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HOT! UPSC 2024-2025 COMPLETE STUDY NOTES

(Current Affairs) Economy & Energy | September : 2017

Economy

Luxury cars and SUVs may become more expensive (Free Available)
Deposit of black money, evidence of success: FM (Free Available)
Nasscom, to set up two centres of excellence (Free Available)
New Industrial policy would aim at making India a manufacturing hub (Free Available)
Revenue collections from GST ‘technically exceeded’ the government’s target (Free Available)
Centre distanced itself from the Ease of Doing Business report by NITI Aayog (Free Available)
Code on Wages Bill says wages will differ (Free Available)
NITI Aayog wants labour laws to be made flexible (Free Available)
Govt to give some more time to handset makers (Free Available)
TRAI starts process for next round of spectrum auction (Free Available)
MNRE says guidelines for solar power to reduce risk and increasing affordability (Free Available)
Darjeeling tea prices sore up due to ongoing dispute (Free Available)
New Rs. 200 note printed by RBI (Free Available)
Committee on data protection to submit report by year end (Free Available)
China wants to address growing trade imbalance with India (Free Available)
The trade deficit was $52.7 billion in 2015-16. (Free Available)
Former RBI chairman says there are still several challenges to India’s growth story (Free Available)
Niti Aayog’s agenda has the potential to trigger much more economic activity (Free Available)
Various changes to increase participation in UDAN (Free Available)
Alternate mechanism for merger of PSB’s (Free Available)
RBI is not in favour of NBFC’s to accept deposits (Free Available)
RBI said banks must initiate bankruptcy proceedings against loan defaulters (Free Available)
Discussions are at a ‘well-advanced’ stage for Australia’s uranium sale to India (Free Available)
SEBI said it is keeping a close watch on the share price movement of Infosys (Free Available)
Indian Tea Association (ITA) has sought a revival package for the industry (Free Available)
Infosys issue takes a beating on Sharemarket (Free Available)
Sikka’s resignation brought focus on corporate governance again (Free Available)
India-U.S. Trade Policy Forum to focus on Visa curbs (Free Available)
Public sector banks have most of the debts (Free Available)
Indian-American doctor developed medicine for sepsis (Free Available)
Production of coconut-activated carbon has been hit due to GST (Free Available)
Centre and RBI are working on a scheme to boost capital in public sector banks (Free Available)
Scholars, academics and government officials looking for BRICS agenda (Free Available)
FM has written to all Chief Ministers urging them to reduce Value Added Tax (VAT) (Free Available)
India should leverage its coal assets while it is still economical to do so (Free Available)
Centre will go ahead with its proposal to amend the Factories Act of 1948 (Free Available)
India wants to diversify the import of oil (Free Available)
PM to find over possible solutions for India’s critical development challenges (Free Available)
Public sector share in banking too large (Free Available)
eBiz portal project is still struggling to become fully operational (Only for Online Coaching Members)
Transactions through point-of-sale terminals have risen post Demonetisation (Only for Online Coaching Members)
Public sector banks have reported a 20% jump in the outstanding loans (Only for Online Coaching Members)
Consumer price index (CPI) accelerated to 2.36% in July (Only for Online Coaching Members)
Goods exports rose for the twelfth consecutive month (Only for Online Coaching Members)
Market regulator acts against Shell companies (Only for Online Coaching Members)
Centre has brought out an online database of half a million hectares of land (Only for Online Coaching Members)
Interest rates may be at the bottom of the interest cycle (Only for Online Coaching Members)
United States remains one of the most popular countries for travel (Only for Online Coaching Members)
Demonetisation made economy lighter with Rs. 3.5 lakh crore of cash: Survey (Only for Online Coaching Members)
Growth likely to be in the lower range, closer to 6.5% (Only for Online Coaching Members)
Petroleum subsidy to be halved by 2020 (Only for Online Coaching Members)
Demonetisation dented RBI income (Only for Online Coaching Members)
The British government is pushing for Indian investment (Only for Online Coaching Members)
Govt. panel to probe Kingfisher dues to AAI (Only for Online Coaching Members)
Facing financial woes, the airline had to shut down in 2012 (Only for Online Coaching Members)
Net direct tax collectionsup to 1.90 lakh crore (Only for Online Coaching Members)
Roll back of increase in tax rate for government works contracts (Only for Online Coaching Members)
Millions of companies are still not ready to file their first returns under GST (Only for Online Coaching Members)
SEBI concerned with the manner in which start-ups are being funded (Only for Online Coaching Members)
Parliamentary Standing Committee concerned over employees future (Only for Online Coaching Members)
Possibly due to demonetisation number of filed ITR’s increased by 25% (Only for Online Coaching Members)
Oil and gas exploration and production business is likely to get a boost (Only for Online Coaching Members)
China’s RCEP push veils grand plan (Only for Online Coaching Members)
NITI Aayog’s next VC believes focus should be on job creation (Only for Online Coaching Members)
IBM had achieved a breakthrough in security technology (Only for Online Coaching Members)
Gold continued its gains at the domestic bullion market (Only for Online Coaching Members)
Bharat 22, a new exchange traded fund (Only for Online Coaching Members)
SEBI made it mandatory to disclose default on the payment of interest in a day (Only for Online Coaching Members)
Parliament’s Committee has questioned the country’s low manufacturing growth (Only for Online Coaching Members)
India’s first private sector missile sub-systems manufacturing facility (Only for Online Coaching Members)
India conveys its pitch for a sovereign rating upgrade (Only for Online Coaching Members)
Service sector activity in July slowed to its lowest level (Only for Online Coaching Members)
RBI Governor expects lenders to pass on lower loan costs to borrowers (Only for Online Coaching Members)
Govt is looking to rework policy to incentivise firms to set up semiconductor units (Only for Online Coaching Members)
Centre will consider including a ‘one-nation one-licence’ regime in the new telecom policy (Only for Online Coaching Members)
Manufacturing PMI records very steep contraction (Only for Online Coaching Members)
Centre has put on hold a plan to enable monetisation of land assets owned by AAI (Only for Online Coaching Members)
US aircraft manufacturer says India would require 2,100 planes over the next 20 years (Only for Online Coaching Members)
NITI Aayog to examine methanol as an alternative propellant (Only for Online Coaching Members)
The year-on-year growth of the core sector has slowed to 0.4% in June (Only for Online Coaching Members)

Luxury cars and SUVs may become more expensive

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 consumer.
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 be impacted.
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. Vishwanathan said.
“The process of executing these centres is going on in both the states. Both are supported by the Ministry of Electronics and Information Technology.”
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 cybersecurity.
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. Vishwanathan.

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 wage.
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 affordability

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 affordable power.
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 investors.
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 its demands.
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 production costs.

Former RBI chairman says there are still several challenges to India’s growth story

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 business?”.
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 ‘quick decisions.’
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 unified strategy.
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 growth.
Most banks in the country do not make adequate provisioning — above the regulatory mandate — which could be used when non-performing assets are increasing.
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 a ‘buy’.

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. Bhat.
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 totalisation agreement).
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 regime.
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 place independently.

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 last year.
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 banks

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 assets.
“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 assets.
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 of governance.
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 brighter future.
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 sectors.
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 said.

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 Ministry.
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 April 2009.
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 years.
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 fiscal.
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 Survey
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 2016-17.
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 Parliament.
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 2019-20, respectively.
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 year.
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 GST

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 time.
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 service.
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 fuel.
“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. Gadkari said
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 November 2015.
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 government.
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.