To boost investments and growth, Finance Minister Arun Jaitley would like the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) to reduce the policy rates at its upcoming bi-monthly policy review meeting on 6-7 May. The minister said in an interview to CNBC-TV18 that based on available indicators such as low inflation, stable oil prices, and lagging growth and investments, the MPC should look to cut policy rates. Earlier, Chief Economic Advisor, Arvind Subramanian, had said that there is enough room and scope for a rate cut. Finance Minister said that inflation has stayed under control for a long time and is expected to remain under control in the near future as well on account of a possibility of a good monsoon this year. He said, further the equilibrium between crude prices and shale gas prices will ensure that oil prices do not go through the roof and will remain in a range that is affordable by India.
Jaitley said that given the current set of indicators, mentioned above, any Finance Minister would want the RBI to cut rates and so would the private sector. Jaitley said that the MPC is just in its first year and so it would be too early to comment on the fact that whether the MPC mechanism is a success or not. He also said that even though as a Finance Minister he would like to see rates slashed but since the task of deciding policy rates has been entrusted to an MPC, he will wait for its decision.
Farm loan waivers will amount to 2 per cent of GDP by 2019 polls as other states may follow BJP’s Maharashtra and UP governments, says a Bank of America Merrill Lynch report. “We expect almost all States to write off about USD 40 billion of farm loans in the run up to the 2019 general elections following the ruling BJP’s UP and Maharashtra governments’ waivers,” BofAML said in a research note. This covers bank loans to farmers with up to 5 acres of land. The report said the Ministry of Finance will have to fund farm loan waivers by UDAY-type bonds to limit market impact. On Saturday, the Maharashtra government waived loans of Rs 300 billion/0.2 per cent of GDP owed by farmers with up to 5 acres of land by October. Earlier, in April, the UP government had announced a Rs 360 billion/0.3 per cent of GDP farm loan waiver. The Indian economy is expected to see a consumption driven growth rather than investment and farm loan waivers is likely to add to this trend by stimulating rural demand. Three other factors — lower lending rates, 7th Pay Commission Award and better monsoons — are expected to aid consumption-driven economic growth. Regarding RBI’s monetary policy stance it said the Central Bank is expected to go for a 25 bps rate cut in its policy review meet on August 2 as GST rates are not inflationary. “We grow more confident of our contrarian call of a 25 bps RBI rate cut on August 2. While a higher GST rate for textiles may push up CPI inflation at the margin, GST rates, overall, are unlikely to be inflationary as the RBI MPC had feared,” the report noted.
Services sector activity in India grew at the fastest pace in four months in May riding piggyback on higher work orders as companies inducted more people to cope with greater workloads, a monthly survey said today. The Nikkei India Services Purchasing Managers’ Index (PMI), which tracks services sector output on a monthly basis, rose from 50.2 in April to 52.2 in May. The Nikkei India Services PMI posted above the critical 50.0 level, which separates growth from contraction, for the fourth month running in May. “The pick-up in service sector growth seen mid-way through the first quarter (FY) suggests that GDP could expand at a faster rate should growth momentum be maintained in June, though there are downside perils to this,” said Pollyanna De Lima, economist at IHS Markit, and author of the report. Service providers took on extra staff in May in order to cope with greater workloads. Although the rate of job growth was modest, it was the fastest in almost four years. Job creation at services firms also mirrored expectations of output growth, with panelists mentioning new offerings, business expansion plans, more marketing and favourable government policies as the key factors supporting positive sentiment regarding the 12-month outlook. However, there are worries surrounding an increasingly competitive environment that weighed on confidence of service providers and optimism was at a three-month low. Meanwhile, the Nikkei India Composite PMI Output Index, that maps both the manufacturing and services sector activity, reached a seven-month high of 52.5 in May from 51.3 in April, as the stronger upturn in services sector counterbalanced the slowdown in growth of manufacturing orders. “Despite accelerating from April, rates of increase in both services activity and new work are much weaker than typical for India. Moreover, business confidence fell as a reflection of firms’ concerns regarding competitive pressures and lacklustre demand,” Lima said.