Economic Survey 2018

By Shivam Saklani

The Economic Survey 2018 has estimated that the Indian Economy will grow by 7-7.5 per cent in 2018-19, thus re-establishing India as the world’s fastest growing economy.

FM Arun Jaitely, presented the Economic Survey in the parliament on Monday, and said that the second half of FY18 can clock 6.75 per cent growth. A 50% increase in the number of indirect taxpayers, was reported in this survey but the survey also cites that collections of direct taxes by the states and other local governments, where they have powers to collect them, is significantly lower than their counterparts in other federal countries. It directly implies that there is still the need of tax awareness for the citizens.

The survey had impeccably captured the footprints of climate change on the Indian Territory and its adverse impacts on agricultural yields. Improper Irrigation was again cited as the biggest reason for the irregular agrarian yield. It is time India should take help from Israel in solving the problem. The Economic Survey has observed that the quality of hygiene and sanitation had a significant impact on improving the health outcomes. The Swachh Bharat Mission has increased the sanitation coverage in rural India from 39% in 2014 to 76% in Jan 2018.

8 States and 2 UT have been declared as Open Defecation Free (ODF). The Survey also told that an average household in an ODF village saves up to Rs. 50,000 every year.

The survey has suggested that the country has to become one of the largest producers of knowledge. Currently it is said that 1 out of every 6 student in the US+UK is Indian. The survey stated the need to invest more in the research sector, so as to attract youth towards research fields.

The survey said that India’s formal sector i.e. non-farm payroll is substantially greater than currently believed. It further states that the digitization of government data and introduction of GST have provided an opportunity to make some preliminary estimates of formal employment. Defining formal employment in 2 ways, either in terms if employees receiving some kind of social security benefits or from a tax net perspective, the survey states that there are 22 crore employees in the country currently (out of 1.3 billion population) for this , EPFO & ESIC data has been used.

While some economists have said that new EPFO Registration doesn’t necessarily mean a new job; it could simply have been fallout of demonetization, where hitherto informal workers were newly registered as formal employees. The good news is that the survey lists employment generation, specifically finding good jobs for the young and burgeoning work force as a key area of policy over the medium term. The action and policies of the government on the same are yet to be seen.

India-ASEAN Summit 2018

By Shweta Arya

The India-ASEAN Summit 2018 is scheduled for 25th and 26th January 2018. It is a semi-annual meeting held by the members of the ‘Association of Southeast Asian Nations’ (ASEAN) in relation to economic, political, security and socio-cultural development of Southeast Asian countries.           

The ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

In addition, the summit serves as a prominent regional and international conference, with world leaders attending its related summits and meetings to discuss about various problems and global issues, strengthening cooperation, and making decisions. The summit has been praised by world leaders for its success and ability to produce results on a global level.

The invitation to all 10 ASEAN heads of state/government as chief guests for 'India’s 68th Republic Day' celebrations will mark yet another and even more significant upgrade of the relationship. All 10 ASEAN leaders will be present at the ceremony.

The India-ASEAN trade is currently only US$ 71 billion and has been declining since reaching a peak of US$80 billion in 2011-12. Despite more than 22% of India’s cumulative outward FDI being located in ASEAN and 2,000 Indian companies being present in ASEAN countries, India’s profile is modest when compared to China and Japan. 

Under its 'Act East Policy', New Delhi is pushing to boost its relationship via connectivity, commerce and culture with this regional bloc. This gesture reflects the Indian intent to highlight the priority it attaches to its South East Asian neighbourhood

Bank Recapitalisation: PSBs to get infusion of ₹88,139 crore

By Aashi Sehrawat

To boost lending and revive growth, and unveiled steps to tackle the bad loan problems which have touched the record levels, Modi Government has spelled out a new banking roadmap this week. It announced that it will infuse ₹88,139 crores in 20 Public Sector Banks during the current fiscal. These PSU banks, which include State Bank of India, account for more than two-third of India’s banking assets and most of them with more than Rs. 8 lakh crore of non-performing assets (NPAs) or bad loans. Amounts allocated to various PSBs under recapitalisation plan are as follows:

SBI bank to get ₹8,800 crores, OBC to get ₹3,571 crores, IOB to get ₹4,694 crores, Union Bank to get ₹4,524 crores and BoI, being the highest, to get ₹9,232 crores. 

Commenting upon the details of re-cap bonds, S C Garg, Economic Affairs Secretary, said that these bonds will carry a maturity period of 10-15 years and will be treated as non-SLR bonds.

This announcement shows that the government is working on the lending capacity of government-owned banks but this is not the only objective, following are the things affected by this idea:

• Challenge to raise equity from market: This plan includes ₹76,000 crores raised through budgetary and market raising. Though there is no break up given, the government has budgeted ₹10,000 crores from the current years' budget and under the revised plan it has mentioned some ₹18,000 crores. So, there is a possibility that ₹8,000 crores of additional money are coming in this year from the budget. Thus, there is a big challenge for PSBs to raise equity capital either through divestment or through equity expansion.
• Governance and HR reforms is the need of the hour: These PSBs have been suffering. The Bank Board Bureau (BBB) was set up to look into many of these issues but hasn't seen any success. The credit standards are quite weak, resulting in banks sharing bulk of the NPAs in the system. Banks have also been instructed to become more professional.
• The banks will have to keep a strict watch on lending and recovery and undertake specialized monitoring of loans over ₹250 crores.
• The PSU banks will also need to have a dedicated stressed assets management vertical. To ensure financial inclusion, the banks would have to provide doorstep banking for differently-abled and senior citizens.

Strengthening, empowerment and professionalization of bank boards is high on the agenda of the government. 

The recent surge in stock market

By Shivam Saklani

Last week, the Sensex, crossed yet another milestone of 35,000 points. The index of the Bombay Stock Exchange’s 30 most actively traded stocks has, in the last one year, risen over 30 per cent. But it isn’t just the Sensex. The BSE-100, BSE-200 and BSE-500 indices are also up 30.4%, 31.4%, 33.5% respectively, compared to a year ago. In other words, this is a rally that is broad based and not confined to select stocks whose prices are being pushed up. The stocks comprising Sensex are today trading at prices that are 26.06 times, their underlying average earning per share. Such high price earnings ratios were last seen during 2007-08, when Indian economy were growing @ 9.3 percent per year, as against 6.1 percent this fiscal. This shows that investors are being optimist, with a belief that growth pickup is just round the corner. The expectations from the Budget 18 are soaring as we see the increase in investments.

The above optimism would be justified when the budget 18 will be uncovered, what’s interesting, is quite opposite development in the bonds market. The benchmark 10 year Indian government bond issued last may, at an initial rate of 6.79 per cent was, on Friday, traded at 7.48 per cent. Since bond yields and prices move in opposite direction, we can say that {(6.79/7.48)*100 = 90.775}. Thus, we can say that the security which was originally priced at ₹100 now fetches only ₹90.78

In last one year, 10 year government bonds yields have gone up by a full percentage point with a surge in the stock prices. All of this has happened without the tightening of the monetary policy by RBI, as well as with the high oil prices. The single implication from all the events is that the Union Budget 18 is to be drafted without a room for fiscal adventurism, as was indicated by the Prime Minister today. Although the budget would focus on agriculture and other govt. schemes such as PM Krishi Sinchayee Yojana, Pradhan Mantri Fasal Beema Yojana, Saubhagya Yojana, Ujjwala Yojana etc.

Expectations from Budget 2018

By Aarushi Singh

Budget for this financial year 2018-2019 is seen to be different compared to other years because it is to be be formulated under constraints of not only demonetization but also GST. Over few years, various steps have been taken by the government to revive the economy by controlling inflation, revival of the manufacturing sector and many more. Initiatives have also been taken to open various sectors for investments which is evident from the increased FDI.

There are many expectations from this Budget which include;

• ·      Hike in the tax exemption limit from existing Rs 2.5 lakh per annum to at least Rs 3 lakh p.a. Considering the steep rise in cost of living due to inflation, it is suggested that basic limit for exemption and enhancement in income slabs will benefit the low-income group.  
•      The Fintech industry is also optimistic about this year’s budget after India becoming the 2^nd fastest country to adopt Fintech technologies in the world after China. Industry is expecting policies in support of digital payments.
•      The focus of this budget is expected to be on rural infrastructure and railway infrastructure along with the framework of stations and trains.
•      Recapitalization plan of public sector banks after rising bad loans will also be a major announcement.

Apart from these major reforms, several economists are urging the government to cut corporate tax rates in order to make the Indian industries on a global level.

Government gets stricter on companies not passing down GST benefits to consumers

By Ridhima Malhotra

The Government has approved the constitution of a National Anti-Profiteering Authority (NAA) – the institutional mechanism under the GST law to check any unfair profit-making activities by the trading community.  The Authority’s primary function is to ensure that the benefits of the reduction in GST rates on goods or services made by the GST Council is passed on to the ultimate consumers by way of a reduction in prices by traders. 

Recently, FMCG firm Hindustan Unilever Ltd (HUL) was served a notice by the Directorate General of Safe guards (DGS) for reportedly not passing on the benefits of the new tax regime to the consumers. DGS has also sent notices under GST anti-profiteering to enterprises including Hardcastle Restaurants, which runs McDonald's restaurants in west and south India, Lifestyle International, Honda Motor and an HULBSE -1.04 % dealer in Jaipur.GST council has also dropped tax rates on 200 products including chocolates, toothpaste, shampoo, washing powder and shaving creams. The tax rates have been reduced from 28% to 18% to help consumers. The government expects traders to release advertisements spreading awareness to the consumers about revised prices to building new software to keep a close eye on billing and invoicing at retail stores.

“We have accelerated our networks covering more than 800 stock-keeping units (SKUs) to reduce prices and increase grammage in case of price point packs and most of these have already landed in the market. List of key SKUs with lower prices and increased grammages is available on our website. In addition, HUL has also been communicating the price reductions or increased grammages through advertisements in more than 10 languages,” said the company spokesperson.

If the Directorate General of Safeguards (DGS) finds a business blameworthy of profiteering, the NAA can order it to decrease costs or return the consumer the amount of tax benefit not passed on. It would be mandatory for a profiteering business to pay 18% of interest on the tax reduction not passed on to consumers. Punitive action could be taken the default may cost a business its registration.

Patanjali Ayurveda forays into E-Commerce, partners with leading brands

By Shweta Arya

Patanjali Ayurveda Limited led by Yoga Guru Baba Ramdev recently announced its foray into e-commerce for its FMCG items, partnering with major players in the space, including Amazon and Flipkart.The Haridwar-based company said it has collaborated with eight brands, including Grofers, Shopclues, BigBasket, 1mg, Paytm Mall and Netmeds, through which its entire range of products would be available online.

Patanjali crossed ₹10 crores in online sales in December 2017 and is targeting more than ₹1,000 crore this year itself from e-commerce. Patanjali products will be sold at maximum retail price (MRP) online meaning there would be no discounts. It is poised to overtake the country's biggest consumer goods company Hindustan Unilever (HUL) by next year, highlighting the sudden rise of a brand that few believed in. In contrast, HUL has been present in India for more than 80 years and is setting its own Ayurveda range of products now to beat the competitors.

‘Divya Jal’ - bottled drinking water and ‘Paridhan’, a footwear and apparels segment are the two new brands that will be launched by Patanjali this year, further expanding the business. 

Patanjali has set itself the target of becoming the number one fast-moving consumer goods company in India and several other countries in the next 10 years, hence the online mechanism adopted by the company will provide convenient and efficient options along with extension of their traditional retail market.

The Eagle, USD 600 million submarine data cable network by RCom

By Aashi Sehrawat

Reliance Communications has recently announced a USD 600 million investment to lay a 68,000 km undersea cable network, called The Eagle. This network will carry data to Europe and Hong Kong from its headquarters and expects USD 700-billion in annual revenue on completion.

The Eagle express submarine cable system will connect its base in India with Italy to the west and Hong Kong on the east. It is expected to treble revenue in five years for its wholly-owned subsidiary GCX, which is laying the cable as the company said. It will reportedly be the company's sixth submarine cable system and is expected to be operational by the third quarter of 2020, RCom chief executive officer Bill Barney said. He also added that the new cable will increase its total capacity by 10 times as compared to the current capacity. 

It will be financed by the partners,whose numbers can increase till 30, adding the company expects to get over $700 million through such pre-sales as against the cost of $600 million.It has already tied up with six partners including Alibaba, through which they have raised USD 300 million in commitments.This cable system will create a Next Generation IP and Cloud environment across the emerging markets corridor.

India Inc. asks rate cut

By Shivam Saklani

India Inc. (a common term used by the Indian media to refer to the formal sector (comprising government and corporate) of the nation) today requested the Reserve Bank of India to reduce key policy rates to support investments and boost economic growth.

As per the government data released today, inflation on food articles slowed to 4.72 percent in December, from 6.06 percent in November 2017.Inflation based on wholesale prices eased to 3.58 percent in December 2017 as prices of food articles declined even as fuel cost witnessed a surge.

This was considered a reason behind the strong demand of India Inc. for policy rates reduction. “The policymakers need to take care of the continuous rise in petrol and high speed diesels prices due to rise in global crude oil prices, which already is showing an impact on import bills as well as the exchange rates of the country”, said Assocham Secretary General D S Rawat.

On the other hand, data released last week showed that retail inflation breached the RBI’s comfort level to touch 5.21 percent in December; The RBI takes into account retail inflation while deciding on key policy rates. In its last policy review in December, RBI had kept key repo rate unchanged at 6 percent and reverse repo rate at 5.75 percent.

“Lowering the repo rate in the upcoming monetary policy is critical to boost investments and build the growth momentum” FICCI President Rakesh Shah said.

Union Budget is expected to provide details on more specific measures towards strengthening of agriculture sector at the same time; it would be an opportunity to include petrol and diesel in GST, which would help in lowering the pressures of fuel inflation.

Cabinet supports automatic route to facilitate 100% FDI in single-brand retail

By Ridhima Malhotra

In what is being seen as a push to the Make in India program, the government announced a slew of relaxations in FDI in single-brand retail and other key areas. Although 100% FDI was previously permitted in single-brand retail, only up to 49% was allowed through automatic route. Investments above the 49% cap required permissions from the government. The recent reforms have done away with the requirement of government approval.

The move has been welcomed by many including Arvind Panagaria, the former vice—chairman of NITI Ayog who said that it would ‘boost investments by the single brand retailers’.  Early reports indicated that retailers appreciated the step and hailed it as yet another initiative to improve ease of doing business in India. Multinational chains like Ikea and H&M among others would definitely be watching these developments keenly.

However, the Congress Party dismissed it as gimmick ahead of the World Economic Forum in Davos, which the PM is likely to attend. Senior Congress leader Anand Sharma accused the government of ‘doublespeak’ after it relaxed the local sourcing norms. 

Previously, foreign single-brand retailers needed to meet 30% local sourcing norms to operate their own stores in the country.  Because of the recent easing of caps, companies are now not required to meet the 30% mark for local sourcing by their Indian units for five years provided that they are already doing so for their global operations.

Besides relaxation in single brand retail, government announced a bevy of reforms in sectors such as aviation, real estate and power exchanges. Significant changes in policies have been brought to attract FDI throughout the years. It is yet to be seen if these sweeping relaxations succeed in accelerating big investments in the Indian Markets.  

'Virtual ID' by UIDAI to address privacy concerns in Aadhaar

By Shweta Arya

The Unique Identification Authority of India (UIDAI) on Wednesday announced the implementation of a number of new processes aimed at making Aadhaar more ‘secure'. As far as most citizens are concerned, the most relevant part of these changes is what is being called the Virtual ID. According to the circular, Virtual ID or VID, will be a temporary, revocable 16-digit random number that is mapped to your Aadhaar number. 

The circular claims it will be generated in a manner such that if you gave your VID to someone, they will not be able to derive your Aadhaar number from it.

All service provides and other agencies will only be able to do what UIDAI is calling “limited KYC” in which they will only get access to a few demographic details and a UID token authenticating the VID, instead of the Aadhaar number of the user itself. This is aimed at ensuring they cannot store the Aadhaar number.

All these changes point to one thing: The sharing of Aadhaar numbers is a dangerous thing, and can be misused. Aadhaar numbers have been readily available to anyone who would like to find them. A Google search could turn up Aadhaar numbers that had been hosted on government websites. A large number of state websites were found to be publicly displaying Aadhaar numbers along with names and other demographic data. As per the UIDAI, agencies that undertake authentication would now not be allowed to generate the Virtual ID on behalf of Aadhaar holder.

GDP estimates & comparison

By Shivam Saklani

The Central Statistics Office has recently estimated FY 18 growth at 6.5%. The expected GVA and GDP growth will be 6.5 and 6.7 percent respectively. If this estimate comes true, this would be worst annual growth for India in past 4 years. In FY 17, India’s GDP expanded 7.1 percent, emerging as the fastest growing economy globally. The CSO estimate shows that agriculture, forestry, and fishing grew at 2.1 percent in FY 18 compared to 4.9 percent expansion in FY 17. At 4.6 percent, manufacturing sector’s growth is much lower than 7.9 percent in FY 17.

While mining and quarrying has made a significant jump from 1.8 percent in FY 17 to 2.9 percent in FY 18. The Construction activity is seen growing at 3.6 percent against 1.7 percent, recorded previous fiscal. Services have also displayed a huge progress 0.6 percent i.e. from 7.7 percent in FY 17 to 8.3 in FY 18.

Given the estimated weaker growth in agriculture sector Finance Minister Arum Jaitely is likely to focus more on agriculture and rural economy in his last full budget this February.

Permission for penal action granted against 196 companies (2014-15 fiscal)

By Aashi Sehrawat

Ministry of Corporate Affairs has given consent for penal action against 196 companies for failing to comply with CSR Norms (under the Companies Act) in 2014-15 fiscal, according to Union Minister P P Chaudhary.

Corporate Social Responsibility (CSR) is a form of corporate self-regulation integrated into a business model. CSR policy functions as a self-regulatory mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards and national or international norms.

Under the Companies Act, 2013, certain class of profitable entities are required to shell out at least two per cent of their three-year annual average net profit towards Corporate Social Responsibility (CSR) activities. If the company fails to do so, then its board has to provide specific reasons for the same.

Minister of State of Corporate Affairs, P P Chaudhary, said in Rajya Sabha that till date, the ministry has accorded permission for penal action against 196 companies for the year 2014-15. He also added that the number of companies required to make CSR expenditure and who failed to spend any amount for the purpose for 2014-15 and 2015-16 are 8,924 and 10,547 respectively. Action has been initiated against as many as 83 companies in the first nine months of the ongoing financial year for not resolving investors' grievances, the minister says separately.

Besides, market regulator SEBI has also taken action against such companies.

The latest amendments to the Companies Act, approved by Parliament, would also help in ensuring a more strict regulatory framework.