Indian Economy achieved robust growth rate despite volatility and uncertainty in global economy: FM

arun-jaitleyThe Union Finance Minister Arun Jaitley said that in the First Half of the Current Financial Year 2016-17, the Indian Economy has achieved robust growth rate despite volatility and uncertainty in global economy.

He said that this was made possible by a slew of policy measures undertaken by the present Government including enhanced public investment, kick starting stalled projects, improving the status of financial inclusion significantly among others.

The Finance Minister Jaitley was making the Opening Remarks during his Fourth Pre-Budget Consultative Meeting with the representatives of Indian Trade and Industry Associations/Groups here today.

The Union Finance Minister Arun Jaitley asked the representatives of Business and Trade Sector to increase the private sector spending especially in infrastructure sector. He said that the Government has taken many steps to improve governance by bringing in transparency and efficiency through systematic changes. Jaitley said that the present Government has given greater thrust on fiscal federalism and improving business environment through reforms in policies and regulation among others. Jaitley said that strong macro and micro economic indicators including fiscal fundamentals and follow of fiscal discipline present sound prospects for the Indian economy in future as well.

Various suggestions were received during the aforesaid Consultative Meeting. Major recommendations were as under:

  • Reduction in Corporate Tax and withdrawal of tax incentives which will result in higher collections due to better compliance and will make India an attractive investment destination.
  • Complete elimination or a major reduction in Minimum Alternate Tax (MAT) and higher public investment in infrastructure and social sector.
  • Higher investment in irrigation and rural infrastructure sector as this will increase the spending capacity of the rural people which in turn will create demand for various items and increased economic activity.
  • Increased focus on skill development by focusing more resources on training of trainers’ Programmes.
  • Tax concession to both individual tax payer and Corporate Sector. Minimum exemption limit in case of Personal Income Tax be raised to Rs.5 lakh. After demonetization, since banks will have lot of funds, therefore, interest rate be reduced for manufacturing and other sectors especially for micro, small and medium enterprises.
  • States should levy heavy taxes on industry especially manufacturing sector mainly in higher energy/power charges which make them uncompetitive.
  • Make instrument of cheque more stronger especially after demonetisation by blocking the amount of cheque in the drawer’s account and making amendments in Sec 138 of Negotiable Instruments Act for heavy penalty in case of bouncing of cheques.
  • Measures be taken to revive private sector investment especially in infrastructure sector. Suggestion was made to give infrastructure status to Broadcasting Sector.
  • To give more incentives to promote women entrepreneurs.

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Impact on Output Won’t Last Beyond This Quarter, Says Sitharaman

demonetizationThe impact of government’s demonetization move is too early to be determined as has been done by various institutions, believes the Commerce Minister Nirmala Sitharaman.

Speaking to CNBC-TV18, Sitharaman said that stress in the economy has reduced with currencies now reaching people. “Entire output [industry production] speculation, even if impact is there, it won’t be beyond this quarter,” she added.

Unaccounted money is getting extinguished and in turn, the government’s liability too, is getting extinguished.

Replying to opposition, she said that “government would not want to do something like this so blatantly.”

Sitharaman emphasized that the money collected will be used for India’s higher growth. Development of infrastructure and housing for all will continue to be on the government’s agenda.

Speaking over the weakening rupee, she said that currencies all over have taken a beating in last 1-1.5 years. “Volatility is now becoming a new normal,” she said, adding that factors other than currencies are also impacting trade globally.

Below is the verbatim transcript of Nirmala Sitharaman’s interview to Shereen Bhan on CNBC-TV18.

Q: I will come to demonetization in just a bit but let me ask you about the matter which has been creating headline it is not really a call for concern at this point of in time but that has to do with the volatility that we have seen in the rupee. Now if I were to take a look at the emerging market currency basket and the rupee actually hasn’t depreciated very much, the lira, the peso have depreciated significantly more. I know that the commerce ministries view’s has been weaker rupee in fact would be perhaps beneficial not just for export but for the Indian economy, so what is your view currently on the depreciation on the rupee?

A: It was just a rupee that we are talking about, about depreciated value, yes, going by the principle of economics you would say that will help our exports. However, in the last one and a half year, we have seen globally most currencies fluctuate and the rupee’s fluctuation in a way the point that you have by implication meant, has not really been all that much. That has also been something on which many economists are writing and speaking about the fluctuation of currencies.

The rate at which fluctuation have affected one or the other currency in comparison with the rupee, so eventually the sum and substance of this currency story is the volatility is now becoming a new normal. Not just talking about rupee, of any currency globally, depressed demand, contracting economies, traditional markets being attracted, newer markets slow to rise, so that is the picture in which our exports are trying to find their feet.

Q: Given the fact that you are seeing this currency volatility and you believe that this is not going to be the new normal what is the way that you look at the rupee because if I were to look at estimates and I am just quoting to you one estimate that Deutsche Bank for instance has put out saying that the rupee is likely to breach 70 next year and head to 72.50 by December end to 2017 and I said this is just one estimate what would be the comfort zone for the government what would be beyond the comfort zone of the government. What is the picture as far as you are concerned?

A: Currency is one of the factors on which we will be looking at, but in general when you are trying to rave the export performance, rave it, up you are looking not just at the currency but you are looking whole lot of things.

So, it is going to be combination of factors which will have to work on simultaneously to have any plans for keeping the pace of the revival of exports as it were. So, it is not going to be just rupee which is going to pre-occupy me I will also have to talk about many other ways of supporting our exports so that they become competitive and in a market of this kind of a nature.

Q: The Finance Ministry has said that the RBI will intervene as and when it is appropriate. Would 70 for instance make the government feel uncomfortable? Anything beyond 69 makes the government feel uncomfortable? Do you believe that the RBI would need to step in at that point in time?

A: That is the point. Whether it is 69, whether it is 70, all this is happening with good lot of uncertainty other than on behalf of the currency. So, demand itself is not reviving. So, even if rupee depreciates, will it really give it enough of a headway when you are talking about exports?

So that is the reason why I repeat, it is not just the currency, not just the Indian rupee, but it is also the current phase where the floating is significantly palpable, measurable, gaugeable and therefore, of all countries and also at the rate at which economies and their revivals are happening.

Q: Let me ask you about demonetization. Once again, we have seen parliament being adjourned on account of the oppositions demands as the Prime Minister addressed the Rajya Sabha. But keeping the politics aside, if I were to ask you about the economic impact and once again, whether it is Citi, it is Morgan Stanley, bunch of people have put out various kinds of estimates, the former Prime Minister said that it could impact the GDP to the tune of 2 percent. Let me quote what the Centre For Monitoring Indian Economy (CMIE) had said. They say that the cost of demonetization during the 50-day window till December 30 will be about Rs 1.28 lakh crore. Businesses are expected to pay the biggest price for the demonetization exercise and the immediate impact could be around Rs 61,500 crore. This is just one estimate that has been put out by the CMIE. Does the government have any broad estimates that you can share with us because it has been over a fortnight. The problem that people are faced with is that there is a lack of data from the government in terms of what this exercise could actually cost the economy.

A: At this stage, I would think that it would be too early for me to speak about any figures or numbers with which I can say this is what it is going to be on trade. This is what it is going to be in terms of GDP. But what I would certainly, with a responsibility, be able to say is these 10 days between November 10 and November 20 have seen two different developments.

One is where sectors where there is labour intensive production and difficult to admit, but post Jan Dhan mission of the government, we still hear some exporters tell us that a lot of labourers, migrant workers do not have accounts. As a result of which, payments are still being made in cash and they would want more withdrawal facility over and above what government has put as a ceiling for a week. So that production is not going to be affected.

For me, it is a situation where I have to immediately respond just so that payments are not affected, just so that production is not affected, just so that eventually output does not suffer, export does not suffer.

Q: Has there been and you have had a meeting with the Export Promotion Council. The sense that we get when we talk to textile workers from Surat to Tirupur etc is that there is pain at this point in time. Do you have a sense of whether there has been retrenchment and layoffs across these labour intensive sectors in this past fortnight?

A: That is where I am coming to say that even during that interaction the employers went only that far to say one, please ensure that cash is given to us, greater withdrawal right is given to us and in some sectors particularly textile, weaving and carpet weaving and so on they said because we fear we may not have adequate cash in hand to disperse temporarily we might want not to have the production activity because we may not at the end of the day be able to give the payment.

But, then after meeting with them and soon after a few days we also know the inputs that we are getting from various quarters is that the stress has eased out. Currency is reaching them and therefore equally the worry that was there in the mind should not be any longer going to the extent of having to shut down businesses but even if there is a level of stress they would still be able to pay and keep the workers onboard.

So, I don’t think beyond the 10 days about which we are talking there should be any impact on production itself. So, the pain and the stress recognised, taken onboard and with the easing of currency gradually things will have found a way out by the end of this quarter.

Q: So, you are saying it will last at least a quarter the pain that we are talking about?

A: I am not talking about the pain. The entire output speculation that we are engaging in if output is going to be affected at all even if there is any impact on the output I don’t think it will be beyond this quarter and as regards people who have voiced to me about concerns about having more limits more cash is also going in now and therefore whether we increase the limit or not I know by now there is more currency reaching people.

Q: But have you got some sense from the finance ministry on whether we could expect a relaxation as far as the withdrawal limit is concerned?

A: I have kept giving a lot of inputs and many of them have been responded to. We will see what happens on this.

Q: You said that you can’t give us a number at this point in time but is this two percent an exaggeration, is two percent of an impact on gross domestic product (GDP) an overestimation. This is the former Prime Minister who spoke in parliament and consensus at this point in time if I look at all the reports that are coming from various economists, from brokerages etc is between 1 percent and on the extreme of 3 percent. So, where would you think the impact could be?

Q: You said that you can’t give us a number at this point in time but is this two percent an exaggeration, is two percent of an impact on gross domestic product (GDP) an overestimation. This is the former Prime Minister who spoke in parliament and consensus at this point in time if I look at all the reports that are coming from various economists, from brokerages etc is between 1 percent and on the extreme of 3 percent. So, where would you think the impact could be?

Therefore, for us to conclude on the basis of this 13 because progressively the situation is improving. So, factoring in all that and only after that I would think genuinely can anyone give us an impression of what it will be rather than for us at this time risk a number and that is where I had very clearly said former Prime Minister Dr Manmohan Singh who was a Governor once in RBI, Finance Minister, Prime Minister and he speak on the floor of the house. So, I feel it is too early for anyone to conclude on what will be the number.

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Gave Corrupt No Time To Prepare, Says PM, Pitches For Digital Eco

Narendra ModiPrime Minister Narendra Modi reiterated his pitch for a digital and cashless economy on Friday and said those criticising the government’s preparedness on demonetization were angry as his government gave them “no time to prepare”.

“Everyone has the right to use their money, but the world is changing today. Money is not available physically. We must move towards a cashless economy,” the PM said at a book launch function in Parliament House Annexe in the run-up to Constitution Day on Saturday.

In an apparent dig at opposition leaders who have joined forces against the move, Modi said those criticising the government’s implementation were blindsided as “we didn’t them time to prepare”.

“Those criticising the move don’t have a problem with the government’s preparedness. They have a problem that they didn’t get time to prepare,” the PM said.

Invoking BR Ambedkar on the eve of Constitution Day, the PM said both were inseparable. “Our Constitution has a very special place in our lives. It is important to be connected with the spirit of the Constitution, apart from being aware of its articles and provisions,” he said.

“January 26 is incomplete without November 26,” the PM said.

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Govt should go for a sharp fuel rate cut of Rs 5: Enam

petrol-price-cutDemonetization will be positive for medium to long-term. However, in the short term the impact can be seen on daily-wage worker who probably are now in danger of going below the poverty line, says Sridhar Sivaram, investment director at Enam Holdings.

He says the near-term looks patchy as the cash cleanup is an event which market veterans have never seen before and it is difficult to analyse. There will be demand destruction as some buying was coming from the black economy.

He said the government will gain from this currency ban and make Rs 2-3 lakh crore.

He further said the government should not worry about the fiscal deficit for this year and should focus on reviving the economy faster.

He further said the government should not worry about the fiscal deficit for this year and should focus on reviving the economy faster.

On building a portfolio, Sivaram said the concern in this market is that the earnings expectation is too high.

“Pre-demonetisation, the current fiscal year expectation was 15 percent in earnings and 18 percent on top of that for next year. We were expecting 7-8 percent growth for this year and possibly 10-12 percent for next year. The best way to build a portfolio was bottom-up. That was our startegy and we still keep that,” said Sivaram.

He remains positive on PSU banks post the currency ban.

The bitter boardroom battle between Ratan Tata and Cyrus Mistry is confusing the investors whether to invest in Tata companies or not.

Sivaram says that most investors will take a judgement call related to Tata Group.

Below is the verbatim transcript of Sridhar Sivaram’s interview to Latha Venkatesh, Anuj Singhal & Sonia Shenoy. Latha: How do you handle this demonetisation as a stock market investor? Steer clear of buying or selling at this juncture?

A: This is an event which so many of us who have been in the market for so many years haven’t seen anything like this and this year in particular we have had many of these events starting from Brexit to unexpected victory of Trump and now this. So, there is no precedent to this and it is everybody’s own guess on how you analyse this. So, it is reasonably clear that on a medium to long-term this is very positive because the black money in the system will go down if not completely get eradicated. Tax to gross domestic product (GDP) over a period will go up because we are really talking about stock not the flow because the cash will come back into the system, everybody will do the business the way they were doing. It will take some time for them to generate the black money but in general the disclosure levels will surely go up. So, these are the positives from the medium-term.

The negatives in the short-term is we don’t know what is happening because businesses have stopped and my concern is not on the immediate business stopping but the second derivative impact. Like if paints are not selling, the guy who is actually painting, he doesn’t have the daily wage. So, he is going from the brink of poverty to below poverty. So, those are the issues, it is very difficult for anybody to fathom and to analyse and take a calculated guess on how this will play out. I just gave one example. There are hundreds like this, truck drivers, or an auto rickshaw driver, it can just go on.

The only thing is that as we speak things have improved a lot. Over the last 2-3 days I have gone into the market, things have really improved; people are giving Rs 100 notes back. So, this is city. I don’t know how it is in the rural and in the small town. So, I really can’t extrapolate this. So, that is the short-term pain but surely over the medium to long-term this will have significant impact and of course there is a lot written about the gain that the government will make, how much it will be, whether Reserve Bank of India (RBI) can pass it or not time will tell but surely 2-3 trillion is what is expected the government can make and that can be utilised over a period of time.

Anuj: But in the near term there are some people calling for doomsday scenario, some calling for de-growth as well in the economy. Do you see risk of that and if that is the case do you see more pain in the near term for the market?

A: It is possible. It is very difficult to predict with the very near term because we are hearing numbers that sales have fallen by 50 percent; sales have fallen by 60 percent. The question is how fast this does — it is just two weeks now since demonetisation and we are seeing some improvement — he question is how fast this stabilises and we assume that one quarter is a write off and maybe even the next quarter is more or less a write off. The question is can we come back to even 70 percent of previous starting next year and then we move forward. There will be some demand destruction because some of the demand was coming due to the black economy. So, it will take time for it to come back into the system. So, even next year is going to be tough. So, if structurally we think about it this is positive. Yes, near term it is very patchy, really very difficult to analyse.

Sonia: From market’s point of view what impact do you think this could have on the fiscal because higher disclosure should lead to increase tax collection. But on the other hand if the economy slows down markedly then that could hamper tax growth. So, do you think it would become tough for the government to meet that FY17 fiscal deficit target?

A: My view is slightly counterintuitive. I think the government needs to give a fiscal stimulus right now because this is an unprecedented event and we know that the economy is slowing down. Fortunately for us the inflation numbers are quite benign and we are going to fall further. So, we do expect a 50 bps cut coming in December from RBI combined that with a fiscal stimulus, whichever way, you cut excise duty, petrol prices have to be drastically cut by Rs 5 or something like that to just give a booster to the economy because we are seeing a shock and you need something to neutralise it. It will have some impact on fiscal for this year but it is highly probably that some part of it is mitigated by one-off gains. So, these are calculated risks the government has to take. I am sure even they didn’t anticipate these sort of reactions but I would really hope that they act together, which is the monetary and the fiscal, acts together and not be so bothered about the fiscal deficit for the rest of this year because you will get some one-off gains next year and if you can revive this economy faster than just allowing it to revive the way it is which is slow and steady. It may be a bit too late. As I said it is a counterintuitive way of thinking that you actually increase the fiscal to get over this problem.

Latha: You are actually part of a fairly large group of people that believe that fiscal stimulus should come. What is different in what you are saying is that a lot of people were hoping for a large investment by the government if it got a large dividend or some such one-offs. But we had a Credit Suisse report which said that government appears to have lost its ability to spend. Road contracts after coming in thick and fast have started petering out. The bandwidth of the government to spend right down to the last bureaucrat has weakened according to that report. So, if it comes in the form of petrol price cuts then that is more market oriented and consumption oriented.

A: That is the easiest way of transferring wealth because the guy who uses a tractor to an auto rickshaw driver to a middle class family everybody benefits. And it flows immediately. You cut Rs 5 the entire economy benefits day one. There is nothing better than that because they have created a war chest because they have actually increased it, they have increased at least Rs 16 or 17 absolute over the last two years, so they have some cushion. It will lead to some strain on fiscal but these are times where even the rating agencies would take cognisance of that because India has had significant improvement in macro and we have not seen any change in the rating agencies stance. So, I don’t see because of this and if the fiscal goes up a bit knowing fully that you do have one off gains next year which can offset this is something which the rating agency should take cognisance, this is my guess, I don’t have any reach to them.

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