Rising GST Revenues
According to the Finance Ministry's recent data, the gross Goods and Services Tax (GST) revenue collected in October 2020 was Rs. 1.05 lakh crore.
- It is 10.25% higher than in 2019 and 10.1% more than the revenue garnered in September 2020.
- The total revenue earned in October by the Central and State governments stood at Rs. 44,285 crore and Rs. 44,839 crore, respectively.
- GST cess collections, used to compensate the States for switching to the GST regime, rose to Rs. 8,011 crore, which is over 5% more than in 2019 and 12.5% higher than September 2020.
- October's revenues from import of goods were 9% higher, while domestic transactions (including import of services) yielded 11% higher revenues, on a year-on-year basis.
➤ Status of the States:
- Andhra Pradesh and Chhattisgarh recorded the highest 26% growth in GST collections in October year-on-year, followed by Jharkhand (23%) and Rajasthan (22%).
- The trend in the more industrially developed States was mixed, with 15% growth in Gujarat, 13% in Tamil Nadu and just 5% in Maharashtra.
- The surge in October's GST inflows could be attributed to the festive demand and input tax credits and other reconciliations that were due for businesses in September.
- Many companies raised sale invoices in September by pushing out their finished products planned in March itself.
- Input Tax Credit: The GST that a merchant pays to procure goods or services (i.e. on inputs) can be set off later against the tax applicable on supply of final goods and services. The set-off tax is called an input tax credit.
- India's manufacturing sector activities started to show signs of growth in August and September, driven mainly by a pick-up in production along with improvement in customer demand.
- GST inflows crossing the Rs. 1 lakh crore mark for the first time in the financial year (FY) 2020-21 is a clear sign of a recovery in the economy after its 23.9% contraction in the first quarter of 2020.
- The expected shortfall in GST compensation for the States could be lower than the current estimate of Rs. 2.35 lakh crore if this revenue momentum is maintained through the rest of 2020-21.
- According to the Consortium of Indian Associations, October's GST inflows must not be considered a return to normalcy for businesses as these revenues normally relate to sales that occurred in September, when a majority of the economy, including public transport, was unlocked.
Goods and Services Tax
It is a comprehensive, multi-stage, destination-based indirect tax that is levied on every value addition.
The Goods and Service Tax Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.
Under the GST Council and 101st constitutional amendment 2017, the tax is levied at every point of sale.
GST is categorised into Central GST (CGST), State GST (SGST) and Integrated GST (IGST) depending on whether the transaction is intra-State or inter-State.
- Central GST: CGST is a tax levied on intra-State the CGST Act governs supplies of both goods and services by the Central Government and.
- State GST: SGST is also levied on the same intraState supply but will be governed by the State Governments.
- This implies that both the Central and the State governments agree on combining their levies with an appropriate proportion for revenue sharing between them.
- However, it is clearly mentioned in Section 8 of the GST Act that the taxes be levied on all intra-State supplies of goods and/or services, but the tax rate shall not be exceeding 14%.
- Integrated GST: IGST is a tax levied on all interState supplies of goods and/or services and is governed by the IGST Act.
It is applicable to any supply of goods and/or services in both cases of import into and export from India.
- The consortium of Indian Associations is an umbrella body of Micro, Small and Medium Enterprises (MSME).
- November and December data has to be awaited before confidently saying that the economy has rebounded to pre-Covid-19 times.
Provisions For Platform Workers
Recently, the Code on Social Security 2020, for the first time in Indian law, has attempted to define 'platform work' outside of the traditional employment category.
- In September 2020, Lok Sabha introduced three labour codes on industrial relations; occupational safety, health and working conditions; and social security.
- They proposed simplifying the country's archaic labour laws and giving impetus to economic activity without compromising the workers' benefits.
- These labour codes can have a transformative impact on India's labor relations. Along with the Code on Wages Act 2019, these can significantly ease business conduct by amalgamating a plethora of Central and State laws on labour.
➤ Provisions of the Code on Social Security 2020:
- It will replace nine social security laws, including the Maternity Benefit Act, Employees' Provident Fund Act, Employees' Pension Scheme, Employees' Compensation Act, among others.
- It universalises social security coverage to those working in the unorganised sector, such as migrant workers, gig workers and platform workers.
- Aggregators, meaning "digital intermediaries or a market place for a buyer or users of a service to connect with the seller or the service provider", are specifically required to contribute to the social security fund.
- For the first time, social security provisions will also be extended to agricultural workers also.
- The code also reduces the time limit for receiving gratuity payment from the continuous service of five years to one year for all kinds of employees, including fixed-term employees, contract labour, daily and monthly wage workers.
➤ Definition of Platform Work under the Code:
Platform work means a work arrangement outside of a traditional employer-employee relationship in which organisations or individuals use an online platform to access other organisations or individuals to solve specific problems or to provide specific services or any such other activities which may be notified by the Central Government, in exchange for payment.
➤ Significance of Platform Work:
- It promises workers flexibility and ownership over the delivery of work.
- Important for delivery of essential services as seen during the pandemic.
- Employment intensive sector.
- Potential for growth due to the fast pace of urbanisation.
- Development of rural areas due to remittances sent by platform workers.
➤ Issues with the Sector:
- Workers are largely dictated by mechanisms of control wired by the algorithm, which affects pricing per unit of work, allocation, and hours.
- Entry into such platform work like ride-sharing and food delivery requires vehicular assets which an average Indian worker lacks. Thus, to enter the platform economy, workers rely on intensive loan schemes, often facilitated by platform aggregator companies. This results in dependence on platform companies, driven by financial obligations, thus rendering flexibility and ownership.
- Leads to the contractualisation of the workforce and promotes the gig economy.
- A company engaging in greater contractualisation often has a higher turnover rate of personnel, creating a disruptive operational environment and leading to higher training costs and higher incidence in costs of errors.
- Gig Economy is a free market system where temporary positions are common and organisations hire independent workers for short-term commitments. The term “gig" is a slang word for a job that lasts a specified period.
According to the data released by the National Payments Corporation of India (NPCI), the total number of transactions conducted on the Bharat Interface for Money-Unified Payments Interface (BHIM-UPI), known more simply as the UPI, crossed the 2 billion transactions count in a month in October 2020.
- UPI is currently the biggest among the NPCI operated systems including National Automated Clearing House (NACH), Immediate Payment Service (IMPS), Aadhaar enabled Payment System (AePS), Bharat Bill Payment System (BBPS), RuPay etc.
- Digital transactions were already on the rise but the lockdown imposed during the pandemic provided a thrust and the value of UPI transactions crossed the 200 crore-mark.
- The Reserve Bank of India (RBI) had advised to resort to digital payment due to the threat of coronavirus spreading through physical exchange of currency. This resulted in businesses accepting mostly prepaid orders and rising in digital transactions.
- Further, after conveniently paying utility bills and even receiving cash back at times, people might now be preferring to transact digitally. So, their habit may have played an important role in this thrust.
- India's digital payments industry is likely to grow from Rs. 2,153 trillion at 27% Compounded Annual Growth Rate (CAGR) to Rs. 7,092 trillion by 2025.
- The growth is likely to come on the back of strong use cases of merchant payments, government policies including Jan Dhan Yojana, personal data protection bill, the growth of MSMEs, and the growth of millennials and high smartphones penetration.
- The threat of cybercrime on the global banking and financial services industry has increased amid the coronavirus pandemic.
- E.g. Malicious Software Cerberus
- Fraudulent claims, chargebacks, fake buyer accounts, promotion/coupon abuse, account takeover, identity theft, card detail theft and triangulation frauds are emerging as challenges.
National Payments Corporation of India
- NPCI, an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks' Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.
- It is a "Not for Profit" Company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act, 2013), to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems.
Various NPCI Operated Systems
Bharat Interface for Money-Unified Payments Interface (BHIM-UPI):
- It is an initiative to enable fast, secure, reliable cashless payments through the mobile phone. BHIM is based on Unified Payment Interface (UPI) to facilitate e-payments directly through banks. It is an app.
- UPI is an advanced version of Immediate Payment Service (IMPS) - round-the-clock funds transfer service to make cashless payments faster, easier and smoother.
- This system powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
- It also caters to the "Peer to Peer" collect request which can be scheduled and paid as per requirement and convenience.
➤ Aadhaar enabled Payment System (AePS):
- AePS allows people to carry out financial transactions on a Micro-ATM by furnishing just their Aadhaar number and verifying it with the help of their fingerprint/iris scan.
- This system adds another layer of security to financial transactions as bank details would no longer be required to be furnished while carrying out these transactions.
➤ National Electronic Toll Collection (NETC):
- It helps in electronic toll collection at toll plazas using FASTag.
- FASTag is a device that employs Radio Frequency Identification (RFID) technology for making toll payments directly while the vehicle is in motion.
- FASTag (RFID Tag) is affixed on the vehicle's windscreen and enables a customer to make the toll payments directly from the account linked to FASTag.
- RFID tagging is a system that uses small radio frequency detection devices for identification and tracking purposes.
➤ National Automated Clearing House (NACH):
- It is a service offered by NPCI to banks which aims at facilitating interbank high volume, low value debit/credit transactions, which are repetitive and electronic in nature.
➤ Immediate Payment Service (IMPS):
- It offers an instant 24x7 interbank electronic fund transfer service through mobile phones.
- IMPS is an emphatic tool to transfer money instantly within banks across India through mobile, internet and ATM.
➤ Bharat Bill Payment System (BBPS):
- It is a tiered structure for operating a unified bill payment system.
- NPCI functions as the authorised Bharat Bill Payment Central Unit (BBPCU), which is responsible for setting business standards, rules and procedures for technical and business requirements for all the participants.
- Under BBPS, the Bharat Bill Payment Operating Units (BBPOUs) function as entities facilitating collection of repetitive payments for everyday utility services, such as, electricity, water, gas, telephone and Direct-to-Home (DTH).
- RuPay is the first-of-its-kind domestic card payment network of India, with wide acceptance at ATMs, POS devices and e-commerce websites across India. It is a highly secure network that protects against anti-phishing.
- The name, derived from the words 'Rupee and 'Payment', emphasizes that it is India's very own initiative for Card payments.
Emergency Credit Line Guarantee Scheme
The Union Government has extended the Emergency Credit Line Guarantee Scheme (ECLGS) by one month till 30th Nov, 2020, or till such time that an amount of Rs. 3 lakh crore is sanctioned under the Scheme, whichever is earlier.
- The scheme was launched as part of the Aatmanirbhar Bharat Abhiyan package announced in May 2020 to mitigate the distress caused by coronavirus-induced lockdown, by providing credit to different sectors, especially Micro, Small and Medium Enterprises (MSMEs).
- Objective: To provide fully guaranteed and collateral free additional credit to MSMEs, business enterprises, MUDRA borrowers and individual loans for business purposes to the extent of 20% of their credit outstanding as on 29th February, 2020.
- 100% guarantee coverage is being provided by the National Credit Guarantee Trustee Company, whereas Banks and Non Banking Financial Companies (NBFCs) provide loans.
- Eligibility: Borrowers with credit outstanding up to Rs. 50 crore as on 29th February, 2020, and with an annual turnover of up to Rs. 250 crore are eligible under the Scheme.
- On 1st August, the government widened the scope of the Rs. 3 lakh crore-ECLGS scheme by doubling the upper ceiling of loans outstanding and including certain loans given to professionals like doctors, lawyers and chartered accountants for business purposes under its ambit.
- Tenor of loans provided under the Scheme is four years, including a moratorium of one year on principal repayment.
- Interest rates under the Scheme are capped at 9.25% for Banks and Financial Institutions (FIs), and 14% for NBFCs.
- Present Status: As per data uploaded by Member Lending Institutions on the ECLGS portal, many Rs. 2.03 lakh crore has been sanctioned under the Scheme to 60.67 lakh borrowers so far, while an amount of Rs. 1.48 lakh crore has been disbursed.
National Credit Guarantee Trustee Company Ltd
- NCGTC is a private limited company incorporated under the Companies Act, 1956 in 2014, established by the Department of Financial Services, Ministry of Finance, as a wholly owned company of India's Government, to act as a common trustee company for multiple credit guarantee funds. o Credit guarantee programmes are designed to share the lending risk of the lenders and in turn, facilitate access to finance for the prospective borrowers.
Virtual Global Investor Roundtable
Recently, the Prime Minister has chaired the Virtual Global Investor Roundtable (VGIR), intending to attract investment into the country.
- Virtual Global Investor Roundtable: It is an exclusive dialogue between leading global institutional investors, Indian business leaders and the highest decisionmakers from the Government of India and Financial Market Regulators.
- Organised by: Ministry of Finance and the National Investment and Infrastructure Fund (NIIF).
- Focus for 2020: Discussions around India's economic and investment outlook, structural reforms and the government's vision for the path to a USD 5 trillion economy by 2024-25.
- National Investment and Infrastructure Fund
- NIIF is a government-backed entity established to provide long-term capital to its infrastructure sector.
- The Indian government has a 49% stake in NIIF with the rest held by foreign and domestic investors.
- With the Centre's significant stake, NIIF is considered India's quasi-sovereign wealth fund.
- It was set up in December 2015 as a Category-II Alternate Investment Fund.
- Across its three funds viz. Master Fund, Fund of Funds, and Strategic Opportunities Fund, it manages over USD 4.3 billion of capital.
- Its registered office is in New Delhi.
- Aatmanirbhar Vision: It is a well-planned economic strategy that aims to use the capabilities of India's businesses and skills of its workers to make India into a global manufacturing powerhouse.
- ESG Score: India has companies ranking high on Environmental, Social and Governance (ESG) scores.
- National Infrastructure Pipeline: Under it, India has an ambitious plan to invest USD 1.5 trillion in various social and economic infrastructure projects, aiming for faster economic growth and poverty alleviation in the country.
- Initiatives Taken to Improve Manufacturing Potential and Ease of Doing Business:
- One Nation, One Tax system in the form of Goods and Services Tax (GST), one of the Lowest Corporate Tax rates and Faceless regime for Income Tax (IT) assessment and appeal.
- A new labour laws regime balancing workers' welfare and ease of doing business for the employers and Production LinkedIn Incentive schemes in specific sectors.
- Initiative Taken for the Development of the Financial Sector:
- Unified authority for the International Financial Services Centre, liberal Foreign Direct Investment (FDI) regime, suitable policy regimes for investment vehicles like Infrastructure Investment Trust and Real Estate Investment Trust.
- Implementation of Insolvency and Bankruptcy Code (IBC), financial empowerment through Direct Benefit Transfer and fin-tech based payment systems like Ru-Pay cards and BHIM- UPI.
- The opportunity created by the National Education Policy 2020 in setting up campuses of foreign universities in India was also highlighted.
Saffron Cultivation in Northeast
A pilot project of saffron cultivation has yielded successful results in Sikkim's Yangyang village, which produced its first crop of saffron recently.
- Saffron is a plant whose dried stigmas (threadlike parts of the flower) are used to make saffron spice.
- Saffron cultivation is believed to have been introduced in Kashmir by Central Asian immigrants around the 1st Century BCE.
- It has been associated with traditional Kashmiri cuisine and represents the region's rich cultural heritage.
- It is a very precious and costly product.
- In ancient Sanskrit literature, saffron is referred to as 'bahukam'.
- It is cultivated and harvested in the Karewa (highlands) of Jammu and Kashmir.
- It rejuvenates health and is used in cosmetics and for medicinal purposes.
- It has been associated with traditional Kashmiri cuisine and represents the region's rich cultural heritage.
- In India, saffron Corms (seeds) are cultivated during June and July and at some places in August and September.
- It starts flowering in October.
- Saffron grows well at an altitude of 2000 meters above sea level. It needs a photoperiod (sunlight) of 12 hours.
- Soil: It grows in many different soil types but thrives best in calcareous (soil that has calcium carbonate in abundance), humus-rich and well-drained soil with a pH between 6 and 8.
- Climate: For saffron cultivation, we need an explicit climatological summer and winter with temperatures ranging from no more than 35 or 40 degree Celsius in summer to about -15 or -20 degree Celsius in winter.
- Rainfall: It also requires adequate rainfall that is 1000-1500 mm per annum.
➤ Saffron Producing Regions in India:
- Saffron production has long been restricted to a limited geographical area in the Union territory of Jammu & Kashmir.
- Pampore region, commonly known as Saffron bowl of Kashmir, is the main contributor to saffron production.
- Pampore Saffron Heritage of Kashmir is one of India's Globally Important Agricultural Heritage systems (GIAHS) recognised sites.
- Other districts producing saffron are Budgam, Srinagar, and Kishtwar districts.
- Recently, the Kashmir saffron got Geographical Indication (GI) tag status.
➤ Production & Demand in India:
- India cultivates about 6 to 7 tonne of saffron while the demand is 100 tonne. o To meet the growing demand of saffron the Ministry of Science and Technology, through the Department of Science and Technology (DST), is now looking at extending its cultivation to some states in the Northeast (Sikkim now, and later to Meghalaya and Arunachal Pradesh). There is a huge similarity of climate and geographical conditions between Kashmir and few regions of Northeast.
➤ North East Centre For Technology Application and Reach (NECTAR), an autonomous body under the DST in collaboration with the Botany and Horticulture departments of Sikkim Central University implemented a pilot project in Yangyang village of South Sikkim.
- The extension of saffron production will help in meeting the annual demand in india.
- It will help in reducing imports.
- It will also diversify agriculture and provide new opportunities to the farmers in the NorthEast.
➤ Other initiatives by the government:
- The National Saffron Mission was sanctioned by the central government in the year 2010 to extend support for the creation of irrigation facilities through tube wells and sprinkler sets, which would help produce better crops in the area of saffron production.
- Recently, the Institute of Himalayan Bioresource Technology (CSIR-IHBT) and the Government of Himachal Pradesh, have jointly decided to increase the production of the two spices namely, Saffron and Heeng (asafoetida).
- Under this plan, IHBT will be introducing new varieties of saffron and heeng from the exporting countries and will be standardized under Indian conditions.
Annual Meeting of IBA
The Indian Banks' Association (IBA) has recently held its 73rd annual general meeting virtually. In the meeting, the Finance Minister of India suggested that the banks bring new reforms and promptly implement the existing ones.
- IBA is an association of Indian banks and financial institutions, formed on 26th September 1946 and is based in Mumbai.
- EASE (Enhanced Access and Service Excellence) Reforms Agenda, launched in January 2018, was commissioned through IBA.
➤ On Linking Aadhar:
- Aadhaar-seeded bank accounts are needed to reach people by Direct Benefit Transfer (DBT).
- Banks should link every account with the customer's Aadhaar number by 31st March 2021 to stop the duplication of accounts and verify the unverified accounts.
➤ On Widening Financial Inclusion:
- Even though there are 42 crore Jan Dhan bank accounts in India, there is a need to widen financial inclusion by adding more people.
- Banks should promote RuPay cards over others now that the card network has become global and also make sure that all Indian customers have it.
- RuPay is the first-of-its-kind domestic Debit and Credit Card payment network of India.
- It was launched by the National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payment and settlement systems.
➤ On Digitisation:
- Unified Payments Interface (UPI) should be a common parlance word in all the banks.
- UPI is a single platform that merges various banking services and features under one umbrella, established by the NPCI together with the Reserve Bank of India (RBI) and IBA.
- Non-digital payments should be discouraged to give impetus to the Digital India Initiative.
➤ On Amalgamation of Banks:
- There is a need for more large banks that can finance large projects and for that more amalgamation as big as State bank of India (SBI) are needed.
- Amalgamation should not just remain as an exercise to bring two or three banks together, it should now become an organic mechanism to grow, and to grow to such scales that the new demands from the industry, economy, and businesses can all be met up in a changing world.
- Large banks are also needed as much as the smaller finance companies, smaller banks, and Non-Banking Financial Companies (NBFCs).
- While India has only about 500-600 banks, including the regional rural ones, the USA has around 26,000 banks with a fourth of India's population.
- There is only one Indian bank (SBI) in the top 100 globally, against 18 in China.
➤ On Lending:
- Banks must not shy away from lending, especially when the economy is facing major challenges and as lending is their principal business and they must lend after undertaking prudent risk management rather than avoid lending altogether.
Technical Recession in India
According to the Reserve Bank of India's "nowcasting", India's economy will contract by 8.6% in the second consecutive quarter (July, August, September) of the current financial year which means the economy is in a 'technical recession'.
- In simpler words, a technical recession is two quarters in a row of economic contraction.
- Nowcast in economics means predicting the present or the very near future of the state of the economy.
- Nowcast began with the first issue of the Bulletin in January 1947, but interrupted during the period 1995 to date.
➤ Current Scenario:
- In the second quarter the pace of contraction is 8.6%.
- This is considerably slower than the 23.9% decline in the real GDP during the first quarter (April, May, June).
- The contraction implies that India has entered a technical recession in the first half of 2020-21 for the first time in its history.
Key Economic Words
- Gross Domestic Product (GDP) is the final value of the goods and services produced within the geographic boundaries during a specified period, normally a year.
- Expansionary Phase: When the overall output of goods and services typically measured by the GDP increases from one quarter (or month) to another.
- Recessionary Phase: When the overall production of goods and services typically measured by the GDP decreases from one quarter (or month) to another.
- Business Cycle: It is composed of concerted cyclical upswings and downswings in the broad measures of economic activity which are output, employment, income, and sales, in other words, it is a cycle created by the expansionary and recessionary phases clubbed together.
- Recession: It is a macroeconomic term that refers to a slowdown or a massive contraction in economic activities for a long enough period. It can be said that when a recessionary phase sustains for long enough, it is called a recession.
- Depression: It is a deep and long-lasting period of negative economic growth, with output falling for at least 12 months and GDP falling by over 10% or it can be referred to as a severe and prolonged recession.