Research Committee

Crux
The news compendium of
SIBM-B

Crux is a Research Committee endeavor which aims to provide the

students of the institute with weekly updates on the most
important news worldwide. Each news update in the newsletter
has been analyzed by the members of the Research Committee to
bring you the most relevant points related to particular news.
Along with the news updates, it also covers articles on important
topics which have been in news during the week.

With our newsletter series this time, along with the news we are
also providing useful links to allow you to delve into the topic
further.

You call it news. We call it a step towards awareness.

 Announcement of Fiscal Stimulus
 Finance Minister Nirmala Sitharaman announced a series of packages to boost the economy, apart from
monetary policy rate cuts announced by RBI which are as follows:
 New provision inserted in the income tax act with effect from fiscal year 2019-20, that allows any
domestic company to pay income tax at the rate of 22% subject to condition they will not avail any
incentive or exemptions.
 Manufacturing companies set up after October 1 to get option to pay 15% tax. Effective tax rate for new
manufacturing firms to be 17.01% inclusive of surcharge & tax.
 Listed companies that have announced buyback before July 5, 2019, tax on buyback of shares will not
be charged.
 Higher surcharge will also not apply on capital gains on sale of security including derivatives held by
FPIs.
 Enhanced surcharge will not apply to capital gains arising on equity sale or equity-oriented funds liable
to STT stabilize flow of funds into capital markets.

 To provide relief to companies availing of concessions and benefits, a MAT relief by reducing it from
18% to 15%.
 CSR 2% spending to include government, PSU incubators and public funded education entities, IITs.
 The Indian government is likely to run a fiscal deficit higher than the 3.3 percent of GDP target
announced in Union Budget 2019-20, after it proposed to cut corporate tax rates.
 Bond markets, which have been jittery about the government’s ambitious tax collection targets, reacted
negatively to the news, while equity markets surged.
 A wider fiscal deficit will mean a greater supply of government bonds and the Centre will need to step
up borrowing to fund its fiscal deficit. It will also complicate monetary policy by further reducing the
transmission of interest rate cuts via the bond market.

Reference:https://www.moneycontrol.com/news/business/companies/experts-hail-nirmala-sitharamans-
tax-cut-here-is-why-4457801.html
 Fed Makes Second Straight Rate Cut
 The US central bank lowered the target range for its key interest rates by 25 basis points to between
1.75% and 2%.
 It also signaled a higher bar to further reductions in borrowing costs, eliciting a fast and sharp rebuke
from President Donald Trump.
 Higher interest rates in the US typically lead to outflow of foreign funds from emerging markets,
considered to be riskier assets, while in case lower interest rates in the US, there are inflows to emerging
markets.
 In the current situation, with stock markets under stress because of a limping global economy, flight of
foreign funds to Indian equities would be a boost.

 The FedWatch Tool, which tracks federal funds futures, shows that investors have placed 70.4 per cent
odds on a 25-basis point cut, with zero chance of a larger half-point cut
 Global equity markets weren’t too euphoric in spite of the Fed cutting interest rates for the second time
this year.
 US equities ended latest session with marginal gains. In Asia, equity markets, including India, didn’t
show much enthusiasm.
 US real gross domestic product is expected to grow at a rate of 2.2 per cent in 2019, according to the
Fed. That's better than its previous estimate of 2.1 per cent growth.
 According to analysts, an interest rate cut with little concern about the outlook has left the markets
dissatisfied. They feel, in the current backdrop of global slowdown, there are heightened expectations of
further easing.
 U.S. central bankers worry that uncertainty over trade is denting investment and could slow hiring.
Private-sector job growth has slowed from last year.
 At the same time, consumption -- which accounts for most of the economy -- appears strong with retail
sales rising 0.4% in August and sentiment indicators relatively solid.

Reference:https://www.ft.com/content/0a8524e2-cd36-310e-b8ce-4ab67644cddc
 Why the Fed's interest rate move matters

What is the Fed's role in keeping the economy healthy?

 The Federal Reserve has a mandate from the US Congress to promote maximum employment and stable
prices.
 It raises interest rates if inflation is too high, or it thinks it is heading that way. It cuts rates if it thinks
there is a danger of economic growth slowing too much or inflation being too low.
 Rate cuts make it more attractive for business to borrow to invest and households to borrow to spend.
The Fed is the key player in trying to prevent a recession and promoting a recovery if there is a
downturn.
 The rest of the world keeps an eye on how well the Fed is managing to keep that balance between
growth and inflation, since a healthy US economy reduces the risk of the rest of the world catching a
dose of economic slowdown.

What impact does the Fed have on currency markets?

 Cuts in interest rates in any country tend to make its currency lose value against others.
 That is because lower interest rates mean there is less money to be made by investing in that country's
assets, since they're yielding less interest. Primarily that means government bonds.
 If investors are less keen to buy, for example US government bonds, there is less demand for the
currency needed to buy them. So the currency concerned, the dollar in this case, tends to lose value.
 Currency movements affect how competitive countries' exports are. If US rates are cut and the dollar
weakens, American exports become cheaper, and imports to the US from elsewhere go up in price. That
can have a knock on impact on the price of goods on shop shelves, in other words inflation.
 But for other countries importing goods priced in dollars, the impact can be to reduce inflation. When
the dollar is weaker it costs other countries less in their domestic currency to buy dollar-priced goods.
And that's not just American exports, lots of commodities including oil are priced in dollars.
 What about the impact on international investment flows?
 When an economy as large as the US changes its interest rates, it is possible for the subsequent
movement of investment funds to be disruptive.
 There was an episode in 2013 when the Fed started to consider reducing its quantitative easing
programme. That programme involved creating new money to buy financial assets such as government
bonds. Reducing QE was in some ways akin to raising interest rates.
 The plan was to "taper" the quantitative easing, and the result for emerging economies such as India and
Indonesia came to be known as the "taper tantrum".
 Large amounts of money left emerging market economies, and there were concerns at the time that it
might even lead to a new financial crisis in those countries. In the event, that did not happen.
 This time, because interest rates are likely to be cut, it is more likely that money will go into emerging
economies. That can sometimes lead to financial instability (or unsustainable bubbles). That is not an
immediate concern now, but it is a reason why governments around the world need to keep a careful eye
on what happens in the US.

Reference:https://www.bbc.com/news/business-49733118
 37th GST Council meeting
 It was held in Panaji on September 20, 2019to decide on tax moderation in order to boost sagging
economic growth
 There were demands from various sectors from biscuits to automobiles and FMCG to hotels to reduce
tax rates
 Following were the announcements made (effective from 1 st October 2019):

Industry/Sector Announcement
1,500 cc diesel, 1,200 cc petrol vehicles with Cess reduced to 1% and 3 % respectively; earlier
capacity to carry up to 13 people. it was at 15%
Caffeinated beverages Raised from 18% to 28% + 12% cess
Polypropylene bags and sacks 12% GST to be levied
cut and polished semi-precious stones Rate dropped to 0.25% from 3%
Jewellery exports Zero GST
Railway wagon/ coaches Hiked from 5% to 12%
Cups, plates made from flower, leaves and bio- Reduced to zero from 5%
friendly material
Marine fuel Reduced to 5% from 18%
Specified defence goods not manufactured Zero GST
indigenously
Hotel tariffs:
<= Rs.1000 Nil
Rs 1001 and Rs 7,500 12%
>= Rs. 7500 lowered to 18% from 28%
Auto sector No reduction in GST

 To simplify the process of GST filing and as a means of increasing tax compliance for small businesses,
the GST Council has announced relaxation in filing of annual returns for MSMEs for FY 2017-18 and
FY 2018-19 as under:
a. waiver of the requirement of filing FORM GSTR-9A for Composition Taxpayers
b. filing of FORM GSTR-9 for those taxpayers who have aggregate turnover up to Rs. 2 crores
have been made optional.
 A Committee of Officers to be constituted to examine the simplification of Forms for Annual Return and
reconciliation statement.

Reference:http://www.cbic.gov.in/resources//htdocscbec/pressrelease/Final_Press%20Release_GSTPW
20092019.pdf;jsessionid=5F3F1E91F3CEFBE8A750255B99CCB6E8
 Trump Announces New Sanctions on Iran
 The President Trump on Friday announced a new round of sanctions against Iran’s national bank.
 This escalated economic pressure on the country as the president’s national security advisers review
a list of targets for a potential strike in retaliation for recent attacks on Saudi Arabian oil fields.
 The sanctions come as Trump’s fourth national security adviser, Robert C. O’Brien, settles into his new
role.
 The administration considers options for Iran, including tightening the stranglehold on Iran’s economy,
sending more American forces to the region and launching military strikes targeting weapons caches and
possibly oil facilities.

 Mr. Trump said that going to Iran would be a very decision, later on Friday during a joint news
conference with the Australian prime minister, Scott Morrison.
 The Iranian foreign minister, Mohammad Javad Zarif, said on Thursday that a military strike against
Iran by the United States or Saudi Arabia would result in “an all-out war.”.
 The latest sanctions affect the Central Bank of Iran and the National Development Fund of Iran, “the last
remaining source of funds,” said Treasury Secretary Steven Mnuchin.
 Last year, the United States took the rare step to designate the head of the central bank, Valiollah Seif, as
a global terrorist, and accused the bank of funneling money to Hezbollah.
 While the Trump administration emphasized the severity of the latest sanctions, it was not clear that they
would have any real impact on Iran’s behavior or do much additional damage to its economy.
 In addition to sanctioning Seif last year, the Treasury Department re-imposed sanctions related to
purchases of American dollars by the Iranian government.
 Earlier, this had been suspended as part of an international nuclear accord.
 The new sanctions to the central bank are an additional layer over what the United States has already
levied.
 The impact of the new sanctions on the development fund depends on how active or well-funded it is. If
the fund has access to oil revenues, he said, the sanctions could have an impact.
 The extent of central bank interest and property in the United States is not known.
 The United States has called the recent strikes on Saudi oil facilities an “act of war” and blames Iran,
though Tehran denies any role in the attacks, which hit two of the most important oil facilities.

Reference: https://www.nytimes.com/2019/09/20/world/middleeast/trump-sanctions-iran.html
 Government plans to auction 5G waves by January
 The roadmap for the rollout of 5G technology in India is still under examination and the government
will appoint an auctioneer soon as it plans to conduct an auction for the premium airwaves by January.
 This The 5G technology will lead to much higher data speeds and propel Internet of Things, which will
transform sectors such as agriculture, manufacturing, healthcare, and education.
 The government did not auction any spectrum in fiscals 2017-18 and 2018-19. In 2016-17, the
government had raised Rs. 65,789 crore through the sale of spectrum, a fraction of the Rs. 5.63 trillion
worth of spectrum, at base price.
 It had offered for sale. While the total spectrum put up for sale was 2,354.44MHz across seven bands,
the government managed to auction just 965MHz.

 The Digital Communications Commission met on Thursday approved 4G connectivity proposals for
uncovered regions and measures to make access to telecom services and smartphones easier for those
with disabilities.
 It has also sent a formal request to the ministry of housing and urban affairs to ensure that telcos are able
to improve network coverage inside buildings.
 The department has also decided to urge telcos to identify customers with disabilities and provide
special benefits and suggest mobile manufacturing companies that make more than five phone models to
make one model for such persons.
 The Telecom Regulatory Authority of India (TRAI) had first sent its suggestions on 5G, in August last
year. Trai has priced the 3,300-3,600 MHz band, expected to be the primary band for 5G services, at Rs.
492 crore per megahertz. Bharti Airtel has said these prices are exorbitant and it would not participate in
any auction held at these prices. In South Korea, the same band was priced at roughly Rs. 131 crore per
megahertz in auctions held in June last year.

Reference:https://www.livemint.com/industry/telecom/5g-spectrum-prices-rollout-roadmap-still-under-
examination-telecom-secretary-1568894770369.html
 News from around the world

 Indian government is looking to sell Air India but may keep its debt
https://www.businessinsider.in/air-india-flights-sale-may-not-include-itsdebt/articleshow/71177898.cms

 Ola partners with Ayushman Bharat to provide health benefits to its drivers
https://www.businessinsider.in/ola-partners-with-ayushman-bharat-to-provide-health-benefits-to-its-
drivers/articleshow/71202284.cms

 Blackstone: Even a 'smaller' US-China deal could be good for business confidence
https://www.cnbc.com/2019/09/21/blackstones-tony-james-on-us-china-trade-deal-geopolitical-
risks.html

 Cabinet approves ban on e-cigarettes, shares of cigarette makers jump

https://www.livemint.com/news/india/cabinet-approves-ban-on-e-cigarettes-shares-of-cigarette-makers-
jump-1568800260557.html

 Bernie Sanders calls for wiping out $81 billion in medical debt
https://in.reuters.com/article/usa-election-sanders/bernie-sanders-calls-for-wiping-out-81-billion-in-
medical-debt-idINKBN1W60IX

 RBS is first UK big four bank to be led by a woman

https://www.bbc.com/news/business-49766417

 Airbnb plans to list shares next year

https://www.bbc.com/news/business-49761461

 Petronet signs MoU with US natural gas firm Tellurian in PM Modi's presence
https://www.business-standard.com/article/pti-stories/petronet-signs-mou-with-us-firm-tellurian-
119092200074_1.html
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