Indian Economy : News,Discussions & Updates

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Finance Minister hints at review of tax limit on EPF​

Finance Minister Nirmala Sitharaman has said there is no intent to discourage higher income earners from saving with the Employees Provident Fund (EPF) and that she was open to reviewing the contribution limit of ₹2.5 lakh a year for tax-free interest, imposed in the recent Union Budget.

Reiterating that the EPF will continue to remain in its present form, the Minister said there was no plan to merge the EPF with the National Pension Scheme.

“We want to continue with the EPF. We understand that there is a certain comfort with people, particularly middle income earners when they are assured of a return,” she said in an exclusive interview with Business Line.

“We have taken a call not to discourage those earning more than ₹15,000 from being part of EPF,” she added.

There can always be a discussion on the ₹2.5 lakh limit. I can go back and review it. But it is a matter of principle. We are only touching those who are putting far more than what an average Indian’s earnings is per month,” she added.

The Finance Minister has proposed in the budget to tax interest earned on EPF contribution of more than ₹2,50,000 annually.

Realistic numbers​

Ms. Sitharaman said the numbers in the Budget are realistic, both in terms of perception and in what can be achieved. “Every number has been repeatedly vetted for being achievable. This is a Budget that has been put through the wringer repeatedly to get it closer to what is achievable,” she said.

Asked if the disinvestment target of ₹1,75,000 crore is too modest, she replied that it could appear to be so. “But I would rather be cautious than stand up and say later that I went wrong,” she said.

The Finance Minister confirmed that no decision had been made yet on which banks to privatise — the profit-making banks, smaller banks or big ones. In the context of the proposal to launch development financial institutions (Other Forum), she said the idea was that long-term infrastructure funding will be done by these institutions. “Banks must focus on the primary business of lending for commercial purposes, rather than getting choked by sourcing short-term deposits and lending to long-term projects. There should be a marked difference between the portfolios of DFIs and commercial banks,” she said, adding that the Other Forum idea will be implemented “as soon as possible”.

Levies on fuel​

Asked why the Centre was not reducing excise duty on petrol and diesel despite the sharp climb in their retail prices, Ms. Sitharaman said the Centre and States should sit together and see how best to handle the issue. “Taking into GST can be an option. That will certainly bring it to one rate all over the country. The GST Council can deliberate and take a position on it, but then, the fact is, it is both the Centre and States even then,” she said.


“Jugaad” ideology​

Answering a question on whether the Prime Minister’s speech in Parliament defending wealth creators represents a shift in the government’s philosophy, Ms. Sitharaman said the government was never far removed from the BJP’s economic ideology.

“This country had gone too far in reiterating a socialist and what I would call an imported jugaad ideology made from tweaking imported ideas and constantly adding to them in the hope that they would somehow fit the country,” she said.

“There also needs to be recognition that socialism is not the only ideology that has a copyright on welfare. When the economy does not do well and wealth isn’t generated, then social good suffers and so does the welfare state. We are trying to reinforce that lawfully earning money is not wrong. A tax regime that is not oppressive or adversarial can generate sufficient revenues to fund welfare,” she added.
 
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RISING SUN

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Aequs To Invest $500 Million To Set Up India’s First Toy Manufacturing Cluster In Karnataka's Koppal

Aequs Private Limited is investing $500 million to build India’s first toy manufacturing cluster across a 400-acre plot at Koppal in Karnataka, reports Economic Times.

India’s toy imports are worth $1.2 billion annually and most of them are sourced from China. The domestic toy cluster is being developed to counter that and stimulate the country’s growth in this sector.

“Toy industry globally is a USD 90 billion-market and Indian market size is about USD 1.7 billion. China exports USD 20 billion worth of toys and recreation goods annually," Aequs Chairman Aravind Melligeri was quoted as saying.

The company is a contract manufacturer and it already has two functioning production units at the special economic zone (SEZ) in Belagavi. It caters to some of the largest North American and European toy brands.

Out of the 400 acres land for the cluster, 300 acres will be an SEZ focusing solely on exports. The rest of the 100 acres will cater to demands within the country.

“Six marquee toy manufacturers and suppliers have already signed up for setting up factories in the toy cluster,” Melligiri was quoted in the report as saying.

The work behind this cluster had kicked off in January itself. This integrated manufacturing setup is slated to assist plastic and electronic toy manufacturers in design, moulding, assembly, painting, and packaging.

The toy manufacturing ecosystem will consist of more than 100 units and will generate direct employment for 25,000 people in addition to creating 1,00,000 indirect jobs.
 

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India emerges as China's tech challenger with record unicorn run​

TOKYO -- India is rapidly closing the gap with China in minting new unicorns -- privately held startups valued at $1 billion or more -- highlighting growing investor appetite for tech startups in the country as the pandemic accelerates adoption of digital services.

Over the past year, 15 companies from India raised capital at a valuation of $1 billion or more for the first time, according to CB Insights and company announcements gathered by Nikkei Asia. Ten of them became unicorns in 2021. By comparison, only two of the 15 companies from China that joined the list over the past year did so in 2021, according to CB Insights.

A successful listing of online food delivery company Zomato, which recently filed a draft prospectus with India's securities regulator, would set the stage for many of these unicorns to follow suit. Zomato, a loss-making company operating in a nascent industry once considered too risky to invest, is planning to raise 82.5 billion rupees ($1.1 billion), including through a pre-IPO placement.

"Indian internet has always been a story on the horizon," said one investor in Zomato. "But it's finally here."

India's new breed of unicorns are mostly purely online businesses that have benefited from a flood of consumers and businesses that have flocked to their services during the COVID-19 pandemic. Investors are watching whether they can maintain the momentum as India grapples with a deadly second wave -- new coronavirus cases have topped 300,000 every day since April 21, the highest in the world.


"Every business has been forced to figure out a digital way of selling online," said Harshil Mathur, co-founder and CEO of fintech startup Razorpay. "A lot of small traditional retailers who used to sell through offline channels have gone online. We also saw a large number of both individuals and freelancers starting to sell things on WhatsApp, Facebook and Instagram."

Transactions on Razorpay, which processes payments for online services like food delivery apps, surged to an annualized rate of $35 billion to $40 billion from $12 billion a year ago, Mathur said. The company was valued at $3 billion in a recent funding round, just six months after it reached the $1 billion mark in October last year. The latest round was led by its existing shareholders, Singapore sovereign wealth fund GIC and Sequoia Capital.

Other startups that became unicorns include Chargebee, which sells software that helps companies manage their subscription services; Meesho, which operates a marketplace for individual business owners that want to sell goods on social media; Cred, which gives reward points to credit card users who pay their bills on time.

India has lagged China in the size of its digital economy but is rapidly catching up. Investors say this is thanks to a surge in mobile phone users as well as government-led policies like the 2016 launch of the Unified Payments Interface, a real-time payments system that enables instant transfer of money between banks. UPI now accounts for the majority of online payments, and transactions surpassed 5 trillion rupees ($66.7 billion) in March, more than double the figure a year ago, according to the National Payments Corporation of India, which operates the system.

China still dominates the overall unicorn list in Asia with 138 unicorns, more than four times the number in India, according to CB Insights. Some
of China's biggest unicorns are also much larger in size, such as Tiktok operator Bytedance, which has a valuation of $140 billion. India's biggest unicorn is One97 Communications, the owner of mobile payments app Paytm, worth $16 billion.

India's One97 Communications, which runs the Paytm mobile payment app, is also said to preparing IPO. (Photo by Kosaku Mimura)
Still, the rapid rise of India's unicorns signals a shift in investor appetite.

"We are considering allocating more capital to India in the future," said Ryu Muramatsu, founding partner of GMO VenturePartners, an early investor in Razorpay and Southeast Asian fintech startups. "There may be a correction in valuations in the short term. But compared to the past, companies have strong fundamentals."

Zomato's IPO will be an important indicator of whether the tech boom can gain momentum. With no track record of multi-billion dollar IPOs, skeptics say prospects of a profitable exit are highly uncertain. China, on the other hand, can point to a strong track record of homegrown tech companies going public, such as Alibaba and Tencent, which have grown into some of the world's most valuable companies.

One bottleneck for Indian tech startups to go public has been a regulatory rule that generally requires companies to be profitable for three years before they can sell shares to retail investors. But loss-making companies can go public if they allocate at least 75% of the offering to qualified institutional investors -- the route that Zomato, which posted a 23.6 billion rupee ($318 million) loss for the year ended March chose to take. If Zomato is successful, less-sophisticated investors will be more confident in backing loss-making companies.


"It's a structural shift," said Rahul Malhotra, an analyst at Bernstein. "Regulation has improved, companies are scaling, fundamentals are there. And the market is still underpenetrated."

Chinese investors and companies are the most likely to lose out if India's tech boom gains momentum. Once among the most active investors in India, companies like Ant Group, Zomato's second-largest shareholder, have been mostly forced to watch from the sidelines due to a new regulation that requires companies from India's neighboring countries including China to seek government approval before making an investment. Leading the latest wave of funding rounds are U.S. investors like Tiger Global Management and Sequoia Capital, which have raised billions of dollars for new funds in recent months.

The growing number of deep-pocketed startups will also intensify competition between Chinese tech companies. Those operating in India have already been hit hard by the Indian government's ban on more than 200 Chinese apps last year following a deadly border clash.

Chargebee, which has offices in India's Chennai as well as San Francisco, says the majority of its 3,500 customers are already from the U.S. and Europe. After raising $125 million at a $1.4 billion valuation, it plans to expand its footprint to Asian markets like India, Japan and Southeast Asia, according to a spokesperson.
 

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