2016 was a roller coaster in the financial world with its series of events. The events brought down some drastic changes in the Indian Financial economy due to the change of some policies and due to the adoption of the new ones. The major events that affected the whole year were:

  • The BRICS decision
  • The GST bill decision
  • Demonetization of currency

The financial economy is very much affected by it and the lessons that we have learnt from these events let us have a look at them:

2016 BRICS summit in Goa

2016 BRICS summit in Goa

The BRICS is an acronym of the union of the five emerging economies i.e. Brazil, Russia, India, China and South Africa for the betterment of the economies. Now, the decisions that have come up after the last meeting of the BRICS i.e. the 8th summit which gave large emphasis on the abolition of the terrorism and other activities. The summit was conducted directly after the terror attack that was in an army camp in Uri that killed 19 Indian soldiers. So, India conducted the summit from the remove of terrorism but was unable to point out the reason of terrorism in Pakistan. It also held an opinion to ensure the development of the economy of the country and to remove the gaps by the increase in the tax policy and the public expenditure. Thus, it can be clearly inferred from this statement that the taxes and other government charges are going to increase in the near future that will have an impact on the Indian Financial sector. Also, the trade amongst the BRICS countries is only 5% of the global trade. So, an initiative is also taken that minimum barriers should be there in the trade amongst the countries. To achieve this aim a proposal was made to create fewer market norms in the trade between the countries. The consequences of the same and the lessons learnt from the above decisions are as follows.

    • The rise in the public expenditure and the tax policies in the future coming years.
    • Changes in the foreign exchange policy and can experience fewer market norms.
    • Development of the MSMEs (Micro Small Medium Enterprises).
    • The first lesson learnt that you must never challenge your investor as the person can trash your business for his benefit. Angel investors are the main source of funding for any business and they must be taken care of
    • The second lesson never challenges the competitor as it leads to loss. For instance, India portrayed it’s issued in the 8th summit of BRICS that led to the cancellation of India’s position in the NSG seat by China.
    • The union or a partnership in any activity should be of mutual benefit rather than the sole benefit as sole benefits results into the ending of scope of the further partnership

The second event that took place was on August 8, 2016, in which the GST bill was passed by the government. As declared by the government the GST is a huge game changer in the market for the Finance of India. The GST bill is summarised as one indirect tax on the whole nation with the idea to remove the tax terrorism and the corruption from the economy. The working of the tax is the mantra that the credits of input taxes paid at the each stage will be available at the following stage of the value addition, which makes GST essentially a tax only when the value addition is made. It’s a tax on the supply of goods and services and the final consumer will bear only the GST charged by the last dealer in the supply chain, with the set-off of benefits at all the previous ones. The GST solves the complexity of all the indirect taxes charged to the customer by compiling it into one indirect tax. The indirect taxes consisted of Excise duty; additional excise duty; Excise duty levied under the medicinal and Toiletries Preparation Act service tax; Additional customs duty; special addition duty of customs; surcharges; VAT; Entertainment tax; luxury tax; taxes on lottery, betting and gambling; state cess and surcharges and entry tax making it a conundrum for the consumer to get the benefit out of the goods. The current system is experiencing a cascading effect of the taxation system which is leading to the higher tax on products and further leading to higher prices. The consequences and the lessons learnt from this are the following:

    • The consumer gets benefit of the only indirect tax
    • Reduction in the prices of the products due to lower taxes and further reduction in the prices due to market competition
    • Increase in the consumption demand will lead to the consumer growth
    • Reduction in the corruption and the black money due to the proper billing system
    • GST will benefit the small businesses
    • Higher economic growth
    • The government policies play a major role in the changing of your business. The intermediary body can make the business get a boost to the business as well as the delay in the business making it worst
    • The taxes are important in the transparency of the business and the business or any activity should not be run on any of the activities due to which higher taxes are demanded from the consumer and the consumer is exploited
    • Proper billing system should be there in all economic activities so as we also can get the benefit of the government policies.
    • Indirect taxes must not be kept very much higher as it reduces the margin of the seller and the seller has to pay a higher amount of price on the product as compared to the normal price.
    • In the manufacturing business never to charge ample amount of taxes as it leads to high prices which affect the growth.

The third major dramatic financial event that shook the Indian economy was on 8th November 2016, when the Mahatma Gandhi series notes of the amount Rs. 500 and Rs. 1000 would be fallacious. This decision which throwback the Indian economy by a major chunk and only one-seventh of the currency in the circulation now. This thing was mainly declared by the Prime Minister Narendra Modi to take legal action on the bad elements of the Indian society i.e. corruption and black money. Also, it was done with an aim to decrease the consumption of drugs and to reduce the smuggling. India had turned out to be a place where the corruption and the black money had captured everyone so much that all very getting blindfolded and becoming the victim of their own deeds. Prime Minister Narendra Modi declared on 8th November, 2016, that these notes will be void from the following day and would be accepted by the end of the year at the government offices which are be assigned by the government such as Post Office Schemes, Public Provident Fund, the electricity bill stations, petrol pumps, banks etc. Old notes could be utilised to make the payment of the educational fees, clear charges, taxes, penalties on the government and those for utilities like electricity and water. But still the whole nation turned into a chaotic situation and the following consequences were there.

Demonetization led to introduction of a new INR 2000 note and a new design on INR 500 note.

Demonetization led to introduction of a new INR 2000 note and a new design on INR 500 note.

    • The defence jets were on a standby because of the airlift cash provided by the cash mints in the country to remote corners of the country making it hard for the Indian Air Force
    • The demand for the high price goods gradually increased as the people tried to make the investment in the high class, luxury products. For instance, a representative at the Rolex branch of Mumbai narrated that they sold 45 watches in a single day which is equivalent to their total monthly demand.
    • People began to rush for the investment in the gold and the gold shops were open as late as 4 am. The jewellers who had closed the shops also opened them within an hour or so
    • The trucks and other vehicles on the traffic were abandoned to carry anything as many people were trying to change the currency.
    • This also can become a reason of the fall in the GDP of the country due to the decrease in the sales of the country resulting in the less revenue generation
    • The another effect that was experienced was the crash of the stock market after the demonetization of the currency that took place
    • The railways booking shoot up within 2 days.
    • The first lesson is never you should hide from the government whatever you earn through an economic activity making it a cause of contingency for you only.
    • The second lesson we learnt is made the payment of the taxes on time resulting into no further delay.
    • The last lesson learnt is the finance world is as non-predictable as the government’s decisions so you must always be ready with a plan B.
    • The last financial lesson we learnt was that stock market investment should be made in a proper way and not in hassle resulting in the loss.