, Hindustan Unilever, and Asian Paints were the top losers. According to domestic traders, the consecutive increase throughout the week was due to sustained foreign fund inflow and positive cues from Asian indices. 

In addition, the

saw its highest gain in over six months as foreign investors piled into Indian equity markets. In numbers, the Indian Rupee rose 2% this week sitting at (USD 1: INR 73.14).  

On Saturday, the Central Government announced the provisions for

, here are the key takeaways:

1. Metro Rail services will be operational from September 7th.

2. Social/entertainment/sports/religious/cultural/political functions will be permitted, with a limit of 100 people, from September 21st. 

3. Open-air theatres will be allowed to run from September 21st. 

Lockdown measures will still be imposed in containment zones. Masks are mandatory! 

Goods and Services Tax (GST)

The Goods and Services Tax (GST) meeting was held on Thursday to discuss states' compensation for revenue losses due to COVID-19 and options for the future. Here is a brief summary of how the meeting unfolded. 

Key definitions:

Cess:

 a form of tax charged over the base tax liability of a taxpayer.

Debt issue:

Financial obligation that allows the issuer to raise funds promising to repay the lender in the future as per the terms of the contract. 

  Act of God

During the meeting, finance minister Nirmala Sitharaman stated that the economy is currently facing

situation which may result in economic contraction. As most of us are aware, the novel coronavirus brought economic activity to a standstill between March - June, after which the country is now slowly returning back to normality. While the lockdown resulted in unemployment, business closures, and a rise in uncertainty, it also served as a major detriment to the Government's GST revenue.

  What are the numbers? 

As per the center's calculation, the total shortfall faced by states is around

. However, INR 65,000 crore will be paid off through revenues gained through cess. As a result, the shortfall sits at 2.35 lakh crore, out of which, INR 97,000 crore is GST shortfall according to revenue secretary Ajay Bhushan Pandey. Due to the reduction in GST collection, and slow economic activity State governments have approached the center seeking compensation. 

 

What are the options? 

During the meeting, the

for states to choose between. 

Option 1:

The shortfall in GST collection can be borrowed by States through the issue of debt under a special window coordinated by the Ministry of Finance and the Reserve Bank of India. This special window borrowing will mirror the regular GST compensation system already present. The interest on the borrowed amount during the special window will be paid using the additional Cess revenue. States that opt for this option will not be required to repay the debt using any other source. 

Option 2:

The total shortfall worth INR 2.35 lakh crore can be compensated by States issuing market debt. Unlike option 1, States will be required to pay off any interest using their own resources. While on face value this option seems disadvantageous, it may serve in favor of the states who seek compensation for lost GST revenue through issuing market debt, as they might pay a lower interest rate as compared to the one proposed by the RBI under option 1.  

States can choose their preferences over the next 7 working days. It is important to note that these options are only being made available during the current fiscal year due to the economic pressures caused by COVID-19. In 2021, the council will decide a new plan. 

Simplified

While the above information is complex, it is important to take away the main key points: 

1. COVID-19 has slowed domestic production and consumption leading to a shortfall in GST collection. 

2. States need tax revenue to run their states, and due to the shortfall, they sought assistance from the central government.

3. The central government provided two options to either borrow directly from the Reserve Bank of India or by issuing market debt to compensate for the lost tax revenue.  

4. The interest on the borrowed amount will be repaid in the future either by the additional Cess revenue defined above (option 1) or through the States resources (option 2). 

Sports 

IPL

, who earlier announced his retirement from international cricket, will, unfortunately, miss this season's IPL due to personal reasons. 

In addition, the BCCI confirmed that thirteen individuals, including two players, who flew with the Chennai Super Kings to the UAE

for the novel coronavirus. While no names have been disclosed, all individuals are asymptomatic and are in isolation. 

 

Messi

While unrelated to the Indian sports world, a huge announcement sent shockwaves across the globe as Lionel Messi handed in his transfer request. While his next team is unconfirmed, the football legend is speculated to go to Manchester City. Football fans eagerly await the 33-year old's next destination.  

Other News

1. Due to the new norm of "avoiding contact" as a result of COVID-19,

has decided to drop its 64-year old slogan "finger-licking good" 

2. Following an internal review,

is laying off 5% of its global workforce. In numbers, if that were to be applied to India, that is 10,000 workers at risk of losing their jobs. The decision comes after CEO Julie Sweet stated that the company was not in a "demand-scenario" right now. 

3. On the contrary,

is seeking to hire over 1000 employees to boost expansion across their business. 

4. In a move to compete with Amazon and Reliance,

showcased its plan to launch an all-in-one e-commerce app.  

5. The

(DCGA) will draft rules which will allow passengers to browse the internet while flying on Indian commercial flights. 

Quiz

Quiz time!  

Can you decipher the following sentence? 

T M C

A U O

H S M

W T E 

Get thinking, it's a tough one! 

See you next week!

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See you next week!

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Quiz Answer: "What goes up must come down" 

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Written by: Adnan Bahrainwala (Founder of Subah Kee Chai)