The Week That Was:

From: Vartaa Editorial Team on Oct 30, 2016

Trouble in Tata Group

India's largest business conglomerate, the Tata Group, was plunged into a crisis this past week when its Board of Directors removed Chairman Cyrus Mistry from his position in an unannounced and surprised move and brought back Ratan Tata as an interim Chairman. The move brought to the forefront the power struggle that had been going on between Ratan Tata, Cyrus Mistry and the Board. Mistry hit back by writing a letter to the Tata Board which was leaked to the media and which detailed how he was forced to be a 'lame duck' Chairman with Ratan Tata still calling the shots behind his back. Mistry also pointed out several tanking Tata investments that he was trying to turn around but was prevented from doing so. The move led to a drop in share prices for Tata Sons with the group losing a combined market cap of Rs 44000 crores over 3 days.

Indian Army in the news again

Fresh skirmishes broke out on the LoC as the Indian Army retaliated against the killing and mutilation of one its soldiers by terrorists who were escaping to Pakistan. The Army in a statement said that it destroyed four Pakistani posts in response. Meanwhile, politicians kept engaging on the topic of the army with Rahul Gandhi writing a letter to PM Modi asking him to fulfill the demands of the forces regarding compensation as a 'Diwali gesture. In Maharashtra meanwhile, the MNS used the army to play its brand of politics by calling for the producers of 'Ae Dil Hai Mushkil' to donate Rs 5 crore to the Army Defence Welfare Fund in return for the party 'allowing' a smooth release of the film.

Opinions you must read:

  • Saeed Naqvi provides a fascinating account of how India almost ended up sending troops to occupy Mosul, a city which is in the news for the fierce fighting between Iraqi government troops and ISIS. It was only PM Vajpayee's sagacity that pulled India back from the brink.
  • Why are India's political parties not good at managing dissent? The Economic Times examines the reasons.
  • What can Cyrus Mistry's sacking teach to India's other family run businesses? Read on here to find out.

Chart of the Week

Gold has a special place in Indian society. Not only is it a symbol of social status and prosperity but is also closely associated with religious and social events. Indians love to shop for gold jewellery more than anyone else in the world. The consumption is second only to China. India's gold reserves too are among the largest 10 reserves in the world. This results in a lot of gold imports and costs the country precious Foreign Exchange. The approximately 1,000 tons in gold imported by India accounts for a quarter of the country's trade deficit and has prompted the government to introduce several measures to curb demand. Gold assets also lie unused and uninvested in millions of households. This is capital that could potentially earn households handsome returns through investment in the equity and debt markets. In 2013, the government introduced an 8% import duty on the precious metal but demand stayed strong. In the 2016 budget, Finance Minister Arun Jaitley increased the import duty to 8.75% and introduced a 1% excise duty on jewellery sales over INR 200,000 on top of regular sales taxes. This has severely affected demand. The government crackdown on black money too has played its part.

As a result of all these measures, gold demand has considerably weakened. As the chart shows, demand for gold jewellery in the 2nd Quarter of 2016 dropped by almost 20% from a year ago. Jewellers have been protesting the government's efforts and have gone on strike earlier this year. They claim the measures have gone too far and they and their workers are hurting as a result. The government did offer an olive brand by increasing the minimum threshold, to which the additional 1% sales tax is applied, from INR 200,00 to 500,00. Jewellers hope this change in the tax structure and pent up demand during the Diwali festivities will lead to a surge in demand. It will be an uphill task to wean Indians off gold after all.