Monthly Economic Report September 2016 British High Commission

SUMMARY

 GST Council now in action  New Governor, Monetary Policy Committee – Policy rate at 6 year low  Fiscal Deficit Update  Budget in Feb as opposed to March. Rail budget scrapped  Fiscal Deficit Update GST Council Now In Action

India's fiscal deficit in the April-August The Cabinet approved the creation of GST council and its period touched 76.4% of Budget estimates secretariat, after receiving the assent on GST Constitution Bill for fiscal 2016-17 as against 66.5% of from the President. The GST Council is a joint forum of the Budget in the same period last year. The Centre and the States. The big issue facing the council is high deficit during these months is said to determining the tax rates and to strike a balance between be the result of front loading of spending protecting tax revenues while arriving at a rate that does not such as on recommendations of seventh hurt the common man. Besides the rates, dual administration pay commission, to alleviate rural distress between the states and the centre will be one of the most etc. and a shortfall in non-tax revenues. contentious issues. The council is to give its recommendations on the tax rate and other provisions within 60 days. According to the consolidation plan, it is planned to achieve an ambitious fiscal With the GST Council slated to take vital decisions during its deficit target of 3.5% of GDP, from 3.9% coming meets, the government appointed Mr Arun Goyal as last year. Additional Secretary of the pan indirect levies' apex body. The Council which is headed by Union Finance Minister Arun Six months into the fiscal, the government Jaitley includes representatives of all the 29 states and 2 union has collected 52.5% of the budgeted territories. indirect taxes and 40% of direct taxes. However, to meet fiscal targets, the The first meeting of the newly constituted GST Council saw response to the government’s ambitious states like Tamil Nadu and Uttar Pradesh demanding a larger telecom spectrum auction (only 40% sale) is say than one-state-one-vote principle that puts a smaller state likely to impact fiscal balances. While on equal footing with a large manufacturing one. While their demand was overruled, consensus also eluded in the meeting central excise net collections jumped by over the issue of exemption to dealers from the GST. The GST 46.3% to £22.4bn during April-September council finalized the revenue threshold levels below which from £15.3bn in the year-ago period and traders will be exempted from levy of GST. recoveries from the income declaration scheme should also help, pressure from It was decided that all assessees with annual revenue below lower inflows of non-tax revenues continue. £25,000 will be exempted from GST. The threshold is £12,500 for 11 special category states — the north-eastern and the hill Finance Ministry claims that any shortfalls states. Further, the council also finalized the revenue levels for will be made up by collections under the a taxpayer to opt for the compounding scheme. Small traders recently concluded black money disclosure with revenues of £25,000 - £60,000 can pay a flat tax and do scheme. The black money scheme is away with unnecessary paperwork. The second meeting of the expected to fetch £1.8bn in the current GST Council agreed on five subordinate legislations dealing with issues ranging from registration to invoicing under the financial year and hasn’t been accounted for new GST regime. in the budget, which will be available to fill any gaps. So far the government’s Discussions on service tax assessment and the formula for disinvestment flows have been robust with calculating compensation to be paid to states (in case of nearly £2.8bn already raised against the revenue shortfall as an outcome of the GST regime), would be budgeted £6.9bn. With a number of taken up at the next meeting on October 18-20. Also decision companies lined up for strategic on the important GST rate, the government is targeting disinvestment stake sale such as SUUTI November 22 for completing major work on deciding tax rate, (Specified Undertaking of the Unit Trust of exemptions and draft legislation by the Council.

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Monthly Economic Report September 2016 British High Commission New Delhi

India) set to kick off soon, the disinvestment target looks achievable for the first time. New Governor, Monetary Policy Committee – Policy rate at 6 year low

The newly constituted MPC (Monetary Policy Committee), under the latest regime, unanimously voted to cut the benchmark policy rate by 25 basis points. This time RBI () Governor Urjit Patel in his maiden monetary policy review brought the policy repo rate at 6 year low to 6.25%. The capital markets welcomed the rate cut; with indices registering an uptick as soon as the policy statement was released. Good monsoons this year has helped bring down food prices, helping consumer price inflation to fall to 5% in August – well within the RBI’s target range of 2%-6%.

The MPC appointed by the government – includes three non-RBI members: Pami Dua, Director of the Delhi School of Economics; Chetan Ghate, a professor at the Indian Statistical Institute; and Ravindra Dholakia, a professor at the Indian Institute of Management, Ahmedabad. The other three members are Patel, R Gandhi - RBI deputy governor, and Michael Patra, an executive director at the . Patel can give the deciding vote, in case of a tie among the members.

Budget in February as opposed to March, Rail budget scrapped

The government will not present a separate rail budget from the next financial year. The Cabinet approved the merger of the rail budget with the general budget along with an in-principle agreement to advance the presentation date of the budget in Parliament from the usual last working day of February. Ending a 92-year-old practice, the amalgamated rail budget and general budget will be announced together in the first week of February (depending on state polls).

Monthly Economic Report September 2016 British High Commission New Delhi

GROWTH: Core Sector growth slips to 5-month low at 2.8% GDP Projects Under Implementation IIP/Capital/Consumer Goods

GDP Industry Services 9 IIP [Left] Capital goods Consumer goods 14 8 12 30 7 10 12 20 6 8 10 5 6 10 8 4 4 0 6 3 2

4 2 0 -10 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 2 1 -2 -20 0 -4 0 Jun-14 Feb-15 Oct-15 Jun-16 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 -1 -6 -30

INFLATION: Food Inflation at 22-month high 7.8%, Consumer Price Inflation at 5.76%

Wholesale Price Index (% y/y) Food vs. Core Inflation (% y/y) Consumer Price Index (% y/y) 12 Food Inflation Core Inflation [Right] 6.0 10 25 10 5.5 8 20 8 5.0 6 15 6 4 4.5 2 10 4 4.0 0 5 2 Feb-11 Oct-11 Jun-12 Feb-13 Oct-13 Jun-14 Feb-15 Oct-15 -2 3.5 0 0 -4 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 3.0 -5 -2 -6 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16

MARKETS: Volatile capital and foreign exchange market due to global economic implications SENSEX USD/INR 10yr Govt. Securities yield (%)

31000 67 8.2 29000 66 8.0 27000 65

25000 64 7.8 23000 63 7.6 21000 62 19000 7.4 61 17000 60 7.2 15000 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 59 7.0 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16

EXTERNAL: FIIs trim exposure FDI ($ Bn) FII ($ Bn) Current vs. Capital A/c ($ Bn) 6 10 Current account balance ($ bn) Capital Account Balance

8 40.0 5 30.0 6 4 20.0 4 10.0 3 2 0.0 2 Dec-09 Aug-10 Apr-11 Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 0 -10.0 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 1 -2 -20.0

-30.0 0 -4 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 -40.0

TRADE: Imports improved y/y while Exports maintain upward trend Export/Import Growth (% y/y) Imports- Oil and Non Oil (% y/y) Trade Balance ($ Bn) -4 30.0 Imports Exports Petroleum crude & products imports Non-Oil items imports Jun-14 Feb-15 Oct-15 20.0 60 -6

40 10.0 -8 20 0.0 -10 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 0 -10.0 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 -12 -20 -20.0 -14 -40 -30.0 -16 -60

-40.0 -18 -80