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

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

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