December 05 to 11
The Reserve Bank of India announced that the export of software services rose by 10.3 percent, from USD 88 billion in 2015-16 to USD 97.1 billion in 2016-17. The RBI's 'Survey on Computer Software & Information Technology Enabled Services Exports: 2016-17 showed that the main export destinations were United States and Canada, and in Europe, the U.K. was the principal exports destination. The survey collects information on exports, exports of information technology enabled services (ITES) and business process outsourcing (BPO).
Commerce and Industry Minister Suresh Prabhu affirmed at the 11th ministerial conference of the World Trade Organization (WTO) that there must be a permanent solution to public stockholding for food security. The Minister insisted on the importance of a solution that also cover current and future programs of all member countries. According to WTO rules, its members’ food subsidy bills should not surpass the limit of 10 percent of the value of production, based on the reference price of 1986-88. India’s demand for public procurement increased significantly after the National Food Security Act, 2013 was established, which aimed to provide subsidized food grains to approximately two-thirds of its 1.3 billion population. At the Bali ministerial conference in December 2013, India guaranteed that no other country would take legal action if the 10 percent limit were not respected by securing a “peace clause”. The 2017 WTO meetings aim to clarify what will happen with new food programs not covered by the clause, and the extension of this clause. Minister Prabhu reiterated the importance of public stock holding to ensure two square meals a day to millions of poor people, and safeguard mechanisms to protect internal products from the prices of external subsidized products.
Former RBI Governor Y.V. Reddy affirmed that the economy needed two more years to consolidate and return to high growth levels after the GST and demonetization negative shocks. For the former Governor, the 7.5-8 percent levels are unlikely in the next 24 months, as the economy is still recovering from the negative shocks. For the past three years, he affirmed, there was a positive shock caused by the drop in crude prices, which incentivized growth. Now, the economy needs to adjust to the consequences of the stress caused by the GST and demonetization. Reddy affirmed that the positive consequences of these shocks are yet to come, so the growth levels forecasts for the near future are not easy to estimate, nor are they definite.
According to a Reuters poll, India’s retail inflation for November likely exceeded the RBI’s 4 percent target. The cause of the high inflation would be the November seasonal rains that produced an increase in food prices. The poll showed a 13-month high of 4.20 percent in November from October’s 3.58 percent. Rupa Rege Nitsure, economist at Larsen & Toubro, affirmed that some of the fruits and vegetables whose prices increased the most were onions and tomatoes, as well as other perishable commodities. It showed a decrease in the trade deficit from USD 14.02 billion in October to 13.75 billion in November. Another Reuters poll also showed the general impression that the RBI won’t likely change the policy rate until the end of 2018.
As expected, the RBI decided to retain the policy interest rate at 6 percent and to raise the inflation forecast to 4.3-4.7 percent for the rest of the financial year. This decision was motivated by the rise on inflation and crude prices. After reducing the rate by 0.25 percentage points to 6 percent in September, in October the decision was to maintain that rate. This is the second consecutive time that the RBI decides to keep the rate unchanged at 6 percent, the lowest rate in seven years since November 2010. The RBI is concerned that the upward inflation trajectory continues this trend in the near future.
December 01 to 04
For the first time India opposed an e-commerce negotiation at the World Trade Organization (WTO), as the country prefers to keep following the guidelines of the 1998 WTO Work Programme on electronic commerce. The WTO ministerial conference will start on Sunday December 10 in Buenos Aires, Argentina. Some countries want negotiations on opening cross-border digital trade, which India opposes. Reasons for this opposition include that, according to India, some countries do not fully understand the implications of negotiation binding rules so their request is out of context. According to a South American trade envoy, India has the support of more than 90 countries on this demand.
Trade body Cotton Association of India (CAI) decided to protest on December 15 and to go on strike thereafter if the GST council does not resolve the Reverse Charge Mechanism (RCM) issues. Problems such as pending refunds to exporters due to the GST implementation, pink bollworm infestation creating losses to the cotton industry, blockage of ginners funds and some cotton buyers who are not paying the GST are some of the problems that have affected the industry. For this reason, the CAI argues that the RCM should not apply to cotton, otherwise there will be innumerable losses. Producers also believe that it is unfair to be under the RCM while other agri-commodities are not under RCM purview.
The RBI is likely to retain the policy interest rate at 6% this Wednesday, to maintain control on the inflation and to build positive confidence levels. Some experts believe that the upward inflation trajectory will guide this decision as the Wholesale Price Index (WPI) inflation registered an increase from 2.60 percent in September to 3.59 percent in October, and the Consumer Price Index retail inflation for October rose to a 7-month high of 3.58 per cent. If this is the case, the RBI will maintain the rate level as inflations is likely to remain upward in the upcoming months. India Inc. thinks that the RBI should cut the interest rate to reinsure positive confidence sentiments generated by the recent upgrade of the country's sovereign rating by Moody's rating company.
As per November, 10,063 applications have been filed by exporters to get refunds on their GST. The GST Network asks exporters to make sure that the amount to be refunded does not exceed the amount paid in the same month, in order to accelerate the process and avoid rejections. The Central Board of Excise and Customs (CBEC) started the refunds on November for exporters who had paid the IGST and claimed refunds based on shipping bills. According to a statement by Finance MinistryArun Jaitley last week, exporters had claimed refunds of ₹6,500 crore in the first four months of the GST roll-out.
The first post-GST and current government’s budget will likely be presented on February 1st 2018 by Finance Minister Arun Jaitley. The Budget session will begin on January 30 and it will be a Joint Session. Historically, the Budget was presented at the end of February but on 2017, Finance Minister Jaitley presented the Budget one month in advance (February 1st) to ensure that the proposals started applying at the beginning of the fiscal year (April 1), as would happen in the upcoming year. The Union Budget for 2018-19 would be the last one before the 2019 General Elections. Some new classifications might be added in the next budget for those items that were accumulated from GST and there would be also be a divisions for accruals during the April-June period and others for the July-March period for GST and customs duty.