Category: Economy

Kerala High Court rules Malabar ‘Parota’ to be treated as bread at 5% GST

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In another unique case stemming from GST classification challenges, the Kerala High Court ruled that Malabar ‘Parota’ is akin to ‘bread’ and should thus be categorised under Heading 1905 for taxation purposes. The decision contradicts the previous rulings of the Authority for Advance Ruling (AAR) and  Appellate Authority for Advance Ruling (AAAR).

The Kerala High Court determined that both ‘Classic Malabar Parota’ and ‘Whole Wheat Malabar Parota’ products should be taxed at the GST rate of 5% rather than 18%, as they share similarities with items listed under HSN code 1905, such as bread.

The high court ruled that products “are eligible at the rate of 5% GST (2.5 % CGST + 2.5 % SGST) and not 18% as was being pleaded by the government, which was citing orders of the Advance Ruling Authority and the Advance Ruling Appellate Authority,” where the treatment was decided to be 18%.

The ruling was delivered by Justice Dinesh Kumar Singh at the Kerala High Court.

Advocates M. Gopikrishnan Nambiar, K John Mathai, Joson Manavalan, Kuryan Thomas, Paulose C Abraham, Raja Kannan, R Chethan Krishna and S Parvathi appeared on behalf of the assesee, whereas Advocate P G Jayashankar and Special Government Pleader (Taxes) Muhammed Rafiq were representing the government.

The assessee, Modern Food Enterprises Pvt. Ltd, is engaged in the manufacturing and supply of food products ‘Classic Malabar Parota’ and ‘Whole Wheat Malabar Parota’ (products). The assessee had sought clarity from the authority for advance ruling on classification, rate of GST, and whether the product can be treated as ‘bread’ under GST or not.

The assessee had filed a writ, which was allowed by the Kerala High Court via observations that according to Rule 4 of the General Rules of Interpretation of the Harmonized System (GRI), the goods that cannot be classified in accordance with Rules I to III shall be classified under the Heading appropriate to the goods to which they are akin. Thus, paving the way for the product to be treated under 5%.

The high court also elaborated on the explanatory notes to HSN sub-heading 1905, which provide that the most common ingredients of the products in this heading are cereal flours, leaves, and salt but they may also contain other ingredients that facilitate fermentation and improve characteristics and appearances of the products.

The Kerala High Court further noted that the products of this heading may also be obtained from dough based on the flour of any cereal, whereas Chapter Heading 21, particularly HSN 2106, prescribes food preparation not elsewhere specified or included and assessee products or not akin to any of the products which are mentioned in Chapter Heading 2106.

The court observed that the assessee’s products are to be included in Chapter Heading 1905 as the petitioner’s products are akin to the products mentioned in the said Chapter Heading 19 and will be eligible to be taxed at the rate of 5% GST and not 18%.

Meanwhile, experts say that the ruling will help several other cases that are under litigation and are similar in nature. However, the government continues to hold the view that the Kerala High Court decision is not fair and would need more clarity.

Sandeep Sehgal, Partner-Tax, AKM Global, a tax and consulting firm, states, “This decision highlights the importance of accurate classification in tax matters, ensuring fair treatment for businesses and consumers alike. The ruling marks a victory for the petitioner in this case, and serves as a precedent for similar disputes in the future.”

“The classification rule is that the specific entry will prevail over the general entry and hence from that perspective, this is a very welcome decision. This will not only help this sector but several other sectors based on the principles formulated by this court” said Abhishek A Rastogi, founder of Rastogi Chambers, who is arguing before different Courts on classification issues.

“The intent of the GST Council was always to keep the basic necessary supplies under a lesser category of rate and this decision tilts the balance in that flavour as well,” added Rastogi.

However, rate rationalisation remains the key, and the industry will closely watch how this is done in the months ahead, Rastogi said.

Yogesh Kale, Executive Director, Nangia Andersen India said, “The Karnataka AAR had also ruled in 2020 that Whole Wheat Parota and Malabar Parota were classifiable under HSN code 2106 (the AAR ruling was held to be void-ab-initio by the AAAR due to suppression of facts by the taxpayer). The Kerala High Court ruling puts an end to the controversy over classification of Malabar Parotas, highlighting time and again the need for accurate classification, importance of the Explanatory Notes to the headings and that in case of doubt, the products must be classified under the heading to which they are most akin. The principle would also serve as a guidance in classification of other products.”

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IMF raises India’s FY25 growth forecast to 6.8%; pegs global growth at 3.2% in 2024, 2025

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The International Monetary Fund (IMF) has raised India’s growth forecast for the current fiscal year by 0.3 percentage points to 6.8%, compared with its earlier January update. The latest projections were part of the IMF’s World Economic Outlook update for April.

Although the IMF has revised India’s growth forecast up, it still trails the Reserve Bank of India’s estimate of 7% growth in FY25. Thereafter, the IMF sees India’s growth slowing to 6.5% by FY26, at the same level as its previous update in January.

“Growth in India is projected to remain strong at 6.8% in 2024 and 6.5% in 2025, with the robustness reflecting continuing strength in domestic demand and a rising working-age population,” the IMF said in its report.

The IMF sees India’s consumer price inflation cooling off from an average of 5.4% in FY24, to 4.6% in FY25, and further to 4.2% in FY26.

The inflation projections are marginally higher than Reserve Bank of India (RBI) estimates, which pegs FY25 consumer inflation to average 4.5%.

Global Outlook

The IMF said in its report that the global economy remains remarkably resilient, with growth holding steady as inflation returns to target.

Global growth, estimated at 3.2% in 2023, is projected to continue at the same pace in 2024 and 2025, the IMF said in its report. The forecast for 2024 is revised up by 0.1 percentage point from the January World Economic Outlook Update.

“Despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose. The journey has been eventful, starting with supply-chain disruptions in the aftermath of the pandemic, an energy and food crisis triggered by Russia’s war on Ukraine, a considerable surge in inflation, followed by a globally synchronised monetary policy tightening,” said Pierre-Olivier Gourinchas, Chief Economist at the IMF.

“Even more encouraging, we now estimate that there will be less economic scarring from the pandemic—the projected drop in output relative to prepandemic projections—for most countries and regions, especially for emerging market economies, thanks in part to robust employment growth. Astonishingly, the US economy has already surged past its prepandemic trend,” the IMF said in its report.

The IMF’s latest forecast for global growth five years from now—at 3.1%—however, is at its lowest in decades, the agency warned.

Advanced economies are expected to see growth rise slightly, with the increase mainly reflecting a recovery in the euro area from low growth in 2023, whereas emerging market and developing economies are expected to experience stable growth through 2024 and 2025, with regional differences, as per IMF.

For advanced economies, growth is projected to rise from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. In the United States, growth is projected to increase to 2.7% in 2024, before slowing to 1.9% in 2025, as gradual fiscal tightening and a softening in labour markets slow aggregate demand.

In emerging markets and developing economies, growth is expected to be stable at 4.2% in 2024 and 2025, with a moderation in emerging and developing Asia offset mainly by rising growth for economies in the Middle East and Central Asia and for sub-Saharan Africa.

Growth in China is projected to slow from 5.2% in 2023 to 4.6% in 2024 and 4.1% in 2025 as the positive effects of one-off factors—including the post-pandemic boost to consumption and fiscal stimulus—ease and weakness in the property sector persists, IMF said.

“Nevertheless, the projection for global growth in 2024 and 2025 is below the historical (2000–19) annual average of 3.8%, reflecting restrictive monetary policies and withdrawal of fiscal support, as well as low underlying productivity growth,” the report said.

Global Inflation Outlook

Global headline inflation is expected to fall from an annual average of 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies, the IMF said in its report. IMF said that prices of fuel commodities are projected to fall in 2024 by, on average, 9.7%, with oil prices falling by about 2.5%.

Risks to Growth Outlook

The risks to the global outlook are now broadly balanced, said the IMF. On the downside, new price spikes stemming from geopolitical tensions, including those from the war in Ukraine and the conflict in Gaza and Israel, could, along with persistent core inflation where labour markets are still tight, raise interest rate expectations and reduce asset prices, it said.

A divergence in disinflation speeds among major economies could also cause currency movements that put financial sectors under pressure, IMF said in its report. High-interest rates could have greater cooling effects than envisaged as fixed-rate mortgages reset and households contend with high debt, causing financial stress, it added.

In China, without a comprehensive response to the troubled property sector, growth could falter, hurting trading partners, the report pointed out. IMF said that amid high government debt in many economies, a disruptive turn to tax hikes and spending cuts could weaken activity, erode confidence, and sap support for reform and spending to reduce risks from climate change. Geo-economic fragmentation could intensify, with higher barriers to the flow of goods, capital, and people implying a supply-side slowdown, the IMF warned.

On the upside, looser fiscal policy than necessary and assumed in projections could raise economic activity in the short term, although risking more costly policy adjustment later on, IMF said. Inflation could fall faster than expected amid further gains in labor force participation, allowing central banks to bring easing plans forward. Artificial intelligence and stronger structural reforms than anticipated could spur productivity, it said.

“As the global economy approaches a soft landing, the near-term priority for central banks is to ensure that inflation touches down smoothly, by neither easing policies prematurely nor delaying too long and causing target undershoots…Cross-country differences call for tailored policy responses,” the report added.

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Central banks globally may start cutting rates by second half of 2024: IMF

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The International Monetary Fund (IMF) expects major central banks worldwide to start cutting key policy rates by the second half of the year, as inflation declines and inflation expectations remain anchored, it said in its latest World Economic Outlook report released on Tuesday.

“With inflation projected to continue declining toward targets and longer-term inflation expectations remaining anchored, policy rates of central banks in major advanced economies are generally expected to start declining in the second half of 2024,” the IMF said.

Among major central banks, by the fourth quarter of 2024, the Federal Reserve’s policy rate is expected to decline from its current level of about 5.4% to 4.6%, the IMF said in its report.

The Bank of England is expected to reduce its policy rate from about 5.3% to 4.8%, and the European Central Bank (ECB) will reduce its short-term rate from about 4.0% to 3.3%, the IMF added.

For Japan, the IMF said, policy rates are projected to rise gradually, reflecting growing confidence that inflation will sustainably converge to target over the medium term despite Japan’s history of deflation.

The report also highlighted that, though major central banks have raised policy interest rates to “restrictive” levels, concerns about high rates leading to an economic downturn globally did not materialise for several reasons.

“To counter rising inflation, major central banks have raised policy interest rates to levels estimated as restrictive. As a result, mortgage costs have increased and credit availability is generally tight, resulting in difficulties for firms refinancing their debt, rising corporate bankruptcies, and subdued business and residential investment in several economies. The commercial real estate sector, including office markets, is under especially strong pressure in some economies, with rising defaults and lower investment and valuations, reflecting the combined effects of higher borrowing costs and the shift toward remote work since the pandemic,” it said in the report.

Concerns of a global economic downturn caused by a sharp rise in policy rates, however, have not materialised as some central banks—including the ECB and the Federal Reserve—raised their nominal interest rates after inflation expectations started to rise, resulting in lower real rates that initially supported economic activity, the report concluded.

The Bank of Japan has continued to keep policy rates near zero, resulting in a steady decline in real interest rates, the IMF said, adding that, by contrast, the central banks of Brazil, Chile, and several other emerging market and developing economies raised rates relatively quickly, resulting in earlier increases in real interest rates.

Second, the IMF said, households in major advanced economies were able to draw on substantial savings accumulated during the pandemic to limit the impact of higher borrowing costs on their spending.

Third, changes in mortgage and housing markets over the pre-pandemic decade of low interest rates have limited the drag of the recent rise in policy rates on household consumption in several economies, the IMF added.

“As the global economy approaches a soft landing, the near-term priority for central banks is to ensure that inflation comes down smoothly; they should neither ease policies prematurely nor delay too long and risk causing target undershoots,” the IMF said in its report.

The IMF has pegged global growth, which stood at 3.2% in 2023, to continue at the same pace in both 2024 and 2025.

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How the empowered communities can catapult transformation in rural India

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Rana Gupta bets on these sectors that benefit from India’s structural improvements

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Despite the current global events causing unease, Rana Gupta, Senior Portfolio Manager and India Equity Specialist at Manulife Investment Management advises investors to stay focused on India’s structural opportunities.

Some of the themes that he is bullish on are: digital platform, that have gained market share from traditional consumer companies, manufacturing and industrials, and renewable energy companies.  

“Despite all that is going on, I noticed that last month, India’s trade deficit was only $15 billion. It used to be $20-22 billion. Inflation headline is down to 4.94% and core to 3.3%. This is despite growth of 7% plus. I think these are very good numbers. This shows fundamentally, the economy is growing by investment productivity. And the way we would approach is to buy those segments which benefits the most,” Gupta told CNBC-TV18.

India’s March trade deficit narrowed to an 11-month low of $15.6 billion from $18.71 billion in February and $17.76 billion in January.

Trade deficit refers to the difference between a country’s imports and exports, and is an essential economic indicator.

Rana Gupta also discussed his expectations from the US Federal Reserve on interest rates.

Gupta said while there is a slight risk the Fed might consider raising rates, it’s unlikely.

He noted that the economy is stronger than expected, partly because the Fed is planning to stop reducing its balance sheet soon, which loosens financial conditions.

“Therefore, rates would be a bit higher than expected at the start of the year,” Gupta added.

On March 20, the US central bank decided to keep interest rates unchanged at 5.25-5.50%.

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Despite this, it still anticipates three rate cuts in 2024.

The Fed has also revised its forecast for the 2024 gross domestic product (GDP) to 2.1% from 1.4%.

They predict that “core” inflation, excluding volatile food and energy costs, will reach 2.6% by the end of 2024, up from their previous estimate of 2.4%.

Also Read | Citi predicts up to five rate cuts from the US Fed this year

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India aims to increase wheat’s share in PMGKAY, eyes 310 LMT procurement this season

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In a bid to bolster food security measures, India is setting its sights on elevating the proportion of wheat within the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). Food Secretary Sanjeev Chopra told CNBC-TV18 that the nation anticipates procuring 310 LMT (lakh metric tonnes) of wheat during the ongoing Rabi Marketing Season. This forecast marks an ambitious 18.3% increase compared to the 262 LMT of wheat procured in the previous season.

Terming the recent offloading of 101.5 LMT of wheat under the Open Market Sale Scheme (OMSS) by the Food Corporation of India (FCI) as the largest-ever tranche, he said the government is likely to revisit the wheat-rice ratio under the PMGKAY.

This consideration stems from the adjustments made following a reduction in wheat harvest in 2022. During that period, wheat allocation was reduced from 18.2 million tonnes to 7.1 million tonnes, prompting a corresponding increase in rice allocation from 21.6 million tonnes to 32.7 million tonnes.

Addressing concerns over recent weather conditions, Chopra reassured that the wheat crop did not face any damage despite heat waves and sporadic rainfall. Consequently, there are no immediate plans to reconsider restrictions on wheat and rice exports, he said. Pointing to a year-on-year increase of 5% in wheat prices and a 7% rise in the Minimum Support Price (MSP), Chopra termed the current market prices of wheat around MSP desirable.

Aiming to keep sufficient stocks with itself to influence prices, the government is already implementing a plan to boost wheat procurement in key states such as Uttar Pradesh, Madhya Pradesh, Bihar, and Rajasthan. Within these regions, 59 key districts have been identified for close monitoring of procurement activities.

Chopra also highlighted the positive impact of initiatives like Bharat Atta and Bharat Rice in mitigating price fluctuations despite lower sales volume. He indicated that the programmes, with their significant signalling effect, contribute to the government’s efforts to stabilise food prices and ensure accessibility for all citizens.

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Sugar for ethanol to continue, no retail price hike despite costlier edible oil imports: Food Secretary

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With India planning to achieve 20% ethanol blending in fuel, Food Secretary Sanjeev Chopra has told CNBC TV18 that sugarcane will continue to be diverted for ethanol. He said that closer to the 20% target, 50% of ethanol will be derived from sugarcane and another 50% will be derived from maize and damaged foodgrains.

With a 5.5% year-on-year inflation noted in sugar, he stated that there are no supply side shocks and sugarcane farmers are also getting their dues on time. He termed the diversion of eight LMT more sugarcane for ethanol as good news for the industry, up from 17 LMT earlier.

Assuring no supply-side hurdle for imported edible oil despite a rise in global prices, he described the rise as “temporary” in view of labour shortages in Malaysia and Indonesia and the Muslim holy month of Ramzan.

While he attributed the rise in freight prices of sunflower oil imported from Europe to the Red Sea conflict which prompted shipments to come across the Cape of Good Hope in Africa, Chopra said that the industry absorbed the rise in cost and no impact was seen on retail prices.

In a move which will insulate India from price shocks in these commodities, he said that the Agriculture Ministry is already working on a plan to make India self-sufficient in pulses & oilseeds in the next few years.

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India imposes port restrictions on export of essential commodities under restricted category to Maldives

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian government on April 16 imposed port restrictions on the export of essential commodities categorised as prohibited or restricted to the Maldives. Through the 2024-25 fiscal, these commodities will only be permitted for export through four designated customs stations — Mundra Sea Port, Tuticorin Sea Port, Nhava Sheva Sea Port (JNPT), and ICD Tughlakabad.

The ties between India and the Maldives have been strained following a social media dispute that led to an uproar among Indian tourists, who began boycotting the Maldives as a travel destination and instead chose Lakshadweep. Since then, both sides have been making attempts to mend their diplomatic ties.

On April 5, India lifted restrictions on the export of specified quantities of nine products, including potatoes, onions, eggs, rice, wheat flour, and sugar to the Maldives for the current fiscal year.

“Development & Regulation Act, 1992 (No. 22 of 1992), as amended, read with paragraph 1.02 and 2.01 of the Foreign Trade Policy (FTP), 2023, the Central Government paragraph 1. hereby incorporates following conditions in Notification No. 03/2023 dated 05.04.2024 for exporting of essential commodities to Maldives under bilateral trade agreement between Government of India and Government of Maldives,” Directorate General of Foreign Trade (DGFT) said in a notification.

The bilateral trade agreement between the governments of India and Maldives that provides for the export of essential commodities was signed in 1981. This agreement continues to guide the trade relations between the two countries.

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China reports surprisingly strong growth driven by industry

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China’s economic growth beat expectations in the first quarter, as factory output led the expansion bolstering expectations the government can hit its ambitious annual target.

Gross domestic product increased 5.3% in the January-to-March period from a year earlier, data released by the National Bureau of Statistics showed Tuesday. That’s higher than the median estimate of 4.8% in a Bloomberg survey of economists and just above a growth rate of 5.2% in the final quarter of 2023.

Other Key Figures From the Data:

• Industrial production rose 4.5% in March from a year earlier, versus economists’ forecast of 6%
• Industrial output rose 6.1% for the first quarter
• Retail sales climbed 3.1%, missing an expected 4.8% gain
• Fixed-asset investment expanded 4.5% in the first three months, compared with a 4% increase projected by economists. The property sector continued shrinking, with investment plunging 9.5% in the period
• The urban jobless rate dropped to 5.2% last month from 5.3% in February

China’s economic recovery has been unbalanced. Manufacturing is holding up, thanks to resilient overseas demand and Beijing’s efforts to cushion the blow from US trade restrictions by developing advanced technologies at home. But Chinese consumers have been slow to recover their appetite for spending, amid a prolonged real estate downturn that’s weighing on household and business confidence. Factory prices have been in deflation for more than a year, reflecting anemic domestic demand as well as excess capacity in some industries.

China’s growth target for this year is around 5%. Many economists say the government will have to take more action to stabilize the property market, and encourage consumers to spend, in order to hit the goal.

Investors are closely watching one major government effort to boost domestic demand this year: a trade-in program that will encourage businesses to upgrade their machinery and households to buy new cars, refrigerators or washing machines. Shares of Chinese home-appliance makers jumped last week after officials vowed “strong” fiscal support for the plan.

The real estate slump that’s dragging on consumers shows no sign of bottoming. Housing sales and investment continued to decline, despite increased funding for developers and efforts in a growing number of cities to encourage home purchases via cheaper loans or looser restrictions on owning multiple properties. Even some of the country’s biggest builders have plunged into a credit crisis.

The People’s Bank of China may provide more support for cheap loans to housing funds in the coming months via its Pledged Supplemental Lending program, some analysts say.

The central bank on Monday kept the rate of its one-year medium-term lending facility unchanged, and drained cash on net from the banking system via the tool for a second straight month. The PBOC cut its reserve requirement ratio for banks by 50 basis points in February — a move that allows extra lending — and said there’s room for more cuts. But China has reasons to be cautious in any monetary easing, since widening the yield gap with the US risks adding to downward pressure on the yuan.

Beijing is also using fiscal policy to bolster growth, especially by directing more public cash toward infrastructure. Government bond financing slowed in the first quarter, but analysts say that’s mainly because funds raised last year are still being used, and they predict an acceleration in bond sales this quarter to sustain investment.

Strong sales abroad helped balance China’s domestic woes early in the year. But exports declined in March — and with more countries threatening to erect barriers against Chinese goods, there are risks in relying on foreign trade to meet growth targets.

The degree of government support for households and businesses to spend at home will likely depend on how Chinese firms fare on international markets, Goldman Sachs economists led by Hui Shan wrote in a note last week. The Goldman team raised their growth forecast, predicting the 5% target will be met, and said the government doesn’t seem keen to significantly exceed it.

“If external demand is strong, then less domestic stimulus is needed,” they wrote. “If the property market continues to deteriorate, then more easing measures will be introduced.”

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Windfall tax on crude up 96% in April with two consecutive tax hikes

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government has increased the windfall tax or Special Additional Excise Duty (SAED) on petroleum crude by 41% effective April16. The revised SAED rate is ₹9,600 per tonne from ₹6,800 per tonne, which was earlier on April 4 increased from ₹4900 per tonne. Thus, with two consecutive hikes windfall tax on crude has gone up by 96% in a span of 16 days.

The windfall tax on diesel, petrol and Aviation Turbine Fuel remains nil as that was kept unchanged.

Earlier in the day government officials told CNBC-TV18 that the government will cash in on higher crude oil price through the windfall tax levy, although it doesn’t expect crude prices to touch levels seen after the Russia-Ukraine war broke out in February 2022 when the India crude basket soared to an average $116/bbl in June after staying over $100/bbl in April and May.

Also, with daily fuel price revisions suspended since May 2022, the government hopes there will be little impact on retail inflation.

Also Read: IEA predicts lower global oil demand growth for this year and next

As recently as March 14, the government-owned fuel retailers had reduced petrol and diesel prices by ₹2 per litre when the India crude basket averaged $84.49 for that month. India crude basket was last seen at $90 per barrel in October 2023 while it has averaged $91.20 per barrel as of April 12.

India first imposed windfall tax on July 1, 2022, joining a growing number of nations that tax supernormal profits of energy companies. At that time, export duties of ₹6 per litre ($12 per barrel) each were levied on petrol and ATF and ₹13 a litre ($26 a barrel) on diesel. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.

A windfall tax is levied on domestic crude oil if the rates of the global benchmark rise above $75 per barrel. Export of diesel, ATF and petrol attract the levy if product cracks (or margins) rise above $20 per barrel. Product cracks or margins are the difference between crude oil (raw material) and finished petroleum products.

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