Issue 36- On Nuclear Deals, Income Tax Breaks, and Stimulus Packages
In today's Finshots brief, we will discuss
- Whether Joe Biden can revive the Iran nuclear agreement
- The Greek government's plan to get more foreigners to settle in the country
- India's latest economic stimulus package
The Iran Nuclear Deal
As the next President of the United States of America, Joe Biden is likely to make a lot of changes to his predecessor’s policies. And one of his major areas of focus will be the Iran nuclear deal. But before we delve into this, let’s go back to the root of the issue.
It all started because of Iran’s nuclear ambitions, which the country had been nurturing for decades. When major world powers found out about it, they weren’t exactly supportive. To get Iran to stop building nukes, they imposed a series of international sanctions on the country, doing unspeakable damage to its economy in the process. So in 2015, Iran entered into an agreement with 6 nations- the US, UK, France, China, Russia, and Germany- wherein it acquiesced to curtail its nuclear development and comply with regular inspections in exchange for the sanctions being lifted. As part of the deal, Iran agreed to restrict the enrichment of uranium, which can be used to make nuclear weaponry. And thus, the Joint Comprehensive Plan of Action (JCPOA) came into force.
Now, this whole initiative was spearheaded by the Obama administration. But when Trump came into power, he contended that the deal was too narrow and generous to Iran. In 2018 he pulled out of the JCPOA, claiming the “decaying and rotting nature of the deal” would never be able to prevent an Iranian bomb anyway. He then re-imposed most of the pre-deal sanctions, while also punishing foreign firms and governments who still wanted to do business with Iran. This basically forced countries to choose between importing oil from Iran and doing business with the United States. And since America is the world’s biggest economic superpower, it wasn’t really a choice.
As Iran got more or less cut off from the rest of the world, its currency value plummeted and inflation spiked. Despite this, the country continued to enforce its end of the bargain at first, hoping that the European signatories to the deal would be able to defy America and provide them with some much needed economic relief. But that didn’t really happen.
So in 2019, Iran began reducing its commitments regarding uranium enrichment. And when a US drone strike killed Iranian general, Qasem Soleimani, in January 2020, things got much worse.
In fact, a couple of days ago, The International Atomic Energy Agency (IAEA) revealed that Iran's stockpile of enriched uranium reached 2,443 Kgs this month- that’s over 12 times the amount allowed under the 2015 agreement and is enough to make three bombs. However, Iran maintains that things can still change if the US lifts its sanctions- which may happen now that Biden is here.
Biden has said that he is keen to return to the 2015 deal as long as Iran resumes compliance as a “starting point for follow-on negotiations”. However, he’s not going to have an easy time of it.
You see, Biden’s clear intent to resurrect the deal has given Iran leverage and they’re not likely to waste it. According to an anonymous Iranian official, they will ask Biden to resume the nuclear accord without any conditions, compensate Iran for walking out of the agreement earlier, and provide a guarantee that there will be no snapback of the US’s sanctions. So we’ll just have to wait and see how this plays out.
Work from Greece
For about 10 years, Greece suffered through a debt crisis that drained some 25% of the country’s economic output. And once the pandemic hit, they saw another 9% decline in their GDP for 2020, along with unemployment numbers that were the highest in Europe. Things were looking absolutely dismal on the economic front.
However, when it came to the pandemic itself, Greece did remarkably well in containing infections. And in fact, the rating agency Moody’s upgraded the country’s sovereign rating last week, keeping in mind its high growth potential.
To revive its downtrodden economy, Greece has been trying to attract individuals and businesses to invest in the country- and companies like Microsoft and Volkswagen have announced plans to do just that. But to get things back on track, Greece needs more. And its latest plan involves enticing talented foreigners to come and settle in the country.
The Greek government has announced that any workers who move to the country from abroad will be eligible for a 50% tax exemption on any income earned there for the first 7 years. There are no restrictions on the worker’s nationality or job type, though it’ll only be applicable to new jobs created in the country in 2021. Greeks living abroad can also come back to avail of these benefits. Considering Greece’s current tax rate of 44% on earnings over 40,000 euros, this is a pretty generous scheme.
As Alex Patelis, chief economic adviser to Greece’s Prime Minister said, Greece “can now offer tax incentives as well as the sun.”
India's Latest Stimulus Package
India’s economy, which was once the fifth largest in the world, has been shrinking for a while now. The country is still struggling from the effects of the lockdowns that were instituted earlier this year, and as a result, GDP growth dropped almost 24% in the quarter ended June, compared to the same period last year. A couple of days ago, the Reserve Bank of India revealed that the GDP probably fell another 8.6% in the following quarter.
Despite this gloomy outlook, Finance Minister Nirmala Sitharaman is positive that growth is returning. Citing increased GST collection and a rise in energy consumption, she said, “India’s economy is seeing a strong recovery.” And to ensure that this recovery stays on point, she unveiled a new stimulus package yesterday- Aatmanirbhar Bharat 3.0.
The package has as many as 12 new measures worth Rs 2.65 lakh crore to boost the economy. These measures include cheap bank loans for beleaguered sectors, support for companies that are hiring new employees, tax benefits for home buyers, a production linked incentive scheme for 10 sectors, a grant for development of a COVID-19 vaccine, and a stimulus for expenditure on things like defense equipment, industrial infrastructure, and renewable energy.
Read about the full list of benefits here.
Ready to Sign
Remember the China-led Regional Comprehensive Economic Partnership (RCEP) that India walked out of last year? Well, fifteen other Asia-Pacific nations are now ready to sign the free-trade agreement, touted to be the world’s largest of its kind. Know more.
Revised Forecast
Yesterday, ratings agency Moody’s raised India’s GDP forecast for 2020 from a -9.6% contraction to a -8.9% contraction. Here’s why.
Major Overhaul
Wipro is redefining its business units and service lines to revive growth under its new CEO Thierry Delaporte. He says, “For long now, our growth has been largely dependent on the US market. It is important that we broad base our growth. The new model seeks to achieve just this.” Read more.