Luxury cars and SUVs may become more expensive with the Union Cabinet
approving an ordinance to raise the maximum compensation cess that can be
levied over and above the 28% GST on such cars, from 15 % to 25%.
However, these changes will not come into effect immediately. The final
decision of whether the cess should be raised, and by how much, will be
taken by the GST Council, whose next meeting is on September 9.
Mr. Jaitley reasoned, “The object of any taxation policy can’t be that
its impact is [that] luxury becomes cheaper and an essential item becomes
more expensive. If at all relief has to be given, it is to be given to a
common man’s item rather than a luxury item. A person who can afford Rs. 1
crore for a car can also afford Rs. 1 crore, 2 lakh.”
The “enabling ordinance” will now be sent to the President for
promulgation. Mr. Jaitley was non-committal if the issue would be taken up
in the next GST Council meeting.
Post the introduction of the new indirect tax regime, several carmakers,
including makers of luxury cars and SUV who were one of the biggest
beneficiaries of GST, had slashed rates to pass the benefits to the
If the GST Council decides to increase the cess, luxury car prices may
to go up by 8-10%, according to industry analysts. While Mercedes cars will
be costlier by a minimum of Rs. 3 lakh, an Audi Q7 will see a price increase
of Rs. 7 lakh, while an Audi A6 will be costlier by Rs. 5 lakh.
Earlier, those luxury cars where excise duties were levied at 27% or
30%..., the same categorisation is being followed. There is no intention of
raising the tax rate on any car, other than those which were put in the
luxury category and had high excise and VAT rates.
According to industry consultants, luxury cars, SUVs and ambulances will
This will increase the post-GST price of many vehicle categories from
pre-GST levels, it warned.
“This is contradictory position of the Government that while on the one
hand it has identified the automotive industry as a sunrise sector of Indian
economy, [while] on the other hand it is being treated as a demerit
product,” it said, adding that all the vehicles that were attracting 24% or
27% excise duty in the pre-GST regime may potentially attract higher tax
under GST because of this decision.
Echoing similar sentiments, Audi India Head Rahil Ansari said the
increase in cess will force the firm “to hike our prices to levels higher
than in the pre-GST period,” while also make them “redraw our plans for the
Indian market based on future projections in this scenario.”
He said this was bound to adversely impact sales by possibly a
double-digit reduction and “will consequently reduce revenues for the
company, dealers and perhaps also tax revenues for the Government.”
While small in volume, the luxury car segment contributed about 10% to
the Indian automobile market.
Nasscom, to set up two centres of excellence
The National Association of Software and Services Companies (Nasscom),
in conjunction with State governments, plans to set up two centres of
excellence in data sciences and another one for cybersecurity soon, K.S.
Vishwanathan, vice president, Industry Initiatives.
“Along with the government of Karnataka and government of Telangana, we
will be announcing two centres of excellence in data sciences,” Mr.
“The process of executing these centres is going on in both the states.
Both are supported by the Ministry of Electronics and Information
The Center of Excellence for IoT (Internet of Things) will be expanded
to three other centres. The location will be decided by the Government.
Another Center of Excellence will get established in Karnataka on
The Center of Excellence is an initiative started in 2013 to build up an
ecosystem in India to connect various entities such as start-ups,
enterprises, venture capitalists, Government and academia. It is supported
by the federal and State governments.
U.S. is the largest with about 60,000 start-ups. Within a span of four
years,India has emerged among the top three. India is close to number two
with U.K. This year should possibly overtake U.K.
According to Nasscom, 27% of the start-ups are based in Bangalore and
about 24% each in Northern region (NCR) and Western region (Mumbai, Pune).
The balance is scattered.
In the initial phase, 60% of the start-ups were in the
business-to-consumer and 40% in business-to-business category. In B2C, a
bulk of them were in the e-commerce segment, mobility commerce, and Internet
commerce, according to Nasscom.
Now the equation has changed. Sixty percent is in B2B and 40% in B2C.
B2B is also supported by technologies like IoT, AI, enterprise ready
start-ups and blockchain.
India has about 6,000 start-ups and close to 140 accelerators and
incubators. Both corporate, private and government accelerators put together
have registered a 35% year-on-year growth last year and Nasscom expects the
growth rate to be maintained this fiscal year too.
“We believe we have a unique position. If India’s own problems can be
solved by apps or start-up solutions, say, in water-related or
garbage-related or education-related areas, that solution can be used for
every part of sub-Saharan Africa, where people cannot afford technology
which Western countries can. The opportunity is huge,” according to Mr.
Code on Wages Bill says wages will differ
The Code on Wages Bill proposed by the Union government will not fix a
single national level minimum wage for the whole country, but will vary
across states and geographies.
It provides for national minimum wage for different geographical areas
so as to ensure that no State Government fixes the minimum wage below the
national minimum wage, notified for that area by the Central Government.
Wage levels would vary state-wise and in some cases, may differ based on
geographies – coastal, hilly or plains. India is a vast country with cost of
living varying across states. We cannot have a single national level minimum
If the minimum wages fixed by the states are already higher than the
‘national minimum wage’, the states will not be allowed to lower their wage
levels, according to the provisions of the Bill.
The Code on Wages Bill combines four labour laws — Payment of Wages Act,
1936, Minimum Wages Act, 1948, Payment of Bonus Act, 1965 and Equal
Remuneratiom Act, 1976.
The Bill states that the state governments will fix their minimum wages
keeping in mind “the skill required, arduousness of the work assigned to the
worker, the cost of living of the worker, geographical location of the place
of work,” among other factors.
At present, various states are free to fix their own level of minimum
wages as per the local conditions, cost of living and other factors.
MNRE says guidelines for solar power to reduce risk and increasing
The Ministry of New & Renewable Energy (MNRE) has said its guidelines
for tariff-based bidding for procuring solar power will reduce risk, enhance
transparency and increase affordability.
The MNRE had issued the new guidelines for tariff based competitive
bidding process on August 3.
The guidelines have been issued under the provisions of Section 63 of
the Electricity Act, 2003 for long term procurement from grid-connected
Solar PV Power Projects of 5 MW and above, through competitive bidding.
Besides, it said, the move would help protect consumer interests through
It will also provide standardisation and uniformity in processes and a
risk-sharing framework between various stakeholders involved in the solar PV
power procurement, it said.
This will also help reduce off-taker risk and encourage investments,
enhance bankability of the Projects and improve profitability for the
Some of the salient features of the the new norms include generation
compensation for off-take constraints for reducing off-take risks. The
‘must-run’ status for solar projects has been stressed upon.
Besides, to ensure lower tariffs, minimum PPA (power purchase agreement)
tenure has been kept at 25 years. Moreover, unilateral termination or
amendment of PPA is not allowed.
Darjeeling tea prices sore up due to ongoing dispute
Amid flickering hopes of a resolution to the impasse in Darjeeling, tea
exporters and packers are scrambling to mop up whatever teas are being
offered at the tea auctions here and prices have breached the Rs. 1,000 per
kg mark at three consecutive weekly sales.
The industry has been apprehensive that even if the deadlock, which has
exceeded 60 days, was broken and estates were to open by September,
production would not commence before October, when the onset of winter would
limit output. About 75% of the year’s crop is as good as lost, they said.
Auction prices of this prime brew had averaged about Rs. 300 per kg
between 2012 and 2016, according to official statistics.
Offerings, however, were low, falling from 17,000 kg in end-July to
8,700 kg in this week’s sale, according to J. Kalyan Sundaram, secretary
general, CTTA. He said that 8,400 kg were sold at an average price of Rs.
1,164.5 a kg.
This was mainly picked up by 2-3 exporters. According to statistics from
the Indian Tea Association, in 2016, India exported 6 million kg out of
production of 8 million kg.
Demanding Statehood, the Gorkha Janmukti Morcha has enforced a shutdown
in Darjeeling since June 15. While there appear to be some signs of talks
between the State government and other parties, the GJM has persisted with
The Darjeeling Tea Association has estimated a revenue loss of Rs. 400
crore to the industry.
It also said that the loss of second flush teas producing the unique
muscatel flavour would have a cascading effect on an industry which is
tottering under the impact of climate change, ageing bushes and high
Former RBI chairman says there are still several challenges to India’s
Former Reserve Bank of India governor Duvvuri Subbarao has said that
there are several challenges that need to be addressed before Indian economy
could take off. “India’s growth story is not inevitable,” he said.
Delivering the inaugural anniversary lecture: ‘India: Will the Elephant
start dancing?’ instituted by Bandhan Bank, Mr. Subbarao said RBI should not
be required to step in to the day-to-day running of a bank.
Speaking in the context of the proposed amendment in to the Banking
Regulation Act, he said: “Does RBI have expertise in conducting banking
He also observed that such extraordinary powers (proposed in this case
to check NPAs) should come with a sunset clause.
On demonetisation, he said that its long term benefits would be visible
if it helped increased income tax collections.
Mr. Subbarao pointed out that job creation and finding a solution to
India’s problems in agriculture were two key deliverables.
He said that India urgently needs a manufacturing revolution for job
creation. “Jobs have to come from the manufacturing sector.. not only from
the services sector.”
Alternate mechanism for merger of PSB’s
Paving the way for quicker consolidation among public sector banks, the
Cabinet approved ‘in-principle’ the constitution of an alternative
mechanism, likely to be a ministerial group, that will oversee the proposals
for mergers among banks.
Stressing that the decision to create ‘strong and competitive banks will
be solely based on commercial considerations and such decisions must start
from the boards of the banks,’ the Minister said the proposals received from
banks will be reviewed by the members of the alternative mechanism, enabling
The Centre’s nudge towards consolidation among public sector banks
assumes significance as most of them are grappling with huge levels of
non-performing assets or NPAs, slow credit offtake and resultant pressures
on capital adequacy.
Rating agency Crisil termed the Cabinet decision as an important first
step towards kick starting the consolidation process and said such mergers
would improve NPA resolution following swifter decision making and an
When asked the likely criteria for bank mergers, the Minister said these
will have to be driven by the bank boards.
An official statement said that stronger public sector banks will help
meet the credit needs of a growing economy, absorb shocks and give them the
capacity to raise resources without depending unduly on the state exchequer.
This year’s Budget provided Rs. 10,000 crore for bank recapitalisation,
which, most bankers said, was inadequate. Mr. Jaitley had, however, held out
the possibility of allocating more funds for banks if the requirement arose.
The Centre said though suggestions to have fewer but stronger banks had
been around since 1991, it was in May 2016 that effective action to
consolidate them began.
The merger of six banks into SBI was completed in ‘record time unlike
earlier mergers of State Banks of Indore and Saurashtra,’ it stressed.
RBI said banks must initiate bankruptcy proceedings against loan defaulters
To expedite stress resolution in the banking system, Reserve Bank of
India (RBI) Deputy Governor Viral Acharya said banks must initiate
bankruptcy proceedings against loan defaulters if the lenders are unable to
resolve bad loans in three months.
“RBI should not be in the business of creating restructuring schemes for
banks to resolve a company,” Mr. Acharya said.
The Deputy Governor said the recovery of bad debts in India was low
compared with other countries.
“Our loan recoveries are in the order of 15-25 paise to a rupee. In
other parts of the world, where bankruptcy system is working well, and these
things are being done in a timely manner, the recovery is to the order of
85-90 cents to a dollar,” he said.
The central bank also stressed on the need for counter-cyclical buffers
— in terms of setting aside higher capital — during periods of higher
Most banks in the country do not make adequate provisioning — above the
regulatory mandate — which could be used when non-performing assets are
The Indian banking sector has been battling a surge in bad loans over
the last three years with gross NPAs climbing to about Rs. 8 lakh crore.
In percentage terms, gross NPA (GNPA) ratio of the banking system is at
9.6% and the stressed advances ratio at 12% as of March 31, 2017.
Recently, RBI Governor Urjit Patel had said that it was a matter of
concern that 86.5% of the GNPAs were accounted for by large borrowers, that
is borrowers with aggregate exposure of Rs. 5 crore and above.
Infosys issue takes a beating on Sharemarket
Shares of Infosys continued their slide, shedding 5.37% or Rs. 49.60 to
close at Rs. 873.50 on the BSE. This is the lowest close in three years for
the technology major. It had closed at Rs. 870.09 on August 8, 2014.
Infosys was also the worst performer in the Sensex pack as the benchmark
index lost 0.84% to close at 31,258.85.
The shares have lost close to 15% in the last two trading sessions since
CEO Vishal Sikka resigned citing what he termed as ‘baseless, malicious and
increasingly personal attacks’ by co-founder N.R. Narayana Murthy, that had
constrained his ability to bring about change.
Even a buyback announcement at Rs. 1,150 per share did not stem the
slide. On Saturday, the board of the company approved a buyback plan
amounting to Rs. 13,000 crore.
IIFL said in a report that while it continued to believe in the
company’s long-term potential, it had downgraded its rating to ‘Add’ as a
stable management, peace with shareholders and consistent earnings delivery
amid this development are the key for Infosys to trade at a premium again.
IDBI Capital has also cut its FY18 and FY19 revenue forecast for the
company by 1.1% and 3.6%, respectively, downgrading the stock to ‘hold’ from
Sikka’s resignation brought focus on corporate governance again
The exit of Vishal Sikka as the chief of multinational IT giant Infosys
brings forth the issue of corporate governance yet again.
Market participants said the capital markets regulator, the Securities
and Exchange Board of India (SEBI), needed to intervene in such matters to
protect the interest of investors, especially the retail segment.
“The supervisory board, comprising eminent personalities, will monitor
performance as well as the value system for the company and this alone will
create wealth for the company and keep it on the tracks,” he added.
SEBI had constituted a committee on corporate governance under the
chairmanship of Uday Kotak in June this year.
The committee is expected to submit its report within four months.
Market participants said that the Infosys issue too should be considered in
detail by the committee.
“Unfortunately, this had degenerated into an ugly battle played out with
the media and as a result we are seeing whatever has happened,” said Mr.
Another view is that differences between stakeholders on the vision for
the company caused the turmoil.
“This is a fight between modern, free-market capitalism on the one side
and the forces of ‘compassionate capitalism’ on the other,” he said.
The governing board or a supervisory board, he said, would be an
important top layer setting the direction for such companies.
India-U.S. Trade Policy Forum to focus on Visa curbs
The Centre will, during the India-U.S. Trade Policy Forum (TPF) meeting
likely in October, raise Indian industry’s concerns over the U.S. visa
‘curbs’ and the ‘delay’ in inking a bilateral social security pact (or
In the TPF meeting, the premier forum to resolve bilateral trade and
investment issues, the U.S. is expected to table its worries over India’s
‘restrictions’ on e-commerce as well as the ‘challenges’ faced by American
innovative industries due to India’s ‘weak’ Intellectual Property Rights
In addition, New Delhi would take up the ‘non-tariff barriers’ by the
U.S. that are hurting Indian agriculture, pharmaceuticals and other
industrial exports, while Washington is likely to raise its concerns over
India’s ‘excessively high tariffs’ on imports.
Deputy Assistant USTR for South and Central Asia, and Brendan Lynch,
Director for India at the USTR Office, will participate in a round-table
discussion on August 23 being organised by the advocacy body U.S.-India
Business Council to take inputs for the TPF meeting and the
comprehensive review of bilateral trade ties.
There were doubts about the future of the TPF, especially following a
U.S. government statement on August 15 mentioning that U.S. President and PM
Modi had decided to ‘establish a new 2-by-2 ministerial dialogue that will
elevate their strategic consultations.’
However this meant that the ‘commercial’ track will be taken out of the
India-US ‘Strategic and Commercial Dialogue’ (S&CD), and from now on take
Production of coconut-activated carbon has been hit due to GST
Production of coconut-activated carbon, used for purification of water,
edible oil and gas and in sectors such as healthcare and cosmetics, has been
hit due to increasing raw material prices post the implementation of GST.
Whole coconuts, coconut kernel and husk do not attract GST. However, 5%
duty is levied on coconut shells. These shells are sold by farmers and
vendors in the unorganised sector to charcoal producers.
Charcoal is not covered under GST. It is the raw material used by
activated carbon producers. Activated carbon attracts 18% GST. There are
about 15 units in South India making activated carbon from coconut shells.
According to data available with the Coconut Development Board,
activated carbon is exported mainly to the U.S., the U.K. and South Korea.
This increased to 40,132 tonnes worth Rs. 402 crore during the same period
In the case of supply of activated carbon to the domestic market, the
buyers are able to take input credit of the GST paid. But, costs have gone
up for exporters. The activated carbon industry is growing at 5% annually
and exports at 10% to 15%.
Centre and RBI are working on a scheme to boost capital in public sector
The Centre and the Reserve Bank of India (RBI) are working on a scheme
to boost capital in public sector banks reeling under the pressure of bad
loans. RBI Governor Urjit Patel emphasised time-bound resolution of stressed
“NPA resolution would necessitate a higher recapitalisation of these
banks,” Mr. Patel said. “The Government and the RBI are in dialogue to
prepare a set of measures to enable state-run banks to shore up the
requisite capital in a time-bound manner,” he said.
Mr. Patel said measures could include a combination of raising capital
from the market, dilution of government holding, additional capital infusion
by the government, mergers based on strategic decisions and sale of non-core
Observing that the ratio of gross non-performing assets in the banking
system was 9.6% and that the stressed assets ratio was at 12%, as at the end
of March, Mr. Patel said the persistently high ratio over the last few years
was a matter of concern.
He said 86.5% of GNPAs are accounted for by large borrowers that are
defined as borrowers with aggregate exposure of Rs. 5 crore and above.
RBI had recommended that banks initiate insolvency proceedings for 12
large defaulters, constituting 25% of the system’s NPAs. Lenders would have
to take a haircut in the process, the RBI acknowledged.
Scholars, academics and government officials looking for BRICS agenda
As the countdown for the September summit of the BRICSgrouping begins,
scholars, academics and government officials have been brainstorming ways in
which the emerging economies can set the global agenda, based on new rules
Delegates to a BRICS seminar, organised by the Communist Party of China
(CPC) in the southeast Chinese city of Quanzhou, analysed and debated the
Chinese model of rapid development as the template for the rapid growth,
especially of the global South.
The BRICS summit is being held in China’s coastal city of Xiamen from
September 3-5. It highlights the theme — BRICS: stronger partnership for a
That among nearly 200 developing economies since the end of the Second
World War, only two have transitioned from low-income to high-income
economies, with China possibly emerging as the third by 2025.
He attributed the failure to avoidance of either the middle-income or
the low-income trap and to the pursuit of western mainstream economic
theories — structuralism, and neoliberalism.
He stressed that a right balance between the role of the market and the
state was required to achieve breakthroughs, Xinhua reported.
While acknowledging China’s success, most participants also underscored
that there was no one-size-fits-all development model that could be fully
replicated to achieve growth.
The brainstorming in Quanzhou was preceded by a conference earlier this
month of the BRICS trade minister in Shanghai, which focussed on the
continued relevance of globalisation.
In the wake of protectionist sentiments in the U.S. and Europe, it
underscored the need for a united stand of the emerging economies against
protectionism, and backing for a multilateral trade system.
In late July, a BRICS security meeting was held in Beijing, with
discussions on global governance, anti-terrorism, the Internet, energy,
national security and development.
Centre will go ahead with its proposal to amend the Factories Act of 1948
The Centre will go ahead with its proposal to amend the Factories Act of
1948 by giving flexibility to State governments to enhance the threshold
limit over which a unit will be considered a factory despite concerns
flagged by a Parliamentary Standing Committee.
The proposal was discussed at a tripartite meeting chaired by Labour
Minister BandaruDattatreya with representatives of trade unions, industries
and State governments.
The Standing Committee, examining the proposed changes, however,
observed in 2014 that “if the amendment is carried out more than 70% of the
factory establishments in the country will be out of the coverage of the
Factories Act and workers will be at the mercy of employers.”
The Ministry of Labour and Employment did not agree with the committee’s
observations and said that it had only given flexibility to State
governments to fix the threshold limit.
And all the factories, including the one which employs a single worker
may also be brought under the purview of the act thus, in fact, increasing
the total number of workers covered under the Act.
Public sector share in banking too large
India’s public sector is too large and is proving to be a hindrance to
growth, especially in the banking sector
Most billionaires in India who had emerged over the last decade were
‘bad billionaires’, whose wealth was created in sectors where government
help was needed to create that wealth. He also rated India poorly in terms
of the skewed nature of the concentration of wealth.
The share of the public sector, especially in the banking sector, is too
large. In the banking sector, the public sector is two-thirds, the highest
proportion among developing countries, except for, maybe, North Korea.
Gradual shrinkage in the business activity of the public sector
enterprises in favour of their private counterparts was ‘privatisation by
malign neglect’, adding that this had happened in the telecom and airlines
Typically manufacturing was the key to economic success, while
commodity-producing economies do poorly over time. While foreign investment
was flowing to India, domestic investors were choosing to go abroad, he
Public sector banks have reported a 20% jump in the outstanding loans
Public sector banks have reported a 20% jump in the outstanding loans by
almost 9,000 wilful defaulters who collectively owed to lenders more than Rs.
92,000 crore at the end of March this year.
The outstanding loans by wilful defaulters rose to Rs. 92,376 crore at
the end of financial year 2016-17, as against Rs. 76,685 crore at the end of
March 2016, registering a jump of 20.4%.
At the same time, there has been close to 10% increase in number of
wilful defaulters on annual basis.
The number of wilful defaulters increased to 8,915 at the end of March,
from 8,167 in the previous fiscal, according to data collated by the Finance
Out of 8,915 cases of wilful defaults, banks have filed FIR in 1,914
cases with outstanding loans of Rs. 32,484 crore.
During 2016-17, 27 public sector banks, including SBI and its five
associates had written off Rs. 81,683 crore, the highest in the last five
fiscals. The amount was 41% higher than that in the previous fiscal.
SBI and its erstwhile associates alone had written off Rs. 27,574 crore
non-performing assets (NPAs) in 2016-17, according to the RBI data on “write
offs” done by public sector banks.
Gross NPAs of public sector banks rose to Rs. 6.41 lakh crore at the end
of March 2017, from Rs. 5.02 lakh crore.
Interest rates may be at the bottom of the interest cycle
If you’re a retiree subsisting on income from bank deposits, you’re
probably dismayed by the ‘bungee-jump’ in interest rates.
The interest rate on the one-year term deposit in India’s largest bank
has nosedived from 9% in July 2014 to 6.5% now. Interest rates on the
three-year term deposit have dropped from 8.75% to 6.25%.
In pegging down their deposit rates, banks have taken their cues from
the RBI. The central bank has pared its repo rate, the rate at which it
lends overnight money to banks, from 8% three years ago to 6% now.
So, with bank deposit rates dropping by a steep 250 basis points in
three years (50 basis points more than the repo rate), how much further can
they fall? And will they rebound at all?
History suggests that we may be quite close to the bottom of this
falling rate cycle.
The repo rate, which hovered at 9% in April 2001 drifted down to 6% by
March 2004, but reversed direction to recapture the 9%peak in July 2008.
But, with the global credit crisis hitting India and recessionary trends in
the economy, RBI was forced to effect a swift and brutal reduction in rates
again from 2008.
This time around, the repo rate dropped from 9% in July 2008 to 4.75% by
As growth limped back and inflation began rearing its head, the RBI
embarked once again on a hiking spree, taking its rates from 4.75% in 2009
to 8% in 2012. The years 2012 to 2014 saw a sideways crawl in rates.
But with inflation moderating and the economy going into slow motion,
RBI pruned its repo rate again, from 8% in 2014 to 6% by August 2017.
In its recent policy reviews, RBI has shown reluctance to hack away any
further, issuing warnings about inflation risks.
This brief history of interest rates tells us two things. One, benchmark
interest rates have broadly gyrated in a band of 6%-9% in the last fifteen
When the rate sinks to the lower end of the band, circumstances conspire
to flag off the next rate hike cycle.
Two, India’s central bank prefers to prioritise inflation targeting over
growth. It is usually prompt with pre-emptive rate hikes to quell inflation,
but doesn’t hurry to cut rates in a downturn.
Despite consumer price inflation dipping below its 4% target a good
eight months ago, RBI held off further rate cuts for almost ten months until
it acted this month.
Now, while recent inflation readings in India have been at the 2% mark,
sustainable inflation rates are believed to be much higher. RBI’s own
projections expect inflation rates of 3.5%-4.5% for the second half of this
The second variable that RBI considers is the inflation expectations of
households for the future. RBI’s recent surveys show that these expectations
remain quite elevated despite the rock-bottom official inflation readings.
In the latest June survey, households perceived current inflation rates
to be 6.4% and expected inflation one year ahead to be at 8.6%. Unless those
expectations fall sharply, this puts a floor to rate cuts too.
Growth likely to be in the lower range, closer to 6.5%
Many indicators point to a deceleration, says second volume of Economic
The Indian economy’s growth in 2017-18 is more likely to be closer to
6.5% than 7.5%, according to Chief Economic Adviser Arvind Subramanian.
Speaking to the media after the second volume of the Economic Survey was
tabled in Parliament, Mr. Subramanian outlined new downside risks to growth
that have emerged since the presentation of this year’s Union Budget.
“We are not changing our growth forecast (a range of 6.5%-7.5% estimated
in February), just saying that because of all these risks, it’s less likely
that we will see outcomes towards the upper end of the forecast. The balance
of risks to the growth outlook has clearly shifted to the downside and the
balance of probability has correspondingly shifted away from the upper end
of the growth forecast,” Mr. Subramanian said.
Stressing that it would be premature to say that growth can rebound very
quickly unless there is a ‘clean-up’ and significant ‘deleveraging’ in the
Indian economy, Mr. Subramanian said there has been an ‘across-the-board
deceleration in real activity since the first or second quarter of last
year,’ which could have intensified owing to demonetisation of high-value
currency notes by the government last November. The economy grew by 7.1% in
While refusing to get drawn into a debate on whether farm loan waivers
announced by States are good or bad, he said such waivers will act as a
‘drag on growth’ rather than have an inflationary impact.
“To accommodate the loan waiver, States will have to cut down either
expenditure or raise taxes which will be deflationary. This is not something
I am making up.
Look at the Uttar Pradesh Budget – capital expenditure has been slashed
by 13% or so. That represents less demand, less growth,” he said, suggesting
this could impact demand by as much as 0.7% of GDP, drag down growth in the
short run and worsen States’ aggregate fiscal deficit indicators.
Petroleum subsidy to be halved by 2020
The government expects to more than halve its petroleum subsidy bill
over the next three years, from Rs. 25,000 crore this year to just Rs.
10,000 crore by 2019-20. While fertiliser subsidies are expected to stay
flat, the food subsidy bill is estimated to shoot up sharply from Rs. 1.45
lakh crore this year to Rs. 2,00,000 crore by 2019-20, as per the
medium-term expenditure framework tabled by the finance ministry in
Indicating a continued thrust on public spending to spur the economy,
the finance ministry expects government’s capex to rise by 25% to Rs. 3.9
lakh crore by 2019-20, driven largely by greater spending on defence,
Railways, road transport and urban development.
Significantly, the finance ministry has asserted that any shocks to tax
collections due to the introduction of the Goods and Services Tax (GST) will
be absorbed in the current financial year itself, so the tax to GDP ratio
may persist at the same level this year as last year — 11.3%.
But in the next two years, the government is betting on an expansion of
the tax base, citing gains from GST and increased surveillance efforts post-demonetisation.
The tax-GDP ratios are projected to be 11.6% and 11.9%, in 2018-19 and
Food, fertiliser and fuel subsidies for which the Centre has budgeted
over Rs. 2.4 lakh crore are expected to rise to Rs. 2.8 lakh crore by
2019-20, but the government expects the overall proportion of subsidies to
GDP to come down from 1.4% to 1.3% over the same period.
Following the abolition of price controls over diesel and petrol prices,
the government has set its eye on rationalising kerosene and LPG subsidies,
with a March 2018 target for eliminating the LPG cylinder subsidy altogether
by raising prices by Rs. 4 each month.
Efforts are also underway to bring kerosene subsidies under the direct
benefit transfer regime or while making some States ‘kerosene-free.’
On the food subsidy due to about 80 crore beneficiaries under the
National Food Security Act, the government said reforms have been initiated
with six States automating all fair price shops and 72% of Ration cards
being seeded with Aadhaar numbers.
“One of the main reasons for an increase in food subsidy is to meet the
repayment obligations of FCI (Food Corporation of India) to the National
Small Savings Fund,” the statement explained.
Interest payments amounting to Rs. 5.23 lakh crore this year, which
constitute the largest component of the government’s revenue expenditure,
are expected to rise nominally to Rs. 6.15 lakh crore by 2019-20, but the
government is confident that there will not be any ‘upward pressure on
interest rates’ owing to its borrowings.
Citing a substantial Rs. 12,000 crore saving from interest payments
estimated for 2016-17, it said this is indicative of ‘the economy moving
towards a more benign interest rate cycle.’
Net direct tax collectionsup to 1.90 lakh crore
Net direct tax collections up to July 2017 in the current financial year
stood at Rs. 1.90 lakh crore or 19.1% higher than in the corresponding
period of the previous year, according to official data released.
Within this, net personal income tax grew 15.7% and net corporate tax
23.2% over the year earlier period, the data showed.
In comparison, growth in net direct tax collections up to July 2016 in
the previous financial year stood at 24% while growth in personal tax
collections was 46.5% and corporate tax collections 2.84%.
The slowdown in the overall economy as well as the impact of a high
growth base last year could be the factors responsible for slower growth in
direct tax inflows, said experts.
A slowdown in personal tax collections could also reflect a slowdown in
small business activity, since salary income tends to grow from year to
Direct tax collections up to July 2017 in the current financial year
2017-18 continue to register steady growth. Direct tax collection during the
said period, net of refunds, stands at Rs. 1.90 lakh crore which is 19.1%
higher than the net collections for the corresponding period of last year.
Govt however warned against drawing a conclusion about the efficacy of
the government’s various efforts to widen the tax net — such as
demonetisation —based on these numbers.
Millions of companies are still not ready to file their first returns under
Millions of companies in India are still not ready to file their first
returns under the new Goods and Services Tax (GST) ahead of an Aug. 20
deadline, a top official told Reuters, urging them not to leave things to
the eleventh hour.
Navin Kumar, chairman of the GST Network, also said barely half of the
34 service providers accredited to help firms bulk-file invoices online had
received approval to go live.
Yet he gave an assurance that the huge IT back end that is designed to
crunch up to 3 billion invoices a month and calculate companies’ taxes would
be stable, even if there is a last-minute rush to file.
Billed as India’s biggest-ever tax reform, the GST has replaced a slew
of federal and state levies. It has also cleared barriers between India’s 29
states, uniting its 1.3 billion people into a common market for the first
Yet the complexity of the tax — which has main rates of 5, 12, 18 and
28% and multiple exceptions — has raised concerns that companies will
struggle to comply and file their monthly returns on time.
Even before the GST filings kick in, business surveys showed both the
services and manufacturing sectors contracting at their fastest rate in
years, heralding a likely dip in indirect tax revenues.
The government has allowed firms to file simplified, self-assessed GST
returns by Aug. 20 for the month of July, when the tax was introduced.
They will have to file complete returns in early September that itemise
and reconcile every single sales invoice under a regime that, by comparison
with other countries, is labour- and data-intensive.
More than 7 million existing taxpayers have activated accounts on the
GST’s portal — although about a third have yet to complete the form-filling
required to file a full tax return, Mr. Kumar said.
Another 1.3 million new firms have registered to pay GST.
Possibly due to demonetisation number of filed ITR’s increased by 25%
The number of income tax returns filed this financial year up to August
5 increased by almost 25% and the advance tax collections during that period
has risen 41.8% over the year-earlier period, according to the Centre.
“As a result of demonetisation and ‘Operation Clean Money,’ there is a
substantial increase in the number of Income Tax Returns (ITRs) filed,” the
Centre said in a statement.
“The number of returns filed as on August 5 stands at 2,82,92,955 as
against 2,26,97,843 filed during the corresponding period of ficsal year
2016-2017, registering an increase of 24.7% compared to growth rate of 9.9%
in the previous year.”
“Advance tax collections of personal income tax (i.e. other than
corporate tax) as on August 5, 2017 showed a growth of about 41.79% over the
corresponding period in FY 2016-2017,” the statement said.
“Personal income tax under self assessment tax (SAT) grew at 34.25% over
the corresponding period in FY 2016-2017.”
Oil and gas exploration and production business is likely to get a boost
The oil and gas exploration and production business is likely to get a
boost following a proposal to exempt the profit petroleum paid to the Centre
from the Goods and Services Tax (GST).
The production sharing contracts (PSCs) signed for exploration and
development of oil fields require operators to pay a pre-determined share of
the surplus petroleum output to the Centre as a form of royalty.
Currently, such profit petroleum is subject to GST as it has been
construed as a payment made by firms for a service.
Though profit petroleum is legally taxable, the levy of GST doesn’t
appear to be in sync with the PSCs signed under the New Exploration
Licensing Policy or NELP.
However, operators are not allowed to recover the profit petroleum paid
to the government as a cost under the PSC.
Moreover, if GST is to be levied on the government’s share of profit
petroleum, disputes could arise on whether the contractor can pay the GST
out of his own profit petroleum.
Industry bodies such as CII had made several representations on the
issue to the Centre, contending that paying a share in profit petroleum to
the government is a profit-sharing arrangement rather than a payment for a
While officials disputed this interpretation and said that the
relationship between the government and contractors is of an assignor and
assignee, they concede that the GST levy has the potential to lead to
litigations and disputes.
In the overall scheme of NELP, treating government’s share in profit
petroleum as a cost and levying GST appears odd.
At the same time, the government is likely to clarify that ‘cost
petroleum’ — which is the value of petroleum that a contractor can take in
order to recover all contract costs for exploration and royalty incurred
during a year — could be taxable.
Terming the proposed change in GST applicability on profit petroleum
share as a strong signal for exploration and production players that it is
serious about scaling up exploration business.
India conveys its pitch for a sovereign rating upgrade
To convey India’s pitch for a sovereign rating upgrade better, the
finance ministry has begun interacting with global rating agencies through
teleconferences and e-mails on a more regular basis to give clarifications
and updates regarding the economy.
While India has done well on attracting foreign direct investment (FDI),
its sovereign credit rating has not improved owing to unfavourable debt and
deficit indicators, the Department of Industrial Policy and Promotion
(DIPP) has told the Parliament’s Standing Committee on Commerce.
The committee had asked the government to explain the rationale behind
rating agencies flagging ‘low private investments’ as a constraint towards
raising the country’s rating and whether high FDI flows are not sufficient
to improve the country’s business outlook.
FDI has a relatively small weight in the total criteria. India fares
well in the case of FDI but because the debt and deficit indicators are not
favourable, ratings are not improved.
The government also informed the committee that it had taken several
steps to improve India’s sovereign credit rating, including introduction of
a structural interaction process with rating agencies, to provide them the
information they need.
The Secretary in the Department of Economic Affairs chairs an annual
review meeting on India’s sovereign rating with agencies, which is followed
by interactive meetings with officials.
During these meetings, government presents its perspective to rating
agencies about the strengths of the Indian economy and recent initiatives
taken. DEA encourages agencies to also consider the long-term credit
strengths of the economy in a holistic manner, and, in view of such
strengths, consider upgrading the rating of India’s sovereign debt.
A detailed cross-country presentation about the comparative position of
India and other similarly rated economies on key economic indicators is also
made. Separately, the Economic Affairs Secretary meets rating agency
representatives on the sidelines of IMF and World Bank meetings usually held
in Washington during September or October.
Service sector activity in July slowed to its lowest level
Service sector activity in July slowed to its lowest level since
September 2013, due in large part to the implementation of the Goods and
Services Tax, according to a private sector survey.
The Nikkei India Services Purchasing Managers’ Index registered a
reading of 45.9 in July, falling from the eight-month high of 53.1 seen in
June. A reading over 50 indicates expansion and one below 50 implies a
contraction in activity.
The report claimed business conditions in India’s service economy
deteriorated markedly in July following the implementation of the Goods and
Services Tax (GST).
Output and new work declined for the first time since January, with
rates of reduction the quickest since September 2013.
That said, firms expressed a lack of knowledge regarding the GST and
expect more clarity in the near-term to lead to activity growth.
The slowdown in services activity coincides with a similar sharp
slowdown in manufacturing activity in July, with the Manufacturing PMI
registering a reading of 47.9, the lowest it has been since February 2009.
Ms. De Lima, however, highlighted the fact that while the slowdown was
attributed to the implementation of the GST, confidence for the future was
at a 11-month high.
Services firms surveyed said that the introduction of the GST had caused
a contraction in new work, leading to lower activity. This drop in new
business inflows resulted in a fall in output, the first such case since
January, and the most pronounced in almost four years, the report added.
NITI Aayog to examine methanol as an alternative propellant
Road Transport and Highways Minister Nitin Gadkari held a high-level
stakeholders meeting to deliberate upon a strategy to use methanol as an
alternative fuel in automobiles.
The Minister has asked government think-tank NITI Aayog to study the
automobile standards developed in China to use methanol as an alternative
“Methanol economy will help India use its vast reserves of coal while
driving import substitution. Research in converting carbon dioxide to
methanol is promising and can be a game-changer for methanol economy,” Mr.
In its presentation, Niti Aayog said methanol is a promising fuel for
waterways as it is clean, cheaper than fossil fuels and a good substitute
for heavy fuels. It suggested that ethanol could be made out of coal and
informed that a pilot project was already underway in Talcher in Odisha.
India imports methanol from Saudi Arabia and Iran at present, the
think-tank said, adding that it is working on a roadmap for conversion from
coal to methanol.
The government think-tank also said that methanol can be produced from
municipal waste as well.
The year-on-year growth of the core sector has slowed to 0.4% in June
The year-on-year growth of the core sector has slowed to 0.4% in June
from 3.6% in May and 6.92% in June 2016 — owing to a decline in output of
coal, refinery products, fertilizer and cement.
The performance in June is the lowest since the growth of 0.18% in
The eight core industries comprise 40.27% of the weight of items
included in the Index of Industrial Production (IIP). Its cumulative growth
during April to June, 2017-18, was 2.4%, according to data released by the
Coal production declined 6.7% in June, 2017, while the output of crude
oil increased 0.6%. Natural gas production increased 6.4%, while that of
petroleum refinery declined by 0.2% and fertilizer declined by 3.6%.
Meanwhile, steel production increased by 5.8% in June, but cement output
declined by 5.8%. However, electricity generation increased marginally by
0.7% in June.