(Current Affairs) Economy & Energy | June: 2016


Four-month window for declaring black money

  • The four-month window for declaring black money held in the country will open on June 1.
  • Under the Income Declaration Scheme 2016, individuals can come clean by paying 45 per cent tax and penalty while avoiding scrutiny and enquiry by the Tax Department.
  • The scheme also provides immunity from prosecution under the Income-tax Act and Wealth Tax Act.
  • Immunity from prosecution is provided under Benami Transactions (Prohibition) Act, 1988 subject to transfer of asset to actual owner within the period specified in the rules.
  • The Income Declaration scheme 2016 will remain in force till September 30 for filing declarations.
  • Tax, surcharge and penalty must be paid latest by November 30, according to a statement from the Union Finance Ministry.
  • No scrutiny and enquiry under the Income-tax Act or the Wealth tax Act (now abolished) shall be undertaken in respect of such declarations.
  • The scheme will apply to undisclosed income whether in the form of investment in assets or otherwise.

India’s GDP is estimated to grow at 7.6 per cent in 2015–16 and 7.7 per cent in 2016– 17

  • India’s GDP is estimated to grow at 7.6 per cent in 2015–16 and 7.7 per cent in 2016– 17 due to a favourable monsoon, the National Council of Applied Economic Research (NCAER) said.
  • The Delhi-based think-tank said the numbers mark significant revision upwards from its January 2016 forecast, when it had predicted a 7.4 per cent growth for 2015-16 as well as for 2016-17.
  • The current forecast is mainly due to monsoon prediction. But, it also sounded a note of caution by stating, “It is hard to conjecture whether the economy has finally reached the tipping point where positives outweigh the negatives.”
  • Exports are expected to contract by 1.6 per cent while wholesale price inflation is projected to grow at 0.9 per centfor 2016-17.
  • Current Account Balance as a percentage of GDP is expected to contract by 1 per cent. Fiscal deficit of the Centre as a percentage of GDP is forecast at 3.5 per cent for 2016-17.
  • The agriculture sector witnessed feeble average growth rate of 0.5 per cent in 2014-15 and 2015-16 due to drought in two successive years.
  • The manufacturing sector, after showing robust growth in the second quarter, slowed down consistently in the third and fourth quarters.
  • The growth in Index of Industrial Production (IIP) slowed to 2.4 per cent in 2015-16 from 2.8 per cent in 2014-15. In the fourth quarter, manufacturing was in “recession” (-1.1%) and the overall IIP barely grew 0.2 per cent, it said.
  • Even as select indicators show improvement, it is much too early to conclude that the economy is on course to a full-fledged recovery as the improvement is not sufficiently broad-based.
  • It red-flagged the much slower growth in services exports, notably software and business service exports which together account for approximately 50 per cent of the total service exports.
  • Inflation ranged between 3.66 per cent in August 2015 and 5.7 per cent in January 2016.

Christine Lagarde gives gloomy economic forecast to Brexit

  • A day after the governor of the Bank of England Mark Carney’s dark warning that a Brexit vote could push the U.K. into recession, comes another prediction of economic doom.
  • Head of the International Monetary Fund, Christine Lagarde, on Friday offered a gloomy economic forecast in the event of Britain voting to leave the EU in the in-out referendum to be held on June 23.
  • A majority of economic analysts agree that a vote to leave the EU would be costly in the long run, even after the uncertainty has been resolved.
  • And in the short term, “there is also risk of an adverse market reaction to a leave vote. This would imply a depreciation of the sterling and large contractions of investment and consumption,” she said.
  • U.S. President Barack Obama utilised his visit to the U.K. to openly canvas for Britain to stay in Europe, breaking the long-accepted convention of heads of countries not offering opinions on the domestic affairs of another country.
  • Recently, five former NATO secretaries-general wrote to the Daily Telegraph warning of the security threat to the U.K. that a vote to leave would create.

Govt puts onus of securing grid connectivity and transportation on the developers

  • The Renewable Energy Ministry’s draft guidelines for the development of onshore wind power projects lays the onus of securing grid connectivity and transportation on the developers, which experts say could dampen investor interest in the sector.
  • The draft guidelines lay down the rules for setting up onshore wind projects ranging from land use permissions to metering and real-time monitoring to eventual decommissioning.
  • India’s wind potential is pegged at 302 GW, according to Niti Aayog, with the sector expected to contribute 60 GW to the target of 175 GW of renewable energy by 2022.
  • The Ministry issued the draft norms and has sought comments from stakeholders until May 27. While the rules are comprehensive in their scope, experts argue that they could also be over-prescriptive.
  • The states are guardians of providing such infrastructure for development.” “The project developer should ensure that grid connectivity is technically and commercially feasible at the site selected,” according to the draft guidelines.
  • In some cases, the minutiae of the rules also render them redundant or too binding in the face of climatic factors that could affect the flow of wind.
  • The project developer should judiciously select the size of the wind turbine for a particular site. considering the wind recourse available at that site.

Inflation higher than RBI’s liking

  • India's core inflation remains a bit higher than policymakers would like, but the economy's recovery should accelerate with a good monsoon, Reserve Bank of India (RBI) Governor Raghuram Rajan said.
  • Consumer prices rose last month at a more-than-expected 5.39 percent annual rate, up from 4.83 percent in March. It was the first increase in the retail inflation rate since January.
  • With Rajan targeting 5 percent retail inflation by March 2017, his comments will solidify the view that the RBI will hold interest rates steady at its June 7 policy meeting. The bank cut rates last month to a four-year low of 6.5 percent in April.
  • “Broadly, core inflation has been fairly sticky, a bit higher than we would want. It hasn't moved up and down. We will continue on the task of anchoring expectations,” Rajan said
  • Rajan said growth also seemed to be ticking higher. India's economy is among the world's fastest growing, at 7 percent-plus, but the 8 percent level needed to alleviate poverty remains elusive.
  • I think we are at the beginning or maybe in the midst of a slow recovery. The signs of faster growth are there –e.g. auto, cement production and consumption. And a good strong monsoon would accelerate the process of recovery.
  • One issue for India is that banks remain reluctant to lend and to reduce rates for borrowers, despite 150 bps basis points of rate cuts in the past year.
  • To ensure rate cuts feed into the economy, the RBI has injected billions of rupees via open-market bond purchases and cut daily maintenance of bank cash reserve ratios.

Index of Industrial production increased by 0.05 percent in March 2016

  • India’s industrial output growth slowed down to 2.4 per cent in financial year 2015-16 with the Index of Industrial Production remaining virtually flat in March 2016, growing by a mere 0.05 per cent.
  • Consumer price inflation, on the other hand, accelerated to 5.4 per cent in April from 4.8 per cent in March, official data showed.
  • The whole year IIP number and the March number indicate that the apparent recovery visible in February was not sustained and overall there are no signs of an upswing yet.
  • The moderation in the industrial output index, which grew 2 per cent in February, was driven by a contraction in the mining and manufacturing sectors, a slowdown in the consumer durables sector and a worsening scenario in the capital goods sector that shrank for the fifth month in a row.
  • The cumulative growth of industrial production, at 2.4 per cent, was slower than the 2.8 per cent recorded in 2014-15. In the last decade, industrial output has grown at a slower pace only on two occasions (1.1 per cent in 2012-13 and -0.1 per cent in 2013-14).
  • The IIP and the Consumer Price Index (CPI) numbers indicate there are no real signs of a sustained recovery in the economy and suggest that the Reserve Bank of India will hold off on cutting interest rates in the near future.
  • The IIP numbers come as a surprise since the core sector data for March showed a strong growth of 6.4 per cent, which had seemed to suggest that the economy was seeing green shoots of recovery.
  • The mining & quarrying sector contracted 0.13 per cent in March following a strong growth in February of 5.1 per cent.
  • The manufacturing sector contracted 1.2 per cent in March, compared to a growth of 0.7 per cent in February.
  • By usage, the capital goods sector contracted 15.4 per cent in April compared to a contraction of 9.5 per cent in the previous month. Growth in the consumer durables sector slowed to 8.7 per cent from 9.6 per cent over the same period.

Double Taxation Avoidance Treaty with Mauritius will bring clarity

  • The amendment to the Double Taxation Avoidance Treaty with Mauritius will push offshore fund management companies to set up shop in India.
  • Under the new safe harbour rules, offshore funds’ gains will be taxed as capital gains than as business income. This will require them to reconfigure their plans.
  • Under the amended treaty signed with the island nation, India gets the right to tax capital gains on investments routed through Mauritius. The amendment to the 1983 treaty will come into force from April 1, 2017.
  • Based on available information, it was, however, unclear if the amendment covered investments made using hybrid securities.

Tax collection showing big jump

  • Indirect tax collections for April 2016 grew 42 per cent over their level in April 2015.April's collections amount to 8.3 per cent of the Budget Estimates for the financial year.
  • The Budget Estimate for indirect tax collections for this financial year is Rs. 7,78,000, 9.7 per cent higher than the actual collections during 2015-16 of Rs. 7,09,022 crore.
  • Central excise collections saw a 71 per cent increase in April 2016, coming in at Rs. 28,252 crore compared to the Rs. 16,546 crore in April 2015.
  • Excise collections thus made up nearly 44 per cent of the government’s total indirect tax collections in April.
  • The growth in total indirect tax collections were mainly driven by the growth in excise collections due to several additional revenue generating measures taken by the government over the last year such as increasing the excise duty on petrol, diesel, and tobacco.
  • Excluding such measures, the growth in total indirect tax collections stood at 17 per cent, according to the government.
  • Service tax collections amounted to Rs. 18,647 crore in April 2016 compared to Rs. 14,585 crore during the same period of the previous year, a growth of 27.9 per cent.
  • The third category of indirect tax collections, customs duty collections, came in at Rs. 17,495 crore in April 2016, up 22.5 per cent from the Rs. 14,286 crore seen in April 2015.
  • This data comes at a time when the government announced on Tuesday that it has unearthed approximately Rs. 50,000 crore of indirect taxes evasion and undisclosed income of Rs. 21,000 crore over the last two years.

Govt will import more gas if long term affordable rates are secured

  • The government is ready to import at least 70 to 80 million metric standard cubic metres (mmscm) of natural gas for India’s idle gas-based power plants if it can secure long-term ‘affordable’ rates.
  • Obtaining the required gas will lead to the re-starting of 20,000 MW of idle power capacity in India.
  • The minister recently visited Australia and secured assurances for gas supply at $5 per mmbtu but suppliers were not willing to sign long-term contracts.
  • If the government gets gas at $5 per mmbtu, gives custom duty waiver, reduces marketing margins and gas transportation charges by half and reduces inter state transmission charges to zero, the industry will be able to absorb the price.

Government to bring clarity to Budget provisions

  • The government is likely to come out with a definition for the term ‘new employees’ for implementing its Budget promise of footing the bill for pension scheme contribution in a bid to create more formal sector jobs.
  • Accordingly, ‘new employees’ may be defined as those in excess of the average employee base of a firm for the previous three years,
  • The payment of the EPS contribution will be in the form of reimbursements to employers.
  • The scheme will be applicable for the new employees, earning Rs.15,000 a month, who have worked for 240 days during a year in an establishment.
  • About 3.5 lakh establishments, which hire more than 20 workers, will be covered under the scheme.
  • The Finance Minister had said the government had decided to pay 8.33 per cent of wages to Employees Pension Scheme (EPS) on behalf of employers for workers during first three years of employment.
  • For this an allocation of Rs.1,000 crore had been made in the Budget under the scheme, Pradhan MantriRojgarProtsahan Yojana .

Industry bodies express concern over large pictorial warning

  • Expressing concern over larger pictorial warnings on tobacco products, industry bodies CII and FICCI said that this had led to a spurt in illegal import of cigarettes.
  • They urged the government to take steps to curb such activities while maintaining the status quo on the matter.
  • In letters to Health Minister J.P. Nadda, the industry chambers said illicit cigarettes were threatening the “livelihood of crores of farmers and people employed in the industry.”
  • An increase in unscrupulous trade activity had resulted in law and order problems as well as a threat to the livelihood of millions of farmers and the legal (tobacco) industry.
  • CII urges the government to look into the matter and ensure that a balanced view on the issue of graphic health warnings is taken. Until we are able to rein in the illegal trade in the sector effectively, it would be desirable to maintain a status quo on pictorial warning.
  • Companies making cigarettes had been compelled to shut operations due to lack of clarity on the warnings.

Centre will tax capital gains on investment from Mauritius

  • Starting next year, the Centre will tax capital gains on investments from Mauritius, the tiny island from where India has received nearly a third of its total FDI inflows since 2000.
  • The source of the leak in tax revenue was plugged after the two countries signed a protocol at Port Louis, Mauritius.
  • The protocol amends the convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains.
  • However, following the agreement, Mauritius could cease to be the preferred route for FDI and portfolio investments into India.
  • The amendment will tackle long-pending issues of treaty abuse and round-tripping of funds, attributed to the India-Mauritius treaty.
  • It will also curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between India and Mauritius.
  • The 1983 Double Taxation Avoidance treaty made Mauritius, which taxes capital gains at near-zero rates, an attractive “post box address” for foreign investors to route investments into India.

According to WB India has largest offline population

  • India has the largest offline population in the world with nearly a billion Indians still not able to tap the benefits of a digital economy, the World Bank said.
  • At least 8 in 10 individuals in India own a mobile phone and digital technologies are spreading rapidly, but the aggregate impact of digital technologies has fallen short and is unevenly distributed, noted a 2016 development report on Digital Dividends released by the Bank.
  • The opportunities for increasing access to digital technology for creating higher growth, more jobs, and better public services are significant for India.
  • At the end of 2014 India had more than 200 million Internet users, compared to 665 million in China, according to the report.

Click Here for Full Economy Issue

Click Here to Join Online Coaching for IAS (Pre.) Exam

<< Go Back To Economy Affair Main Page