1. A summary of the petrol/diesel taxation
The Union and state levies put together account for roughly 55 per cent and 52 per cent of the retail price of petrol and diesel respectively; these work out to around 135 per cent and 116 per cent of the base prices of the two products respectively. It is also interesting to note that the central levy on petrol and diesel works out to around 36 per cent of the retail price while the state component is around 20 per cent (diesel) to 28 per cent (petrol)... of the total central levies on petrol and diesel, Rs 1.40 per litre and Rs 1.80 per litre is the basic excise duty for the two fuels, and Rs 11 per litre and Rs 18 per litre is the special additional excise duty. Both these components form part of the divisible pool of taxes, 42 per cent of which (approximately Rs 52,000 crore) goes to the states. The remaining portion of Rs 18 per litre in both cases is the Road and Infrastructure Cess and Rs 2.50 per litre and Rs 4 per litre is the Agriculture Infrastructure and Development Cess which are retained by the Centre, to be used only towards road and agricultural infrastructure development.
In the article Sushil Modi also presents the pros and cons of bringing gasoline under GST,
Given the price build-up of petrol and diesel in today’s scenario, a 28 per cent levy of GST on the base price would fetch around Rs 5.40 per litre on petrol and around Rs 5.45 on diesel to the central and each of the state governments as against the current yield of Rs 32.90 per litre on petrol and Rs 31.80 per litre on diesel to the Centre alone and an average of around Rs 20 per litre and Rs 15 per litre on petrol and diesel, respectively, to each of the states. This, however, would bring down the prices of petrol and diesel to around Rs 55 per litre even though lowering the prices to this level would entail a staggering loss of revenue to both the Centre and the states. Unless, a commensurate levy of non-creditable excise duty/VAT (equivalent to the difference between the current yield of central/state levies and the expected GST yield) is imposed by the Union and the states, this would translate into a revenue loss of around Rs 3 lakh crore on account of petrol and around Rs 1.1 lakh crore on account of diesel to the Centre and the states, at current volumes.
As to the global practice on gasoline taxation,
Being demerit goods, fuel oils and liquor are almost universally subject to a dual levy by countries that implement any kind of VAT or GST. The levy is a mix of GST at a fixed percentage of the price which qualifies for credit in the value chain and a fixed amount or percentage of the price which is not creditable and is thus outside GST... These products are subjected to a plethora of levies like VAT, excise duty, storage levies, security levies and environmental taxes in the EU and the total incidence of such taxes ranges from around 45 per cent to 60 per cent. In Canada, the tax on these products ranges from 15 per cent GST (5 per cent in case of non-participating provinces) plus around 25 to 30 cent per litre. The US is an exception in these matters since it imposes taxes at rates as low as around 15 per cent.
2. Historically dry bulk shipping rates have fallen by 79% from 1850-2020.
From an average rate of 73 basis points since 2011 (one basis point is one-hundredth of a per cent), and 120 basis points in 2018 and 2019, the 10-year term premium is currently 215 basis points, having risen 35 basis points since the budget presentation, and among the highest in the world.
He also points to the breadth of India's bond markets,
Over 15 years, the share of banks in the ownership of outstanding central government bonds has fallen from 53 per cent to 40 per cent now, as policy has correctly tried to reduce financial repression (that is, forcing banks to deploy the deposits they collect into government bonds). But no alternative buyer of size has emerged to fill the space vacated: Despite improving penetration of insurance and formalisation driving growth in pension inflows, their share of bonds outstanding has in fact shrunk over the last 15 years. The RBI sometimes buys bonds to inject money into the economy, but of late this space has been used to buy dollars to save the rupee from appreciation.
It is inherently simple and has the eminent virtue that it — much more than the existing or proposed targets — is closely linked to meeting the overall objective of ensuring debt sustainability. Put differently, a primary surplus is a shield that guards fiscal sustainability against the risk of the growth-interest differential turning unfavourable in the future. Finally, the Centre should not set out yearly targets for the primary balance. Instead, it should announce a plan to improve the primary balance gradually, by say half a percentage point of GDP per year on average, making clear that it will accelerate consolidation when times are good, moderate it when times are less buoyant, and end it when a small surplus has been achieved.
By its own admission, the group is present in 22 industries, which encompass 150-plus companies. This makes M&M as diverse as the Tatas but with group revenues less than a sixth of the latter. In the last two decades, M&M has spent a fortune to diversify into almost everything from two-wheelers and passenger cars to hospitality and e-commerce. Most of these ventures have failed to be earnings-accretive and continue to be cross-subsidised by the parent company. In fact, the tractor and the IT services businesses are the only two that have consistently generated free cash flows for the parent while others have been either loss-making or cash guzzlers... RoCE... has averaged around 12 per cent in the last five years... the revenues of the automotive division, which has historically accounted for nearly half of M&M’s revenues on a consolidated basis, have not grown in the last eight years and the profit of M&M Financial Services is likely to hit a decade-low in FY21. M&M’s market share in sports utility vehicles is now down to 13 per cent from 50 per cent a few years ago. While the group remains a market leader in tractors and farm equipment, its lead over the rivals is shrinking and the division requires a consistent dose of investment to stay ahead of large domestic competitors and deep-pocketed foreign competitors. Most of the group’s profits came from the farm equipment division, which accounted for just a tenth of M&M’s capital employed.
Why is a board needed? The broad theory is that it is another layer of shareholder safeguards apart from proffering managements the benefit of their expertise... The fact that boards, many of them staffed by industry stalwarts, have failed to exercise these fiduciary duties — from Satyam in 2008 to ICICI Bank in 2012 to IL&FS in 2018 — now explains the extra attention that is being paid to strengthening the independent director’s role. But this, too, is a chimera. Though board appointments are approved by shareholders — with new provisions being considered for explicit minority shareholder approval — the fact is that board members are associates or friends of the chairman or MD. Can they seriously be expected to act independently in the interest of an amorphous shareholder body over the tangible presence of the promoter or MD who appoints them in the first place? The same arguments apply to powerful professional CEOs. The decidedly opaque manner in which the ICICI Bank board addressed the question of Chanda Kochhar’s conflict of interest in approving a loan linked to her husband’s business interests is one example. IL&FS’ board, similarly, appeared notably incurious about Ravi Parthasarathy’s worst practices in infrastructure financing, as was YES Bank’s board to Rana Kapoor’s questionable deals.
7. The OECD anchored long-drawn negotiations on harmonisation of corporate taxation rules appears to have achieved a breakthrough with the US presenting a proposal for taxing multinational corporations. The negotiations have been centred around a new regime for taxing MNCs and also agree on a global minimum tax rate. The US has now sent a proposal to all participating countries that multinationals pay taxes to national governments based on their sales in each country.
This is a big break from the Trump administration's insistence on a "safe harbour" provision that would make compliance by US technology companies voluntary. However, the Biden administration wants to limit this to the largest and more profitable companies in the world. It's likely to include about 100 companies, comprising US tech companies etc. The Biden administration has called for raising US corporate tax rates from 21 to 28% to raise about $2.5 trillion over the next 15 years to pay for more than $2 trillion in investments.
8. Fascinating article (HT: Ananth) about the discovery that muon, a subatomic particle, violates the laws of physics when shot through an intense magnetic field.
9. Since the GFC, and especially since 2014, Indian governments have enjoyed the benefits of lower oil prices, especially on two fronts. Foremost, it has boosted the government's tax revenues by over a percent of GDP. This is huge. Besides, by keeping inflation down, it has allowed for interest rates to be kept low, in turn containing borrowing and debt service costs.
Now the rising petroleum prices pose the exact opposite problems. The tax cushion is now depleted and government faces the decision of whether to keep passing on the ever increasing oil prices. Besides, the attendant inflationary pressures also adds to the pressures on borrowing costs.
10. TT Rammohan raises questions about the recent Supreme Court dispute between Tata Sons and Cyrus Mistry and SP Group, which highlight the dissonance between law and corporate governance.
11. Econ 101 argues against administered interest rates. Accordingly, India's various small savings schemes have been the target of critics who have advocated its phase out.
Rajesh Mahapatra has an oped which brings out the savers side of the story and it's not easily brushed aside given the Indian context. Multiple committees of the government striating from 2001 have recommended linking small savings rates to G-Sec rate, reseting them once a year (and against doing it quarterly, as is being done now), and changing rates by no more than 100 basis points at a time. The argument in favour of linkage being that small savings are overwhelmingly invested in various government securities.
While he does not provide numbers to back these claims, in a country with very low financial savings and even lower (relative to others) bank credit to GDP ratio, the importance of small savings should not be underestimated,
Notwithstanding the merits of such arguments, it is important to recognise the larger role that small savings have played in contributing to overall economic growth. For decades, small savings have constituted an important source of household savings, funded development programmes of state governments and offered a safe and secure source of income to senior citizens.
12. Rathin Roy offers a useful analytical framework to assess India's post-Covid economic recovery. It's based on the relationship between the rates of return on capital, r (which is predominantly owned by the rich) and economic growth, g (which is more broad-based reflection of income growth). In developed economies, r>g at steady state, whereas the opposite holds in developing countries which are undergoing catch-up growth. In the former, widening inequality is countered by robust redistributionary social safety net.
Roy argues that it is a matter of concern that pre-Covid India had rising inequality despite r<g, and since Covid, r appears to be growing faster than g, thereby widening inequality even more.
13. Scott Galloway points to the importance of trust and scarcity in financial intermediation, with the example of Bowie Bonds,
In 1997, seeking more control over his songwriting catalog, David Bowie raised $55 million with Bowie Bonds. The bonds paid 7.9 percent interest over a 10 year-long term — a scant premium to a U.S. 10 Year Treasury Note at 6.4 percent. What made Bowie Bonds unique was the collateral, or source of trust: future royalties on Bowie’s music, which the bondholder felt people would continue to value. Moody’s rated the bonds A3 and Bowie used the proceeds to buy out his former manager, shoring up the bonds and securing long-term control of his music.Though innovative in its collateralization, the Bowie Bond was on its face a vanilla financial instrument, no different in form than a bond issued by GM or P&G. In order to connect his art and potential investors, Bowie had to rely on the (expensive) apparatus of traditional gatekeepers in finance and entertainment to imbue his bonds with the essential attributes of trust and scarcity. The royalty stream (trust) was mediated by lawyers and accountants in big publishing houses, and the legitimacy of each individual bond (scarcity) was dependent on the financial powers of Wall Street.
The blog post itself is about the use of non-fungible tokens to securitise art. Owner of the art attaches an NFT to the work which gives him/her the sole discretion to designate any copy of that artwork as the sole authentic copy at any point in time. Unfortunately, this applies only to those NFTs created when the owners are alive.
14. Via Dani Rodrik's twitter feed, this excellent thread on the life of Albert Hirschman. In terms of scholarship which engages with the real world, one could easily say that there is Albert Hirschman, and then there are the rest. It draws from this blog post by Oliver W Kim.
15. Finally, again from Rodrik's feed, this is an excellent database of political affiliations in elections across countries over several years. See this on India.
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