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Indian Economy & Business –

Overview of Recent Trends & Events


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Publishing-in-support-of,

EDUCREATION PUBLISHING

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Shubham Vihar, Mangla, Bilaspur, Chhattisgarh - 495001

Website: www.educreation.in

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© Copyright, 2018, Ashish Agrawal

All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form by any means, electronic, mechanical, magnetic, optical, chemical, manual, photocopying, recording or otherwise, without the prior written consent of its writer.

ISBN: 978-1-5457-0862-0

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Printed in India


iii

Indian Economy

&

Business

Overview of Recent Trends & Events

Ashish Agrawal

EDUCREATION PUBLISHING (Since 2011)

www.educreation.in


iv


v

What They Said About the Book…

The book titled “Indian Economy & Business” presents a complex

situation relating to the Indian Economy, Policies and Regulations

in a very simple and lucid manner. The book also relates the effect

of these policy measures on the corporate world through various

cases. The book is a must for all students who are studying

Management, Economics as a subject at the undergraduate or post

graduate level. We wish Mr. Ashish all the best and hope he writes

many more books on such important topics.

Dr. R Gopal, Director, D.Y.Patil Univ., School of Management.

I finished reading the book two days back with lot of interest and

found it very engaging. The topics chosen are highly relevant and

practical and would certainly give youngsters a better

understanding of these complex issues. The coverage of financial

sector is worth mentioning as it provides a holistic view of many

diffused issues and trends in an easy to learn manner. Looking

forward to many such contributions from the Author in the future.

Dr Bigyan Verma, Director - GNIMS Business School, Mumbai.

The book authored by an IIM graduate does not disappoint at all. I

managed to read all the articles but could not find fault in any of

them. The book provides practical insights on economic and

business happenings to compliment the classroom learning. Cases

on Corporate strategies gone wrong provides unique insights on

how management fails. A must read for all management

professionals...


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Dr Atul Pandey, Dean, Faculty of Management Studies, APS

University Rewa & Chairman, Central Board of Studies

(Management), MP.

The book makes a good reading since it presents overview of the

Indian Economy in an easy to read and simple to understand

language. The cases and examples presented are apt and relevant

for students and professionals alike. All the best!!

Dr Prashant Gundawar, Director - Sterling Institute of

Management Studies, Navi Mumbai.


vii

Letter to the Directors,

Management/Other Institutions

Dear Sir/Madam,

It is matter of great pleasure for me to present this book to you.

Briefly, I am an IIT Roorkee-IIM Calcutta graduate with over 20

years of industry and research experience. The book gives a

glimpse of Indian Business and Economic environment through

analysis of key trends & events defining the environment. The

book attempts to reach out to all youngsters, particularly,

management, banking, finance and economics graduates to help

them build a perspective on current business environment. This

would not only help them in their job interviews and career growth

but also because it is important for them all to have a broad

understanding of these issues to evolve as smarter and more

responsible professionals. As per media reports, Mumbai

University recently adopted The Economic Survey as part of their

course curriculum for course in Economics. I would like to take the

liberty to add that the book is broadly on those lines.

While the concept of the book itself is unique, I would call the

simplified manner of analysis and brief yet, holistic coverage of

each issue as the USP of the book. I would like to further highlight

the “Corporate” section which provides considerable insights on

how things go wrong. Reminds me of what Nokia CEO said, “We

didn’t do anything wrong, but somehow, we lost”.

I would be obliged if you could read the book and evaluate if this

looks valuable enough to be recommended as reference book for

the courses on Contemporary Economics, Business environment,

Banking, Corporate case studies etc. I would also appreciate if you

could consider purchasing some copies of the same for the library.


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I would be happy to connect at [email protected] to discuss

the book further.

With Kind Regards,

Ashish Agrawal


mailto:[email protected]

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Letter to the Readers

Dear Readers,

It is matter of great pleasure for me to present this book to you.

Briefly, I am an IIT Roorkee-IIM Calcutta graduate with over 20

years of professional experience. My professional life so far has

been a struggle to find purpose of my life and this book probably is

a culmination of that quest.

The book is a collection of articles analyzing the major Economy

& Business events of period 2016-18. It owes its origin to my own

difficulty in understanding business/economy/policy events during

my MBA. The thought and my experience in research & writing

prodded me to come out with this product providing simplified, yet

insightful and engaging analysis of key developments in these

areas.

The book attempts to reach out to all youngsters, particularly, those

appearing in Management, Banking, Civil Services and similar

entrance exams. I am sure this would go a long way in helping you

prepare for GD/WAT/PI etc.

Apart from that, the book would also be an extremely useful read

for those are already in various management institutes or studying

Economics, Finance, Business etc. This would not only prepare

you for your job interviews but also because it is important for you

all to have a broad understanding of these issues to evolve as

smarter professionals.


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Other than the articles on Economy, Policy, Banking etc, the book

also delves on corporate failures and decisions gone wrong

(without getting into governance issues). As Former President,

Late APJ Abdul Kalam had said, “Don’t read success stories, you

will only get a message. Read failure stories, you will get some

ideas to get success”. I believe the “Corporate” section can provide

considerable insights on how things go wrong. Reminds me of

what Nokia CEO said, “We didn’t do anything wrong, but

somehow, we lost”…

This, together with the section on “Policy”, also throws light on

practical aspects of business and policy decision making. This is a

modest attempt to achieve what former President Pranab

Mukherjee said, “Adjunct faculty from the industry and research

institutions can provide practical orientation to course modules”.

The endeavor is to keep the articles simple and focus on broad

trends/ insights rather than on numbers. There may appear to be a

bias towards policy issues as these are even more complex and less

understood even though they have much larger ramifications.

So friends, here is the book for you. Would be happy to hear from

you. My mail id - [email protected].

Happy Learning and Take Care

Cheers!

Ashish Agrawal


xi

Contents

Contents Page

SECTION I - ECONOMY 1

Budget – Revenue and Expenditure Analysis 2

Budget – Understanding Deficit Terminologies 4

Analyzing Government Debt - Current and

Historical perspective

6

Inflation - Analyzing its Constituents and Drivers 9

Understanding Rural Income Pattern - I 12

Understanding Rural Income Pattern - II 14

Income Inequality - India's Performance 16

Analyzing India’s Balance of Payment – I 19

India’s Balance of Payment – II 21

Capital Inflows - FDI, FII and the Rest 23

Analyzing India’s External Debt 25

Indian Rupee – Is It Appreciating or

Depreciating..??

27

Status of Employment in India 29

Towards Energy Security – India’s Strategic Oil

Reserve

31

Government Subsidy –Where does the money go? 33

Agriculture Sector – Will It Get Its Dues?? 35

Sick PSUs – Way forward 37

Deciphering Core Sectors 39

GST- Towards a National Market (part I) 41

Goods & Service Tax – Part II 43

India's Imports - Where does the money go..?? 45

Paris Agreement and India’s Commitment – A

brief

47

Towards Energy Security – India’s Oil Hunt..! 49

Demonetisation – How does it affect government

finances??

51


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Demonetisation Impact – Understanding

Cooperative Banks

53

Demonetisation – Absorbing the Excess Liquidity 55

Demonetisation – Will It Improve Tax/GDP

Ratio..??

57

Understanding Universal Basic Income (UBI) 59

Strengthening Manufacturing –Apparel and

Leather Industries

61

Ease of Doing Business - The Great Indian

Leap...!

63

SECTION II - POLICY & REGULATIONS 66

IBC - Overview of Performance So far 67

Gold Monetization Scheme (Part I) 69

Gold Monetization Scheme (Part II) 71

The Insolvency and Bankruptcy Code - I 73

Insolvency and Bankruptcy Code - II 75

Mauritius Treaty Amendment - A brief 77

E-NAM – A game changing initiative...! 79

Regulating Large borrowers – RBI Proposal. 81

Monetary Policy Committee – What it entails 83

Gas Pricing Policy - Power Sector 85

Civil Aviation Policy – A brief 87

Telecom Spectrum Auction – A brief 89

Fertilizer units Revival – A transformational

initiative!

91

Telecom Sector – The SUC muddle 93

Government e-Marketplace – A Gem indeed! 95

Boosting Corporate Bond Market 97

Understanding Public Debt Management Agency 99

UDAY – Will the Discoms Rise Now??! 101

Understanding GAAR (General Anti-Avoidance

Rules)

103

Understanding Shell Companies 105

Towards an efficient Electricity market 107


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SECTION III - BANKING & FINANCE 109

Banks NPA – A Primer (Part I) 110

Banks NPA (Part II) 112

Understanding the Dynamics of "Money Market" 115

NPAs – Sectoral Analysis 118

India’s Financial Sector – Understanding the

structure (Part I)

120

India’s Financial Sector... (Part II) 122

Understanding India’s Insurance Sector 124

Analysing Amalgamation of BoB, Vijaya Bank &

Dena Bank

126

Asset Reconstruction Company – From Slag to

Cement!

128

NBFCs – An Overview (Part I) 130

NBFCs – An Overview (Part II) 132

Money Supply - Understanding the Different

Forms

134

Corporate Bond Market – An Overview 137

Banks Loan Composition – An Overview 139

Banking Sector Interconnectedness 141

IL&FS Default - Analysing the Crisis 144

What Ails NBFCs..?? (Part I) 146

What Ails NBFCs..?? (Part II) 148

Is the Government Impinging on RBI's

Autonomy?

151

Punjab National Bank - Why this provisioning? 154

Understanding Bank Recapitalization 156

SECTION IV - INDUSTRY 158

Survey of Indian Industries - The government

paper (Part I)

159

Survey of Indian Industries – Part II 161

Nuclear Power – The demonised resource 164

Towards Efficient Electricity Market 166

Industry Analysis – Shipping Industry 168

Solar Power in India – An Overview 170

Industry Analysis – Steel Industry 172


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Natural Gas Market in India – An Overview 174

Cement Industry – Results and Overview 176

Automobile Industry - Results and Overview 178

Petroleum refining sector – Results and Overview 180

Wind Power – Gain with the Wind! 182

SECTION V - CORPORATE 184

Corporate Analysis - Reliance Industries 185

Corporate Analysis – Tata Steel 188

Corporate Analysis – Larsen & Toubro 191

Rosneft - Essar Deal - A New Beginning for

Indian Refining Industry

194

Vijay Mallya – The chase continues! 196

Tata Teleservices - End of the Inning 199

Tata Steel Corus buy – What went wrong 201

Ultratech Jaypee deal – Lenders take all! 203

HCC - Too old to fail..! 205

Tata Docomo JV – A deal gone wrong 207

Lanco Infratech - Here Today, Gone Tomorrow 209

Grasim – Aditya Birla Nuvo Merger – Towards

Group Consolidation

212

GMR Energy – Is the divestment enough 214

Cairn - Vedanta Merger. Deal Explained 216

ABG Shipyard – From Boom to Doom 218

Mistry’s Exit – A disastrous succession 220

Impairment Charges – Tata Steel Europe 222

Understanding RIL-ONGC Gas Migration

Dispute

224

Tata Sons & Group Companies – Understanding

the Board Structure

226

Vodafone – Another case of costly acquisition and

write-off

228

Understanding ONGC – GSPC Gas Block Deal 230

Jaiprakash Associates - What went wrong..?? 232

Vodafone-Idea Merger – Analyzing the deal 234

Understanding “Compensatory Tariff” 237


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SECTION VI - INTERNATIONAL 239

Subprime Crisis - Ten Years on (Part I) 240

Subprime Crisis (Part II) 242

US China Trade War - Understanding the

Dynamics

244

Explaining Negative Interest Rate – Japan’s case 246

How bad is Global debt overhang – IMF Report 248

Chinese Economy – Challenges of Transition 250

Understanding Hyperinflation – Economy of

Zimbabwe

252

No end to hunger yet – FAO report 254

Understanding Greece Debt Crisis 256

Global Trade – An Overview 258

SECTION VII - ETCETERA 260

Inland Waterways – Tapping the potential 261

Ken Betwa river linking – A tough, ambitious

project

263

Chabahar Port agreement 265

End Note – My favorite quotes 267


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Indian Economy & Business

1

SECTION - I

ECONOMY


Ashish Agrawal

2

Budget – Revenue and

Expenditure Analysis

The Budget proposed for year 2018-19 projects a total shortfall of

Rs 6.2 lakh crore with total expenditure projected at Rs 24.4 lakh

crore against net receipt of Rs 18.2 lakh crore. Here is a look at the

different components of the budget.

Receipts are classified as revenue receipt or capital receipt.

Revenue receipt are further classified as tax revenue or non-tax

revenue such as dividends, interest receipt etc. Capital receipt are

primarily disinvestment income, spectrum sale etc. However, the

primary source of receipt is tax revenue (75% share), further

classified as direct and Indirect taxes revenue. Direct taxes

comprise of individual income tax and corporation tax which is the

taxes paid by companies on their profits. Budget for 2018-19

projects a sharp increase of 23% in income tax at Rs 5.3 lakh crore

whereas corporation tax is projected to reach Rs 6.2 lakh crore,

again an impressive growth of 17%, much better than current year.

The continued sharp increase projected in income tax assumes

significance on account of large increase in bank deposits post

demonetization.

Indirect taxes consist mainly of GST although customs and

excise still have some role to play. Budget projects total indirect

taxes to reach Rs 11.2 lakh crore, a sharp increase of 20% against

less than 10% increase in the current year. Customs and excise still

account for nearly one-third of this. The projection probably is a

result of GST stabilization leading to widening of tax base and

greater compliance. While the total tax revenue works out to Rs

22.7 lakh crore, about 35% of this has to be shared with the state

government, leaving Rs 14.8 lakh crore for the central government.

An important trend in revenue collection is shift towards direct

tax, which are levied on income, from indirect taxes which are


Indian Economy & Business

3

levied on production which could go towards consumption, exports

or investments. Direct taxes formed only about 26% of revenue

collection (direct plus indirect) in FY00 which has now gone

beyond 50%. Although there are gaps in the hypothesis, yet, direct

taxes are considered more efficient method of collection since it

targets rich more than the poor.

Other than tax revenue, budget projects Rs 2.45 lakh crore of

non-tax revenue receipt and 0.9 lakh crore of capital receipt. Even

though the sick PSUs give sufficient bad name to the government,

there are a large number of profit making PSUs which together

should provide Rs 1.1 lakh crore of dividends. Even though capital

receipt has shown huge deviation from the projections as

disinvestment targets are often missed, the government has

surpassed its projection of Rs 0.8 lakh crore to reach Rs 1.0 lakh

crore in FY18.

The expenditure side shows interest payments as the biggest

block accounting for as much as Rs 5.8 lakh crore, about 24% of

total central government budget. This is projected to go up by as

much as Rs 45,000 crore over FY18. While this may look like a

middle class household paying a large part of the salary for

housing EMI, its share has actually come down from about 45% of

total budget in FY00. Other than the share of tax revenues, central

government also transfers significant funds to the states for

centrally sponsored schemes and finance commission grants which

is projected at Rs 5.4 lakh crore during the year.

Among other items, Pension, Defence expenditure, Railways

and subsidy are projected to cost about Rs 1.7 lakh crore, Rs 2.8

lakh crore, Rs 1.8 lakh crore and Rs 2.8 lakh crore. Total

expenditure of rural and agriculture development (direct or through

transfer to states) is projected at over Rs 2 lakh crore. An important

development over last two years is the increase in capital

expenditure which is projected to reach Rs 7.8 lakh crore. This

stood at just over Rs 4 lakh crore in FY15.

*****


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