Indian Economy - Current Affairs for June, 2016

India has jumped 19 places in the latest World Bank ranking in the global logistics performance, reflecting the improvement in movement of goods inside the country thus facilitating better trade.

• The World Bank in its latest once-in-two-year Logistics Performance Index (LPI) said India is now ranked 35th as against the 54th spot it occupied in the previous 2014 report.
• In the 2014 report, India had a LPI score of 3.08, which increased to 3.42 in 2016. For the third time, Germany with 4.23 points tops the ranking, followed by Luxembourg (4.22), Sweden (4.20), Netherlands (4.19) and Singapore(4.14).
• Other countries in top 10 are Belgium, Austria, United Kingdom, Hong Kong and the United States.Japan is ranked 11. C
• China has jumped one spot to be ranked 27th while Pakistan is at 68th. Syria ranked lowest.
• According to the report, over the past six years, the world’s top-10 performers have remained consistent and include dominant players in the supply chain industry.

World Bank’s Board of Executive Directors on 24th June 2016 approved USD 201.50 million for Technical Education Quality Improvement Project III in India to improve the quality of engineering education in certain Indian states

• Objective of the project is enhancing quality and equity in participating engineering education institutes and enhancing the efficiency of the engineering education system in focus states
• Maturity period for the project of 25 years was extended with an additional 5 years grace period
• There are two components of the projects- improving quality and equity in engineering institutes in focus states

The National Mineral Exploration Policy has been given Cabinet approval for the auction of 100 prospective mineral blocks and boost the country’s mining potential. Cabinet cleared NMEP so that the government can auction 100 blocks that have been identified by the Geological Survey of India for exploration. Mines Ministry has notified the National Mineral Exploration Trust

• Via the NMEP, government wants to attract private sector in exploration besides involving state operated GSI, MECL and other key agencies
• States will also play a greater role by referring exploration projects which can be taken up through NMET
• From India’s entire Obvious Geological Potential area, identified by GSI currently 10 percent has been explored and mining is undertaken in 1.5-2 percent of the area

Cotton area in Punjab and Haryana has declined 27 percent to 7.56 ha in the 2016-2017 as farmers shifted to other crops after incurring huge losses due to whitefly pest attack earlier this year. Two states planted cotton in 10.3 lakh ha in the 2015-2016 crop year (July-June)

• Sowing of cotton in Punjab and Haryana has been completed and total area is down as farmers were scared to grow cotton due to whitefly pest attack that has damaged the crop massively in these two states in the previous year
• Farmers have shifted to pulses, paddy and other crops in the states
• As per the latest data, area planted to cotton in Punjab was lower by 43.11 percent at 2.56 lakh ha in 2016-2017 crop year from 4.5 lakh ha in the earlier year
• Cotton area coverage in neighbouring Haryana fell 14 percent to 5 lakh ha this year as against 5.8 lakh ha in 2015-2016
• More than 90 percent of farmers have sown Bt cotton seeds which is the maximum retail price of which is being fixed by the central government from this year onwards

SBI is the only Indian entity in the list. It includes global giants like Barclays, JP Morgan, Credit Suisse and BoA.

• Report looks at investments into companies involved in production of cluster munitions
• 158 financial institutions invested over 28 billion US dollars in the seven companies researched in the report between June 2012 and April 2016.
• These 7 companies are China Aerospace Science and Industry, China Aerospace Science and Technology, Hanwha (South Korea), Norinco (China), Orbital ATK (US), Poongsan (South Korea) and Textron (US).
• Maximum number of banks are from the US

India has retained the ranking as the tenth highest recipient of FDI in 2015 receiving USD 44 billion in investment that year compared to US $35 billion in 2014, as per the UN

• World Investment Report 2016 released by UNCTAD found India also jumped a place in terms of attractiveness as a business destination in 2015 to sixth place with 14 percent of respondents naming it as destination of their choice

Changes introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionality for foreign investment. These amendments seek to further simplify the regulations governing FDI in India.

• To permit 100 percent FDI under government approval route for trading in respect of food products manufactured in India.
• FDI beyond 49% has been permitted through government approval route, in cases resulting in access to modern technology. FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act
• 100 percent FDI allowed under automatic route for Teleports, Direct to Home, Cable Networks and Mobile TV.
• Moreover, infusion of FDI beyond 49% in a company not seeking permission from Ministry will result in change in the ownership pattern.
• To permit 100% FDI under automatic route in Brownfield Airport projects. In Scheduled Air Transport Service and regional Air Transport Service, it has now been decided to raise FDI limit to 100%. For NRIs, 100% FDI will continue to be allowed under automatic route.
• FDI up to 49% is now permitted under automatic route in this sector and FDI beyond 49% and up to 74% would be permitted with government approval route.

FDI in brownfield pharma under automatic route was up to 74 percent. Government on June 20 allowed up to 74 percent FDI in existing pharmaceutical companies via automatic route with the aim to promote the sector.

• Earlier 100 percent FDI was permitted through the government approval route
• It has been decided to permit up to 74 percent FDI in automatic route for brownfield pharma and the government approval route beyond 74 percent will continue.
• 100 percent FDI under automatic route in greenfield pharma is permitted while approval route for 100 percent FDI in brownfield pharma is under the approval route.
• FDI in brownfield projects has been an issue impacting accessibility and growth of the generic industry in the nation
• Market size of India’s pharma company is USD 20 billion. Acquisitions in this field include Daiichi Sankyo’s purchase of Ranbaxy, Abbot Lab’s acquisition of Piramal Health Care domestic business. Mylan purchased Matrix Lab while Dabur Pharma was acquired by Fresenius and Sanofi Aventis recently purchased Shanta Biotech

SBI on 16th June 2016 floated a 200 crore rupee fund for startups in the fintech space. Fund will consider assistance of INR 3 crore rupees to a firm registered for promoting business innovation using technology in financial services

• Traditional banks around the world are working with fintech firms to promote business innovations using technology in financial services
• Suitable regulatory framework will also be set up to address the associated risks like cyber security risk, data theft risk and technology risk.

Ind-Ra lowered FY2017 CAD estimate to 1.3-1.5 percent from 1.2 percent due to lower remittances and software earnings in forth quarter for current fiscal. India’s CAD narrowed sharply to USD 0.3 billion/o/1 percent of GDP in Q4, FY2016 from USD 7.1 billion or 1.3 percent in Q3 on account of lower trade gap.

• For the 2015-2016 fiscal, CAD or the difference in the in and outflow of foreign exchange fell to 1.1 percent of the GDP
• Low CAD indicates stability on the external front. On the one hand, low crude prices and collapse in global prices of commodities have resulted in lower trade deficit
• Low oil prices have caused Middle East economies to suffer as well.
• Remittances on private transfers fell to USD 63.1 billion in 2015-2016

Global data consultancy firm Gartner indicated Indian government will observe 3.1 percent uptick in the IT spend at USD 7 billion for 2016

• Government will spend USD 7 billion on IT products and services in 2016
• This includes spending on internal services, software, IT services, devices data centre and telecom services at all levels of the government
• IT services include consulting, software support, BPO, IT outsourcing, implementation and hardware support are set to grow at 8.8 percent in 2016 to USD 1.16 billion
• BPO segment will also grow at the rate of 22 percent.

CAD will widen to 1.4 percent of GDP in FY 2017 according to Nomura India which said the figure would widen from 0.9 percent in 2015-2016.

• The Japanese financial services firm has indicated that global demand is likely to remain sluggish but imports will rise towards year end
• Following this, country’s trade deficit is expected to widen
• Imports continued to rise towards end 2016.
• CAD narrowed to 1.4 percent in April-December 2016 from 1.7 percent in 2014-2015.
• Exports fell by 0.79 percent to USD 22.17 billion indicating an 18th straight month fall in May 2016
• Imports too fell by 13.16 percent to USS $28.44 billion in the month under review.

Overall trade balance improved in May. Trade deficit for the month came in at USD 6.27 billion against USD 4.84 billion on a month-on-month basis.

• Taking merchandise and services together, trade deficit for April-May in FY17 came in at USD 5392.77 million which is 65.67 percent lower in dollar terms than the level of USD 15710.54 million during April-May 2015-16.
• Exports during May,2016 were valued at USD 22170.62 million or Rs 148336.31 crore) which was 0.79 per cent lower in dollar terms (4.04 per cent higher in rupee terms) than the level of USD 22346.75 million during May,2015.
• Imports during April, 2016 were valued at USD 7183 million (or Rs 47745.04 crore) registering a negative growth of 9.13 percent in dollar terms as compared to positive growth of 9.96 percent during March 2016.

RBI’s new debt recast norms are credit positive for banks and will help in reducing gross NPO levels by 30-100 basis points after a year.

• Implementation of the guidelines will bridge the gap between actual expected losses and provisioning cover
• New norms will also help in reducing reported gross NPA levels by 30-100 basis points from current level of 7.7 percent in March 2016
• RBI issued guidelines on Scheme for Sustainable Structuring of Stressed Assets
• Scheme allows the bifurcation of stressed borrow debt into sustainable and unsustainable portions

Following rise of CPI and WWPI based inflation, RBI has launched the June 2016 round of Inflation Expectations Survey of Householders across 18 cities.

• This includes Ahmedabad, Patna, Chandigarh and Thiruvananthapuram
• Survey seek qualitative responses from households on price changes within the next three months as well as the next one year
• Quantitative responses were also sought on current three month ahead and one year ahead inflation rates
• RBI which factors in inflation while arriving at the monetary decision, said the results of the survey provide useful policy information.
• "Inflation expectations are subjective assessments of households covered in the survey and are based on households' individual consumption baskets," it said.
• RBI has been regularly conducting the survey
• May retail inflation touched 21 months high in May due to rising price of food items.
• RBI also launched the June 2016 round of Consumer Confidence Index

RBI has released a paper on stressed assets called Scheme for Sustainable Structuring of Stressed Assets. The aim of this paper is strengthening the ability of lenders to deal with stressed assets and place real assets back back on track by providing avenues for reworking financial structure of entities facing genuine difficulties.

• RBI will facilitate the resolution of large accounts which meet specific criteria. Accounts facing severe financial difficulties may be put for restructuring or write down or larger provision can be allowed as well.
• Paper describes resolution plans to be implemented for debt servicing.
• Overseeing Committee will also be formed by the Indian Banks Association in participation with the RBI for choosing stressed assets cases.
• Paper also mentions certain guidelines for choosing accounts falling under it.
• Accounts that have commenced commercial operations and projects in which institutional investors will have exposure of more than INR 500 crore are concerned.
• Amount will include any accrued sustainable debt and paper goes on to define sustainable debt when Joint Leaders Forum or consortium of financial institutions believe existing loan can be serviced or retained at the existing level.

India has beaten Japan to become the world’s third largest oil consumer with oil demand galloping 8.1 percent in 2015, according to BP Statistical Review of World Energy released on June 8, 2016

• With demand of 4.1 million barrels in a day, India is the third largest consumer after the US and China at 19.39 million bpd and 11.96 million bpd.
• India accounted for 4.5 percent of world oil consumption in 2015
• India’s demand growth surpassed China’s 6.3 percent expansion.
• Japan slipped to 4th spot after oil usage contracted 3.9 percent to 4.15 million bpd in 2015
• In 2014, it used 4.3 million bpd ahead of India’s 3.48 million bpd
• Review shows global demand for primary energy grew by 1 percent in 2015 which is slower than the 10 year average
• This shows continued weakness in the global economy and lower growth in Chinese energy consumption as the country shifts from industrial to service driven economy
• Oil is the world’s leading fuel with 32.9 percent of international energy consumption and market share for the first time since 1999
• Coal is the second largest fuel in market share at 29.2 percent. Market share of private energy consumption stood at 23.8 percent.

Cotton exports from India, the world’s biggest producer has nearly halted as local prices have rallied due to tight supplies because of drought forcing key importers like Bangladesh, Pakistan and Vietnam to turn to other suppliers. Freeze in Indian export will promote Australia, Brazil and the US to raise shipments and push global prices to their highest since August.

• Price rise could substantially push up fabric and clothing prices and put pressure on the margins of garment making
• Landed cost is Indian cotton is around 75-76 cents per lb for Pakistan and Bangladeshi buyers and this is around 73 cents for Brazilian cotton
• Pakistan and Bangladesh prefer Indian cotton due to low freight charges and local cotton spot market prices have risen by 10 percent from a month ago to 38,4000 rupees per 356 kg due to limited supplies after consecutive droughts cut production
• India may produce 334.1 million bales of cotton in 2015-2016 starting on October 1 from last year’s output of 38.3 million, according to estimates by Cotton Association of India.

RBI is setting up a multi-disciplinary panel to understand these companies and create the perfect ecosystem for them. The committee will have representatives from financial regulators and stakeholders from the industry

• Fintech covers a large section of areas including transactions, lending and insurance
• RBI is also looking at other technology based systems, trends for receivables sale and unified payment interface systems

Telecom Commission stood by its decision to levy 3 percent spectrum usage charge of adjusted gross revenue on telecom operators. Weighted average will be calculated between broadband wireless access spectrum, current SUC rate and spectrum will be acquired in the future.

• To stop revenue loss for the government, telecom operators will pay minimum amount they are paying as per 2015-2016 rates
• Annual SUC collection is around INR 7000 crore and DoT moved Cabinet note for inter ministerial constellation on spectrum auction within the week
• Spectrum bands will be auctioned in the same time
• COAI has sought uniformity in SUC rate at 3 percent for assigned airwaves and bringing it further down to 1 percent in phased way

To reduce import dependance, the government has decided to establish 6 bulk drugs and medical devices parks which will entail combined investment of INR 60,000 crore. Government has also decided to establish six bulk drugs and medical devices parks, which will entail a combined investment of INR 60,000 crore.

• Government has decided to establish 3 bulk drugs and 3 medical devices parks across the country
• Parks will require investment of INR 60,000 crore
• As per various estimates, once parks become operational, they can bring down production of device and bulk drugs by at least 30 percent and in the long run, this will help the general public also.

Mobile data traffic is also expected to grow the fastest globally at 15 times by 2021. The country also grew most in terms of net additions in mobile subscriptions as per the March hurter over at 21 million, followed by Indonesia and Myanmar with 5 million net additions each and US as well as Pakistan with over 3 million net additions each. This is as per the Ericsson Mobility Report and the latest edition of the report reveals that globally IoT is set to overtake mobile phones as the largest category of connected devices by 2018.

• Between 2015 and 2021, the number of IoT connected devices is expected to rise by 23 percent annually of which cellular IoT is forecast to have the highest growth rate
• IoT is now accelerating as device costs fall and innovative applications emerge
• From 2020, the commercial deployment of 5G networks will also provide additional capabilities which are critical for IoT

ICRA India’s international traffic has logged a compounded annual growth rate of 10.5 percent in the past 10 years, according to rating agency ICRA. Besides a 16 percent growth in passenger traffic in the previous fiscal coupled with lower jet fuel prices has helped the domestic airline to improve performance during the period despite increased competition. ICRA senior vice president commended that in view of tight liquidity conditions in the past, airline strategies have moved from chasing market share to one focused on enhancement of profitability resulting in route rationalisation and cutting down on capacity expansion as well as fleet rationalisation and renegotiation of maintenance contracts.

Fiscal deficit in April came in at Rs 1.37 lakh crore, which is 25.7 percent of the Budget estimate for 2016-17.

• Fiscal deficit is the gap between expenditure and revenue, which for the whole fiscal has been pegged at Rs 5.33 lakh crore.
• The deficit in April last fiscal was 23 percent of the Budget estimate. For 2016-17, the government has set a fiscal deficit target of 3.5 percent.
• According to data released by the Controller and Accounts General, total expenditure of the government in April read Rs 1.61 lakh crore, or 8.2 percent of the full-year estimate.
• Of the total expenditure, Plan spending was Rs 45,543 crore while for non-plan spending was Rs 1,16,442 crore. Revenue collection was Rs 22,075 crore, or 1.6 percent of the estimate. Total receipts of the government - from revenue and non-debt capital - in April stood at Rs 24,659 crore.

India's per capital income increased by 7.4 percent to Rs 93,293 in 2015-16, compared to Rs 86,879 in the preceding fiscal, government data showed on May 31.

• The per capita income at current prices during 2015-16 is estimated to have attained a level of Rs 93,293 as compared to the First Revised Estimate for the year 2014-15 of Rs 86,879 showing a rise of 7.4 percent as per data on Provisional Estimates of Annual National Income and Quarterly Estimates of Gross Domestic Product 2015-16.
• The data was released by the Ministry of Statistics and Programme Implementation. Per capita income is a broad indicator of prosperity. In real terms, the per capita income (at 2011-12 prices) during 2015-16 is estimated to have attained a level of Rs 77,435, up 6.2 percent from Rs 72,889 for the year 2014-15.
• The Gross National Income (GNI) at 2011-12 prices is now estimated at Rs 112.13 trillion as against Rs 112.14 trillion estimated earlier for 2015-16. In 2014-15, it was Rs 104.28 trillion. GNI has risen by 7.5 percent