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Indian Economy & Business –

Overview of Recent Trends & Events

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© Copyright, 2018, Ashish Agrawal

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 Indian Economy
&
Business
Overview of Recent Trends & Events

Ashish Agrawal

EDUCREATION PUBLISHING
(Since 2011)
www.educreation.in

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 iv

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 What They Said About the Book…
The book titled “Indian Economy & Business” presents a complex
situation relating to the Indian Economy, Policies and Regulations
in a very simple and lucid manner. The book also relates the effect
of these policy measures on the corporate world through various
cases. The book is a must for all students who are studying
Management, Economics as a subject at the undergraduate or post
graduate level. We wish Mr. Ashish all the best and hope he writes
many more books on such important topics.

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

I finished reading the book two days back with lot of interest and
found it very engaging. The topics chosen are highly relevant and
practical and would certainly give youngsters a better
understanding of these complex issues. The coverage of financial
sector is worth mentioning as it provides a holistic view of many
diffused issues and trends in an easy to learn manner. Looking
forward to many such contributions from the Author in the future.
Dr Bigyan Verma, Director - GNIMS Business School, Mumbai.
The book authored by an IIM graduate does not disappoint at all. I
managed to read all the articles but could not find fault in any of
them. The book provides practical insights on economic and
business happenings to compliment the classroom learning. Cases
on Corporate strategies gone wrong provides unique insights on
how management fails. A must read for all management
professionals...

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 Dr Atul Pandey, Dean, Faculty of Management Studies, APS
University Rewa & Chairman, Central Board of Studies
(Management), MP.

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

Indian Economy in an easy to read and simple to understand
language. The cases and examples presented are apt and relevant
for students and professionals alike. All the best!!

Dr Prashant Gundawar, Director - Sterling Institute of

Management Studies, Navi Mumbai.

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 Letter to the Directors,
Management/Other Institutions

Dear Sir/Madam,

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

Briefly, I am an IIT Roorkee-IIM Calcutta graduate with over 20
years of industry and research experience. The book gives a
glimpse of Indian Business and Economic environment through
analysis of key trends & events defining the environment. The
book attempts to reach out to all youngsters, particularly,
management, banking, finance and economics graduates to help
them build a perspective on current business environment. This
would not only help them in their job interviews and career growth
but also because it is important for them all to have a broad
understanding of these issues to evolve as smarter and more
responsible professionals. As per media reports, Mumbai
University recently adopted The Economic Survey as part of their
course curriculum for course in Economics. I would like to take the
liberty to add that the book is broadly on those lines.

While the concept of the book itself is unique, I would call the
simplified manner of analysis and brief yet, holistic coverage of
each issue as the USP of the book. I would like to further highlight
the “Corporate” section which provides considerable insights on
how things go wrong. Reminds me of what Nokia CEO said, “We
didn’t do anything wrong, but somehow, we lost”.

I would be obliged if you could read the book and evaluate if this
looks valuable enough to be recommended as reference book for
the courses on Contemporary Economics, Business environment,
Banking, Corporate case studies etc. I would also appreciate if you
could consider purchasing some copies of the same for the library.

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 I would be happy to connect at ashish8012@gmail.com to discuss
the book further.

With Kind Regards,

Ashish Agrawal

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 Letter to the Readers
Dear Readers,

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

Briefly, I am an IIT Roorkee-IIM Calcutta graduate with over 20
years of professional experience. My professional life so far has
been a struggle to find purpose of my life and this book probably is
a culmination of that quest.

The book is a collection of articles analyzing the major Economy

& Business events of period 2016-18. It owes its origin to my own
difficulty in understanding business/economy/policy events during
my MBA. The thought and my experience in research & writing
prodded me to come out with this product providing simplified, yet
insightful and engaging analysis of key developments in these
areas.

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

appearing in Management, Banking, Civil Services and similar
entrance exams. I am sure this would go a long way in helping you
prepare for GD/WAT/PI etc.

Apart from that, the book would also be an extremely useful read
for those are already in various management institutes or studying
Economics, Finance, Business etc. This would not only prepare
you for your job interviews but also because it is important for you
all to have a broad understanding of these issues to evolve as
smarter professionals.

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 Other than the articles on Economy, Policy, Banking etc, the book
also delves on corporate failures and decisions gone wrong
(without getting into governance issues). As Former President,
Late APJ Abdul Kalam had said, “Don’t read success stories, you
will only get a message. Read failure stories, you will get some
ideas to get success”. I believe the “Corporate” section can provide
considerable insights on how things go wrong. Reminds me of
what Nokia CEO said, “We didn’t do anything wrong, but
somehow, we lost”…

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

practical aspects of business and policy decision making. This is a
modest attempt to achieve what former President Pranab
Mukherjee said, “Adjunct faculty from the industry and research
institutions can provide practical orientation to course modules”.

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

trends/ insights rather than on numbers. There may appear to be a
bias towards policy issues as these are even more complex and less
understood even though they have much larger ramifications.

So friends, here is the book for you. Would be happy to hear from
you. My mail id - ashish8012@gmail.com.

Happy Learning and Take Care

Cheers!
Ashish Agrawal

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 Contents

Contents Page

SECTION I - ECONOMY 1

Budget – Revenue and Expenditure Analysis 2

Budget – Understanding Deficit Terminologies 4
Analyzing Government Debt - Current and 6
Historical perspective
Inflation - Analyzing its Constituents and Drivers 9
Understanding Rural Income Pattern - I 12
Understanding Rural Income Pattern - II 14
Income Inequality - India's Performance 16
Analyzing India’s Balance of Payment – I 19
India’s Balance of Payment – II 21
Capital Inflows - FDI, FII and the Rest 23
Analyzing India’s External Debt 25
Indian Rupee – Is It Appreciating or 27
Depreciating..??
Status of Employment in India 29
Towards Energy Security – India’s Strategic Oil 31
Reserve
Government Subsidy –Where does the money go? 33
Agriculture Sector – Will It Get Its Dues?? 35
Sick PSUs – Way forward 37
Deciphering Core Sectors 39
GST- Towards a National Market (part I) 41
Goods & Service Tax – Part II 43
India's Imports - Where does the money go..?? 45
Paris Agreement and India’s Commitment – A 47
brief
Towards Energy Security – India’s Oil Hunt..! 49
Demonetisation – How does it affect government 51
finances??

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 Demonetisation Impact – Understanding 53
Cooperative Banks
Demonetisation – Absorbing the Excess Liquidity 55
Demonetisation – Will It Improve Tax/GDP 57
Ratio..??
Understanding Universal Basic Income (UBI) 59
Strengthening Manufacturing –Apparel and 61
Leather Industries
Ease of Doing Business - The Great Indian 63
Leap...!

SECTION II - POLICY & REGULATIONS 66

IBC - Overview of Performance So far 67

Gold Monetization Scheme (Part I) 69
Gold Monetization Scheme (Part II) 71
The Insolvency and Bankruptcy Code - I 73
Insolvency and Bankruptcy Code - II 75
Mauritius Treaty Amendment - A brief 77
E-NAM – A game changing initiative...! 79
Regulating Large borrowers – RBI Proposal. 81
Monetary Policy Committee – What it entails 83
Gas Pricing Policy - Power Sector 85
Civil Aviation Policy – A brief 87
Telecom Spectrum Auction – A brief 89
Fertilizer units Revival – A transformational 91
initiative!
Telecom Sector – The SUC muddle 93
Government e-Marketplace – A Gem indeed! 95
Boosting Corporate Bond Market 97
Understanding Public Debt Management Agency 99
UDAY – Will the Discoms Rise Now??! 101
Understanding GAAR (General Anti-Avoidance 103
Rules)
Understanding Shell Companies 105
Towards an efficient Electricity market 107

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 SECTION III - BANKING & FINANCE 109

Banks NPA – A Primer (Part I) 110

Banks NPA (Part II) 112
Understanding the Dynamics of "Money Market" 115
NPAs – Sectoral Analysis 118
India’s Financial Sector – Understanding the 120
structure (Part I)
India’s Financial Sector... (Part II) 122
Understanding India’s Insurance Sector 124
Analysing Amalgamation of BoB, Vijaya Bank & 126
Dena Bank
Asset Reconstruction Company – From Slag to 128
Cement!
NBFCs – An Overview (Part I) 130
NBFCs – An Overview (Part II) 132
Money Supply - Understanding the Different 134
Forms
Corporate Bond Market – An Overview 137
Banks Loan Composition – An Overview 139
Banking Sector Interconnectedness 141
IL&FS Default - Analysing the Crisis 144
What Ails NBFCs..?? (Part I) 146
What Ails NBFCs..?? (Part II) 148
Is the Government Impinging on RBI's 151
Autonomy?
Punjab National Bank - Why this provisioning? 154
Understanding Bank Recapitalization 156

SECTION IV - INDUSTRY 158

Survey of Indian Industries - The government 159

paper (Part I)
Survey of Indian Industries – Part II 161
Nuclear Power – The demonised resource 164
Towards Efficient Electricity Market 166
Industry Analysis – Shipping Industry 168
Solar Power in India – An Overview 170
Industry Analysis – Steel Industry 172
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 Natural Gas Market in India – An Overview 174
Cement Industry – Results and Overview 176
Automobile Industry - Results and Overview 178
Petroleum refining sector – Results and Overview 180
Wind Power – Gain with the Wind! 182

SECTION V - CORPORATE 184

Corporate Analysis - Reliance Industries 185

Corporate Analysis – Tata Steel 188
Corporate Analysis – Larsen & Toubro 191
Rosneft - Essar Deal - A New Beginning for 194
Indian Refining Industry
Vijay Mallya – The chase continues! 196
Tata Teleservices - End of the Inning 199
Tata Steel Corus buy – What went wrong 201
Ultratech Jaypee deal – Lenders take all! 203
HCC - Too old to fail..! 205
Tata Docomo JV – A deal gone wrong 207
Lanco Infratech - Here Today, Gone Tomorrow 209
Grasim – Aditya Birla Nuvo Merger – Towards 212
Group Consolidation
GMR Energy – Is the divestment enough 214
Cairn - Vedanta Merger. Deal Explained 216
ABG Shipyard – From Boom to Doom 218
Mistry’s Exit – A disastrous succession 220
Impairment Charges – Tata Steel Europe 222
Understanding RIL-ONGC Gas Migration 224
Dispute
Tata Sons & Group Companies – Understanding 226
the Board Structure
Vodafone – Another case of costly acquisition and 228
write-off
Understanding ONGC – GSPC Gas Block Deal 230
Jaiprakash Associates - What went wrong..?? 232
Vodafone-Idea Merger – Analyzing the deal 234
Understanding “Compensatory Tariff” 237

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 SECTION VI - INTERNATIONAL 239

Subprime Crisis - Ten Years on (Part I) 240

Subprime Crisis (Part II) 242
US China Trade War - Understanding the 244
Dynamics
Explaining Negative Interest Rate – Japan’s case 246
How bad is Global debt overhang – IMF Report 248
Chinese Economy – Challenges of Transition 250
Understanding Hyperinflation – Economy of 252
Zimbabwe
No end to hunger yet – FAO report 254
Understanding Greece Debt Crisis 256
Global Trade – An Overview 258

SECTION VII - ETCETERA 260

Inland Waterways – Tapping the potential 261

Ken Betwa river linking – A tough, ambitious 263
project
Chabahar Port agreement 265
End Note – My favorite quotes 267

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 xvi

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 Indian Economy & Business

SECTION - I
ECONOMY

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 Ashish Agrawal

Budget – Revenue and

Expenditure Analysis
The Budget proposed for year 2018-19 projects a total shortfall of
Rs 6.2 lakh crore with total expenditure projected at Rs 24.4 lakh
crore against net receipt of Rs 18.2 lakh crore. Here is a look at the
different components of the budget.

Receipts are classified as revenue receipt or capital receipt.

Revenue receipt are further classified as tax revenue or non-tax
revenue such as dividends, interest receipt etc. Capital receipt are
primarily disinvestment income, spectrum sale etc. However, the
primary source of receipt is tax revenue (75% share), further
classified as direct and Indirect taxes revenue. Direct taxes
comprise of individual income tax and corporation tax which is the
taxes paid by companies on their profits. Budget for 2018-19
projects a sharp increase of 23% in income tax at Rs 5.3 lakh crore
whereas corporation tax is projected to reach Rs 6.2 lakh crore,
again an impressive growth of 17%, much better than current year.
The continued sharp increase projected in income tax assumes
significance on account of large increase in bank deposits post
demonetization.

Indirect taxes consist mainly of GST although customs and

excise still have some role to play. Budget projects total indirect
taxes to reach Rs 11.2 lakh crore, a sharp increase of 20% against
less than 10% increase in the current year. Customs and excise still
account for nearly one-third of this. The projection probably is a
result of GST stabilization leading to widening of tax base and
greater compliance. While the total tax revenue works out to Rs
22.7 lakh crore, about 35% of this has to be shared with the state
government, leaving Rs 14.8 lakh crore for the central government.

An important trend in revenue collection is shift towards direct

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

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 Indian Economy & Business

levied on production which could go towards consumption, exports

or investments. Direct taxes formed only about 26% of revenue
collection (direct plus indirect) in FY00 which has now gone
beyond 50%. Although there are gaps in the hypothesis, yet, direct
taxes are considered more efficient method of collection since it
targets rich more than the poor.

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

non-tax revenue receipt and 0.9 lakh crore of capital receipt. Even
though the sick PSUs give sufficient bad name to the government,
there are a large number of profit making PSUs which together
should provide Rs 1.1 lakh crore of dividends. Even though capital
receipt has shown huge deviation from the projections as
disinvestment targets are often missed, the government has
surpassed its projection of Rs 0.8 lakh crore to reach Rs 1.0 lakh
crore in FY18.

The expenditure side shows interest payments as the biggest

block accounting for as much as Rs 5.8 lakh crore, about 24% of
total central government budget. This is projected to go up by as
much as Rs 45,000 crore over FY18. While this may look like a
middle class household paying a large part of the salary for
housing EMI, its share has actually come down from about 45% of
total budget in FY00. Other than the share of tax revenues, central
government also transfers significant funds to the states for
centrally sponsored schemes and finance commission grants which
is projected at Rs 5.4 lakh crore during the year.

Among other items, Pension, Defence expenditure, Railways

and subsidy are projected to cost about Rs 1.7 lakh crore, Rs 2.8
lakh crore, Rs 1.8 lakh crore and Rs 2.8 lakh crore. Total
expenditure of rural and agriculture development (direct or through
transfer to states) is projected at over Rs 2 lakh crore. An important
development over last two years is the increase in capital
expenditure which is projected to reach Rs 7.8 lakh crore. This
stood at just over Rs 4 lakh crore in FY15.

*****

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