Analysing the Demonetisation debate in India

On 8th November, 2016 the Prime Minister of India Narendra Modi rocked the whole country by his announcement to demonetise INR 500 and INR 1,000 currency notes in a live television address. Considered to be a bold move that ceased the use of old currency notes, which are  replaced with the new one have been among the most discussed topic not only in domestic but global media and amongst economists worldwide. The move aimed to stop counterfeiting of currency notes, reduce corruption and reduce the black money in the economy which will also reduce the terrorist activities by checking on terrorist funding.                                                                                                                  (Source: https://en.wikipedia.org/wiki/Indian_500_and_1000_rupee_note_demonetisation)

For last couple of months this has been the most important aspect being covered by all the news channels, newspapers and a lot of buzz being created on social media regarding its impact on economy and people. The scheme have been a matter of debate with people on both the sides being actively and strongly criticising those on other side. The important aspect have been people without any knowledge of economics, taxation or finance are actively debating with each other on social media, meetings and discussions and even while on date about the demonetisation scheme . What made the people take a stand and that too, a firm stand when many don`t even know a bit about the demonetisation policy and its impact and have not even taken any pains to do the research. Understanding the reason behind this stand will really be fascinating.

While going through the newspapers and watching news being telecasted by different news channel, the talk shows and interviews I could come a bit closure to the reason, Though there might be other reasons too. Newspapers, TV channels and facebook pages and other social media pages are divided on their views about the move by the government. While few are only highlighting the positive impacts, there are few who are just busy portraying the negatives and stating the policy as a draconian move.

The familiarity through mere exposure and the experiment, something  usually called the Rapid Serial Visual Presentation, or RSVP Paradigm can help us to understand this strong support and firm mindset that people have developed towards this policy. The constant exposure either to positive or negative impacts based on the news channel, newspaper or social media pages that people follow is playing a great role in forming a opinion and the stand taken by people. Familiarity, mere-exposure and frequency is making people to believe what they are watching , reading or hearing is the truth and even if someone tells them the other side they are reluctant to change the stand or even consider the other views.

Experiments conducted by Zajonc, Goetzinger and others have all lead to same conclusion that people do develop a preference for things, ideas and characters they are familiar with. This  psychological phenomenon of mere exposure was tested through various experiments and majority of participants in these experiments preferred the items which they were familiar to and this familiarity was attained by mere exposure. In various experiments conducted the participants were exposed to few items before starting the experiment (Test) and were then given options from which they were asked to select either the positive, brighter or even the negative items and in all of the cases the participants selected the items to which they were exposed to before initiating the test. The mere exposure experiments provide a strong base that people develop bias and always tend to prefer the items they are exposed to frequently without any concrete basis. (Source: https://en.wikipedia.org/wiki/Mere-exposure_effect)

Also the  experimental model frequently used Rapid serial visual presentation supports the outcomes from mere-exposure experiments.  Raymond, J. E., Shapiro, K. L., and Arnell, K. M. (1992) through their experiments stated that if we were attentive to a object or item in RSVP stream (items to which the participants are exposed to prior to test) we develop a preference for the item over another item which was not a part of RSVP as the visual processing of first item which was a part of RSVP interferes with the processing of non-RSVP item. Thus resulting in preference for a item which was a part of RSVP stream (Source: http://www.tankonyvtar.hu/en/tartalom/tamop412A/2011-0018_08_kiserletek/ch03.html)

With the news channels, newspapers and social media pages in favour of the move are constantly highlighting the positives impacts, and show all the facts like money laundering agencies and tax evaders being caught, tax collection being increased people who are constantly been exposed to this positive news are developing a positive mindset and tend to believe that the move had a positive impact. However the media houses taking the other side are highlighting the negative views by constantly showing the huge queues of people at ATM`s and banks, deaths due to non-availability of currency and how people are still converting the illegitimate money to legitimate. The people exposed to these news are  taking a stand against the move and are busy criticising the government and all the people supporting the move.

This makes it very clear as to how the mind of the people can be manipulated by using communication channels to create the mere exposure impact to promote familiarity and control or influence the mindset of the people. If someone or a group gets control over these channels then people can be directed in the manner required and public opinion can be manipulated. The political parties who can exercise control or influence the media house can use the concept of mere exposure for their political benefit. Not only political parties , but others too can benefit by using this influence as we see in certain cases like  film promotion, product launch, marketing events. Though it can benefit certain individual, organisation or group, this can prove harmful to the public in general and can lead to conflicts leading to harsh consequences, as evident from how Nazis used mass media as a tool for control. (Source: http://www.mrhindshistory.com/mass-media.html)

Salary to Expats including Foreign Directors FAQ`s?

Q) Can Indian subsidiary pay salary to expats including Foreign Directors?

Ans: Yes, If the Expats are contributing towards the management and operation of Indian Company, the Indian company can pay salaries to the Expats including foreign directors.

Q) Are there any special provisions related to salary payments as per FEMA?

Ans: Yes, The FEMA provisions are different for the Expats who are not permanent residents and are sent on deputations and the permanent residents.

In case of non-permanent residents, there is no bar on repartiation and Expats can remit his entire net salary (excluding taxes, contributions to PF and other statutory deductions) abroad for

maintenance of his family without any prior permission from RBI.

However in case of permanent residents prior approval of RBI is required if the amount exceeds US$ 1,00,000 per person per annum.

Q) Does company law prohibits payment of salary to foreign Directors?

Ans: There is no law in India which prohibits payment of salaries to Foreign Directors.

Q) What are the TDS (Witholding) and Income Tax provisions?

Ans:  Income Tax as per the provisions of The Income Tax Act, 1961 has to be paid on

the entire salary accrued/paid to such EXPAT employee in India.

In case of a foreign expatriate working in India, the remuneration received by him, under the head ‘Salaries’, is deemed to be earned in India ,if it is payable on account of services rendered in India as per the provision of Section 9(1)(ii) of the Income Tax Act. Thus the Income is taxable in India.

Budget 2012: From Employee`s View point

Employee Benefit Accounting : IAS 18 Revised ( The rules for this game have changed !)

Finally employee Benefit accounting seems to be simplified. IAS 18 Revised have introduced some concrete and simple guidelines for accounting for employee benefit plans. Though the terminologies remain the same, new concept of Remeasurements (A broad term which includes actuarial gains and losses) is introduced. These are directly recognized in Other Comprehensive Income (Earlier options like Corridor method etc are no more available).  

Eco friendly ganesha

ONLY BAILOUT WILL NOT HELP

The European Union which came out with a common currency would never have imagined that their future will be so grim and euro zone will ever face such a downturn. Greek economy which is totally devastated and almost bankrupt with industrial production falling by 25% and fiscal deficit as high as 14% of GDP lead the European Union to this crises. Greek is an excellent example of fiscal mismanagement; exorbitant spending and hiding its actual deficit status have landed the whole EU into trouble. Developing investor’s confidence is an essential measure to be taken along with bail out.

 We shouldn’t expect that anything can be achieved through austerity measures, as stringent control over govt. expenditures will result in slowdown in economic activities thus adversely affecting the suffering economies. Bailout of about 1trillion dollars which is expected to help the European economy to come out of this storm will serve as a boomerang in long term if it is not supported by high economic growth. The fiscal deficit has affected adversely because it is not possible for the economies to service the debt and due to this investors have lost confidence in the economy which resulted in expectation of higher rate of interest and thus making the task of raising further funds even more difficult. Bailout will worsen the problem for other European economies specifically for PIIGS who are on the verge of collapse and this will result investors loosing confidence even in other economies and they will be entangled in the vicious circle of fiscal deficit. Thus, along with bailout building investor’s confidence will be a real challenge but an essential one to come out of this crisis. And definitely bailout should be supported by high level out economic growth.

IFRS 13 (Part – 2) Technical Issues

This is in continuation to my previous blog. In this blog I will be discussing about IFRS 13 in much more details. This blog covers some technical questions raised during recent webinar organised by IASB on 23^rd May, 2011. Some technical issues:

• When we talk about principal market does it means the market in which the entity normally trades or do we consider it to be market where market normally trades. As far as this question is concerned principal market means a market where the market often trades and not merely the entity.
• Distress market prices and inputs from distress markets are not to be considered for fair value calculation.
• The most important issue that needs attention is, IFRS 13 requires net risk position to be stated but IAS 32 requires gross presentation thus these two standards sound confusing, more clarification is required on this issue.
• Fair value determination in case of 1 Day transactions which are peculiar in case of banks still remains unaddressed, but IASB is working on this and shortly guidance on this issue will be made available.
• Another important point addressed is about cost as best estimate of fair value. Cost can no longer be the best estimate of fair value. Even if it is difficult to calculate fair value, using level 3 inputs fair value needs to be calculated.