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sunil kumar gupta

bussiness expert, economist, author & philanthropist

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How can India make its employment numbers more credible?

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The numerous claims and counterclaims on employment numbers make for a dangerous and fascinating read. Thanks to the politicization of employment numbers in anticipation of the upcoming general elections, we are now being overwhelmed with figures from all directions. However, all the studies suffer from majorly serious drawbacks. It’s truly the case of blind men and the elephant.

In July 2018, honorable Prime Minister stated in the Parliament that if both formal and informal sectors were to be considered, then nearly 10 million jobs had been generated in a year.

These new employment numbers were stitched from the Employee Provident Fund and the National Pension Scheme. The number of new professionals joining the system, like chartered accountants and doctors, were also considered to calculate formal employment numbers. However, if employment were rising, then it would have been reflected in higher consumption and savings; but this was not the case. Further, the number of youths migrating from rural to urban areas has hit a roadblock as the real estate market faced stagnation last year due to RERA.

However, the survey conducted by the Centre for Monitoring Indian Economy (CMIE) presents a counterclaim to the 10 million number.

In the absence of timely, publicly released and survey-based employment data from the government, the CMIE gained currency. This private organisation, which maintains economic and business databases, conducts a four-monthly unemployment survey with a sample size of over 178,000 households. This survey indicates that in the year 2018, the number of employed people had shrunk by nearly 10 million. It had shrunk down from 406 million in December 2017 to 396 million in December 2018. The unemployment rate has been estimated at 7.23% in February 2019 as opposed to 5.87% a year ago.

This is not much in contradiction to the leaked NSSO report, which stated that the unemployment rate is 6.1%. This report suggested that unemployment is at a “45 years high”. The 2015-16 Labour Bureau’s Employment Unemployment Survey put such rate at 5%. The Azim Premji University’s State of Working India 2018 puts the unemployment rate at over 5%, with youth unemployment being thrice the overall rate.

At the other end of the spectrum, the unemployment rate reported by the Census 2011 is as high as 11.8%. Yes, that’s correct. The Census put employment numbers at 482.88 million of “main” and “marginal” workers, with unemployment numbers being put at 60.7 million. And we know that there is no data more comprehensive than the ones reported by the Census, where surveyors literally knock on each door to collect information.

So, why are economic data, especially employment numbers, so profusely contradictory and unreliable? How can such data be made more credible?

Conducting surveys in India has always been a tricky affair, with the ever growing population and small changes bringing about unexpected results. But there are specific ways that the government of India, as well as the private sector, can resort to making job data more credible.

Firstly, the NSC needs to be reconstituted and empowered with adequate resources at the earliest for it to function as an independent watchdog. The statistical agencies require strengthening with improved timeliness and accuracy. It has also become necessary to enhance the human resources of these agencies and revamp its internal infrastructure to adapt to the changing data needs and procedures.

Secondly, both CMIE and NSSO suffer from a significantly huge drawback: they base their reports on data collected over months. This implies that they won’t be able to publish their reports at a particular point of time. For instance, if a person is unemployed in January and finds a job in March, they would still be categorized as unemployed by these agencies. The only effective way to report accurate data is by completing the survey in a day – or within a week at best. This, in turn, implies the need for a greater man force and only the government will be able to achieve this. Besides, the CMIE and other sources of data are essential in keeping the government data honest.

Thirdly, the methodology needs to be improved. Under the current methodology, it takes a lot of time and effort to collect data from a small sample size. In rural areas, the number of households surveyed was 55,000 as opposed to 160 million households in the country. Such small sample sizes result in higher data sensitivity. Responses can be facilitated from a higher number of households in a quick span of time through the use of technology.

In the context of the ongoing debate on India’s employment numbers, efforts are immediately needed to improve the availability of quality data in order to resolve narrative driven debate through objective evidence. Such a collection and transmission of quality data by robust institutions is imperative for the development of a strong policy framework.

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From Bust to Revival – A Deep Dive Into India’s Textile Industry

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  1. Introduction

Unless you’ve been sleeping on our national economy for the past few years or so, you’ll definitely know that the Indian textile industry has been a resounding turnaround story. Importance of Textile Industry is known to almost everybody, In fact  only industry besides agriculture to have provided skilled and unskilled labor to a substantial population. It employs employs 5.1 cr people directly and over 7 Cr indirectly and indirectly. Even today, it still stands tall as the 2nd largest employment providing sector in India.

Some Economic Data Points Regarding Textile Industry

  • During FY 2018, Indian Textile exports were at US$ 39.2 bn in FY18 and they are projected to increase to US$ 82.00 bn by 2021.
  • Indian textiles industry is currently at US$ 150 bn and is projected to reach US$ 250 bn by 2019.
  • India’s textiles industry contributes 2% to Indian GDP.
  • India’s textiles industry employed more than 45 mn people in FY18.
  • India’s textiles industry contributed 15% to export earnings of India in 2017-18.
  • Existence of end to end value chain within the country — finished goods, fabrics, yarns and fibre.
  1. Indian Textile Industry – A historical perspective

When putting into perspective the various struggles the textile industry had to face in a country like India, one cannot ignore the vast evolution of it. To understand this turnaround story we will have to go back to prehistoric era. You should not be surprised when we say that India has been a textile-savvy country since the dawn of Harappan civilization.  Archaeological experts have found that citizens of the Harappan civilization were aware of cotton spinning and weaving techniques even then. This is four thousand years ago! References of this awareness were found in Vedic literature which is factually seen as relevant for various instances in Indian history. Textile trade too was found in India during the early centuries. This took place when remains of a particular fabric which originated in the state of Gujarat, was found in Egypt. The finding itself is proof of India’s textile trade back then. Large swathes of India’s reputed silk were transported to China through the silk route thousands of years ago. The genesis of the colonial era, marked the beginning of slowdown and eventual decline of the textile industry. But it soon saw its uprising once again during the nineteenth century. Soon, the country’s first textile mill was established in the year 1818 in Calcutta. With this, began the modern era of textiles in India. By the end of the second half of the century, there was an approximate total of 178 mills established. The industry took a massive hit when it was hit by the great famine which led to a lot of big mils to be closed down.

  1. Indian Textile Industry – SWOT Analysis

In order to take a “deep dive” into the world of the Indian textile industry, we must first acknowledge its strengths and weaknesses.  Like any industry of the world that has existed to date, the textile industry has a lot of strengths that have contributed to the country’s economic value. However, in the same way, it also has a lot of weaknesses that should be addressed.

Strengths  

  • A growing domestic market to look forward to.
  • Prominent position in the value chain.
  • Skilled labor at low-cost value.
  • Availability of raw material in local market.

Weaknesses

  • Outdated technology
  • Low levels of productivity in comparison to other countries and industries
  • Lack of access to infrastructure, capital and power
  • Fragmented Nature of Industry
  • Disconnect between the cotton growing areas and the areas where cotton is processed into cloth

Opportunities

  • High labor costs abroad
  • Unlimited market access
  • Growing domestic market
  • Increased adoption of standardized  products

Threats

  • Inflexibility on interest rates
  • Abrupt rise of labor wages
  • Emergence of markets like Bangladesh and Vietnam which are huge threats
  • Absence of protections under WTO
  • Implementation of global compliance standards like OHSAS – 18000, SA – 8000 and ISO – 14000 standard which will be a lag on competitiveness of Industry

The textile sector comprises 80 per cent of Ministry of Micro, Small and Medium Enterprises (MSME) players. They need flexible labor laws and a skilled workforce as the sector itself lacked the structural know how to bring about these initiatives, themselves. Let us focus on the bright side of things first. Probably the most appreciated aspect of the industry is the number of raw materials it has. This might not seem like a huge deal at first, but the abundance of raw materials actually the industry to breathe and not put too much pressure on costs. It helps control it within the sector. Skilled labor also faces fewer costs. India’s textile industry also stands steady in the value chain as a sector itself. Compared to various other textile-driven neighboring countries such as Bangladesh and Sri Lanka, who have been introduced as ‘garment countries’, India has a prominent position. The industry also has a growing domestic market which lessens the risks involved and increases the competitive aspect. While all these elements are considered good and give the textile industry a chance to shine, it has faced tons of challenges and has risen to the top after several attempts. India’s textile world is extremely fragmented. As mentioned above, it is divided among sectors and is dominated by the existing unorganized sector as well as other small industries. What is the influence of a fragmented industry? Well, for instance, it denies the possibility to expand on a global scale.

  1. Factors behind revival of Textile Industry                                                                                                        Post-2005, the industry seemed to have faced the most struggles. There were some opportunities that needed to be put into consideration. The challenge was to make India focus more on product development. This also meant more specialized fabrics being brought in, using CAD to increase the design capacity of the industry, and an increase in trend focus so as to enable proper growth in the future. The revival story can be directly attributed to a slew of government reforms like.
  • Improved Access to Credit
  • Tax Incentives
  • Labor Reforms
  • Improved Access to Power
  • Access to New Market Geographies

 

    • Improved Access to Credit  – Rs 1300 cr disbursed as part of Samarth Scheme and Rs 6000 were allocated as a downstream package. This coupled with state  wide incentives and increase of import duties on textile was a big positive for Textile Industry
    • Tax Incentives – A tax scheme to give rebates on state and central taxes that effectively made exports of textile commodities zero-rated.
    • Labor Reforms – Under Pradhan Mantri Rojgar Protsahan Yojana as of January 2019, 1,24 lacs establishments have availed this scheme where 12% contribution to EPF is made by Government and it provides a sense of social security to labor associated with textile industry and formalization of labor force as well.
    • Improved Access To Power – Ministry of Textiles along with Ministry of Power launched  SAATHI scheme to improve access of power loom units. Under this scheme, EESL will procure energy efficient power looms, kits and motor equipment which will be provided to Small Power loom units at zero upfront cost. This will not only improve efficiency in this industry but also improve energy savings and thus reduce operational costs. It is expected that these savings will pay for cost incurred by EESL within 5 years.
    • Access to New Market Geographies – As part of ‘Look East’ doctrine, new markets geographies in Korea, Japan were identified. Integrated Market plans for these geographies were set in motion.

About the Author

Sunil Kumar Gupta is an entrepreneur par excellence, philanthropist and a great visionary. He is the Leader of Indo European Business Forum (IEBF) and also the Founder Chairman of SARC & Associates, Chartered Accountants and SARC Foundation and Life Trustee of Rashtriya Antyodaya Sangh, a Public Charitable Trust. He has over 32 years of experience in diverse fields such as Corporate planning, Financing, Taxation, Banking, Education, Investments, Oil & Gas and in project implementations. He is a Fellow Member of the Institute of Chartered Accountants of India (ICAI), Life Member of Indian Council of Arbitration and Full Member of the Institute of Certified Public Accountants of Uganda (CPA-U).

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ANGEL TAX AND ITS IMPACT ON INDIAN STARTUP ECOSYSTEM

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It would not be an understatement to say that since last few years Angel Tax have had a huge impact on start-up ecosystem! Over the past year there have been reports of several early-stage start-ups receiving notices from the income tax department asking them to clear outstanding dues on the angel funding received by them. This has caused a big distress in start-up community. Many angels have been asked to pay upwards of 30% of their total funding as angel tax. They have also received many notices from Income Tax department prompting them to furnish details of source of their income and also their bank account statements.

So what exactly is the angel tax?

It is the tax levied on an Angel investor who invests in  a start-up based on the capital gains. It is calculated as differential of their investment and fair market valuation. Now that’s where the problem lies, how do you determine fair market valuation of start-ups?

Angel investors are generally ultra high net worth individuals or professional investors who fund start-ups for gaining stakes in the start-up generally at foundation stage or after bootstrapping rounds. The tax was introduced by former finance minister Pranab Mukherjee in the 2012 Union Budget to prevent the laundering of funds. Since its introduction, the law has been a big source of worry for both the start-up community as well as angel investors.

Impact of Angel Tax:

  • Limitations on Angel Investors autonomy in structuring funding contours & terms

Since its introduction the Angel Tax has majorly disrupted the market dynamics since its introduction. Since the funding is now to be based on the criteria and limits set by the Government itself, it becomes very difficult for investors to finance start-ups as it takes away their autonomy in structuring deals.

  • Taxation structure that reduces the IRR for Angel Investors

In India the government treats the angel investment as equity investment and capital gains are applicable. In Indian law, Income tax in not imposed on capital but on the profit actually, this is a big burden on start-up ecosystem. When an angel investor invests in a start-up they are issued shares. The change in the price of these shares over time decides the quantum of capital gains. Angel investors and start-ups have long demanded that Discounted Cash flow method to be applied to valuation to calculate angel tax viz a viz Net Asset Value. Government feels that the commercial negotiation between start-up and investor to determine a start-ups projected earning is highly subjective and susceptible to money laundering.

  • Impact on the flow of funds to the rapidly flourishing Startup Ecosystem

Introduction of Angel tax have had a devastating impact on the country’s start-up ecosystem which was just starting to bloom around the year 2011-12. It should be noted that the number of companies being funded through angel investors had dropped by 80% during the same period, also angel funding has reportedly faced a drop of over 55%.

  • Start-up Migration to other countries

Angle tax has pushed start-ups to shift their businesses to alternate destinations overseas. As some countries in APAC region provide a more friendly and conducive taxation and funding environment for start-ups to get them up and running, most also have policies to support the sales of their products and services . This is in stark contrast to the current environment for start-ups in India which has led to substantial loss of income and limitation of their opportunities to raise capital due to incessant and stringent tax laws.

Recent Amendment and Developments:

Off late there have been some relaxations for start-ups, as you know earlier, for a start-up to gain the status of start-up they should have been incorporated or registered in a period of seven years, but that period has now been increased to ten years. Their turnover limit has been increased to hundred crores from 25 crores, and not only that this new notification has done away with section 56(2) of the IT Act which restricted investment into the start-up to the fair market value of the start-ups. Remember earlier the investments coming into a start-up would have to be less than the fair market value of startup and this was a point of concern for start-ups as the criteria for evaluation was not clear so now that has been relaxed and any amount of money irrespective of the fair market value is now exempted from the tax. Other major developments have also been mentioned below

  • For recognised startups requirement of ‘Merchant Banker Valuation’ has now been done away with.
  • Approval of Inter-Ministerial Board is no longer required for claiming exemption u/s 56 (2) (viib)
  • Department of Industrial Policy and Promotion will send the applications from startups for shares that have already been  issued or for a proposed investment. that are seeking exemptions to the Central Board of Direct Taxes (CBDT) for approval which has to be provided or rejected within 45 days from  receipt of application by CBDT.

 

Notable challenges:

  1. The notification maintains complete silence when it comes to addressing the entities regarding assessment orders that have been passed already. This leads to a demand rise as a result of Angel Tax. Obtaining instant recognition as a startup from the government and defending the case at the appellate stage seems to be the sole option for such companies.
  2. Bar on using Angel fund investments received for one entity, so if you got investment for one entity you cannot use it in another entity whether it’s subsidiary, group or holding of the same entity. Government’s prime motive was to prevent diversion of funds and generation of black money through complex entities. This bar has led to a sense of restlessness among start-ups.
  3. Pending notification from CBDT and IT department regarding changes in IT laws to make this notification more credible and enforceable.

About the Author

Sunil Kumar Gupta is an entrepreneur par excellence, philanthropist and a great visionary. He is the Leader of Indo European Business Forum (IEBF) and also the Founder Chairman of SARC & Associates, Chartered Accountants and SARC Foundation and Life Trustee of Rashtriya Antyodaya Sangh, a Public Charitable Trust. He has over 32 years of experience in diverse fields such as Corporate planning, Financing, Taxation, Banking, Education, Investments, Oil & Gas and in project implementations. He is a Fellow Member of the Institute of Chartered Accountants of India (ICAI), Life Member of Indian Council of Arbitration and Full Member of the Institute of Certified Public Accountants of Uganda (CPA-U).

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How India can realize its dream of Housing for everyone by 2022 ?

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What is Pradhan Mantri Awas Yojana and how it is going to change the face of the nation?

 

If you notice,even with such a big nation like India, in the last 60-70 years not everyone has a house of their own. We’ve also been noticing from the past few years that every person wants to have his/her own house. However, it’s only after they spend time between the ages of 25-40 working a job or a business that they manage to think about buying their own house.

Today, the statistics of the country show that about 40-45% population of our country is earning a monthly income of about ₹10,000 – 25,000. So someone with an income of 10,000 – 25,000 cannot even think about buying their own house and those who have a higher income even if they buy a house, it takes them 20-25 years to make their house, so they cannot actually enjoy living in their property in their prime years.

 

So how do we solve that? How do we make sure that every citizen in the country has their own property? Considering that vision, our esteemed prime minister – I always say he has really good vision, he made a unique plan. The statistics of our country say that the requirement of a house is 96% for LIG & EWS which means smaller affordable housing. But in our country, whether it was a government agency or private builders, they would try to earn super normal profits and to do that they kept making such properties which were suitable for the super rich, who could buy them for their investments. The person who had 1 house s/he bought 2 more, 3 more and then sold them at a higher price. This way the person continued doing his/her business but the common man who earned about Rs 25,000 – 40,000 was left out and just kept wondering if they’d ever be able to afford a house of their own or not. So to fulfill that, this Yojna was made which made affordable housing possible.

 

So the government announced that by 2022, they aim at making about 3 crore properties in the country side (gramin shetra) and 2 crore houses in the cities. They wanted to make a total of 5 crore houses due to which every person, every household i.e., a person and his/her family should at least have a house of their own. That is why this Yojna was brought into action.

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How REIT will be a game changer for Indian Real Estate Industry

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The concept of REIT which is an acronym for Real Estate Investment Trust has been there for nearly 60 years now REITs. REIT’s as an investment asset class came into being when President Eisenhower of USA enacted a law in 1960 that enabled all investors to invest in diversified large scale portfolios of real estate that produce income in form of rent and lease. The first REIT was launched in 1961 by American Realty Trust in 1961. In 2018, globally REIT’s had over 2 trillion US Dollars worth of assets under management. In budget of 2014, Finance Minister Arun Jaitley has introduced a law for setting up REITs and in August 2014 India approved creation of Real Estate investment trust. Last month, Blackstone Group LP – Sponsored, Embassy Office Parks raised Rs 4750 cr through India’s first REIT IPO. The IPO was over subscribed 2.58 times. Investors in this REIT IPO were allotted units at a price of Rs 300. On its listing day the REIT IPO received a thumbs up from market when it touched a daily high of Rs 325 and closed at Rs 314, thus enabling IPO investors to earn a sizeable gain of 4.7% on issue price. With it India became another market having REIT offerings for individual investors.

  • Reduced Risk, Stable Returns and Diversification for Investors in Real Estate  

A new fund-raising avenue for the cash-strapped real estate sector in the country. Firstly it gives investors having investible corpus of only a few lacs to invest instead of conventional Real Estate where you were set back by huge amount. Secondly it also gives investors exposure to a pool of real estate thus giving them much needed diversification across properties and geographies. This reduces risk as end users are holder of units of securitized real estate pool.  According to the guidelines, REITs will have to invest in a minimum of two projects with 60% asset value in a single project. REIT will showcase the full valuation on a yearly basis and will also update it on a half-yearly basis. Thirdly it is managed by professional investment team so investment risk is further reduced. Last but not the least is friendly taxation structure. if a REIT unit will be by investor for a period of more than 3 years than long term capital gain will be applicable. If the periodic income is through dividends  then it be tax-free and if pay-out is in the form of interest then tax will be applicable as per the tax slab of unit holder. For Indians Real Estate have always been a preferred investment class as according to RBI study about 56 percent of Indian household savings have been concentrated in Real Estate but Indians have for long invested largely in Residential Real Estate which has lower rentals. Retail investors have stayed away from commercial real estate because of higher ticket size of investment and complexity associated with commercial property ownership. Colliers Research shows that Indian market is rife with great opportunities in terms of rental yields as evident from infograph shown below.

top 10 economist in india

Launch of first REIT will certainly be a game changer for Real Estate as it has potential to revive commercial real estate segment by introducing Retail investors to contribute sizeable inflows across this segment.

 

  • Much needed Liquidity Boost for  Real Estate Industry

The greatest benefit for Real Estate industry as a whole will be that of fast and easy liquidation of investments in the real estate market unlike the traditional way of disposing of real estate which is very opaque and fraught with risks of frauds, cheating and legal disputes emanating from property records. The assets under REIT corpus are rent bearing assets where an established name that has gone through due diligence from multiple bodies including SEBI, so property records will be transparent and it will boost Real Estate industry sentiment. India’s real estate has endured a lot in recent years. Despite the high credit growth environment and factors like Demonetisation , Global Recession and rapidly evolving GST structure, Real estate has held forth as a preferred asset class for Indians. This is a much welcomed move and will give real estate industry a much needed boost. Given the prevalent situation of funding crunch, launch of first REIT offering in India is very well-timed for real estate developers who want to unlock much needed capital to fund further  projects or to pare down their debt.It will also greatly reduce a great deal of pressure on the NPA saddled banking industry. It will ensure more liquidity for Banks to lend to end users and customers instead of relying on much riskier way of lending through Loan Against Property (LAP) and Lease Renting Discounting (LRD).

About the Author

Sunil Kumar Gupta is an entrepreneur par excellence, philanthropist and a great visionary. He is the Leader of Indo European Business Forum (IEBF) and also the Founder Chairman of SARC & Associates, Chartered Accountants and SARC Foundation and Life Trustee of Rashtriya Antyodaya Sangh, a Public Charitable Trust. He has over 32 years of experience in diverse fields such as Corporate planning, Financing, Taxation, Banking, Education, Investments, Oil & Gas and in project implementations. He is a Fellow Member of the Institute of Chartered Accountants of India (ICAI), Life Member of Indian Council of Arbitration and Full Member of the Institute of Certified Public Accountants of Uganda (CPA-U).

Top Accounting Technology trends you need to know

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Technology has really shaped up the mindset of professionals from all walks of life and its utilization has given a holistic understanding in order to pester the needs of working professionals. Now this revolutionary change applies to people in accounting industry as well.

We are in an era where without the use of technology, we can easily be ostracized and this cobwebbed situation especially in our working atmosphere can pull us out of business. Even if you’re an aspiring accountant or you’ve been a CPA for decades, you may not think much of your preferred accounting system. If you are dedicated in the field of accounting or currently pursuing a bachelor’s degree in accounting, then it is important that you must be up to date on the kind of technology being used in your professional workspace.

Let’s take a look at some of the most important accounting technologies that can help accountants to approach their workspace through an effective and efficient lens:

Cloud Computing

Cloud computing plays pivotal role as one of the efficient technologies within the accounting sector. According to Forbes, worldwide spending on cloud services will grow radically.

This paradigm shift for professionals following traditional accounting pattern has given them a technology that is used for storage and accessibility of data online rather than on your hard drive.

Blockchain Technology

Blockchain technology is the distribution and decentralization of database technology. It can protect encrypted data and sustain an expanding list of transaction between all parties of those transaction.

This accounting technology will assist many financial advisors in Delhi to bring a qualitative change in the financial industry.

Automated accounting

This type of technology eases human effort and does most of the job for you. Automated is an efficient tech that will make virtual controllers of automated accounting high in demand.

This lucrative technology will be able to redefine the role of an accountant and bring quantifiable results for the same.

Optical Character Recognition

Optical Character recognition is a new technology in the market that electrically converts images and handwritten texts or printed text into machine encoded text.

OCR is finding an elbow room in automated, cloud based applications. These technological trends create a powerhouse for business experts within the accounting software