The Result that matters: 5 key takeaways from 2017 state election results (Part-1)

Continue reading “The Result that matters: 5 key takeaways from 2017 state election results (Part-1)”


Merger of HPCL, BPCL and ONGC : Benefits and Challenges..

The Finance Minister in his Budget Speech proposed the merger of oil major PSUs into an integrated behemoth oil major, which will be able to match and outperform it’s international counterparts. But is such a merger even possible in the first place?

Let’s answer three key questions to understand the impact of this merger..

Firstly, why the merger of oil companies is necessary?   Most Asian countries have just one national oil company integrated across the value chain. In contrast, there are 18 state-controlled oil companies in India, with at least six that can be considered key players – Oil India Limited, Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation and GAIL (India) and ONGC. Merging of few of these national oil companies, would  make functioning and operations much more simpler.

So, what could be the benefits of the merger of HPCL, BPCL and ONGC?  

  • It would create an entity that is better placed to compete globally for resources, and less vulnerable to shifts in oil prices.
  • The merger will give the new entity much stronger bargaining power with suppliers, and greater financial clout to secure oil resources. 
  • There would be less need for multiple retail outlets in a single area. Transport costs could be reduced by retailers sourcing from the nearest refinery, rather than the ones they own. This would lead to overall cost-savings.
  • The integration of upstream, refining and retail companies would have the additional benefit of spreading the impact of oil prices movements across the various parts of the value chain, which would reduce volatility in cash generation.
  • A merged entity would also be able to share expertise for exploration and acquisition of resources.


But, why this merger is difficult to achieve?

  • Each entity has a different structure, operational system, and culture. Hence, it would be really difficult to merge all them together and come to a common consensus.
  • Personnel-related issues are likely to arise from the need to manage hierarchies and potential overcapacity in the integrated entity.
  • The major roadblock for these listed companies is with public shareholding ranging from 51 per cent-70 per cent, there could be some problems in obtaining approval from the 75 per cent of shareholders that is typically required to approve a merger. Private shareholders, may protect their own interests and resist this merger.
  • Private companies are increasing their market share from a low base, but could find it even harder to compete with a single large state-controlled company. Hence, they will try their best to oppose this merger.

The Final verdict..

While the merger will lead to the formation of a major oil behemoth, capable of competing with international oil majors. What remains to be seen, is how the state will handle the likely decline in competition after a merger. Consumers have benefited from competition among the state-controlled retail companies, which has supported improvements in service standards. After a merger, if the cost benefits are not passed on to the end consumers, then this single large entity could be a big failure.

The implications of the new IIM Bill..

Currently, all IIMs are separate bodies registered under the Societies Act. Since Societies are not authorised to award degrees, students admitted to their Master’s programme are given a postgraduate diploma in management or PDGM and those pursuing doctoral studies are awarded the title of a ‘Fellow’ at the end of their research.

The proposed law, once passed by Parliament, will make each of the 20 Indian Institutes of Management (IIMs) an ‘Institution of National Importance’ like the IITs, NITs and AIIMS. In other words, they will be able to grant degrees to students.

Let’s look at the key features of the Bill and it’s implication:

  • IIMs will now be able to grant degrees to their students.. Being societies, IIMs are not authorised to award degrees and, hence, they have been awarding postgraduate diploma and fellow programme in management. While these awards are recognised by the Association of Indian Universities and the HRD Ministry to being equivalent to an MBA and a Ph.D degree respectively, the equivalence is not universally accepted, especially for the Fellow programme. Once the Bill is passed, the degrees offered by the IIMS will have more global appeal and demand from countries outside India as well.
  • The Bill provides for complete autonomy to the IIMs, combined with adequate accountability.. The Bill bestows more autonomy than what the IIMs currently enjoy. The IIMs will be the first set of ‘Institutions of National Importance’ in which the President will have no direct role (In other institutions such as the IITs and NITs, the President acts as the Visitor who appoints the directors and chairpersons on the advice of the HRD Ministry).
  • The institutes will be managed by a Board, and each will have a chairperson and director which will be selected by the Board.. The Board of Governors (BOG) will be responsible for electing the chairperson and director of the Institute. Since, the Government cannot interfere in the decisions of the BOG, it will lead to better decisions based on merit and free from politics.
  • There will be regular review of the performance of the IIMs by independent agencies.. The results will be put up in the public domain and the review will take into account the long-term strategy and five-year plan of the IIMs.
  • The annual report of the IIMs will be placed in Parliament and Comptroller and Auditor General will audit their accounts.. This will bring in more transparency to the functioning of the IIMs. The report by CAG will include steps taken by the institute to fulfil its objectives and an outcome-based assessment of the research being undertaken the institutes.
  • There is also a provision of Coordination Forum of IIMs as an advisory body.. The 33-member Forum of the IIMs will not be headed by the HRD Minister. Instead, “an eminent person” shortlisted by a search-cum-selection committee, will be appointed as the Forum’s chairperson for a term of two years.


All the recommendations are well aligned with the general interests of the IIMs. The new IIM Bill will not only give more global importance to the degrees offered by the IIMs but will also let the IIMs a free hand in deciding the best approach for their respective institutes. Minimum interference from the Government will go a long way in the transition of the IIMs to world class institutes.

BCCI vs Supreme Court : 3 key questions answered..

What led to the feud between BCCI and the Supreme Court?

  • The face-off between the BCCI and the Supreme Court began in 2013 with the IPL spot-fixing scandal that rocked Indian cricket.
  • Three Rajasthan Royals players were arrested on spot-fixing charges revealing a deep nexus between franchise members, players and bookies. A follow-up probe led to the arrest of Gurunath Meiyappan, team principal of Chennai Super Kings (CSK).
  • The Mudgal Committee, which was appointed to investigate the spot-fixing case founded that IPL chief operating officer, Meiyappan and Rajasthan Royals owner Raj Kundra were guilty of betting. The Committee’s report pointed fingers at BCCI chief N. Srinivasan as well.
  • In January 2015, the apex court appointed a panel headed by retired justice R.M. Lodha to suggest reforms for BCCI as well as determine punishments for those guilty in the IPL spot-fixing case.
  • Justice Lodha panel suspends CSK and Rajasthan Royals for two years and hands a lifetime ban to their owners.

What are the recommendations made by the Lodha panel?

The following are the recommendations of the Lodha panel, which aims to bring more credibility and transparency in the world’s richest cricket board:

  • One association of each state will be a full member and will have the right to vote.
  • It recommended separating the governing bodies of the Indian Premier League (IPL) and BCCI. It also proposed restricting the powers of the IPL Governing Council.
  • The panel stated that BCCI office bearers must not be ministers or government servants and that they must have not held office in the BCCI for a period of nine years or three terms. No BCCI office-bearer can have more than two consecutive terms.
  • Office-bearers in BCCI should not be beyond the age of 70 years.
  • The panel also recommended legalisation of betting with an inbuilt mechanism.
  • The report also proposed the constitution and establishment of a players association.
  • For the sake of transparency BCCI has to upload all its rules and other details on the official website.
  • The panel stated that an Ethics Officer will decide on conflict of interest.
  • The panel suggested that the BCCI should come under the purview of the Right to Information (RTI) Act.
  • According to the panel, cricketing matters of the BCCI should be handled by former players while non-cricketing matters would be handled by CEO along with six assistant managers and two committees.

What has been the consequences of not accepting the recommendations of the Lodha Panel?

On 28 September, the court had given the BCCI an ultimatum to adhere to the Lodha panel’s recommendations for the overhaul of Indian cricket. But BCCI had rejected key recommendations of the Lodha Committee, like one-state one-vote, a maximum age limit of 70 years and a cooling-off period of three years. The Supreme Court was adamant that the recommendations be adhered in ditto and no modifications be entertained. As a result of the non-adherence by the Board, the following consequences were faced by BCCI:

  • Lodha panel asked the banks to stop disbursing money from BCCI accounts to state associations, which had put India-New Zealand test match in Indore at risk. The panel later changed its stance and clarified that banks will release funds for daily operations.
  • The SC ordered the removal of Anurag Thakur from the post of BCCI President for not complying with court orders. The apex court also removed Ajay Shirke from the post of BCCI Secretary.
  • The BCCI has decided to indefinitely defer the auction of Indian Premier League (IPL) media rights as it has not received the go-ahead from the Justice Lodha committee.

The most powerful cricketing body in the world is finally  getting a huge re-moulding in it’s structure and way of operations. It shall bring in more transparency to the system and also led to lesser corruption in the richest body of Cricket in the world.

All of this should surely make any cricketing fan happy !

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The good, bad and ugly side of Demonetisation..

Demonetisation(DeMo) has been termed as one of the boldest moves taken by the Government of India since independence. While we have mixed reviews about it, the audacity to term 86% of the currency in the economy as void post Nov 8 midnight, itself showed the strength of a powerful Government. It showed that the Government can take unpopular and bold decisions if required.

Why Demonetisation was needed?

  • To lower the cash circulation in the country which is directly related to corruption in our country..According to the data from Income Tax Department, only 1.4 million people (or 0.1% of the total population) pay 80% of income tax in India. The total personal income tax collections in FY16 was only 2.2.% of GDP.
  • To eliminate fake currency and dodgy funds which have been used by terror groups to fund terrorism in India..         Rs 400 crore worth of such fake currency was in circulation in the country before DeMo.
  • The move is estimated to scoop out black money from the economy.. 
    India’s black money has been estimated to be roughly Rs 30 lakh crore (20% of GDP).

DeMo was a well planned move to a series of actions that the government had taken to curb black money in the last two years..

  1. Supreme Court Monitored Special Investigation Team (SIT) on black money.
  2. Jan Dhan Yojna.
  3. Information Exchange Agreements with Tax Havens, such as Switzerland.
  4. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 for Foreign Black Money.
  5. Income Disclosure Scheme, 2016.
  6. Benami Transaction (Prohibition) Amendment Bill.


The impact of DeMo on key indicators..

  • GDP:  Short Term (Negative) – Consumption and investment demand to see some dent as the cash based economy feels a crunch. Long Term (positive) – Increased direct tax collections to create room for investment spending. The Tax to GDP ratio which is currently at 16.6% will increase in the long run.
  • Inflation: Immediate Impact (Negative): Downward pressure on prices due to lower demand, especially in rural areas and for sectors such as housing, transport and food where share of cash transactions is high.Sharper fall in rural inflation Vs urban is possible. Long Term Impact (Neutral): To have minimal impact in the long run, as demand will bounce back up with increased government spending and positive impact on employment and incomes.
  • Fiscal Deficit: Immediate Impact (Neutral): To take time for tax officials to claim tax on the deposits made by people. The one-time impact on tax collections could be high. Long Term Impact (Positive): Income tax collections expected to see a kick-up as funds earlier unaccounted for enter the banking system and eventually get taxed. About 23% of the economy estimated to be unaccounted for. Additionally this involuntary declaration of income to invite 30 to 120% tax rate, depending on the source of income will be positive.
  • Current account deficit (CAD): Immediate Impact (Positive): Gold demand already dented due to policy restrictions. This step will additionally bring down gold import because demand is mostly driven by cash (about 80%). Long Term Impact (Negative): Pent up demand for gold may lead to higher imports. People might chose to hoard gold instead of cash. This can widen CAD.


How demonetisation has stalled the economic growth of India..

  1. Automobile sales have dipped by 18% in December over a year ago, the steepest fall since 2000.
  2. Residential plot sales across top eight cities dropped by 44% in the October-December quarter even as new launches fell by over 60%.
  3. Over 3 lakh MSMEs, reveals 35% job losses and a 50% revenue dip in the 34 days since November 8.
  4. At 422 projects, new investment proposals during the quarter ending December 2016 fell to their lowest levels since June 2004, recording a contraction of 28% YoY.
  5. Projects proposals fell by 42% from the average of INR 2.18tn (since May 2014) to INR 1.27tn.
  6. Quarterly project completion rate fell to its lowest level since September 2008. Only 262 projects were completed in quarter ending December 2016 versus 319 in the previous quarter.
  7. The stock of stalled projects remains almost at an all time high of INR 11.71 tn.


‘Demonetisation a great move weakened by bad execution’

The total currency in circulation was Rs 16.42 lakh crore and the value through Rs 500 and Rs 1000 notes is Rs 14.18 lakh crore. If one assumes that 20% of it is black money and therefore, will not come back to the banking system for replacement, it is a gain of Rs 2.84 lakh crore.

The pitfalls..

  • The government and the RBI were not able to communicate properly about the “currency exchange limit“ of Rs 4,000 (increased now to Rs 4,500).
    Since existing bank account holders were allowed to deposit old currency notes without any limit, this restriction was applicable only for the unbanked people and that should have been spelt out clearly.
  • The introduction of Rs 2,000 notes was a bad idea and the people who got Rs 2,000 notes were still not able to use them because change in lower denominations was not available. Instead, RBI should have flooded the banking system with more Rs 100 and that would have calmed the situation faster. The entire delay due to ATM recalibration ( Rs 2,000 notes are of different size and therefore, ATM can’t dispense them without recalibration) would also have been avoided by this strategy.
  • Several people deposited money into their bank accounts on November 8 itself and thereby escaped income tax scrutiny (i.e. as of now, government has said that any deposit above Rs 2.5 lakh made after November 9 will be reported to the income tax department).To trap them, government should ask banks to report Rs 2.5 lakh plus cash deposit from October 1 itself. By doing government could have also caught several money laundering transactions with backdated receipts.


Top 3 reasons for the ‘Sikka’ Feud

The Indian IT industry has been seeing a huge transformation in the recent past. The change of guard from the traditional methodologies of running business to the new age automation tools, has risked the very foundation of the so called IT business model in India. Vishal Sikka the first non-founder CEO of the $10-bn IT behemoth Infosys, has played a huge part in this transition of the IT industry. The former SAP head, has brought fresh ideas to the the desi-Infosys, and plans to make Infosys a $20-bn company.

But, recently there has been a clash of culture leading to which public statements have poured out and there seems to be a clear rift between Sikka and the Infosys founders. The founders have sought to take the high ground, arguing that their issues with Sikka and the board are about governance, principle, values and transparency.  Let’s understand the real reasons of this rift:

  • The induction of Punita Sinha.. 

About a year ago Punita Sinha, wife of Union minister Jayant Sinha, was inducted as an independent director. Murthy abstained from voting on her appointment. While he emphasised that he had great respect for her as a professional, his objection was in the fact that during the entire history of Infosys, it had never invited the spouse of any active politician to the board. While the founders did not wanted any political agenda to be factored in the company, Sikka and the board’s argument to that was that she was eminently qualified -having been a fund manager with Blackstone, among others -and that the decision was taken solely on merit.

  • Vishal Sikka’s steep compensation..

The ratio between the highest compensation in the firm and the median salary should ideally be 50 to 60. The biggest concern for the founders has been the 55% increase in CEO compensation when average salary hikes have hovered in the single-digits of 6% to 8% for the rest of the employees at the company. Sikka’s compensation saw a sharp increase to $11million annually, in 2017 from $7.08 million in 2016. While Sikka says that he actually gets less cash now than when he was the CTO at SAP, the question is more about ideals. The ideals with which this company was formed and that is “compassionate capitalism”.

  • High severance packages to departing top executives..

A severance package is pay and benefits employees receive when they leave employment at a company. Ex-CFO Rajiv Bansal  received a severance package of Rs 17.38 crore, equalling 24 months of pay. No CFO in India receives such a high severance package. Former general counsel (David Kannedy) who was with the company for a “very short period” was paid a very high salary and a high severance package.  Infosys founders N R Narayana Murthy, Kris Gopalakrishnan and Nandan Nilekani had written to the board last month expressing their concerns over pay hike to Chief Executive Officer (CEO) Vishal Sikka and the severance package offered to the two former senior executives.


From April 2011 till January 2017, the shareholder value has not increased at all and the market capitalisation of the Bengaluru-based IT major has also remained at the same level during the period. No doubt that we can see global cultures in our desi companies. The induction of global leaders in high ranks is bound to bring in the West culture – “Lots and lots of money”. But such a culture cannot be withhold with large IT firms which believes in mass upheaval of society rather than a few individuals. Vishal Sikka and his team needs to learn from the likes of Narayan Murthy- A global leader who always believed in compassionate capitalism. 

GST for beginners..

Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and service at a national level under which no distinction would be made between goods and services for levying of tax. It will substitute all indirect taxes (17) levied on goods and services by the Central and State governments in India.

Benefits of GST..

  • There could be 0.9-1.7% increase in GDP growth due to the elimination of tax cascading. The exclusion of cascading effects i.e. tax on tax till the level of final consumers will significantly improve the competitiveness of original goods and services in market.
  • Revenue will get a boost  as tax evasion will drop. Full input tax credit under GST will mean a 12-14% drop in the cost of capital goods. Input tax credit will encourage suppliers to pay taxes – States and Centre will have dual oversight – The number of tax-exempt goods will decline.
  • GST will lead to the formation of a common market. Currently, the market is fragmented along state lines, pushing up costs by 20-30%. The current 2% inter-state levy means production is kept within a state. Under the GST national market, this can be dispersed, creating equal opportunities for all states.
  • Ecommerce to get a boost. State restrictions and levies have complicated ecommerce. Some sellers do not even ship to particular states. All this will end with GST .

    The GST Model in India..

    • The GST shall have two components: one levied by the Centre (referred to as Central GST or CGST), and the other levied by the States (referred to as State GST or SGST).
    • The CGST and the SGST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services.
    • Cross utilization of input tax credit (ITC) both in case of Inputs and capital goods between the CGST and the SGST will not be permitted except in the case of inter-State supply of goods and services (i.e. IGST).


    Comparison of existing tax regime with GST :


                                – courtesy :

    Currently, central excise is levied on a produce manufactured at a factory. The VAT is applied not on the ex factory office but at the rate arrived at including the cost of manufacture and excise duty. With GST, this cascading effect of tax will go away.

    The final GST slab rates..

    • A 4- tier GST tax structure of 5%, 12%, 18% and 28% has been fixed by the GST council.
    • Essential items including food, which constitutes half the consumer inflation basket will be taxed at zero rate.
    • Mass consumer items such as spices, mustard oil, etc will be taxed at 5%.
    • Most items will be taxed under the 12% and 18% tax slabs. Processed foods, soaps, oil, tooth paste, consumer electronics, etc shall fall under this category.
    • The highest tax slab of 28% shall apply on white goods, luxury cars and sin products such as pan masala, cigarettes, etc.
    • Good news for e tailers, that the Tax Charged at Source (TCS), which was a point of worry for most etailers, have been fixed at only 1%.

    GST has been planned to roll out from April 1, 2017. It is believed that GST will be a game changer for a highly tax non-compliant nation like India. With the inclusion of GST (post demonetisation), the idea is crystal clear – bring  more people under the formal economy, create a wider tax base and eliminate black currency. The creation of an unified market and the reduction of red tape will boost local and foreign investor sentiments. Indian economy can only look forward and become better and greater under GST.

    ( THANKS to Atharva Joshi for his valuable insights.

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