Indian Economy - Current Affairs for December, 2015

Global economic growth will be disappointing within the year, according to head of IMF MD Christine Lagarde who said the prospect of rising interest rates in the US and economic slowdown in China would lead to economic vulnerability worldwide. Additionally, growth in global trade has lowered considerable and decline in raw materials is an issue for economies linked to these. Moreover, financial risks are rising in the emerging markets. Start of normalisation of the US monetary policy and shift towards consumption led growth were needed to be carried out smoothly.

Government will be setting up a INR 40 k crore National Investment and Infrastructure Fund. Its chief executive will be finalised towards the end of January. IIFC has been appointed as the investment advisor and IDBI Capital Market Services Ltd has been appointed as advisor. NIIF has constituted a search cum selection committee under CCEA Secretary Shanktikanta Das for selection of the CEO of NIIF.

RBI on 28th December 2015 released the Mohanty Panel Report on medium term path for financial inclusion. Financial inclusion is aimed at delivering financial serves at affordable cost to disadvantaged and low income segments of society. The key aim is to improve the credit system for the underprivileged and focus on poorer agricultural households to ensure shift of credit demand from informal to formal sector. As per the report, banks have to make special efforts for opening up accounts for women and girls and a unique biometric identifier such as Aadhaar will be linked to every individual credit account. The report also stressed on improving last mile service delivery.

According to RBI, outstanding loans rose INR 981.80 billion to INR 69.66 trillion rupees in two weeks leading up to December 11. Non food credit rose INR 977.20 billion to INR 68.57 trillion rupees and food credit rose INR 4.60 billion rupees to INR 1.09 trillion rupees. Bank loans rose 11# while deposits rose 11.5% according to the RBI weekly statistical supplement.

Between the March and September quarters, NPAs jumped 50 basis points to 5.1% between March and September quarters. Gross naps rose to 5.1% as of September quarter from 4.6% in March 2015. As per the Financial stability report released by RBI, net NPAs as percentage of total net advances increased to 2.8% from 2.5% in March. The end of the Corporate Debt Restructuring (CDR) cell, led to restructured standard advances as percentage of gross advances declining to 6.2 from 6.4, but stressed loans ratio increased to 11.3 from 11.1 percent in the same period. Public sector lenders recorded the highest level of stressed assets at 14.1 percent followed by private sector banks at 4.6 percent and foreign banks at 3.4 percent, as per the report.

RBI has created a dedicated helpline to assist start ups undertaking cross border transactions. Enterprises should provide complete information to RBI and mention other issues on which they need guidance. Helpline will assist in timely and effective dissemination of information.

India’s natural rubber imports have fallen by 9% to 2.88 lakh tonnes during the first 8 months of the present financial year. Rubber imports stood at 3.16 lakh tonnes during the April-October period in the previous financial year according to Rubber Board data. Total rubber imports in FY 2014-2015 touched a high of 4,15,000 tonnes on account of lower international prices and fall in domestic production.

RBI on 21st December 2015 has fixed a reference rate of the rupee at INR 66.32 per US dollar and 72.13 for the euro. Rates earlier were 66.42 and 72.13 respectively. As per an RBI statement, exchange rates for pound and yen against rupee was quoted at 98.98 and 54.67 per 100 yen based on reference rates for dollar and cross currency quotes at noon.

PPP ports contributed 33% to total capacity of major ports. Indian ports attained only 79.80 MTPA capacity addition during 2010-2012 as against 315.32 MTPA and PPP projects have contributed only 33% to total capacity of major ports up to March 2014 defeating the purpose of the PPP model. PPP model ensures faster augmentation of infrastructure and better service quality for the user was implemented. From a capacity addition of 315.23 MTPA envisaged by Maritime Agenda 2010-2020, ports attained capacity addition of 79.80 MTPA during this period.

Indian economy is likely to grow at 7 to 7.5% in the fiscal 2015-2016 while retail inflation is pegged at 6%, according to a Mid Year Economic Review authored by Chief Economic Advisor Arvind Subramaniam. Growth for 2017 is slated to be higher than attained in 2016, as per the report. Report reiterates previously laid out growth target, yet gave a more conservative value when it comes to inflation. Report also said that India would meet its fiscal deficit target of 3.9% and revenue deficit target of 2.8% for this year.

On 17th December 2015, RBI announced a new base rate formula moving towards marginal cost of funds methodology for interest rate on advances. The final norms on marginal costs for banks will take effect from April 1, 2016. All loans and credit limits for April 1 will be priced in the context of MCLR or Marginal Cost of Funds based Lending Rate.

India recorded private equity investment of USD 17.5 billion in 2015 centred around record high across 685 deals, according to PwC. This breached the previous high of 14.7 billion recorded in 2007. The year 2015 also saw USD 8.2 billion worth of exits, more than 4 billion of exits in the previous year. 2010 has set a record high in the number of exits prior to this, pegged at USD 6.3 billion.

Overall remuneration that directors of public companies can receive has been fixed at 11% of its annual profit recorded in a particular financial year. Under the Companies Act, Corporate Affairs Minister Arun Jaitley has announced that total remuneration payable to directors shall not exceed 11 percent of the net profits of that company for that financial year. Firms that will be considered public companies would be those with minimum paid up capital of INR 5 lakh or more. When there are losses or inadequate profits, remuneration may be paid as per the limits perceived and conditions specified in the Act.

By depreciating 18 paise to INR 67.06 per dollar in early trade today, the rupee breached the 67 mark based on strong demand by American unit from importers and certain banks amid lower opening of the domestic equity market. Sustained capital outflows also weighed in on the domestic unit.

The Consumer Price Index for the month of November was pegged at 5.41 percent as against 5% month on month driven by rise in food inflation. Food inflation was pegged at 6.07% as against 5.25% MoM. Upside surprise in food inflation must not be generalised according to economists. The CPI running lower than RBI estimates could increase to 5.5% going forward.

RBI data has indicated unlisted companies have received larger share of FDI at INR 346090 crore at face value as against listed companies at INR 11,700 crore in 2014-2015. Share of non-financial companies in total foreign equity participation was pegged at INR 3,02,950 crore at face value as against financial companies at INR 54,840 crore as per RBI data released on 12th December. RBI also released data pertaining to Census on Foreign Liabilities and Assets of Indian Direct Investment Companies for 2014-2015. In the 2014-2015 round of the FLA census, 17642 companies reported of which 16242 companies received FDI/ODI in their balance sheet in March 2015. Equity participation has a much larger share at 94.1% than debt in total inwards FDI which was pegged at INR 19,62970 crore at market value in March 2015 was INR 15,06,260 crore a year back. Total ODI was placed at INR 5,32,010 crore at market value and was INR 5,58,080 crore a year back.

RBI permitted banks to bring down statutory liquidity ratio securities under held to maturity category by 1.25 percent to 20.50% by January 2017. This move will unlock funds for lending purposes. SLR was reduced to 21.50 percent from 22 percent w.e.f the fortnight commencing January 9, 2016.

Money raised by India Inc from capital markets rose by more than 4 times to INR 18259 crore during the first 8 months of the current fiscal, according to GoI data released in the Parliament. Around INR 3972 crore was raised by 41 companies in April to November of the previous fiscal, 2014-2015.

From the 4 month low touched in September, the index of industrial production stood at 9.8 percent as against 3.6 percent month-on-month. Higher than expected figure was due to re festive ramp up and growth in mining as well as electricity and favourable base. October IIP figure comes in conjunction with the November reading . Electricity generated expanded 9 percent and the mining sector grew to 4.7 percent. General index for October 2015 was pegged at 181.3 that is 9.8 percent higher compared with October 2014.

GoI has collected INR 21,054 crore through the cess imposed on petrol and diesel in the previous financial year closing March 2015. The collection is higher by 22% as against INR 17330.87 crore collected in 2013-2014.

At 7.3% in 2016, India will remain the fastest growing economy in the times to come according to the United National World Economic Situations and Prospects/WESP report 2016. India is projected to record 7.3% economic growth in 2016 and 7.5% in 2017. India’s rival in South Asia is China which will see the slowdown in growth from 6.8 in 2015 to 6.4 percent in 2016. Report also indicated world economy will only see modest improvements in 2016-2017 as cyclical and structural headwinds persist.

The total merchandise export has been valued at USD 321 billion as against USD 314 billion in the year before this, as per an UNCTAD report. Report indicated that international service exports constituted 21% of the total global exports valued at slightly more than USD 5 trillion in 2014. This was a growth of around 5% over the previous year. Total global exports for 2014 stood at USD 24 trillion which is up by 1.2 percent as against the previous year. According to the Handbook of Statistics published by UNCTAD, service exports from developed and developing economies expanded at 5.2 and 4.8 percent respectively in 2014.

India has exported 10.75 lakh tons iron ore in April to October has per provision data released by the Ministry of Steel and mines. Conservation of iron ore resources is also imperative. Close to 74.90 lakh tonnes of iron ore had been exported in FY2014-2015. Currently, ad valorem duty of 30% is levied w.e.f December 12, 2011 on export of all grades of iron ore except low grades carrying duty of more than 10% while iron ore pellets have export duty of 5%.

A recent survey conducted by Ernst & Young has found India is the top FDI destination during the first half of 2015. The survey entitled “Ready, Set, Group: EY’s 2015 India Attractiveness Survey” has sown increased investor interest in the nation. Close to 500 international leaders from numerous organisations worldwide were part of the survey. Close to 32% of the voters polled India as the most attractive FDI destination.

Committee headed by the CEA Dr. Arvind Subramaniam on Possible Tax rates under GST submitted the Report to the Finance Minister; On the Revenue Neutral Rate (RNR), the Committee recommended the same in the range between 15 and 15.5 percent (Centre and states combined) with a preference for the lower end of that range based on the analysis made in the Report.

Sugar production has been notched up 24% at 23.6 LT in October-November according to ISMA. ISMA sugar production rose 24% on account of higher output from Maharashtra. Sugar export from India which is the world’s second largest producer and biggest consumer was pegged at 1.75 lakh tonnes during October to November. As per market reports, around 4 lakh tonnes of contracts for exports have been finalised, mostly as white sugar, and around 1.75 lakh tonnes of sugar exports have taken place since October one, 2015, ISMA also said.

RBI has released revised priority sector lending guidelines for regional rural banks as per new norms, according to which 18% of outstanding will have to be advanced to agricultural activities. A target of 7.5 percent of total outstanding is to be diverted into micro enterprises and another 15% for weaker sections. New norms will be implemented from January 1, 2015.

A forensic probe has been ordered into irregularities in outward foreign remittances to the value of INR 6000 crore from the Bank of Baroda. CBI and ED have registered cases on the basis of complaints filed by banks pertaining to irregularities in outward foreign remittances. Department of Financial Services has ordered a probe into 11 companies involved in the transaction.

EPFO has invested INR 2909 within a span of 4 months in Exchange Traded Funds to maximise earnings. As per approval of CBT, EPFO is said to invest only 5% of its investment in ETF during this financial year. The EPFO has invested Rs 2,322.10 crore in ETFs during August-October on which it earned an annualised return of 1.52 percent.

Reserve Bank of India has taken the step towards fuller capital account convertibility by liberalising the ECB framework by increasing the limit for Indian companies for raising funds with minimum average of 3 years to USD 50 million from 20. Companies can also take ECB route now for raising 10 year funds capped 5 years now. RBI has also expanded the list of overseas lenders to include long term lenders like sovereign wealth funds, pension funds and insurance companies.

This Advance Pricing Agreements in India are for reducing litigation and operating smoothly while countering tricky transfer pricing cases, officials said.The Income Tax department has signed 31 such agreements so far with different sectors of the economy. CBDT is the apex policy making body of the IT department. An Advance Pricing Agreement is signed between a taxpayer and the tax department on an appropriate transfer pricing methodology for determining the value of assets and resulting taxes on intra-group overseas transactions.

Fiscal deficit for April to October narrowed to INR 4.11 lakh crore as against INR 4.75 crore in the same period last year (2014-2015). Total spending stood at at INR 10.22 lakh crore, 57.5 percent of FY16 estimate, and net tax receipts for the period stood at INR 4.29 lakh crore. Non-plan spend was INR 7.51 lakh crore, 57.2 percent of FY16 estimate, and Plan spend was INR 2.71 lakh crore, 58.2 percent of FY16 estimate. Revenue deficit was INR 2.88 lakh crore, 72.9 percent of FY16 estimate, and non-tax revenue at INR 1.62 lakh crore, 73 percent of FY16 estimate. April-October revenue receipts stood at INR 5.91 lakh crore, 51.7 percent of FY16 estimate GE Step Ahead.

Sectors which attracted FDI in this period comprise computer software and hardware, services sector, trading, automobile, construction activities, chemicals, power, pharmaceuticals, industrial machinery and food processing. In the defence and railway related components, the country received only USD 0.08 million (INR 0.48 crore) and USD 23.2 million (INR 146.65 crore) FDI during the October-September period. Retail trading attracted USD 70.75 million investment in this period.

India has imported 23.7 LT of pulses till September at USD 1612 mn till September in the current fiscal. During the April-September period, maximum inward shipments of lentils came from Canada at 9.30 lakh tonnes, followed by 5.52 lakh tonnes from Myanmar and 2.23 lakh tonnes from Australia. In 2015, the price of pulses touched a high of INR 210 per kg.

FDI up to 100% under the automatic route has been permitted in companies providing B2B e-commerce. Such entities will only be permitted to undertake retail trading through e-commerce under the following circumstances:

- Manufacturer will sell products manufactured in India through e-commerce retail

- Single brand retail trading entity operating via brick and mortar stores will undertaken retail trading through e-commerce

- India manufacturers will only be able to sell own single brand products via e-commerce retail