Current Affairs Capsule

November 19
Current Affairs Capsule
2016
The document contains the latest happenings in India and the World
and a brief analysis of the issue
Current Affairs
Capsule - 01

BUSINESS
Tata Sons board room war with Cyrus Mistry
The clash of visions between Ratan Tata and Cyrus Mistry has led one of the largest groups into
boardroom wars. Allegations and counter-allegations followed from Mistry and Tata Sons and
Mistrys letter indeed is damaging to the reputation of Ratan Tata. But the faults he points are no
way unique to the Tata Group, and also, one wonders why these points werent raised earlier.
Cyrus Mistrys Allegations
Total lack of corporate governance and failure on the
part of directors to discharge fiduciary duty owed to
stakeholders of Tata Sons and of the group
companies
Prior to appointment assurance given of a free hand
but after appointment articles of association were
modified severely constraining the ability of the group
to engineer necessary turnaround
Inherited a legacy of problems foreign acquisition
strategy with the exceptions of JLR and Tetley, left a
large debt overhang
Tata Capital had a book requiring significant clean-up

on account of bad loans to infrastructure sector
which resulted in Tata Sons having to recognize
abnormal size of NPAs
Ethical concerns vis-a-vis Air Asia with respect to
certain transactions as well as overall prevailing
culture within organization
Haemorrhaging condition of telecom business in
addition to any payout to DoCoMo. Huge losses in
Tata Power and challenging situation in Tata Motors
(both commercial and passenger vehicle segment) on
account of NPAs
No sight of profitability to Nano and any turnaround
strategy for the company require shutting it down.
Emotional reason alone keeping Tata Sons away from
this crucial decision
Analysis
Total lack of corporate governance seems to be a
sweeping judgment. Tata Sons directly owns only one
operating company, TCS, and this company is very
well run
It seems likely that Mistry had the promoter trusts
and Ratan Tata breathing down his neck, but if his
freedom of action was severely constrained, surely
the time to force a backoff was two or three years
ago, and not now
This is the core of the allegations levelled by Mistry,
including hints of bad deal-making, and over-priced
global buys. Since all these happened under Ratan
Tatas watch, it means these bad decisions can be
directly traced to his predecessor, and now
temporary successor. such mistakes are not
uncommon in global businesses, with winners
curse being the term applied to successful bidders
who overpaid for acquisitions
These are allegations that could get the Tatas into
trouble, since they could lead to actions by
government regulatory agencies, including the
Company Law Board.
Fraud, or suspicious dealings are being hinted at, and
the link to Ratan Tata comes through
Venkataramanan, the man in charge of running the
Tata trusts headed by Tata.
These accusations show the Tatas in poor light, since
they relate to bad commercial decisions, and
attempts to push sales by undertaking high-risk loans,
aided by grey accounting practices, but again, not a
problem unique to the Tatas
This part is damaging to Ratan Tatas credibility, given
his emotional attachment to the Nano concept. This is
what the Group probably hinted at when they alleged
Mistrys departure from Groups ethos and culture
Tata View
As an Executive Chairman, Mistry was fully empowered to lead the Group. Allegations and
misrepresentations were being made about business decisions that he was party to for over a
decade in different capacities. The tenure of Mistry was marked by repeated departures from
culture and ethos of the Group. Mistry had overwhelmingly lost the confidence of members of the
Board of Directors for a combination of several factors. Concerns and queries were raised on certain
business issues but increasing trust deficit did not help address these issues.
FSC Scholastic Council, FMS Delhi
Page 2

Noted Academician and Management expert Aswath Damodarans suggestions to resolve the
issue:
Settle: The dispute has to be settled soon as continued public spat will only harm companys
interests
A personal fight: Managers and Directors taking sides in a personal fight and a rational
solution will be tough to reach unless both the personalities withdraw from the fray. For the
crisis to abate Ratan Tata has to step down as chairman and let a third party that both sides
find acceptable step in, at least for the interim
Separate the public companies from private: The dangers of self-dealing and conflicts of
interest are greatest when the private businesses interact with the public companies
Unit Independence: Make each public company truly independent that will require selling
cross-holdings in other Tata companies and removing family group directors who serve on
the boards of the standalone companies
Restrict intra-group activities: While intra-group loans may sometimes make sense, the
interest rates on these loans should reflect the risk of the borrowing entity and intra-group
equity investments should be value adding, i.e., earn a return on capital that exceeds the
cost
Transparency: Disentangling cross holdings and restricting nitric will be a big step towards
making the financial statements of the Tata companies more informative
Nokia to re-enter Smartphone business in 2017
Nokia is planning to enter Smartphone business in 2017

Since it does not have the required manufacturing unit, Nokia will rope in Finnish company
HMD Global, and Taiwanese giant Foxconn to manufacture the Smartphones
HDM will develop, market and sell Nokia-branded phones and accessories whereas Foxconn
is dealing with R&D and manufacturing
The first Smartphone of Nokia after its comeback is rumoured to be the D1C that runs on
Android 7 Nougat with a Snapdragon 430 processor, and offers a 1080p display and 3GB of
RAM
Trumps anti-immigration policies to hit Infosys margins: Vishal Sikka
Vishal Sikka contends that Trumps anti-immigration policies might impact margins in the
near-term
Infosys' contingency plan for the case that the group would not be able to send low-cost
developers to work with temporary work visas on big tech projects in the United States
would be to hire staff locally
Sikka conceded that hiring people in the United States would likely be more expensive,
adding that he saw no shortage in potential applicants
Demonetization: Traffic surges 2500% on MobiKwiks nearby feature
Demonetization has changed the entire mobile wallet industry and suddenly, there is a huge
demand and acceptance of their services
Nearby feature has helped millions of MobiKwik users in identifying food and shopping
outlets around them that accept MobiKwik payments
Page 3

ECONOMY
Impact of Demonetization: Views and Counter-Views
At the stroke of the hour on midnight of 9th November 2016, India lost 86% of its monetary base.
The print, electronic and social media has been praising Prime Ministers masterstroke by which he
has reportedly destroyed the base of corruption in India. In this single move, the Government has
attempted to tackle all the three issues affecting the economy i.e. a parallel economy, counterfeit
currency in circulation and terror financing. There is no doubt that Prime Minister has pulled out a
major coop and substantially enhanced his reputation as a strong leader.
Views
Demonetization is an established practice in
monetary policy to tackle black money. The Prime
Minister has explained why this is a financial surgical
strike. It was meant to be suddenly implemented. In
the past, demonetization has taken place twice but it
fails because the idea is to tackle the black money
existing in circulation. This is not tackle corruption per
se or the Government is not saying that 100%
corruption will be tackled. If announcement and time
would have been given, this step might not have
been successful in controlling black money and
counterfeit currency in circulation coming from
Pakistan, Nepal or other countries.
A lot of money is in circulation in everyday
transaction like if someone is building a house; the bill
is not paid through banks for sand, bricks etc. This
money goes into the other systems though it has
been drawn from bank. These things will come under
control with this step
If the limit of withdrawal would have been kept at a
higher level there were chances that the recycling of
black money might begin. The ideal money in
circulation has to come to the banking channels.
The stock of the black economy constitutes a major
part of the GDP is significant. Even if 50% of this
amount is withdrawn, the kind of relief that RBI will
get on its liabilities and the sort of deposits
commercial banks will get will lead to a rise in the
deposit and later on there will be decrease in lending
rates plus fiscal deficit. The black money in
circulation is like a steroid in the economy which
keeps the demand going gives a feeling that
everything is working well. The problem is that
investment is not taking place in the economy and
the rate of growth of capital formation is down. The
only way to bring this up is to divert more funds into
investments which will happen when the cost of
capital comes down.
Counter-Views
Small farmers, sellers, merchants, daily wage
labourers and traders are suffering because of lack of
proper planning, intelligence and foresight such as
recalibration of ATM machines. There was need to
pile up enough 100 Rupee notes and other smaller
denomination notes in the market before taking this
step. It is being said by critics that this step was taken
only to bolster the image of the Prime Minister as he
has been unable to deliver on GDP growth, inflation
and bringing the black money from abroad.
The idea of demonetization is good but it has to be

taken into consideration that most of the black
money is kept in the form of land, buildings or gold
or kept abroad. What is in cash constitutes only 4% of
the total amount of black money on which taxes are
not being paid.
People, especially from rural areas, are
facing problems because the limit of withdrawal has
not been kept at a higher level.
At this time, the economy is struggling with
slowdown. There is demand sluggishness in the
economy leading to practically no private sector
investment and stagnant industrial growth. If we look
at the farm sector, this is the harvest time. Farmers
generally deal in cash and India is also largely a cash
economy. The cash transactions in this economy are
far more than the total number of electronic
transactions done on a daily basis. In the tribal
heartland of the country, the poor people through
middlemen are getting their currencies exchanged for
Rs.300 or Rs.400 because of lack of proper
information which is hitting them. This is a terrible
setback for the international standing of the Indian
economy.
Conclusion: So far, it can be said that this is a historical step and should be supported by all. One
should look at the bigger picture which will definitely fetch results in the long term. This is what the
people have been asking for a long time which has finally happened.
Page 4

Industry welcomes new GST rates; Aam aadmis grocery bill may not rise
India had finalized a four-tier GST structure ranging from 5% to 28% - thus breaking
political deadlock
The four GST slabs are 5%, 12%, 18% and 28%. The fifth rate for gold and precious metals,
which was earlier proposed at 4%, will be decided later but is likely to be lower
CII contends that over the time the government should converge to one or two rates. It is
also important that the bulk of goods and services should fall within the standard rate of
18% and only as exception to go to the higher rate of 28% and a lower rate for essential
goods such as unprocessed food items
Aam Aadmi Burden:
o The GST Council has decided to exempt food items or keep most of them at the
lowest rate of 5% and thus Aam Aadmis grocery bill may not rise
o More than 50% of items in the Consumer Price Index basket would be exempted
under GST and the remainder placed in the lowest bracket
o SUVs, aerated drinks, pan masala and tobacco products are unlikely to see any
change in their overall tax burden with a new cess proposed on them
o Soaps, oils, shaving kits, small cars and other consumer goods consumed by the
middle class could become cheaper as they are likely to be placed in the lower tax
slab of 18% and not equivalent tax slab of 28%
Impact on Inflation:
o The cess, which would be equal to the difference between the current tax rate and
the highest GST slab of 28%, would be used to create a Rs 50,000 crore fund to
compensate states that lose revenue under new tax regime
o Thus, the impact on the inflation would be very small, if at all, this should probably
serve to lower inflation
Services Bracket:
o A decision on Services bracket would be taken later, although it would most likely
attract the standard rate of 18%
o Some of the services which enjoy higher abatement would be put in the lower tax
slabs of 12% or 5%, depending on their current overall tax incidence
o Exports and SEZs would be zero-rated
Moody keeps Indias outlook positive
Moodys investor service has retained its positive outlook on India, predicting a continued
reform push and lowering of debt levels
Moodys pointed out that there are several factors bolstering Indias upgradation to a higher
rating, including its size, growth potential, and increase in income levels
However there are constraints private investment has still not picked u despite
government efforts
Income and consumption levels remain vulnerable to external shocks like a poor monsoon.
The high debt levels also play a part in weakening Indias position
Lower Inflation fuels rate-cut hopes
Retail and Wholesale inflation slowed in October due to lower food prices with analysts
predicting a further declining trend due to a demonetization move
Page 5
The easing of inflation across both indices lends hope of a rate-cut by the RBI
There could be further softening in the inflation in the near-term, as demand side is likely to
get impacted due to demonetization
CII believes that going forward, both the WPI and CPI are likely to remain muted as
favourable monsoon would augment food supplies in the marketplace and international
commodity prices would continue to remain under pressure
Micro-lending badly hit, surge in use of cards
MFI which extends small loans to the poor and accepts repayment in cash has been worst hit
due to demonetization move
Repayments have fallen below 10% which are typically 100% for micro-lenders
Micro Finance Institution Network (MFIN) has issued advisory to all its members to defer
collections for a week
The demonetization move has led to a spike in use of debit and credit cards
Industry participants agree that the Centres move would lead to an increase in the use of
credit and debit cards, leading to the twin objectives of financial inclusion and making India a
cashless society
Wage cap plan to widen PF net
The Employees Provident Fund Organisation (EPFO) has written to the Centre demanding a
higher wage ceiling of Rs.25,000 per month for its social security schemes raising the
possibility of more workers being added to the provident fund pool
At present, EPF is optional for workers earning more than Rs.15,000 per month
As the minimum wage itself had become more than the existing wage ceiling of Rs.15,000
per month for EPFO, it was high time that wage ceiling in EPFO be also increased
Many contract workers are deprived of PF benefits on account of the fact that the Central
Department or organisation where they are working does not come under the purview of
EPF & MP Act, 1952
Expiry of investment pacts will hurt FDI into India: EU
Indias separate Bilateral Investment Treaties (BIT) with 23 European Union (EU) member
countries will soon expire one after the other and the absence of an investment protection
pact will hurt Foreign Direct Investment (FDI) from EU to India
The European Commission, therefore, wants India to agree to extend the expiry date of
these BITs till an India-EU BIT is in place
The lack of a BIT adds to the risk premium and increases the cost of funds for investors a
situation that would result in European companies deciding to invest lesser in India than
earlier planned
The Indian Government has informed a significant number of EU Member States of its
intention to terminate BITs concluded with them. These notices have been accompanied by
a request to open negotiations for new investment agreements, based on India's new model
(BIT) text
Given that the EU Member States do not have the possibility to renegotiate the BITs with
India, the unilateral termination of the existing BITs by India would entail serious
consequences
Page 6

WORLD AFFAIRS
Donald Trump becomes the 45th President of the US: Implications for India
The Tax Plan: If Trump reduces Corporate Tax to 15% as promised from current 35%, it
would make USA one of the most attractive destinations for businesses. By implementing
this plan US businesses in India could be lured back to American soil
Plan to curtail Chinese trade: If Trump fulfils his promises and decides to curb Chinese
imports, it would hardly benefit India. This is because Chinese trade with the US is eons
ahead of India. However, it would open possibilities of capturing a part of trade that China
would lose
Cutting down immigration: Trump has called for restricting skilled visas to make more jobs
available to Americans. That would be bad news for top Indian IT companies which use H1B
visa programme that allows low cost skilled Indians to work in the US
Reviving the American economy: The EB-5 visa programme would gain traction in India if
Trump were to follow through his agenda of cutting federal spending while at the same time
easing regulation for businesses. This would mean enhanced opportunities not just for big
businesses for India but also smaller ones to invest in USA
Foreign Policy and Terrorism: Trump has used strong words on the need to curtail ISIS and
curb immigration from countries that export terror. This would comfort India, which has
seen a surge in support for ISIS among its young population
The Energy Plan: Trump has promised to unleash Americas shale oil, natural gas and coal
reserves to make U.S energy self-sufficient. India, like many other nations in the world, is at
the mercy of Organisation of Petroleum Exporting Countries (OPEC) when it comes paying a
price for oil. A rise in the price of fuel bleeds Indias domestic oil companies, throws the
governments fiscal deficit targets in disarray and leads to a spike in the prices of essential
goods. If Trump were to come true on his promises, India could benefit massively
Pakistans strategic Gwadar port opens China-Pakistan Economic Corridor

(CPEC)
The Gwadar port became operational in Pakistans restive Balochistan province after a
Chinese commercial ship laden with around 250 containers set off for the Middle East and
Africa
Pakistani lawmakers expressed concern that irrespective of sour Pakistan-India relations,
China will do trade with India through CPEC
Issues concerning Pakistan:
o CPEC is failing to yield dramatic results
o With China-Pakistan bilateral tilting heavily towards China the illusion of success is
fading and with it is also falling the grand notion of real development of Pakistan
o Failure to implement various projects due to disagreements and corridor not being
wide enough to support expected trade volume
Implications for India:
o Chinese naval vessels will frequently confront Indian naval vessels due to Gwadar
port
o Influence of China and Pakistan will increase in Afghanistan
Page 7

o
Challenge to Indian Sovereignty as PoK (Indian territory) used for CPEC
MISCELLANEOUS
Cauvery Water Row
Core Issue:
o Cauvery river water sharing between Karnataka and Tamil Nadu
o Contention arose when both the states started building dams on the river starting
1910
o Reservoirs and Dams in upper riparian state created stir in Tamil Nadu because of
the size of those projects (Krishnaraja Sagar Dam)
o Rapid urbanization of Bangalore has increased water usage substantially prompting
Karnataka to release lesser water to Tamil Nadu
Current Issue:
o Tamil Nadu farmers livelihood depends on growing Samba crop (a variety of rice)
which is largely grown along the banks of Cauvery
o Lower than average rainfall in Western Ghats has reduced Cauvery water flow this
year
o Supreme Court therefore asked Karnataka to release 6000 cusecs of water for 10
days until 27th September which Karnataka failed to comply. This has flared up
tensions between the states
Solution
o The problem mostly occurs during years of lower rainfall, and the Cauvery Water
Dispute Tribunal has offered no formula for water sharing there is an urgent need
to arrive at a formula on how water will be shared in distress years
o Long term solution depends on developing alternative sources of waters by both the
states
Sutlej-Yamuna Link Canal issue
Centre issued notifications to build Sutlej-Yamuna link canal (SYL) to be constructed which
was earlier proposed by Haryana. Haryana constructed the canal on their part but Punjab
was not ready to construct it. Despite the pressure from the central government and
Haryana , construction did not began as it was against the interests of Punjab
In 1985, Prime Minister Rajiv Gandhi and Akali Dal president Harchand Singh Longowal
signed "Settlement Accord". Construction began but it was slow and delayed frequently and
later there were regular orders from Water Tribunal to complete canal construction
expeditiously
On 21st March 2016, the Punjab Assembly passed the Punjab SYL Canal (Rehabilitation and
Re-vesting of Proprietary Rights) Bill 2016, seeking to return land acquired for the canals
construction to the original owners free of cost
Punjab feels that it would get lesser amount of water from Sutlej river, as already it receives
lesser share because of Indus Water Treaty with Pakistan and Indira Gandhi Canal which
transports water to Rajasthan
Page 8
With elections round the corner Punjab government does not want to risk its chances by
complying with Supreme Court order to stay the Punjab SYL Canal Bill 2016
Page 9

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November 19