Pradhan Mantri Jan Dhan Yojana

Pradhan Mantri Jan Dhan Yojana is an ambitious scheme for comprehensive financial
inclusion launched by the Prime Minister of India, Narendra Modi on 28 August 2014 He had
announced this scheme on his first Independence Day speech on 15 August 2014.

Run by Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5
Crore (15 million) bank accounts were opened under this scheme. By September 2014, 3.02
crore accounts were opened, with around INR1500 crore (US$240 million) were deposited
under the scheme, which also has an option for opening new bank accounts with zero
balance.

In a run up to the formal launch of this scheme, the Prime Minister personally mailed to
CEOs of all PSU banks to gear up for the gigantic task of enrolling over 7.0 crore (75 million)
households and to open their accounts. In this email he categorically declared that a bank
account for each household was a "national priority".

The scheme has been started with a target to provide 'universal access to banking facilities'
starting with "Basic Banking Accounts" with overdraft facility of Rs.5000 after six months
and RuPay Debit card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan
Card. In next phase, micro insurance & pension etc. will also be added.

Under the scheme:

1. Account holders will be provided zero-balance bank account with RuPay debit card, in
addition to accidental insurance cover of Rs 1 lakh.

2. Those who open accounts by January 20, 2015 over and above the 1 lakh accident, they
will be given life insurance cover of Rs 30,000.

3. After Six months of opening of the bank account, holders can avail 5,000 loan from the
bank.

4. With the introduction of new technology introduced by National Payments Corporation of

India (NPCI), a person can transfer funds, check balance through a normal phone which was
earlier limited only to smart phones so far.

5. Mobile banking for the poor would be available through National Unified USSD Platform
(NUUP) for which all banks and mobile companies have come together
Performance

Due to the preparations done in the run-up, as mentioned above, on the inauguration day,
1.5 Crore (15 million) bank accounts were opened. The Prime Minister said on this occasion-
"Let us celebrate today as the day of financial freedom." By September 2014, 3.02 crore
accounts were opened under the scheme, amongst Public sector banks, SBI had opened 30
lakh accounts, followed by Punjab National Bank with 20.24 lakh accounts, Canara Bank
16.21 lakh accounts, Central Bank of India 15.98 lakh accounts and Bank of Baroda with
14.22 lakh accounts. It was reported that total of 7 Crore (70 million) bank accounts have
been opened with deposits totaling more than 5000 crore Rupees (approx 1 billion USD) as
of November 6, 2014.

New Development Bank

The New Development Bank (NDB), formerly referred to as the BRICS Development Bank, is
multilateral development bank operated by the BRICS states (Brazil, Russia, India, China and
South Africa) as an alternative to the existing US-dominated World Bank and International
Monetary Fund.

On 15 July 2014, the first day of the 6th BRICS summit held in Fortaleza, Brazil, the group of
emerging economies signed the long-anticipated document to create the $100 billion BRICS
Development Bank and a reserve currency pool worth over another $100 billion.[5] Both will
counter the influence of Western-based lending institutions and the dollar. Shanghai was
selected as the headquarters after competition from New Delhi and Johannesburg. An
African regional center will be set up in Johannesburg.

The first president will be from India, the inaugural Chairman of the Board of directors will
come from Brazil [3] and the inaugural chairman of the Board of Governors will be Russian.

The bank's primary focus of lending will be infrastructure projects with authorized lending of
up to $34 billion annually. South Africa will be the African Headquarters of the Bank named
the "New Development Bank Africa Regional Centre". The bank will have starting capital of
$50 billion, with capital increased to $100 billion over time. Brazil, Russia, India, China and
South Africa will initially contribute $10 billion each to bring the total to $50 billion.

Contingent Reserve Arrangement (CRA)

This fund will consist of $10 billion of "paid-in capital" ($2 billion from each member to be
provided over seven years) and an additional $40 billion to be "paid upon request". Out of
the total initial capital of $100 billion, China will contribute $41 billion, Brazil, Russia and
India would give $18 billion each, and South Africa would contribute $5 billion. It is
scheduled to start lending in 2016.
 DISINVESTMENT IN INDIA
Disinvestment can also be defined as the action of an organisation (or government) selling
or liquidating an asset or subsidiary. It is also referred to as ‘divestment’ or ‘divestiture.’

In most contexts, disinvestment typically refers to sale from the government, partly or fully,
of a government-owned enterprise.

A company or a government organisation will typically disinvest an asset either as a strategic

move for the company, or for raising resources to meet general/specific needs.

Importance of Disinvestment
Presently, the Government has about Rs. 2 lakh crore locked up in PSUs. Disinvestment of
the Government stake is, thus, far too significant. The importance of disinvestment lies in
utilisation of funds for:

1. Financing the increasing fiscal deficit

2. Financing large-scale infrastructure development
3. For investing in the economy to encourage spending
4. For retiring Government debt- Almost 40-45% of the Centre’s revenue receipts go
towards repaying public
debt/interest 
5. For social programs like health and education

The government had approved diluting its equity stakes in Coal India Ltd (CIL), ONGC and
NHPC. The stake sales in these three bluechip companies could fetch government about Rs
42,000-43,000 crore. Sources say the disinvestment in the three companies would be done
through the Offer For Sale (OFS) process, popularly known as the auction route.

But, Disinvestment should be avoided in the sectors which directly connected to common
people like oil, sugar etc. There should not be monopoly of private players.

Disinvestment allows private player havin the knowledge of the sector comes in the board
and help the company take actions which will make it feasable project which was other wise
loss making. And might suggest for technological innovation. And might infuse new good
managers who can motivate the work force to work effectively and efficiently. And therby
contributing toward the growth of the company.

CHALLENGES:

1. Public sector companies must be freed of the all-encompassing control of their nodal
ministries. Over and over again, it is clear that politicians and bureaucrats in the
ministry see their local public sector undertakings as a source of patronage and of
perquisites.
 2. The public sector's bloated workforce, too, must be trimmed - if necessary, by paying
people to sit at home for a few years - so that the companies' balance sheets look
more attractive.
3. Political pressure from left and opposition
4. Loss making units don’t attract investors easily
5. Lack of well-defined investment policy

A QE proposal for Europe’s crisis

MARIO DRAGHI understands that to stave off deflation, the ECB must not only reverse the
steady diminution of its balance sheet, but boost it by something in the order of €1 trillion
over the next few years. On the other hand, Mr Draghi is politically constrained regarding
the class, and volume, of assets he can purchase without testing the limits of his influence
over Berlin.

Thus, caught between its operational problem and macroprudential concerns, the ECB
seems confined to the role of a spectator of unimpeded deflationary forces. It is easy to
resign ourselves to this paralysis. But it is wrong and unnecessary. Here is something that
the ECB could do that overcomes its twin problems (the operational constraint and
macroprudential concerns regarding QE) while spearing investment-led recovery without
new government debts and without violating any treaties (including the ECB’s own charter).

The proposal is for QE to focus exclusively on European Investment Bank (EIB) bonds.* The
idea is simple:

1. Europe desperately needs large-scale, growth-inducing investment.

2. Europe is replete with idle cash which people are scared to invest into productive
activities, fearing lack of aggregate demand once the goods roll off the production
line.
3. The ECB wants to buy high-quality paper assets in order to stem the deflationary
expectations that are the result of the above.
4. The ECB does not want to have to buy German, Italian or Spanish assets lest it be
accused of favouring one of those countries.

In this scenario, the ECB enacts QE by purchasing solid eurobonds. The bonds issued by the
EIB/EIF are issued on behalf of all EU states. In this manner, the operational concern about
which nation’s bonds to buy is alleviated. By purchasing large quantities of EIB bonds, the
ECB can, in partnership with the EIB, help shift idle savings (that currently depress yields on
all investments) into productive activities.
 MAKE INDIA CAMPAIGN
Seeking to make the country a global manufacturing hub, Prime Minister Narendra Modi
launched the ambitious 'Make in India' campaign in the presence of global and domestic
CEOs this week. The focus will be on 25 sectors and the respective ministries - heavy
industries, telecom, power and others - have been involved.

The 'Make in India' campaign is aimed at making India a manufacturing hub, and the
government is pulling out all the stops for ensuring a smooth sailing for investors, by setting
up a dedicated cell to answer queries of business entities within 72 hours. It will also closely
monitor all regulatory processes to make them simple and reduce the burden of
compliance.

The Centre's objective is to get manufacturing sector to grow over 10% on a sustainable
basis in the long run. It has planned global outreach through a digital campaign. They have
liberalised the FDI regime. The idea is to send across the message to foreign investors that
India is becoming a better place to do business.

Let's have a look at five challenges that the 'Make in India' could face:

1. Creating healthy business environment will be possible only when the administrative
machinery is efficient - procedural and regulatory clearances.

2. To make the country a manufacturing hub the unfavourable factors must be

removed. India should also be ready to give tax concessions to companies who come
and set up unit in the country.

3. India's small and medium-sized industries can play a big role in making the country
take the next big leap in manufacturing. India should be more focused towards
novelty and innovation for these sectors. The government has to chart out plans to
give special sops and privileges to these sectors.

4. India's make in India campaign will be constantly compared with China's 'Made in
China' campaign. The dragon launched the campaign at the same day as India
seeking to retain its manufacturing prowess. India should constantly keep up its
strength so as to outpace China's supremacy in the manufacturing sector. 

5. India must also encourage high-tech imports, research and development (R&D) to
upgrade 'Make in India’ and give edge-to-edge competition to the Chinese
counterpart's campaign.
 CHINA SLOWDOWN
1. The current deceleration has happened even as credit is still expanding faster than
gross domestic product, local governments continue to borrow far more than they
can afford and investment in everything from steel production to real estate is rising
fast, even as sales slump.

2. Given falling demand, the rise in all these indicators is unsustainable and at some
point soon they will have to come down, inevitably causing China's growth to slow
more sharply.

3. With a 7.3 percent expansion in the third quarter from a year earlier, China still has
the fastest-growing big economy in the world but as recently as 2011 it was growing
by nearly 10 percent.

4. As Chinese exports collapsed in the wake of the global financial crisis five years
ago, Beijing lifted controls on credit and flooded the economy with cash, much of
which was funnelled into an expanding property bubble.

5. The result was a construction boom and an unprecedented increase in total debt to

GDP from 147 per cent at the end of 2008 to 251 percent by the end of June this
year.

6. The consumer price inflation for September 2014 came in at 1.6% against 2% in
August 2014. This is another sign of the Chinese economy slowing down.

7. China’s export growth slowed to 11.6% in October from a year earlier. This was
down from the 15.3% growth recorded in September.
 RISING NPAs

Non-performing assets (NPAs) of the banks, especially public sector banks (PSBs), have been
going up sharply recently.  According to one of the estimates, the gross non-performing
assets (NPAs) of listed banks rose 35.2% to Rs2.43 lakh crore during the first three quarters
of the current financial year. In absolute terms, the 40 listed banks added Rs63,386 crore to
their gross NPAs during the nine months till December 2013, with State Bank of India (SBI),
the largest lender in the country, leading with an accretion of Rs16,610 crore. 

The rising incidence of NPAs has been generally attributed to the economic slowdown. It is
believed that with economic growth slowing down and rate of interest going up sharply,
corporates have been finding it difficult to repay loans, and it has added up to rising NPAs. 

Banks need to be more conservative in granting loans to sectors that have been traditionally
found to be contributors of NPAs. Infrastructure sector is one such villain causing NPAs to
rise predominantly because of long gestation period of the projects. There is a need to
incorporate significance of economic factors in the credit assessment process. 

Infrastructure, iron and steel, textiles, aviation and mining are five main sectors that are
stressed.

Increase in NPAs of banks is mainly accounted for by switchover to system-based

identification of NPAs by PSBs (public sector banks), priority sector lending, slowdown of
economic growth, and aggressive lending by banks in the past, especially during good times.

There are many other causes which are also responsible for accumulation of NPAs like faulty
credit management, lack of professionalism in the workforce, unscientific repayment
schedule, mis-utilisation of loans by borrower, lack of timely legal solution to cases, political
interference at local levels and waiver of loans by government.

Result of NPAs on an organization

1. They decrease profitability.

2. They reduce capital assets and lending limits.
3. They increase loan loss reserves.
4. They bring unwanted attention from government regulators.
 JAPAN’s SLOWDOWN
1. Japan’s ratio of government debt to gross domestic product, currently about 2.28, is
by far the highest in the industrial world; almost double that of even Greece and
Italy, and steadily growing. Already, the combined costs of interest on that debt and
social security are approximately equal to total government tax revenue.
(Inida’s Debt to GDP : 0.67)

2. Japan’s trade balance is about to go negative for the first time since 1980.
¥958.3 billion = 8.32 Bn Dollars (India’s : 14.25 Bn Dollars)

3. Throughout the industrial world, birth rates are falling, and fewer people are
marrying. Japan’s rate  (7.31 births per year per 1,000 people), already the world’s
lowest, is still dropping. If its rate of decrease over the past two years is
extrapolated, it reaches zero by 2017. 

4. Japan’s marriage rate  is low, too, even by industrial-world standards: 5.8 marriages

per year per 1,000 people, compared with 9.8 in the U.S. 

5. Again throughout the industrial world, falling birth rates and improved medical care
have resulted in aging populations , making it harder to fund retirement systems
over the long term. Those trends reach their extreme in Japan because of its record-
low birth rate and relatively healthy lifestyles. It is the country with the largest share
of population (22 percent) over 65 years of age.

6. It is very difficult to immigrate to Japan, and (having immigrated) even harder to

obtain citizenship. Japan is the world’s most homogeneous large country. Deprives
the country of the pool of workers, artists, scientists and inventors that immigrants
represent for the U.S., Western Europe and Australia. 

7. After Fukushima in March 2011, Japan has to shut down all its nuclear fuel reactors
and so, had to import fuels from outside raising its imports considerably.

8. Govt. -> Interest Expense + Other Expenses

Japan started printing money to cover their interest expenses leading to lower
interest rates and gain investor confidence.
Lower Interest Rates -> Lower Interest Expenses
But overtime, Interest Expense goes shallower and wider thus; even a slight increase
in interest rate leads to all tax revenue being consumed towards interest expense
only. Govt. has to borrow everything it spends now on other expenses.
 DROPPING OIL PRICES
1. The U.S. Oil Boom
America’s oil boom is well documented. Shale oil production has grown by roughly 4 million
barrels per day (mbpd) since 2008. Imports from OPEC have been cut in half and for the first
time in 30 years, the U.S. has stopped importing crude from Nigeria.

2. Libya is Back
Because of internal strife, analysts have until recently assumed that Libya’s output would
hover around 150,000-250,000 thousand barrels per day. It turns out that Libya has sorted
out their disruptions much quicker than anticipated, producing 810,000 barrels per day in
September. Libyan officials told the Wall Street Journal last week that they expect to
produce a million barrels per day by the end of the month and 1.2 million barrels a day by
early next year.

3. OPEC Infighting 
There have been numerous reports about the discord between OPEC members, leading
many to believe that OPEC will not be able to reign in production like it has done so in the
past. The Saudis and Kuwaitis have reportedly been in an oil price war, repeatedly lowering
their prices in order to maintain their market share in Asia. 

4. Negative European Economic Outlook

European Central Bank president Mario Draghi has left investors concerned about the
continent’s slow growth. Germany’s exports were down 5.8 percent in August, stoking the
fears of anxious investors that the EU’s largest economy had double dipped into recession
last quarter. Across the Eurozone, the IMF again lowered its growth forecast to 0.8 percent
in 2014 and 1.3 percent in 2015.

5. Tepid Asian Demand 

Beyond slow economic growth and currency depreciation, a number of Asian countries have
begun cutting energy subsidies, resulting in higher fuel costs despite a drop in global oil
prices. In 2012, Asia’s top spenders on energy subsidies, as a percentage of GDP included:
Indonesia 3 percent; Thailand 2.6 percent; Vietnam 2.5 percent, Malaysia 2.3 percent, and
India 2.3 percent. India is a primary example. Between 2008-2012, India’s diesel demand
grew between 6 percent and 11 percent annually. In January 2013, the country started
cutting the subsidies of diesel. Since then, diesel consumption has plateaued.

6. Russian oil sanctions

Yep, this seems like an age-old issue already, but Russia’s problems continue to contribute
to weaker oil prices! Recall that the U.S. and Europe made a joint effort back in July to curb
Russia’s oil production by restricting access to Western funding and technology that would
allow the country to tap into Artic deep sea and shale oil reserves.
With that, Russia’s oil production companies were forced to make spending cuts and search
for cheaper sources while managing to churn out 10.6 million barrels per day in October –
still within its average pace and even close to record highs. Looks like the sanctions barely
hurt supply and wound up putting additional downward pressure on oil prices!

7. No cut in production
Commodity traders seem to be gearing up for another reduction in OPEC oil production, as
the 12-member cartel might step in to boost oil prices. However, some OPEC nations such as
Iran and Kuwait have mentioned that they are not looking to cut their own production.
Analysts predict that OPEC would need to cut 1.5 billion barrels per day in order to bring
crude oil prices up to the $80-90 per barrel levels.

RUSSIAN RUBBLE FALLING

1. Sanctions imposed by Western countries over the Ukraine crisis have limited the ability
of Russian banks and companies to borrow abroad, yet they still need to repay more
than $47 billion in foreign debt in the last three months of 2014. As a result, both
lenders and other firms are buying dollars and euros on the Russian market.

2. A drop in Brent crude prices toward $91 a barrel pushed the ruble 0.2% lower against
the dollar to 40.07. The slide has been more intense over the past month amid falling oil
prices, which provide the Russian budget with the majority of its revenue.

3. The falling ruble has also fuelled inflation in Russia. Russians' food expenditure is
growing although their total spending is falling. Holiday travel is also down by as much
as 50 percent.

4. Forex reserves : 455 Bn Dollars. The decline increased Wednesday when the Central
Bank announced it had dramatically reduced its support for the ruble to $350 million per
day.

5. In total, Russia’s corporate sector has $422bn in foreign currency debt and the country’s
banks have $192bn.

6. Russia’s 10-year sovereign debt yields rose 15 basis points to 10.3 per cent, making its
borrowing the most expensive since November 2009. The cost of insuring Russian debt
against default returned to its highest level of the year. Credit default swaps for Russia
were up 9 basis points to 286 basis points.
 TFA

What is the TFA?

The TFA aims to fast track any movement of goods among countries by cutting down
bureaucratic obligations. The problem with TFA runs in a clause that says farm
subsidies cannot be more than 10 percent of the value of agricultural production. If the cap
is breached, other members can challenge it and also go on to impose trade sanctions on
the country.

The developing countries would have a problem with the solutions offered by the developed
countries as without the subsidies the food security of the developing nations could be
seriously harmed. India agreed to the TFA in Bali only under the condition that interim relief
would be provided to the developing nations. It said no legal actions or sanctions would be
imposed on the developing nations till 2017, by which time a solution would be worked out
among the nations. However, this interim relief would not be applicable if such subsidies
would lead to trade distortions, by which one means, that prices of exports and imports
cannot be affected by this.

Why is India opposed to TFA?

India's Food Security Act, which is binding on the government by law now, implies that the
government will provide very cheap food to the most vulnerable part of the population at
extremely low prices. Apart from providing subsidies to the consumers, through the public
distribution system, it also provides subsidies to the producers of food grains. So it buys
food grains from farmers at a minimum support price, and subsidises inputs like electricity
and fertiliser.

The first problem is with the 10% cap on subsidies which will not be possible for India to
achieve. Adding to the woes is the fact that the 10% cap is calculated based on 1986-88
prices when the prices of food grains were much lower. So the cap has to be updated taking
into account the present prices of foodgrains.

The second problem is that even for providing subsidised food, India will have to open up its
own stockpiling to international monitoring. It will not be able to add protein heavy grains
like say, lentils, if it wants to, due to riders in the peace clause.

Third, it might seem unfair to developing countries to not crack down on farm subsidies that
the United States provides to its farmers to the tune of more than $20 billion per year.
While the WTO is binding the developing countries to protocols, the issue of subsidies by
developed giants like US seems to be off the table.
What does India want?

India now wants a permanent solution to the issue of public stock holding of foodgrains.
G33 members including China have supported India's stand on the ability to subsidise
agricultural production and distribute it to the poor at low cost.

Why does WTO have a problem with high subsidies?

WTO argues that if the developing countries continue to give prices to farmers which are
higher than the market prices, it might harm the poor farmers in other parts of the world. It
also says the deal could add $1 trillion to global gross domestic product and 21 million jobs,
by cutting down red tapes. Also according to media reports, the developed world wants the
issue of food security to be delinked from the TFA, and could be discussed later. 

Food Security Bill:

The National Food Security Act, 2013 (also Right to Food Act) is an Act of the Parliament of

India which aims to provide subsidized food grains to approximately two thirds of India's 1.2
billion people. It was signed into law on September 12, 2013, retroactive to July 5,
2013. Under the provisions of the bill, beneficiaries are to be able to purchase 5 kilograms
per eligible person per month of cereals at the following prices:

 Rice at  3 (4.9¢ US) per kg

 Wheat at  2 (3.2¢ US) per kg
 Coarse grains (millet) at  1 (1.6¢ US) per kg.
 75% of rural population and 50% of the urban population are entitled for three years
from enactment
 The cost of the implementation is estimated to be $22 billion(1.25 lac crore),
approximately 1.5% of GDP.
 The Public Distribution System is to be reformed; State Food Commissions will be
formed for implementation and monitoring of the provisions of the Act.
 The poorest who are covered under the Antodaya yojna will remain entitled to the
35 kg of grains allotted to them under the mentioned scheme.

Pregnant women, lactating mothers, and certain categories of children are eligible for daily
free meals.
 GST
The GST framework could easily be one of the most important tax reforms to be tabled for
discussion in the parliament. It does bring with it some problems, like division of taxation
powers between the central government and states. Not surprisingly, the Finance ministry
has already missed three of its deadlines to come out with an acceptable framework. In fact,
most of the proposals aren't even in the beta stage yet. But, most administrators and more
importantly, producers believe it would make the tax procedures more fair, transparent and
efficient.

An ideal tax system collects taxes at various stages of production, supply and retail. It is
based on the value that the producers, suppliers and retailers individually add to the
product. However, the current tax regime is unfairly skewed against most producers. Let's
outline and simplify the current system of taxes to see how it operates:

Assume there is a soap manufacturer that procures raw materials at 500 lakhs per batch.
The manufacturer keeps his operating profits at 100 lakhs and encumbers a processing cost
of 50 lakhs. The flow would look something like this: 
 

If we calculate the total tax that the producer has to pay in this case, it would be 120
lakhs(50 lakhs on procurement and 70 lakhs on sales). Now if you have a GST framework in
place, the total tax that the producer pays is 70 lakhs. How?
The producer had initially paid an input tax of 50 lakhs. Now when he goes on to sell his
batch for 700 lakhs, he gets a tax credit of 50 lakhs. Thus, he pays 20 lakhs in the form of
taxes for the final transaction. This adds up to just 70 lakhs for the producer. The GST hence,
reduces the tax burden on producers. The biggest benefit of such a system is that it would
contain various indirect taxes currently levied on various participants in the supply chain.
Reducing such taxes would lower the overall production cost and increase the output of the
economy in the long run.

That sounds great, but, why GST when we already have VAT? Isn't the VAT framework
similar to that of GST? VAT regulations and rates generally vary across states. There is a
tendency, as has been observed, that states may resort to undercutting of rates to attract
more investors. This generally leads to a loss of revenue to both the state and centre. GST
would introduce uniform taxation laws across states and different sectors. The taxes would
be divided between the state and centre, based on a formula that would be acceptable to
both. Also, it would be easier to supply goods and services uniformly across the country, as
no additional taxes would have to be paid across different states. Currently, no tax credits
are provided for interstate transactions.

So do we as consumers get goods at a cheaper price? Probably not, and it is here that the
GST has been attacked by the opposition. Since taxes are distributed across the chain, the
consumer prices are likely to rise to maintain the current tax revenue levels. The
government has justified this by saying it would provide tax cuts across various brackets.
This isn't entirely satisfactory. First, the tax paying population isn't too significant a number
to begin with and second, the tax payer is likely to get a meager tax cut for the GST he
would pay for all the goods or services he purchases.

GST is clearly a long term strategy, it would lead to a higher output, more employment
opportunities, and economic inclusion. Initially however, it is likely cause high inflation rates,
administrative costs, and face stiff oppositions from states due to loss of autonomy.
 E-Commerce Industry
India has an internet user base of about 250.2 million as of June 2014. The penetration of e-
commerce is low compared to markets like the United States and the United Kingdom but is
growing at a much faster rate with a large number of new entrants.  1 Mn Online retailers.
Unique to India (and potentially to other developing countries), cash on delivery is a
preferred payment method. India has a vibrant cash economy as a result of which 80% of
Indian e-commerce tends to be Cash on Delivery. However, COD may harm e-commerce
business in India in the long run and there is a need to make a shift towards online payment
mechanisms.
India's e-commerce market was worth about $3.8 billion in 2009, it went up to $12.6 billion
in 2013. About 70% of India's e-commerce market is travel related. India has close to 10
million online shoppers and is growing at an estimated 30% CAGR vis-à-vis a global growth
rate of 8–10%. Electronics and Apparel are the biggest categories in terms of sales.
Key drivers in Indian e-commerce are:
 Increasing broadband Internet (growing at 20% MoM) and 3G penetration.
 Rising standards of living and a burgeoning, upwardly mobile middle class with high
disposable incomes
 Availability of much wider product range compared to what is available at brick and
mortar retailers
 Busy lifestyles, urban traffic congestion and lack of time for offline shopping
 Lower prices compared to brick and mortar retail driven by disintermediation and
reduced inventory and real estate costs
 Increased usage of online classified sites, with more consumer buying and selling
second-hand goods
Overall e-commerce market is expected to reach US$24 billion by the year 2015 with both
online travel and e-tailing contributing equally. Another big segment in e-commerce is
mobile/DTH recharge with nearly 1 million transactions daily by operator websites.

Indian e-commerce companies have had to overcome serious hurdles:

1. Among the largest of them is logistics.  While major multi-nationals like DHL and
Fed-Ex operate in India, goods are normally shipped through smaller and much
cheaper third party carriers.  Different carriers have to be used for different regions
of the country.  For orders sourced outside the major cities, individual couriers often
have to be hired to make last mile deliveries from drop-off points by bicycle.  The
difficulties and unreliability of the carriers has forced some of the largest and best
 funded players, like Flipkart, to develop their own logistics arms to deliver their
packages.  The decision however, carries massive capital expenses in an industry
that is still not standing on its own feet.  It also means a huge increase in exposure,
and a business that is now seeking success in two industries instead of one.
2. Another difficult problem is that the Indian market demands a cash on delivery
(COD) option, in which the consumer pays the courier once they have received the
product. It’s a hard problem to get around, because credit card penetration is
relatively low in India, and consumers are still not trusting of putting financial
information into online forms. India’s economy is largely informal, and Indian
consumers are used to paying cash; only the highest end of businesses accepts
credit cards. The problem is that the COD system creates a delay in payment.
Courier companies generally hold the money for two weeks, which means that the
e-commerce company has to restock inventory before the cash from its last sale has
arrived. It is also expensive, some couriers charging upwards of 3 percent for the
service. But the biggest hit comes from the much higher return rate—sometimes up
to ten percent—by consumers who simply changed their mind or could not be
reached at home. These goods cycle back into inventory after weeks, and carry a
high cost of restocking and re-listing, and sometimes have to be written off
altogether.
3. There can be as many five different well-funded players battling it out for the same
small niche.  Take, as an example, the market for baby products, which in the United
States is basically owned by diapers.com.  Three different Indian companies are
duking it out: Firstcry, Hushbabies, and Babyoye, who had raised a combined $30
million as of 2012.  The companies have been fighting in a price war that has pushed
margins to almost nothing on the most basic orders,like those for diapers and soap. 
4. Despite a country of 1.2 billion people, there aren’t very many customers to go
around right now.  India has 150 million registered internet users as of December
2012, but perhaps only 50 million access the internet through PCs. Pearl estimates
the most active group of e-commerce customers numbers only 2-3 million.
5. The Taxation of E-Commerce will depend on the business model adopted by the
Company. Let me try to explain 2 types of E-Commerce transition and taxation for
the same.
Business to Customer 
In this type of business model, the E-Commerce Company sells goods directly to
customer. In this case Sales Tax is charged on sale of goods. 
How goods taxed and what is Sales Tax?
Sales tax is a tax which is levied on sale of goods, constitution of India empowers
state to levy tax on sale or purchase of goods.
 Type of Sales
a)    Interstate Sale 
When sale or purchase is made from one state to another it is governed by Central
Sales Tax Act 1956, the rate applicable for particular goods will be taxed according.
(i.e 1%, 2%, 4%, 12.5%)
Note: Industrial inputs are taxed at moderate rate & Luxury goods are usually taxed
at higher percent 
b)   Intrastate Sale
If buyer and seller are situated in the same state, the taxation will be as per the
Local Sales tax as per the state law.( Ex. In Karnataka the tax rates are 1%, 2%, 5.5%,
14.5%)
c)    Export Sale
Any export sale made is exempt from Sales tax.
 
Customer to Customer 
In this case websites doesn't sell goods directly but they bring buyer and seller
together and in turn charges commission. This commission in turn is a service fee
and service tax has to be collected from the E-commerce company. Hence there is
no concept of Sales Tax in this type of transaction.
Amazon Case:
With the help of data warehousing, data mining and analysis e-commerce companies have
developed software’s to predict customer preferences and interpret which products will be
in demand. To save on time, logistic cost and earn a little extra money, e-commerce
companies store goods they feel will be doing well and will be fast moving. This type of
transaction is the bone of contention between Amazon India and Karnataka’s tax authority.
Amazon India, as per Livemint, maintains that in such type of transaction called ‘fulfilment’
the company is only a service provider and at no point does it owns the products or sells it.
In these cases the products are purchased by the customer and Amazon India is only
providing services of storage, delivery and collection of money for the seller. After Amazon
collects the money from the sale, it deducts its commission and passes on the rest to the
merchant, who in turn pays the sales tax.
Taxmen on the other hand say that Amazon is liable to pay the tax as for all ‘practical
purposes’ the ownership of the good is transferred to the e-commerce company till they sell
it. One way of looking at it is that Amazon is stocking the products as any shopkeeper with a
buyback clause with the manufacturer that they will give the product back if it remains
unsold. Logic behind the tax authorities demanding tax could be that since Amazon India
stores products of more than one kind and that too not in a random fashion but there is
some science behind the stockings, there is an element of value-add. Taxmen might not be
viewing it as a simple case of providing service.
 Unique Identification Authority of India
The Unique Identification Authority of India (UIDAI), is an attached office of the Planning
Commission of India to issue Unique Identification Number "Aadhaar" to residents of India
who desire to have it. Till date Aadhaar is operating without any legal framework and
Parliamentary oversight. The Central Govt has been unable to secure statutory approval for
the authority after the National Identification Authority of India Bill 2010 was rejected by
the Parliamentary Standing Committee as "unethical and violative of Parliament
prerogatives".
About Rs. 35 billion (Rs. 3,500 crore) was spent on Aadhaar program from the beginning
(January-2009) till September 2013 with enrolment of 50 crore (500 million) persons. It
includes operating costs as well as capital expenditure (infrastructure of land, building,
machinery). Targeting 60 crore Aadhaar enrolments by 2014, agency has issued more than
40.29 crore Aadhaar numbers till August 2013. Newly elected Govt under prime minister
Narendra Modi in union budget has allocated Rs. 2039.64 crore for the fiscal year 2014-15
for the functioning of UIDAI and to enrol remaining population, and has set a target of 100
crore enrolment at the ‘earliest’.
It was speculated that the change in union government may stall the Aadhaar project,
considering the opposition raised by several BJP leaders during election campaign, raising
issues like immigrants availing Aadhaar. The security of the data collected by the UIDAI is
also among some major concerns. Aadhaar enrolment crossed the 70 crore mark in
November 2014.
Public distribution schemes
Despite supreme court’s interim directive, Aadhaar was used to weed out fake ration cards,
in Hyderabad district of Telengana state. It was reported that more than 63,000 white ration
cards and 2,29,757 names from its database have been deactivated by the chief rationing
officer, following an order by Civil Supplies Department of State government. State
of Andhra Pradesh has 15 lakh (1 500 000) bogus white ration cards which have been
surrendered in a drive to seed them with Aadhaar numbers.
Biometric attendance
In a move to ensure punctuality and to check absenteeism among government employees,
Narendra Modi government has decided to install Aadhaar-enabled biometric attendance
systems (AEBAS) in all central government offices and has launched a website
‘attendance.gov.in’. Government has ordered to implement the initial phase at national
capital by October 2014 and will be extended to all central government offices by March
2015. The device will have a fingerprint scanner along with a Wi-Fi internet connection.
Eight AEBAS systems provided by UIDAI have been installed at six gates of Urban
Development Ministry. The database of all central government employees will be
maintained centrally based on a six digit ID, based on the last six or first six digits of Aadhaar
number.
Jan Dhaan Yojana
In the Pradhan Mantri Jan Dhan Yojana, envisaged for financial inclusion of the entire
population, main features of allotting an overdraft of Rs 5,000 and accident insurance cover
of Rs 1 lakh is proposed to be limited to Aadhaar linked bank accounts. This will help
avoiding duplication and restrict household availing the facility through multiple bank
accounts.
Digital India
The Digital India programme envisaged to provide digital identity, real-time online
transaction platform and digitalization of government documents and records of all the
citizens to make them available on real-time basis to avail government services will be based
on Aadhaar, the only digitally verifiable identity in the country as of now. The blue print of
the Digital India programme was approved by Union Cabinet envisages digital identity and
government services delivered electronically by 2018. Government plans to links SIM cards
with Aadhaar number and to use mobile phones for accessing services.

DIGITAL INDIA
Digital India is an initiative of Government of India to integrate the government
departments and the people of India and to ensure effective governance. It also aims at
ensuring the government services made available to citizens electronically by reducing
paperwork. The initiative also includes plan to connect rural areas under high-speed
internet networks. The project is stated to be completed by 2019. This is a two-way platform
where both the service offerers and the consumers stands to benefit through.
The scheme will be monitored and controlled by the Digital India Advisory group which will
be chaired by the Ministry of Communications and IT. It will be an inter-ministerial initiative
where all ministries and departments shall offer their own services to the
public Healthcare, Education, Judicial services etc. The Public-private-partnership model
shall be adopted selectively. The scheme has plans also to restructure the National
Informatics Centre. The scheme is one among the top priority of the Modi Administration.
The initiative is commendable and deserves full support of all stakeholders. However, the
initiative also lacks many crucial components including:
 lack of legal framework
 absence of privacy
 data protection laws
 civil liberties abuse possibilities
 lack of parliamentary oversight for e-surveillance in India
 lack of intelligence related reforms in India
 insecure Indian cyberspace
 BLACK MONEY IN INDIA

In India, Black money refers to funds earned on the black market, on which income and

other taxes have not been paid. The total amount of black money deposited in foreign banks
by Indians is unknown. Some reports claim a total exceeding US$1.4 trillion are stashed in
Switzerland. Other reports, including those reported by Swiss Bankers Association and the
Government of Switzerland, claim that these reports are false and fabricated, and the total
amount held in all Swiss banks by citizens of India is about US$2 billion.
In February 2012, the director of the Central Bureau of Investigation said that Indians have
$500 billion of illegal funds in foreign tax havens, more than any other country. In March
2012, the Government of India clarified in its parliament that the CBI Director's statement
on $500 billion of illegal money was an estimate based on a statement made to India's
Supreme Court in July 2011.
Tax Information Exchange Agreements
To curb black money, India has signed TIEA with 13 countries -Gibraltar, Bahamas, Bermuda,
the British Virgin Islands, the Isle of Man, the Cayman Islands, Jersey, Liberia,
Monaco, Macau, Argentina, Guernsey and Bahrain - where money is believed to have been
stashed away. India and Switzerland, claims a report, have agreed to allow India to routinely
obtain banking information about Indians in Switzerland from 1 April 2011.
In June 2014, the Finance Minister Arun Jaitely on behalf of the Indian government
requested the Swiss Government to hand over all the bank details and names of Indians
having unaccounted money in Swiss banks. Following the order, Government of India
submitted the names of 627 people in the Supreme Court of India in a sealed envelope on
29 October 2014.
Proposals to prevent Indian black money
1. Reducing disincentives against voluntary compliance - Lower taxes and simpler
compliance process reduces black money

2. Banking transaction tax - replacement of most direct and indirect levies with a banking
transaction tax and de-monetisation of currency notes of Rs 500 and Rs 1,000

3. Reforms in vulnerable sectors of the economy - High transaction taxes in property are
one of the biggest impediments to the development of an efficient property market.
Real estate transactions also involve complicated compliance and high transactions costs
in terms of search, advertising, commissions, registration, and contingent costs related
to title disputes and litigation. People of India find it easier to deal with real estate
transactions and opaque paperwork by paying bribes and through cash payments and
under-declaration of value. Unless the real estate transaction process and tax structure
 is simplified, the report suggests this source of black money will be difficult to prevent.
Other sectors of Indian economy needing reform, as identified by the report, include
equity trading market, mining permits, bullion and non-profit organisations.

4. Creating effective credible deterrence - Effective and credible deterrence is necessary in

combination with reforms, transparency, simple processes, elimination of bureaucracy
and discretionary regulations. Such deterrence to black money can be achieved by
information technology (integration of databases), integration of systems and
compliance departments of the Indian government, direct tax administration, adding
data mining capabilities, and improving prosecution processes.

5. Supportive measures - Public awareness initiatives must be launched. Public support for
reforms and compliance are necessary for long term solution to black money. In
addition, financial auditors of companies have to be made more accountable for
distortions and lapses. The report suggests Whistle-blower laws must be strengthened
to encourage reporting and tax recovery.

6. Amnesty - Amnesty programmes have been proposed to encourage voluntary disclosure

by tax evaders. These voluntary schemes have been criticized on the grounds that they
provide a premium on dishonesty and are unfair to honest taxpayers, as well as for their
failure to achieve the objective of unearthing undisclosed money.

7. International enforcement - India has Double Tax Avoidance Agreements with 82

nations, including all popular tax haven countries. Of these, India has expanded
agreements with 30 countries which requires mutual effort to collect taxes on behalf of
each other, if a citizen attempts to hide black money in the other country.

8. Modified Currency Notes - Government printing of such legal currency notes of highest
denomination i.e.; INR1000 and INR500 which remain in the market for only 2 years.
After a 2-year period is expired there should be a one year grace period during which
these currency notes should be submitted and accepted only in bank accounts.
Following this grace period the currency notes will cease to be accepted as legal tender
or destroyed under the instructions of The Reserve Bank of India.
Estimates of Indian black money
As Schneider estimates, using the dynamic multiple-indicators multiple-causes method and
by currency demand method, that the size of India's black money economy is between 23 to
26%, compared to an Asia-wide average of 28 to 30%, to an Africa-wide average to 41 to
44%, and to a Latin America-wide average of 41 to 44% of respective gross domestic
products. According to this study, the average size of the shadow economy (as a percent of
"official" GDP) in 96 developing countries is 38.7%, with India below average.
 MODI GOVT. INITIATIVES
A. Corruption

1. Illicit/Black Money: A SIT (Special Investigation Team) has been set up under
the leadership of retired SC Judge MB Shah to bring back the $500bn (estimated)
black money that has flown out of India since Independence.
Further development:
The Special Investigation Team's (SIT) efforts to unearth India's black money
received a major boost as the Swiss government draws up a list of Indians
suspected of having black money piled away in their banks.

2. Nepotism: The government has sent a mandate to all ministers regarding

appointment of their staff and has made it clear that they cannot pick family
members or relatives. The appointment would be made from a common pool of
candidates which will be decided by the Department of Personnel & Training’s
Appointments Committee of Cabinet, which is part of the PMO.

B. Governance

1. Speedier decision making: After consolidating a bunch of ministries to

harness synergies, Modi has also clarified that crucial decisions on strategy and
execution will rest with the PMO.

2. E-Governance: The environment ministry under Mr. Prakash Javadekar has

launched a system for online submission of applications for environment clearance.
This move is to ensure transparency, accountability and faster decision making.

3. Abolishing GoMs and EGoMs: Mr. Modi has abolished 30 active GoMs and
EGoMs constituted by the previous UPA govt.
GoMs and EGoMs are panels constituted by the government to oversee important
decisions when the Ministries themselves were unable to sort things out. This is a
redundant level in the decision-making hierarchy and has resulted in unwarranted
delays and backlogs.

4. MP HR workshop: The ongoing workshop cum training program for the newly

elected MPs will have the senior leaders like Sushma Swaraj, Venkahaiah Naidu,
Arun Jaitley address, teach and train the rookies in parliamentary proceedings,
rights and duties as MPs, on how to spend their MPLAD fund for their
constituencies, parliamentary etiquette, usage of social media, public conduct etc.
5. Running the government like a corporate machine:  The Central
Government, under Mr. Modi is trying to incorporate a 'corporate' culture in the
government by instating "Employee of the month" awards on the basis of
performance.

6. Quality (ISO 9001) certification for the government: The Indian

goverment under Mr. Narendra Modi is trying to form theWorld's first ISO 9001
certified government.

C. International Relations

1. Pakistan: In talks with Nawaz Sharif, PM of Pakistan, Modi firmly put his foot
down demanding that Pakistan curb terrorism arising from their territory. Following
up on this, Sushma Swaraj, Minister, External Affairs, echoed the same sentiment
and said, "The voice of talks gets lost in the sound of bomb blasts."

2. China: The new government has re-initiated talks with their counterparts in

China. A formal invitation for meeting was sent to the Chinese premiere. The
External Affairs Minister of China, Wang Yi, would be visiting India on June 8.
The recent visit of Vice Prez Mr. Hamid Ansari to China made some good progress.
There were 3 MoUs signed:
1. Industrial (business) parks: To increase cross investment between
India and China
2. Brahmaputra flood data sharing: More data sharing from China to
India regarding the situation of Brahmaputra, allowing India to better forecast
water flow and prevent floods.
3. Sharing best practices

3. Bhutan: Narendra Modi's first official visit after becoming PM was to our small
neighbor to the north-east. As to why this was an important visit and what was the
purpose as well as the outcome, read:

4. Bangladesh: Sushma Swaraj's Bangladesh visit discussed major issues like Visa

process simplification, LBA (Land Boundary Agreement), Teesta river water sharing
and cooperation on infrastructure.
D. Strategy and Policy

1. "10 -point, 100-day" agenda: In an effort to speed up the decision making

process and get rid of 'policy-paralysis' for which the UPA regime was severely
criticized for, Prime Minister Narendra Modi has asked his ministers to prepare a
list of issues that they will take up in the first 100 days in office, with a focus on
efficiency, delivery systems and implementation. The PM also has a list of top 10
priorities with regards to governance.

2. A completely new ministry for entrepreneurship: For the first time in the

history of Independent India, a new Ministry of Entrepreneurship has been created
which will help to produce more entrepreneurs and business men in India. The
ministry will be headed by Mr. Sarabanad Sonowal.

E. Infrastructure

1. 100 smart cities, housing for all: The urban development minister, Venkaiah
Naidu, in a press conference stated that top priority for his ministry would be to:
 Bring back home loan interest rate to around 7% from existing 10%+
 Build 100 smart cities to accommodate the ever increasing urban
population
 Provide housing for all by 2022 with a PPP model

Update: Government is seeking the help and guidance of Singapore in the same.

2. Irrigation and insurance schemes for farmers: The NDA Government is

all set to launch 2 new projects to help the farmers of the country. 
 
Irrigation: ‘Pradhan Mantri Grameen Sinchayee Yojana’ which was
promised in the BJP Manifesto.
Insurance: 'Krishi Amdani Beema Yojana '

3. Ganga cleaning and restoration (Uma Bharti): Uma Bharti, minister for

water resources and river development, had been charged with a crucial
responsibility i.e. to clean the Ganges and restore it to its pristine past status.

Uma Bharti has said that a comprehensive plan for cleaning and restoration of
Ganga as well as for promoting tourism and transport will be ready in the next 90
days. On the plan, 4 ministries are working in tandem. They are also working along
with scientists from IIT Roorkee and IIT Kanpur.
4. The "Diamond Quadrilateral" Project: The government is planning to
construct a high-speed rail network connecting the major cities in India to reduce
the commute time. The plan is to introduce high-speed bullet trains and semi-high
speed trains in India. High speed trains will run at ~350 km/h and semi-high speed
trains at 160-200 km/h.

The existing rail track network will need to be upgraded as well as security measures
need to be upgraded. After the passenger trains are upgraded, similar steps will be
taken for freight trains as well.

Update: The first trial run of the semi high speed trains will take place on Jul 3,
2014.