India Struggles to Adjust to GST
Nearly three weeks ago, India “launched its biggest-ever fiscal reform with the government promising a stronger, less corrupt economy, while businesses are nervous about the new tax,” according to The Economic Times news story, India Launches National Tax Amid Business Doubts. The goods and services tax (GST) replaces more than a dozen levies and aims to create a single market.
“Businesses are nervous about the imposition of GST, which sets out four different rates of between five and 28% instead of the one originally envisioned,” the news report states. “Textile traders and other sectors went on strike ahead of the launch and many businesses say they are unclear about what to charge.”
According to a Financial Times article, Indian Businesses Split Over Benefits of Modi’s Tax Reform,“Unrest over GST has been strongest in the country’s textiles industry, with strikes and protests among small traders, many of which will be subject to tax for the first time.”
Another Economic Times piece, Shadow Economy Struggles Under Weight of India’s New Tax Regime, notes that “many labor-intensive sectors—from leather to textiles—fear newly high rates will have a lasting impact on industries that provide billions in export earnings, raising the chance that India's trade balance could widen in the next few months.
Credit professionals who are doing business in India are experiencing some of the fallout as companies adjust to the tax. C. Edward Frermann, CCE, ICCE, recently raised his concerns on FCIB’s members only Discussion Board. He had been told his company’s customers in India were freezing payments until they figured out the new system.
Respondents to his query assured him that a slowdown in payments were more than likely temporary. One individual shared that payments were “delayed as companies work through their implementations and incorporate new business processes.” The member went on to explain that her company experienced a slowdown in sales as customers completed their GST migration, including changes associated with invoices. Most of the company’s customers were already registered and the expectation was for collection efforts to resume as normal.
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Have Central Banks Been Manipulating the Market?
Chris Kuehl, Ph.D.
The Fed, European Central Bank (ECB), Bank of England, Bank of Japan and many others have indeed promulgated policy over the last few years that could be accurately described as manipulative.
Using the bond market to stimulate the economy was highly unorthodox at the beginning of the recession, but it became routine as the downturn progressed. There have been critics from the start, and the jury is out on whether these rounds of quantitative easing accomplished much.
The Fed went through three rounds. Many people assert that it was only the first round that accomplished much because it was focused on taking the mortgage-backed securities off the hands of the banks so they would start lending again.
To be honest, the Fed chairs (Ben Bernanke and Janet Yellen) as well as the heads of the ECB and others (Mario Draghi and Mark Carney, among others) were not big fans of these moves, but they were essentially forced to try radical steps because Congress and the other global legislatures utterly failed to do their jobs.
Congress’ criticism of Yellen and the Fed is more than a little disingenuous. The role of the legislature in a recession has traditionally been to stimulate with some combination of tax cuts and spending. The central banks play a smaller role with lower interest rates, but their primary role remains controlling inflation.
The central banks were forced to try new things to stimulate as their “partners” were nowhere to be seen. The majority of the central banks are now more than eager to get out of this game and leave the stimulating to the lawmakers—assuming they are ready to pick up the challenge and push that kind of budget plan.
More SMEs Pressured to Accept Longer Payment Times
Small- and medium-sized enterprises (SMEs) across Europe need to accept longer payment times from other, often larger, businesses, according to a new European Payment Report from Intrum Justitia.
“The report reveals a staggering increase in 2017,” Intrum Justitia noted. More than six out of 10, or 61%, of businesses complained about being asked to accept longer payment terms than they feel comfortable with, up from just over four out of 10 last year.
The problem creates a cycle where businesses that receive late payments in turn must pay their sub-contractors late. Four out of 10, or 40%, of the businesses admitted that they pay late.
As a result, businesses in Europe are demanding tougher payment regulations. Nearly 40% of the companies said they would welcome new legislation, while 30% stated that they would prefer new voluntary-based codes of conduct to establish a culture of prompt payment.
Overall, however, companies were more positive about “being able to conduct their business without risking cushy flows, liquidity and growth as a consequence of their customers’ inability or willingness to pay on time,” the report states.
“While I am pleased to note the businesses of Europe have a somewhat brighter outlook for the future in general, it is alarming that the payment culture is going in the wrong direction,” said Mikael Ericson, CEO and president of Intrum Justitia. “The economic environment is being severely affected by some businesses pushing contractual terms for sub-suppliers towards 90 days or longer and deliberately paying later than agreed.”
The report is based on a survey taken by 10,468 companies in 29 European countries between Feb. 1 and March 29.
While this report looks at payment behavior in Europe, FCIB is currently conducting a survey that looks at several Middle Eastern and North African countries: Algeria, Egypt, Qatar, Saudi Arabia and the United Arab Emirates. Credit professionals who participate in the July Credit & Collections Survey, which just takes a few minutes to complete, will receive the complete results, including a view of payment trends over the past few years.
U.S. makes lowering the trade deficit a top priority in NAFTA talks. The United States on July 17 launched the first salvo in the renegotiation of the 23-year-old North American Free Trade Agreement (NAFTA), saying its top priority for the talks was shrinking the U.S. trade deficit with Canada and Mexico. U.S. Trade Representative Robert Lighthizer said he would seek to reduce the trade imbalance by improving access for U.S. goods exported to Canada and Mexico under the three-nation pact. (Fortune)
Venezuela opposition congress to name parallel Supreme Court judges. Venezuela's opposition-led Congress said on July 21 it will appoint 13 alternative judges to the country's Supreme Court, whose current pro-government members have been a bedrock of support for leftist President Nicolas Maduro. While widely seen as symbolic, the move raises the specter of the development of a parallel state. (Reuters)
EU and Britain to present post-Brexit plan on WTO membership. The European Union and Britain plan to put forward a joint proposal for reform of the terms of their World Trade Organization (WTO) membership in September or October, an EU source said on July 17, as London negotiates to leave the EU. (EurActiv)
Outlook for LatAm economies worsens ahead of election season. Economic growth in Latin America will be slower than previously thought this year across nearly every major regional economy as political uncertainty simmers ahead of a series of scheduled elections. Economists at leading banks and research firms cut 2017 growth estimates for six of the seven largest economies in the region against a backdrop of slowing inflation there and elsewhere in the world. (HSN)
Fitch: South Africa's economic plan unlikely to boost growth. South Africa's economic strategy released over a week ago is unlikely to boost growth and many of the measures have previously been announced, ratings agency Fitch said on July 19. Africa's most-developed economy entered recession for the first time in a decade in March, while a bitter leadership contest in the ruling party and government corruption scandals have further dented investor confidence. (Reuters)
Iran skips opportunity to upset nuclear deal over U.S. sanctions. Iran decided on July 21 for the second time since January not to upset its nuclear pact with six world powers despite public statements by Tehran accusing the United States of violating the deal. Iranian President Hassan Rouhani said on July 19 new U.S. economic sanctions imposed against Iran contravened the nuclear accord reached with world powers in 2015 and he pledged Tehran would "resist" them while respecting the deal itself. (Reuters)
Greece shows signs of recovery. Despite a continued fragile economy, Greece is in line for a GDP rebound this year, driven by investment demand, higher private consumption and increasing exports. According to a new country report by Atradius, exports of agricultural goods as well as petroleum, pharmaceuticals and aluminum products are expected to increase on the back of higher external demand and improved international competitiveness compared to some European peers. (Global Trade Review)
Reading the tea leaves at U.S.-China economic talks. The United States and China entered this week’s U.S.-China Comprehensive Economic Dialogue with wildly diverging agendas and goals. The U.S. wanted to achieve some concrete progress on reducing the U.S. trade deficit with China, while China sought to emerge from the talks with a framework for further talks and some sort of common working agenda. Neither side achieved its goals and ended the meeting after canceling a planned joint press event. (Global Trade Magazine)
Why is the international community not intervening in Venezuela? Venezuela’s political and economic debacle has significantly intensified over the past 12 months. Yet external intervention in Venezuela is not on the table and the international community favors an internal solution, regardless of how difficult it may be. (Global Risk Insights)
Macron puts his stamp on French foreign policy. French President Emmanuel Macron is striking a new, pragmatic and self-confident tone in the country's foreign policy, for which he's received a lot of kudos. The recent reception for U.S. President Donald Trump in France is a perfect illustration of this new approach. (Interpreter)
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations