Friday, 15 July 2022


 
How Indian economy is doing after the COVID outbreak and the impact of the Russian Ukraine war on Global economy including India.

How India overcame Covid crises and Economy bounced back 


20 lac crore stimulus

Steps for MSME

◘  Collateral free loan of Rs 3 lakh crores for MSMEs — a move that'll enable 45 lakh units to restart work and save jobs.

  Rs 45,000 crore partial credit guarantee scheme 2.0 for NBFCs. The first 20% loss will be borne by the guarantor that is the government of India.

Migrants 

  Free food for migrants
For those migrants who don't have NFSA cards or state cards, 5 Kgs of wheat or rice per person and one kg channa per family per month for next two months to be provided and it will reach through the state governments. This will entail Rs 3,500 crore and is likely to benefit around 8 crore migrants.


 ONE NATION ONE RATION CARD

 Street Vendor

Special scheme for street vendors to avail Rs 5,000 crore loan facility. Will be given Rs 10,000 of working capital.
The government is extending Rs 30,000 crore additional capital emergency funds through NABARD for post-harvest Rabi and Kharif related activities for small and marginal farmers.

 iNFRASTRUCTURE

1. Logistics like cold storage and warehousing
2. Marine and inland fisheries
3. vaccination of livestock
4. Dairy infrastructure


 Economy facing industries

1. Commercialisation of coal mining to make India self-reliant. Steps will ensure 1 billion tons of coal by 2023-24

2. Defence manufacturing support for Atmanirbhar Bharat. FDI limit raised to 49%

3. MGNREGS: Additional funding of Rs 40,000 crore to the scheme over and above the Budgetary Estimate.

4. Covid-related debt to be excluded from definition of default under the IBC. No fresh insolvency for next one year

5. No fresh bankruptcy in next one year


 The months after the second Covid wave witnessed an ‘impressive’ recovery. India’s growth recovery has been led by investment push by the government, and gradual re-opening of the economy which facilitated the revival of economic activities. Structural shifts, such as digitisation and decarbonisation also provide tremendous investment opportunities. 

There have been two domestic and one external factors responsible for the revival. The external factor has been the global demand that fuelled the Indian exports. And the two domestic factors have been the speed of the vaccination drive and increase in household saving that aided the pent-up consumption post the second wave

6.28 lac crore package announced by FM in 2021


👉  Expansion of health care infra


👉  Tourism: Free Visa, Loan Guarantee scheme for tourism sector which was worst hit


👉  Exports National exports guarantee. It helps to provide cushion to credit worthiness of exporters for buyers


How India and Global facing economic slowdown and Inflation post Ukraine and Russia War 

World is witnessing inflation due to high commodities prices and energy prices due to war. After Covid, world is fighting inflation and central banks are increasing interest rates. Europe is worst affected and is in recession. 





 






India has used this adversity as an opportunity. Although Inflation is haunting India too but has increased imports of oil from Russia at discounted prices. Now imports stands at around 25% of total oil import

India has fared relatively well in controlling inflation. US and other developed economies are facing worst inflation in four decades




Steps taken by Indian Government To control inflation 

👉 Duty-free imports of crude soy and sunflower oil

👉 Limiting sugar exports

👉 Banning the export of wheat

👉 Excise duty cuts on petrol and diesel


👉 Export tax of 15% on some steel products from zero


👉 Govt slaps export tax on petrol, diesel; windfall tax on domestic crude oil

Services export opportunities, domestic demand potential, and its emergence as an attractive investment destination will help India post a strong economic growth this year.



"We expect India to grow by 7.1%–7.6% in FY22–23 and 6%–6.7% in FY23–24. This will ensure that India reigns as the world’s fastest-growing economy over the next few years, driving world growth even as several major economies brace themselves for a slowdown or possibly a recession" DELOITTE





Saturday, 21 November 2020

Budget Proposal 2021




Suggestive Direct Tax Propositions for Budget 2021


The present applicable tax rate in case of domestic companies with turnover up to Rs. 400 cr is 25%.


Option to opt for Lower tax rates of 22% in case of certain domestic companies is available u/s 115BAA.


Further, option to opt for even lesser tax rates of 15% is available for certain domestic manufacturing companies in terms of Sec 115BAB.


Whereas the applicable rate of tax in case of partnership firms and Limited Liability Partnerships (LLPs) is 30%. This creates huge tax disparity.


It is understandable that in order to encourage the organised sector, the government has offered lower tax rates for companies. 


But even on that pretext the tax rates are really partial towards LLPs which are also duly registered with MCA, follow various compliance requirements including filing of Annual Return and Statement of accounts with ROC, as they fail to enjoy the advantage of lower tax rates. All the information of LLPs is duly available on public domain.


The tax rates for LLPs should be brought at par with the tax rates of domestic companies, i.e.,


  • General tax rate of 25% for LLPs with turnover up to 400 cr.
  • Reduced tax rate of 22% subject to similar provisions of Sec  115 BAA


Tax rates for partnership firms should also be brought down to say 25%.


2 Lower liquidity in the hands of businesses due to Covid-19 impact

Continuation of reduced TDS rates by 25% up to Q1 & Q2 of FY 2021-22. This will support businesses in Covid recovery period with higher liquidity and help sustain their businesses.



3 Hefty increase in premiums of  medical insurance policy 

  • Rationalisation of general limit of medical insurance for individual from Rs. 25,000 to Rs. 50,000


  • Further, in case of senior citizens, medical insurance limit should be relaxed to Rs 75,000 from Rs. 50,000



4 Sec 44AD


Sec 44AD provides for deeming profits in case of an eligible assesse with turnover up to Rs. 2 crores, @ 6% / 8% of gross receipts.

 

Sec 44AD(4) & 44AD(5) further provides as under:


Sec 44AD(4) : Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).


Sec 44AD (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.


The purpose of Sec 44AD is to relax the compliance burden for a small taxpayer, specifically, the once having turnover less than 2 crores. 


However, the conditions provided under Sec 44AD(4) and 44AD(5) are very deterrent provisions for such small taxpayers.


The requirement to abide by and declare profits in terms of the provisions of Sec 44AD for a continuous period of 5 years, failing which the assessee is required to mandatorily get his accounts audited u/s 44AB for next 5 years, is very harsh on small taxpayers. 


This makes the scheme of Sec 44AD for small taxpayers very stringent and less viable. This is more so keeping in view the relaxation in tax audit limit newly brought in to Sec 44AB by insertion of proviso to Sec 44AB (a). By virtue of the said amendment, the tax audit limit has gone up to Rs. 5 crores provided Cash receipt or Cash payment ratio does not exceed 5%. 


This creates huge anomaly in Income Tax Act where a small assessee with turnover of even less than 1 crores is required to get tax audit done for a period of 5 years if he declares profit less than 6% / 8% opts out of Sec 44AD before 5 continuous years.


On the other hand, an assessee with turnover between 2crores to 5 crores is not required to get tax audit done if satisfies the condition of proviso to Sec 44AB(a) and may even file its ITR at losses without tax audit. 


The provisions of Sec 44AD(4) and Sec 44AD(5) should be relaxed keeping in view the huge compliance burden on small taxpayer.


5 Taxability of Long term capital gains @ 10% vis-à-vis Short term capital gains of 15% leaves a small gap of 5% between short term and long term capital gains, acting as a deterrent for long term investors and more volatility in the market.


Scrapping taxability of long term capital gains on equity shares and equity oriented mutual funds


6 Additional depreciation u/s 32


Presently, the additional depreciation is only allowed in case of installation of new plant and machinery by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power. 


No such additional depreciation is allowed in case of new plant and machinery installed by service industry. Under the current scenario, major employment opportunities are generated in service sector and the plant and machinery being computers form the main infrastructure for expansion/ addition of new workforce to their team.  


Moreover, the depreciation rates on computers have been reduced from 60% to 40%. 


Provision of additional depreciation to service industry on installation of office would promote tax incentive on expansion and generation of new employment opportunities by service sector. 


Additional depreciation on installation of new plant & machinery to be provided to service sector.


7 Women workforce hygiene and enforcement measures


Under present days, where women are ahead of men in all spheres of work life, there are not much workplaces which have separate toilets installed for women, especially in case of MSMEs. This creates huge hygiene issues for women workforce.  




Moreover, day care centres if setup at offices, would encourage women to balance work and personal duties in a better way. A mother who is better relieved about the well-being of her child, can better focus on her job and offer far-sighted results.




  • 100% Weighted deduction/ additional depreciation on installation of separate women toilets at workplaces.

  • 100% Weighted deduction/ additional depreciation on installation of sanitary pads vending machines for women at workplaces.
  • Weighted deduction/ additional depreciation on setting up cruches/ day care centres set up within a commercial organisation employing say 20 or more women workforce.


8 Installation of paper recycle machines, water recycle machines, and waste recycle plants need to be encouraged more and more for a green environment.

  • 100 % Weighted deduction on installation of paper recycle machines, water recycle machine and waste recycle plants etc. 


9 Sanitisation machines


In the wake of Covid -19, sanitisation and personal hygiene of an individual, before coming in contact of any other individual has gained momentum. 


This is helpful in prevention of spreading of any virus related disease and not just novel coronavirus. 

Therefore, installation of sanitisation machines which involve huge one time outlay for a business organisation should be encouraged by tax incentives.

  • 100% weighted deduction should be allowed on installation of sanitisation machines in offices for a period of next 3 years.


10 Inclusion of Covid-19 in specified disease 


There have been many such cases during pandemic where in the absence of medical policies, huge lacks of monies had to be spent on treatment of covid-19.


Curative provision allowing deduction of such expenditure spent should be inserted with retrospective effect from 1.4.2020


Deduction of medical expenditure made on treatment of Covid-19 of self, spouse, dependent children and parents, incurred by an individual should be allowed.


Subject to condition that the expenditure is not covered by any medical insurance policy.


11 Promotion of new investment in business set up by an individual by liquidation of his house property 


Presently, there is no deduction of capital gains available to provide for tax incentive where any individual sells some property for the purpose of setting up new business, purchase of new plant and machinery, which in turn generates more employment opportunities. 


Deduction of such long term capital gains on sale of property for investment in setting up new businesses should be allowed upto 50 lacs. 


This would  encourage those individuals having surplus properties to invest funds in new business, which would in turn generate new employment opportunities and promote “Atmanirbhar Bharat”





12 Tax holiday for of Setting up of hospital units depending upon the capacity of beds


In the backdrop of pandemic, there is high need of hour to expand our medical infrastructure 

5 years tax holiday on profits of new hospitals set up within a period of next 3 years, i.e., from the period 1.4.2021 to 31.03.2024


  • Tax holiday of 50% of profits  - in case of hospitals with beds capacity of upto 100
  • Tax holiday of 75% of profits  - in case of hospitals with beds capacity of upto 300
  • Tax holiday of 100% of profits  - in case of hospitals with beds capacity of upto 500

I HOPE Narendra Modi Sir and Mrs Nirmala Sitharaman shall consider the suggestions 

Tuesday, 21 July 2020

FMCG - Investment Prospect


16 July 2020
India
Sectoral Research
FMCG

FMCG – Investment Prospect
Mutual Fund Recommendation                                                                                                                      

What's driving FMCG growth?
• Rural areas and essentials driving sales for companies
• Contribution of rural to overall FMCG sales : 33%
• FMCG capacity utilisation in June :
90-100% (of pre-covid levels)
• Consumption growth in rural areas: 85-90% (of pre-covid levels)
• Strong underlying consumer demand in June, led by the hygiene and food categories
• Consumption growth in urban areas: 50-60% (of pre-covid levels)



Q4 FY19-20 and Lockdown
- Saw a subdued consumer demand from beginning of lockdown to mid-April
- Increase in for ‘personal care and personal hygiene’ category, and drastic decline in demand for beauty care products
- Increased demand for health and immunity boosting foods
- Top 10 FMCG companies generated free cash of over Rs 26,000 crore in FY20 despite the adverse impact of the pandemic in the second-half of March
- The market environment for FMCG companies are unlikely to change too drastically
Given the disruptions to the supply chain arising from Covid-19 in March 2020, the annual results still saw some growth in most FMCG companies
The Q4 results didn't see the year-on-year sales growth it usually does, but the numbers fared relatively well.
Overall, the Q4 results paint a picture of recovery, increased consumption and rationalization of product categories.
Recovery in demand seen in June implies that Q1 will not be a complete washout as anticipated earlier

The pandemic and  the consumer behavior
- Trips to grocery stores declined from 34.3 in March to 30.5 in May, indicating pantry loading
- Fewer trips, however, translated into bigger ‘trip size’, described as volume bought per trip, resulting in volume growth for companies
- Expenditure on food, health and homecare products by Indian households grew 4.3% during the covid-19-induced lockdown.
- Parle Products saw a 5% expansion in the packaged foods and packaged biscuits segment, registering better-than-expected growth from March to May
- Britannia Industries sold more biscuit packs in April and May, posting 20% and 28% growth in sales, respectively. This was on account of increased in-home consumption of the company’s brands.
- FMCG companies are witnessing a steep rise in their online sales - some have even claimed that their online business has doubled and tripled in this short span of time.
                                                       










Rural Demand
Factors
Growth
- Migrant workers in urban areas moving back to their hometowns has led to a surge in demand
- Rural sector has been growing much ahead of the urban sector and is expected to continue to outpace it
- Government spending on MNREGA and higher MSPs will cause rural consumption to further see an uptick
- Performing better than the pre-COVID days
- Increased awareness in health and hygiene stimulated demand for the relevant products
- FMCG companies have increased investment in rural areas in an attempt to capitalize on the growing demand
- Fewer infections and a less intense lockdown
- Consumption growth in rural areas reached 85-90 per cent of pre-Covid levels in June against 50-60 per cent in urban areas.
- Several government initiatives for farmers and a good monsoon can further improve demand


Relatively stable demand
In the current economic environment, FMCG may provide some respite in terms of business volatility. While the earnings can be expected to fluctuate, macro economically the demand and sales can be expected to remain relatively stable even in times of turmoil.