http://www.deccanherald.com/content/570966/telecom-war-win-win-consumer.html

Telecom war is a win-win for the consumer

Prakash Chawla, September 18, 2016

India’s telecom companies are at a war involving the mighty new entrant Reliance Jio (RJio), a fully owned entity of Reliance Industries versus the rest which include Bharti Airtel, Vodafone and Idea.

 The three main existing players with Airtel being the leader are well-established but still cagey about the game plan that the Mukesh Ambani-steered RJio has up its sleeve.

In the works for six years with a whopping investment of Rs 1.50 lakh crore and a headcount of 60,000, a passionate Ambani unveiled the project with free service till December 31, 2016. Beyond the free run, RJio claims its 4G-driven mobile internet would be available at one-tenth of the global price. Independent analysts, as also the incumbent telcos, see this nothing short of a price war. If it is so, then as they say, every thing is fair in love and war.

For now, the customers, who were feeling rather helpless about the call drop problem, are being given the prime slot as RJio targets 100 million subscribers in 100 days. And Airtel-Vodafone-Idea trinity would leave nothing untried in the coming few months first to retain their subscriber base, which is close to one billion, and then to somehow see that an unpleasant scenario is created for RJio customers right from the beginning. There would be charges and counter-charges, but then it if is a war, such things are expected.

If there is one thing that the incumbent telcos are pretty sure about, it is that RJio is ‘too big to fail’. This they would happily concede, but what they apparently want is that Ambani’s mighty project should not be given a walkover. So, they would do anything and everything to keep the Telecom Regulatory Authority of India (Trai) busy as customers see escalation of the battle in the weeks and months ahead. Though the government, including the Prime Minister’s Office, has kept itself away from the slugfest, it is evidently keeping an eye over the developments with a no-nonsense Telecom Minister Manoj Sinha giving enough rope to the industry to slug it out.

As one thing, like not making available points of inter-connection (POIs) by the incumbent service providers seems like getting resolved, yet another crops up. Now, the fight is over number portability, which, according to RJio, is sought to be blocked by the existing players, who expectedly deny the charge. Such a clash would surely cause inconvenience to RJio customers, who perhaps, are also prepared for such roadblocks, thanks to the kind of public awareness that is being created by the corporate war. 

Too many irritants

Too many irritants at the beginning of the service to RJio customers would be a gain for incumbent service players. Here comes the role of the regulator, which has to strongly intervene and ensure that all the licensing conditions are adhered to by both the new and the existing players. On the face of it, the “tsunami” of free calls by RJio terminating at Airtel or Vodafone points looks conforming to the rule book as such freebies are allowed in the initial months of a commercial launch.

Still, Trai need not play goody-goody to either RJio or the trinity. As things stand today, it is pretty clear that it would not be the way earlier Reliance telecom forays – now controlled by Anil Ambani – went about. This is a bigger war with a personal stake of Mukesh with, many would argue, tacit support of the government’s “Digital India” drive. The Sunil Mittal-headed empire along with other players might even go to court against Trai and RJio, but that again would be a tactic to delay the smooth launch of the new service that would solely bank on all-IP, only LTE, 100% VoLTE (voice over LTE) – essentially high speed 4G.

Several global analytical firms have rightly suggested a better course of action for the incumbent players: instead of wasting their energy in a policy battle, they must play to their strength. After all, Airtel remains by far the leader and would remain so in the immediate future. However much RJio tries, it would not be able to equip the subscriber base of the existing telcos with 4G equipment, though it has brought down the price point of the handset to the sub-Rs 2,000 category and an upgrade at sub Rs 3,000. 

The data market still remains largely uncovered, while voice can be improved in terms of quality of calls, which still drop. With spectrum being an expensive source and the pressure on telcos to go for more of it, there is a pertinent question about the viability of the industry since it remains under heavy debt, including RJio, funded by Reliance Industries which was cash rich till it embarked on a humongous investment of Rs 2,50,000 crore on extra hydrocarbon business and forays into telecom sector.

Mukesh Ambani sounds confident about his balance sheet, describing it among the strongest of the global peers, while Bharti Airtel is able to service its part of big debt thanks to a robust cash generated by its 250 million plus subscribers base. In the long haul, the industry has a huge potential for everyone, courtesy a large untapped market. For now, it all looks “Mahabharat” at play, though all the warriors may emerge as winners and not losers. The biggest gainers would be you and me as consumers, as it is we who make them winners. 

(The writer is a senior journalist based in New Delhi)

India’s concerns on Terrorism and tax evasion get highlighted at G 20     

                             PM Modi with Chinese President Xi Jinping 

The Hangzhou Summit of the leaders of world’s most influential countries closed with the conventional Communique which conveyed to the people of the member countries of the Group of 20 its resolve to join hands to fight terrorism “ in all forms and manifestations”. The affirmation on fighting terrorism by the group which included India, China, Russia, Germany, the US and several other developed and developing nations, has come about at a time when the world is facing increased threat of terror across all the continents and in most countries, be in Europe, the US, South Asia or South East Asia.

While the Indian delegation would have surely worked hard on the final Communique of the two-day Summit that concluded in the home town of Chinese e-commerce giant Alibaba, Prime Minister Mr. Narendra Modi, on his part, was quite specific to the point of stating "Indeed one single nation in South Asia is spreading these agents of terror in countries of our region,". The one single nation was obviously meant to be Pakistan to which reference was made ahead of the United Nations General Assembly (UNGA) and importantly in China which is a close ally of Islamabad.  The Prime Minister made this point forcefully not only in his intervention in the concluding session, but also raised the issue of terrorism in his bilateral meeting with President XI Xi Jinping.  The unequivocal assertion by India was important in the backdrop of China not backing New Delhi on getting the UN, banned terrorists like Masood Azhar who are harbored by Pakistan.

While the declaration mentioned terrorism posing serious challenges to international peace and ongoing efforts to strengthen the global economy, it listed in detail the risks emanating from this menace to the entire geo-political space. “Challenges originating from geopolitical developments, increased refugee flows as well as terrorism and conflicts also complicate the global economic outlook”.

The second most important aspect covered in the Hangzhou Summit is the deadly mix of corruption and cross-border tax evasion. The issue is crucial to India which is battling the tax evasion, money laundering by corrupt, facing trials but have found sanctuaries different in jurisdictions. The Communique did emphasize the issue. “Recognizing the detrimental effects of corruption and illicit finance flows on equitable allocation of public resources, sustainable economic growth, the integrity of the global financial system and the rule of law, we will reinforce the G20's efforts to enhance international cooperation against corruption……”   

The document went on to say, “We call for ratification by all the G20 members of the United Nations Convention against Corruption and welcome the launch of the second cycle of its review mechanism. We will endeavor to apply effectively the extradition, mutual legal assistance and asset recovery provisions of the above Convention and other applicable international conventions. We endorse the 2017-2018 G20 Anti-Corruption Action Plan to improve public and private sector transparency and integrity, implementing our stance of zero tolerance against corruption, zero loopholes in our institutions and zero barriers in our actions “.  

But like on terrorism, even on tax evasion and money laundering, the Prime Minister Mr. Modi went a step extra to reinforce the urgency of the issue. Pressing for elimination of the safe tax havens, the Prime Minister impressed upon the world leaders to “track down and unconditionally extradite money launderers and tax offenders”.

With interest rates in several key economies at zero or sub-zero levels, the world financial markets are flush with liquidity which is not going into the productive manufacturing sector or other key requirements like infrastructure developments, but into the risky stock markets taking valuations to doubtful levels.  The G 20 leaders did take note of the development and it augurs well for India because as an attractive emerging market, the Indian markets are also facing excess liquidity which could bring in volatility in the exchange rate as well.“We reiterate that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability”. 

On the issue of climate change, India managed to have its way in the sense that while New Delhi is all for a green planet, it is opposed to harsh deadlines on phasing out fuel subsidies and other measures which could retard growth. Of course, the country is taking aggressive initiatives in clean energy. So, the final G 20 Hangzhou document skipped fixing timelines for such measures.

It was quite apt that the G 20 leaders talked about the power of internet, its fair play and e-commerce as the summit was being hosted in a city which is the headquarter of Jack Ma –owned Alibaba , creating ripples in the virtual world. The topics like net neutrality which have been widely debated, received endorsement of the top leaders.  

“We aim to foster favorable conditions for its development and to address digital divide, including through expanded and better and affordable broadband access, flow of information for economic growth, trust and security, while ensuring respect for privacy and personal data protection, investment in the information and communications technology (ICT) sector, entrepreneurship, digital transformation, e-commerce cooperation, enhanced digital inclusion and development of micro, small and medium-sized enterprises (MSMEs). We reaffirm paragraph 26 in the Antalya Communique, commit to offer policy support for an open and secure environment and recognize the key role of adequate and effective IPR protection and enforcement to the development of the digital economy. We welcome the efforts made by The Organization for Economic Co-operation & Development (OECD), IMF, national and other international organizations on the measurement of the digital economy, and recognize that further relevant research and exchange are needed “.

While the G20 meetings and declarations have no legal standing, they do make a difference to the world and the way it needs to be steered for the good of the human kind. 

* Prakash Chawla is a senior journalist and commentator. He mostly writes on political-economy and global economic issues.

Views expressed in the Article are his personaI

Narrative on bank NPAs too loud on promoters; Concept of limited liability not understood

With almost 17 per cent of advances by the public sector banks coming under the toxic category of “stressed” assets, the banks and the government have not yet figured out how to handle such a huge crisis. The only person with a  clarity on the issue , that is RBI Governor Raghuram Rajan, has announced his decision not to seek second term, following a smear campaign against him by BJP leader Subramanian Swamy , supported by some powerful politicians and businessmen, who felt uneasy at the way Rajan was doggedly pursuing the clean-up operation of the state –owned banks.

It is not that people in the government and the banks do not know what can be done about the problem of Non-Peforming Assets which run into several lakhs of crores of rupees. The only solution lies in identifying the willful defaulters and those who found themselves in such a situation following turn of economic events after getting into the trap of exuberance of 2007-08 when corporates with low or no debts on their books were considered too conservative to grow. But the problem is,  who will bell the cat ? Nobody wants to take personal risks for the larger good of the society and the economy.

Under the given circumstances, the solution lies in what people call : cutting the losses or taking hair cuts by the banks. Put simply, banks must settle at waving some part of the loans and the interest even though bad assets are sought to be revived. The question is: Who will decide about these hair cuts and taking losses. What is the guarantee that five years from now, these people are not probed by CBI or any other wing of the enforcement machinery , if there is change of the government.  

Though the Bankruptcy law has come into force, its implementation would take at least a couple of years. Besides, even though the law is clear about the concept of  “limited liability or promters in a corporate entity” , the public discourse on the loud media , especially of television, sees promoter and the corporate as a single entity. The basic idea behind the corporate structure of ownership is that the promoters’ liability is limited to his investment in the entity. If the corporate promoted by him sinks, he loses his investment. Unless there is a malfeasance on his part, you cannot hang him for a company going bust because of his misconceived business ideas and errors in judgements.

That is the real challenge in restoring the banks and corporates under debt stress to health.  

   

Bad loans cannot be dismissed as legacy issue; better attend to it

Indian Finance Minister Arun Jaitley , reviewed, November 23, the level of non-performing assets or bad loans of the state-owned banks which account for over 70 per cent of the Indian banking business.

                                      North Block housing FM office  

After the meeting , he tweeted that the level of bad loans of the  Indian banks is “unacceptable”. At his press conference,  the Finance Ministry beat boys and girls were rather careful in crafting questions even when they wanted to ask some real tough ones. Having been a beat boy myself in different ministries, I know their problems. Simply put, if they act “too smart” either in asking questions or in writing story, they would not get one.  The editor is  not going to listen. He/she would like those on the beats to be “cultivating “ ministers and secretaries and not offending them. Anyways, let me not distract and return to the basic issue of bad loans.

This meeting of the FM with the banks was quite well publicized through the official tweets and agency reports.  Some market analysts and TV anchors were discussing whether any major announcement could be expected. Well, bankers had a review meeting with PM Modi some months ago following which “Indradhanush” (Rainbow) package was announced . That had . included recapitalization of Rs 70,000 crore in four years, giving autonomy to banks and political leaders keeping off. It is a different thing that given the gravity of the problem, much more capital infusion is required in the banks where majority stake is held by the government.  

So, in any case, you cannot expect packages every time the FM reviews functioning of the banks owned by the government. In a rather dismissive way, Jaitley talked about generalities like the Bankruptcy bill in the pipeline and how it would help the defaulters exit from the messy companies promoted by them. The sector specific problems in steel and power were also discussed and I am sure, bankers would or rather should have given their real take on the issue.

The FM is right when he says that some of the problems are legacies being attended to by this government.  This government of PM Modi is now about 18-month old and I am sure, the FM would not like to leave this legacy for the next government whoever forms it. So, the best way is to attend to the problem as it exists today and not always blame the legacy. After all, it is because of this legacy issue that Mr Modi swept the elections and the Congress punished. Sure, the country would  not like to be left with at least this kind of a legacy.    

Global firm CLSA has estimated that about 15 per cent of advances by the Indian banks are under stress. Now that is huge and surely, not sustainable and as Jaitley says “unacceptable”. Assuming that some such estimates would have exaggerated the figure, let us take the  RBI figures. It  had put this stressed assets (NPA plus restructured assets) at 11.05 per cent of gross advances as in  March,2015.

According to CLSA, the Indian government is not giving the kind of urgency which is required to address the issue. On the face of it, that may appear so and who knows CLSA may be right. But what gives me hope is a report in Business Standard how Vijay Mallaya , the poster boy of yester years, is trying to work out a deal with the banks to pay them back Rs 7,000 crore . The change of heart in Mallaya, who is believed to be ‘ willful defaulter’ ( legally or otherwise), has come about after Central Bureau of Investigation started  building  pressure on him and his firms including the grounded Kingfisher Airlines.

Maybe, what Finance Ministry and RBI cannot do, CBI can do it, at least with the willful defaulters and there are plenty of them. 

      

Pic courtesy: GOI

Concept Paper on GST

The Goods and Services Tax (GST) is billed as the game changer in India's taxation regime. But, the concept is yet to be understood; what is it is and how it is going work. Here is a pretty good concept paper prepared by the Finance Ministry. 

Concept Note on GST 

1.Introduction 
The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, seeks to amend the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country. The proposed amendments in the Constitution will confer powers both to the Parliament and the State legislatures to make laws for levying GST on the supply of goods and services on the same transaction.

2. Rationale behind moving towards GST:
2.1 Presently, the Constitution empowers the Central Government to levy excise duty on manufacturing and service tax on the supply of services. Further, it empowers the State Governments to levy sales tax or value added tax (VAT) on the sale of goods. This exclusive division of fiscal powers has led to a multiplicity of indirect taxes in the country. In addition, central sales tax (CST) is levied on inter-State sale of goods by the Central Government, but collected and retained by the exporting States. Further, many States levy an entry tax on the entry of goods in local areas./p>

2.2 This multiplicity of taxes at the State and Central levels has resulted in a complex indirect tax structure in the country that is ridden with hidden costs for the trade and industry. Firstly, there is no uniformity of tax rates and structure across States. Secondly, there is cascading of taxes due to ‘tax on tax’. No credit of excise duty and service tax paid at the stage of manufacture is available to the traders while paying the State level sales tax or VAT, and vice-versa. Further, no credit of State taxes paid in one State can be availed in other States. Hence, the prices of goods and services get artificially inflated to the extent of this ‘tax on tax’.

2.3 The introduction of GST would mark a clear departure from the scheme of distribution of fiscal powers envisaged in the Constitution. The proposed dual GST envisages taxation of the same taxable event, i.e., supply of goods and services, simultaneously by both the Centre and the States. Therefore, both Centre and States will be empowered to levy GST across the value chain from the stage of manufacture to consumption. The credit of GST paid on inputs at every stage of value addition would be available for the discharge of GST liability on the output, thereby ensuring GST is charged only on the component of value addition at each stage. This would ensure that there is no ‘tax on tax’ in the country.

2.4 GST will simplify and harmonise the indirect tax regime in the country. It is expected to reduce cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. It is also expected that introduction of GST will foster a common or seamless Indian market and contribute significantly to the growth of the economy.

2.5 Further, GST will broaden the tax base, and result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.

3. Salient features of proposed GST:

3.1 Dual GST: Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.

3.2 Inter-State Transactions and the IGST Mechanism: The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.

3.3 Destination-Based Consumption Tax: GST will be a destination-based tax. This implies that all SGST collected will ordinarily accrue to the State where the consumer of the goods or services sold resides.

3.4 Central Taxes to be subsumed:

• i. Central Excise Duty
• ii. Additional Excise Duty
• iii. The Excise Duty levied under the Medicinal and Toiletries Preparation Act
• iv. Service Tax
• v. Additional Customs Duty, commonly known as Countervailing Duty (CVD)
• vi. Special Additional Duty of Customs-4% (SAD)
• vii. Cesses and surcharges in so far as they relate to supply of goods and services.

3.5 State Taxes to be subsumed:

• i. VAT/Sales Tax
• ii. Central Sales Tax (levied by the Centre and collected by the States)
• iii. Entertainment Tax
• iv. Octroi and Entry Tax (all forms)
• v. Purchase Tax
• vi. Luxury Tax
• vii. Taxes on lottery, betting and gambling
• viii. State cesses and surcharges in so far as they relate to supply of goods and services.

3.6 All goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST.

• i. Petroleum and petroleum products have been constitutionally included as ‘goods’ under GST. However, it has also been provided that petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council. The present taxes levied by the States and the Centre on petroleum and petroleum products, viz. Sales Tax/VAT and CST by the States, and excise duty the Centre, will continue to be levied in the interim period.
• ii. Taxes on tobacco and tobacco products imposed by the Centre shall continue to be levied over and above GST.
• iii. In case of alcoholic liquor for human consumption, States would continue to levy the taxes presently being levied, i.e., State Excise Duty and Sales Tax/VAT.

3.7 GST Council: In the GST regime, a Goods and Services Tax Council is being created under the Constitution. The GST Council will be a joint forum of the Centre and the States. This Council would function under the Chairmanship of the Union Finance Minister and will have Minister in charge of Finance/Taxation or Minister nominated by each of the States & UTs with Legislatures, as members. The Council will make recommendations to the Union and the States on important issues like tax rates, exemption list, threshold limits, etc. The recommendations made by this Council will act as benchmark or guidance to Union as well as State Governments. One-half of the total number of Members of the Council will constitute the quorum of GST council. Every decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting in accordance with the following principles:-

• i. The vote of the Central Government shall have a weightage of one-third of the total votes cast, and
• ii. The votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast in that meeting..

This is to protect the interests of each State and the Centre when the Council takes a decision and is in the spirit of co-operative federalism.

3.8 Floor rates of GST with band: GST rates will be uniform across the country. However, to give fiscal autonomy to the States and the Centre, there will a provision of a tax band over and above the rate of the floor rates of CGST, SGST and IGST. Initially, the rates of CGST, SGST and IGST are expected to be closely aligned to the Revenue Neutral Rates (RNR) of the Centre and the States.

3.9 Goods and Services Tax Network (GSTN): A not-for-profit, Non-Government Company called Goods and Services Tax Network (GSTN), jointly set up by the Central and State Governments will provide shared IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders.

3.10 GST Compensation: Due to a shift from origin based to destination based indirect tax structure, some States might face drop in revenue in the initial years. To help the States in this transition phase, the Centre has committed to compensate all their losses for a period of 5 years. Accordingly, clause 19 has been inserted in the Constitution (122nd) Amendment Bill, 2014 to provide for compensation to States by law, on the recommendation of the Goods and Services Tax Council, for loss of revenue arising on account of implementation of the goods and services tax for a period of five years.

4. Salient features of the Constitution (122nd) Amendment Bill, 2014: The salient features of the GST Bill as introduced in the Lok Sabha are as follows:-

• i. subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services;
• ii. subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling; and State cesses and surcharges in so far as they relate to supply of goods and services;
• iii. dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
• iv. levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
• v. levy of an additional tax on supply of goods, not exceeding one per cent. in the course of inter-State trade or commerce to be collected by the Government of India for a period of two years, and assigned to the States from where the supply originates;
• vi. conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax;
• vii. coverage of all goods and services, except alcoholic liquor for human consumption, for the levy of goods and services tax. In case of petroleum and petroleum products, it has been provided that these goods shall not be subject to the levy of Goods and Services Tax till a date notified on the recommendation of the Goods and Services Tax Council.
• viii. compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period which may extend to five years;
• ix. creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, exemption list and threshold limits. The Council shall function under the Chairmanship of the Union Finance Minister and will have the Union Minister of State in charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. It is further provided that every decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting in accordance with the following principles:—
• a. the vote of the Central Government shall have a weightage of one-third of the total votes cast, and
• b. the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast in that meeting.
• x. levy of an additional non-vatable tax on supply of goods of not more than 1% in the course of inter-State trade or commerce, for a period not exceeding 2 years, or such other period as the GST Council may recommend, to protect the interests of the producing/manufacturing States. This additional tax on supply of goods will be levied and collected by the Government of India, over and above the IGST levied under the proposed Article 269A (1). This tax shall be assigned to the States from where such supplies originate.