Electricity consumption (demand) in the country will grow at 7.1% (CAGR) between FY17 and FY22 and then slow to 6% in the subsequent five years, according to the Central Electricity Authority (CEA). Demand for electricity had grown at a much lower pace than projected by the CEA in the last five years — with industrial production growth tepid, peak demand grew just 4% in 2016-17 to close to160 GW against the CEA’s estimate of 9.3% growth. In the 19th electric power survey unveiled by the CEA recently, it also said aggregate technical and commercial (AT&C) losses will come down to 13% by FY22, on the back of government programmes likes the Ujwal Discom Assurance Yojana, Deen Dayal Upadhyay Grameen Jyoti Yojana and the Integrated Power Development Scheme. The AT&C losses at a pan-India level are around 20% now. Significantly, the CEA’s latest survey projects that the industrial sector will lose its relative share in power consumption in the next 10 years, while the domestic sector will increase its share, to become the largest consumer segment (see chart). The CEA also noted that with improvement in grid supply, industries may shift to the grid from captive power plants. However, since electricity tariffs are higher for industrial and commercial consumers, it might be cheaper for them to take power from their own captive power plants, the report added. The report said that CAGR of energy consumed from captive power plants for self-use by industries would fall from 8.7% in FY15 to 8% in FY22 and 7.5% in FY27. The National Tariff Policy, 2016, underlines that as captive generation is important to assure availability of competitive power, the concerned regulators should create an enabling environment that encourages captive power plants to be connected to the grid.
SBI’s economic research department said the RBI cannot “avert a rate cut” at the August policy review. “The expectation of a prominent rate cut would become more pronounced if inflation continues to remain benign for a longer time,” it said in a note. Domestic brokerage Kotak securities said the retail inflation will come below the 2 per cent mark for June itself and will be at 4 per cent level — the RBI’s medium term target — in March 2018. “Stage is set for an August rate cut,” it said. House economists at foreign brokerage Bank of America Merill Lynch concurred, saying, they are “more confident” of a 0.25 per cent cut at the third bi-monthly monetary policy review on August 2. Even though they chose to stick to their calls of a pause, economists at foreign brokerages HSBC and Nomura said chances of a rate cut are higher given the data print. “Lower inflation and unexciting growth print raises the risk of a rate cut in the RBI’s August monetary policy review,” HSBC said in a note. It said the downward trajectory in price rise was due to a slump in food and fuel and added that the last time inflation had fallen so low was in May 2001. “Our baseline remains a prolonged pause until mid-2018, including at the upcoming August policy meeting, given our view of higher growth and inflation readings as the fiscal year progresses,” Nomura said. However, given the lower inflation number, there is a “40 per cent” probability of a rate cut at the August review, it added. Private sector lender IDFC Bank said even though pressures are building on the monetary policy committee, “an August cut is not a 100 per cent given” due to risks like a reversal of base effect and implementation of 7th pay commission allowances, which can push up the number above 4 per cent by March 2018.
The government today emphasised that Good and Services Tax will be rolled out from July 1 and preparations are in full swing for its smooth implementation, as it sought to dispel rumours of a possible deferment. There have been demands from certain sections of the industry for a deferment of GST rollout. West Bengal Finance Minister Amit Mitra too had proposed to postpone GST by a month. “The Government of India has emphasised that GST is scheduled to roll out on July 1, 2017. The Central Board of Excise and Customs (CBEC) in coordination with the state governments have increased their outreach programmes so as to reach the last trader,” a finance ministry statement said. In a tweet, Revenue Secretary Hasmukh Adhia said: “The rumours about GST implementation being delayed are false. Please do not be misled by it”. The ministry said that preparations are in full swing for a smooth implementation of the landmark reform GST from July. The GST Council, chaired by Union Finance Minister Arun Jaitley and comprising state counterparts, had over the last three weeks decided tax rates on over 1,200 goods and 500 services and fitted them in either of 5, 12, 18 or 28 per cent slab. After the last meeting of GST Council, Jaitley had said the Centre and states have completed discussion on most of the issues.
Falling food inflation is expected to pull June CPI inflation to the sub-2 per cent level and may prompt the Reserve Bank to go in for a 25 bps rate cut in its policy review in August, says a report. “We have grown more confident of our call for a 25 bps RBI rate cut on August 2 with CPI inflation falling to 2.2 per cent in May from 3 per cent in April,” Bank of America Merrill Lynch (BofAML) said in a note, adding that with food inflation still coming off, it should slip below 2 per cent in June. According to official data, retail inflation slumped to a record low of 2.18 per cent in May. Earlier this month, the RBI left key interest rate unchanged as it wanted to be more sure that inflation will stay subdued. The finance ministry’s stand is inflation has been consistently low warranting a rate cut. CPI inflation in May is at the lower end of the RBI’s projected headline inflation band of 2-3.5 per cent in the first half the current fiscal.
The report noted that RBI MPC’s (monetary policy committee’s) inflation concerns are “dissolving”. Food inflation is easing further in June on a good summer rabi harvest and this should pull June inflation below 2 per cent. Moreover, there are predictions of a normal monsoon, and GST rates are unlikely to be inflationary, the report said, backing up. Regarding the second round effect of the hike in housing rent allowance (HRA) by the 7th Pay Commission, it said “the impact can hardly be material, given that the first round is largely statistical”. ”In our view, time is running out for the RBI to cut rates. An August cut will signal a lending rate cut to banks before the busy industrial season begins in October. Delay will push the next lending rate cut to the next slack season commencing April,” the report noted.