01st July 2021 Cotton and Yarn Futures Cotlook A Index - Cents/lb (Change ZCE - Daily Data MCX (Change from previous day) from previous day) (Change from 29-06-2021 96.60 (+0.25) previous day) Jul 2021 24660 (-80) 29-06-2020 67.95 Cotton 15840 (-25) Aug 2021 24830 (-130) 25-06-2019 76.40 Yarn 22040 (-20) Cabinet clears Covid relief stimulus package New York Cotton Futures (Cents/lb) As on 01.07.2021 (Change from Small savings rates left unchanged previous day) Jul 2021 85.20 (-1.29) Companies told to pay GST on license fee for government schemes Oct 2021 85.70 (-2.44) Finmin reimposes spending curbs on ministries, depts for Dec 2021 85.16 (-2.42) Q2 of FY22 2 CITI-NEWS LETTER -------------------------------------------------------------------------------------- Cabinet clears Covid relief stimulus package NATIONAL Small savings rates left unchanged Companies told to pay GST on license fee for government schemes Finmin reimposes spending curbs on ministries, depts for Q2 of FY22 Shri Piyush Goyal says India will be playing a much greater role in the post pandemic world in creating resilient supply chains Monthly Review of Accounts of Union Government of India for the month of May 2021 for the Financial Year 2021-22 Fiscal deficit reined in at 8.2% of Budget Estimate Cabinet approves Loan Guarantee Scheme for Covid Affected Sectors (LGSCAS) and to enhance the corpus of Emergency Credit Line Guarantee Scheme (ECLGS) CBIC to honour taxpayers' contribution to GST success EPF subsidy extension to aid generation of 13.3 lakh jobs: Govt Consultations on FTAs planned with UK, EU to start in July India’s 1991 liberalisation leap and lessons for today: Montek Singh Ahluwalia Big potential for Indian apparels in Polish markets: Indian diplomat India's solar power efforts an example to world, says Prince Charles What Indian MSMEs need Shipping ministry launches corridor from Cochin port to improve coastal connectivity Textile industry awaits policy initiatives to boost growth Minister invites textile industry to invest in Bihar India launches 'enforcing contracts portal' -------------------- --------------------------------------------------------------------------------------------- ------------- COVID-19 crisis causes dramatic fall in FDI: UNCTAD GLOBAL UK launches business rates revaluations consultation; BRC lauds step Brexit’s broken promises heap more pain on fashion retail Gov’t starts ninth round of cash aid SA's clothing industry trying to stitch itself together following worst decline to date FY22 budget: textile sector’s perspective ------------------------------------------------------------------------------ www.citiindia.com 3 CITI-NEWS LETTER NATIONAL: Cabinet clears Covid relief stimulus package (Source: Economic Times, July 01, 2021) The Union Cabinet on Wednesday approved the Covid-relief stimulus package announced by finance minister Nirmala Sitharaman two days ago, information and broadcasting minister Prakash Javadekar said. The approved schemes include a Rs 3.03 lakh revamped scheme for the power distribution sector, Rs 1.5 lakh crore additional credit for small and medium businesses, and export insurance cover of Rs 1.22 lakh crore. They also include more funds for the healthcare sector, loans to tourism agencies and guides, and waiver of visa fees for foreign tourists. Under the power distribution scheme state power distribution companies will receive grants each year when they achieve the milestones agreed for the previous fiscal. As per the five-year programme, reforms-based, result-linked scheme for financial assistance to discoms if a utility is found ineligible any year, then the gap in funding to complete its projects will have to be met by the discom or its state government. However, the unmet targets for one year get added to the targets for the next year. Power and renewable energy minister R K Singh said the five-year scheme aims at zero gaps in revenue of discoms and reduction of commercial losses across India to 12-15%. Singh said this scheme is different from the previous schemes as it imposes conditions before disbursement of grant. The scheme is expected to install 25 crore smart meters, 10,000 feeders and 4 lakh km of low tension overhead lines. Under the loan guarantee scheme for Covid-affected sectors, Rs 50,000 crore financial guarantee cover will be offered for brownfield expansion and greenfield projects related to health/ medical infrastructure. Home www.citiindia.com 4 CITI-NEWS LETTER Small savings rates left unchanged (Source: Times of India, July 01, 2021) The government left small savings rates unchanged for the July-September quarter after an uproar over a sharp cut in April had forced it to reverse the decision. This is the fifth straight quarter where rates have been left unchanged, providing respite to middle class investors who park their savings in Public Provident Fund, Senior Citizen Savings Scheme and National Savings Certificate, among other instruments. However, the status quo will make interest rates stickier for banks, which will not be able to reduce deposit rates, fearing a flight of funds to higherearning products such as PPF that also offer tax benefits. It will make it difficult for banks to significantly lower home loan and other lending rates. Currently, State Bank of India offers the highest rate of 5.4% on fixed deposits with a tenure of five to 10 years. In contrast, PPF deposits will offer 7.1% and will be tax-free. So, an investor in the 30% income-tax bracket can hope to earn over 9% on these funds. The last round of rate cuts, which came in the middle of elections in West Bengal and other states, had to be reversed within hours. Given the weak economic sentiment and concerns over price rise, especially in the wake of petrol and diesel rates crossing the Rs 100-a-litre mark in several parts of the country, the government may not have wanted to upset the middle class further. Besides, in the past, the money, which are government borrowings that flow into the National Small Savings Fund, also came handy in meeting off-budget funding requirements, such as paying for food subsidy or lending to Air India. In the last budget, finance minister Nirmala Sitharaman had, however, cleaned up the books by clearing dues of FCI and others directly. Home Companies told to pay GST on license fee for government schemes (Source: Sachin Dave, Economic Times, July 01, 2021) Companies have to take licenses to avail the benefits to government schemes such as advance authorisation and export promotion for capital goods (EPCG), among others. The indirect tax department has started demanding goods and services tax (GST) on licence fees paid by companies to the government for availing certain benefits, people aware of the development said. Companies have to take licences to avail the benefits to government schemes such as Advance Authorisation and Export Promotion for Capital www.citiindia.com 5 CITI-NEWS LETTER Goods (EPCG) among others. In most these cases, the tax department is asking companies and exporters to cough up the GST on the licence amount, industry experts said. Many companies claim that these fees are essentially statutory levies and should be outside the gamut of taxation. The tax department is arguing that these are licences and hence should be taxable under the GST. Under Advance Authorisation, a company can import raw materials without paying duties on that if it can demonstrate that these raw materials are to be used in a final product that will eventually be exported. EPCG is a similar scheme, but it has certain different conditions to be fulfilled by the companies. “There is a clear distinction between supply of service and the sovereign function of the government. When various such payments are made, there is no ‘quid pro quo’ and hence no applicability of GST,” said Abhishek A Rastogi, partner at law firm Khaitan NSE 0.26 % & Co, who is advising some of the companies on the issue. Legal experts said this could lead to additional litigation. Directorate of Revenue Intelligence (DRI), the investigative agency for customs law matters, had begun issuing notices to exporters for GST exemptions where exports preceded imports. Some companies have approached the Gujarat High Court in this regard. Tax demands on some other licences and schemes are also under litigation, people in the know said. The indirect tax department had started questioning several importers on a few transactions and is looking to put additional duty on certain imports that were done under some schemes that were prevalent in the erstwhile tax regime. This comes at a time when the government is facing some flak from the World Trade Organisation (WTO) and the US for promoting these schemes for improving its exports. The government has brought in a new scheme, Remission of Duties or Taxes on Export Products (RoDTEP) to replace some old export promotion schemes such as Advance Authorisation following a dispute with the US at WTO. Many companies and exporters had sought that the government extend some of the existing scheme till there is more clarity around RoDTEP. Home www.citiindia.com 6 CITI-NEWS LETTER Finmin reimposes spending curbs on ministries, depts for Q2 of FY22 (Source: Shrimi Choudhary, Business Standard, July 01, 2021) Move made keeping in mind cash position ahead of likely third wave; health, MSME and rural development spared restrictions The finance ministry on Wednesday reimposed expenditure curbs on ministries and government departments for July-September quarter. There will be no spending restrictions on the ministries of health, rural development, agriculture, MSME (micro, small and medium enterprises) and railways as part of a two-pronged strategy. “The existing guidelines for expenditure control have been reviewed. Keeping in view the evolving situation arising out of Covid-19 and anticipated cash position of the government, it is felt essential to regulate Quarterly Expenditure Plan (QEP)/Monthly Expenditure Plan (MEP) of specific ministries/departments for July- September, 2021,” the Department of Economic Affairs in the finance ministry said in a notification.