India’s merchandise export grew 3.9% to 22.54 billion in July, marking an annual increase in shipments for the 10th straight month, but slower than the 4.4% growth posted in the previous month. The growth of imports, despite continued surge in the influx of gold, slowed in July to an annual 15.4% from 19% in the previous month, precipitating a narrower trade deficit of $11.45 billion. The trade shortfall was $12.96 billion in June. India imported goods worth $33.99 billion last month, as against $36.52 billion in June.As for exports, engineering goods (up 15.2%), petroleum products(20.3%) and chemicals (20.7%), performed well in July, but several other sectors reported contraction. Pharmaceutical exports declined 5.4% year on year, apparel exports fell 12% and gems and jewellery saw a 22.7% fall.South Korean imports via the FTA route had seen gold imports surge 104% to $2.45 billion in June. The imports saw 95% rise in July to $2.1 billion. “…the need of the hour is the sectoral analysis which should be initiated soon to pin-point factors responsible for decline in (exports from many sectors),” Ganesh Kumar Gupta, president of Federation of Indian Export Organisation (Fieo), said.Oil imports were valued at $7.84 billion in July, an increase of 15% over the same month in 2016. Cumulative import during April-July increased by 28.3% to $146.25 billion, leaving a trade deficit of $51.5 billion. Fieo has also cautioned that the order booking position October onwards is not very promising and the appreciation of Indian currency with increasing pressure on liquidity under the goods and services tax may affect exports in the last quarter of 2017 bringing exports to $310 billion in the current fiscal.
The abolition of inter-state check posts after the implementation of GST has reduced time for movement of goods by 30 per cent and saved thousands of crores of rupees, Prime Minister Narendra Modi said today. The Goods and Services Tax, which unified more than a dozen central and state levies, is a result of cooperative federalism and its smooth rollout from July 1 has increased efficiencies of business, he said. Addressing the nation from the ramparts of the Red Fort on the occasion of 71st Independence Day, Modi said technology has made the rollout smooth in a short span on time. “Trucks (carrying goods) are saving 30 per cent (travel) time post GST as check posts have been removed. This has helped save thousands of crores of rupees and more importantly time,” he said. Business efficiency, he said, has increased. “Efficiency has increased in transport sector by 30 per cent and because of GST such a big change has happened,” he said. The biggest tax reform since Independence, GST was rolled out from July 1. The new indirect tax regime has subsumed over a dozen state and central levies like excise duty, service tax and VAT, and has replaced them with four tier tax structure of 5, 12, 18 and 28 per cent for goods and services across the country.GST has removed inter-state barriers to convert India into a single market where goods and services can flow seamlessly. State border check posts scrutinised material and location-based tax compliance, resulting in delays in delivery of goods and cause environment pollution as trucks queue up for clearance.Modi said crores of people are behind the success of GST and the implementation of the new indirect tax regime is an example of the benefits that can be reaped if there is cooperative federalism in place between the Centre and states. “Technology is a miracle. Some find it astonishing that GST has been rolled out in such a vast country in such short span of time,” he said.He said in initiatives like GST, ease of doing business and cleanliness drive, the Centre and states have worked shoulder to shoulder to make them a success. He said the steps taken by the government will benefit the country and with GST the country will benefit. Modi said there was a time when the Centre and states used to fight over allocation of urea and kerosene.The Central government, he said, had a “big brother” approach towards the states. But all this is a thing of past with increased urea production in last three years and alternate LPG and natural gas usage cutting down kerosene demand, he said. “Since I have myself been a Chief Minister for long, I know that states are important for the growth of a country. I understand the importance of chief ministers and state governments. “And that is why we focused on cooperative federalism and now competitive cooperative federalism. And now we are taking all decision together,” Modi said.
Investments, especially in the manufacturing sector, is the key to ensure sustained growth in the country, former RBI Governor D Subba Rao has said. “I am sure all of you have read about economic survey that was presented to the Parliament last week. What the economic survey said was that in a situation where you have such low real investment, low export volume, low credit growth, you cannot sustain seven plus per cent growth. “So, if you ask me give a one word answer to what should be done to get India to continue to grow, I would say investment,” he said.Subba Rao was speaking at a meeting jointly organised last night by the Rotary Clubs of Hyderabad and the Federation of Telangana and Andhra Pradesh Chamber of Commerce and Industry (FTAPCCI). Investment and growth rate have a strong correlation, he said. “When we grew at nine plus per cent before the global financial crisis from 2003 to 2008, there was very high investment. Again after the crisis, growth dropped because investment dropped. Today, there is no investment taking place. So, unless investment is jacked up, it is difficult to accelerate growth,” he said.India holds great promise, at a time when advanced economies are struggling with low growth and deflation, but growth in the country is “not inevitable”, he said. “Today, we are growing at seven plus per cent. But, that growth has a very narrow base…There is no investment taking place. Exports are quite muted. Inflation is low. But, inflation is low because of low oil prices and low food prices. Low food prices because of the good monsoon. Rupee is steady of course. “But, rupee is steady because of FII inflows. The most important worry for us today is that investment is not taking place,” he said.Some spoke highly about India’s growth, before the global financial crisis when the country clocked a growth of nine per cent, but the high growth rate did not continue, he said. Job creation on a large scale would happen in the manufacturing and not in agriculture or services sector, he added. “…In order to get the elephant (Indian economy is often compared with an elephant) to dance…, the first thing we should do is invest in manufacturing. Because, manufacturing …is key to creating jobs,” added the former RBI Governor.The main thing “everybody pointed out” when the NDA government completed three years in office was its alleged failure to deliver on massive job creation though what was witnessed was “not a jobless growth”, he said. “Two things everybody has pointed out. Two things that the government has failed on or not delivered on. Two things.Jobs and (addressing) agriculture distress. “So, creating jobs is something that the government has not done as well as it should have. It is not a jobless growth. But, the number of jobs created with seven per cent growth, I think has been less than adequate. That’s the reason the Prime Minister talks about Make in India, Start Up India, Stand Up India etc,” he said. There is “nothing inevitable” about the country’s demographic dividend as well unless job creation takes place on a large scale, Rao said.“There is nothing inevitable about the demographic dividend. …You cannot get the demographic dividend unless you are able to create jobs, provide jobs for all the people. Today, we have in the country a million people they are in the labour force. One million people join the labour force every month and we are not even creating one million jobs per year,” he said. Demonetisation is not the cause for low job creation as it is only a transient event and the causes are “structural”, said Rao.In order to generate a manufacturing revolution, he said, the country needs to do a lot of things, including skill development. “We produce 400,000 engineers every year. 200,000 engineers are not employable,” he quipped. Investing in infrastructure is another important factor for growth. However, banks are not equipped to finance infrastructure and long term financial institutions like pension funds can do it, he said. Among others, improving agriculture productivity, investing in irrigation, health and education outcomes, maintaining macro-economic stability, managing urbanisation and environment issues are the things that needs to be done to get the “elephant dance”, said Rao.
The Indian economy is at the cusp of entering its strongest growth phase and a full blown bull market is yet to play out with the wide-based Nifty expected to touch 11,500 in 2018, says a report. An economy enters the strongest phase of growth when stocks, bonds and commodities all rally together.”We believe that India is at the cusp of entering this phase and full blown bull market is yet to play out,” Edelweiss Investment Research said in a note.According to Edelweiss Investment Research, consumption and exports are boosting economic growth in the country. While consumption has displayed sharp recovery after the cash crunch in early 2017, investments are witnessing only a government supported recovery which is inadequate but effective for a few sectors like railways, roads and power transmission and distribution (T&D), it said. Regarding the uptick in equities, the report said, stock markets are driven by low inflation, profitability and increase in financial savings. Though Nifty valuations are “rich”, a continued shift in allocation of funds from debt to equity are likely to continue.“A comparison of Nifty’s earning yield versus the 10 year government bond yield shows that equities are still attractive as compared to debt instruments and we should expect shift in the allocation of funds from debt to equity to continue,” the report said. Edelweiss Investment Research expects Nifty to touch 11,500 in calender year 2018. Nifty is currently hovering around 9,700 level. The wide-based index had breached 10,000 mark for the first time on July 25.Regarding trade, which is a key driver for India’s growth engine, the report said synchronous global growth is likely to boost international trade as well as Indian exports. “Export growth is held up despite facing pressure from a strong rupee. We expect exports to remain healthy with global industrial activity reviving,” the report said.Moreover, consumption which had slowed post demonetisation is slowly picking up in India as reflected in 2-wheeler and passenger vehicle sales and this in turn is likely to lead to a revival in investments.”We believe that India’s strong consumption story will drive in investment as witnessed from 2003-08 and earlier episodes,” it said.
The Comptroller and Auditor General (CAG) has pulled up the Maharashtra government for its slow progress in recovery of taxes and arrears amounting to over Rs one lakh crore for the financial year 2015-16. According to the CAG report, tabled in the state assembly on Friday, lack of efforts in developing recovery module has affected the rate of recovery, resulting in piling of disposal cases and recovery figures getting shrunk further. The report stated the arrears of revenue as on March 31, 2016 under major heads of revenue amounted to Rs 1,09,306.77 crore, of which the amount of Rs 27,821.76 crore is outstanding for more than five years.Surprisingly, VAT and sales tax put together, the total arrears are of Rs 1,07,503.25 crore, of which VAT arrears stood at Rs 80,505.50 crore, while those with sales tax were Rs 26,997.75 crore. It further said out of Rs 1,07,503.25 crore, an amount of Rs 43,207.94 crore was locked up in departmental appeals, Rs 28,117.12 crore was in arrears on account of cases pending with court, official liquidator, debt recovery tribunal, non-traceable dealers and so on. The remaining Rs 36,178.19 crore was in different stages of recovery. Under the large taxpayers’ unit category, the percentage of pending cases rose from 55 per cent in 2013-14 to 69 per cent in 2015-16.Similarly, the percentage of pendency of cases allotted for business audit increased from 44 per cent in 2013-14 to 74 per cent in 2015-16. The CAG report also stated Rs 26,172.02 crore (24.34 per cent of total pending arrears) in respect of 25,454 cases were pending for recovery for more than five years. When it comes to recovery of arrears, the amount due for recovery in 2015-16 is Rs 2,03,607.23 crore as against Rs 1,72,405.93 crore in 2014-15. The actual recovery in 2015-16 stood at Rs 3,262.29 crore, down as compared to Rs 3,679.46 crore in the previous fiscal, the report said. The CAG also came down heavily on the disposal of cases by the sales tax department.The disposal of the cases as compared to the target fixed had shown a declining trend at each level between 2013-14 and 2015-16. At the joint commissioner level, the percentage of non-disposal increased from 56.51 per cent to 77.20 per cent. Similarly, at the deputy commissioner level, it increased from 66.63 per cent to 82.85 per cent. During the year 2013-14, arrears of Rs 22,444.18 crore that is 25.94 per cent of total pending recovery, was locked up in departmental appeal. It further increased to Rs 37,736.23 crore (31.86 per cent of total pending recovery) in 2014-15 and Rs 43,207.94 crore (40.19 per cent of total pending recovery) in 2015-16.
India’s consumer inflation is expected to have picked up in July after easing for three straight months, with food prices back on the rise, but is expected to remain well below the central bank’s target. The consumer price index, the main policy target of the Reserve Bank of India (RBI), likely rose 1.87 percent in July from a year earlier, according to a Reuters poll of economists, compared with an increase of 1.54 percent in June. The wholesale price index likely rose 1.3 percent in July, after four months of easing. In June, WPI rose 0.9 percent. The wholesale price data will be released around 0630 GMT on Monday, followed by consumer prices around 1200 GMT. Bountiful monsoon rains this year are expected to lead to another bumper harvest, further dampening food prices, which contribute near 50 percent of the consumer price index. Retail food prices had contracted for two months through June from a year earlier.Disinflationary pressures allowed the RBI to cut its main policy rate early this month by 25 basis points to 6 percent, the lowest since November 2010. It was the first easing by an Asian central bank this year. But the RBI retained its “neutral stance” and warned inflation could pick up again.The RBI expects retail inflation could accelerate to 3.5 percent to 4.5 percent in October-December. The government called on Friday for more rate cuts as it flagged risks to economic growth and budget targets. In his mid-year economic survey, Chief Economic Adviser Arvind Subramanian said there were downside risks to the official growth forecast of 6.75-7.5 percent for the fiscal year to March 2018.The launch of a national Goods and Services Tax (GST) in July has caused chaos on the ground as complex rules have left companies confused on how to price their products. Combined factory and service sector activity slumped in July to the lowest since March 2009, according to one private survey, though analysts believe the disruptions from the new tax will start to moderate soon and longer-term it will boost domestic trade.Economists still expect the RBI could cut policy rates by 25-50 basis points this year. In his report, Subramanian said there was a considerable scope for monetary easing as the inflation was undergoing a “structural shift.”
India’s industrial production is expected to be “anaemic” 0.3 per cent for June, partly on account of retailers reducing stocks before the implementation of GST, says a report. Industrial output growth stood at 1.7 per cent in May. Before the implementation of Goods and Services Tax (GST), destocking was triggered largely owing to a steep fall in demand from consumers as they delayed purchases on expectation of getting better price post the new indirect tax regime, the report said. “We expect industrial growth to post an anaemic 0.3 per cent in June, slipping from 1.7 per cent last month (May). Production was likely partly impacted by destocking before July 1 GST implementation,” Bank of America Merrill Lynch (BofAML) said in a research report. It further noted that industrial output gap is unlikely to close any time soon as high lending rates are delaying economic recovery. “It is only when lending rates come off sufficiently that stimulation of demand will lead industrial recovery, exhaustion of capacity and investment, in our view,” it said. On price rise, the report said inflation is expected to be muted even after the ongoing spike in tomato prices and the 7th Pay Commission’s hike in house rent allowances (HRA). “On our part, we advise investors to look through the temporary price spikes in tomatoes due to supply dislocations and similar statistical impact on account of HRA implementation,” the report said. BofAML expects 2017-18 inflation to average 3.7 per cent (excluding HRA hike), still well within the RBI’s 2-6 per cent range. “Inclusive of the statistical impact of the 7th Pay Commission’s hike in house rent allowances, July CPI inflation should work out to 2.5 per cent,” the report said. On account of weak growth and low inflation, the Reserve Bank is expected to cut rates by a final 25 bps on December 6, it noted. The Reserve Bank in its policy review meet this month has lowered its key lending rate by 0.25 per cent, a move which is likely to translate into lower interest rates for home, auto and other loans as also boost economic activity.
The tax-GDP ratio will see an increase of 30 basis points (bps) each in 2018-19 and 2019-20 due to the impact of demonetisaion and the roll-out of the Goods and Services Tax (GST), according to the Medium-Term Expenditure Framework (MTEF) Statement tabled in the Lok Sabha on Thursday. “Going forward in the years 2018-19 and 2019-20, the gains from expansion of the tax base due to the introduction of GST and the increased surveillance post-demonetisation will ensure that tax-GDP ratio will increase by 30 bps in each of these fiscals,” the report said. The tax-GDP ratios are projected to be 11.6 per cent of GDP in 2018-19 and 11.9 per cent of GDP in 2019-20. However, in the current fiscal, the tax-GDP ratio is expected to see no increase over that of 2016-17 and remain at 11.3 per cent, the report noted. “In other words, it is felt that any shocks to tax collections due to the introduction of GST will be absorbed in the current FY and, hence, the tax-GDP ratio will remain at the level of 2016-17,” it said. “It is projected that, in the medium-term, tax revenues will show the growth anticipated during the presentation of the Budget and as estimated in the MTEF Statement,” it said.