Economic Slowdown is Real, not just Technical: SBI Report

By Aarushi Singh

GDP figures of India have experienced a slowdown in recent quarters. This growth slid for the sixth quarter in a row has  hit a three-year low at 5.7 per cent in the June quarter. According to SBI research slowdown is real and not technical and called for more public spending to solve the slide. Research figures depict that this fall in quarter 1 are not short term or transient.

This note has come after a mention of slowdown by BJP president Amit Shah. Reports suggest that the government should consciously expand spending and fiscal deficit, without disturbing the borrowing.

The report also points out the 2008 global credit crisis and admits a forward or upward movement in spending, but was unequivocal in not paying much heed to the rating agencies. But the present economic situation requires a fiscal push without chasing the rating upgrade.

The report also suggested that the government can use a clause in the Fiscal Responsibility and Budget Management Act that provides for a 0.5 per cent slip in fiscal deficit targets. Further talking about the borrowings and government sector investment report warned an urgent check over these factors by moving to short term borrowings.

Tax Deficit & Plans Ahead

By Shivam Saklani

India could be forced to cut spending on major investments such as Railways & Highways due to lower than expected tax collections and sluggish growth, which have impeded the government’s credit.

India is largely a domestic consumption driven economy, which took a massive hit, over past 2 quarters, after the government demonetized high values currencies. A major tax overhaul in the form of roll out of GST also disrupted the consumption cycle as manufacturers went in for massive destocking before new tax rates were enforced.Tax receipts were about 2.8 billion in July, a little over half, of the monthly target, mostly because millions of the firms failed to comply with the new GST Systems. Revenue shortfall, at the end of the fiscal year, could also be at least 800 billion rupees if the current trend continues.

Aiming to boost growth amidst the revenue shortfall, Finance Minister Mr. Arun Jaitely, to everyone’s surprise, increased budgetary allocation for railways by one-fifth to 550 billion rupees, and by 24% for highways’ development. Complicating the finance ministry’s budget arithmetic, the RBI announced last month, that its annual surplus, a dividend transferred by central bank to the government, to be only 4.9 billion dollars, less than half the initial estimate.

The government has now sprung up into action, as the ruling party now gears up for crucial state elections, including that of PM’s home state in a year and general elections in less than 2 years. The government wants to give people a new reason to vote for them. A need is now being felt in the power corridors of the nation, for a push which could bring economy back on the track. Ministries have been told to submit their budget estimates by September 30 and discussions regarding it would be held from October 1.

With the union budget, likely to be presented in the parliament on February 1, The Economists expect another budget with huge allocations for projects in public sector to keep the Capex cycle going. Expecting the economy to return to high growth path, Nifty 50 index opened in the positive and made a new record lifetime high of 10,171 on Monday.

With the plan of bright future ahead, the government hopes to complete a few strategic deals of the government holdings in public sector enterprise by the end of the year, to cope for the tax deficit.

Daily change in fuel prices to continue & Oil Minister bats for Petroleum products to come under GST

By Ridhima Malhotra

In April this year, Petroleum Minister Dharmendra Pradhan's first touted the idea of daily revision of petrol and diesel prices. Many hailed the move and said that it would eliminate steep jumps in rates that consumers witnessed almost every fortnight. But critics have maintained that the government had failed to pass on the benefits of slumping crude oil prices to the end-users. The petrol prices have however been witnessing a steep increase since July, but the government continues to rule out any intervention to regulate prices.

After meeting the heads of state-run firms, Mr. Pradhan told the PTI, "The government has no business to interfere in day-to-day operations of oil companies... government will interfere only to improve operational efficiency of oil companies". The Minister added that it was time for the GST council to deliberate on bringing Petroleum products under the ambit of GST.  It is imperative to note that as of now, petrol and petroleum products, including diesel and natural gas are exempt under the GST. 

Mr Pradhan has gone on to say that the spike is temporary, attributing it to  calamities like Hurricane Harvey and Irma. The long term impact of the daily fuel revision policy on households will only unravel in the months to come. 

Digitization: A major threat for banking sector jobs

By Shweta Arya

Digital transformation has taken control over the world and has given an outright risk to many occupations. One area which has regularly been forced to bear this uncertainty has been the — banking and financial sector.

Advancements in technology have led to greater smartphone usage and an increased use of payment wallets (especially after demonetization), internet banking and the simplicity of the bank being a click away has made technology successfully acceptable to the user.

Major banks are pushing the boundaries of innovation by implementing robotics to centralise operations. Conventional jobs like passbook updating, cash deposit, verification of KYC details, salary uploads are also going digital increasing job layoffs. Insurance underwriters, loan officers and credit analysts have a 98% chance of future automation.  

Vikram Pandit, who ran Citigroup during the financial crisis, endorsed this issue with a disturbing figure citing upto 30 per cent reduction of banking jobs in the next five years.

With the increasing advent of technology, digitization of banking sector is inevitable. It has indeed reduced human errors and also increased convenience. But the fact that cyber threats are on the rise, banks are being cautious and the probability of increasing employment in technology, analytics and cyber security sector would see a rise.

India to finalise first defense purchase from Japan

By Aashi Sehrawat

Japanese Prime Minister, Shinzo Abe, is visiting India nearly two months after operationalisation of the historic Indo-Japan civil nuclear deal, which has added a new dimension to bilateral ties that could scarcely be imagined in the wake of the 2011 Fukushima tragedy.

Japan is now possibly India's closest strategic partner in the world, as both sides converge in their strategic and economic outlook. It will be in the field of defense and nuclear technologies that India and Japan hope to get to the next level. India is likely to finalise  the first defense purchases  from Japan, the US-2 amphibious plane that has been tossed around between the two governments for some years. Some element of "Make in India" may be introduced, but the two sides are looking at a future where joint development will be the key.

Japanese conglomerate Toshiba, which owns US-based Westinghouse, will have a major role when the US nuclear firm supplies technology for the set of six reactors in Andhra Pradesh following its bankruptcy. The finance for the project from the US Exim Bank remains intact and the initiative may kick-start only in 2018.

Countering China, India and Japan are teaming up to roll out big infrastructure and connectivity projects in Asian and African countries. The Asia-Africa growth corridor is slowly getting off the ground, and while it will never be as nimble as the Chinese OBOR, India and Japan are working on a different philosophy, involving more local interests and participation.

With the completion of the civil nuclear deal, India is looking at more collaboration with Japanese nuclear companies. The deal was finally signed between India and Japan in November 2016, and the Japanese parliament cleared it in June 2017.

Is Fiscal Deficit target unattainable for India?

By Aarushi Singh

Many steps were taken by the government to reduce the fiscal deficit and improve the macroeconomic conditions of the country and one of this is the Fiscal Responsibility and Budget Management Act (FRBM), 2003.This act was initiated by the Parliament of India to restore financial discipline, reduce fiscal deficit and the overall management of public funds.

The main purpose was to eliminate revenue deficit of the country and bring the fiscal deficit to a manageable level of 3% of the GDP March 2008.But those targets are yet to be reached.

Although there are lesser problems at the moment but government needs to boost the public investments to revive growth. This revival in public investment is important to cover up for the low private investments. The private sector spirits are on a break and there revival depends upon the government’s actions to revive investments.

It is accepted that the debt to GDP ratio of the Indian Government is high (70%) but it can be brought down by expanding GDP at a fast pace. Therefore the Indian government must indulge in more investments and less debt waivers.

Jobless Nation

By Shivam Saklani

At the launch event of his book, “I do what I do”, former RBI governor, Raghuram Rajan talked about the job deficit which young Indians are facing.

In a country like India, where a million new people enter market, searching for job, every month. Rajan said, “If we don’t provide jobs to these youths, we will have a million frustrated youth which would eventually create a lot of social mischief.

With the rate India’s population is growing, it is sure that India, will be world’s biggest labour force by 2027, if not early. With the scarce job opportunities and the threat of automation looming over, India surely has a herculean task waiting for it in future. Modi’s jobs record is even poorer than that of much maligned Congress. The scale of this failure is enormous, since the brigade of unemployed youth keeps on increasing.

Realizing that the problem is like an iceberg, much bigger than it seems, PM Modi, in his recent cabinet reshuffle replaced skill development minister, Mr. Rajiv Pratap Rudi, with oil minister, Mr. Dharmendra Pradhan. Labour minister Bandaru Dattatreya also got replaced by junior minister, Mr. Santosh Gangwar.

These two ministries are very important in this regard, as even a minute change in any of their policies affect millions of people, but, can only changing the charioteer, fix the already dilapidated chariot?

Mr. Pradhan can’t probably pull a miracle before the next election, but he could start by taking baby steps, but in right direction. He can review and create appropriate skilling programs in the areas where the jobs are, or are likely to be created.

He can also prioritize the inculcation of informal skilling systems which are prevalent from the time immemorial. Mr. Gangwar too has a big task at and. The new Labour code passed by government needs to become a law, and he has to ensure that a conductive environment and adequate opportunities are created in the sector where the skilled labour is being produced. Amidst soaring expectation of people as well as their own cabinet, it would be very interesting to see that if government takes a few more steps in regard especially before elections.