(Current Affairs) Economy & Energy | February: 2017


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 institutions.
  • 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 indicates expansion.
  • 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 inflation eased.
  • 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 quick rebound.

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 sectors.
  • 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 banknotes.
  • The banking regulator has observed that “banknotes, being supplied to rural areas, at present, are not commensurate with the requirements of rural population.”
  • 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 priority basis.
  • 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 context.
  • 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 demonetisation-triggered downturn.
  • 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.

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