Wednesday, 14 March 2018

Inflation Relief, IIP Boost to Support India’s Economic Growth

The Indian economy now seems to be on its way to recovering from disruptions caused by demonetisation and roll-out of goods and services tax as consumer inflation fell more than expected and industrial output growth remained strong, providing a twin boost to the economy.

According to Central Statistics Office (CSO) data released, consumer inflation in India eased to 4.44 per cent in February from 5.1 per cent in the previous month. Meanwhile the Industrial Production (IIP) for December expanded to 7.5 per cent in January from 7.1 per cent in the previous month.

India’s GDP growth picked up pace in the quarter ended December as manufacturing and agriculture growth improved after twin disruptions of the note ban and the Goods and Services Tax.

The IIP growth in January this year was mainly on account of uptick in manufacturing sector which constitutes 77.63 per cent of the index. It grew by 8.7 per cent during the month as compared to 2.5 per cent in January 2017, showing signs of recovery in the economy.

Capital goods, a barometer of investments, showed a sharp increase in output by 14.6 per cent in January, 2018 as against a decline of 0.6 per cent year ago .Consumer non-durable goods, which are mainly fast moving consumer goods, too showed an increase of 10.5 per cent as against a growth of 9.6 per cent. Consumer durable goods recorded a growth rate of 8 per cent in January 2018 against a contraction of 2 per cent a year ago. However, the mining sector saw a flat growth of 0.1 per cent compared to 8.6 per cent a year ago.

On the other hand, India’s inflation rate stood lower than the Reserve Bank of India’s 5.1 per cent estimate for the January-March period, giving the central bank room to keep interest rates on hold for longer.

Economists and RBI expect inflationary pressures to gather steam in coming months. The central bank expects inflation to reach 5.1-5.6 per cent in the first half of the financial year starting 1 April, before easing in the second half. The RBI targets inflation over the medium term at 4 per cent with an upper limit of 6 per cent and a lower threshold of 2 per cent.

As the country is entering into a new fiscal, key macroeconomic indicators show a strong turnaround of the economy after being disrupted by the implementation of the GST and demonetisation. This twin boost to the economy suggests that overall economic growth could accelerate further from the five-quarter high recorded in the October-December period.

Latin Manharlal Group

Thursday, 22 February 2018

India Inc Moving Towards Better Corporate Governance

The Indian economy is likely to become the fastest growing major economy in the world in 2018 and the interest that Indian businesses is generating among foreign investors shows no signs of abating. However, while willing to commit growth capital to Indian businesses, a key measure of performance that global investors are factoring in is the standard of corporate governance.

According to the annual Indian Corporate Governance Scorecard by the International Finance Corporation, BSE, and Institutional Investor Advisory Services, corporate governance standards of Indian Inc has improved in 2017. The Corporate Governance Scorecard for 2017 showed that companies (of S&P CNX BSE-100) aim to increase transparency and provide confidence to investors globally.

With over 5,000 listed companies and more than 50 companies in the global Fortune 2000, India represents a vibrant mix of small and large companies that access capital from domestic and international investors to fund their growth. Many of these companies are amongst the largest employers.

Moreover, a large number of small investors in India rely on corporate India’s good performance so that the returns they obtain on their investments can ensure their financial security. Beyond doubt, corporate India represents a key engine that powers nation building; and nation building requires sound principles of governance, whether it is a country or a company. As corporate India’s health is critical for India’s future, sound corporate governance needs to be the key enabler to manifest this reality.

The study suggests that more than 90 per cent of the Sensex 30 companies have provided adequate disclosures and inducted more women directors.

The 2017 Scorecard highlights several areas of improvement for Indian companies including better clarity on effectiveness of policies, improvement in board effectiveness and enforcement of shareholder rights.

The number of Sensex 30 companies giving detailed minutes of the annual general meetings, disclosures on succession planning and facilitating shareholder participation doubled in the last one year, the study revealed further.

The BSE 100 companies have improved on information standards with scores ranging between 85 and 50.

Increasing investor scrutiny and significant steps being taken by various regulatory bodies such as the Reserve Bank of India, and Securities and Exchange Board of India (Sebi), and increased vigilance by minority and institutional shareholders demonstrate the changing governance standards in India.

Good corporate governance helps companies operate more efficiently, improve access to capital, mitigate risk, and safeguard against mismanagement. It makes companies more accountable and transparent to investors and gives them the tools to respond to stakeholder concerns.

Corporate governance also contributes to development. Increased access to capital encourages new investments, boosts economic growth, and provides employment opportunities.

 Latin Manharlal Group

Monday, 5 February 2018

Union Budget 2018: Pro-Poor, Pro-Farmer

With national polls looming next year, Finance Minister Arun Jaitley has rolled out a budget designed to help distressed farmers and rural areas while boosting growth, jobs and private investment.

This year budget was a mix bag of both expectations and a few surprises. Since, last couple of years India has seen momentous changes on the economic and fiscal front be it the demonetization or the long awaited GST reform and given that it was the last full-fledged budget for the government, it was expected to throw some surprises.

In the last Union Budget before the general elections, the central government decided to focus on something that’s never got its due in the past: Healthcare. Many developed countries provide free healthcare to their citizens. India lagged them. This year’s Budget gave a big boost to the healthcare and focused at addressing the anxiety and trauma of people who cannot afford expensive medical services.

The government announced steps to address healthcare holistically, in primary, secondary and tertiary care system covering both prevention and health promotion. It announced National Health Protection Scheme, the world’s largest government funded healthcare programme that will provide up to Rs. 5 lakh per family per year for secondary and tertiary care hospitalisation. The Budget also allocated additional Rs. 600 crore to provide nutritional support to all TB patients at the rate of Rs 500 per month for the duration of their treatment.

In this budget, India’s farmers and villagers, as well as companies with exposure to agriculture, emerge as the biggest winners. This budget has promised to raise the minimum price offered to farmers for crops, while investing heavily in agricultural markets across India. It also delivers more money for rural areas, including irrigation projects and aquaculture projects, and directs state governments to purchase extra solar power generated by farmers using solar-powered pumps.
Under housing for all, the government has announced the construction of one crore houses in rural areas under the Prime Minister Awas Yojna Rural. In urban areas the assistance has been sanctioned to construct 37 lakh houses. The government will also establish a dedicated Affordable Housing Fund (AHF).

For senior citizens, the government announced enhanced exemption on various counts. The increase from Rs. 10,000 to Rs. 50,000 on interest earned on deposits with banks and post offices, fixed deposits and recurring deposits. TDS will not apply on such income under Section 194A. The deduction limit for health insurance premium and/or medical expenditure was raised from Rs. 30,000 to Rs. 50,000, under section 80D. Under Section 80DDB, the deduction limit for certain critical illness medical expenses for senior citizen (Rs. 60,000) and very senior citizens (Rs. 80,000) has been raised to Rs. 1 lakh. Four – the limits for the PM Vaya Vandana Yojana, that provides a pension plan with guaranteed returns of 8 per cent, have been doubled to Rs. 15 lakh.

However, the government announced no change in the personal tax slabs saying that the government had made many positive changes in the personal income-tax rate applicable to individuals in the last three years. In a major move to provide relief to salaried taxpayers, the government allowed a standard deduction of Rs. 40,000 in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses.

Budget 2018 has proposed to hike the cess on income tax from 3 per cent to 4 per cent thereby increasing the tax payable by all categories of tax payers. Due to this change, the tax liability for highest tax bracket (assuming Rs 15 lakh income) goes up by Rs 2,625. For middle income tax payers (between Rs 5 lakh and Rs 10 lakh) the tax liability increases by Rs 1,125 and for lowest tax brackets (Rs 2.5 lakhs to Rs 5 lakhs) by Rs 125.

Finance minister Arun Jaitley introduced the much talked about long term capital gains tax (LTCG) on sale of listed securities on gains of over Rs1 lakh. Jaitley, introduced a long-term capital gains tax of 10 percent if the gains exceed Rs 100,000 without allowing the benefit of indexation. However, all gains till 31st January 2018 will be grandfathered and short term capital gains remains unchanged at 15 percent. However, any gains in excess of Rs 20 earned after 31st Jan 2018 will be taxed at 10 percent if this share is sold after 31st July 2018

According to the Economists, Union Budget 2018 has focussed on agriculture and rural economy, health, infra, senior citizens and aims to work towards improving living standard in India.

Image Courtesy: Google
Latin Manharlal Group

Tuesday, 30 January 2018

Indian Economy Back on Track: Economic Survey 2018

Good news is underway for India as its economy is poised to win back its tag of the fastest growing economy in the world. As the disruptions caused by the Goods and Services Tax (GST) and demonetization recede, the economy is on the rebound and is likely to achieve higher growth.
The Economic Survey 2018, an annual report on the health of the economy, tabled by Finance Minister Arun Jaitley in Parliament on Monday pegged India’s GDP growth in 2019 to be between 7 and 7.5 per cent, against 6.5 per cent in the current fiscal to once again become the world’s fastest-growing major economy.

Fuelled by stronger private investment and exports, the recovery forecast for India’s growth rate comes after the country posted its slowest growth in three years in 2017/18.

The slowdown was partly a consequence of the chaotic rollout of nationwide goods and service tax last year and a shock move to take high value currency notes out of circulation in late 2016.

However, the survey cautioned that persistently high oil prices remained a key risk for a country that relies on imports for close to 80 per cent of its fuel needs. There are aspects to the analysis of the ongoing financial year that suggest the Survey has taken an optimistic view of growth. It admitted that in 2017-18, “fiscal deficits, the current account, and inflation were all higher than expected”. Manufacturing was still struggling, with the ratio of factory exports to GDP declining, along with the manufacturing trade balance. And agriculture has not seen an increase in real value added for four years. 

The Survey argued that the government had taken major steps towards resolving the “twin balance sheet” problem, in which indebted companies combined with banks that had a large proportion of stressed assets to reduce the rate of investment. This problem, which the Survey described as the “festering, binding constraint” on growth, had been addressed in the past year by the movement on recognition of stressed assets, a recapitalisation package that amounted to 1.2 per cent of GDP, as well as the implementation of the asset resolution process mandated by the Insolvency and Bankruptcy Code (IBC). 

The Survey indicated that movement on bank reform would aid in the recovery of the investment mechanism, a prerequisite for growth. 

All eyes are now set on Finance Minister Arun Jaitley's speech in Lok Sabha on February 1 when he will present the Union Budget.

Latin Manharlal Group

Friday, 19 January 2018

Budget 2018: What’s on Common Man's Wishlist

With less than two weeks to go before the last regular Budget under the NarendraModi Government, it is expected that the Union Budget 2018-2019 will be populist in nature, trying to satisfy as many as possible. The middle class is waiting with bated breath and will be hoping that the Government fulfills the common man's wish list for February 1.

Let’s look at some of the budget expectations of the common man for this upcoming budget.

Tax slabs revision-With proposals calling for expanding the exemption limit from Rs 2.5 lakh per annum to Rs 3 lakh, many are hoping that Jaitley will deliver this on February 1. Industry bodies have also asked finance ministry to rationalise personal income tax slabs.

Increase in investment in tax-saving schemes- Currently, deduction of a maximum Rs 1.5 lakh is allowed to all individual taxpayers for investing in various tax saving schemes. The common man wants a hike in this limit which will allow individuals to save more and use their savings into capital markets.

Job creation- According to a report, projected figure for unemployment in India in 2018 is 18 million. It's a worrying figure for a government that had promised to create 1 crore jobs after coming to power. The people want to see the government delivering on PM NarendraModi's electoral promises by introducing the country's first National Employment Policy (NEP) in the Budget.

Focus on skill development- The area of skill development needs much attention and the people want Budget 2018 to allocate sizeable funds for skill development aimed at employment. After all, for a growing economy like India, skill development is a vital driver of employment.

Make housing more affordable-With the common man wanting the Government to give interest rates subsidy to first time homebuyers, it will be interesting to see whether budget 2018 would be able to make housing more affordable. Meanwhile, to incentivise home buyers, realtors' body NAREDCO has suggested an increase in the deduction limit of interest paid on home loan by home buyers-from Rs 2 lakh to Rs 3 lakh. The body also wants the Budget to lower the effective GST tax rate for housing under construction houses to 6 per cent.

Increasing minimum wages- With the labour ministry said to be in the process of revising the minimum wage, the traders' bodies are expecting a substantial rise in minimum wages for all the labourers across the sectors. The government is also likely to increase allocations for social security schemes. The activists have sought to increase it to the level of half of the monthly minimum wage notified by the government.

The budget 2018 will be critical for the Government as expectations of the common man are riding high. With various reforms already undertaken, the public now wants to see some positive results. 

Latin Manharlal Group

Monday, 1 January 2018

Flashback 2017: Landmark Economic Reforms Unleashed this Year

The year 2017 has been an important year for the Indian economy in many ways. The incumbent Narendra Modi government has brought in some key economic reforms which have become a talking point all over the world. It has been a mixed year for the government as far as the Indian economy is concerned. While the government has pushed ahead with reforms that it sees as necessary for the good health of the economy in the long run, the short-term impact of the reforms has also been felt in good measure.

The historic year is divided into two equal halves: The pre-GST era and the post-GST era, when at the stroke of midnight on June 30 and July 1, the Goods and Service Tax (GST), the biggest tax reform since independence was launched by then-President Pranab Mukherjee and Prime Minister Narendra Modi from the historic central hall of parliament after a 14-year-long struggle.

The government managed to implement the Goods and Services Tax, touted as the single biggest taxation reform in the country. However, the structural reform came accompanied with pain for trade and industry caught off-gaurd by the rigours of new compliance procedures and translated into the lowest quarterly GDP growth figures under the Narendra Modi government. The large scale inventory clearance had caused an economy-wide slowdown, pulling down overall Gross Domestic Product (GDP) growth to a 13-quarter low of 5.7 per cent in the quarter-ended June. Thereafter, GDP growth raced faster in July-September at 6.3 per cent as companies shrugged off the inventory disruptions. While implementation of GST became a thorny issue, but the tax reform as a whole was welcomed by the industry.

However, the concerns over the GST and demonetisation did little to affect the equity markets, with the Sensex hitting record highs to breach the 34,000 mark thanks to ample global liquidity and rising inflows into mutual funds as the cash economy moved to organised channels after demonetisation. It was also a bumper year for stock market debutants, with as many as 37 initial public offerings raising more than Rs. 71,300 crore.

The other big change was dynamic fuel pricing. Starting June this year, India joined the league of select countries like the US and Australia where fuel prices are revised on a daily basis. The three state-owned oil marketing companies (OMCs) -- Indian Oil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are since rolling-out the daily dynamic pricing mechanism for petrol and diesel. Under the dynamic pricing scheme, petrol and diesel prices are revised on a daily basis in sync with global crude oil prices.

Earlier this year, a steep rise in petrol and diesel prices despite crude prices staying relatively low stirred up a row.

In October this year, the Finance ministry announced a mega Rs. 2.11 lakh crore recapitalisation plan for PSU banks over the next two years. Of the Rs. 2.11 lakh crore recapitalisation plan, FM Arun Jaitley said that Rs. 1.35 lakh crore would come from recapitalisation bonds, Rs. 18,139 crore from the Centre's budgetary funds and the remaining Rs. 58,000 crore would be mopped up from capital market by diluting the government's equity.

The icing on the cake came with the World Bank announcing earlier this year that India had jumped 30 places in its Ease of Doing Business rankings to find itself among the top 100 countries on the list. 

Latin Manharlal Group

Tuesday, 19 December 2017

Bumpy Ride Ahead for Economy as Inflation Accelerates

Rising well above the Reserve Bank of India’s (RBI) medium-term inflation target of 4 per cent, retail inflation accelerated to a 15-month high in November amid the ongoing seasonal surge in vegetable prices and an unfavourable base effect from last year.

According to Central Statistics Office (CSO) data released, retail inflation accelerated to 4.88 per cent in November over the same month last year. CPI Inflation in October had stood at 3.58 per cent, while it was at 3.28 percent in September.

As per the data, the surge in inflation was led by a 22.5 per cent rise in the prices of vegetables. Higher vegetable prices have kept India’s inflation on the rise since July, after hitting an all-time low. Rising oil put further pressure on inflation. Brent crude prices increased 9.1 per cent month-on-month during November. According to analysts, this has affected fuel inflation and spilled over to the transport category.

Adding to the economic woes, the industrial output hit a three month low as it continued to witness a negative trend and fell 2.2 per cent on annual basis in October.

Data showed that subdued performance of mining and manufacturing sectors coupled with a contraction in output of consumer durable weighed on the industrial output. This shows that the turnaround in investment and demand is yet to resume in earnest. The same data last year registered a positive trend of 4.2 per cent. The alarming figures come in the aftermath of the slowed GDP figures earlier this year.

Headline inflation has already breached the central bank’s revised forecast that consumer prices will range between 4.3-4.7 per cent for the rest of the current fiscal. The RBI had held interest rates steady during its December monetary policy warning of upside risks to inflation and marginally increasing its estimates. The central bank noted that the moderation in core inflation, which excludes food and fuel prices, seen in the first quarter, has now reversed. As per Economists, RBI is likely to hit the pause button on interest rates for the remainder of the current fiscal.

Further, the impact of the reduction in GST rates on a number of items may pass through into retail prices and inflation in the coming weeks. However, the continued impact of the HRA revision on housing inflation and elevated fuel prices suggest that the CPI inflation is likely to be in a range of 4.4-4.7 per cent in the remainder of FY2018.

Latin Manharlal Group