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Economic slowdown biggest negative impact of DeMon: Survey

It has been three years since the Rs 500 and 1,000 notes were demonetised to curb the use of black money and fresh Rs 500 and 2,000 notes were released.

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Demonetisation Que

New Delhi, Nov 8 : A survey on the impact of demonetisation, done three years after it was done, has revealed its impact — 32 per cent said it caused loss of earnings for many unorganised sector workers, 2 per cent said it was a sizable migration of labour to villages and lowered rural income while 33 per cent said the biggest negative impact of demonetisation was the economic slowdown.

The survey done by a social media firm ‘LocalCircles’, was released on Friday here. The pan India survey was done to check how consumers were conducting transactions and whether they felt that demonetisation had brought any positive change for the country.

“When asked about the negative impact of demonetisation, 32 per cent respondents said that it caused a loss of earnings for many in the unorganised sector and two per cent said it led to migration of labour to villages and lower rural income. A sizable chunk of 33 per cent said the biggest negative impact of demonetisation was the economic slowdown. But, there was the 28 per cent chunk that felt that there was no negative impact”, the survey said.

An important goal of demonetisation was to reduce the use of cash in transactions and encourage people to pay using non-cash modes, but the use of cash in the Indian economy does not seem to be reducing, the report said.

While 28 per cent feel the demonetisation had no negative impact, it has also been reported that the amount of fake currency seized in the last three years has considerably shot up when compared to the pre-demonetisation time, the LocalCircles said.

The survey also said after three years of demonetisation, citizens identified the expansion of tax net as the top positive, and the economic slowdown and the loss of earnings for the unorganised sectors as the top negatives.

Percentage of citizens using cash as primary mode of transaction reduced by over 30 per cent in one year and the citizen feedback suggested cash component in property buying rose in the last year, it said.

It has been three years since the Rs 500 and 1,000 notes were demonetised to curb the use of black money and fresh Rs 500 and 2,000 notes were released.

After that the Centre has taken several measures to promote digital transactions, but according to the feedback from people via LocalCircles survey, though digital transactions are increasing year over year, a large number of people still prefer cash transactions over the digital transactions.

The 2,000-rupee note has made it easier for people to keep cash in stock. On a purchase of a property in the last 12 months, 33 per cent said they paid the full amount by e-payment or cheque while 10 per cent said they paid under 25 per cent in cash and rest via e-payment or cheque, and 57 per cent said they said 25-50 per cent in cash and rest via e-payment or cheque.

When asked for which category of purchases have they paid the most amount in cash (without receipt) in last 12 months, 31 per cent said salaries of domestic staff, 36 per cent said groceries, 5 per cent said discretionary purchases and eating out, and 7 per cent said property, rent & home repairs. One per cent each said jewellery and used vehicles while 7 per cent said they used cash to pay bribes while 12 per cent said they did not make any purchases in cash.

People were asked that three years after demonetisation, what they thought was its top benefit — 21 per cent said it reduced black money in the economy and 12 per cent said it increased direct tax collections, 42 per cent said it brought a large number of evaders in the tax net while 25 per cent said they felt demonetisation had no benefits at all.

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PSUs may pick stake in merged PFC-REC entity to keep 51% govt holding

Another option may be to get the LIC and one of the power sector PSUs to pick up 5 per cent each in the merged entity.

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PFC Merger

New Delhi, Feb 19 : State-run financial institutions or public sector enterprises such as LIC, NTPC, NHPC may pick up a stake in the Power Finance Corporation (PFC) to prevent government shareholding in the power sector financier from falling below the threshold 51 per cent level post merger with the REC.

The PFC, which bought 52.63 per cent of government equity in REC last March, is looking to merge the entity with itself. However, the exercise has been delayed by a year for want of viable options.

As per current regulations, 51 per cent government holding is needed to maintain the PSU character of an organisation. Post the PFC-REC merger, the government shareholding in the merged entity is expected to fall to about 42-43 per cent taking the company outside the PSUs fold.

“Various options are being looked at by Deloitte which has been appointed as a consultant to see through the completion of the merger. The option before it is to extinguish or reduce the liability on any of its (government) shares in respect of capital not paid up or cancelling any paid up capital that is lost or unrepresented by available assets. But, equity dilution in favour of another PSU would also work well as it will keep direct and indirect holding of government above 51 per cent level in merged entity,” said a government official privy to the development.

Under the plan, power sector companies may be permitted to pick up to 10 per cent equity in the new entity created after REC merges with PFC. Companies such as NTPC, NHPC, or the PowerGrid Corporation may be the likely candidates for this investment.

Sources also said that government may also consider going in for investment by the Life Insurance Corporation (LIC) in the merged entity to maintain the PSU character of PFC.

Another option may be to get the LIC and one of the power sector PSUs to pick up 5 per cent each in the merged entity.

In March 2019, the PFC acquired government’s 52.63 percent stake, or 104 crore shares, in another state-owned power financier REC at Rs 139.5 a piece, along with the transfer of management control. The cost of acquisition was Rs 14,500 crore.

PFC Chairman and Managing Director Rajeev Sharma had then said the PFC-REC merger would be next on the agenda and the process would be started in ongoing fiscal year. But with complications arising over government shareholding, the process has got delayed and merger may now be completed in the first quarter of next financial year (FY21).

The merger of two largest state-owned power sector financiers will create a common platform for lending to the sector. The PFC will benefit from the exercise as it would get access to the wide geographical reach of the REC and will also be able to leverage the expertise of REC in distribution and transmission.

The REC, on the other hand, will be able to leverage the expertise of PFC in the power generation space.

The merger will also facilitate resolution of stressed assets as the entity would be equipped with a wider pool of information.

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Wishful thinking to target $5 tn economy by 2025: Manmohan

Pathways can emerge only through solid dialogue and discussions on the challenges of taking the country forward, he added.

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Manmohan singh

New Delhi, Feb 19 : Lashing out at the government for its lack of focus, former Prime Minister Manmohan Singh on Wednesday termed the Centre’s hopes of turning India into a $5 trillion economy by 2024-25 as “wishful thinking”.

“Today the government does not want to acknowledge the word slowdown. This is not a good sign,” he said after releasing “Backstage – The Story Behind India’s High Growth Years” by former Planning Commission Deputy Chairman Montek Singh Ahluwalia.

“In such a scenario, raising India to become a $5 trillion economy by 2024-25 is wishful thinking”, he said.

Pathways can emerge only through solid dialogue and discussions on the challenges of taking the country forward, he added.

At the same time, he expressed the hope that there will be a debate for carrying forward the economic reforms innitiated.

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Research and development activity to get hit as WD benefit to cease from FY21

According to experts, R&D activity is a key proponent of the ‘Make in India’ strategy and to further expand the manufacturing sector in the country.

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Research and development activity

New Delhi, Feb 19 : India Inc’s R&D activity might get adversely impacted as weighted deduction (WD) benefits, including those on capital expenses, stand withdrawn from the next fiscal.

Till now, the Income Tax Act allowed for weighted deduction for all R&D activities.

However, four years back a sunset provision was introduced in the Budget on the availability of weighted deduction from April 1, 2020.

This deadline was expected to have been extended in this year’s Budget. However, that did not happen.

“The weighted deduction was a key reason for entities to invest in R&D infra. This withdrawal will impact future investments in this area,” said Amarjeet Singh, Senior Partner, International Tax and Regulatory, KPMG in India.

According to experts, R&D activity is a key proponent of the ‘Make in India’ strategy and to further expand the manufacturing sector in the country.

Besides, R&D investments into India have grown with many MNCs establishing their research bases here.

“The ‘Make in India’ programme has got the booster of a reduced tax rate. Similarly, had the government continued with the weighted deduction for R&D, it would have surely ensured that India marched ahead both in manufacturing and in the corresponding R&D,” said Gukul Chaudhri, Partner, Deloitte India.

“So, while India may not lose its tag as the R&D lab of the world, the availability of weighted deduction would have ensured that India continued as one of the most attractive destinations for R&D in the world,” Chaudhri added.

The Finance Act, 2016, restricted the availability of expenditure incurred on scientific research to 150 per cent from April 1, 2017, and no weighted deduction from April 1, 2020.

“Globally, most countries are encouraging R&D activity as it generates new ‘intellectual property’ (IP), which in turn creates sustainable revenues. Such IP or new product gives rise to a new industry and other supporting activities,” said Samir Kanabar, Partner, Tax and Regulatory Services, Ernst & Young.

“In India, several sectors like auto, pharma etc. have invested substantially in R&D facilities to develop new IPs, patents and hence, a new tax regime to boost R&D was a major expectation,” Kanabar added.

However, Suman Chowdhury, President, Ratings, Acuite Ratings and Research, said that the reduction in weighted tax deduction will not have any significant effect on India Inc’s R&D activity.

“India’s R&D activity has held steady at 0.7 per cent of GDP over 5 years and no visible signs of positive outcomes were seen emanating from private enterprises despite such benefits,” Chowdhury said.

“Nevertheless, corporates now enjoy a reduced effective corporate tax structure, which should more than compensate for the loss, at least for the manufacturing sector. Service oriented enterprises, whose business model thrives on innovation, do not require incentives to do R&D in our opinion,” Chowdhury added.

(Rohit Vaid can be contacted at [email protected])

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