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.
The Bank of England has warned that the task of regulating the City after Brexit will put a strain on its ability to police the financial sector. Deputy governor Sam Woods also said the Bank’s regulatory arm, the Prudential Regulation Authority, faced “a material risk to its objectives” – which include promoting financial stability – as it deals with the UK’s exit from the EU. Woods warned of a “material extra burden” on the PRA if it had to regulate more financial firms as they made plans to cope with Brexit. “It is incumbent on us to manage this burden but we may have to make some difficult prioritisation decisions in order to accommodate it,” said Woods, chief executive of the PRA. In a letter to Nicky Morgan, the Conservative MP and new head of the Treasury select committee, Woods also described handling the fallout from Brexit as a top priority for the PRA. Backing calls from the chancellor, Philip Hammond, for a transitional exit deal, Woods added: “Some form of implementation period is desirable in order to give UK and EU firms more time to make the necessary changes to adjust to the UK’s new relationship with the EU in an orderly way.” He also outlined the risks contained in the Bank’s half-yearly assessment of financial stability, in which it warned that business conducted in the City could fragment across other financial centres, pushing up the costs to the EU and the UK. It also warned of the risk to the UK economy from potential disruption to trade and the need for banks to be braced for higher bad debt charges if loans turned sour owing to Brexit-related economic turbulence.
China’s consumer price index rose 1.4 percent in July from a year ago, missing estimates, the National Bureau of Statistics said Wednesday. Meanwhile, China’s producer price index rose 5.5 percent in July from a year ago. Analysts polled by Reuters expected consumer inflation to stay steady from June at 1.5 percent on-year while producer prices were also forecast to remain flat from the 5.5 percent on-year rise in June. Capital Economics China Economist Julian Evans-Pritchard said the inflation data point to cooling price pressures. Producer price inflation held steady for the third straight month and was positive on a month-on-month basis for the first time since March, but “this appears to be almost entirely due to the recent rally in domestic steel prices, which is unlikely to be sustained in our view,” he added. ANZ’s markets economist David Qu, however, said PPI is likely to remain strong in the coming months as the Chinese government continues to reduce over-capacity, a move that will support commodity prices. The Chinese government has been tightening monetary policy to reign in debt. “The upshot is that with policy tightening now weighing on economic activity, underlying inflation has already begun to decline. With growth likely to slow further in the coming quarters, we think the pick-up in price pressures witnessed during the past year will continue to unwind,” said Evans-Pritchard.
Former RBI Deputy Governor Rakesh Mohan on Wednesday said the GST rollout was a colossal task achieved after over a decade but the multiplicity of rates still remained a challenge. “GST has been achieved after a decade. Multiple rates is an issue,” Mohan said here at the ‘Economics and Governance’ event organised by Penguin publishers. The Goods and Services Tax has tax-slabs of 5, 12, 18 and 28 per cent. Gold is at a special rate of 3 per cent. In addition to the tax rates, there is also a cess rate on luxury and sin goods like high-end cars, aerated drinks and tobacco and tobacco products which results in further variations in effective rates of taxation under the new indirect tax regime. The former RBI officer said India needed to focus on health and education to achieve a higher growth rate. “Health and education is a challenge. We have the worst health and education indices. India can’t grow at 10 per cent without major improvements in these sectors,” he said.
Direct tax collection registered a steady growth of 19.1 per cent in the first four months of the current fiscal to Rs 1.90 lakh crore. The collection for the April-July period is 19.5 per cent of the Rs 9.80 lakh crore target from this segment for the entire 2017-18.”Direct tax collection during the said period, net of refunds, stands at Rs 1.90 lakh crore which is 19.1 per cent higher than the net collections for the corresponding period of last year,” a finance ministry statement said. The collection of direct tax, which consist of personal income tax and corporate tax, continue to register “steady growth”, it said. In April-July of last fiscal, 2016-17, the direct tax collection had grown 24.01 per cent to Rs 1.59 lakh crore. In gross terms, the growth rate for corporate income tax is 7.2 per cent, while that for personal income tax (including securities transaction tax) is 17.5 per cent for April-July period of the current fiscal. However, after adjusting for refunds, the net growth in corporate tax collections is 23.2 per cent while that in personal income tax collections is 15.7 per cent. Refunds amounting to Rs 61,920 crore have been issued during April-July, 2017 which are 5.1 per cent lower than the refunds issued during the corresponding period of 2016-17. Earlier this week, the government had released the numbers of income tax returns filed, showing demonetisation of old Rs 500 and Rs 1,000 notes had given the substantial growth. Number of tax returns filed soared to 2.83 crore as against 2.27 crore in the previous year. The growth of 24.7 per cent this year compared with 9.9 per cent in the year-ago period. Individual tax returns filed were up 25.3 per cent at 2.79 crore.
Monsoon rainfall in likely to remain normal in the remaining two months of the season, the India Meteorological Department (IMD) has said, setting the stage for a good kharif harvest and strong rural demand. Rainfall in the four-month season since June 1 has been normal in most parts of the country, barring the southern states. It has been normal or excessive in the key crop-growing states in northern and western India although the past 10 days have seen relatively weak rainfall. “Quantitatively, the rainfall over the country as a whole during the second half of the season is likely to be 100% of LPA with a model error of ±8%,” the IMD said on Tuesday. This year’s monsoon initially faced the threat of El Nino, which disrupts rainfall patterns across the globe, but the threat subsided. The seasonal rainfall forecast remains unchanged since June. “The seasonal (June to September) rainfall over the country as a whole is likely to be normal (96% -104% of Long Period Average) as predicted in June,” IMD said. Receding fears of formation of El Nino had led the IMD to upgrade its seasonal forecast from 96% to 98% of LPA in June. Presently, global and national forecasters have allayed fears of El Nino disrupting the southwest monsoon, as it is likely to remain neutral through this year. “Neutral ENSO conditions are most likely till 2018 spring season with high probability (80-90%) till end of 2017,” the national forecaster said. Rainfall in August is likely to be around 99% of long-period average, with a model error of +/-9%, as forecasted in June.