The ‘Brexit’ saga..

The European Union, is an economic and political partnership involving 28 European countries. It began after World War II to foster economic co-operation, with the idea that countries which trade together are more likely to avoid going to war with each other. It has since grown to become a “single market” allowing goods and people to move around, basically as if the member states were one country. It has its own currency, the euro, which is used by 19 of the member countries, its own parliament and it now sets rules in areas such as – the environment, transport, consumer rights,etc.

Why UK wanted to leave the European Union?

  • UK pays around 55 million pounds per day towards EU membership fee. This finance part of the EU budget is used for economic growth and other development initiatives of the members including that of UK. The proportion of EU spending on UK is far less than what UK pays as membership fees.
  • UK wanted to add a provision to the European treaties to ensure that the EU is a multi-currency bloc. That way the Pound and Euro could both be identified as major currencies, but the European union never agreed to this.
  • Britishers favoured lower level of migrants to UK from member countries whereas European Union supports free movement of people within its member states ( Influx of low paid EU migrants to the UK cluster were increasing unemployment and poverty. They were also competing with Britons for jobs, hence, putting pressure on publicservices.
  • Almost, half of the UK’s export goes to EU. However, Britain wants to secure trade deals with countries including the U.S. and China, which if done will hurt other EU members interests.
  • Britain wanted to re-frame responsibility between the Bank of England, the Euro-zone, and the European Central Bank (ECB). This was aimed to stop further encroachment of EU authority over London’s banks. But the ECB wanted more influence over London, its main financial centre.


So, Britain just polled in a referendum to decide on Brexit..

A referendum – a vote in which everyone of voting age can take part – was held on 23 June 2016, to decide whether the UK should leave or remain in the European Union. Leave won by 52% to 48%. The referendum turnout was 71.8%, with more than 30 million people voting. For the UK to leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty which gives the two sides two years to agree the terms of the split. Theresa May, the current Prime Minister of Britain has said she intends to trigger this process by the end of March 2017, meaning that the UK will be expected to have left the EU by the summer of 2019.

The After-shocks of Brexit..

  • The pound remains near a 30-year low.
  • Britain also lost its top AAA credit rating, meaning the cost of government borrowing will be higher.
  • The Bank of England cut interest rates from 0.5% to 0.25% – a record low and the first cut since 2009.


Expected negatives post Brexit..

  • Exports to Europe are expected to become expensive, as more tariffs will be imposed by the EU; this would negatively impact UK’s current account deficit, which is currently at 7% of GDP.
  • UK’s unemployment should inch higher as some businesses would move to EU countries due to unfavourable trade norms. UK’s unemployment rate is currently at 5%.

Expected positives post Brexit..

  • Britain would save $12 billion a year in EU budget payments.
  • Freed from the cumbersome EU regulations, Britain would attract greater investment and become a more dynamic economic hub — particularly if it still had full access to the EU’s tariff-free single market.
  • Leaving the EU would allow Britain more control over how many migrants are allowed to enter the country.

Effects on Global economy post Brexit..

The fact that there will now be considerable uncertainty in EU-UK economic linkages, overall global growth is also likely to be affected adversely. IMF lowered its global growth projection in April to 3.2% YoY (from 3.4% YoY previously). Consequently, against the backdrop of Brexit, global growth projections may see further downside.

Brexit was not a hasty decision, rather it’s seeds were sown in 2012. Leaaders like David Cameroon and Theresa May were against Brexit, hence this shows the deep roted problems that Brexit may pose in the future for Britain.

Hence we are all hoping for a ‘soft Brexit’ that protects the global interests !


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The curious case of Cyrus Mistry !

TATA sons is the holding company of the TATA group. About 66% of the equity capital of TATA sons is held by the TATA Trust (Sir Dorabji Tata Trust and Sir Ratan Tata Trust),      18.4 % is held by  Shapoorji Pallonji Group (Sterling investments corp. and Cyrus Investments) and the rest is held by other Tata companies.

The decision to sack Cyrus Mistry as chairman of the TATA sons, less than four years after he occupied the $103 Billion conglomerate was not a sudden decision. On August 26, the Board inducted  Ajay Piramal (Piramal Enterprises Chairman) and Venu Srinavasan (TVS Motor Chairman), which were seen as a move to tighten the grip of the TATA trusts on the TATA sons board. This was the beginning of the fall of Cyrus Mistry.

Let’s discuss the major reasons/events which led to the ouster of Cyrus Mistry as Chairman of the board:

  • Cyrus Mistry was seen as a capitalist leader by the Board. He focused more on the cash cows (TCS, JLR, etc) of the Tata group and started pruning the other Tata companies. This was against the basic ethos of the Board, which is philanthropic in nature. Mistry was seen as insolent, precocious and out to destroy “the core values that the group stood for, for close to 148 years“.
  • In June, Mistry had cleared Tata Powers $1.4 Billion acquisition of Welspun’s solar farms without seeking the approval from either Tata or other key shareholders. One of the Tata insiders quoted, ” Tata Power is a cash guzzler but generates very little profit. Yet, when embarking on it’s biggest buyout, a principal shareholder is kept in the dark. That’s unprecedented in Bombay House (Tata Group Headquarters)“.
  • Though Ratan Tata had handpicked Cyrus Mistry for the Chairmanship four years ago. There was a fundamental disconnect between Ratan Tata and Mistry. Mistry was asked to spell out his vision, five-year plan, etc. But, his responses were always vague and non-specific.
  • Mistry disposed some of Indian Hotel Co’s overseas properties. This did not go well with Tata Trusts as many of the properties were seen as Ratan Tata’s legacy that helped the group revenues top $100 billion. The decision to sack Indian Hotels managing director Raymon Bickson, who was perceived to be close to Ratan Tata had made matters worse. Mistry’s comment on the necessity of “tough love” within the organisation was considered overtly aggressive by all Board members.
  • The decision to shut down the TATA Steel UK operations, had come in for heavy criticism in Britain. The Board believed that Mistry had not been able to take into account the sensitivity of the shareholders as well as the global ecosystem in which the companies operate. A person close to Ratan Tata said, “Tata was unhappy with the decision to shut down or sell the group’s steel business in Europe. He wanted the group to turn around the loss-making business rather than sell it
  • In 2009 Ratan Tata had signed a legal contract with DoCoMo, according to which which the Tata’s had to buy back DoCoMo’s shares in Tata at (atleast) half the acquisition prices in five years. In 2014, when DoCoMo decided to exit India, it asked Tata sons to buy back the shares but it refused saying that the pay at the pre detemined prices was not possible as the RBI norms did not follow the same. DoCoMo sued the Tatas in London court and UK under arbitration charges. Finally, Tata sons had deposited $1.2 billion with the Delhi High Court in July last year. The Tata group is well known across the world for keeping it’s word instead of litigating around it. By not honouring the contract, the brand image of Tata was put under risk.


Under Mistry’s leadership, there was a 30 % CAGR over last 3 years in operating cash flows of the company, the net debt was decreased by 3.3 percent, TCS had doubled it’s profits. Most of the Tata group stocks had performed well under him. Hence, he was not ousted based only on performance. But because his focus was biased to the cash cows of the Group and this led to the negative growth of companies like Tata Power, Tata coffee, Tata Teleservices, Tata Global Beverages, etc. Mistry needed to understand that the Tatas did not believe only in profit-making but also in the general improvement of society.

“Mistry’s way of functioning was simply not the Tata-way of doing things”.


(I would love to hear your thoughts on why Mistry was sacked. Please leave your suggestions in the comments section)



H-1B visa reforms 2017: Impact on Indian IT industry

The H-1B is a non-immigrant visa in the United States. It allows U.S. employers to temporarily employ foreign workers in speciality occupations. On the other hand, the L1 visa is a temporary non-immigrant visa which allows companies to relocate foreign qualified employees to its U.S. subsidiary or parent company.

 Key reforms suggested in the H-1B Visa are..

  • The minimum salary of H-1B visa holders is to be doubled to $130,000. (The raised salary level – to approx. $130,000 – is more than double the current H-1B minimum wage of $60,000, which was established in 1989 and has since remained unchanged)
  • Remove the ‘per country‘ cap for employment-based immigrant visas, so that all workers are treated more fairly and to move to a system where employers hire the most skilled workers without regard to national origin.
  • The legislation sets aside 20 percent of the annually allocated H-1B visas  for small and start-up employers to ensure small businesses have an opportunity to compete for high-skilled workers.
  • It requires employers to first offer a vacant position to an equally or better qualified American worker before seeking an H-1B or L-1 visa holder.
  • The Department Of Homeland Security will have additional oversight authority to investigate fraud and abuse and also to increase penalties for companies that violate the bill’s requirements.


The Indian IT industry..

  • Currently the annual quota of 65,000 visas, plus another 20,000 for employees with advanced U.S degrees, is awarded by lottery. If the process becomes market based, better -paying employers such as Apple Inc., Alphabet Inc., Amazon Inc. will get additional advantages over the IT cos.
  • Infosys and TCS, the top three visa sponsors would either have to increase the wages or settle for a much reduced scale of business in their most important market (USA).

For example, if Infosys raises it’s salary for the 25,000 applicants it sponsored last year from $81,000 to $130,000, it would have to shell out an additional $1.2 billion for it’s labour bill. If Infosys, cannot pass out that cost on to customers it would have to reduce almost half of it’s annual operating profit.

  • The traditional Indian IT companies (like TCS, Infosys, Wipro, HCL, etc) enjoy a 10 percentage operating margin advantage over companies like IBM corp., Accenture. The harsher the Immigration policies, the faster this gap will reduce.
  • Clients are spending much more on artificial intelligence, business analytics, cloud etc, hence the budget for legacy IT services such as application maintenance declines. Indian companies have to invest a lot in new technologies, automation, etc to gain significant market share in the future.


IT shares have fallen drastically after this announcement..

  • Market leader TCS has lost 4.5% of it’s market cap. TCS is trading below 16 times expected earnings, the lowest since 2008 ( while writing this post TCS was trading at INR 2,238).
  • Infosys has lost 2% of it’s market cap and the other IT companies are also in a similar situation.
  • The BSE IT index closed at 3% lower valuation flushing out approx 33000 cr in one day- the biggest loss among all BSE indices.

Negotiations with the Trump Government are on track. NASSCOM, the IT regulatory body in India has recently said that it’s executives will meet Trump administration to discuss the H-1B Visa Bill. Prime Minister Narendra Modi, is also expected to meet President Trump and discuss over this issue. Let’s wait and see how things span out.

We all hope the “Best friends” (India and US) will sort it out soon!


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Budget 2017-18: 7 key areas

The Annual Budget 2017-18 had been one of the most anticipated ones in recent times. On the backdrop of a demonetisation, which had halted the developmental ride of India, everyone had hoped that the budget would provide push to key industries and bring India’s growth back on track. So, let’s analyse the key points from the budget.

1. Demonetisation was a bold and decisive strike..

  • Demonetisation will have transient impact on the economy. But in the long run it will lead to higher GDP growth, greater tax revenue, greater digitisation and lesser corruption.
  • Pace of remonetisation has picked up and this will prevent any negative impact to spill over in the next year.
  • Increase in personal tax collections is 34.8 % in last three quarter.
  • The surplus liquidity in the banking system will lower borrowing costs (interest rates) and increase the access to credit.

Demonetisation is believed to be a successful move by the Government. India had seen only 3.7 cr individuals (out of an approx. 125 cr population) who had filled tax returns in 2015-16, out of which 99 lakh had showed income below the exemption limit. After Demonetisation, 1.09 cr bank accounts saw a a deposit between Rs 2 lakh and Rs 80 lakh. This shows we are a largely tax non-compliant society. The immediate benefits of Demonetisation can only be gauged after the names of the tax defaulters comes in the fore front. We will also have to wait for at least 2 years before we can actually see the long term benefits.

2. More steps will be taken to benefit the farmers..

  • Agriculture sector is expected to grow at 4.1 % this fiscal.
  • Government has committed to double the farm income in 5 years.
  • Target for agricultural credit has been fixed at a record level of Rs 10 lakh cr.
  • Coverage of ‘Fasal Bima Yojana‘ scheme will be increased from 30% of cropped area in 2016-17 to 40 % in 2017-18 and 50 % in 2018-19.
  • Dairy processing and Infrastructure Development Fund would be set up by NABARD with a corpus of Rs 80 bn.
  • Dedicated Micro Irrigation fund in NABARD to be achieve ‘per drop more crop‘.
  • Mini labs to be set up for soil testing in all 648 Krishi Vigyan Kendras in the country.
  • The coverage of National Agricultural Market (e-NAM) will be expanded to 585 APMCs from the current 250 markets.

The increase in area under ‘Faisal Bima Yojana’ would lead to the reduction of the loss of farmers due to crop failures and support their cash flows. With the increase in e-NAM, farmers will get better prices for their produce (post harvest) in the market. The government looks focused to improve the sector that employs the largest number of people in the country. One may deduce that farmers will have better income from their produce in the future.

3. Functional autonomy of the railways is to be maintained..

  • Capital and development expenditure pegged at Rs 1.31 lakh cr for railways in 2017-18 from Budget.
  • Service charge on e-tickets booked through IRCTC will be withdrawn.
  • A new Metro Rail Policy will be framed which would rationalize existing laws and facilitate greater private participation and investment in construction and operation.
  • Coach Mitra‘ facility to redress the grievances related to rail coaches.
  • Proposal to feed ~7,000 railway stations with solar power.
  • 500 stations will be differently abled friendly by providing lifts and escalators.
  • Rs 1 lakh cr corpus for railway safety fund over five years.
  • The shares of IRCTC , IRFC, IRCON to be listed on various stock exchanges.

The merging of the railway budget with the annual budget has been a historic decision. The Railways will save around Rs 10,000 cr annually as it will no longer pay dividend (after getting Rs 40,000 cr). The Government has pointed out that private investments are the way going forward. Also, travel comfort and safety of the passengers has been seen as an important aspect in this  Budget.

4. We will continue the process of economic reform for the benefit of the poor..

  • Allocation under MNREGA increased to Rs 480 bn (highest ever).
  • Women participation in MNREGA has increased from 48% to 55%.
  • Skill Acquisition and Knowledge Awareness for Livelihood Promotion Programme (SANKALP) will be launched at a cost of Rs 40 bn to provide market relevant training to 35mn youth.
  • Under ‘Maternity Benefit SchemeRs 6000 will be directly transferred to the bank accounts of pregnant women who undergo institutional delivery and vaccinated their children.
  • Infrastructure status for affordable housing.
  • 1 cr households to be brought out of poverty under ‘Antodya Scheme‘.
  • PM Awas Yojna Scheme‘ raised from Rs 15000 cr to Rs 23000 cr, to construct one crore houses by 2019 for homeless.
  • The allocation for the welfare of the Scheduled castes has been increased by 35% compared to 2016-17.
  • Government has targeted to eliminate leprosy by 2018, measels by 2020 and tuberculosis by 2025.

Affordable housing and more employment opportunities will definitely uplift the poorest people of this country. It was also anticipated that something in the lines of ‘Universal Basic Income‘ (UBI) would make it’s way into the budget. But seems like we will have to wait for it!

5. A proposal to mandate all government receipts through digital means..

  • No transaction above Rs 3 lakh in cash will be allowed.
  • Digi-Gaon will be launched to promote tele-medicine and education.
  • Maximum amount of cash donation, a political party can receive, will be Rs 2000 from one person.
  • Aadhar Pay, a merchant version of Aadhar Enabled Payment System, will be launched shortly.
  • The Government will launch two new schemes to promote the usage of the BHIM app; these are Referral Bonus for individuals and Cashback Scheme for merchants.

A mission has been set up with a target of Rs 2500 cr digital transactions for 2017-18 via UPI, Aadhar Pay, IMPS and debit cards. After decisions such as GST and Demonetisation, these key reforms will definitely help to create a Digital Economy in the future.

6. Appeal to all citizens of India to contribute to Nation Building by making a small payment of 5 % tax.. 

  • Income tax rate cut from 10% to 5% for individuals having income between Rs 2.5 lakh and Rs 5 lakh. This would mean a savings of Rs 12500 per person.
  • 10% surcharge of tax payable on individual income above Rs 50 lakh and upto Rs 1 cr.
  • 15% surcharge on income above Rs 1 cr to continue.
  • MAT (Minimum Alternate Tax) credit benefit tenure increased to 15 years from 10 years currently.
  • Customs duty on LNG halved to 2.5%.
  • Increased allocation under MUDRA loans to Rs 2.44tn

“Tax the rich more” – The Government has clearly adopted this policy. The reforms seemed to be more towards appeasement of the salaried middle class. The higher allocation for Mudra loans will benefit the micro and small industries in the long term.

7. Our agenda for next year is to transform, energise and clean India..

  • The World Bank expects India’s GDP growth rate at 7.6% in FY18.
  • Government pegs fiscal deficit at 3.2% for 2017-18.
  • Double digit inflation has been controlled; India is on a high growth.
  • Government to further liberalise FDI policy.
  • Sanitation coverage (under Swachh Bharat Abhiyaan) in villages increased from 42% in Oct 2016 to 60%.
  • Rural spend has been increased by 53% to Rs 230 bn while urban spend has been increased by 20% to Rs 60 bn.
  • Capital Expenditure (Capex) increased by 25.4% in FY18 over previous year.
  • Total expenditure in FY18 at Rs 21.47 lakh cr.
  • 133 Km road per day  constructed, against 73 km per day previously.
  • 100 % electrification of villages to be completed by May 2018.
  • Integrated PSU Oil Major- Merger of oil PSUs across upstream, refining and marketing (OMCs, ONGC, Oil India)

The biggest let-down of the Budget..

As of June 2016, the total amount of Gross Non-Performing Assets (NPAs) for public and private sector banks is around Rs 6 lakh crore. The Budget did not seem to address this major problem which has crippled the financial system of India. There was no well-laid plan about tackling this issue. Only an announcement for deduction of provision for stressed loan increased to 8.5% from 7.5% was announced.

This Budget clearly shouts out one thing – “Fiscal consolidation at the price of growth”. There has not been any eye-bulging announcements, but there has been a slew of announcements pegged at improving the long term growth cycle of India. 

Time to raise the coffee mug and feel proud about our nation !

(Please post your suggestions in the comment box)

Trump’s Immigration ban: 5 key facts

Donald John Trump, the President of the United States Of America had recently announced a ban on immigrants from seven nations. Let’s understand the five key changes that are associated with this ban:

  1. Suspends entire US refugee admission system for 120 days.
  2. Suspends the Syrian refugee program indefinitely.
  3. Issues a ban from seven majority-muslim countries – Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen – for 90 days. Dual nationals, who are from these seven countries, but also have an additional passport (of some other country) will also be barred from entering the country for the next 90 days.
  4. Prioritizes refugee claims on the basis of religious persecution. Hence, an applicant belonging to a religion that is a minority in their country of origin would be given more preference.
  5. Lowers the limit of total refugees in U.S from 1,10,000 to 50,000.

Americans have reacted strongtly against this ban..

  • There has been a lot of confusion at ports and airports as approved refugees, valid visa holders, non US dual citizens and US legal residents have been detained.
  • Thousands of Americans have protested near airports.
  • New York taxi drivers have even staged a work stoppage near Kennedy airport.
  • More than 3400 researchers – including 18 Nobel Prize winners have signed a petition denouncing Trump’s actions.
  • 187 Google employees, who live and work in the U.S have been affected from this ban.
  • Many employers have advised their employees to not leave the country.
  • U.S universities, see this ban as affecting many of their students, professors and postdocs who are from these seven banned countries.

These are how some Tech stalwarts have reacted to this ban:

“We are upset about the impact of this order and any proposals that could impose restrictions on Googlers and their families, or that could create barriers to bringing great talent to the US”

– Google CEO, Sundar Pichai

“We need to keep this country safe, but we should do that by focusuing on people who actually pose a threat”

– Facebook CEO, Mark Zuckerberg

The Curios Case of Pakistan..

While Pakistan has not been included in the intial list of seven countries that has been affected from this ban. White House has clearly indicated that countries like Pakistan, Afghanistan and Saudi Arabia may also be included to this list in the future. While this may have been the reason of worry for thousands of Pakistanis planning to visit the U.S, former Pakistan cricket captain and leader of Pakistan Tehreek-e-Insaf, Imran Khan is happy with the news. He says, “The day we bring back the merit system back to Pakistan, all our best citizens will return and work for the betterment of this country”.

Green card holders can breathe a sigh of relief..

Initially the ban included those who hold US green cards but are citizens of the seven listed countries. But later an exception had been made and those with green cards will now be allowed back in the country. Mr Trump’s chief of staff Reince Priebus had said, “As far as green card holders going forward, it doesn’t affect them,”

Will this make America Great Again?

Though it may sound harsh, but Donald J Trump had shown why he is an immature polictician. The U.S had already reduced the number of immigrants into the country, and hence such a decision was not required at the moment. Though, he may not agree but he has inadverently targeted a particular religion and this may perhaps put him in bad light for the millions of American-muslims residing in the country. There has been thousands of innocent immigrants who have been affected by this decision. Some of them might not be able to return to the U.S again. The last thing that America would want, is a dictator in the name of a President.

(Please put your comments and suggestions below, so that I can make even better  posts in the future)