India Economy Update
January 17 to 23
LAURA ALEJANDRA RUIZ-GAONA
After the European Union’s (EU) decision of reducing the maximum permissible residue level of Tricyclazole (fungicide) on rice, India asked Germany to relax the measure, as it would affect the export of the grain. The EU reduced the amount from a 1.0 mg/kg limit to 0.01 mg/kg. India’s Union Minister of State for Agriculture and Farmers Welfare Gajendra Singh Shekhawat met with the Agriculture Minister from Germany at the Global Forum for Food and Agriculture held in Berlin, Germany, where they discussed the topic and the German minister compromised to bring the discussion to the EU. The minister also discussed about some areas of cooperation with Uzbekistan’s Minister for Agriculture, including farm machinery and investment opportunities. Finally, another conversation was arranged with Argentina’s Minister of Agriculture to discuss mutual areas of interest regarding manufacturing technology in the frame of Argentinean Farm Mechanization.
According to the research company CRISIL, the coastal transportation of coal will double to 63 million tons per annum (mtpa) by fiscal year (FY) 2023, from 32 mtpa as of FY 2017. The potential growth is being delayed by congested berths in some ports such as Paradip, where the coal is transported before arriving to the power plants, slowing the transportation capacity. CRISIL estimates that the partial import substitution of import-based power plants and the use of ports in the west coast instead of using only those on the east coast will allow the and additional costal coal volume of 40 to 45 mtpa.
The International Monetary Fund presented its latest World Economic Outlook (WEO) update in the World Economic Forum, held in Davos, Switzerland. The report projected a 7.8 percent growth for India in 2019 being the fastest growing economy, overcoming China’s 6.8 percent growth forecast for the same year. Emerging Asia is expected to grow around 6.5 percent over 2018 and 2019, similar as it did in 2017 when China grew at 6.8 percent while India did it at 6.7 percent. China’s growth is predicted to slow down due to a reduction of the fiscal stimulus. In the upcoming days further discussion regarding India is scheduled in the World Economic Forum.
The credit target will likely be raised to a record Rs 11 lakh crore in the 2018-2019 budget to impulse the agricultural sector. As the government’s priority sector is agriculture, sources affirm that there will be an increase in the credit budget in order to impulse the number of credits intended for agricultural purposes, as farmers tend to borrow from non-institutional sources of credit which borrow at usurious interest rates. To incentivize credits for farmers, the government offers lower interest rates. Instead of the normal 9 percent the government, it provides 2 percent interest rates for short-term farm loans up to Rs 3 lakh at an effective rate of 7 per cent per annum. There is also a 3 percent incentive for those who pay promptly, making it an effective interest rate of 4 percent. If the Up to the moment, those credits and their benefits are available at public sector banks, private lenders, cooperative banks and regional rural banks.
January 10 to 16
LAURA ALEJANDRA RUIZ-GAONA
IDFC Bank and Capital First announced their merging into one entity, with assets under management of Rs 88,000 crore. IDFC aimed to transform into a well-diversified universal bank while Capital First wanted to become universal. The merging company will have 194 branch network and a 5 million customer base. For the agreement IDFC Bank will issue 139 shares for every 10 shares of Capital First.
According to the International Monetary Fund (IMF), after a period of slowdown India is finally recovering its economy growing leadership. The estimated growth for 2017 was about 6.7 percent and the World Bank’s estimates project a 7.3 percent growth for 2018 and 7.5 percent for 2019. The first deputy-managing director of the IMF David Lipton also referred to other countries in Asia such as China, which is providing one-third of global growth and Japan, which has also been growing more than its potential in the past quarters.
The Wholesale Price Index showed that inflation slowed to 4.72 in December compared to a 6.06 percent inflation in November 2017. The index, which measures commodities price changes, showed that the price of some vegetables, eggs, meat and fish decreased, while prices of some fruits, oil and fuel increased.
The World Economic Forum (WEF) ranked India 30th in the global manufacturing index, below China and Japan but above other BRICS countries. The top 10 includes Japan, South Korea, Germany, Switzerland, China, Czech Republic, the US, Sweden, Austria and Ireland. The index cathegorized countries into four groups, those leading with a strong base, those who have a high potential for the future, those who are the legacy with a strong current base but might be in risk for the future and those nascent which are not ready for the future yet. India was classified in the legacy group. It is the fifth larger manufacturer in the world and according to the WEF this sector has grown over 7 percent on average in the last three decades.
Finance Minister Arun Jaitley affirms that the GDP growth is only justifiable if the benefits are evidenced in the farming sector, ensuring that the agricultural sector is a priority for the government. The Minister described the falling prices as the result of higher production, making farmers receive less than the price for their goods. To solve this issue the government decided to use options trading to guarantee the security of farmers in the future.
January 01 to 09
LAURA ALEJANDRA RUIZ-GAONA
India’s 12 major ports reported an estimated growth in cargo traffic of 3.64% from April to December 2017, handling 499.41 million tones (mt). For the same period the previous year, the ports handled 481.87 million tones. The Ministry of Shipping affirmed that the eight major ports that reported an increase were Kolkata, Paradip, Visakhapatnam, Chennai, Cochin, New Mangalore, JNPT and Kandla. Some of the reasons for the increase, as happened in Cochin Ports, were traffic of petroleum, oil and lubricants (24.10%) and containers (10.79%).
The economy in 2018:
India’s economy in 2018 depends on how expenditure is managed. Although the economy seems to be in the path to recovery after the implementation of the GST and demonetization in 2017, the budget is uncertain, as fiscal numbers are tight. Apparently, exports are not declining anymore and growth speed accelerated in the last quarter of the year. Nevertheless, inflation seems to be growing while the debt increases and agriculture still depends on support prices. India is waiting to find if Prime Minister Narendra Modi will choose a reelection campaign based on moderate expenditure or if by contrary there will be a spending bonanza. From this decision depends the future of inflation.
After receiving more than 170 complains about the GST over-charging mistakes, the Finance Ministry is planning to release a standard operation procedure (SOP) to handle large numbers of complains. As per the moment, 50 out of the 170 complains have been transferred to the Directorate General of Safeguards (DGS) for further investigation. Nevertheless, it would not be feasible for the DGS to study a large number of cases in the stipulated three months, so the SOP looks for guidance in order to handle the complains in a timely way. The idea will be to organize a Standing Committee and a screening committee, so that local complains go to the second one while the national ones go to the first one. If the complains are not solved, they would be sent to the DGS. After the case is studied the report will be sent to the Anti- Profiteering Authority, who will decide if any penalty is necessary.
The rise in output of steel and cement caused a growth of the crore sector of 6.8% in November from 5% in October. Commerce and Industry ministry informed that there was a 17.3% increase in cement output and a 16.6% growth in steel output in November, while the same statistics for October were a 1.3% fall and a 8.4 growth respectively. The crore sector, composed by coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity, constitute 40.27% of the total industrial production.
Based on a recent poll developed in Gujarat and upcoming polls, the government might need to redirect its policies towards farm and small business sectors. Nevertheless, the extra expenditure would have repercussions on fiscal deficit so, according to Icra's managing director and chief executive Naresh Takkar, the government might need to relax its targets in the upcoming budget. The expert affirmed that a determined fiscal deficit band would be adequate instead of a fixed number, as pressure is unavoidable. The fiscal deficit target is 3.2 percent and it has already been exhausted by 112 percent.