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8 ISSUES AND INSIGHTS
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MUMBAI | MONDAY, 9 JULY 2018 1

Learning from Singapore

Not the city state’s single-rate GST structure, but its system of advance
announcement of rates deserves emulation
Why this announcement should
interest the Narendra Modi govern-
ment and also the newly created GST
Council is not because of the proposed
rate increase, but for another reason —
the proposed date for enforcing the
increase. Singapore Finance Minister
RAISINA HILL Heng Swee Keat said in Parliament that
the increase would take place between
A K BHATTACHARYA 2021 and 2025.
This is likely to stun every member of
the GST Council in India, which is head-
n February 19, 2018, the ed by the Union Finance Minister and
January 2021. In other words, the high-
er GST rate will be enforced only after the
elections and a new government is in
place. In India, duty cuts before the elec-
tions are possible, but duty increases to
be announced before the elections are
often a sure recipe for an electoral rout
for the government that presides over
that decision.
And yet, this is one element of
Singapore’s GST structure that India
should embrace. There are clear
advantages of outlining the new rates
of economic reforms.
If there is an advance notice of a
duty change, industry actually bene-
fits by planning its production and sales
in keeping with the new duty regime.
There are no nasty or sudden surprises
that industry has to live with. An
advance announcement permits rea-
sonable debate and discussion and if
some changes to the proposed rates are
considered necessary, they can be
introduced as well.
There is another advantage of an ear-
ly announcement of duty changes under
the GST regime. The rate changes are
decided by the GST Council, where the
Centre as well as the states are repre-
sented. Political anger against a duty
increase, if any, cannot be directed
against any single government, since it is
a collective decision of the Council. To
margin should be a medium-term goal to
reduce the multiplicity of rates and move > CHINESE WHISPERS
towards a two-rate GST regime.
One of the achievements of the Indian
GST regime is that the new system has
not been inflationary. All efforts, there- Planting an idea
fore, should be made to ensure that items
consumed largely by the poorer sections
of society do not get taxed at rates that are
significantly higher than what used to
prevail in the earlier system. Even this
transition to a two-rate structure should
be implemented in phases and over a
period of time so that consumers can
absorb the impact and inflation remains
under control.
And this phased plan to realign the
rates should be discussed and The women’s wing of the Delhi unit of
announced much before their actual the Congress party, the Delhi Pradesh
implementation. Similarly, the timeline Mahila Congress, has hit upon a novel
for including petrol, diesel, crude oil, idea to protest the proposed large-scale

O Singapore government
announced that it would raise the
rate of the Goods and Services Tax (GST)
from 7 per cent to 9 per cent. This will be
the fourth increase after the GST was
introduced there in 1994 at 3 per cent
and the last increase was in 2007, when it
went up from 5 to 7 per cent. The reason
cited for the latest proposal for an
increase was to help the government
raise resources and enhance outlays for
health care, infrastructure and security.
has all state finance ministers as its
members. A duty hike to be effected
over a period of four years? And its
announcement is made three years in
advance? Just imagine if such a move is
made in India how industry lobbying
will intensify and Opposition political
parties will use the opportunity to
launch a new agitation against the pro-
posed increase in duty.
Also remember that Singapore will
have its next general elections before
in advance before they are enforced,
unlike the current practice where
there is virtually no gap between the
day of the duty increase announce-
ment and its enforcement. Keeping no
gap between the announcement of
indirect tax rates and their enforce-
ment is almost a fetish and an offshoot
of the old mindset that prevailed dur-
ing the licence-permit-controls
regime. There is no reason to continue
the same practice even after decades
that extent, the governments at the
Centre and in the states will be immune
to political attacks that may arise from
such duty revisions.
Of course, Singapore’s single-rate GST
structure is not what India can accept
and implement at present. It is not going
to be easy to unify the many current GST
rates into one rate. Eliminating the top
rate of 28 per cent, bringing down the 18
per cent rate by a few percentage points
and raising the lowest rate by a similar
jet fuel and natural gas under the GST
and the rates to be levied on them
should be announced in advance, so
that industry has time to prepare for
these major changes.
Singapore’s single-rate GST struc-
ture cannot be India’s model. But its
practice of early announcement of rates
much before their implementation
should be emulated by India. The GST
Council can take a lead in this direction
at its next meeting on July 21.
felling of trees in the national capital. Its
chief, Sharmistha Mukherjee, has started
distributing saplings to Delhi’s residents
with an appeal that they should do
“everything within their influence to
protect the trees that are facing
imminent danger of axing”. The
Congress, which is struggling to make a
comeback in Delhi, has blamed the
“collusion” of Bharatiya Janata Party-led
union government and the Aam Aadmi
Party-led Delhi government for the
decision to cut down 14,000 trees for
redevelopment of colonies.

The retail policy muddle Signature tune

R K Singh, minister of state for power
and new & renewable energy, is a man
of his word... and signature, it
India surely doesn't need a new retail FDI policy; it only needs to scrap all existing ones appears. At the biannual state power
ministers' conference in Shimla, Singh
urged states to meet their targets, as
as one more item on his agenda, espe- al, offshore investors in Flipkart rather part of the overall power reforms, by
cially since his cabinet colleagues who than to domestic investors) but also 2019. “Needless to say, the deadline is
should be looking at this seem to be bring their global supply-chain partners inching closer and we all have to work
oblivious of the urgent need to do so? (especially those engaged in handling together to meet it. The target can't be
There are several reasons to do so, and and processing of perishable goods) to missed as you are the ones who have
indeed, a modern retail sector could invest in India to support the domestic set it. You have decided on the target
actually provide a much-needed fillip to Indian retail operations. The govern- and signed on it too. And I have all
many of his own flagship programmes ment can surely provide a soft nudge to your signatures,” he said
and economic imperatives such as dou- the managements of these global retail- threateningly. Acknowledging that
bling of farmers’ incomes, creating mil- ers to substantially increase their sourc- there was an “acute coal shortage” in
lions of relatively high-quality jobs ing from India of goods made in India the country, Singh said he's given
across India, provide Make-in-India a thereby giving a boost to exports and states a free hand to import coal. “I
ARVIND SINGHAL real thrust beyond rhetoric, and boost also to tens of thousands of Indian small hope you all have received a letter with
the currently highly anemic overall FDI and medium enterprises who currently my signature on it saying that you can
performance. India’s current private work as/could work as vendors to now import coal,” he added.
ow well into its fifth year of merchandise consumption (and there- these retailers.

N being in power, the National

Democratic Alliance (NDA) gov-
ernment continues to ignore one of the
most vital growth drivers of the Indian
economy — its retail sector.
Inexplicably, the government and its
babus’ muddled thinking on this cru-
cial sector has persisted since NDA 1,
and through United Progressive Alliance
(UPA) 1 and 2. Over the last 16 years or so,
successive governments and their top
bureaucrats have attempted several
times to come up with a pragmatic pol-
icy that addresses the needs of the var-
ious constituents of the retail sector
ecosystem, but each time, the outcome
has been more ludicrous and more
impractical than the previous one. The
last instance of the addition to confu-
sion was to supposedly offer some relax-
ation in FDI regulations for retail of food
and grocery. Whosoever in the current
government thought that it would open
the floodgates of investment while giv-
ing impetus to the upstream agriculture
and processed foods sector can easily
check the actual outcome.
Why should the PM himself take up
modernisation of India’s retail sector
fore the size of India’s retail sector) is
nearly US$ 700 billion (over 25 per cent
of the entire GDP of the country). It pro-
vides direct employment to over 30 mil-
lion Indians spread across the country,
and has a crucial role to play in manag-
ing consumer price inflation if the sec-
tor is encouraged to organise, mod-
ernise and become more competitive.
The biggest (and most misplaced)
mind block, cutting across the entire
political spectrum, is the vilification and
demonitisation of foreign direct invest-
ment in retail. Over the last two decades,
myths have been propagated consis-
tently that FDI in India’s retail will lead
to massive destruction of jobs, and kill
domestic consumer goods manufactur-
ing because of dumping of imported
merchandise by foreign retailers. The
fact that job losses haven’t happened
despite several Indian retailers having
crossed annual revenues of more than
~100 billion each. Reliance would prob-
ably cross retail segment revenues of
~750 billion (excluding fuel and telecom
recharge sales) in current financial year.
The Future Group, across its various
formats, may cross ~300 billion in rev-
enues this year, while Avenue
Supermarket (D’Mart) will cross ~200
billion in revenues. Tata, Birla, and
many other business groups have retail
businesses that now aggregate well over
~100 billion in revenues. These Indian
players have already created millions of
direct and indirect jobs (even as the
neighbourhood kiranas and others con-
tinue to thrive and grow in absolute
numbers), helped in a successful imple-
mentation of a nationwide GST and
assist the government in plugging rev-
enue leakages and help in creating thou-
sands of new entrepreneurs as a part of
their supply chain development. They
have also helped immensely in keeping
consumer price inflation moderate in
their respective consumer catchment
areas. A similar benefit (to the nation)
has also been provided by etailers such
as Amazon and Flipkart (and dozens of
others). Both physical online retailers
have also provided a big boost to the
construction and real estate sectors
because of their voracious appetite for
large footprint distribution centres and
physical retail space across the country.
However, one big limitation of
India’s’ homegrown (and largely domes-
tically owned) retail businesses is their
inability to directly provide a boost to
merchandise exports from the country.
This is where India has missed, and con-
tinues to miss, the great opportunity
that the likes of Ikea, H&M, Walmart,
Tesco, and many other global retail
giants can provide to India. Each of
these giants annually source merchan-
dise amounting to tens of billions of US
dollars every year. A red carpet (rather
than never ending red tape, and politi-
cally/ideologically directed agitations
against them such as the ones some
domestic retailer organisations launch
from time to time) to these retail behe-
moths to actually encourage them to
invest in India for domestic Indian
operations can not only bring tens of
billions of dollars in new foreign direct
investment (Walmart’s proposed invest-
ment of over US$ 18 billion in Flipkart is
a testimony of both the potential, as well
as government's idiosyncratic policies
that have resulted in this mega invest-
ment benefit also going to internation-
Finally, in a world that is facing
unprecedented challenges to free trade,
it would help India if retailers such as
Walmart, Tesco, Carrefour, Metro Cash
& Carry and even the Chinese
retail/technology ecosystem behemoths
such as Alibaba actively take up India’s
cause in Washington, London, Paris,
Berlin, and Beijing rather than having to
use their significant influence in those
capitals to put more pressure on India to
allow them to operate in India.
India’s politicians and bureaucrats
urgently need modernisation of their
own ideological thinking on this sub-
ject and then just liberate the retail sec-
tor. India, indeed, needs no new FDI in
retail policy — it only needs to scrap all
existing ones. Thereafter, India only
needs to work closely with various retail
sector stakeholders (that include large
physical and digital players — Indian
and international, and also the 18-plus
million independent retailers) to take
steps that can make this vital sector
more efficient and vibrant.
The author is chairman, Technopak Advisors
Email: arvind.singhal@technopak.com
Say cheers
You would rarely find a politician who
discusses his drinking habit in public.
So it was interesting to see legislators
in the Chhattisgarh Assembly openly
airing their views on beer brands.
During a discussion, minister Amar
Agrawal was asked by state Congress
president Bhupesh Baghel if the
government was encouraging the sale
of two particular beer brands at the
cost of others. As Agrawal began his
reply, one of the MLAs quipped that
one of those two brands wasn’t really
good because the taste seemed to
change from time to time. The
minister shot back by naming another
member who never seemed to
complain about the taste of the said
brand. This MLA, also present in the
house, clarified that since he was
from Bastar, he preferred to get his
stock from Telangana, which shares its
border with southern Chhattisgarh,
evoking much laughter from other
members present.

BUSINESS LIFE > LETTERS

Unicorns are China’s cavalry in trade war Review retirement age justice, chief secretaries in states, heads of banking sector from stressed assets.
Beijing is choking off a lucrative pipeline of US tech IPOs statutory bodies and public sector under- V S K Pillai Vishakam
takings including public sector banks —
SHULI REN carried interest. China could be initially for a tenure of three years Check facts
Renaissance can’t include the extendable on merits. Sector-specific talent
trade war can be item on its income statement pools can also be considered. While addressing a civic reception organ-

A fought on many
fronts. As China
breeds unicorns, they are
unless it returns the money
and closes its funds first.
This matters because under
M G Warrier Mumbai

Classify stressed assets

being asked to stay at home
rather than gallop overseas
to enrich US investors.
The US pipeline of
Chinese IPOs has been light
since President Donald
Trump started making noises
about tariffs in early March.
The only billion-dollar offer-
ing is the pending sale by e-
commerce site Pinduoduo,
for which an American list-
ing makes sense because it
competes directly with
Alibaba Group Holding Ltd
and JD.com, which already
trade there.
Hong Kong, by contrast,
has seen a stampede, includ-
ing the $3.1 billion IPO by
Xiaomi and a planned offer-
ing by Meituan Dianping, the
world’s third- and fourth-
most valuable unicorns. In
the US, 17 Chinese start-ups
filed with the Securities and
Exchange Commission since
March for a combined deal
size of $3 billion; in Hong
Kong, there were 27 candi-
dates seeking an aggregate
$10.5 billion, data compiled
by Bloomberg show.
It might be argued that
unicorns — defined as start-
ups with a value exceeding $1
billion — can expect a better
reception in Hong Kong. The
exchange doesn’t have
enough fast-growing tech
firms: Information technolo-
gy and healthcare constitute
less than 10 per cent of the
Hang Seng Composite Index,
compared with 40 per cent
for the S&P 500.
That’s a misconception,
though: US investors adore
Chinese unicorns. The
KraneShares CSI China
Internet Fund, an ETF that
tracks US-listed Chinese tech-
nology firms, outperformed
the S&P 500 by an annualised
5.9 per centage points since
its inception in August 2013.
Even this year, Chinese
ADRs are doing relatively bet-
ter than the Hong Kong mar-
ket: The KraneShares ETF is
broadly flat, versus a six per
cent decline in the Hang Seng
Index. From Beijing’s per-
spective, China’s middle class
is missing out. While the
country’s consumers are con-
tributing billions in sales to
unicorns, US investors are
pocketing the capital gains
from their stocks.
China Renaissance
Holdings Ltd, the invest-
ment-bank-cum-asset-man-
ager that advises the nation’s
hottest tech startups, is a
good indicator of which way
the policy winds are blowing.
The firm is planning to list in
Hong Kong and is looking for
a $4 billion to $5 billion valu-
ation, according to Reuters.
That’s notable because
Hong Kong is a poor destina-
tion for such a company.
The reason is carried
interest, which is a private
equity manager’s share of
profits in excess of the
amount that’s contributed to
the partnership. Under US
generally accepted account-
ing principles, or GAAP, asset
managers can choose
whether to include carried
interest in revenue — and
they all do. Sales at KKR & Co
would have been $275 million
lower in 2017, a shortfall of
more than 5 per cent, if car-
ried interest had been exclud-
ed.
But Hong Kong follows
international financial
reporting standards, or IFRS,
which have stricter rules on
IFRS, China Renaissance
would have barely broken
even in 2017 and would
have incurred a $65 million
net loss in the first three
months of this year. Under
GAAP, the numbers would
have been a lot prettier.
That’s why China
Renaissance took pains in
its prospectus to show its
“non-IFRS measures.” The
firm’s investment-banking
business is low margin and
slowing, while its crown
jewel investment-manage-
ment arm — which relies
on carried interest — is
exploding with the uni-
corns. Plus, China
Renaissance is no stranger
to the US IPO market, hav-
ing taken startups such as
iQiyi, YY and Momo pub-
lic. If anything, it’s less
familiar with the Hong
Kong market.
That all reinforces the
impression that the asset
manager is only choosing
Hong Kong to please
Beijing and demonstrate to
its unicorn investments
that the city is indeed a
desirable place to list.
China’s government
mouthpieces love to say
there are no winners in a
trade war. That’s true.
There are certainly losers,
though. BLOOMBERG
The plea — to raise the retirement age of
judges — made by Attorney-General (AG)
of India K K Venugopal (pictured) in his
speech at a farewell function organised in
honor of retiring Supreme Court Justice
Adarsh Kumar Goel on July 6, did not get
much media attention. According to
Venugopal, the present retirement age of
62 for High Court judges and 65 for the
apex court was a blow to several judges
who did not get enough time on the bench
to implement their innovative thoughts.
By default, the retirement age in India
in the government and public sectors has
been linked to employment opportuni-
ties, career progression and in certain
cases, like in the case of the apex court, an
‘equal opportunity for all’ to reach the
highest level. This convention has ended
up in the unenviable situation described
by the AG, wherein individuals reaching
certain high positions do not get much
time to do what they always wanted to do.
The low retirement age has also been cre-
ating a captive talent pool, trained and
prepared in the public sector for recruit-
ment by the private sector.
It is time for a review of the retirement
age and the retirement process in the gov-
ernment and the public sector. The first
appointment itself could be delinked from
age and made for tenures of 10, 20 or 30
years, further extendable by five years at a
time, based on the performance and need,
subject to fitness tests. Top level appoint-
ments — for the High Court and the
Supreme Court and for the post of chief
This refers to the editorial “Not so
Sashakt” (July 6). The classification of
the stressed assets into three categories
seems a better system for a swift reso-
lution of bad loans. Its efficacy and out-
come will depend on the managerial
capability and the bank personnel as
well as the supporting avenues avail-
able in the present legal and adminis-
trative set-up. While the National
Company Law Tribunal and National
Company Law Appellate Tribunal are
delivering good results, both will be
overloaded with cases pertaining to bad
assets for resolution. It is imperative to
equip them with adequate capacity to
resolve cases in time. Speeding up the
whole processes would be crucial here.
The creation of strong and inde-
pendent asset management companies
with major private participation, the
setup of alternative investment funds
and a platform for trading the bad
assets to accelerate resolution will be of
great help in dealing with the moun-
tains of bad loans. Whatever be the
means, the ultimate need is to save the
> HAMBONE
ised in his honour in Goa on July 7,
President Ramnath Kovind, while refer-
ring to the liberation movement of Goa,
hailed the contribution of Dr T B Cunha
who was an eminent freedom fighter.
Kovind stated it was Dr Cunha who invit-
ed the famed socialist Dr Ram Manohar
Lohia to address the public meeting in
Goa on June 18, 1946, a day celebrated as
Goa Revolution Day each year.
I regret to state that President Kovind
erred in his statement because Lohia was
invited to Goa by Dr Juliao Menezes
from Assolna. Lohia had come to
Menezes’ Assolna residence on a vaca-
tion and upon realising the tyranny of
the colonial Portuguese regime in Goa,
defied the prohibition on free speech by
addressing a meeting in Margao. While
this appears to be an inadvertent error, I
wish that the President’s speech-writer
would verify facts before including them
in the speech.
Vikas Kamat Goa
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BY MIKE FLANAGAN