Archive for September 26th, 2017

Why small businessmen in Gujarat are quitting industry and turning to financial speculation

September 26, 2017

M Rajshekhar reports in Scroll:

He says there are two major trends are playing out in Gujarat’s economy. One of closing industries and other of rising financial speculation..

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Uruguay to launch its digital currency platform…

September 26, 2017

Yday I learnt about Ecuador launching its digital currency in 2014 (more here). Though, it seems the initiatove has barely worked.

Now, there is more news that Uruguay is planning to launch its digital currency as well:

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Learning about GST and SME issues….

September 26, 2017

Here is a superb interview Anil Bhardwaj, Secretary General of Federation of Indian Micro and Small and Medium Enterprise. He explains how GST has hit the SME sector.

More importantly,  he also tells you how these units actually function, the several constraints and challenges. This is something which most of us neither understand nor care to understand. Most of the articles dubs the SME sector as unorganised (which has come to mean corrupt of late) failing to realise that it forms 90% of economic activity in India (and other parts of the world as well). Most of our economic debates are for 10% of the Indian economy.

Weren’t there problems arising from the conception of GST itself?
One of the problems MSMEs [micro, small and medium enterprises] encountered pertained to those dealing with engineering items. In the B2B [business-to-business] sector, I get an advance, meaning that if you want me to customise a machinery costing, say, Rs 10 lakh, I will take an advance of Rs 2 lakh to Rs 3 lakh at the time you place the order for me. You will pay me another Rs 3 lakh at the next inspection and the remaining amount at the time of delivery.

The funny thing about GST is that you have to pay tax on an advance also. Most machines come under the 28% tax slab. So out of Rs 3 lakh paid as installment, 28% of it would go to the government. But I am not earning anything, I have to buy raw material to customise the machine you want. A little less than one-third of my working capital is gone.

What about the issue of reverse charges?
According to the reverse charge mechanism, if I am buying from a non-GST compliant entity, I have to prepare his invoice and pay the tax and then file yet another document to claim it back.

Though the charges are reversed next month, your capital is locked nevertheless.
You have hit the nail on the head. GST has put pressure on working capital. Typically, the payment schedule in the MSME [micro, small and medium enterprises] sector is two to three months. But I have to pay tax monthly. Big companies, unlike MSMEs, are in the B2C [business-to-consumer] sector. As soon as they supply to the distributor, they take a draft.

But those manufacturing machinery parts get their payments in two to three months. In GST, the moment I supply I have to create an invoice and pay tax. But I haven’t yet received my payment. I will receive it three months later. I am therefore paying the tax out of my working capital. And to think, the biggest problem of MSMEs is working capital.

Superb stuff. Lots of stuff in the entire interview…

Nigeria Central Bank’s Acting as Piggy Bank, MPC Member Says

September 26, 2017

Meanwhile in Africa, the old games between government and central banks continue.

In Nigeria, an MPC member accuses the central bank funding govt’s deficits calling former a piggy bank!

Nigeria’s central bank is acting like a “piggy bank” with its funding of the government, according to a member of the Monetary Policy Committee who said he struggles to understand the regulator’s economic rationale.

 Monetary data showed a “sharp rise” in the Central Bank of Nigeria’s financing of the government deficit this year, Doyin Salami said after the MPC’s July 24-25 meeting, according to a central bank statement published Tuesday. The regulator’s claims on the government had risen “twenty-fold” to 814 billion naira ($2.26 billion) from the end of 2016, while its purchases of government T-bills increased 30 percent to 454 billion naira, he said.
 “It is clear that the CBN has provided piggy-bank services to the federal government,” Salami said. “Whilst I still wonder what the underlying economics is, I sincerely hope it works.”
The MPC statement is here and the statement of the member is on page 36:
Perhaps the most challenging of the present characteristics of the economy in Nigeria is the adoption of a quantitative easing stance by the management of the Central Bank. Monetary data shows a sharp rise in the extent of CBN financing of the government deficit.
Highlights  of CBN financing of the Federal Government since Dec. 2016 are as follows–
  • CBN‟s claims on Federal Government (FG) at N814bn is twentyfold higher while the claims of Commercial Banks rose marginally by 0.4% to N4.6 trillion;
  •  30.0 per cent increase to N454bn in CBN‟s purchase of government T-Bills;
  • 5percent increase in FG Overdrafts to N2.8 trillion; and 
  • Increase in the „mirror account‟ from N3 billion at the end 2016 to N1.5 trillion in April 2017.
It is clear that the CBN has provided „piggy bank‟ services to the Federal Government.
That is some statement to make!

Indian economic advisory team gets bigger…

September 26, 2017

No matter how much the current Government tries to show itself doing new things, it keep picking old ideas from the previous government.

Previous government had economic advisors everywhere but it did not show in the economy results. We had Chief economic advisor, PM”s honorary economic advisor, PM’s Economic Advisory Council, Planning Commission, Principal Economic Advisor and several others. Not to forget the Prime Minister himself was a distinguished economist.

The new government in 2014 gave us some signs that there will be no such army of economists. Out went all these positions starting with dismantling of Planning Commission, not having a Chief Economic Advisor for many months and so on.

But then soon we had Niti Aayog, CEA, PEA and now we have Economic Advisory Council as well:

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