TASK-8 KATTA ASHISH

Goods and Services Tax (GST)

The goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic
consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling
the goods and services. In effect, GST provides revenue for the government.

The goods and services tax (GST) is an indirect federal sales tax that is applied to the cost of certain goods and
services. The business adds the GST to the price of the product, and a customer who buys the product pays the
sales price plus the GST. The GST portion is collected by the business or seller and forwarded to the
government. It is also referred to as Value-Added Tax (VAT) in some countries.

Most countries with a GST have a single unified GST system, which means that a single tax rate is applied
throughout the country. A country with a unified GST platform merges central taxes (e.g. sales tax, excise duty
tax, and service tax) with state-level taxes (e.g. entertainment tax, entry tax, transfer tax, sin tax, and luxury tax)
and collects them as one single tax. These countries tax virtually everything at a single rate.

Taxes collected by Central and state Government were replaced by GST

(i)Taxes currently levied and collected by the Centre:

a. Central Excise duty

b. Duties of Excise (Medicinal and Toilet Preparations)

c. Additional Duties of Excise (Goods of Special Importance)

d. Additional Duties of Excise (Textiles and Textile Products)

e. Additional Duties of Customs (commonly known as CVD)

f. Special Additional Duty of Customs (SAD)

g. Service Tax

h. Central Surcharges and Cesses so far as they relate to supply of goods and services

(ii) State taxes that would be subsumed under the GST are:

a. State VAT

b. Central Sales Tax

c. Luxury Tax
d. Entry Tax (all forms)

e. Entertainment and Amusement Tax (except when levied by the local bodies)

f. Taxes on advertisements

g. Purchase Tax

h. Taxes on lotteries, betting and gambling

i. State Surcharges and Cesses so far as they relate to supply of goods and services

Benefits of GST to the Indian Economy

Amidst economic crisis across the globe, India has posed a beacon of hope with ambitious growth targets,
supported by a bunch of strategic undertakings such as the Make in India and Digital India campaigns. The
Goods and Services Tax (GST) is another such undertaking that is expected to provide the much needed
stimulant for economic growth in India by transforming the existing base of indirect taxation towards the free
flow of goods and services. GST is also expected to eliminate the cascading effect of taxes. India is projected to
play an important role in the world economy in the years to come. The expectation of GST being introduced is
high not only within the country, but also within neighbouring countries and developed economies of the world.

Removal of bundled indirect taxes such as VAT, CST, Service tax, CAD, SAD, and Excise.

Less tax compliance and a simplified tax policy compared to current tax structure.

Removal of cascading effect of taxes i.e. removes tax on tax.

Reduction of manufacturing costs due to lower burden of taxes on the manufacturing sector. Hence prices of
consumer goods will be likely to come down.

Lower the burden on the common man i.e. public will have to shed less money to buy the same products that
were costly earlier.

Increased demand and consumption of goods.

Increased demand will lead to increase supply. Hence, this will ultimately lead to rise in the production of
goods.

Control of black money circulation as the system normally followed by traders and shopkeepers will be put to a
mandatory check.

Boost to the Indian economy in the long run.

Impacts / Benefits to sectors

GST on Manufacturers, Distributor, and Retailers

GST is a boost competitiveness and performance in India’s manufacturing sector. Declining exports and high
infrastructure spending are just some of the concerns of this sector. Multiple indirect taxes had also increased
the administrative costs for manufacturers and distributors and with GST in place, the compliance burden has
eased and this sector will grow more strongly.But due to GST business which was not under the tax bracket
previously will now have to register. This will lead to lesser tax evasion.

GST on Service Providers

As of March 2014, there were 12, 76,861 service tax assessees in the country out of which only the top 50 paid
more than 50% of the tax collected nationwide. Most of the tax burden is borne by domains such as IT services,
telecommunication services, the Insurance industry, business support services, Banking and Financial services,
etc. These pan-India businesses already work in a unified market and will see compliance burden becoming
lesser. But they will have to separately register every place of business in each state.

Logistics

In a vast country like India, the logistics sector forms the backbone of the economy. We can fairly assume that a
well organized and mature logistics industry has the potential to leapfrog the “Make In India” initiative of the
Government of India to its desired position.

E-commerce

The e-commerce sector in India has been growing by leaps and bounds. In many ways, GST will help the e-
com sector’s continued growth but the long-term effects will be particularly interesting because the GST law
specifically proposes a Tax Collection at Source (TCS) mechanism, which e-com companies are not too happy
with. The current rate of TCS is at 1%.

Pharma

On the whole, GST is benefiting the pharma and healthcare industries. It will create a level playing field for
generic drug makers, boost medical tourism and simplify the tax structure. If there is any concern whatsoever,
then it relates to the pricing structure (as per latest news). The pharma sector is hoping for a tax respite as it will
make affordable healthcare easier to access by all.

Telecommunications

In the telecom sector, prices will come down after GST. Manufacturers will save on costs through efficient
management of inventory and by consolidating their warehouses. Handset manufacturers will find it easier to
sell their equipment as GST has negated the need to set up state-specific entities, and transfer stocks. The will
also save up on logistics costs.

Textile
The Indian textile industry provides employment to a large number of skilled and unskilled workers in the
country. It contributes about 10% of the total annual export, and this value is likely to increase under GST. GST
would affect the cotton value chain of the textile industry which is chosen by most small medium enterprises as
it previously attracted zero central excise duty (under optional route).

Real Estate

The real estate sector is one of the most pivotal sectors of the Indian economy, playing an important role in
employment generation in India. The impact of GST on the real estate sector cannot be fully assessed as it
largely depends on the tax rates. However, the sector will see substantial benefits from GST implementation, as
it has brought to the industry much-required transparency and accountability.

Agriculture

The agricultural sector is the largest contributing sector the overall Indian GDP. It covers around 16% of Indian
GDP. One of the major issues faced by the agricultural sector is the transportation of agri-products across state
lines all over India. GST will resolve the issue of transportation.

FMCG

The FMCG sector is experiencing significant savings in logistics and distribution costs as the GST has
eliminated the need for multiple sales depots.

Freelancers

Freelancing in India is still a nascent industry and the rules and regulations for this chaotic industry are still up
in the air. But with GST, it will become much easier for freelancers to file their taxes as they can easily do it
online. They are taxed as service providers, and the new tax structure has brought about coherence and
accountability in this sector.

Automobiles

The automobile industry in India is a vast business producing a large number of cars annually, fueled mostly by
the huge population of the country. Under the previous tax system, there were several taxes applicable to this
sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty which will be subsumed by
GST.

Startups

With increased limits for registration, a DIY compliance model, tax credit on purchases, and a free flow of
goods and services, the GST regime truly augurs well for the Indian startup scene. Previously, many Indian
states had different VAT laws which were confusing for companies that have a pan-India presence, especially
the e-com sector. All of this has changed under GST.
Comparative analysis

BEFORE GST AFTER GST

Tax Component type FY 2016-17 ( in cr) FY 2017-18 ( in cr)
A.Revenue recepits
Dirset tax recepits 849801 1002738
non tax receipts 506721 441383
Grants-in-aid & contributions 1299 3582
Indirect Tax Receipts including other taxes 866167 916445
B. Miscellaneous Capital Receipts 47743 100049
C. Public Debt Receipts 6134137 6554002
D. Recovery of Loans and Advances 40971 70639
Receipts of Government of India (A+B+C+D) 8446839 9088838

Before & after GST

10000000
8000000
6000000
4000000
2000000
0

BEFORE GST FY 2016-17 ( in cr) AFTER GST FY 2017-18 ( in cr)

HIGHLIGHTS OF 39TH GST COUNCIL MEET

1. Deferment of the new GST return system and e-invoicing: The implementation of the new GST return
system has been postponed to 1st October 2020 along with the implementation of e-invoicing and the QR code.
The present return system (GSTR-1, GSTR-2A & GSTR-3B) will be continued until September 2020.
2. Changes in the GST rates:
GST on mobile phones and specified parts was increased from 12% to 18%. This decision was taken to avoid
difficulties due to the inverted duty structure.
All types of matches have been rationalized to a single GST rate of 12%. Till now, the handmade ones were
taxed at 5% and the rest was taxed at 18%.
 GST on Maintenance, Repair and Overhaul (MRO) service in respect to aircraft was reduced from 18%
to 5% with full ITC.
 All these rate changes will come into effect from 01 April 2020.
 Interest on delayed payments: Now, the interest for delayed GST payment will be calculated on the net
tax liability. This amendment will apply retrospectively from 1st July 2017.
 Extension of GSTR-9 and 9C: The GSTR-9 & 9C deadline is extended to 30 June 2020 for FY 2018-19.
Also, the turnover limit will be increased from Rs 2 crore to Rs 5 crore for mandatory annual return
filing.
 Know your supplier: A new scheme called ‘Know your Supplier’ has been introduced so that the
taxpayers are informed about the basic details of the suppliers with whom they transact or propose to
conduct business.

Goods and Services Tax (GST)

The goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption.
The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In
effect, GST provides revenue for the government.

The goods and services tax (GST) is an indirect federal sales tax that is applied to the cost of certain goods and services.
The business adds the GST to the price of the product, and a customer who buys the product pays the sales price plus
the GST. The GST portion is collected by the business or seller and forwarded to the government. It is also referred to as
Value-Added Tax (VAT) in some countries.

Most countries with a GST have a single unified GST system, which means that a single tax rate is applied throughout
the country. A country with a unified GST platform merges central taxes (e.g. sales tax, excise duty tax, and service tax)
with state-level taxes (e.g. entertainment tax, entry tax, transfer tax, sin tax, and luxury tax) and collects them as one
single tax. These countries tax virtually everything at a single rate.

Tax slabs under GST

Tax Rates Products

0.25% Cut and semi-polished stones are included

under this tax slab.
5% Household necessities such as edible oil,
 sugar, spices, tea, and coffee (except
instant) are included. Coal, Mishti/Mithai
(Indian Sweets) and Life-saving drugs are
also covered under this GST slab.
12% This includes computers and processed food
18% Hair oil, toothpaste and soaps, capital goods
and industrial
intermediaries are covered in this slab.
28% Luxury items such as small cars, consumer
durables like AC and Refrigerators,
premium cars, cigarettes and aerated drinks,
High-end motorcycles are included here.

5% GST 12% GST 18% GST 28% GST

Spices Cakes Washing Machine Personal Aircraft

Frozen vegetables Drip Irrigation System Vacuum Cleaner Sunscreen

Rusk Photographes Pasta Tobacco

Fish fillet Pack water bottle of Tyres Hair clippers

20 litre

Pizza bread Butter Biscuits Bidis

Sabudana Mechanical sprayers Vanity case Weighing machine

Tea Ghee Pastries Waffles plus wafers

which are coated with
chocolate

Baby milk food Almonds Soups Wallpaper

Plain Chapati & Pouches, purses and Preserved Vegetables ATM Vending
Khakhra Handbags Machine

Floor covering Fruits Camera Yachts

Fertilizers Art ware of iron Curry paste Motorcycles

 5% GST 12% GST 18% GST 28% GST

Footwear under Rs. Boiled sugar Instant food mixes Ceramic tiles
1,000 confectionery

Apparels under Rs. Packaged coconut Shampoo Dishwasher

1,000 water

Real zari Pickle Printers Aerated Water

Agarbatti Mirrors framed with Mixed condiments Pan Masala

Ornaments

GST on the Banking sector

Advantages Benefits

Self-regulatory taxation system Easily understandable to general public

Transparency No confusion in tax filing and tax rate

Uniform taxation rate No tax on deposit

Mandatory registration for GST Increased the number of online banking

Disadvantages Constraints

Tax has raised to 18% from 15% Costlier banking for customers

Loan interest charged @18% Customers are charged 18 per cent on home
loan, which was 8.5 per cent earlier.

Place for banks to supply is not specified. In banking, place of supply of service shall be
the location of the customer on records
 Multiple auditing is required as state wise Difficult for the bank to cope up with the
registration is mandatory. changes in registration because of the presence
of the bank in each locality.

Interstate transactions between two branches of It is expensive and inconvenient task for the
bank are subject to tax. banks that each transaction between the
branches of the same banks are attracted by
IGST.

GST on Logistic
Logistics can be considered as the movement of goods from its point of origin to the point of consumption. A
well-planned logistics and supply chain ensure delivery of right items in right quantities at the right time to the
right place for the right price in the right condition to the right customer. And if not well managed, everything
goes for a toss. The stakes remain high for both consumer and supplier.

The logistics sector broadly comprises the road transport sector (consisting of unorganized small businesses,
trucking, fleets and large transport companies), the storage and warehousing sector and finally third-party
logistics (3PL). These can be further classified into big and small players and asset heavy/light companies.

Impact of GST on the Logistic Sector

Back-of-the-envelope calculations say logistics costs would come down by at least 20%. Companies could do
this with a hub-based warehouse system instead of having warehouses in all major consumer states. The check
posts at state borders have already been brought down. Karnataka, Andhra Pradesh and Tamil Nadu, along with
20 more states, have dismantled border check posts, reducing hassles for trucks.

Several others are in the process. The border check posts have been removed even as states await electronic
way bills, which will make truck movement easier. The e-way bill on GSTN (Goods and Services Tax
Network) is expected to be introduced soon and will aid movement of trucks.

India is a growing economy and the high cost of logistics, currently at 14% of GDP, was having a negative
effect. The average speed of freight transportation has been increased from the current 20-25 km per hour to 40
km per hour. Trucks that were earlier doing 200 km a day would do 400 km now.

GST on Exports and Imports

Foreign trade is one of the indices of a country’s economic growth. India is one of the fastest growing
economies in the world. Our country’s trade is booming. India exported goods worth $274.6 billion in 2016-17,
4.7% higher than $262.2 billion in FY16. Trade deficit in 2016-17 was $105.7 billion.
Export
Goods and services are to be exported; taxes are not to be exported. Provisions in CGST Act have been
designed to make exports tax free. Exporting units need raw materials without payment of taxes and duties, to
enable them to compete with world market. Government has devised following schemes for this purpose.

a) Special Economic Zones at various places where inputs are allowed to be imported without payment of
duty and finished goods are exported.
b) Export Oriented Undertakings (EOU)
c) Duty Drawback Scheme
d) Schemes of Advance Authorisation and DFIA.
e) EPCG scheme to import capital goods without payment of customs duty for use in goods to be exported.

Export of services
Section 2(6) of IGST Act states as follows -

"Export of services" means the supply of any service when-

 the supplier of service is located in India

 the recipient of service is located outside India
 the place of supply of service is outside India
 the payment for such service has been received by the supplier of service in convertible foreign
exchange, and
 the supplier of service and recipient of service are not merely establishments of a distinct person in
accordance with Explanation 1 of section 8 of IGST Act [what is meant is that branch and HO of same
taxable person shall not be treated as two distinct persons for this provision. Thus, there cannot be
export of service to own branch office outside India].

Zero rated supply

"Zero-rated supply" means a supply of any goods or services or both in terms of section 16 of IGST Act -
section 2(23) of IGST Act.
Export of goods or services or both and supplies of goods or services or both to SEZ unit or SEZ developer will
be zero rated supply - section 16(1) of IGST Act.
Credit of input tax may be availed for making zero-rated supplies, even if such supply is exempted supply -
section 16(2) of IGST Act.
The registered person making zero rated supply can claim refund under
either of two options –
(a) supply goods under bond or LUT without payment of IGST and claim refund of unutilized input tax credit
or
(b) supply goods on payment of IGST and claim refund of IGST paid on goods and services. The refund will be
in accordance with section 54 of CGST Act - section 16(3) of IGST Act.

Deemed Exports in GST

 CGST Act has made provisions of 'deemed exports'.

 Deemed Exports means such supplies of goods as may be notified under section 147 of CGST Act.
 The Government may, on the recommendations of the GST Council, notify certain supplies of goods as
deemed exports, where goods supplied do not leave India, and payment for such supplies is received
either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India -
section 147 of CGST Act.

As per Explanation 2(b) to section 54 of CGST Act, "relevant date" for filing refund in case of supply of goods
regarded as deemed exports where a refund of tax paid is available in respect of the goods, is the date on which
the return relating to such deemed exports is filed. Refund claim in case of deemed export - In respect of
supplies regarded as deemed exports, the application shall be filed by the recipient of deemed export supplies-
fourth proviso to Rule 89(1) of CGST and SGST Rules, 2017.

Meaning of Import and Export of Goods under GST

Sub-Section 5 of section 2 of IGST Act, 2017 defines – “Export of Goods”, with its grammatical variations and
cognate expressions, means taking out of India to a place outside India.
Sub-Section 10 of section 2 of IGST Act, 2017 defines – “import of the goods” with its grammatical variations
and cognate expressions, means bringing goods into India from a place outside India.
Meaning of Import and Export of Services under GST
“Import of Services” as defined under sub-section 11 of section of IGST Act, 2017 means the supply of any
service, when –
The place of supply of service is in India
The supplier of service is located outside India;
The recipient of service is located in India; and
Supplies which do not form part of export of goods or services

Where the place of supply of service is within India but to a person located outside India. For an instance – a
property located in Delhi rented out to a person residing in New York; agent residing in India and providing
service to a person in Dubai exporting goods to China.
Where the consideration for the supply of services is received in Indian currency or in such a currency other
than convertible currency. For an instance, supply of service (consultancy service) by a consulting firm in India
to an entity outside India, where the payment made by Indian branch of overseas entity is in Indian rupees.
Supply of services to the foreign branch would not be covered as export of services due to specific exclusion as
“export of service”. This could involve reversing the input credits as such supply of service would be
considered as non-taxable and not as zero-rated.
The definition of import of service given under GST also excludes services imported from a foreign branch.

Deemed Exports under GST

Indian suppliers of services and manufacturers of goods have to quote in competition with foreign suppliers of
goods and services. Such Bids evaluation is done without considering the customs duty. Since such supply of
goods and services are financed for specific projects (projects financed) with the free foreign exchange, these
supplies are considered as ‘deemed exports.
Similarly, supplies made to Export Oriented Units also known as EOUs and services do not leave the country.
Suppliers get their payment in Indian currency and not in foreign exchange.
“Deemed exports” generally refer to those transactions under which supply of goods do not leave the country,
and payment for such supplies is received in Indian Rupees shall be treated as ‘deemed exports’, provided that
goods are manufactured or produced in India.

As per Foreign Trade Policy 2015-2020, followings are treated as deemed exports:
 Supplies to EOU / STP / EHTP / BTP
 Supplies against Advance Authorisation/ DFIA
 Supply of goods to mega power projects against International Competitive Bidding
 Supplies to United Nation Agencies
 Supply of goods to nuclear projects through competitive bidding
 Supply of marine freight containers
 Supplies against EPCG authorization
 Supplies to projects against international competitive bidding
 Supplies to projects with zero customs duty
Treatment of Exports under GST
As per the provisions contained under IGST law, export of goods or services or both are to be regarded as
“zero-rated supplies” and a person being a registered taxable person exporting such goods or services or both
shall be allowed to claim the refund of the GST paid under one of the following two options:
Export of goods or services or both under bond or letter of undertaking (LUT) without paying any Integrated
Tax and can claim the refund of unutilized input credit.
Export of goods and service or both on the payment of Integrated Tax and the exporter can claim the refund of
the GST paid on such goods and services so exported. The above-mentioned refunds will be subject to certain
rules, procedures, and safeguards as may be prescribed.
Option 1: Export of goods or services or both under bond or letter of undertaking (LUT), subject to certain
rules, procedures and safeguards as may be prescribed, without payment of integrated tax, and then claim a
refund of unutilized input credit.
The registered taxable person (or exporter) is required to file an application for the refund on the common
portal either through the facilitation center notified by the GST commissioner or can do so directly. An export
manifest is required to be filed under the existing Customs Act before filing an application for refund.
Option 2: Any exporter or Embassy or United Nations or other organisations/ bodies/ agencies as specified in
section 55 who supplies goods or services, or both, after satisfying all the conditions, rules, procedures and
safeguards as may be prescribed; and paying the IGST, can claim the refund of such GST paid on the supplied
goods or services, or both. The applicant seeking the refund has to apply for the refund as per the provisions
contained U/s 54 of the CGST Act.
An exporter needs to file a shipping bill for the goods being exported to a place outside India. Under this case,
the shipping bill so filed is treated as a “deemed application” for the refund of the tax paid. The deemed
application shall be deemed to have been filed only if the person in charge of the shipment files the export
manifest or report, mentioning the number and date of the shipping bills.

Forms for Refund

The Goods and Services Tax Network (GSTN) has introduced a utility Table 6A in the Form GSTR-1 used to
claim refunds by exporters.
This Table 6A of Form GSTR1 lets assessee file export related data for the relevant period that permits
processing of the GST refund on the basis of the declaration made under Form GSTR 3B and Table 6A of
GSTR-1.
An exporter of goods or services or both can claim the refund of Integrated GST paid at the time of export by
filling the details of the tax paid GST invoice and shipping bill in his Form GSTR1 in the relevant month

SEASONAL CHANGES:

Why monsoon is important for Indian Economy:

Rains in India is mostly restricted to the monsoon season every summer. Hence, all variations in the summer
monsoon affect agriculture and economy of the country.
India gets around 70 percent of its annual rainfall during the monsoon season, which also affects the yield of
some key kharif or summer crops like rice, pulses and oilseeds such as soybeans. Farmers start planting these
crops with the arrival of monsoon rains in June.
Union Ministry of Water Resources says, “India receives an average rainfall of about 1170mm which
corresponds to an annual precipitation of about 4000 BCM (Billion Cubic Metre) including snowfall.
In a good monsoon season, farm output goes up, boosting demand for consumer goods as well as income of
rural people. All of this leads to a stronger economic outlook that in turn help lift equities, especially of
companies selling goods in rural areas.
However, a poor monsoon season weakens demand for FMCG products, tractors, two-wheelers, rural housing.
Also, it forces the government to spend on the import of food as well as take measures like farm loan waivers.

Various factor related to monsoon changes-

 Inflation
The production of food grains is not solely dependent on the monsoon, or the extent of its deviation
from the long period average. In fact, the LPA itself has come down over the past seven years due to
deficient rains. Statistics show that a rise in the inflation rate in India is rarely dependent on the

monsoon or a result of lack of rains.

 Interest Rate
Higher food inflation on account of a poor monsoon translates into higher interest rates, which in turn
raises the borrowing cost across the country and impacts profitability.

 Land
The land's surface becomes warmer, the air above it expands, and an area of low pressure develops. This
is why summer monsoons cause so much rain over land. In the colder months, the cycle is reversed.
Then the land cools faster than the oceans and the air over the land has higher pressure than air over the
ocean.

 Cost of Raw material

“During the demand season, agricultural input companies will be able to pass on the raw material
price hike to consumers. Also, rain in the current monsoon is expected to spread towards the end of
June. Hence, the June quarter is considered to be lean.

 Loan repayment
At the time of good monsoon, the loan repayment is easy as production in that time is easy. But in bad
monsoon government will provide various sources in NARMADA etc to help farmer to get loan or
repayment of loan
Bad monsoon effect-
 BANKS: A slowdown in agricultural output will impact public sector banks because they are already
saddled with NPAs from not just the industrial sector but also from the farm sector.
 Two-Wheelers: According to management views, 2015-16 is expected to be a slow year for the two-
wheeler industry as rural demand is likely to remain weak over the next few months due to lower farm
income because to unseasonal rains, low minimum support price (MSP) for crops, etc.
 Tractors: The sector is already reeling under a slowdown, with sales during April-December falling 8.3
percent year-on-year.

 FMCG: About 35 percent of the total revenues of FMGC companies come from rural India. A
slowdown in rural demand would shave off their top line significantly. The only positive as of now is
the falling input costs because of declining commodity prices.

 Agri-Inputs: Although the sector, which includes fertilizers and chemicals, has been witnessing a
wobbly recovery due to the improved outlook for Rabi (winter) crops, it will suffer huge losses if the
monsoon fails.

Sectors That Benefit from Good Monsoon

Study on Monsoon prediction done by IMD for last 10 years--
Monsoon retreat is expected to begin on October 10, the Most department said. It will be a monsoon's latest
ever withdrawal. The previous latest retreat was reported in October 1, 2009, when the Monsoon retreat began.
Last year's Monsoonal rain was the highest in 25 years. But the Indian Meteorological Department (IMD) did
not predict this year that the monsoon would be this powerful. Bihar and parts of Karnataka are also under
heavy rain. Half of Bihar is now under floodwater and the other half is struggling to cope with the extreme
drought.
While India was technologically backward and economically a minor player, unpredictable prediction of
monsoon was expected to be the rule. With India's economic boom, funds went into monsoon research and led
to the development of a new model — Monsoon Mission Coupled Forecast Model, abbreviated as CFS
(standing for Coupled Forecast System) — that promised to accurately predict the weather pattern of the season
and to prevent Indian farmers and people from the vagaries of monsoonal uncertainty.
It's said that some Rs 1,200 crore was spent on creating the model. Yet the IMD failed to forecast that August
and September rainfall will be 130 per cent of the month's average rainfall in its latest report-on August 1st.
That may explain the administration's unpreparedness to some degree, particularly in Bihar.
The IMD said on August 1 that with an 8 per cent difference, the monsoonal rain will be 100 per cent of what is

natural. At the other hand, monsoon has proved stronger by 22 percentage points.

RAINFALL EFFECT
Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
in 1208. 1161. 1179. 1118. 953.7 1215. 1116. 1054. 1081. 1190.
mm 3 3 3 7 5 3 7 8 3

Sensex and rainfall data chart of last 10 years relation

Analysis- We can conclude from graphs is that Sensex and monsoon performance is related with each other
when the monsoon perform well then SENSEX will also perform well but some time due to other factor it may
decline because of market performance.

MONSOON PROJECTION
A monsoon is predicted on the basis of Long Period Average. It is termed as LPA. LPA is the average annual
rainfall for a period of 50 years from 1950-2000. The current LPA is 88 CMS. The following table shows the
forecast done by IMD as a percentage of LPA for the past 10 years

Past performance of monsoon

The following table summarises
the past performance of monsoon
and categorise them into different
category.

How traders and investors can benefit from a good monsoon

The equity market reacts to IMD's monsoon forecasts. A deficient rainfall forecast results in a dip in the equity
market the following day, while normal rainfall forecasts can result in some gains. Reactions to large variations from
the average result leads to sharper reactions on both sides. The stock market usually reacts positively to normal
monsoon as it‘s a sentiment booster. Though dependency on monsoon has fallen over the decades, a normal
monsoon is good news for the entire economy as it leads to increased farm production and increased demand from
rural areas.
Companies which are affected

Sectors related to agriculture such as fertiliser, pesticide, seed, etc. will benefit from high monsoon prediction.
Companies such as UPL, Rallis India and Bayer Crop Science and Tractor companies such as Mahindra and
Mahindra will also benefit from the monsoon. Increased farm production will have a positive impact for all
retail-consumer-oriented industries. Fast-moving consumer goods (FMCG) companies such as Hindustan
Unilever and ITC get a majority of their revenue from rural India. Increased rural income will boost their
growth and also reduce input cost for companies like Marico. Auto companies such as Hero MotoCorp, with
large rural market share will also be benefited. Among passenger vehicles, Maruti Suzuki is best placed. Banks
and financial institutions with large rural networks will also be benefited.

UNEMPLOYMENT
Unemployment occurs when a person who is actively searching for employment is unable to find work.
Unemployment is often used as a measure of the health of the economy. The most frequent measure of
unemployment is the unemployment rate, which is the number of unemployed people divided by the number of
people in the labour force. India has the highest youth population in the world. Unemployment is the
macroeconomic factor which affects the youth population directly.

Economy is running in an automatic mode

Once the unemployment rate rises up, the government bodies need to run the economy mechanically.

Initiatives:

Acts under parliament:

 Mahatma Gandhi National Rural Employment Guarantee Act 2005 (100-day employment to
unemployed persons in a year, in 200 of the districts and further will be expanded to 600 districts)
 National Career Service Scheme
 Integrated Rural Development Programme (IRDP) (agriculture, animal husbandry, forests, small &
cottage industries, construction of roads and canals are to be developed in all the 5111 development
blocks)
 Drought Prone Area Programme (DPAP) (This programme was launched in 70 such districts of 13
states as were prone to drought)
 Training for Self-Employment (To reduce unemployment among the youth. During Seventh Plan about
11.6 lakh youth were imparted training under the programme)
Measures:
 Incentivizing+ jobseekers with children
 Incentivizing businesses and employers
 Focusing on young people
 Employment Charter

Unemployment and perspective of youth towards entrepreneurship

In a region, economic growth is achieved radically in several ways by entrepreneurship. A country's
entrepreneurship and economic situation are closely connected. Entrepreneurs not only play a key role in the
growth of a country's industrial sector but also in the growth of the agricultural and service sector. The role of
entrepreneurship in the growth of the economy varies from country to country.
The relationship between unemployment and entrepreneurship has been a topic of discussion for a long time. It
has not given a conclusive evidence. One of the most famous theory between the relation between rise in
unemployment and entrepreneurship is that when there is a rise in unemployment the people will be forced to
take up self-employment or entrepreneurship this scenario is called necessary entrepreneurship. So, by this
theory we can say that when there is a rise in unemployment the entrepreneurship in the economy will also
increase. One is the downfall of this theory is that when the economy returns back to normal these necessary
entrepreneurs will withdraw to the other better alternatives if available.
Based on this theory we can say that rise in unemployment do motivate young people to take up
entrepreneurship even for a short while.

Monetary policy measures

In view of the COVID-19 pandemic, the Monetary Policy Committee (MPC) decided to advance its meeting
scheduled for 31st March 1st and 3rd April 2020. It met on 24th, 26th and 27th March and undertook a careful
evaluation of the current and evolving macroeconomic and financial conditions, and the outlook

2. After extensive discussions, the MPC voted unanimously for a sizeable reduction in the policy repo rate and
for maintaining the accommodative stance of monetary policy as long as necessary to revive growth, mitigate
the impact of COVID-19, while ensuring that inflation remains within the target. While there were some
differences in the quantum of reduction, the MPC voted with a 4-2 majority to reduce the policy rate by 75
basis points to 4.4 per cent.

3. Simultaneously, the fixed rate reverse repo rate, which sets the floor of the liquidity adjustment facility
(LAF) corridor, was reduced by 90 basis points to 4.0 per cent, thus creating an asymmetrical corridor. The
purpose of this measure relating to reverse repo rate is to make it relatively unattractive for banks to passively
deposit funds with the Reserve Bank and instead, to use these funds for on-lending to productive sectors of the
economy. It may be recalled that during the month of March so far, banks have been parking close to ₹ 3 lakh
crore on a daily average basis under the reverse repo, even as the growth of bank credit has been steadily
slowing down.

4. This decision and its advancement has been warranted by the destructive force of the corona virus. It is
intended to (a) mitigate the negative effects of the virus; (b) revive growth; and above all, (c) preserve financial
stability.

5. We are living through an extraordinary and unprecedented situation. Everything hinges on the depth of the
COVID-19 outbreak, its spread and its duration. Clearly, a war effort has to be mounted and is being mounted
to combat the virus, involving both conventional and unconventional measures in continuous battle-ready
mode. Life in the time of COVID-19 has been one of unprecedented loss and isolation. Yet, it is worthwhile to
remember that tough times never last; only tough people and tough institutions do.

6. In the recent period, the Reserve Bank has been in action on a daily basis with efforts to alleviate financial
stress, build confidence and keep the financial system sound and functioning. Measures taken by the Reserve
Bank are given below.

 a cumulative reduction in the policy repo rate of 135 basis points;

 accommodative stance of monetary policy as long as necessary to revive growth, while keeping
inflation within the target.

 two USD buy/sell swap auction of USD 5 billion each conducted on March 26 and April 23, 2019,
injecting liquidity into the banking system amounting to ₹ 34,561 crore and ₹ 34,874 crore,
respectively.

 seven open market purchases, injecting ₹ 92,500 crore into the system.

 four simultaneous purchase and sale of government securities under Open Market Operations (special
OMOs or what is known as operation twist) during December and January (December 23 and 30, 2019
and January 6 and 23, 2020) to ensure better monetary policy transmission.

 five long term repo operations (LTROs) between February 17 and March 18, 2020 for one-year and
three-year tenors amounting to ₹ 1,25,000 crore of durable liquidity at reasonable cost (fixed repo rate).

 exemption on incremental credit disbursed by banks between January 31 - July 31, 2020 on retail loans
for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs) from
the maintenance of cash reserve ratio (CRR).

 two 6-month US Dollar sell/buy swap auction providing dollar liquidity amounting to USD 2.71 billion.

 fine-tuning variable rate repo auctions of ₹ 50,000 crore and ₹ 25,000 crore of 8 days and 3 days
maturity on March 26 and March 31, respectively, with standalone primary dealers (SPDs) allowed to
participate.

 fine-tuning variable rate Repo auctions of 16-day maturity amounting to ₹ 77,745 crore on March 23-
24, 2020.

 The amount under the Standing Liquidity Facility (SLF) available for standalone primary dealers was
enhanced from ₹ 2,800 crore to ₹ 10,000 crore on March 24, 2020 and this will be available till April
17, 2020.
7. Reserve Bank is at work and in mission mode, monitoring the evolving financial market and macro-
economic conditions; and calibrating its operations to meet any need for additional liquidity support as well as
other measures, as may be warranted. It is the effort of RBI to ensure normal functioning of markets, nurture
the impulses of growth and preserve financial stability.

8. The MPC noted that global economic activity has come to a near standstill as COVID-19 related lockdowns
and social distancing are imposed across a widening swathe of affected countries. Expectations of a shallow
recovery in 2020 from 2019’s decade low in global growth have been dashed. The outlook is now heavily
contingent upon the intensity, spread and duration of the pandemic. There is a rising probability that large parts
of the global economy will slip into recession.

9. Turning to growth in India, the implied real GDP growth of 4.7 per cent for Q4:2019-20 in the second
advance estimates of the National Statistics Office, released in February 2020, within the annual estimate of 5
per cent for the year as a whole is now at risk from the pandemic’s impact on the economy. As regards the
outlook for 2020-21, apart from the continuing resilience of agriculture and allied activities, most other sectors
of the economy will be adversely impacted by the pandemic, depending upon, I repeat, its intensity, spread and
duration. If COVID-19 is prolonged and supply chain disruptions get accentuated, the global slowdown could
deepen, with adverse implications for India. The slump in international crude prices could, however, provide
some relief in the form of terms of trade gains. Downside risks to growth arise from the spread of COVID-19
and prolonged lockdowns. Upside growth impulses are expected to emanate from monetary, fiscal and other
policy measures and the early containment of COVID-19.

10. As regards inflation, the prints for January and February 2020 indicate that actual outcomes for the quarter
are running 30 bps above projections, reflecting the onion price shock. Looking ahead, food prices may soften
even further under the beneficial effects of the record foodgrains and horticulture production, at least till the
onset of the usual summer uptick. Furthermore, the collapse in crude prices should work towards easing both
fuel and core inflation pressures, depending on the level of the pass-through to retail prices. As a consequence
of COVID-19, aggregate demand may weaken and ease core inflation further. Heightened volatility in financial
markets could also have a bearing on inflation. Given this heightened volatility, unprecedented uncertainty and
extremely fluid state of affairs, projections of growth and inflation would be heavily contingent on the intensity,
spread and duration of COVID-19. Precisely for these reasons, the MPC refrained from giving out specific
growth and inflation numbers.

11. The MPC noted that macroeconomic risks, both on the demand and supply sides, brought on by the
pandemic could be severe. The need of the hour is to do whatever is necessary to shield the domestic economy
from the pandemic. Central banks across the world have responded with monetary and regulatory measures –
both conventional and unconventional. Governments across the world have unleashed massive fiscal measures,
including targeted health services support, to protect economic activity from the impact of the virus. The
Government of India has yesterday announced a number of measures. The MPC further noted that the Reserve
Bank has taken several measures to inject substantial liquidity in the system. Nonetheless, the priority is to
undertake strong and purposeful action in order to minimise the adverse macroeconomic impact of the
pandemic. It also underscored the need for all stakeholders to fight against the pandemic. Banks and other
financial institutions should do all they can to keep credit flowing to economic agents facing financial stress on
account of the isolation that the virus has imposed. Market participants should work with regulators like the
Reserve Bank and the SEBI to ensure the orderly functioning of markets in their role of price discovery and
financial intermediation. Strong fiscal measures are of course critical to deal with the situation.

12. To summarise, COVID-19 stalks the global economy and the outlook is highly uncertain and negative.
Several nations are battling its exponential contagion; countries are shutting down to prevent being sucked into
that black hole. Authorities all over the world are mobilising on a massive scale to fight an invisible assassin.
India has locked down. Economic activity and financial markets are under severe stress. Finance is the lifeline
of the economy. Keeping it flowing is the paramount objective. The time has come for the Reserve Bank to
unleash an array of instruments from its arsenal to staunch and mitigate the impact of COVID-19, revive
growth and, above all, preserve financial stability. The aggressive action and stance of the MPC provides a
befitting launching pad. In turn, the configuration of initiatives unveiled in the Statement on Developmental and
Regulatory Policies - which I am now going to announce - amplify the MPC’s decision and leverages on it as
well. Accordingly, it is appropriate that the MPC’s decision and the Reserve Bank’s actions be regarded as a
comprehensive package with force multipliers.

13. The developmental and regulatory policies can be broadly delineated under four categories:

(1) measures to expand liquidity in the system sizeably to ensure that financial markets and institutions are able
to function normally in the face of COVID-19 related dislocations;

(2) steps to reinforce monetary transmission so that bank credit flows on easier terms are sustained to all those
who have been affected by the pandemic;

(3) efforts to ease financial stress caused by COVID-19 disruptions by relaxing repayment pressures and
improving access to working capital; and

(4) endeavor to improve the functioning of markets in view of the high volatility experienced with the onset and
spread of the pandemic.

I. Liquidity Measures

14. A multi-pronged approach, comprising both targeted and system-wide liquidity provision, has been adopted
to ensure that COVID-19 related liquidity constraints are eased.

Targeted Long Term Repo Operations (TLTRO)

15. Large sell-offs in the domestic equity, bond and forex markets have intensified redemption pressures.
Liquidity premia on instruments such as corporate bonds, commercial paper and debentures have surged.
Financial conditions for these instruments, which are used, inter alia, to access working capital in the face of the
slowdown in bank credit, have also tightened. To mitigate the adverse effects on economic activity leading to
pressures on cash flows across sectors, the Reserve Bank will conduct auctions of targeted term repos of up to
three years tenor of appropriate sizes for a total amount of up to ₹ 1,00,000 crore at a floating rate, linked to the
policy repo rate. Liquidity availed under the scheme by banks has to be deployed in investment grade corporate
bonds, commercial paper and non-convertible debentures over and above the outstanding level of their
investments in these bonds as on March 25, 2020. Eligible instruments comprise both primary market issuances
and secondary market purchases, including from mutual funds and non-banking finance companies.
Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25
per cent of total investment permitted to be included in the HTM portfolio. Exposures under this facility will
also not be reckoned under the large exposure framework. The first auction of ₹ 25,000 crore will be conducted
today. The relevant notification is being issued separately.

Cash Reserve Ratio

16. It is observed that, despite ample liquidity in the system, its distribution is highly asymmetrical across the
financial system, and starkly so within the banking system. To help banks tide over the disruption caused by
COVID-19, it has been decided to reduce the cash reserve ratio (CRR) of all banks by 100 basis points to 3.0
per cent of net demand and time liabilities (NDTL) with effect from the reporting fortnight beginning March
28, 2020 for a period of one year. This reduction in the CRR would release primary liquidity of about ₹
1,37,000 crore uniformly across the banking system in proportion to liabilities of constituents rather than in
relation to holdings of excess SLR.

17. Furthermore, taking cognisance of hardships faced by banks in terms of social distancing of staff and
consequent strains on reporting requirements, it has been decided to reduce the requirement of minimum daily
CRR balance maintenance from 90 per cent to 80 per cent, effective from the first day of the reporting fortnight
beginning March 28, 2020. This is a one-time dispensation available up to June 26, 2020.

Marginal Standing Facility

18. In view of the exceptionally high volatility in domestic financial markets which brings in phases of liquidity
stress and to provide comfort to the banking system, it has been decided to increase the accommodation under
the marginal standing facility (MSF) from 2 per cent of the statutory liquidity ratio (SLR) to 3 per cent with
immediate effect. This measure will be applicable up to June 30, 2020. This measure should provide comfort to
the banking system by allowing it to avail an additional ₹ 1,37,000 crore of liquidity under the LAF window in
times of stress at the reduced MSF rate announced in the MPC’s resolution.
19. These three measures relating to TLTRO, CRR and MSF will inject a total liquidity of ₹ 3.74 lakh crore to
the system.

Widening of the Monetary Policy Rate Corridor

20. In view of persistent excess liquidity, it has been decided to widen the existing policy rate corridor from 50
bps to 65 bps. Under the new corridor, the reverse repo rate under the liquidity adjustment facility (LAF) would
be 40 bps lower than the policy repo rate, as against existing 25 bps. The marginal standing facility (MSF) rate
would continue to be 25 bps above the policy repo rate.

II. Regulation and Supervision

21. Alongside liquidity measures, it is important that steps are taken to mitigate the burden of debt servicing
brought about by disruptions on account of COVID-19 pandemic. Such steps, in turn, will go a long way to
prevent the transmission of financial stress to the real economy, and ensure the continuity of viable businesses
and provide relief to borrowers in these extraordinarily troubled times. These measures include moratorium on
term loans; deferring interest payments on working capital; easing of working capital financing; deferment of
implementation of the net stable funding ratio; and the last tranche of the capital conservation buffer.

Moratorium on Term Loans

22. All commercial banks (including regional rural banks, small finance banks and local area banks), co-
operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-
finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on
payment of instalments in respect of all term loans outstanding as on March 1, 2020.

Deferment of Interest on Working Capital Facilities

23. In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions
are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities
outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the
deferment period.

The moratorium on term loans and the deferring of interest payments on working capital will not result in asset
classification downgrade.

Easing of Working Capital Financing

24. In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions
are allowed to recalculate drawing power by reducing margins and/or by reassessing the working capital cycle
for the borrowers. Such changes will not result in asset classification downgrade.
25. The moratorium on term loans, the deferring of interest payments on working capital and the easing of
working capital financing will not qualify as a default for the purposes of supervisory reporting and reporting to
credit information companies (CICs) by the lending institutions. Hence, there will be no adverse impact on the
credit history of the beneficiaries.

Deferment of Implementation of Net Stable Funding Ratio (NSFR)

26. The Net Stable Funding Ratio (NSFR), which reduces funding risk by requiring banks to fund their
activities with sufficiently stable sources of funding over a time horizon of a year in order to mitigate the risk of
future funding stress, was required to be introduced by banks in India from April 1, 2020. It has now been
decided to defer the implementation of NSFR by six months to October 1, 2020.

Deferment of Last Tranche of Capital Conservation Buffer

27. The capital conservation buffer (CCB) is designed to ensure that banks build up capital buffers during
normal times (i.e., outside periods of stress) which can be drawn down as losses are incurred during a stressed
period. Considering the potential stress on account of COVID-19, it has been decided to further defer the
implementation of the last tranche of 0.625 per cent of the CCB from March 31, 2020 to September 30, 2020.

III. Financial Markets

28. The measure for financial markets assumes importance in the context of the increased volatility of the rupee
caused by the impact of Covid-19 on currency markets.

Permitting Banks to Deal in Offshore Non-deliverable Rupee derivative Markets (Offshore Rupee NDF
Markets)

29. The offshore Indian Rupee (INR) derivative market - the Non-Deliverable Forward (NDF) market - has
been growing rapidly in recent times. At present, Indian banks are not permitted to participate in this market,
although the benefits of their participation in the NDF market have been widely recognised. The time is
apposite to improve efficiency of price discovery. Accordingly, banks in India which operate International
Financial Services Centre (IFSC) Banking Units (IBUs) are being allowed to participate in the NDF market
with effect from June 1, 2020.

30. Since the last MPC meeting of February 2020, the Reserve Bank has injected liquidity of ₹ 2.8 lakh crore
through various instruments, equivalent to 1.4 per cent of our GDP. Together with the measures announced
today, RBI’s liquidity injection works out to about 3.2 per cent of GDP.
ELECTION
Result of election of last 4 years-
 14th Lok Sabha Election Results 2004 :The results were surprising: everyone thought
that the BJP and its allies would come back to power, whereas it was the INC and its
allies who won the majority of seats. Manmohan Singh was declared the Prime
Minister of India.
 15th Lok Sabha Election Results 2009 The voters of the country this time also elected
the UPA government and Dr. Manmohan Singh continued to be the Prime Minister of
the country for the second term. Sonia Gandhi became the chief of the UPA
 16th Lok Sabha Election Results 2014 The results are this time BJP won by 282 seats.
Narendra Minister becomes the Prime minister of the country.
 17th Lok Sabha Election Results 2019 The results are this time BJP won by 458 seats.
Narendra Minister continued to be the Prime Minister of the country for the second

term.

Comparison prior and post-election period 2004 elections

This was very important election as India was growing fast and first time non congress
government completed 5 years of their term. But after the election new government with
different party was formed. During first year of congress government headed by Dr.
Manmohan Singh, Sensex was booming because of good IT development and high
expectations from Dr. Manmohan Singh (Good reputation as an economist) as the prime
minister. Gross fiscal deficit shows the exact opposite effect of what political budget cycle
explains, but inflation data indicates the existence of political business cycle. Sensex
improved because of previous government’s policies. Exchange did not show much change

after the elections.

2009 election This election happened during the global financial crisis. Many economic
factors were affected by this recession. Also before the election, government increased the
MSP for agricultural produce, waiving off the famers’ loans which increased the inflation,
fiscal deficit as well as affected the exchange rate. We can see the existence of political
budget/business cycle in this election. But most probably we can never say that it was due to
politics because economy was declining, so government had taken measures to control it
which resulted in very high fiscal deficit, high inflation as government was pouring money
into markets. Also, Sensex was under the pressure from worldwide situation.
2014 elections During 2009-14, government announced many schemes to lure the voters as
government was facing many corruption charges and government wanted to save face and
make a comeback in the election with its subsidies and schemes. But data shows that these all
schemes were launched during the full term, not in the pre-election year only. New
government has taken many strict measures to improve the economy. Also, reduction in the
crude oil prices helped the new government reduce the deficit, inflation as well exchange
rate.
2019 elections Appeared that employment and rural distress would be some of the main
themes of the election. In January, a leaked official report showed that India’s unemployment
rate had increased under the Modi government to a 45-year high. Farmers, meanwhile, have
held several large marches in recent months to protest the difficult conditions they face,
including rising input costs and high amounts of debt. Those issues probably contributed to
defeats for the BJP in three key state elections late last year. 5