📰 What is Total Return Index?
•In August, asset management firm DSP BlackRock Investment Managers Pvt. Ltd. announced it would be disclosing the performance of its active equity mutual funds with The Total Return Index (TRI) as the benchmark. Here is a rundown of the term:
How has equity mutual fund performance been measured so far in India?
•Currently, a majority of fund houses benchmark their equity mutual fund schemes against simple price indices which capture only the change in price of the stocks that are components of the said index.
•An index comprises a basket of securities taken at the prevalent market price. For instance, two of India’s popular indices Sensex and Nifty comprise shares of 30 companies and 50 companies respectively and the returns are measured based on price movements of the index components. So, an equity mutual fund’s performance was measured against the performance of their respective benchmarks.
What is The Total Return Index?
•A Total Return Index takes into account not just the Price Returns of the stocks but also dividends paid out on the stocks.
•According to investment research and investment management firm Morningstar, globally, Total Returns Indices are commonly used as the primary benchmarks for comparing fund performance, but in India this trend is only now taking off. Historically, Indian indices have always been tracked for the Price Return, but now you can find historical Total Returns data for most indices, although they are not widely tracked yet, the firm said.
What is the advantage in using the Total Return Index?
•BlackRock has said that total returns included interest, capital gains, dividends and distributions realised over a given period of time.
•The TRI will help in giving the right picture of the real alpha (a metric which measures what the fund has earned over and above — or below — what was expected.
•The alpha that is shown currently may look overstated as dividends are not added in benchmark returns calculation and the move towards TRI is a step towards “responsible and transparent communication with our advisors and investors and also sets high standards in investment management,” BlackRock said.
•Morningstar has compared the alpha generated by Large Cap Funds against the broader market benchmark on both Price Return as well as Total Return basis for a 5-year period.
•According to the firm, the Total Return of the benchmark S&P BSE 100 was 165 basis points higher than the price return.
•The number of equity mutual funds beating the benchmark dropped to 58% from 85% after making a comparison on TRI rather than on Price Return Index basis, it said.
What does TRI mean for stakeholders in a mutual fund?
•From an investor stand point, TRI would give the actual picture of what exactly he or she earns from a mutual fund investment. From the standpoint of fund managers, it will make them work a little harder to make the right stock pick.
•For instance, according to Morningstar, the typical dividend yield on benchmarks is in the ballpark of 1.5% per annum, which means that the TRI benchmark will be harder to beat by 150 basis points per annum.
•One has to wait and see how the TRI changes the working style of fund managers and their performance in India.
📰 Large solar storm sparks global aurora on Mars
•An unexpectedly strong solar storm hit Mars this month, sparking a global aurora and doubling radiation levels on the red planet, NASA scientists say.
•The solar event on September 11 sparked an aurora more than 25 times brighter than any previously seen by the MAVEN orbiter, which has been studying the Martian atmosphere’s interaction with the solar wind since 2014.
•It produced radiation levels on the surface more than double any previously measured by the Curiosity rover’s Radiation Assessment Detector (RAD) since that mission’s landing in 2012. The high readings lasted more than two days.
•“NASA’s distributed set of science missions is in the right place to detect activity on the Sun and examine the effects of such solar events at Mars as never possible before,” said Elsayed Talaat, programme scientist at NASA Headquarters in Washington.
•Strangely, it occurred in conjunction with a spate of solar activity during what is usually a quiet period in the Sun’s 11-year sunspot and storm-activity cycle.
•This event was big enough to be detected at Earth too, even though Earth was on the opposite side of the Sun from Mars.
•“The current solar cycle has been an odd one, with less activity than usual during the peak, and now we have this large event as we’re approaching solar minimum,” said Sonal Jain of the University of Colorado Boulder’s Laboratory for Atmospheric and Space Physics, who is a member of MAVEN’s Imaging Ultraviolet Spectrograph instrument team.
•“This is exactly the type of event both missions were designed to study, and it’s the biggest we’ve seen on the surface so far,” said RAD Principal Investigator Don Hassler of the Southwest Research Institute in the US.
•“It will improve our understanding of how such solar events affect the Martian environment, from the top of the atmosphere all the way down to the surface,” Mr. Hassler said.
•RAD monitored radiation levels inside the encapsulated spacecraft that carried Curiosity from Earth to Mars in 2011 and 2012 and has been steadily monitoring the radiation environment at Mars’ surface for more than five years.
•RAD findings strengthen understanding of radiation’s impact on Mars habitability, a key objective of the Curiosity mission.
•NASA is also using RAD findings for planning the safety of human-crew missions to Mars.
•Highly energetic solar events can significantly increase the radiation that penetrates through the atmosphere to the Mars surface.
•The increased radiation also interacts with the atmosphere to produce additional, secondary particles, which need to be understood and shielded against to ensure the safety of future human explorers.
•“If you were outdoors on a Mars walk and learned that an event like this was imminent, you would definitely want to take shelter, just as you would if you were on a space walk outside the International Space Station,” Mr. Hassler said.
•“To protect our astronauts on Mars in the future, we need to continue to provide this type of space weather monitoring there,” he said.
📰 Fewer GST slabs possible after rise in revenue: Jaitley
Scope to reduce compliance burden of small taxpayers, says Finance Minister
•Bigger reforms such as lower number of slabs under the Goods and Services Tax (GST) regime can be considered once there is revenue buoyancy, Union Finance Minister Arun Jaitley has said.
•Speaking at the ‘Foundation Day’ event of the National Academy of Customs, Indirect Taxes and Narcotics on Sunday, the Minister said, “We have almost by the day, space and scope for improvement... to reduce compliance burden as far as small taxpayers are concerned.”
•He added, “We have space for improvement eventually, once we become revenue neutral, to think in terms of bigger reforms such as lesser slabs, but for that we have to become revenue neutral...”
•At present, GST slabs have rates of 5%, 12%, 18% and 28%.
Presses for change
•The Minister said, “In a society which did not conventionally mind being a non-tax complaint one, people are realising the virtues of compliance which comes with the passage of time. This is the reason for tax integration. Once this change is established, we will have scope and space for improvement. And once we become revenue neutral, we [will] need to think of better reforms.” India is going through indirect taxation at a time when the economy is growing, he said, adding that direct tax is paid by the more affluent sections, while indirect tax is a burden on all.
📰 GST: old habits spur poor compliance
Behavioural factors, date clashes lead to missed deadlines for filing returns, say industry consultants
•The reason behind only a little more than half of the registered taxpayers filing their August returns by the deadline could be due to a combination of behavioural reasons, and the clashing of various deadlines, according to tax experts. The government had last week announced that, though the last date for filing the GSTR-3B form for August was September 20, only 55% of those ‘required to file’ had done so by September 25.
•“The alarming fact which emerges is with respect to the level of compliance for the month of August,” Abhishek A Rastogi, Partner at Khaitan & Co said. “It appears that 45% of the assessees have still not filed returns. The Government should go to the root cause and analyse whether these assessees are facing some genuine problems or they have been migrated automatically and are not required to comply.” Many small vendors have had to register themselves on the GST Network in order to obtain a GST number, something their buyers need them to have for the purpose of availing input tax credits. However, once registered, these small businesses have to file their returns regularly.
‘Zero returns too’
•“This means all the people who have taken up a GST registration have to file their returns, even if it is a zero return,” Ansh Bhargava, head of growth and strategy at Taxmann, told The Hindu .
•Mr. Bhargava added that a major reason behind 45% people not filing their GST returns could be due to behavioural issues, since it was unlikely to be due to a lack of clarity about procedures or deadlines. “There is nothing wrong with the system, as such,” Mr. Bhargava said. “The returns are being uploaded on the website..., and people already know the deadline. The government has been clear about that and the officials have been repeating it. This could be down to a behavioural phenomenon where people are not used to filing their returns regularly.”
•Another reason for missing the deadline for GSTR-3B could be that taxpayers are waiting to first deal with the more complicated GSTR-1 form and then turn to the GSTR-3B. “The biggest issue in July was: how does a business make a bill,” Tejus Goenka, ED, Tally Solutions said. “In August it was how to file GSTR-3B, which turned out to be a non-issue. The biggest issue is the GSRT-1, which is the detailed return, and that’s a huge problem because of the amount of details needed and the format not being straightforward,” Mr. Goenka added.
📰 GST: competitiveness to quell power costs
India is the world's third-largest producer and fourth-largest consumer of electricity. In the last couple of years, the power sector witnessed record capacity addition taking the installed generation capacity to more than 330 GW.
•Considering its role in developing the economy and in achieving universal electrification, the Central and State Governments have always given special tax treatment to the power sector in the past. But post GST, that trend may not continue.
•The GST Act has kept electricity out of its ambit while keeping the capital goods and services consumed by the sector under its coverage. Power generating companies will hence not be able to claim input tax credit — that is, they cannot pass on the tax they paid for inputs to the consumers.
•There is also no benefit of input tax credit in respect of state VAT on inputs used in the process of power generation and distribution. So, the cost of power will come embedded with taxes on power generation equipment and other inputs.
•A marginal rise in the power tariff is therefore inevitable at least in the short to medium term.
•Though the Engineering, Procurement and Construction (EPC) contracts could see a reasonable decrease as works contract gets subsumed into service tax, they cannot avail input tax credit on contracts for the same reason that electricity is outside the GST regime.
•As for the renewable sector, there will be an increase in cost of generation to the extent of 5-10%, due to the increased tax incidence on many of the components that go into the manufacturing of solar PV systems and wind generation systems.
•According to an estimate by the Ministry of New and Renewable energy, the cost of setting up solar off-grid projects will rise by 16-20%, after GST. There will be an about 16% increase in solar PV grid installations and a 11-15% jump in the cost of setting up of wind energy projects. As far as biomass and hydro projects are concerned, the increase in project cost will be about 11-14% and 11% respectively.
Positive impact
•But the GST does come with its own benefits. Domestic coal, for instance, has been brought under the 5% tax slab — in the past, the tax slab for coal varied from 11% to 12%. This comes as a much needed breather for a majority of private sector thermal power generators who are struggling with low returns. It is estimated that the variable cost of generation for coal-based power companies will be decline by 5-6 paise a unit, or about 1% of the current open market tariff.
•The impact of GST will be positive for the electrical and the lighting sectors that will enjoy reduction in indirect taxes — from about 30% to 18%. India has announced a major initiative to achieve an all Electric Vehicle Regime by 2030. Towards this, the GST at 12% for Electric Vehicles compared with 28% for diesel /petrol vehicles and hybrids is a major step.
•The fallout of the programme will give a major boost for the demand pick-up. With more and more charging stations coming up, electricity demand should go up by a few hundred gigawatts by 2030. This indeed is a welcome move.
•While the government needs to rationalise the tax structure and pave the way for the seamless flow of input tax credit, eventually market competitiveness of power generators — public or private, conventional or renewable — could absorb the increase, relieving consumers of the burden.
📰 Coal is still the secret of our energy
Demand for coal is expected to climb despite ramping up of renewable energy capacity
• With India embarking on an ambitious journey to achieve renewable energy capacity of 175 gigawatt (GW) by 2022, questions have been raised on the relevance of coal in the present context. Does coal, the principal source of energy for now, face a dark future?
• “No, it can’t be. If the future of coal is dark, then the future of the country will be dark,” said Partha Bhattacharya, former chairman of Coal India Ltd.
• “You can’t live without coal. Coal is at the centre of everything. With all this hype [about] renewables, today in power generation, 81% is out of coal,” he pointed out. “Going forward, the share will definitely come down. But the growth in renewable does not mean the generation from coal will come down. It will never come down, at least in next few decades,” he said emphatically.
• According to analysts, renewable energy sources and coal will coexist, as the availability of coal is abundant in India and it can provide affordable power to propel India’s growth and light every household.
• Despite the rapid growth in renewable energy, legacy coal plants will continue to generate thermal energy. However, most additional capacity in the country will come from renewable sources.
‘Auctions as barometer’
•“If coal had a bleak future in India, then the coal block auctions could not have happened or succeeded,” Sushil Kumar Jiwarajka, chairman, Renewable Energy Mini Grid Committee, FICCI, said.
•This is evident from the fact that captive power plants purchased 80% of the coal offered on a five-year contract at an auction at an average premium of 25% over the notified price. At a similar auction held last year, Coal India had managed to receive a premium of 19% over the notified price.
•“In India we cannot do without coal. Despite the ramping up of renewable capacity, both solar and wind energy cannot go beyond 40% of the energy mix. So, coal has no problem for the next 20 years in India unless some new source of energy is invented overnight,” Mr. Jiwarajka added. The abundance of coal in India makes it the most important fuel. In power generation today, the share of coal in total capacity is about 62% but the share in generation is about 80%.
•With reliable supply of energy becoming critical to provide round-the-clock electricity across the country and to achieve 100% electrification by December 2018, super thermal power plants and other modern thermal plants are being nudged by the Centre to produce more energy from the same capacity.
•The NITI Aayog, which had sought suggestions from experts for meeting the electricity demand under the current circumstances, was advised to allow thermal plants to enhance output without adding any capacity.
‘Only variable cost’
•“Demand for coal will go on increasing. For existing plants, coal-based generation is the cheapest mode and most affordable [source of] power in the country. One is only [incurring] variable cost. The capacity is already there,” said Mr. Bhattacharya, who had advised the NITI Aayog.
•Though the latest prices of solar and wind energy do throw a question mark on whether further thermal power capacity would come up, analysts said coal would continue to dominate in the absence of cost-effective storage of renewable energy that has been generated.
•Today, the plant load factor (PLF) for India’s thermal power capacity has dropped to 52% from 79% in 2007-8 but the country’s thermal plants are equipped to operate at about 85 to 90% PLF. Assuming the PLF is scaled up from 55% to 85%, one can see a 50% increase in output from the same capacity. The only cost involved here is the variable cost of coal.
•This variable cost is far lower than that for solar power. It is expected to be about Rs. 1.50 per unit and the price difference is expected to be in the range of Rs. 0.70 to Rs. 1 per unit with solar or wind energy, according to industry players.
•“It makes eminent sense for the country to increase the output from existing plants. The additional generation will be close to 500 billion units. With an average cost saving of Rs. 0.80 is Rs. 40,000 crore. This benefit will go to discoms and consumers if the country adopts this kind of a strategy,” Mr. Bhattacharya said indicating that this had been suggested to the think tank.
•To produce 500 billion units, 350 million tonnes of coal would be required — this is the additional demand. Even at a requirement of 300 million tonnes of coal, coal demand will increase by 7% a year from now.
•India uses about 800 million tonnes of coal. The current coal production in the country is 650 million tonnes, while the balance is imported. The additional demand for coal to fire up power plants would contribute a substantial Rs. 12,000 crore annually to the Clean Environment Fund at the rate of Rs. 400 per tonne.
Conflict with the West?
•Will the developed world tie our hands given their own interests? No, they cannot, said industry analysts. India’s share in pollution is far less than its share of the global population. Developed countries did want to club India with China and said that what applied to China, applied to India too. Fortunately, India has not succumbed to that. “They cannot put on us that kind of pressure,” said an analyst at an Indian brokerage, citing developed countries.
•Using more coal to meet the energy demand from the same thermal capacity for the next 20 years will not put India at disadvantage given its commitment to meet the Climate Change COP 21 obligations.
•As per the obligations, India’s renewable capacity should be 40% of the total capacity by 2030. Including hydro-based power, that capacity is currently at 28%. Once India implements the 175 GW renewable programme, the 40% criteria will be achieved. Besides, India is well within the COP 21 obligation till it uses 1,500 million tonnes of coal a year as compared with 800 million tonnes now to generate energy. Analysts also said India could continue with a coal-based growth plan, which is cost effective. This is what China has done to place its economy on a solid footing, said an analyst with a foreign brokerage firm.
•The Chinese share in global emissions is now close to 30%, whereas its share in global population is just about 17%. India’ share in global population is 16%, while its share in emissions is only 6%-7%, said an analyst, highlighting the contrast.
•“That is in COP 21, our obligation is not as stringent as China’s. China is obliged to provide for green alternatives to counter pollution from the burning of 4 billion tonnes of coal. We are in a different situation altogether,” said Mr. Bhattacharya. Even though the NITI Aayog energy policy mentions 330 GW of thermal capacity as target by 2040, it is unlikely to be achieved because of the sharp correction in solar power prices, said an analyst. The International Energy Agency (IEA) in a recent report titled India Energy Outlook has said, “The rapid change anticipated for the Indian energy system in the New Policies Scenario does not translate into a dramatic shift in the energy mix. Coal retains a central position in the mix, increasing its overall share in primary energy from 44% in 2013 to 49% in 2040.”
•It said coal-fired power contributes substantially more to output than to overall costs, helping to keep electricity tariffs affordable for consumers in a period when India is adding more costly sources of power.
•In India, coal has always been thought of as the raw material for power. Because the demand from the power sector was much more than the availability of coal in the last 10 years, no serious thought has gone into any other use for coal.
•Once the power sector begins to use increasing amounts of power from solar and other renewable sources, then coal can be put to use elsewhere: eg, coal can be deployed in the manufacture of ammonia and for conversion of ammonia to fertilizer.
•With the government’s plans to usher in a second green revolution, the demand for domestically-made fertilizer will be high. Thoughts are being channelised now to come up with methods to produce chemicals such as methanol and others of its ilk from coal.
•India’s total coal reserve is estimated at a little more than 300 billion tonnes. If 50% of that is extractable, a 1-billion-tonne annual consumption will translate into availability for 150 years.
📰 For a knowledge economy
India needs to do more than just pour money into higher education institutions
•India plans to pump in over Rs. 10,000 crore to build 20 world-class higher education institutions. However, for knowledge to translate into a wealthy society, we need to do more than just this; we need to create a conducive knowledge ecosystem, which is currently missing from our national plans. Institutions of higher education help in creating such an ecosystem, and improve a nation’s productivity and wealth.
•By the 1960s, American economists such as Kenneth Arrow and Robert Solow had begun to notice that growth and productivity could not be explained only by capital and labour. This differential they attributed to the knowledge content of an economy. Today, knowledge-intensive and high-technology industries contribute the most to long-term growth. It is no accident that the U.S. accounts for 33% of global output of knowledge-intensive services, China 10%, but India only 2%. In high-technology manufacturing, India barely exists.
•It is here that institutions step in. The creation of a knowledge ecosystem that allows for robust institutions that focus on information gathering, planning, research, teaching, credit supply, and ensuring that people are filled with hope rather than derision for the society in which they live will make a society wealthier. Institutions can generate an ecosystem for innovation in many ways: by providing access to knowledge capital, an atmosphere of inquiry, and an experimental environment where those ideas can be tested. Given that the success rate of ideas is rather low, ideas need to be tested constantly. Funding enters the picture only after all this is done. For reality testing, we need collaboration between academic researchers and the users of that knowledge, industry, and government. It is this interface that is rather weak in India.
•The heartening thing is that even with a rather low funding to research as percentage of GDP, with very few Indians taking to formal learning and research, India still accounted for 4.4% of the global output of science research publications in 2013. Translating this research into technology remains the weak link. For that to happen, the latest suggestion in the choice-based credit system is to include project work at all levels in higher education institutions.
•We also need to ensure ease in movement of personnel between universities and industry. However, there are two obstacles in facilitating this. One, outdated service conditions in the government sector discriminate against people who make such lateral shifts. Two, completely artificial labels exist that distinguish between private and government-owned entities in funding for higher education. Institutions like the Indian Institute of Science, the Indian Institutes of Technology, and Christian Medical College and Hospital, Vellore are all proof that that such categories make little difference to the quality of research and graduate outcomes. We need to provide more autonomy to public institutions in hiring and firing people. And once an institution is given a grant, we need to ensure that it is utilised for the purpose given.
📰 Back to paper
A State-wide voter paper trail may silencethe EVM’s critics, but is a regressive step
•The Election Commission’s decision to deploy the Voter Verifiable Paper Audit Trail system for all the constituencies in the Gujarat Assembly elections is questionable. This will be the first time VVPAT will be used on a State-wide basis. A costly but useful complement to the Electronic Voting Machine, it allows the voter to verify her vote after registering it on the EVM, and the paper trail allows for an audit of the election results by the EC in a select and randomised number of constituencies. The implementation of VVPAT was to have been undertaken by the EC in a phased manner, but this blanket use appears to have been expedited after a series of unwarranted attacks on EVMs by some political parties and scaremongers. The EC had sought to allay concerns and confront allegations of voter fraud by running through the administrative and technological safeguards instituted to keep EVMs and the voting process tamper-proof. It had also challenged political parties to a hackathon to see if, with these safeguards in place, EVMs could be manipulated. The representatives of only two political parties, the Communist Party of India (Marxist) and the Nationalist Congress Party, bothered to turn up. It is unfortunate that parties have found it worthwhile to cry wolf but refuse to meaningfully engage with the EC when challenged to do so. The introduction of VVPAT and the audit process should allay some of the doubts raised by EVM naysayers — but this is a costly process and should not become the norm going forward.
•Meanwhile, it would be wise for the EC to rapidly transit to third-generation, tamper-proof machines, which must be thoroughly tested and vetted by experts before deployment. The EC’s use of a standalone, non-networked machine that runs on a single programmed microchip shows that India’s simple but effective EVMs were ahead of the curve compared to the alternatives used elsewhere in the world. Many advanced democracies used networked EVMs, which raised the question of remote manipulation through viruses and malware, compelling many of them to revert to paper ballots. The EC has so far demonstrated that the voting process is robust and its machines are continually upgraded to meet possible challenges, but there are other concerns regarding the use of technology that it must be aware of. For example, Russian cyber-hacking, using techniques such as spear-phishing of election officials and related manipulation of voter data, has been suspected in some jurisdictions abroad. The EC’s move in late 2015 to avoid the linking of the voter identity card with the Aadhaar number in order to avoid the trap of linkages with big data, thus becoming susceptible to digital manipulation, was thus a wise decision. It must continue to keep its processes decentralised and accountable.
