Indian Economy - Current Affairs for October, 2015

FM Arun Jaitley launched two taxpayer friendly measures- eSahyog and PAN Camps to streamline the taxation procedure. The twin initiatives of the CBDT were launched to ensure ease of operation for the assessed. The e-Sahyog focuses on reducing compliance costs, more so for small taxpayers. It provides an online mechanism for resolving mismatches in IT returns of taxpayers. PAN camps are expanding the coverage of people through PAN. While 23 crore persons have been issued with PAN cards, only 5 crore have filed their income tax returns.

CM Panel constituted by NITI Aayog for rationalising CSS has argued for reducing the number and hiking flexi fund component to 25% fro current 10%. The convenor of the group is MP CM Shivraj Singh Chouhan. The panel has categorised CSS into three categories -- core of the core, core and optional scheme -- for determining funding pattern. For the core of the core schemes such as MGNREGA, panel has register no changes in find sharing. In case of core schemes, panel has made the suggestion that fund sharing will be divided in the ratio of 90:10 percent between Centre and State for NE and J&K. For ordinary states, the sharing ratio will be 60:40. For optional schemes, centre and state share should be 80:20 for hilly, NE and J&K and 50:50 for ordinary states.

Sin tax is an excise tax levied on products such as alcohol, tobacco and others which are considered bad for health and communities. It will be included under the biggest tax reform in the country GST. GST will be operational from April 1, 2016. This tax is used to attract higher tax revenues.

Investment through Participatory Notes within India’s capital market rose by INR 2.54 lakh crore or USD 39 billion towards the close of September from the earlier month. Before this, investment through this route had been declining in 3 months from June to August. This marks the highest investment of P-Notes since February 2008. As per SEBI data, total value of P-Notes investment in Indian markets (equity, debt and derivatives) increased to INR 2,53,875 crore at September-end, from INR 2,53,310 crore in the previous month.

Regardless of the fact that overall inflation has fallen considerably in past few months, the benefits will not be distributed equally with rate of price rise higher in rural as compared to urban areas. Rural inflation has not fallen as much as urban inflation. Excess inflation rural India is facing is across major sub categories such as core, food and fuel. Structural bottlenecks are preventing rural areas from benefiting from global disinflation, according to the report.

GoI amended rules to reduce Transfer Pricing disputes In a positive signal to investors for determination of Arm's Length Price (ALP) with aim to provide clarity in calculating prices in transfer pricing cases and reduce litigations. New regime will be used for computing ALP on or after April 1, 2014, a notification said.

Employment in 8 sectors including IT/BPO, automobiles, gems and jewelry and textiles increased by INR 5.21 lakh in the previous fiscal. But job creation in these 8 sectors remained slightly stressed in the January-March quarter at 64,0000 over the preceding quarter as per the Labour Bureau report. Within the first three quarters of 2014-2015, many sectors witnessed an increase in employment over the previous quarters. Report also found that overall employment increased by 2.75 lakh during 2013-2014, lesser than INR 5.21 lakh in the previous fiscal. Highest increase in employment was observed in the IT/BPO sector while lowest employment was observed in the leather sector.

Fiscal deficit-difference between revenue and expenditure excluding borrowings on August 2015 was at INR 15808 crore that indicates surplus of revenues over expenditure. Surplus in the exchequer is considerably significant as fiscal deficit was INR 73005 crore during the last fiscal within the same period. Total expenditure in August 2015 was only INR 1311214 crore as against total revenue of INR 147022 crore.

Telangana government has signed two MoU with Chinese companies to establish prefab concrete manufacturing facility and implement dry port solutions. The two companies are Sany International Housing and Sany Heavy Industry respectively. An agreement has been signed by Secretary Housing and Sany International Housing to set up a prefab concrete manufacturing unit. Second MoU was signed by Industries Secretary and chairman of the Port of Sany Heavy Industry.

Construction Industry Development Board/ CIDB of Malaysia on 15th October 2015 proposed to invest around USD 30 million in urban development and housing projects in the country such as redevelopment of New Delhi Railway Station. National Buildings Constriction Corporation of Union Ministry of Urban Development will be linked with these projects. CIDB is a Malaysia based government agency which has been conceived in 1995 and is executing projects worth USD 8 billion currently.

Overseas investment/outward FDI in the form of equity, loan and issue of guarantee by Indian firms fell by more than half to USD 1.24 billion in September. It was 3.12 billion USD a year back. In August 2015, the overseas investment was pegged at USD 2.19 billion. From the total USD 1.24 billion invested in September, USD 137.25 million was invested in equity, USD 365.83 million through loans and USD 738.25 million in the form of issue of guarantee. Major overseas investors included Ultratech Cement in Middle East, TATA Power and TATA Communications in Singapore and WNS Global Services in UK.

Online financial product aggregator Bankbazaaar dot com has formed an agreement with Dena Bank for capturing online retail loan business through its web platform. Retail loans such as housing, car, used car and savings account will fuel the online presence of the bank and add to its
retail portfolio, according to Dena Bank.

TVS Logistics has announced the acquisition of a majority stake in Australia-based Transtar International Freight, a privately-held logistics firm, in a move that is aimed at strengthening the company’s presence in the entire Asian region. Transtar is worth INR 850 crore and secures 70% of the revenue from Asian market. The stake in the Australian firm will be acquired through Singapore JV arm TVS Asianics Supply Chain Solutions. TVS LSL will generate revenue of USD 500 million from this deal over the next 5 years.

BSE is going to launch high frequency job and consumer sentiment data from 2016 to help policy makers and companies attain a better grip of the economy. The Indian unemployment rate and Indian consumer sentiment indices are being created by BSE in collaboration with CMIE and University of Michigan. and will be released at high frequency on real time basis. Data will be released everyday on BSE from survey of more than 4000 adults from 1200 to 1500 households across the nation. Data based on survey of CMIE’s panel of 5 lakh people from 1.58 lakh households across 315 cities and 3000 villages was used. These indices will help investors, corporate groups and policy makers to analyse the health of the domestic economy.

Government pegs total sugar output at 26 MT for current marketing year 2015-2016 which is 2 million tonnes less than last year on account of poor monsoon in Maharashtra and Karnataka. This is much lower than ISMA’s estimate of 27 MT for 2015-2016. Country has produced 28.1 MT of sugar in 2014-2015 marketing year. Currently, India is the world’s second largest sugar producer.

The Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister Shri Narendra Modi, has given its approval to World Bank assisted National Watershed Management Project "Neeranchal" with a total outlay of USD 357 million.The project will be implemented at National level as well as in the nine States of Andhra Pradesh, Chattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Maharashtra, Odisha, Rajasthan and Telangana. Total cost of the project is pegged at INR 1071.15 crore or 50% while the remaining is a loan component of WB. Neeranchal aims at achieving the major objectives of the Watershed Component of the Pradhan Mantri Krishi Sinchayi Yojana (PMKSY) and for ensuring access to irrigation to every farm (Har Khet Ko Pani) and efficient use of water (Per Drop More Crop).

IMF has slashed the GDP growth forecast for 2015 from 3.3% to 3.1% as per the World Economic Outlook report 2015 released on 6th October 2015. Fund expects global growth to rise by 3.6% in the next year and lowered India’s 2015 GDP growth forecast to 7.3%. This pegs the growth forecast as lower than that of the government at 7.6% and 7.4% by RBI. Changes in China will impact emerging economies and cause growth to slow down for the fifth straight year according to IMF. IMF sees growth picking up to 7.5% in 2016, consumer prices to rise from 5.4% to 5.5% and CAD to come to 1.4% of GDP

Indian gas or petrol exports will lower by 98% in the year 2019, as per Fitch Group’s BMI Research. It will become the second largest importer of gasoline by 2024 after Indonesia. India’s net gasoline exports will decline by 97.8% over 5 years, from 306,800 bpd to 6760 bpd in 2019. Rapid growth in domestic demand in India will drive this decline. India will overtake China, Australia and Malaysia as consumption growth falls in these countries. Rise in domestic demand will create an import outlet for growing gasoline production set to rise 10.3% over the coming 5 years. Currently, India is the largest gasoline exporter in Asia Pacific accounting for majority of exports to Asia and the Middle East. This accounts for half of India’s total refined fuel exports in 2014. India’s refined fuel shipments to Middle East fell by 14.3% over 2013-2014.

Maharashtra government on 30th September 2015 made the decision to impose a drought surcharge on numerous items to raise INR 1600 crore for affected farmers. New taxes become operational w.e.f 12:00 am on 30th September 2015. New tax system will be in place till the end of February following which the state government will undertake its rationalisation. Surcharge of INR 2 per litre would be levied on petrol and diesel in the capital city of Mumbai. Local body tax will be scrapped in 27 corporations across the state to reduce the impact in rural areas so prices will rise by close to 50 paise. Sales tax on aerated soft drinks, cigarettes and liquor will be increased by 5% and that on gold, diamond and jewellery would be hiked by 0.2%. Maharashtra has also scrapped local body tax for traders with less than INR 50 crore turnover from August 1st 2015.

Public lending financial institutions SBI and BoB have indicated on 30th September 2015 that they have approved the issuance of shares on preferential basis to GoI in lieu of capital infusion of INR 5393 crore and INR 1786 crore respectively. SBI has indicated in a BSE filing that Committee of Directors for Capital Raising considered and accorded approval for allotting 19,65,59,390 shares on preferential basis to GoI. Government in August 2015 had made the decision to infuse INR 20,088 crore in 13 PSU banks. This includes PNB, IDBI, BoI, Union Bank of India, Corporation Bank and Canara Bank.

Non-food credit growth of scheduled commercial banks slowed to 8.4 percent in August from 10.2 percent in the same period last year, RBI data proved. Personal loans increased 17.3 percent in August, up from a rise of 13.4 percent in August 2014. Credit to agriculture and allied activities rose by 12.1 percent in August compared with an increase of 18.8 percent in the previous fiscal. Loans to industry grew 5 percent in the month, up from 7.8 percent.

WEF released the Global Competitiveness Report on 30th September 2015 assessing the economic competitiveness landscape of 140 nations providing insights into growth of productivity and prosperity. After 5 years of decline, India jumped up to 55th place compared to rank 71 in 2014-2015. Top countries in ranking were Switzerland, Singapore, US, Germany, Netherlands, Japan, Hong Kong, Finland, Sweden and UK. The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), which was introduced by WEF in 2004.

The growth of eight core sectors slowed down to 2.6 per cent in August

The slowdown in growth was mainly due to contraction of steel output. Expansion in 8 infrastructure sectors contributing 38 percent to overall industrial production was 5.9 percent in August in 2014. August 2015 output was only higher than previous month where core sectors had grown by 1.1 percent. Data released by Commerce and Industry Ministry also said steel output in month under review fell to 5.9% as against positive growth of 9.4% in August 2014. Coal, cement and electricity output slowed down to 0.4 per cent, 5.4 per cent and 5.6 percent respectively during the last month, as compared to 13.2 percent, 10 per cent and 12.9 percent.
The following sectors -rude oil, natural gas, refinery products and fertilisers-recorded healthy growth. In March and April 2015, the eight industries witnessed contraction of 0.1 per cent and 0.4 per cent respectively. However, in May and June the core sectors expanded by 4.4 per cent and 3 per cent respectively. In the April-August period of the current fiscal, the core sectors’ output expanded by 2.2 percent as against 5.6 percent in the first five months of 2014-15.

State operated lenders PNB, BoB and OBC have lowered their base or minimum lending rate with respect to RBI policy rate cut. PNB cut the base rate by 0.40 percent while BoB lowered base rate by 0.25 percent while OBC cut the rate by 0.20 percent. Base rate cit is by 40 basis points from 10% to 9.6% from October 1, 2015. BoB has decided to reduce rates by 25 basis points from 9.90% per annum to 9.65% and also lowered BPLR by 25 basis points from 14.15 percent to 13.90 percent. Lowering of rates will be effective from October 5th, 2015. OBC has slashed bank rates by 20 basis points from 9.90% per annum to 9.70% w.e.f September 30, 2015. Axis bank was the first among private lenders to announce a rate cut while SBI, Andhra Bank and Bank of India were among the first to lower base rate in range of 0.20 to 0.40 percent in response to RBI repo rate cut of 50 bps to 6.75%.

Foreign owned assets in India increased by USD 12.1 billion to USD 891.5 billion during April-June quarter of current fiscal as against 3 months of the previous fiscal, as per RBI data. This is on account of rise of USD 2.6 billion in India portfolio investment and increase of USD 5.6 billion in direct investment into the nation. Net claims of NRIs increased by USD 0.6 billion over previous quarter to USD 362.3 billion towards the close of June 2015, as per RBI data on IIP for the April-June quarter. Ratio of India’s global financial assets to global financial liabilities was at 59.4 percent in the month of June 2015 as against 58.9% in March 2015. Regarding the assets front, India residents’ financial assets abroad were pegged at USD 529.2 billion up from USD 11.4 billion during the preceding quarter on account of rise of USD 1.3 billion in reserve assets, according to RBI. Difference between assets and liabilities as shown by net IIP is disseminated with a quarter lag. IIP is a vital input for comprehending external sustainability and vulnerability.

Fitch Ratings has said in its Global Economic Outlook report that GDP growth in the first quarter had slowed from 7.5% to 7% in the preceding quarter based on moderating private consumption growth as well as lower net exports. India is one of the fastest BRICS nations with 7.5 investment. This estimate comes after RBI revised downwards real GDP forecast for 2015-2016 to 7.4% from earlier estimate of 7.6% indicating growth is expected to be picked up in the latter stage of the fiscal. Below average rainfall caused during this year’s monsoon season recorded at 14 percent under average is likely to somewhat grow. Agriculture constitutes 18% of India’s GDP. Regarding the China slowdown, India will be less affected by falling demand, Fitch said.