October 24 to 31
Besides the government’s effort to fight corruption with demonetization, about Rs. 7,000 crore were deposited in bank accounts during demonetization, and later on withdrawn by 3 percent of the 2.24 lakh companies deregistered for being involved in money laundering. With this information, it is possible to think that the amount deposited was more than the estimated so further data mining is being developed. The Minister of State for Corporate Affairs P.P. Choudhary affirmed that there is still no proof that all the companies were shell companies so data mining is key. The main target of the government is to improve the business environment, according to the minister.
While Prime Minister Modi defends the benefits of the GST, the Congress vice-president Rahul Gandhi describes the system as “badly conceived”. On Thursday October 26, PM Modi stated at the conference on consumer protection that the GST would lead to moderation in prices, benefiting consumers, which include middle and lower classes. He affirms that there will be long-term benefits from the new tax system. Mr. Gandhi, in the other hand, criticizes the administration and affirms that it is “killing the economy” both with the demonetization and a “badly conceived GST”. Gandhi also criticized Finance Minister Arun Jaitley saying that his statements on television to talk about the state of the economy are not realistic as he always say “things are just fine.”
Commerce and Industry Minister Suresh Prabhu will visit Cuba and Panama, and is planning to meet with the trade Ministers of the Association of Southeast Asian Nations (ASEAN). The plan is to promote trade between India and some Latin American countries, and South East Asia. The meeting with Panama and Cuba is scheduled for this week, while the ASEAN meeting is planned for January 2018. The main goal is to diversify commerce, so in the case of Cuba, India is looking for improvements related to the World Trade Organization-level negotiations. Both countries have an international trade of about USD $43.18 million in 2016-17. Regarding ASEAN 12.5 percent of investment flow into India since 2000.
Consumer Protection Law:
Prime Minister Narendra Modi stated in a conference for Consumer Protection on Thursday October 26 that India is in the process of creating a new Consumer Protection Act to promote consumer empowerment. After having consumer protection for 2,500 years in the country, PM Modi affirms that he has been aiming to improve the previous conditions with reforms such as the GST, which allows consumers to see in their receipts the taxes that they are paying, and he will continue doing so with this new Act. The idea of the Consumer Protection Act is to keep an eye on “business practices and requirements of the country.” This law will modify the previous Consumer Protection Act, 1986.
At a press briefing on Tuesday October 24, Finance Minister Arun Jaitley affirmed that the country has strong macro-economic fundamentals. Economic Affairs Secretary S C Garg presented macro-economic information and forecast at the briefing stating that the inflation will not cross the 4 percent limit this fiscal year, the current account deficit will be less than 2 percent, and the foreign exchange reserves are more than USD 400 billion. Fiscal deficit will not change (3.2 percent), growth will recover as the IMF projected a future growth of 8 percent, and the government has already spent Rs 1.46 lakh crore of the Rs 3.09 lakh crore budget for capital expenditure.
October 17 to 23
In a recent report JP Morgan Chase Asia specialist Sajjid Chinoy argued for the government to maintain its monetary and fiscal policies, regardless of the current sloth in growth, as the economy was affected by structural reforms such as the GST and demonetization, which are just transitory shocks. The expert explained that the government had been meticulous in its fiscal discipline so it was not advisable to disregard this front to fight a supply shock that is not permanent. Mr Chinoy stated that the monetary policy should also not change, as inflation had been above the 4% target recently. Mr Chinoy believed that the global growth predicted by the IMF would positively affect India in 2018, giving another reason not to base the current policy on “premature” stimulus.
India-Russia IT Agreement:
India and Russia signed an Information Technology agreement early this month during the GITEX Information Technology Forum in Dubai, to cooperate in cyber security, e-governance and Smart City projects. Both parts agreed that developing infrastructure in India could help implement further projects between the two nations. The project will start by developing a road map. Additionally, Russian cyber security firm Kaspersky affirmed that it will open transparency centers in Asia, Europe and the U.S., for customers, trusted partners and government stakeholders.
According to Federal Revenue Secretary Hasmukh Adhia it will take one year for people to adapt to the Gods and Service Tax (GST). Four month after its introduction, several modifications have been necessary to improve the filling process, including changes in the tax scheme and returns. Still, some changes need to occur to reduce the burden for small and medium companies to achieve better compliance. The next council meeting will occur in November 10. Mr Adhia explained that one year is a plausible term for people to adjust to the new tax system, based on the time it took the VAT sales tax to be accepted, having more opposition that the GST.
On Sunday October 22, PM Narendra Modi defended his government’s policies and asserted that important economic decisions were yet to come, including further reforms. He affirmed that the economy is “on track”; the production of products as natural gas, electricity and coal have increased; new traders are entering the market; more people are registering their GST forms. PM Modi invited traders to join the GST asserting that past records will not be checked when joining. Some of the critiques for the current administration include Congress vice president Raul Gandhi’s concern for the slip in the growth rate to 5.6% in the first quarter of 2017-2018.
A member of PM Modi’s Economic Advisory Council Mr Surjit Bhalla asserted that the government would likely stick to its fiscal deficit target, as it has done in the previous three years. Although the government has already used almost all of its fiscal year’s budget, the tax revenues are less than expected and the economic growth has slowed, the central bank affirms that missing the fiscal target could hurt even more the economic stability due to a high inflation. Bhalla affirms that the GDP growth for this year could be around 6.5% (instead of the central bank’s 6.7% prediction) and the capital investment needed to improve the banking system implementing the Basel III norms will cost India about 1 trillion additional rupees ($15.4 billion).
October 10 to 16
According to Invest India, foreign companies have indicated they aim to invest approximately $85 billion in India in the next five years, potentially creating about 700,000 new jobs. Invest India is the agency leading promotion of India as an investment destination. Invest India’s aim is to attract 200 companies that are not yet in the Indian market, to “achieve a $100 billion target of foreign investment in the next two years.” Some of the companies that plan to invest in the next few years are Chinese companies Sany Heavy Industry ($9.8 billion), Pacific Construction ($5 billion), Dalian Wanda ($5 billion), among others.
Other News: Exports, GST & Inflation
According to the global brokerage company Morgan Stanley India’s economic growth will recover and exports will expand during the September quarter. Robust consumption trends and export growth caused the recovery, as India’s exports were $28.61 billion in September, which is better than expected. Furthermore, a growing import trend shows a healthy growing economy. The GST modifications are aiding with growth as well.
After facing problems with the implementation of the Goods and Service Tax (GST), the GST Council (GoM) has introduced changes in the composition of the tax scheme to ease the filling process. Only 15.50 lakh (hundred thousand) out of 98 lakh companies were registered under the GST regime, so the GoM decided to discuss ways to make the GST more attractive. Some of the businesses with filling problems are restaurants, as the tax is 12% for non-AC restaurants and 18% for air-conditioned ones. The GoM will be discussing the possibility to pass the cost-reduction benefit of AC restaurants to the consumers, or to exclude restaurants from input tax credit claims, the exclusion of turnover of exempted goods in the composition scheme, and manufacturers’ possible benefits such as input tax credit.
The Wholesale Price Index (WPI) inflation registered a fall in inflation from 3.24% in August to 2.6% in September, due to a decrease in food and vegetables prices. In September 2016, the WPI was 1.36%. The correction of vegetable prices such as tomato and the base effect of moderation in inflation for fuel and power caused the stabilization. Nevertheless, the Consumer Price Index, which excludes some commodities, remained unchanged for September at 3.28%, same data as for August.
Fight Against Corruption:
After the implementation of the Aadhaar card scheme, which assigns unique identifying numbers to India’s residents, the architect of this project, Nandan Nilekani, in a speech at the recent World Bank and IMF meetings affirmed that this program helped PM Modi’s government save about USD 9 billion by eliminating fraud. To date the program has enrolled more than 1 billion people and about half a million have linked their bank account to their ID number, easing the cash transfer systems without having duplicates or fake ID problems. Nilekani’s speech encouraged the use of electronic systems as they are paperless and reduce several costs.
Jaitley’s US trip:
During his recent trip to the United States, India’s Finance Minister Arun Jaitley argued that government efforts to boost the economy have helped the expansion of India’s middle class, which will help maintain the path of growth. The Minister visited United States to strengthen the relationship between both countries, as meetings with US Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross. The conversations included trade imbalance between the two countries and the critical issue of H-1B visas. At the end of his 10 days tour, Minister Jaitley spoke at the India Strategic Partnership Forum where he asserted that India’s 300 million middle class made India a very attractive investment destination.
October 3 to 9
Prime Minister Narendra Modi seeks to boost investment in India’s energy market by meeting with CEOs from foreign and local oil companies. These include Russian giant Rosneft, Saudi Aramco, BP, Exxon Mobil, Reliance Industries, Cairn India, among others. The meeting occurred on Monday October 9, and aimed to discuss “exploration and production, processing, transportation and distribution network in oil and gas.” India, the third largest oil importer, wants to reduce dependence on external oil and gas, creating reforms in these sectors.
The international oil company Aramco announced its “mega investment” plan for India. Aramco aims to partner with Indian companies to establish itself in the market, as projections show an increase in oil demands of double the current number of barrels per day and triple the current gas demand by 2024. Aramco would like to become India’s top oil supplier.
Other News: RBI and GST
The Reserve Bank of India decided to retain the policy interest rate at 6%. The monetary policy committee took this decision in order to achieve its medium-term target of 4% inflation, measured by Consumer Price Index (CPI). The inflation path for the rest of the year is considered risky as many factors could impact the economy, some of them being food prices, GST, farm loan waivers, among others. The CPI “edged up sequentially in July and August to reach a five-month high.” The central bank also lowered its economic growth forecast for 2018 from 7.3% to 6.7% due to adverse shocks in the manufacturing sector and the implementation of the GST.
After discussing the Good and Services Tax Network (GSTN) failure to achieve the expected returns to traders within the stipulated dates, the possibility to extendthe return filing deadlines was discussed. In the previous meeting, the GST Council decided to establish October 10 as the GSTR 1 deadline (for sales), October 31 for GSTR 2 (for purchases) and November 10 for GSTR 3 (for sales and purchases with tax liability). Nevertheless, several member states complained that the system was causing problems for traders to file returns and make payments, compromising the ease of doing business.
The GSTN committee met again on October 6, and decided to extend the return filing cycle for MSMEs and to speed up the returns to exporters- GSTR 1. The refunds for July and August were scheduled for October 10 and 18 respectively, and for the rest of the year an exemption would apply. By April 1st an e-wallet will be created for exporters. Businesses are expected to fill a quarterly form instead of a monthly one, with a ceiling of up to Rs 1.5 crore (crore=10 million). The limit of composition scheme was changed to 1 crore. Special conditions apply for other products.
India and the European Union once again failed in their attempt to pick a date to re-start negotiations on a Free Trade Agreement (FTA), after putting conversations on hold in 2013. The first negotiations were the Broad-based Trade and Investment Agreement (BTIA), which started in 2007 and stopped in 2013. Different views regarding free labor mobility, duties for specific products and investment protection have been some of the causes of disagreement between the two parties.