Science & Environment
Science & Environment
Science & Environment
Science & Environment
ITI Mutual Fund eyes Rs 1 lakh crore AUM…
KOLKATA: ITI Mutual Fund said that it is at an “inflection point of ‘J’ curve growth,” aiming to reach an AUM of Rs 1 lakh crore within the next five years, driven by India’s robust macroeconomic fundamentals. A J-curve illustrates a trend that initially dips sharply before rising dramatically.
As of July 2024, the company’s AUM grew nearly 90 per cent year-on-year to Rs 8,763 crore.
“India remains in a golden spot on the world map, with expected growth outpacing most global economies, presenting strong opportunities for the mutual fund industry,” Rajesh Bhatia, Chief Investment Officer of ITI Mutual Fund told PTI.
Bhatia said, “Given India’s growth story, expanding at 7-8 per cent annually, it’s the fastest growing among countries of its size and the most predictable. Many international observers would bet on India as having the highest growth potential over the next 5-10 years.”
“In this context, we are at an inflection point of ‘J’ curve growth, which positions us to scale dramatically. We aspire to reach Rs 1 lakh crore AUM in the next five years,” Bhatia said.
He also dismissed concerns that fresh allegations from Hindenburg Research against the SEBI chairperson would impact the market.
Discussing the outlook, Bhatia mentioned that while large-cap valuations remain attractive, the mid-cap and small-cap segments are capturing the growth story best.
“The earnings trajectory in mid and small caps is much faster, which explains why they are performing so well despite current valuations being stretched. Many businesses in sectors like defence, capital goods, engineering, and electronic manufacturing are representative of significant growth opportunities in the mid and small cap space,” Bhatia said.
When asked about potential market corrections, Bhatia didn’t rule out a probability of market correction.
“Japan corrected over 20 per cent, the US corrected, and cryptocurrency saw sharp declines. Meanwhile, India only corrected by 4-5 per cent, which is negligible given the market’s rise. This is characteristic of a strong bull market,” he stated.
ITI MF is soon launching a Large & Mid-cap fund. The firm intends to continue to expand its retail investor base.
As of July 2024, the company’s AUM grew nearly 90 per cent year-on-year to Rs 8,763 crore.
“India remains in a golden spot on the world map, with expected growth outpacing most global economies, presenting strong opportunities for the mutual fund industry,” Rajesh Bhatia, Chief Investment Officer of ITI Mutual Fund told PTI.
Bhatia said, “Given India’s growth story, expanding at 7-8 per cent annually, it’s the fastest growing among countries of its size and the most predictable. Many international observers would bet on India as having the highest growth potential over the next 5-10 years.”
“In this context, we are at an inflection point of ‘J’ curve growth, which positions us to scale dramatically. We aspire to reach Rs 1 lakh crore AUM in the next five years,” Bhatia said.
He also dismissed concerns that fresh allegations from Hindenburg Research against the SEBI chairperson would impact the market.
Discussing the outlook, Bhatia mentioned that while large-cap valuations remain attractive, the mid-cap and small-cap segments are capturing the growth story best.
“The earnings trajectory in mid and small caps is much faster, which explains why they are performing so well despite current valuations being stretched. Many businesses in sectors like defence, capital goods, engineering, and electronic manufacturing are representative of significant growth opportunities in the mid and small cap space,” Bhatia said.
When asked about potential market corrections, Bhatia didn’t rule out a probability of market correction.
“Japan corrected over 20 per cent, the US corrected, and cryptocurrency saw sharp declines. Meanwhile, India only corrected by 4-5 per cent, which is negligible given the market’s rise. This is characteristic of a strong bull market,” he stated.
ITI MF is soon launching a Large & Mid-cap fund. The firm intends to continue to expand its retail investor base.
Science & Environment
How Global Capability Centres are powering India’s job market…
Once they were considered back offices catering to Fortune 500 companies. But that was then. Global Capability Centres (GCCs) have since emerged from the shadows, expanding their sphere of influence within the Indian tech landscape. They have evolved into tech powerhouses, seamlessly integrating with their parent enterprises and becoming strategic assets providing access to digital talent at scale.This has reshaped the perception of GCCs within the Indian tech industry. From peripheral centres, GCCs have emerged as global hubs of strategic operations.
Nearly 40 years after India’s GCC poster boy, Texas Instruments, made Bengaluru its home for R&D operations, Indian GCCs have created a compelling story for global companies to acknowledge India’s enviable tech talent pool. This has, a) created more tech jobs in India; and b) solidified India’s position as a hub for advanced technological development.
6 lakh new jobs in 5 years
Just consider these numbers: India now has about 1,600 GCCs. This is estimated to go up to 1,900 by next year. According to a Nasscom-KPMG report, their combined market size now is $60 billion. In 2014-15, it was $19.6 billion, which more than doubled to $46 billion in 2022-23, a compound annual growth rate (CAGR) of 11.4%. GCCs added over 6 lakh new jobs between 2018-19 and 2023-24, taking the total job count to over 16 lakh or 1.6 million.
If this sounds good, here’s some better news for the sector. The latest Economic Survey was upbeat about the future of GCCs. By 2030, the Survey projects, GCCs will contribute a total revenue of $121 billion – roughly 3.5% of India’s current GDP. Of this, $102 billion will come from exports.
Take JPMorganChase, for instance. Its headcount in India grew to over 55,000 from 34,000 in 2018. Deepak Mangla, CEO, corporate centres, India, and Philippines at JPMorganChase, in a recent interaction with TOI, said its India operations are a microcosm of all lines of businesses and functions, not just technology. “We consider ourselves a technology-driven bank. I think we have a very good strategy for distributed talent across the globe. We have more than 60,000 technologists at the firm and approximately one-third of them are in India. Our India corporate centres specifically employ 55,000 people, of which there are approximately 20,000 people in technology.”
Gunjan Samtani, global COO of engineering at Goldman Sachs and country head of Goldman Sachs Services India, said over 120 global functions across business and engineering are carried out from its Indian GCCs in Bengaluru and Hyderabad, which employ 8,500 people. “Over the last two decades, functions performed from India have evolved from end-of-day support for trading platforms and exchange connectivity to algo trading platform support, data analytics, and client reporting. Today, the India GCC is a centre of excellence with thought leadership for several equities engineering functions,” he said.
Nearly 40 years after India’s GCC poster boy, Texas Instruments, made Bengaluru its home for R&D operations, Indian GCCs have created a compelling story for global companies to acknowledge India’s enviable tech talent pool. This has, a) created more tech jobs in India; and b) solidified India’s position as a hub for advanced technological development.
6 lakh new jobs in 5 years
Just consider these numbers: India now has about 1,600 GCCs. This is estimated to go up to 1,900 by next year. According to a Nasscom-KPMG report, their combined market size now is $60 billion. In 2014-15, it was $19.6 billion, which more than doubled to $46 billion in 2022-23, a compound annual growth rate (CAGR) of 11.4%. GCCs added over 6 lakh new jobs between 2018-19 and 2023-24, taking the total job count to over 16 lakh or 1.6 million.
If this sounds good, here’s some better news for the sector. The latest Economic Survey was upbeat about the future of GCCs. By 2030, the Survey projects, GCCs will contribute a total revenue of $121 billion – roughly 3.5% of India’s current GDP. Of this, $102 billion will come from exports.
Take JPMorganChase, for instance. Its headcount in India grew to over 55,000 from 34,000 in 2018. Deepak Mangla, CEO, corporate centres, India, and Philippines at JPMorganChase, in a recent interaction with TOI, said its India operations are a microcosm of all lines of businesses and functions, not just technology. “We consider ourselves a technology-driven bank. I think we have a very good strategy for distributed talent across the globe. We have more than 60,000 technologists at the firm and approximately one-third of them are in India. Our India corporate centres specifically employ 55,000 people, of which there are approximately 20,000 people in technology.”
Gunjan Samtani, global COO of engineering at Goldman Sachs and country head of Goldman Sachs Services India, said over 120 global functions across business and engineering are carried out from its Indian GCCs in Bengaluru and Hyderabad, which employ 8,500 people. “Over the last two decades, functions performed from India have evolved from end-of-day support for trading platforms and exchange connectivity to algo trading platform support, data analytics, and client reporting. Today, the India GCC is a centre of excellence with thought leadership for several equities engineering functions,” he said.
Innovation hubs
GCCs in India have emerged as a playbook for innovation hubs. Texas Instruments (TI) India, for instance, is one of the first players to enable end-to-end chip design in the country. “TI engineers play a significant role in the entire chip design process, from concept to design, product engineering, testing and validating, and system software… Some of the best teams in the industry for product development exist here in TI India,” said Santhosh Kumar, TI president and managing director.
Goldman Sachs’ India centre has developed Atlas, a low-latency trading platform that hosts a comprehensive suite of trading strategies to help clients achieve their trading objectives, perform historical analyses, build quantitative models with real-time market information, and trade execution. “This platform helped trim microseconds in the execution of trades for our (low-latency trading) clients. The latency reduction from this platform helped us engage existing and newer hedge funds and quant clients,” Samtani said.
Recently, GE Aerospace CEO Larry Culp told TOI that the company’s 1,200 engineers at the John F Welch Technology Centre in Bengaluru are involved in cutting-edge work on the future of aviation – including the Leap engine for narrow-body aircraft, the GEnx in the wide-body space, and the next-generation Rise platform for the narrow-body market. The company also announced an investment of over Rs 240 crore to expand and upgrade its manufacturing facility in Pune. The factory already produces components that are supplied to GE’s global factories, where they are used to assemble engines like the G90, GEnx, GE9X, the world’s most powerful commercial jet engine, and the Leap engines by CFM, a GE and Safran joint venture.
Moving up the value chain
Sangeeta Gupta, senior VP and chief strategy officer at Nasscom, said India will continue to be central to the growth of GCCs, making significant impacts across economic, human capital, innovation, social, and environmental dimensions. “Talent will be a key driver of this growth, with both new and established centres expanding their capacities. There’s a notable shift towards incorporating corporate functions, analytics, and AI, with tasks increasingly focusing on corporate functions, product management, decision support, and embedded systems capabilities.”
Gupta added: “GCCs are increasingly important to their parent enterprises, focusing on moving up the value chain, creating opportunities for future leadership, and enhancing their overall impact.”
Ramkumar Ramamoorthy, partner in tech growth advisory firm Catalincs, said, “With several hundred GCCs gaining critical size, I expect their employment numbers to accelerate from here. I will not be surprised if the GCC headcount crosses 4 million in India in the next five years. The other big impact that today’s GCCs are making is the transfer of technology through R&D, and knowhow in newer areas such as product development and management, AI, cyber engineering, edge computing, synthetic biology, etc. The fact that ISB, IIMs and IITs today offer advanced programmes in product management is a case in point.”
As the boundaries blur between tech and traditional industries, GCCs are becoming talent hotspots in newer areas like full-stack development, AI, IoT, embedded systems, and automation, reshaping global markets. “Established GCCs are nurturing advanced skills beyond pure technology, including product management and architecture, where they are building deep domain expertise. This shift enables them to deliver higher-value work and gain a more comprehensive understanding of business contexts,” said Pari Natarajan, CEO of global management consultancy Zinnov. Its research showed that the number of global roles in GCCs in India is projected to grow from a mere 115 in 2015 to 30,000 by 2030.
Better salaries
Lalit Ahuja, founder of Bengaluru and US-based ANSR, which has set up over 120 GCCs, said GCCs have emerged as good paymasters, outshining their IT services peers in several roles across firms. Around 100 Indian GCCs have top leaders netting nearly $1 million in annual compensation, which includes cash and stock rewards, Ahuja added. These roles include India-based site leaders and senior VPs who lead technology functions.
Arindam Sen, EY India Global Business Services & Operations partner, said roles like CIO, CTO, chief financial officer, chief procurement officer will be increasingly based out of India. “People from these centres are growing within the organisation and assuming these roles. Either the role itself sits here or people selected from these centres as part of their talent strategy are eventually taking up those roles.”
Science & Environment
India fastest growing retail market, to cross $1.4 trillion…
NEW DELHI: The Indian retail market is one of the fastest growing markets in the world, expected to cross USD 1.4 trillion by 2027, said the latest annual report of Reliance Industries (RIL). RIL operates the country’s leading retailing firm Reliance Retail.
India is poised to become the third-largest retail market by 2030, the report said adding the growth is propelled by factors like increasing urbanisation, rising income levels, expanding female workforce, and an aspirational young population.
Moreover, a rising demand for premium and luxury products further fuels this growth trajectory, reflecting the evolving preferences with rising disposable incomes.
This growth extends across various town classes, benefiting numerous local, regional and international brands and manufacturers.
“They are being connected with consumers across diverse markets, thereby actively participating in India’s ongoing growth narrative,” said Reliance.
Segments such as grocery, fashion and lifestyle and consumer electronics constitute over 90 per cent of the fast-growing Indian retail market.
“Focus on range expansion across non-food categories remained a key priority. Stores witnessed continued growth in the non-food category led by General Merchandise and Home & Personal Care categories,” it said.
Reliance Retail Venture Ltd (RRVL), the retail arm of billionaire Mukesh Ambani-led RIL, which crossed the Rs 3 lakh crore revenue mark in FY24, is a “commitment” for the sector and has made “substantial investments” across the retail value chain over the years, the report said.
The company saw a record 1.2 billion customer transactions in the fiscal year.
However, it also mentioned challenges as well such as “supply of quality real estate due to limited availability of quality malls and high streets” and lack of trained manpower to support growth.
Reliance Retail had a record footfall of over 1 billion at its 18,836 stores and its registered customer base increased to 300 million.
“Reliance is India’s largest retailer and the only Indian retailer to feature among the top 100 global retailers,” it said.
Reliance Retail is expanding its reach through a multi-channel distribution model, leveraging a network of its stores as well as digital and new commerce platforms.
It operates an integrated network of stores and digital commerce platforms, retailing in the electronics, fashion, grocery and connectivity consumption baskets.
Reliance Retail, which has an ambition to have a substantial FMCG business in the country, is also building its consumer brands business through indigenous products that are accessible and affordable, the report said.
It has made several strategic partnerships and acquisitions.
Reliance Retail’s acquired beverage brand Campa and owned brand Independence have received good traction from trade channels and consumers, it said.
“The own brands business witnessed the introduction of new products across various categories and an extended distribution reach,” it said.
Besides Reliance, the largest fashion and lifestyle retailer, is also driving growth by assortment through tailored target customer segments and expanding in the right catchment areas through new store openings.
In the fashion e-commerce space, its online platform AJIO strengthened its proposition. It also launched the ‘Swadesh’ store format and youth-focused ‘Yousta’.
India is poised to become the third-largest retail market by 2030, the report said adding the growth is propelled by factors like increasing urbanisation, rising income levels, expanding female workforce, and an aspirational young population.
Moreover, a rising demand for premium and luxury products further fuels this growth trajectory, reflecting the evolving preferences with rising disposable incomes.
This growth extends across various town classes, benefiting numerous local, regional and international brands and manufacturers.
“They are being connected with consumers across diverse markets, thereby actively participating in India’s ongoing growth narrative,” said Reliance.
Segments such as grocery, fashion and lifestyle and consumer electronics constitute over 90 per cent of the fast-growing Indian retail market.
“Focus on range expansion across non-food categories remained a key priority. Stores witnessed continued growth in the non-food category led by General Merchandise and Home & Personal Care categories,” it said.
Reliance Retail Venture Ltd (RRVL), the retail arm of billionaire Mukesh Ambani-led RIL, which crossed the Rs 3 lakh crore revenue mark in FY24, is a “commitment” for the sector and has made “substantial investments” across the retail value chain over the years, the report said.
The company saw a record 1.2 billion customer transactions in the fiscal year.
However, it also mentioned challenges as well such as “supply of quality real estate due to limited availability of quality malls and high streets” and lack of trained manpower to support growth.
Reliance Retail had a record footfall of over 1 billion at its 18,836 stores and its registered customer base increased to 300 million.
“Reliance is India’s largest retailer and the only Indian retailer to feature among the top 100 global retailers,” it said.
Reliance Retail is expanding its reach through a multi-channel distribution model, leveraging a network of its stores as well as digital and new commerce platforms.
It operates an integrated network of stores and digital commerce platforms, retailing in the electronics, fashion, grocery and connectivity consumption baskets.
Reliance Retail, which has an ambition to have a substantial FMCG business in the country, is also building its consumer brands business through indigenous products that are accessible and affordable, the report said.
It has made several strategic partnerships and acquisitions.
Reliance Retail’s acquired beverage brand Campa and owned brand Independence have received good traction from trade channels and consumers, it said.
“The own brands business witnessed the introduction of new products across various categories and an extended distribution reach,” it said.
Besides Reliance, the largest fashion and lifestyle retailer, is also driving growth by assortment through tailored target customer segments and expanding in the right catchment areas through new store openings.
In the fashion e-commerce space, its online platform AJIO strengthened its proposition. It also launched the ‘Swadesh’ store format and youth-focused ‘Yousta’.
Science & Environment
Wipro lags peers, revenue down nearly 5% in June…
BENGALURU: Wipro shares tanked 13% on the NYSE after its revenue declined by 4.9% in the June quarter compared to the year-ago period. Sequentially, its revenue dropped by 1% in constant currency. Wipro’s numbers are lacklustre compared to its peers – TCS and Infosys – and are better than only HCLTech, whose revenue declined by 1.6% in constant currency.
“In Q1, we didn’t see a significant shift in demand environment. Clients remained cautious, and discretionary spending continued to be muted,” said Wipro CEO Srini Pallia at the earnings conference on Friday. “Banking & financial services retained their positive momentum from last quarter, and we have now seen growth in this sector for two consecutive quarters. The manufacturing and energy & utilities sectors continued to be weak with sequential declining by 3% and 6.3%, respectively.”
“In Q1, we didn’t see a significant shift in demand environment. Clients remained cautious, and discretionary spending continued to be muted,” said Wipro CEO Srini Pallia at the earnings conference on Friday. “Banking & financial services retained their positive momentum from last quarter, and we have now seen growth in this sector for two consecutive quarters. The manufacturing and energy & utilities sectors continued to be weak with sequential declining by 3% and 6.3%, respectively.”
Wipro’s operating margin expanded by 10 basis points to 16.5% compared to the March quarter. This is also the lowest among the top four Indian IT firms. Pallia said Wipro is driving large deals momentum systematically across its client base. “We are shaping these opportunities by proactively engaging with influencers and partners. As a result, our pipeline for large deals remains robust,” he said. Wipro has had a soft quarter, bagging total contracts worth $3.3 billion compared to $3.6 billion in the March quarter. Large deals remained flat sequentially at $1.2 billion.
Despite the revenue decline in the first quarter of FY25, Wipro has revised its revenue forecast for the Sept quarter to -1% to 1%, from -1.5% to 0.5% it had guided previously. “There are put and takes in our guidance. Our guidance is based on the visibility we have. There is movement in the Americas (includes Latin America and the US). Capco has been growing for three quarters, and its bookings have grown year-on-year. On the other hand, there is softness in Europe and Asia-Pacific, Middle East, and Africa (APMEA). Based on all these factors, we have provided guidance,” Aparna Iyer, the CFO of Wipro, said at the earnings press conference.
Pallia said the company is seeing some traction in the automotive, BFSI and the consumer sectors in the US and Europe, which gives them the confidence to achieve its guidance.
Science & Environment
Red Sea crisis: Air freight from India doubles –…
NEW DELHI: The Red Sea crisis has seen air freight from India has more than doubled in the last few months, putting the country on track to meeting its target of 10 million tonnes (MT) by 2030-31. The country saw its peak air freight at over 3.5 MT in 2017-18 and post-Covid saw number climb back to 3.5 MT. Air Cargo Forum of India (ACFI) president Yashpal Sharma said sorting out two issues – cutting down time for trans-shipment carriage and allowing double dipping (going to more than one city in India) by foreign freighter aircraft – will be key to meeting the target in the next five years.
“Less than 2% of freight globally moves by air. Following the Red Sea crisis, even a half per cent shift will mean a huge jump for carriage by air. We have a huge opportunity in India and need to overcome the twin challenges as trans-shipment currently takes 2-2.5 days which needs to be sped up,” Sharma said at the ACFI Annual Conclave 2024 here on Thursday.
“Less than 2% of freight globally moves by air. Following the Red Sea crisis, even a half per cent shift will mean a huge jump for carriage by air. We have a huge opportunity in India and need to overcome the twin challenges as trans-shipment currently takes 2-2.5 days which needs to be sped up,” Sharma said at the ACFI Annual Conclave 2024 here on Thursday.
India is a unique market with international imports, international exports and domestic cargo having an almost equal share in the country’s air freight movement. Less than 15% air cargo is carried by freighter aircraft and the balance in belly of passenger aircraft.
“Before Covid, India had six freighter aircraft. This number rose to 28 during Covid (that saw airlines use passenger planes also purely for cargo). Post Covid, the number fell to eight and is now at 18,” Piyush Srivastava, senior economic advisor in the aviation ministry, said. “During Covid, people got used to sending cargo by air. Govt allowed conversion of passenger to freighter (F). Many steps have been taken to boost air freight. E-commerce and express delivery are bound to grow. But given the challenges from (carriage by) rail and road, the processes and turnaround time for air freight must be eased,” Srivastava said.
Clearly there is a lot of room for improvement. Surendra Kumar, joint secretary (logistics and trade) DPIIT, said 70 airports have cargo facilities. “They are not being optimally utilised due to reasons like inadequacy of aggregation among various modes of transport. Integrated development of the sector and reduction of logistics costs is being done. India is soon going to be the third largest economy and a major hub for global supply chain. Projects worth Rs 13.5 lakh crore under PM Gati Shakti will soon be a reality and the sector will get a major impetus,” Kumar said.
After Covid, the push for air cargo has come with the Red Sea crisis.
Science & Environment
Large washing machines top laundry list – Times of…
CHENNAI: What difference does a kilogram or two make? Quite a bit, in the world of washing machines at least.
High-capacity washing machines – 9kg and above – are becoming a new normal in Indian households as more consumers are switching over from the 6-8kg category.
This transition, primarily to reduce washing cycles and the trend of weekend washing, is reflecting on the sales of retailers, who are seeing the average capacity of washing machines going up.While the development has nudged manufacturers to launch new high-capacity models, consumer durable makers are also investing to enhance their production in this segment.
Whirlpool of India is seeing a significant surge in demand for high-capacity washing machines across categories such as top load, front load and semi-automatic models. “In contrast, the demand for lower-capacity washing machines in the 6-6.9 kg range has declined by 38% this year compared to the same period (Jan-April) last year. Conversely, higher capacity washing machines, specifically those with a capacity of 9 kg and above, have experienced growth, soaring by 91% during Jan-April. We are considering investments in high-capacity washing machines,” Kumar Gaurav Singh, VP-marketing, Whirlpool of India, told TOI.
High-capacity washing machines – 9kg and above – are becoming a new normal in Indian households as more consumers are switching over from the 6-8kg category.
This transition, primarily to reduce washing cycles and the trend of weekend washing, is reflecting on the sales of retailers, who are seeing the average capacity of washing machines going up.While the development has nudged manufacturers to launch new high-capacity models, consumer durable makers are also investing to enhance their production in this segment.
Whirlpool of India is seeing a significant surge in demand for high-capacity washing machines across categories such as top load, front load and semi-automatic models. “In contrast, the demand for lower-capacity washing machines in the 6-6.9 kg range has declined by 38% this year compared to the same period (Jan-April) last year. Conversely, higher capacity washing machines, specifically those with a capacity of 9 kg and above, have experienced growth, soaring by 91% during Jan-April. We are considering investments in high-capacity washing machines,” Kumar Gaurav Singh, VP-marketing, Whirlpool of India, told TOI.
BSH Home Appliances, which manufactures Bosch and Siemens washing machines and refrigerators at its facility near Chennai, has expanded its capacity. It has invested Rs 200 crore to set up a second assembly line for manufacturing high-capacity Bosch washing machines. Rakesh Desai, CTO & chairman of board from BSH Home Appliances India, said, “The market is moving towards the higher kg class such as 9-10 kg, which we are introducing this year.”
According to GfK Offline Market Intelligence, the market for washing machines in India reached a size of 9 million units in FY24, registering CAGR growth of 5% over 7.3 million units in fiscal 2020. In FY20, the above 8 kg segment accounted for 1/4th of the market but in FY24, every second washing machine is 8 kg or more, reflecting the evolving preferences of Indian consumers toward higher-capacity units. “This growth underscores an optimistic consumer demand trajectory in the washing machine segment,” Anant Jain, head of customer success – India, GfK, said.
What is driving this change? “In many homes, especially dual income households, laundry is often relegated to weekends driving a preference for larger capacities,” said Kamal Nandi, business head and executive VP, Godrej Appliances.
Science & Environment
Biting the hand that feeds you | The Express…
BRUSSELS:
Cutting tax rates in the highest income tax brackets has the most positive impact on tax revenues and the economic growth. The important point is to recognise that people don’t work to pay taxes; they work to earn what they can after tax.
It is the after-tax rate of return on work, after all, that is the incentive that propels output and employment growth.
Given the data on tax rates and tax revenues from the highest income earners, there is no way anyone can take for granted that higher tax rates mean higher revenues. The highest tax bracket income earners when compared with those people in lower tax brackets are far more capable of avoiding and evading taxes.
Rich people are highly incentivised to keep their money. They are smart and they have money – they can hire lawyers, they can hire accountants, they can hire members of the National Assembly, senators and bureaucrats.
They are the people who want a favour from the government. Rich people can buy influence. They don’t only have the means to buy influence, but they also have the ways of doing it. This fact is universal and Pakistan is no exception.
Money is a universal language, but it speaks at different volumes. Rich people can get around taxes. If the government taxes rich people too much, they will flee the jurisdiction for favourable pastures and not pay any taxes.
The optimal tax system is one where taxpayers recognise their obligations to pay taxes and believe the tax system is fair and equitable. Then rich people will pay taxes willingly.
Pakistan’s tax agenda should be to stop high-income earners from not paying their fair share of income taxes. Given that they hold the majority of the nation’s wealth, they contribute disproportionately in income taxes to the national exchequer.
What’s missing in Pakistan is a simple, straightforward, broad-based, flat rate and predictable tax system. A flat tax system should be with no exemptions, no exclusions, no deductions and no credits.
A flat income tax means that all taxpayers, regardless of their income level, pay the same percentage of their income in taxes. It is fair and creates incentive for better compliance and more tax revenues.
For example, say the tax code has a flat tax rate of 10%. A taxpayer earning Rs9,000,000 would pay 10% of the income in taxes (Rs900,000), while a taxpayer earning Rs90,000,000 would also pay 10% of the income (Rs9,000,000). So, while the tax percentage stays the same across all income levels, your specific income determines how much you owe in taxes.
The advantage of flat income tax over complex progressive or graduated rate tax systems is that it is straightforward and takes the same proportion of income from each taxpayer. The simplicity of this model, offering clarity and ease of administration, shouldn’t fool you. It will have massive beneficial consequences.
In a progressive tax system, the tax rate increases as income levels rise. Higher-income individuals pay a higher percentage of their income in taxes when compared to those with lower incomes.
Unreasonable high progressive tax rates lead to quixotic tax enforcement, corrupt implementation of rules and regulations, counter-productive behaviour of individuals resorting to avoiding, evading and misrepresenting their true income.
The rich are particularly sensitive to high income brackets. The elasticity of supply of taxable income is the greatest in the highest income brackets. Tax rate cuts in the highest income tax brackets have the most positive tax revenue and growth impacts.
The government should incentivise high-net-worth individuals by being a protector, a creator and a friend by bringing them gradually in the tax fold. It will also diminish the “trust deficit” that exists between the high-income earners and the tax collector.
The rich, in return, should recognise their obligation to pay taxes and believe that the tax system is fair and equitable. They should set an example by marketing themselves as patriots who care for all the citizens and want to share a common prosperity for all Pakistanis.
The writer is a philanthropist and an economist based in Belgium
Published in The Express Tribune, June 3rd, 2024.
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Science & Environment
Licensing hurdles hurt gems industry | The Express Tribune
SKARDU/
GILGIT:
The harsh licensing process and lack of technical efficiency have subdued the glittery economy of the gemstone sector—often termed as “the gems of hope.”
In the extreme north of Pakistan, in the scenic region of Gilgit/Skardu, lies a vast labyrinth of valleys, mountains, and cliffs where dreams are forged and fortunes are made. Yet miners and traders must navigate a maze in a quest to obtain a license.
The future of mineral resources is charted by a federal government policy influencing everything from extraction practices to economic development. These policies are crafted to shape the trajectory of entire industries, serving as the bedrock upon which the nation’s mineral resources are managed and utilised. However, the rigid processing method has been frustrating all stakeholders, from miners to traders.
Speaking to The Express Tribune, Khalid Hussain, a member of the G-B Metals, Minerals, and Gems Association said, “Licenses for gemstone mining are issued by the Mines and Minerals Department, G-B. The licensing is a delicate process which requires a sensitive report from national security agencies.”
The weight of paperwork and the intricacies of the licensing process hang heavily on those involved in the gems and mining sector, threatening to overshadow their quest for riches with frustration and despair. Each step of regulation feels like another obstacle in an already treacherous journey in this precious field.
The wealth of the mining sector in picturesque G-B can contribute significantly to the region’s economic growth. Exploiting the mineral resources can attract investment, create employment opportunities, and generate revenue through export and local consumption. However, traders in the local market find the rates less attractive compared to what they could fetch through exports.
They face challenges due to the lack of viable export destinations, except for neighbouring China. Current ties between the two nations reveal an imbalance in bilateral trade, with China predominantly importing low-value items while showing little interest in buying higher-value goods from Pakistan. Even if gems and jewellery traders opt for exporting products to China, they face hurdles from China’s quarantine department. Additionally, the recent killing of Chinese nationals by terrorists is keeping Chinese buyers at bay.
Traders largely depend on the exchange of delegations at the government level and exhibitions held in China. Many traders from G-B set up stalls in these Gems and Jewellery Trade Shows in China where they can sell precious stones and jewellery products. Some small traders have opted to lease shops in China, while others resort to selling their goods at roadside stalls. This approach allows them to access markets where they can potentially fetch better rates for their products, thereby circumventing the limitations of the local market. However, it also comes with its own set of challenges and risks, such as navigating foreign business environments, language barriers, and regulatory differences.
“China is the largest market for Pakistan’s gemstones, and there is immense potential for Pakistan to increase its exports of gemstones to China. But the gemstone business is lagging due to insufficient facilities, poor mining expertise, and limited technologies,” said Asif Hussain, a member of the Business Development Forum (BDF) G-B.
The gemstone business grapples with many challenges, with electricity being a major factor. An estimated 25,000 people are involved in the mining business, translating into financial well-being for 25,000 families and countless workers across the province. Despite this, industries for the gemstone sector cannot be established in this part due to power shortages. Some engage in licensed mining while many mine illegally to avoid the strict rules of obtaining licenses. If these rules were simplified, more people would avail themselves of licensing, thus increasing the government’s revenue. Additionally, women’s inclusion is a must to improve the gems and jewellery business, Hussain believes.
At least 300 varieties of precious and semi-precious gemstones are available in the valleys of Gilgit, Ghizer, Hunza, Shigar, Skardu, Kharmang, Gupis Yasin, Nagar, and Ghanche, with many areas still undiscovered.
At the international level, the only accessible destination is China. Initiatives should be taken to find more international avenues. The government must take steps to promote and hold exhibitions and trade fairs in Dubai or other Muslim countries to attract foreign buyers, he suggested.
Due to global warming, the glaciers in the area have been receding, exposing more areas for prospecting. Generally, drilling and blasting techniques were used, but a ban imposed on the use of explosives in recent years has frustrated miners.
“I invest in digging and mining, paying for the total cost, including food and transportation for the mining workers. I take whatever has been extracted and sell those forward. Here ends my responsibility,” said miner Asar Samadi from Gilgit.
Yet the workers of the glittery economy do not have much to avail from the entire mechanism.
“We risk our lives, stay in harsh weather conditions in the high rugged mountains for months, even years. But what we get in return is extremely meagre,” said gemstone miner Hussain Ali.
Published in The Express Tribune, May 31st, 2024.
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Science & Environment
Pakistan’s fiscal policy at a crossroads | The Express…
ISLAMABAD:
Fiscal policy in Pakistan is usually far from a fine balancing act and is more of a reckless feat. It has long been marked by a contentious debate between austerity and stimulus measures – with the government oscillating between these two approaches, often thoughtlessly.
Thanks to these policies, the past three years have been marked by high interest rates – a result of the State Bank of Pakistan (SBP)’s fight with inflation that has crushed the real estate market and raised unemployment numbers. But why Pakistan’s policy rate must be as high as 22% for so long remains a burning question. The root of this problem lies in the extravagant expenditures of the government’s machinery that includes salaries, pensions and other privileges coming in at around Rs5 trillion. These expenditures in the past and as of now have been funded by expensive debt and currently interest payments alone eat the bulk of the federal budget.
To discourage government borrowing and push it towards austerity, the SBP has been increasing interest rates post-Covid. The Covid-19 stimulus package for Pakistan was valued at Rs1.2 trillion, with an additional Rs100 billion supplementary grant for residual/emergency relief.
Since then, the SBP has been pushing forward its austerity agenda by setting a high policy rate to discourage further stimulus for the economy and encourage government to reduce its expenses.
Unfortunately, such signals appear to have fallen on deaf ears as far as the government is concerned and the feedback loop is apparently broken. Increasing payroll and pension expenses in the last budget by as high as 35% speaks for itself how serious the government is about taking austerity measures.
Moreover, the irony is that in this budget as well, there are proposals to inflate the payroll expense by another 12%. This staggering uptick in government expenses has not been funded by increased income taxes and revenues, leading to a permanent budget deficit which necessitates further borrowing through the issuance of more bonds at a higher rate to attract investors.
It has indeed become a vicious circle where government expenses are being met by expensive loans from commercial banks, causing persistent inflation and little access to capital for private players. At present, the only way forward for the federal government is to keep another circle of foreign debt and investment running – whether it is the IMF, CPEC, SIFC or CPEC 2.0. Only then our body politic can fulfill its obsession with GDP growth numbers and keep funding its political schemes and pet projects.
But amid all this pessimism, however, we can still opt for a two-tiered approach to fiscal policy that advocates austerity at the centre but stimulus at the periphery (provinces) – combining the best of both worlds.
Austerity at the centre
In this proposed model, the federal government can prioritise deficit reduction through spending cuts in the next budget and extensive tax reforms. Though a performance-based budgeting process is already in place, we also need to put a ban on supplementary budgets; and requests for ex post facto regularisations of such grants should be penalised.
Instead of seeking more funds, government departments should explore the monetisation of underutilised state assets through public-private partnerships (PPPs) or strategic divestments. This could generate revenue while maintaining essential services. One example could be allowing private companies to use underutilised conference/board rooms in ministries through an online reservation system for hourly payments.
Another approach to reduce fiscal burden at the centre could be devolving specific ministries to provinces as agreed under the 18th Constitutional Amendment but is still pending even after 14 years. Similarly, the regressive tax system should be replaced by a progressive one that places a higher burden on high-income earners and reduces the tax burden on low- and middle-income groups. This could involve wealth taxes, luxury goods taxes, or revising income tax brackets.
Fiscal stimulus for provinces
Thanks to the 18th Amendment and National Finance Commission (NFC) awards, provincial governments that enjoy greater spending flexibility can prioritise infrastructure development and social programmes. It should be provinces and not the P-block in Islamabad that should be planning and funding transportation networks, energy grids, water supply systems, and irrigation infrastructure.
They can partner with the private sector to finance, build, and operate profitable infrastructure projects. This reduces the upfront financial burden on the provincial government and leverages private sector expertise.
By identifying good projects, provincial infrastructure bonds can be issued to raise capital from domestic investors. However, this requires a strong credit rating and a clear plan for project returns.
Provinces can also give stimulus packages by implementing targeted social safety programmes to support vulnerable populations and stimulate domestic demand. This could include direct cash transfers, food assistance, and healthcare subsidies. The federal government should abstain from funding social safety net programmes such as Ehsaas or interest-free loans for marginalised populations.
However, any stimulus by provinces should not promote consumption and should focus on supporting local economies, creating jobs, promoting growth, and increasing revenue collection.
In a nutshell, Pakistan’s fiscal landscape necessitates a nuanced approach to reconcile its fiscal deficit and growth objectives.
A coordinated federal-provincial strategy, where the federal government implements austerity measures to address macroeconomic imbalances while provinces pursue the targeted fiscal stimulus to boost growth and job creation, can help strike an optimal balance between fiscal consolidation and economic expansion.
The writer is a Cambridge graduate and is working as a strategy consultant
Published in The Express Tribune, May 27th, 2024.
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