(Current Affairs) Economy & Energy | May: 2016

Economy

WPI is in negative again

  • Retail inflation slowed to a four-month low in February, while the wholesale price index posted a negative reading for a 16th straight month.
  • It prompted industry groups to call on the Reserve Bank of India (RBI) to cut interest rates to spur economic growth.
  • Consumer price index-based inflation decelerated to 5.2 per cent from 5.7 per cent in the preceding month.
  • Wholesale prices also continued to soften with official numbers for the wholesale price index (WPI) showing a 0.91 per cent contraction in February.
  • The data marks the first break in the six-month streak of accelerating retail inflation. Coming soon after official statistics showing industrial output continues to shrink, the figures signal domestic demand is yet to gain significant traction.
  • RBI Governor Raghuram Rajan had taken note of the poor industrial performance in January and said while the economy was recovering, this recovery was volatile and that not all economic indicators were moving in the same direction.
  • Index for Industrial Production (IIP) in January showed output contracted 1.53 per cent compared with the 1.18 per cent contraction in December 2015.
  • Food inflation in the CPI came in at 5.5 per cent in February compared with 6.7 per cent in January.
  • In the WPI, the rate of inflation in food articles also decreased to 3.35 per cent in February from 6 per cent in January. Primary article inflation in the WPI slowed down significantly in February to 1.6 per cent compared to 4.6 per cent in January.
  • Similarly, the rate of inflation in the ‘fuel & power’ segment in the WPI was -6.4 per cent in February compared to -9.2 per cent in January.
  • The ‘fuel & light’ segment in the CPI came in at 4.6 per cent in February, down from 5.3 per cent in January.
  • Inflation in the housing segment of the CPI accelerated to 5.3 per cent from 5.2 per cent in January.

Cairn India hopeful over recent changes in the natural gas sector

  • Cairn India has expressed the hope that recent Cabinet approvals for changes in the natural gas sector will also help resolve some of the long pending issues with the government, such as the fate of its Rajasthan fields and a 'fair price' for its crude oil.

  • These changes will also help India take a step closer to energy security.

  • A major decision taken by the Cabinet was to approve the Hydrocarbon Exploration and Licensing Policy, a main facet of which involves granting explorers a uniform licence for the exploration and production of all forms of hydrocarbons.

Government devised three part strategy for stressed loans

  • As part of the government’s three-part plan to address stressed assets of public sector banks, structural issues would be dealt with to avoid recurrence of these problems, whether wilful or due to policy paralysis or business challenges, in future.
  • Last week, Finance Minister Arun Jaitley told Parliament that Rs. 1 lakh crore of stressed assets were added in the first nine months of the current financial year itself.
  • In the case of the largest public sector bank, State Bank of India, loans worth Rs. 11,700 crore have been reported to be locked up as non-performing assets with nearly 1,160 defaulters wilfully deciding not to repay.
  • The list includes Winsome Diamonds & Jewellery which owes Punjab National Bank (PNB) Rs. 900.37 crore and Zoom Developers (owing Rs. 410.18 crore to PNB).
  • The state-owned PNB has declared 904 borrowers who owe it a combined Rs. 10,889.71 crore as wilful defaulters. Of these, 140 companies were added to the PNB’s list of wilful defaulters in the December quarter alone.
  • Separately, speaking also at the Advancing Asia Conference, International Monetary Fund Managing Director Christine Lagarde said that Reserve Bank Governor Raghuram Rajan’s move to address bank balance sheets “head-on” is the right approach.

SEBI debarred over 1000 entities for tax evasion

  • In a major clampdown, regulator SEBI has debarred over 1,000 entities from the capital markets after they were found to be misusing stock exchange platforms for tax evasion to the tune of more than Rs 15,000 crore.

  • SEBI has also suspended trading in shares of as many as 167 companies, while the regulator has written to the Income Tax Department in nearly 100 cases where more than 1,800 entities are suspected to have traded in shares valued beyond their disclosed income.

  • Such activities were mostly happening through shares of shell companies or thinly-traded penny stocks. There has not been any instance of a blue-chip stock being used for generating bogus profits or losses to evade taxes.

  • An analysis of the enforcement and surveillance measures taken by Sebi since August 2014 shows that 167 stocks have been completely suspended for trading and trading has been restricted to a lower price band of 2 per cent for 123 others.

  • SEBI has also written to Income Tax Department with details of 1,854 entities who have provided exit to preferential allottees for trade value of nearly Rs 3,900 crore.

India Ratings and Research revised its outlook for telecommunications services

  • India Ratings and Research revised its outlook for telecommunications services to stable-to-negative from stable for 2016-17 as it expects the introduction of Reliance Jio to intensify competition, squeezing market share and operating profitability.
  • Data tariffs will also see a major correction due to the launch of Reliance Jio, it said, adding that the benefits from higher data volumes as well as subscriber growth will be “back-ended.”
  • Additionally, the operators’ debt profile will deteriorate as they are likely to incur high capex on network expansion and acquisition of additional spectrum through trading, largely to compete with Reliance Jio.
  • Further, spectrum is expected to drive consolidation in the sector, helped by recent guidelines allowing spectrum sharing and trading transactions within industry participants.
  • This will help smaller players to monetise their spectrum assets while bigger players enhance their spectrum holdings, it said.

Government planning to provide PF to contractual labours as well

  • The government has decided to get tough with large employers who increasingly rely on contract workers often without paying them their statutory dues such as employees’ provident fund contribution.
  • As part of the plan, the Employees Provident Fund Organisation (EFPO) has asked all the public sector firms to upload on their websites the details of project contracts awarded to various agencies in a bid to ensure contract workers get provident fund benefits.
  • Central PF Commissioner V.P. Joy, who recently took charge of the Rs. 10 lakh crore retirement fund body, is expected to send a similar directive to 4,700 private companies employing over 1,000 workers each.
  • The Contract Labour Act requires employers to pay equal pay and benefits for work done by contract employees that is similar to regular employees’ role.
  • But its implementation has been weak and attempts to bring in a stronger law have been thwarted as government agencies and public sector units also deploy a large number of contract employees and are reluctant to pay them more.
  • EPFO is looking to make public as well as private sector companies, which are the principal employers of contract workers, accountable for providing PF benefits.
  • The public sector companies will have to register the details of all contract employers of each project on EPFO’s website.

Central Bank Governor says exchange rate is at right place

  • Reserve Bank of India Governor Raghuram Rajan sought to allay fears about India’s weak exchange rate saying that it is broadly in the right place and the country’s trade is likely to be muted for some time.
  • “Indian trade is likely to be muted for some time. But we are not alone in this. Global trade is weak.” said Raghuram Rajan
  • Apart from the exchange rate and the weak global economy, Mr. Rajan pointed to several other reasons that could be leading to this decline in global trade.
  • The first, he said, is that as countries get more developed, they begin to consume services more, which are not generally traded. The second reason was that the trade in capital goods has seen a decline.
  • And the third reason was that countries are increasingly pulling inwards. That is, their supply chains are increasingly being geared towards their own needs rather than the needs of other countries,
  • Mr. Rajan said “I believe the monetary reforms of this government will stand out as one of its major achievements.”
  • The Monetary Policy Committee, the composition of which was laid out in the Finance Bill 2016, will be in charge of keeping inflation within specified targets, failing which it will be answerable to the government.
  • While emphasising the need for macroeconomic stability, the Governor lauded the government on its adherence to its fiscal targets and in focussing on structural reforms.
  • “Economists will say we need structural reforms. But such moves tend to upset constituencies. The problem is that the costs are immediate and well-defined. But it is an ill-defined group which doesn’t know if it will benefit from the changes later on.”
  • The Governor also pointed out that the cumulative FDI in this financial year till January at $38.7 billion was just $3 billion short of the highest FDI ever recorded in India, of $41.7 billion in 2008-09, and there were two months still to be completed.

IIP data again increases call for rate cut

  • Industrial output shrank for the third straight month, contracting by 1.5 per cent in January 2016.
  • The data prompted industry groups to make fresh calls for the Reserve Bank of India (RBI) to cut interest rates at its monetary policy review slated for April 5.
  • The decline compared with the 2.8 per cent growth in industrial output in January 2015.
  • According to the data released by the Central Statistical Organisation (CSO) on Friday, the year-on-year growth was (-)1.5 per cent in January.
  • The drop in output was due to various factors, including a huge contraction in the capital goods sector.
  • Manufacturing sector output contracted by (-) 2.8 per cent, capital goods shrunk by (-)20.4 per cent and consumer non-durables fell by (-) 3.1 per cent.
  • Ten out of 22 industry groups in the manufacturing sector registered negative growth. Electrical machinery and apparatus recorded the maximum negative growth of (-)50.3 per cent.
  • The 1.5 per cent fall in industrial output this January was against 2.8 per cent growth in January 2015 and (-)1.2 per cent in December 2015 (revised from -1.3 per cent earlier).
  • The Budget has tried to address tax related issues for manufacturing and we are hopeful that they would yield results.
  • But we would like to see further rate reduction in the forthcoming monetary policy (of the RBI) that can stimulate demand and investments in the economy to support manufacturing growth.
  • With the Budget sticking to the fiscal consolidation roadmap by targeting to limit the fiscal deficit at 3.5 per cent of GDP in 2016-17, the government had claimed that it had done its job well by maintaining fiscal discipline to ensure macro-economic stability.
  • This in turn has provided some space for monetary policy to be loosened up.
  • Fiscal deficit for the current fiscal is projected at 3.9 per cent. Experts are expecting a minimum 25 basis points repo rate cut by the RBI, most probably earlier than April, to perk up growth.
  • Global financial market volatility, a potential further deterioration in exports and strain in bank and corporate balance sheets could weigh on India's growth prospects, the IMF had said.
  • In January 2016, growth in mining output was 1.2 per cent while that of electricity was 6.6 per cent, basic goods (1.8 per cent), intermediate goods (2.7 per cent) and consumer durables (5.8 per cent).
  • The factors being blamed for the fall in industrial output include the Chennai floods and poor revival of investment.
  • Experts are expecting a minimum 25 basis points repo rate cut by the RBI, most probably earlier than April

Depending upon monsoon and reform growth rate could be close to 8 % in 2016-17

  • The country’s GDP can grow by 7.9 per cent next fiscal if the monsoon is normal and government implements the reform measures announced so far, domestic rating agency Crisil said.
  • The growth forecast, highest by any house and even above the government’s own estimate of 7-7.75 per cent, has been arrived assuming a faster growth in agriculture.
  • The country has faced weather shocks for three consecutive years, including two years of deficient rains in 2014 and 2015, and a normal monsoon season this year can lead to a 4 per cent growth in agriculture on lower base effect.
  • Crisil said oil and commodity prices are expected to remain soft, which will ensure that crucial macroeconomic indicators such as fiscal deficit and inflation are as per expectations.
  • Welcoming the Budget as one with realistic growth and revenue targets, Crisil said achievement of the divestment target, which the government has trailed in the past, will be keenly watched.
  • The government’s commitment on capital infusion is just enough to meet the minimum capital requirements as the banks migrate to the stricter Basel-III regime.
  • A normal monsoon season this year can lead to a 4 per cent growth in agriculture.

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