Govt says black money will be used for welfare of public
The future agenda of the government, as stated by PM in his speech on
New Year’s eve, is to channel the wealth that was previously being hoarded
as black money into cheaper capital for affordable housing, women’s health,
the agriculture sector.
Mr. Jaitley added the remonetisation process is progressing “extremely
well” and would be completed very soon.
While saying that 2016 saw several major economic reforms like the
passage of the insolvency law, the creation of the Monetary Policy
Committee, and the passage of the constitutional amendment bill on the Goods
and Services Tax.
On demonetisation, Mr. Jaitley said that it process has been completed
in “a very successful and peaceful manner”, with the whole country
supporting it overwhelmingly.
“The remonetisation process has progressed extremely well and I am sure
in the days to come it will be very soon completed,” he said.
“The benefits of this are already flowing into the system. What was the
shadow economy and black money has now lost its anonymity and come into the
banking system. This will lead to a changed spending habit of the people.”
“There will be more taxation receipts of the government, so the
government’s ability to spend and support the spending will also increase.”
CII feels demonetisation will lead to reduction in corporate tax
The widening of the tax net due to demonetisation will give the Centre
an opportunity to lower corporate tax rates, according to the Confederation
of Indian Industry.
The trade body, in a statement, added that the roll-out of the GST will
also be facilitated due to the increasing formalisation of transactions.
CII noted that there were 32 incentives applicable on corporate profits
before calculating tax, which resulted in an effective tax rate of about
19.8 per cent.
Apart from reducing corporate tax rates, CII also recommended that the
government boost its infrastructure investments, quicken disinvestment in
public sector enterprises and encourage public-private partnerships.
CII also recommended the government work towards the creation of better
quality jobs in the formal sector, and a national technology strategy with a
ten-fold increase in public investment in research in higher education
Public investment in research in the higher education sector is
currently 0.04 per cent of GDP and this should be increased to the global
average of 0.4 per cent.
Manufacturing output dip in Dec
Demonetisation of high-value currency notes in November has begun to hit
the manufacturing sector, according to a private sector survey.
The Nikkei India Manufacturing Purchasing Managers’ Index fell to 49.6
in December, the first time it hit below the 50-mark in 2016, from 52.3 in
November. A reading below 50 implies contraction while one above 50
Companies saw new work and output dip for the first time in 2016. In
turn, quantities of purchases were scaled back and employment lowered.
Meanwhile, input costs increased at a quicker rate, whereas output charge
Having held its ground in November following the unexpected withdrawal
of Rs. 500 and Rs. 1,000 notes from circulation, India’s manufacturing
industry slid into contraction at the end of 2016.
Rates of contraction in new work and production were marginal overall,
but in both cases the reductions were the first in 2016.
Order backlogs rose for the seventh consecutive month but at the slowest
rate in this sequence, according to the report.
With the window for exchanging notes having closed at the end of
December, January data will be key in showing whether the sector will see a
Core sector recorded a growth of 4.9 percent
The eight core industries recorded a year-on-year growth in output of
4.9 per cent in November 2016, slower than the previous two months — that
is, a 6.6 per cent increase in October and 5.01 per cent in September.
Output in electricity and coal posted healthy growth rates of 10.2 per
cent and 6.4 per cent respectively in November as against 2.85 per cent and
(-) 1.5 per cent respectively in October 2016, according to government data.
In November 2015, electricity and coal production posted a growth of 5.6
per cent and 3.8 per cent respectively.
The 10.2 per cent growth in output of electricity in November is the
highest since 14.68 per cent in April 2016.
The eight core industries comprise close to 37.9 per cent of the weight
of items included in the Index of Industrial Production (IIP) and
electricity has the maximum weight (of 10.32 per cent) among the eight
The coal sector posted a positive growth after three consecutive months
of contraction in output, and the 6.4 per cent growth in November was the
highest since 12.05 per cent in June 2016.
Steel production slowed to 5.6 per cent in November 2016, down from
about 17 per cent growth during the August-October 2016 period.
The 5.6 per cent growth was also the lowest since 6.15 per cent in April
2016. In November 2015, steel output had contracted by 6.8 per cent.
Crude oil and natural gas output have been shrinking for several months
now, and the trend continued in November 2016 as well.
Crude oil production contracted 5.4 per cent in November 2016 –
shrinking for the ninth consecutive month. Natural gas production shrank 1.7
per cent in November 2016, falling for the fourth straight month.
Despite spending on welfare measures govt to meet fiscal deficit target
The Centre will meet its fiscal deficit target of 3.5 per cent of the
gross domestic product (GDP) for 2016-17 despite a slew of sops announced by
Prime Minister Narendra Modi.
The voluntary income disclosure scheme has already given us some revenue
and this (demonetisation) scheme will also bring in some revenue so we will
be able to meet the (fiscal deficit) target.
The Prime Minister’s announcement will be definitely honoured in terms
of ensuring fiscal adherence to all our commitments as well as fiscal
prudence, Railway minister said.b
PM announced a package for farmers, senior citizens, small
entrepreneurs, women and the rural poor along with a housing scheme for the
poor and the middle-class.
The Centre’s fiscal deficit remained high at Rs. 4.6 lakh crore, which
was 85.8 per cent of the budget estimates for the entire financial year,
till the end of November this fiscal year.
Till October, the deficit was slightly lower at 79.3 per cent of the
full fiscal deficit target.
The Union Budget had estimated fiscal deficit at Rs. 5.33 lakh crore for
2016-17 which works out to 3.5 per cent of the GDP. The fiscal deficit
widened in November mainly due to muted gross tax revenues.
Foundry industries feel the heat of demonetisation
The output at foundries in the country has declined between 20 and 30
per cent in the last two months following demonetisation.The situation is
expected to improve in another three to six months.
For the last two years, the foundries’ average capacity utilisation was
just 60 per cent. Last year, it went down to about 40 per cent because of
the slowdown in automobiles, a major client industry for foundries.
Though the foundry industry has installed capacity of about 15 million
tonnes a year, the production is only 10 million tonnes of castings.
Up to 30 per cent production could be affected because of demonetisation.
The overall turnover and profitability might come down this year.
On GST, the IIF had commissioned a study on the impact on foundries. The
total tax paid by the foundries is close to 25 per cent. The tax proposed
under GST is between 14.5 per cent and 17.5 per cent.
Paytm payments bank to become operational
Paytm Payments Bank received the final approval from the Reserve Bank of
India to commence operations.
The payments bank is expected to start operations next month with its
first branch in Noida, Uttar Pradesh.
“At Paytm Payments Bank, our aim is to build a new business model in
banking industry, focussed on bringing financial services to millions of
un-served or underserved Indians,” he said.
More than Rs. 200 crore has been invested till now for the bank, with
Mr. Sharma putting in Rs. 112 crore.
RBI directed banks to supply 40 % to rural areas
RBI has directed banks to ensure that at least 40 per cent of the supply
of banknotes should reach rural areas while currency chests and automated
teller machines in such areas should have Rs. 500 and Rs. 100 denomination
The banking regulator has observed that “banknotes, being supplied to
rural areas, at present, are not commensurate with the requirements of rural
RBI said banks should advise their currency chests to step up issuance
of fresh notes to rural branches of Regional Rural Banks, District Central
Cooperative Banks and commercial banks, white label ATMs in rural areas on a
Of the 4,000-odd currency chests in the country, most are managed by
public sector banks.
The RBI added that chests operating in a district should maintain the
proportion on a weekly average basis.
TRAI issued a consultation paper on the issue of net-neutrality
The Telecom Regulatory Authority of India issued a consultation paper on
the issue of net-neutrality as it looked to formulate “final views on policy
or regulatory interventions” on the subject.
The regulator, given the complexity of the subject, had decided to
undertake a two-stage consultation process.
The earlier issued pre-consultation, released in May 2016, was an
attempt to identify the relevant issues in all the areas on which the
Department of Telecom had sought TRAI’s recommendations.
The purpose of this second stage of consultation is to proceed towards
the formulation of final views on policy or regulatory interventions, where
required, on the subject of net neutrality.
The last date for public comments on the paper is February 15 and for
counter comments is February 28.
TRAI has sought comments on what principles for ensuring
non-discriminatory access to content on the Internet could be in the Indian
Also as to how Internet traffic and providers of Internet services
should be understood in the context of net neutrality.
It has also raised the issue of traffic management practices, seeking
comments on approaches that would be preferable, defining what constitutes
reasonable traffic management practices.
More Banks cut lending rates
HDFC Bank, the second largest private sector lender of the country, has
decided to reduce its marginal cost of funds-based lending rate (MCLR) by 75
to 90 bps across various loan tenures.
Accordingly, its one-year MCLR rate will be 8.15 per cent as compared
with 8.9 per cent while its six-month MCLR will be 8 per cent as against
8.85 per cent earlier.
The new rates come into effect from January 7. Public sector lender
Canara Bank has also reduced its MCLR by about 70 basis points and its
one-year MCLR stands at 8.45 per cent.
Services sector contracted for the second consecutive month
Reeling under the cash crunch, the services sector contracted for the
second consecutive month in December as the demonetisation move took a heavy
toll on business activities.
It also led to the sharpest fall in more than three years in new orders,
a monthly survey showed.
The Purchasing Managers’ Index (PMI) survey further showed that the
business confidence slumped to the third-lowest level in its 11-year
history, while suggesting that any imminent recovery was unlikely from the
The Nikkei India Services PMI, which tracks the services sector
companies on a monthly basis, stood at 46.8 in December, largely unchanged
from November’s 46.7 reading.
A reading below 50 denotes contraction. The index had slipped into the
contraction territory in November.