by admin | May 25, 2021 | Business, Corporate, Corporate Buzz, Medium Enterprise, SMEs
Kolkata : Apparel exporters are losing competitiveness by around 9 per cent in export markets after the implementation of GST and want a higher reimbursement of central and state levies to stall the continuing decline in exports.
“Post GST, there is an erosion of competitiveness by around 9 per cent for garment exports. Although we have a GST refund now, there was no vat (value added tax) on our materials earlier,” Apparel Export Promotion Council’s export promotion committee Chairman Anil Buchasia told reporters here on Tuesday.
“The export promotion benefits that we used to get were to the tune of 11.93 per cent in pre-GST regime while the same now stands at 3 per cent.”
The demand for a higher reimbursement of central and state levies has come after a 39 per cent decline of apparel exports for October. For July-October, there has been a drastic fall of 5.94 per cent in overall exports of apparels from India, he said.
The decline was mainly on account of sharp reductions in the effective drawbacks and rebate on state levies, he added.
Under drawback, exporters get the reimbursement of duties they have paid on the imported items used in the finished goods.
Buchasia said the drawback mechanism, prior to Goods and Services Tax, reimbursed both the customs duties and domestic taxes like central excise and service tax. But after GST, the drawback rates are now only reimbursing the customs duties. For other duties, the argument is that those would be available as part of the credit chain.
“We have suggested an alternative mechanism for reimbursements of central and state levies. We have also urged the government that in addition to the GST credit, the various blocked and embedded taxes should be refunded at the earliest,” Buchasia said.
According to him, the industry was “not in a position to bear further losses” and in the absence of policy incentives the sector would be “forced to shed jobs”.
—IANS
by admin | May 25, 2021 | Business, Economy, Finance, Large Enterprise, Markets, Medium Enterprise, News, Politics, SMEs
(Note Ban Series)
By Rohit Vaid,
New Delhi : The backbone of India’s manufacturing sector — micro, small and medium enterprises (MSMEs) — had not yet recovered from the demonetisation move when the Goods and Services Tax (GST) came in to add to the pain, according to industry stakeholders.
“The base of the MSME pyramid is comprised of informal sector, which has traditionally done business in cash. With withdrawal of cash, this market seized up for a quarter or so. They (MSMEs) are limping back to normality,” Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small and Medium Enterprises (FISME), told IANS.
“The recovery is slow because of the new disruption in the form of GST. In the short term, there could be loss of business opportunities because of lack of capital in the informal markets,” he said.
Bhardwaj said that the housing sector, which had more than 60 product categories linked to MSMEs, was drastically hit, both directly and indirectly.
According to D.S. Rawat, Secretary General of Assocham, except for some payment gateways, most of the sectors lost out.
“The impact of demonetisation would have evaporated, but the GST roll-out issues are being braved by some sectors, particularly the SMEs and the traders,” Rawat told IANS.
In the Economic Watch report by Ernst & Young for September 2017, demonetisation has been blamed for an adverse impact on the economy in the short run, as its “benefits are yet to overtake” the costs.
“The government and people at large did have to bear considerable costs in the immediate aftermath of demonetisation. Some of these costs may be difficult to quantify, but objective evidence of the short-term costs is available in at least some important dimensions,” the report said.
“There was an erosion of growth, output and employment,” it added.
The overall economic growth is still contested, however, as some argue that the downward spiral in gross domestic product (GDP) growth preceded demonetisation.
“Though the GDP growth has been lower post the exercise, it will not be fair to conclude that demonetisation was the only factor responsible for this. The growth had started slowing right after the third quarter of 2016-17 and the trend continued post-November as well,” said Ranen Banerjee, Partner-Public Finance, Economics and Urban, at PwC India.
Others like the EY’s report indicate that demonetisation resulted in a “tangible adverse impact” on GDP growth.
“Real GDP growth has been falling steadily quarter after quarter since the fourth quarter of FY16, when it was nine per cent. It fell to 5.7 per cent in first quarter FY18, a decrease of 3.3 percentage points,” the report pointed out.
“The two quarters that can be considered as the demonetisation quarters in FY17 were the third quarter of FY17 and fourth quarter of FY17. In these two quarters, the GDP growth rate fell to seven per cent and 6.1 per cent, respectively.”
It mentioned that the downward trend in growth preceded demonetisation and was largely caused by an investment slowdown.
On the industrial production front, in December 2016, the Index of Industrial Production (IIP) had contracted by 0.4 per cent from a 13-month high of 5.7 per cent reported for November.
However, it rose 2.7 per cent in January 2017. The latest IIP figures for August showed that factory output grew 4.3 per cent against the same month last year on the back of robust mining and electricity sector growth.
According to the Ministry of Statistics and Programme Implementation, manufacturing output in the country in July 2017 had grown marginally by 1.2 per cent.
“The event clearly pushed the economy towards a higher degree of digitisation and financial inclusion. Accordingly, the digital finance sector seems to have gotten a push while over the longer term financial services should be the biggest gainer,” said Anis Chakravarty, Lead Economist, Deloitte.
(Rohit Vaid can be reached at rohit.v@ians.in)
—IANS
by admin | May 25, 2021 | Economy, Finance, Markets, News, Politics
(Note Ban Series)
By Venkatachari Jagannathan,
Chennai : The adverse impact of demonetisation on the Indian economy would be transitory, according to global and domestic credit rating agencies.
However, the current slowdown could partially be attributed to implementation of the Goods and Services Tax (GST) introduced in July, they say.
“While the aim of demonetisation to curb the use of black money was in line with the government’s broader reform agenda, the cash crunch it caused contributed to significantly lower real GDP (gross domestic product) growth in the March quarter,” Thomas Rookmaaker, Director, Sovereigns and Supranationals Group at Fitch Ratings, told IANS.
“This negative impact on growth seems transitory, just like the effect on growth, because of GST implementation in the July quarter,” he added.
According to analysts at the rating agencies, economic growth in India would accelerate again in the second half of the year.
“Demonetisation was a major structural change that the Indian economy underwent, which led to disruption on the demand and supply side and thereby the overall economy,” Kavita Chacko, Senior Economist, CARE Ratings, told IANS.
Chacko said economic performance, as seen from the quarterly GDP growth, saw a sharp deterioration since the third quarter (October-December) in 2016-17.
“GDP growth (year-on-year) fell from seven per cent in Q3FY17 to 6.1 per cent in Q4FY17 and further declined to 5.7 per cent in Q1FY18, the slowest pace of growth in five years,” she said.
This slowdown in the economy could partly be attributed to the disruptions caused by demonetisation. GST implementations too had contributed to the economic weakness, Chacko added.
Asked whether demonetisation has achieved its objective of curbing black money, Rookmaaker answered in the negative.
“The fact that 99 per cent of the bank notes have found their way back to the RBI (Reserve Bank of India) seems to suggest that demonetisation was not very effective in rooting out black money and reducing the informal sector,” Rookmaaker said.
“Implementation of the GST may actually be more effective in formalising informal business, as it seems to help draw small firms into the tax net,” he added.
According to Rookmaaker, the bounce back is likely to happen in the second half of the year. “It is still uncertain how long the drag on growth from demonetisation and GST implementation will persist. But our baseline scenario is that growth will accelerate again in the second half of the year. This seems to be supported by a sharp and fairly broad-based recovery in industrial production in August,” Rookmaaker said.
India’s sovereign credit profile would benefit from an improvement in government finances, which currently stand out as a major weakness compared with its peers, Rookmaaker said.
Other rating agencies say that except for two sectors, there would be no long-term impact of demonetisation. “We believe there is no lasting impact in most sectors, barring real estate and the gems and jewellery sector,” Abhishek Dangra, Director in the Corporate Ratings Group, Standard & Poor’s (S&P) Global Ratings, told IANS.
He said the companies in these two sectors, which traditionally relied significantly on cash transactions, had been forced now to make structural changes owing to policy level changes that limit high value cash transactions.
“Companies in the automobiles and consumer durable sectors have a high — and an increasing degree of — financing penetration, muting the impact of demonetisation, despite initial disruption. We expect demand/supply and the commodity price environment to have a greater impact on most sectors,” Dangra added.
Saswata Guha, Director, Financial Institutions, at Fitch, said that the increase in liquidity with the banks had not been fully taken advantage of.
“I think the benefit to the banking sector in terms of heightened liquidity post-demonetisation was pretty clear. While funds are gradually finding way into the broader financial system (like asset management, insurance), the impact is still quite benign on banks from a liquidity perspective since credit growth remains pretty weak,” Guha told IANS.
(Venkatachari Jagannathan can be contacted at v.jagannathan@ians.in)
—IANS
by admin | May 25, 2021 | Banking, Business, Corporate, Corporate Governance, Economy, Finance, Markets, Medium Enterprise, News, Politics, SMEs
(Note Ban Series)
By Nivedita,
New Delhi : Style, it would appear, never goes out of fashion. But the passion to spend on designer clothes and accessories took a beating in the past year, ever since the Narendra Modi government implemented the demonetisation policy. The introduction of the Goods and Services Tax (GST) in July added to the woes, say designers.
“Demonetisation was a wonderful move by the government, but it was badly executed. They did not see the entire scenario. It has disrupted the business (of fashion). There were a lot of times that my employees — like tailors and embroiderers — could not go to the bank. Demonetisation impacted them badly,” Rahul Mishra, a regular participating designer at the Paris runways, told IANS.
The stress, he says, was felt more by weavers, embroiderers, tailors and craftspersons. The introduction of GST on July 1 impacted the same set of people more than others.
“I am not against GST. We work with handmade clothes and labour is intensive. So if I supply merchandise worth Rs 1 crore, then 12 per cent needs to be paid upfront as GST. Next month, again if I am supplying, then I have to pay 12 per cent, so I have to pay so much to GST and then wait for the sale to happen.”
He says the government should encourage the handmade industry by bringing in separate laws for it. “I want to pay taxes on what I am selling because if I am not selling, then business is less, opportunity is less and so is potential for employment,” said Mishra.
A report by Investment Information and Credit Rating Agency of India (ICRA) stated that the Indian textiles and apparel industry, which accounts for almost 24 per cent of the world’s spindle capacity and eight per cent of global rotor capacity, has been struggling due to the impact of demonetisation and GST.
The report stated that the disruptions caused by demonetisation and transition to the GST regime has “narcotised the Indian apparel and fabric industry”.
Other designers say they are witnessing reduced business, but they are hopeful that the forthcoming wedding season may bring a touch of relief. Many feel that banning of Rs 500 and Rs 1,000 currency notes was a good move to weed out corruption in the country, even though it took its toll on the design world. GST only added to their troubles.
Designer Samant Chauhan is disappointed that the festive season failed to raise the shoppers’ spirit.
“I always knew that the market is slow and we will get good sales in Diwali. But things were not that great during the festive time either, with sales at less than half. There was no (big) party happening on Diwali, so why will people buy designer clothes. I think the note ban did have an impact on that (party culture).
He said that after demonetisation, prices of yarns and fabric went up. “Only those people survived who had systems (workstations and mills). There was a huge crunch of fabric as most of the weavers were in the bank getting their cash. When things normalised, the prices went up,” he added.
Sunil Sethi, President, Fashion Design Council of India (FDCI), the country’s apex fashion body, admitted that sales had slumped due to demonetisation and GST.
“I’m hoping that the business is going to be regularised in the near future. Certain amount of discipline has set in for both the customer and designer. However, there is no doubt that the volume of business has gone down, which is not a good sign. Hoping for the market to pick up soon,” Sethi told IANS.
Menswear designer Pawan Sachdeva echoed the sentiment. “The effect of demonetisation has lingered even after a year. The luxury market has faced a major slowdown. Even as the effects of demonetisation hadn’t lessened, GST was introduced as a new policy, slowing the market even more,” he said.
The major problem, according to him, was that cash flow declined sharply, resulting in slashing of up to almost 80 per cent of luxury sales. “This Diwali, the sales were extremely low as compared to previous years. It will take a lot of time for the market to recover at this rate,” Sachdeva said.
(Nivedita can be contacted at nivedita.s@ians.in)
—IANS
by admin | May 25, 2021 | Investing, Opinions, Property
(Note Ban Series)
By Vinod Behl,
Though the government’s radical measure of demonetisation has disrupted the economy and has hit the real estate sector — already reeling under prolonged slowdown — it will turn out to be a blessing in disguise in the medium-to-long term.
As an asset class, real estate has been a big source of generating and consuming black money. The cash component in real estate has been there at various levels, beginning with land transactions where it amounts to 30-50 per cent. The cash payout is quite high in luxury housing too. The consumption of cash has been as high as 30 per cent in secondary market transactions.
The primary market transactions, however, are by far bereft of cash component as home purchases are financed through loans from banks and housing finance corporations. It is another matter that even in primary market deals, developers have been encouraging cash payouts by luring property buyers with good discounts on property price.
The speculative buying by investors through offerings like underwriting and pre-launches has also been involving cash payout, leading to artificial price hike and in turn making homes out of the reach of masses.
Demonetisation, coupled with the government’s move to check benami transactions through legislation and curbs on cash transactions, was meant to clean up the system.
This sudden ‘shake up’ was, however, not without its adverse impacts. Demonetisation badly affected the liquidity in the capital-intensive real estate sector, deepening the problem of massive fund shortage/cash crunch faced by developers reeling under delayed deliveries, which deterred buyers from purchasing property.
The impact was more evident in markets like NCR and Mumbai which were largely investor-driven, compared to southern markets of Bengaluru and Chennai and even Pune in the west, which have been end-user driven. The premium/luxury residential segment, in which the cash component was more in transactions, got impacted by demonetisation.
Real estate experts’ belief that the impact of demonetisation is only short-term and will not have long-term impact, stems from the fact that developers who have been following transparent and fair practices have not been affected by demonetisation and instead it worked out to their advantage.
This also turned out to be a positive development for big global real estate consultants like JLL India which doubled its profits in 2016 over 2014-15, with 60 per cent revenue growth.
One key positive impact of demonetisation and RERA (Real Estate Regulation Act) has been that speculative investors deserted real estate and end-users/genuine buyers, who were all these years pushed to the sidelines, came out in large numbers. Now, it is the property consumers who are driving the real estate market, especially residential market, aided by the government’s pro-industry and pro-consumer initiatives.
The step to promote affordable housing and according real estate industry status for the purpose of making easy and cheap funds available to the sector also helps.
Demonetisation has particularly boosted foreign funding. The transparency brought in by demonetisation, aided by RERA, GST reforms and liberalisation of FDI norms, has boosted the confidence of foreign investors, which is clearly evident from the spurt in foreign investments, particularly from pension funds.
This will inject much needed liquidity in the sector starved of funds. Targeting consumers, the government under the Pradhan Mantri Awas Yojana (PMAY), is providing substantial interest subsidy to home buyers. The clampdown on floating cash in the system has contributed significantly to curbing inflation which, in turn, helped RBI in cutting interest rates, thereby boosting home buying.
The proposed measures to liberalise FSI norms and rationalise stamp duty, will give further fillip to the residential sector, particularly affordable housing.
Demonetisation had a salutary impact on property prices by curbing cash transactions and checking speculative pricing, in turn increasing affordability, which is a key to achieve the government’s flagship mission of ‘Housing for All’. RERA & GST are further aiding demonetisation to control prices.
The key provisions in RERA, to speed up project completion, by checking diversion of funds through mandatory escrow account, stringent penalties to check project delays, together with the government’s move to make all building sanctions online, will go a long way in checking time and cost overruns of real estate projects, thereby controlling home prices.
The ban on pre-launching of projects under RERA will also check artificial spurt in pricing. GST has come to tackle the flow of cash in the purchase of building materials by introducing input credit tax. Further, the government’s plans to liberalise FSI norms, especially for affordable homes, and rationalising stamp duty will have a sobering effect on property prices.
But for some little lingering effect, economists and real estate experts believe that the overall downside impact of demonetisation has faded and its impact is not going to be there in the next quarter.
Says Ashwinder Singh, formerly CEO of JLL India & now CEO of leading real estate consultancy, Anarock Consultants: “Other than in terms of the initial confusion-induced decline in sentiment, the trend that is emerging now, points towards a recovery in buying sentiment with serious buyers already returning to primary markets.”
The entire demonetisation exercise undertaken by the government and aided by other reforms, like Benami Property Act, RERA and GST, is to be looked at in the backdrop of the government’s multi-pronged policy to create institutional and regulatory framework for speedy and steady growth of the economy. And at the centre of all these initiatives is real estate, which is a key contributor to GDP. Going forward, these policy initiatives will help make real estate more organised, transparent, credible and affordable, making the sector investor and consumer friendly.
(Vinod Behl is editor, Realty Plus, a leading real estate monthly. He can be reached at vbehl2008@gmail.com )
—IANS
