October 2020 Economic Affairs

Sakshi Education

Last date for filing of Income Tax and GST returns extended till 31st of December
Government has extended the due date for filing GST Annual Return in FORM GSTR-9 and GSTR-9A and Reconciliation Statement in FORM GSTR-9C for Financial Year 2018-19 from 31st October to 31st December, 2020.

Filing of Annual Return (FORM GSTR-9 and GSTR-9A) for 2018-19 is optional for taxpayers who had aggregate turnover below 2 crore rupees.

The filing of Reconciliation Statement in FORM 9C for 2018-19 is also optional for the taxpayers having aggregate turnover upto 5 crore rupees.

Government had received a number of representations regarding the need to extend the due date for filing Annual Return and Reconciliation Statement for 2018-19 on the ground that due to COVID-19 pandemic related lockdown and restrictions, normal operation of businesses have still not been possible in several parts of the country.
GDP will witness a contraction of over 10% - WEF
October update of the World Economic Outlook 2020 Says, India's gross domestic product (GDP) will witness a contraction of over 10%.

This is more than the double of 4.5% contraction projected in the April edition.

World Economic Outlook is a survey by the International Monetary Fund (IMF) which is usually published twice a year in the months of April and October.

Global growth would contract by 4.4% in 2020 and bounce back to 5.2% in 2021.

Indian economy, severely hit by the pandemic, is projected to contract by 10.3% in 2020.

The spread of the Covid-19 and containment measures have severely disrupted supply and demand conditions in India.

However, India is likely to bounce back with an 8.8% growth rate in 2021, thus regaining the position of the fastest-growing emerging economy, surpassing China’s projected growth rate of 8.2%.

Among the major economies, China is the only country to show a positive growth rate of 1.9% in 2020.
Cabinet approves Mechanism for procurement of ethanol
Cabinet approves Mechanism for procurement of ethanol by Public Sector Oil Marketing Companies under Ethanol Blended Petrol Programme.

Cabinet Committee on Economic Affairs has approved the fixing higher ethanol price derived from different sugarcane based raw materials under the Ethanol Blended Petrol (EBP) Programme for the forthcoming sugar season 2020-21 during Ethanol Supply Year (ESY) 2020-21 from 1st December 2020 to 30th November 2021.

Also, the prices of ethanol obtained from C heavy molasses, B heavy molasses have been increased. The increase in price was around Rs 2 to 3 per litre. Additionally, the oil companies will now have to pay transportation charges and GST while procuring ethanol.

Remunerative price to ethanol suppliers will help in reduction of cane farmer’s arrears, in the process contributing to minimizing difficulty of sugarcane farmers.

Government has been implementing Ethanol Blended Petrol (EBP) Programme wherein OMCs sell petrol blended with ethanol up to 10%. This programme has been extended to whole of India except Union Territories of Andaman Nicobar and Lakshadweep islands.

This was to reduce the energy dependence of India from oil imports and also to boost agriculture. Also, Ethanol Procurement Policy was adopted under the EBP programme.

In 2018, for the first time, Government of India notified administered price of ethanol based on the raw material used in production.
IFSCA introduces Framework for Regulatory Sandbox to tap into innovative FinTech solutions
The International Financial Services Centres Authority (IFSCA), to develop a world-class FinTech hub at the IFSC located at GIFT City in Gandhinagar (Gujarat, India), endeavours to encourage the promotion of financial technologies (‘FinTech’) initiatives in financial products and financial services across the spectrum of banking, insurance, securities and fund management.

Highlights:
In the Sandbox framework, entities operating in the capital market, banking, insurance and financial services space shall be granted facilities to experiment with innovative FinTech solutions in a live environment and also can be with a limited set of real clients for a particular time frame.

These features of the framework shall be done with necessary safeguard measures for investor protection and risk mitigation.

The Regulatory Sandbox will within the IFSC located at GIFT City.

The organisation shall assess the applications and extend suitable regulatory relaxations to begin limited required testing in the Sandbox.

The details like eligibility criteria, the application and approval process and other operational aspects of the Sandbox

will be available in the circular.

The Innovation Sandbox will be managed and facilitated by the MIIs operating within the IFSC.
Highlights of Injeti Srinivas Committee report
The Injeti Srinivas Committee submitted its second interim report to the chairperson of International Financial Services Centres Authority (IFSCA).

It was an IFSCA Expert Committee that was constituted to study about the international retail business development in IFSC.

Highlights
This interim report covers a number of suggestions aimed at swift and efficient development of international retail businesses in the IFSC, and focuses on recommendations for international insurance activity to flourish in the IFSC.

This report follows the first interim report, covering banking-related proposals which were submitted on September 11, 2020.

Other key business verticals, i.e., asset management and capital markets, will be covered in reports that the committee will submit in due course.

Recommendations
Permit Non-resident Indians (NRIs)/ Persons of Indian Origin (PIOs) to buy Life Insurance policies for themselves as well as their family members who are based in India and abroad from companies set up in the IFSC and allow them to pay premium in the currency of their choice (including Indian rupees).

Permit NRIs/PIOs to buy portable life insurance policies which offer them flexibility to pay premium in INR or in foreign currency, based on their choice, after they return to India.

Permit residents to buy overseas health insurance for themselves and their dependents (in India and overseas) from insurance companies or intermediaries in the IFSC for medical treatment anywhere in the world.

Allow insurance companies to offer health insurance products to NRIs/PIOs including covering their family members who are based in India.

Permit insurance companies in the IFSC to offer personal accident cover, baggage loss, documents loss cover and travel health insurance anywhere in the world for NRIs/ PIOs and to any other non-resident.

IFSC should emerge as Reinsurance Hub for Asia and Africa with more reinsurers encouraged setting up base in IFSC. IFSC can also emerge as Aviation insurance Hub for the world.

Insurers are allowed to set up subsidiaries in IFSC to promote business.

Indian investors are allowed to set up direct and reinsurance companies with lower capital requirements to promote insurance abroad.

Foreign reinsurance brokers are encouraged to set up base in IFSC to create a vibrant insurance market.

According to the committee the Indian Insurance sector is underperforming as compared to those in developed economies. The committee believes that IFSC it has potential to become an engine of economic growth for India.

Services provided by IFSC

It provides fundraising services

Wealth Management

Global tax management

Global and regional corporate treasury management

Risk management

Merger and acquisition services

Insurance and reinsurance services
GDP Revival Forecast: RBI
The Monetary Policy Committee of the Reserve Bank of India (RBI) has announced the extension of its accommodative policy stance for the rest of this year as well as 2021-22 and forecasted a GDP revival in coming months.

RBI had previously introduced a number of measures in its Monetary Policy Report for dealing with the Covid-19 induced economic setback.

Key Points
RBI has kept key policy rates unchanged to revive growth of the economy and mitigate the economic impact of Covid-19 pandemic.

The Repo and reverse repo rate unchanged at 4% and 3.35% respectively because of high inflation.

Risk weights, i,e, the capital required to be set aside on individual home loans, have been relaxed and the loan limit for retail and small business borrowers have been raised.

This would give a boost to the job-intensive real estate sector that has been suffering in the pandemic.

Real-Time Gross Settlement (RTGS) will be available round the clock.

Targeted Long Term Repo Operations (TLTRO) of Rs 1,00,000 crore for the revival of specific sectors, and Open Market Operations (OMOs) for State Development Loans (SDLs) have been announced.

This will assure market participants of access to liquidity and easy finance conditions.

Long Term Reverse Repo Operation (LTRO) is a mechanism to facilitate the transmission of monetary policy actions and the flow of credit to the economy. This helps in injecting liquidity in the banking system.

Open Market Operations (OMO) is one of the quantitative monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.

OMOs are conducted by the RBI by way of sale or purchase of government securities (g-secs) to adjust money supply conditions.

The central bank sells g-secs to commercial banks to remove liquidity from the system and buys back g-secs to infuse liquidity into the system.
RBI to move to NGTA for managing forex, gold reserves
The Reserve Bank of India (RBI) has decided to move to the Next Generation Treasury Application (NGTA) for managing India's foreign exchange and gold reserves in order to improve its functioning.

Highlights:
With this introduction, the NGTA will be a web-based application providing scalability, maneuverability and flexibility to introduce new products and securities along with multi-currency transactions and settlements.

The main objectives of the the objectives of the proposed NGTA system includes:

reserve management

portfolio management

workflow management

integration with various third party and in-house systems

dashboards, reports, widgets

dealing in various asset classes like Fixed Income Securities, Money Market, Forex, and Gold

Earlier, RBI has invited bids for NGTA from eligible vendors

The NGTA would support various transactions in asset classes like Money Market (MM), Fixed Income (FI), Forex (FX), and Gold.

The proposed NGTA would be used for managing the foreign exchange reserves in a more efficient way, mitigate risk, achieve operational efficiencies, dealing in various asset classes and reporting.

Also, the proposed NGTA will automatically fetch all the relevant details of a security and contract from a trading platform.
Norms on non-essential imports from China
Director-General of Foreign Trade (DGFT), India, has banned the import of air conditioners (all types) and refrigerants in a bid to increase domestic manufacturing.

With the move, India has further tightened norms on non-essential imports from China.

Highlights
The move is aimed at providing a big boost to domestic production.

The government, wants local manufacturers to step up production and sale, in line with Aatmanirbhar Bharat mission.

All of them (ACs and refrigents) have been moved from “free” to “prohibited” category.

The country had earlier put the import of television sets under a restricted list and had asked importers to seek licenses from the DGFT.

The domestic market of air conditioners in India is huge and is believed to be around $5-6 billion.
Reliance General partners SatSure Analytics for crop insurance business operations
Reliance General Insurance on 05th October, 2020 said it has partnered with SatSure for satellite-based crop monitoring and predictive analytics support to better risk management and improve efficiency of its crop insurance business operations.

As part of the partnership, RGICL will supply extensive ground observation data and generate timely reports through SatSure Analytics' SAGE platform, combining the analysis of Earth Observation data, the company said in a release.

It will help address the key areas of crop health, soil moisture, crop sown area, crop yield estimation and crop loss estimation, the company added.

The insurer said it is in 4th year of successful execution of its crop insurance business and has always relied on technology to strengthen its capabilities.

'This partnership is in-line with our commitment as an organization to enable financial inclusion of farmers by empowering insurance and finance institutions with capacity, intelligence, and outreach to service farmers,' said PrateepBasu, CEO of SatSure Analytics.

RGCIL is a 100 per cent subsidiary of Reliance Capital.
Interest subvention on MSME loans extended till end of March 2021: RBI
The Reserve Bank of India has said that the two per cent interest subvention scheme for micro, small and medium enterprises (MSMEs) on loans offered by co-operative banks has been extended till 31st of March next year (2021).

In a statement, RBI has further informed that the scheme, initially announced for just two years, has been extended for the financial year 2020-21. RBI said that the coverage of the scheme is limited to all term loans and working capital to the extent of 100 lakh rupees, adding that the requirement of Udyog Aadhaar Number may be dispensed with for units eligible for GST.

RBI has also asked co-operative banks to take appropriate action as envisaged in the operational guidelines and issue necessary instructions to their branches or controlling offices for successful implementation of the scheme.
Finance Minister Launched Indian Bank’s Business Mentoring Programme ‘MSME Prerana’
On October 6, 2020, Union Minister of Finance & Corporate Affairs, Nirmala Sitharaman, launched “MSME Prerana” an online business mentoring programme for Micro, Small & Medium Enterprises (MSMEs) by Indian Bank in collaboration with Poornatha& Co, at the bank’s headquarters in Chennai, Tamil Nadu.

As per Indian Bank, it is the first-of-its-kind initiative by a bank in India for the MSME sector.

Poornatha& Co designs entrepreneurial development programs in vernacular languages using online web-based interactive sessions and case studies.

Key points
MSME Prerana will bridge the gap in business skills as well as communication & Human Resource (HR) by providing inputs in simple terms and in the local vernacular.

Its 12 session programmes will be available in local languages. The first two programs will be in Tamil for the Coimbatore clusters of Indian Bank. After which it will be expanded pan-India in Hindi, Telugu, Kannada, Bengali and Gujarati.

Notably, the sessions on managerial and financial skills will be conducted by Poornatha& Co while the banking related topics will be handled by Indian Bank.

On successful completion, all participants will get a certificate, issued jointly by Indian Bank, Poornatha& Co and MADE (Michigan Academy for Developing Entrepreneurs), United States (US).
Contraction in GDP of India in 2020-21: World Bank
The World Bank released its South Asia Economic Focus report which estimated that India’s Gross Domestic Product (GDP) can contract by 9.6% in 2020-21.

This estimate is way below the earlier forecast of 3.2% contraction, made in June.

Key Points
The contraction is due to the impact of the national lockdown against the outbreak of the Covid-19 pandemic and the income shock experienced by households and small urban service firms.

The manufacturing and exporting industries are likely to be depressed, and the construction sector is also likely to experience a protracted slowdown.

This is due to a limited pipeline of public sector infrastructure projects and reliance of these industries on migrant workers who have not yet returned to cities where they worked.

Significant disruptions to jobs are likely to boost the poverty rate, with 2020 rates back to levels in 2016.

The biennial Poverty and Shared Prosperity Report was recently released by the World Bank which stated that Covid-19 can add around 27-40 million new poor in Sub-Saharan Africa and around 49-57 million in South Asia region, causing over 1.4% of the world’s population to fall into extreme poverty.

The demand slowdown could lead to rising loan non-repayment and risk aversion impacting the financial markets.

Other concerns include health care system capacity constraints, rising food prices, sharp drops in earnings of informal workers, impact on the MSMEs etc.
PCA Decision on Retrospective Taxation by India
The Permanent Court of Arbitration (PCA) at The Hague (Netherlands) ruled that India’s retrospective imposition of a tax liability, as well as interest and penalties on Vodafone Group for a 2007 deal was violation of the Bilateral Investment Treaty with Netherlands and the arbitration rules of United Nations Commission on International Trade Law (UNCITRAL).

Key Points
In May 2007, the British telecommunication company Vodafone Group had bought a 67% stake in a company called Hutchison Whampoa.

For this, the Indian government for the first time raised a demand of capital gains and withholding tax from Vodafone, under the Income Tax Act of 1961. The government argued that Vodafone should have deducted the tax at source before making a payment to Hutchison.

It is the tax paid on income that derives from the sale or exchange of an asset, such as a stock or property that's categorized as a capital asset.

In 2012, the Supreme Court ruled in favour of the Vodafone Group.

Later, the Finance Act was amended (2012) giving the Income Tax Department the power to retrospectively tax such deals.

Vodafone then initiated arbitration in 2014 invoking the Bilateral Investment Treaty signed between India and the Netherlands in 1995.

The International Arbitration Tribunal at Permanent Court of Arbitration ruled that the government’s demand is in breach of fair and equitable treatment.

The government must cease seeking the dues from Vodafone.

This was a unanimous decision meaning that India's appointed arbitrator also ruled in favour of Vodafone.

India has said it would study the order and all its aspects and take a decision on further course of action including legal remedies before appropriate fora.

According to Indian Government, as Vodafone had not paid the initial tax demand and interest and penalty on it, the question of India paying back the amount does not arise.

India has the option to move to Singapore International Arbitration Centre as well.
ESG Funds Becoming Popular in India
The ESG funds are increasingly becoming popular in the mutual fund industry in India. Recently, ICICI Prudential Mutual Fund has come out with its ESG fund.

The first ESG mutual fund was launched by the State Bank of India - SBI Magnum Equity ESG Fund.

Key Points
ESG is a combination of three words i.e. environment, social and governance.

It is a kind of mutual fund. Its investing is used synonymously with sustainable investing or socially responsible investing.

Typically, a mutual fund looks for a good stock of a company that has potential earnings, management quality, cash flows, the business it operates in, competition etc.

However, while selecting a stock for investment, the ESG fund shortlists companies that score high on environment, social responsibility and corporate governance, and then looks into financial factors.

Therefore, the key difference between the ESG funds and other funds is 'conscience' i.e the ESG fund focuses on companies with environment-friendly practices, ethical business practices and an employee-friendly record.

The fund is regulated by Securities and Exchange Board of India (SEBI).