In 2016, the business community had all the makings of a thriller. There were the blasphemous Panama Papers’ revelations to mark the beginning of the financial year; the central bank saw its head depart only after a single term; a 103-year-old conglomerate touted for its good governance and benevolence showed the door to its chairman; the indirect taxation system was flipped over on its head; and 86% of currency was wiped out from the system in a single sweep in November.
It seems like 2016 may go into the history books just for the sheer upheavals the business world was witness to.
Here’s a quick recap of the stories that made the top headlines in 2016:
1) Panama Papers
Nearly 1.15 crore encrypted documents called the ‘Panama Papers’ were leaked on April 3, 2016, from the files of the Panama-based law firm Mossack Fonseca, which revealed terabytes of data about hundreds of thousands of shell companies and persons involved in setting up of offshore companies, mostly to evade taxes and launder money.
The information was first leaked to a journalist from German newspaper Suddeutsche Zeitung (SZ) and later handed over to the International Consortium of Investigative Journalists which has over 100 publications around the world as its members, including The Indian Express. It is touted as the biggest leak in the history of journalism, with over 400 journalists sifting through the documents and making information public.
Over 500 Indians were found in the documents on the second day of the leak, including Bollywood actors Amitabh Bachchan, Aishwarya Rai Bachchan, real-estate developer DLF’s KP Singh, to politicians Anurag Kejriwal.
2) Income Declaration Scheme – June 1
The government launched a one-time amnesty-like black money compliance window to give a chance to hoarders of undeclared income come clean by paying 45% and penalty. The scheme was launched on June 1 and the window was open till September 30. The first instalment of the tax (25%) was due on November 30. Declaring the undisclosed income would let a person escape prosecution and charges, however, the declaration was only going to be deemed as valid if the person(s) managed to pay the first instalment of tax on time. This scheme was not applicable for those who had acquired their income through corrupted means.
3) Goods and Service Tax – July 2016
The controversial Goods and Services Tax was given the Rajya Sabha nod and consequently an approval by the President in July this year, at the fag end of a very volatile Monsoon Parliamentary Session. The GST proposes to do away with the multi-layered indirect taxes regime that often causes duplicity and multiplicity of taxes on goods and services, and replace it by a single tax (or now, a slab of taxes) to encourage more people to pay taxes and to set up businesses in the country.
The government had set a deadline of April 1, 2017 for the implementation of GST.
After the GST nod came the GST Council, which is chaired by Finance Minister Arun Jaitley and has the finance ministers of all the states as its members. The GST Council has remained inconclusive and divided on the Integrated GST (IGST) bill along with the dual control of jurisdiction and administrative powers between the Centre and the state.
The gargantuan task of setting up the GST Network (GSTN) and training scores of tax officers for the new taxation regime, weighs on the implementation of GST. The GSTN is now a topic of controversy since 51% of the equity is with non-governmental financial institutions like HDFC Bank, HDFC Ltd, NSE Strategic Investment Corporation, and LIC Housing Finance. The government of India holds a 24.5% stake while the state governments together hold the remaining 24.5%.
4) Raghuram Rajan out, Urjit Patel in – September 4
People’s beloved Raghuram Rajan stepped down from his post as the chair of the central bank, in an unsual open letter to his colleages at the Reserve Bank of India (RBI) saying that he was going to return to academia once his three-year term came to an end. On September 4, Rajan made way for Urjit Patel, who was until then the deputy RBI governor incharge of monetary policy.
Thereby, an outspoken governor who had said, “My name is Raghuram Rajan and I do what I do” made way for a low-profile Patel. The new Guv slashed the benchmark interest rate by 0.25% in his first monetary policy meet, and maintained status quo in December in the first monetary policy outing since demonetization.
5) Monetary Policy Committee – September 2016
The MPC was the brainchild of Rajan but was adopted under the new Governor, Urjit Patel. The MPC was implemented to diffuse the RBI governor’s power to an extent, in deciding the key interest rates.
While the MPC is chaired by the RBI governor, it is a six member team that votes on the the policy decision. Unlike the earlier practice where the governor could take stock of the decision of the members and then decide to go with the majority decision or against the tide; under the MPC, the governor would no longer have the deciding vote. He would only get a power to veto in the event of a tie.
Out of the six members of the MPC, the government picked three seasoned economists and the RBI appointed two officials from the its monetary policy department. The sixth member is the RBI governor.
6) Reliance Jio launch – September 5
Mukesh Ambani shook the telecom sector with the launch of Reliance Jio by offering free domestic voice calls and data services till March 31, 2017. It set a record and crossed the 50 million subscriber mark in 83 days since its launch and as of November 28, had over six lakh subscribers per day signing up for its srevices. Jio’s launch saw the share price of competitors tanking and has since forced them — Bharti Airtel and Vodafone India — to price their services prudently to retain subscribers.
7) The Tata-Mistry battle:
On October 24, Cyrus Mistry was unceremoniously removed as the chairman of the $103-billion salt-to-software conglomerate Tata Sons. The boardroom drama that removed Mistry as the chair, has snowballed into an incessant war of words and open letters, into a legal battle now, with both the parties filing litigations against eachother.
In the last outing, while Mistry had set three points of allegations — breach of governance within the Tata group, misconduct at various Tata ventures and the illegality of his removal — the holding company hit back with a legal notice for breaching “confidential data, business strategies and financial information”.
6) Demonetization: November 8
In a move that cut across societal and economic backgrounds, Prime Minister Narendra Modi scrapped Rs 500 and Rs 1000 notes as legal tenders which took out 86% of currency (in value terms) from the economy overnight, A several cash crunch and several flip flops on policy decisions from the government and the central bank followed. Modi set December 31 as the deadline to deposit or exchange the old delegalised notes for acceptable tenders, and even issued new Rs 2,000 and Rs 500 notes. The aim was to remove black money from the system and eliminate a thriving parallel economy while reining in counterfeit currency and put an end to terror funding.
The government had estimated that about Rs 4 lakh crore from the over Rs 14 lakh demonetized currency wouldn’t come back into the system ie the estimated amount of black money and counterfeit notes in the economy. However, as the deposits quickly started climbing, the government and experts realised that hoarders of undisclosed income had figured out a way around the stringent system and laws, to deposit money into bank accounts. Jan Dhan bank accounts that had seen no activity since they were opened suddenly saw an inflows of deposits.
The goal post was then shifted to cashless economy and digital payments with the government announcing incentives and doing away with transactions charges to encourage people to make e-payments.
The move saw most of the sectors slowing down amid cash crunch and inflation easing as the purchasing power of individuals was wiped out overnight. Several banks and brokerages have cut their short-term growth estimate for India as a direct fall out of demonetization.
7) Budget Session – Many firsts
The government agreed to advance the date of the Budget to February 1 instead of holding it at the end of the month. According to PM Modi, this would let all the programs and finances start with the beginning of the financial year. An early budget would allow it to be passed by March end unlike the usual mid-May period.
The upcoming budget will also do away with the 92-year-old practice of presenting a separate Railway and Union Budget. From this year on, both the statements will be read out on the same day.
This would also be the first budget without a special focus on five-year plans. Instead, the NITI Aayog, which has replaced the Planning Commission will be preparing vision plans across the timeframe of three, seven and fifteen years.