India’s economic growth rate should pick up to 7.5 percent in the 2016/17 fiscal year, the International Monetary Fund said on Wednesday, aided by a collapse in oil prices and relatively low exposure to current global financial turbulence. Summing up its latest review of Asia’s third-largest economy, the Fund forecasts that economic growth would pick up from 7.3 percent in the 2015/16 fiscal year that ends on March 31. Summing up its latest review of Asia’s third-largest economy, the Fund forecasts that economic growth would pick up from 7.3 percent in the 2015/16 fiscal year that ends on March 31. “The broad message is that India’s growth trajectory is pretty strong by international standards – not to mention the advanced economies,” IMF Resident Representative Thomas Richardson told Reuters. Inflation was behaving and was on track, the Fund said in a statement, with monetary conditions consistent with hitting the Reserve Bank of India’s target for consumer price inflation of 5 percent by March 2017. And, while the balance of economic risks has improved, they remain tilted to the downside. These included the impact of intensified volatility on global financial markets, including from surprise unexpected US monetary policy moves or China’s economic slowdown.
Moody’s Investors Service Wednesday lowered the outlook on China’s credit rating from stable to negative, citing a weakening of fiscal metrics and a continuing fall in foreign exchange reserves. The rating agency also noted uncertainty over the capacity of authorities to implement the reforms needed to address imbalances in the world’s second-largest economy. Moody’s current Aa3 rating on China is seven notches above junk so even if the agency were to follow up on its warning and lower the rating, investors won’t have to suddenly start selling the country’s bonds. Still, the warning underscores how the build-up in credit in the country’s stuttering economy is making market observers nervous. Rival Standard & Poor’s assesses China’s creditworthiness at similar levels to Moody’s, while Fitch rates China a notch lower. S&P and Fitch both have stable outlooks on the country. Moody’s noted that government debt had risen from 32.5 percent of gross domestic product (GDP) in 2012 to 40.6 percent at the end of 2015. Moody’s forecasts the metric to rise further to 43 percent of GDP by 2017 as Beijing spends more to revive growth that has slowed to the lowest in over two decades.
Asian shares look set to test February highs on Wednesday as signs of recovery in the U.S. manufacturing sector and gains in oil prices eased worries about a global slowdown and pushed U.S. stocks sharply higher economist Zhou Hao at Commerzbank in Singapore. U.S. manufacturing appeared to stabilize in February, with production accelerating and new orders holding steady at higher levels, in another dose of good news for the economy after growth slowed in the fourth quarter. The economic outlook was further bolstered by another report on Tuesday showing construction spending scaling a more than eight-year high in January. Though automobile sales slowed a bit in February, they remained at levels consistent with strong consumer spending. The reports added to upbeat data on consumer spending, the labor market, industrial production and durable goods orders in suggesting that economic growth picked up at the start of the first quarter, which should further ease fears of a recession. The Institute for Supply Management (ISM) said its index of national factory activity increased 1.3 percentage points to a reading of 49.5 last month, the highest reading since September. The ISM survey was the latest indication that the worst of the manufacturing downturn was probably over. Reports last month showed solid increases in industrial production and new orders for long-lasting U.S.-manufactured goods.
The government on Tuesday signalled that the goods and services tax (GST) will be implemented from 1 April 2017 even if the constitution amendment bill on GST gets cleared in this session of Parliament. Speaking at the CNBC TV 18-Mint Budget 2016 event, two secretaries in the finance ministry hinted that implementing this tax reform in the middle of a fiscal year may not be a good idea. This means that GST will unlikely be implemented in the middle of 2016-17, now that the government is set to miss the 1 April 2016 rollout date. “Ideally, we should have GST from the beginning of a fiscal. Once the constitution amendment bill gets passed in Parliament, we need about five-six months of preparation (to roll out GST). Businesses also need to time to prepare and traders need to be explained the working of GST,” said revenue secretary Hasmukh Adhia. Department of economic affairs secretary Shaktikanta Das also pointed to the long time required to put all things in place for GST to be rolled out. The implementation of GST was delayed after the government failed to push the constitution amendment bill in the Rajya Sabha on account of opposition from the Congress. GST aims to remove barriers across states and integrate the country into a common market. It will subsume all indirect taxes including excise duty, service tax and value-added tax.
The Reserve Bank of India said on Tuesday it would ease rules on what lenders can count towards their core capital requirements under upcoming Basel III rules, in moves intended to ease pressure on the cash-constrained sector. Government had estimated last year that lenders would need to raise about $17 billion from markets over four years to meet total funding requirements of about $28 billion beyond projected profits. In a bid to ease those fundraising pressures, the RBI said lenders can now apply gains from revaluation of property to core capital requirements under certain conditions. The RBI also said conversions of foreign currency in financial statements can now more easily be considered common equity capital, while also easing rules on counting deferred tax assets. The moves could free up an estimated 300-350 billion rupees ($4.42-$5.16 billion) for state-owned lenders and 50 billion rupees for private sector lenders, according to estimates by policy makers. RBI Governor Raghuram Rajan said in January the central bank was working on identifying undervalued assets and other types of capital that could be counted as capital under Basel III requirements.
Japan is laying the groundwork for new government spending to pre-empt any weakness in household consumption, and could set an early example after the Group of 20 nations called for more fiscal spending to help support the ailing global economy. Financial market turmoil and economic contraction at the end of last year have increased pessimism about Japan’s domestic demand, but rising tax revenue and falling bond yields suggest it now has more leeway to spend. Secondly, Japanese capital investment rose at a slower pace in October-December and corporate profits fell for the first time in four years in a worrying sign that flagging business spending will weigh on economic growth. The data suggests that revised gross domestic product (GDP) due on March 8 may show Japan’s economy contracted more than first reported, adding to the sense of pessimism surrounding the strength of domestic demand. Separate data showed household spending fell more than expected in January, providing further evidence that uncertainty about the economy may be behind consumers cutting expenditure.
Asian shares rose slightly in early trade on Tuesday, with sentiment bolstered by China’s easing move and gains in oil prices but also constrained by lacklustre US and European data that kept concerns about global growth momentum alive. The People’s Bank of China (PBOC) said on its website on Monday that it cut its reserve requirement ratio, or the amount of cash that banks must hold as reserves, by 50 basis points. “The general effects of the RRR reduction are questionable but China’s government would not have taken this move if they were not concerned about the economy,” Kathy Lien, managing director of BK Asset Management in New York, said in a note The official Purchasing Managers’ Index (PMI) fell to 49.0 in February from January’s reading of 49.4 and below the 50-point mark that separates growth from contraction. Economists polled by Reuters had expected only a slight dip to 49.3. The PMI came in much weaker than markets expected, hinting that recent easing measures have had limited impact in turning around the weakening manufacturing sector,” wrote senior emerging markets economist Zhou Hao at Commerzbank in Singapore.
Arun Jaitley in is third Budget sought to give a shot in the arm to rural incomes and a thrust to the farm and social sectors amid the fears that the Modi magic may have run out of steam with the electorate. The government, however, stuck to the fiscal consolidation roadmap and sought to bring a higher level of comfort to investors by going a small way towards reducing tax incidence on businesses and their compliance burden. It also addressed the mass of disputes and litigation in the areas of taxation and infrastructure and gave a leg-up to the “Make in India” project. Also, petrol price was on Monday cut by Rs 3.02 per litre, but diesel rates were hiked by Rs 1.47 a litre – the second increase this month in line with global trends. Thirdly, the Union government’s plan to raise Rs.56,500 crore through disinvestment in fiscal 2017 needs clarity as the Centre moves towards a new policy that includes monetizing assets such as land held by state-run companies. Also, growth in the eight core sectors jumped to a three-month high of 2.9 per cent in January due to sharp pick-up in coal, cement and electricity generation.
The Union Budget has signalled the government’s intention to remain responsible to fiscal targets, while being mindful of investment and consumption challenges to the Indian economy. Sticking to the 3.5% fiscal deficit target for FY17 has been a positive. While the major thrust has been on rural, social and infrastructure sector reforms, it’s a balanced and progressive Budget, which has addressed the concerns of the economy. The ball’s now in RBI’s court, and I ( Rakesh Shah, Edelweiss) almost expect a 50 bps rate cut in the next 48 hours. While there has been lower-than expected allocation for recapitalisation of public sector banks, I feel it’s positive to push the banks to be proactive in cleaning their balance sheet. One of the major fears before the Budget was the possibility of change in tax provisions for long-term capital gains, which remains unchanged. While this wasn’t very pertinent from an economic point, it has been a positive for driving the markets. The Budget has also been good for the financial sector. The provision for 100% promoter holding in ARCs will ensure capital flow and also drive faster NPA resolution in the banking sector. This is also the first instance when the finance ministry has backed the proposal to reduce government holding below 50% in select public sector banks.
- Rs. 1,060 crore revenue loss through direct tax proposals, and Rs. 20,670 crore revenue gain through indirect tax proposals. Revenue gain of Rs 19,600 crore in Union Budget 2016 proposals.
- 13 different cesses levied by various ministries with collections less than Rs.50 crore a year to be done away with.
- No Service Tax for houses built under 60 square metres.
- Excise duty on tobacco increased by 10-15 per cent.
- Committed to stable taxation regime. No more retrospective amendments.
- 4% high capacity tax for SUVs. Visit www.purnartha.com
- Limited period compliance window for domestic taxpayers to declare undisclosed income. Declarations to have immunity from prosecutions.
- No changes have been made to existing income tax slabs.
- Infrastructure and agriculture cess to be levied.
- 1 per cent service charge on purchase of luxury cars over Rs. 10 lakh and in-cash purchase of goods and services over Rs. 2 lakh.
- Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh.
- 40% of withdrawal at the time of retirement under National Pension Scheme to be tax exempt.
- Tax holiday for startups for three of five years of setting up the company
- Lowering of Corporate IT rate for companies not exceeding Rs. 5 crore turnover to 25% plus surcharge.
- People with income less than Rs 5 lakh to get deduction of Rs 5,000, up from Rs 2,000 last year. HRA deduction up from Rs. 24,000 to Rs. 60,000 p.a.
- Rs. 100 crore for Deendayal Upadhyay’s birthday celebrations and Guru Gobind Singh 300th birth anniversary.
- Classification of expenditure as plan and non-plan to be done away with.
- Govt plans to spend Rs 19.78 lakh crore in 2016-17 — Rs 5.5 lakh crore under plan head, Rs 14.28 lakh crore under non-plan head.
- FIscal deficit at 3.5% of GDP in 2016-17.
- A bill on targeted delivery of financial services using Aadhar to be introduced.
- Amendment to the Companies Act to ensure speedy registration and boost start-ups.
- Rs. 900 crore for buffer stock of pulses.
- Dept of Disinvestment renamed as Dept of Investment and Public Asset Management.
- Direct Benefit Transfer for fertiliser subsidy.
- EPF at 8.33 per cent for new employees joining the scheme.
- Rs. 25,000 crore for recapitalisation of public sector banks.
- General insurance companies owned by the govt to be listed in stock exchanges.
- Amendments to boost Asset Reconstruction Companies to manage NPAs of public sector banks.
- RBI Act to be amended to set up monetary policy committee.
- Total outlay on infrastructure in 2016-17 is Rs. 2,21,246 crore
- In the power sector, the govt is drawing up a plan for 15-20 years to augment investment in nuclear power. Rs. 3,000 crore per annum for this. Visit www.purnartha.com
- There are 160 airports and airstrips which can be revived.
- Motor Vehicles Act to be amended to enable entrepreneurship in the road transport sector.
- Total outlay for infrastructure is at Rs. 2.31 lakh crore.
- Rs. 97,000 crore for all roads. Total outlay on roads and rails will be Rs. 2.80 lakh crore. 10,000 km of national highways in 2016-17 and 50,000 km state highways to be converted to NH roads.
- More than 70,000 road projects were languishing at the beginning of the year. Nearly 85% of these projects have been put back on track.
- Small shops should be given the choice to remain open on all 7 days a week.
Rs. 1,700 crore for 1500 multi-skill development centres.
10 public and 10 private educational institutions to be made world-class. Digital repository for all school leaving certificates and diplomas. Rs. 1,000 crore for higher education financing.
- Hub to support SC/ST entrpreneurs.
- National dialysis service programme under PPP model. LPG connection for women members of rural homes.
- Government to provide health insurance of upto Rs. 1 lakh per family; top up of Rs. 35,000 for people above 60 years. 3,000 stores to be opened for generic drugs.
Total rural sector allocation Rs. 87,769 crore.
- Two schemes for digital literacy for rural India to cover 6 crore households in the next three years.
- Rs. 9,000 crore for Swachch Bharat Abhiyan.
- 5,542 villages have been electrified, more than the last three years combined.
- Rs. 38,500 crore for MNREGA. Highest ever for the rural employment scheme.
- Rs. 2.87 lakh crore for gram panchayats as per recommendation of 14th finance commission.
- Four schemes for animal welfare.
- Agricultural credit target of Rs. 9 lakh crore. Govt to allocate Rs 5,500 crore for crop insurance scheme.
- Unified e-platform for farmers to be inaugurated on Ambedkar’s birthday.
- Paramparagat Krishi Vikas Yojana to bring 5 lakh acres under organic farming.
28.5 lakh hectares to be brought under irrigation.
- Govt will reorganise agricultural policy to double farmer income in five years.
- Jaitley announces the nine pillars of his Budget — Agriculture and farmers’ welfare, rural sector, social sector including healthcare, education, skills and job creation, infrastructure, financial sector reforms, ease of doing business, fiscal discipline, tax reforms to reduce compliance burden. Visit www.purnartha.com
- New scheme for BPL families for gas connections. Staturtory backing for Aadhaar platform to ensure delivery of benefits.
- CAD is 1.4% of GDP.FY 16-17 will have the additional burden of implementing the VII pay commission and the defence OROP.
- FY 15-16 and 16-17 will be challenging for the government.
- Forex reserves are at the highest ever levels — $350 billion.
- GDP growth has accelerated to 7.6%. CPI inflation has come down to 5.4%.
- Mr. Jaitley says the Indian economy has held strong despite a global slowdown.