India services PMI expands at fastest pace in 5 months on buoyant demand

Current Affairs
Activity in India's dominant service industry accelerated to a five-month high in December as demand rose at the fastest pace in more than three years, a private business survey showed on Monday.
The findings are likely to provide some relief to markets and spur hopes of an economic recovery in Asia's third-largest economy, which registered its weakest growth since 2013 in the July-September quarter.The Nikkei/IHS Markit Services Purchasing Managers' Index rose to 53.3 in December from November's 52.7, holding above the 50-mark that separates growth from contraction for the second straight month.
"It's encouraging to see the Indian service sector continuing to recover from the subdued performances noted in September and October," Pollyanna De Lima, principal economist at IHS Markit, said in a release."More importantly, the news of sustained job creation, robust new order growth and a pick-up in business confidence suggest that expansion can be maintained in the early part of 2020."
A sub-index tracking new business climbed to its highest since October 2016, encouraging firms to increase headcount.Service providers were more optimistic about growth in the year ahead and international demand continued to rise.A strong service sector is crucial India as it contributes over 60% of gross domestic product. If the momentum can be sustained, it would drive a faster economic recovery.A sister survey on Friday showed factory activity accelerated at the fastest pace in seven months in December on strong domestic demand and output.

Taken together, they pushed the composite PMI, which includes both manufacturing and services, to 53.7 last month from November's 52.7, its highest in five months."With manufacturing sector weakness also fading in December...Read More

Natural rubber production declines, demand-supply gap rises to 45%

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Economy & Policy:

Consumption of natural rubber (NR) rose 12 per cent crossing 10.2 lakh tonne in the period between April 2018 to January 2019, increasing the demand and domestic supply gap to 45 per cent. Alarmed by the shortage of domestic supply, tyre manufacturers have asked the government to reduce the import duty for rubber to less than 10 per cent.

Data from Rubber Board shows that production stood at just 5.6 lakh tonne during April 2018 to January 2019, compared to 5.97 lakh tonne in the same period last year.

The production–consumption gap for the same period of previous fiscal stood at 3.16 lakh tonnes, which has increased to 4.63 lakh tonnes in the current financial year. Industry sources said domestic production was impacted due to the floods in Kerala during the first half of the financial year, and the peak season in October to January also failed to deliver the expected production, resulting in a shortage of natural rubber.

“For the first time, the NR consumption in India has crossed the mark of 10 lakh tonnes in the first ten months of a fiscal year recording an average monthly consumption of 1 lakh tonnes. The commitment of the tyre Industry to increase production footprint in the country needs to be supported by increasing the supply of raw materials otherwise it will leave domestic manufacturing uncompetitive”, said Rajiv Budhraja, director general, Automotive Tyre Manufacturers Association (ATMA).


 NR consumption in India is likely to surpass the projection of 12 lakh tonne made by the Rubber Board for the year 2018-19. With domestic NR production satisfying only 55 percent of the total NR consumption in the country, the dependence on imports for consuming industry has increased by 30 per cent as compared to the previous year...Read More

Govt warning: Twitter execs may get 7 years in jail if it doesn't comply

Economy & Policy:

Top Twitter executives could not only face financial penalties but also face upto seven years in jail if they fail to remove content and accounts that are 'objectionable and inflammatory," Times of India reported quoting an unnamed official from the ministry of information technology.

Twitter has been asked to comply with the provisions under the Indian IT Act or else it would face action under Section 69A of the IT Act which gives the government power to seek the blocking of content or accounts that carry information seen as detrimental to the sovereignty and integrity of the country, or has potential to create public disorder.

The warning from the IT ministry comes just as the micro-blogging site faced the heat from a parliamentary standing committee over perceived biases in blocking accounts ahead of elections.
As India heads for national elections, social media giants like Facebook and Twitter have been asked to not undermine or influence the political process. In fact earlier this week, Twitter went live with its 'Ads Transparency Centre' for India, that would allow people to view details of political advertisements in the country, including advertiser spends and impressions data.

A parliamentary panel last month asked micro-blogging site Twitter to engage more with the Election Commission of India (ECI) ahead of general elections and address issues on a "real-time" basis.
The Twitter officials were told that there should not be any "international interference" in the Lok Sabha polls.


 Twitter had last month announced that it would provide details including advertising spends and impressions data of tweets from political entities to users in India, as it sought to bring in greater transparency on its platform by tightening norms for political advertisements...Read More

Political risks to rate cut, what India's women economists predict for 2019

Economy & Policy:

India’s economy, among the world’s fastest growing, faces risks from a global slowdown and political instability after a national election. That’s the view of the top women economists covering the nation.

Slower growth and benign inflation will boost chances of back-to-back interest rate cuts by the Reserve Bank of India in April, according to the three analysts, who are ranked among the most accurate female forecasters in Bloomberg surveys on growth and inflation. The rankings are based on two years of contributed surveys.

Political risks are also intensifying as tensions with Pakistan mount and Prime Minister Narendra Modi’s re-election bid gets more heated.

Here’s a look at what the economists expect for the rest of the year:

Sonal Varma

Chief India Economist, Nomura Holdings Inc.

Top woman forecaster for quarterly gross domestic product
Growth: Weaker global demand will affect everything from India’s exports to manufacturing, Varma said, while tight financial conditions will hurt domestic demand and political uncertainty will delay investment decisions. She forecast growth of 6.8 percent in the fiscal year starting April versus Reserve Bank of India’s 7.4 percent.


 Interest Rates: “The Reserve Bank reaffirmed its focus towards headline inflation and its willingness to support growth, which suggests the February policy cut was not a ‘one and done’,” Varma said. Based on her assessment of slower growth and inflation remaining below RBI’s projection, she expects another rate cut in April of 25 basis points...Read More

Relief for industry as govt clears air on levy of GST on promotional offers

Economy & Policy:

In a major relief to manufacturers, distributors, marketers and direct sellers of consumer products, the government on Thursday clarified the extent of tax liability and the eligibility of input tax credit on promotional offers such as free samples and “buy one, get one free”.

Industry players were apprehensive about incre­ased litigation from tax audit authorities if they marketed their products as free, beca­use of ambiguity on such offers. Now, the notification by the Central Board of Indirect Taxes and Customs makes it clear that tax would be applicable and input tax credit would be available for the entire package sold, including the free items.

Experts said the clarification will bring ease of marketing and save litigation troubles for the industry, but most importantly for the FMCG and pharma sectors where such offers are common.

In the case of free samples, such as the ones medical representatives of pharma companies provide to doctors, they would not be considered as supply, and would not attract tax.

For offers such as a discount of 10 per cent for a purchase of more than Rs 1,000 and of 20 per cent for a purchase of more than Rs 2,000, the discounted amount would be excluded to determine the value of supply. Such discounts are generally passed on by the supplier through credit notes.


 But this is applicable only when the discount is made clear at the time of supply. When it is provided after the sale, it is termed as secondary discount, the discounted value should not be excluded to calculate the value of supply...Read More

Exports likely to be hit as US moves to end major trade benefits to India

Economy News

Ending months of speculation, the Donald Trump administration has decided to cut benefits to Indian exporters under its Generalized System of Preferences (GSP) scheme.

"At the direction of President Donald J Trump, US Trade Representative Robert Lighthizer announced today that the United States intends to terminate India's and Turkey's designations as beneficiary developing countries under the GSP program because they no longer comply with the statutory eligibility criteria", the United States Trade Representatives office announced late on Monday.

India, having exported goods worth $5.6 billion to the US in 2017-18 under GSP, is the largest beneficiary of the scheme. The GSP is the largest and oldest US trade preference programme designed to promote economic development by allowing duty-free entry for thousands of products, mostly from developing nations.

While Turkey was also been removed from the GSP list on Monday, the USTR came down particularly hard on India. "India has implemented a wide array of trade barriers that create serious negative effects on United States commerce," it said.A long time coming

 Back in November last year, the US President had signed an executive order to end the duty-free status of 50 Indian exports to the US. These included inorganic and organic chemicals, agricultural products like cucumbers and gherkin, and certain types of animal hide. These were part of a global list of 90 items — from a large group of nations including Brazil, Argentina, Thailand, Egypt and Ecuador — for which prevailing rates of import tariff were to be be levied when imported into the US.

Trump move to end preferential trade treatment won't hurt India much: Govt

Economy News

India does not plan to impose retaliatory tariffs on US goods after US President Donald Trump said he intends to end India's preferential trade treatment, a top trade official said on Tuesday.
Anup Wadhawan said the withdrawal of the Generalised System of Preferences for Indian products would have limited impact.

The two countries had been working on a trade package to address each other's concerns, he said.Under the GSP program, India exports $5.6 billion worth of goods to the United States duty-free.
Arguing that New Delhi had failed to assure America that it would provide equitable and reasonable access to its markets in numerous sectors, US President Donald Trump on Monday informed the US Congress about his intent to terminate the designation of India and Turkey as a beneficiary developing country under the Generalised System of Preferences (GSP) programme.

In a letter to the Speaker of the US House of Representatives, Nancy Pelosi, Trump said he was determined that New Delhi had "not assured" the United States that it would "provide equitable and reasonable access" to the markets of India.

"I will continue to assess whether the Government of India is providing equitable and reasonable access to its markets, in accordance with the GSP eligibility criteria," Trump said in his letter, a copy of which was released to the press.


 In a separate letter, Trump also informed the Congress of his intent to terminate the GSP beneficiary designation of Turkey. This was primarily because the economy of Turkey had improved a lot in the last four-and-a-half decades, he said...Read More

Linking PAN with bank mandatory for refunds from March: I-T to taxpayers

Economy & Policy :

The Income Tax Department will "only" issue refunds via the e-mode into bank accounts of taxpayers beginning next month and they should link PAN with their accounts, the taxman said in its latest public communication.

The department said refunds will be sent to bank accounts as it will issue "only e-refunds from March 1, 2019."

Link your PAN (permanent account number) with your bank account toget your refund directly, swiftly and securely, the department said in a public advisory issued Wednesday.
It added the bank account could be either savings, current, cash or overdraft.

Till now, the department used to issue refunds to taxpayers either in their bank accounts or through account payee cheques, in a case-to-case basis depending on the category of taxpayers.

The communication added taxpayers can check if their bank account is linked with their PAN by logging onto the e-filing website of the department-- https://www.incometaxindiaefiling.gov.in
It said those who have not linked their PAN with their bank account should provide it to their home bank branch and also validate this over the e-filing website of the I-T Department.

Recently, the linking of the PAN with the Aadhaar-PAN has been made "mandatory" for those filing an Income Tax Return (ITR) and this procedure has to be "completed" by March 31 this year.

 As per data updated till early this month, the I-T Department has so far issued 42 crore PANs, of which 23 crore have been linked with Aadhaar...Read More

How will Indian economy do in 2019? 'Animal spirits' hint to a tame start

Economy & Policy

India’s economy started the New Year still hungover from the sluggish showing in end-2018, stoking expectations for more monetary stimulus from the central bank.
A set of indicators tracked by Bloomberg to measure “animal spirits” -- a term coined by British economist John Maynard Keynes to refer to investors’ confidence in taking action -- showed weaker indicators outnumber stronger ones 4-3 in January. A pullback in exports and business activity weighed on sentiment.

While India’s inflation-targeting central bank cut interest rates earlier this month to prop up economic growth, Governor Shaktikanta Das kept the door open for more when he noted that “growth impulses have weakened and there is a need to spur private investment and strengthen private consumption.”
While a rates review is scheduled for April, a pulse check for the economy is due later Thursday, when the government will release gross domestic product data for the quarter ended December. As of Wednesday, economists forecast expansion to have slowed to 6.8 percent from 7.1 percent in the previous quarter.

Here’s a breakdown of what the indicators suggest:

Business Activity

The seasonally adjusted Nikkei India Composite PMI Index was unchanged at 53.6 in January. While the manufacturing sector was in robust shape, the dominant services sector, which contributes more than 50 percent of GDP, showed signs of cooling.
A key factor that kept a check on services activity was a softer expansion in new work, with companies noting only a moderate increase in sales.

Exports

On a sequential basis, exports declined in January from a month ago. While shipments grew 3.7 percent on an annualized basis, economists doubt the pick up

 will be sustained as the global economy slows...Read More

RBI removes Allahabad Bank, Corp Bank, Dhanlaxmi from PCA framework

Economy & Policy:

The Reserve Bank of India (RBI) removed three commercial banks – Allahabad, Corporation and Dhanlaxmi -- from the prompt corrective action (PCA) framework. This will allow them to carry on normal business, especially lending.

Early this month, RBI had taken out three public sector banks - Bank of India (BoI), Bank of Maharashtra (Mahabank), and Oriental Bank of Commerce (OBC) out of the framework.
Mumbai-based IDBI Bank, Central Bank of India, Dena Bank, Chennai-based Indian Overseas Bank and two Kolkata-based lenders -- United Bank of India and UCO Bank -- are still under the PCA framework.

RBI in a statement said the Board for Financial Supervision (BFS), in its meeting held on February 26, 2019 reviewed the performance of banks under PCA. BFS noted that the Government of India has infused fresh capital on February 21, 2019 into various banks including some of the banks currently under the PCA framework.

RBI removes Allahabad Bank, Corp Bank, Dhanlaxmi from PCA framework

Two state-owned banks -- Allahabad Bank and Corporation Bank -- had received Rs 6,896 crore and Rs 9,086 crore respectively as capital from the Government of India. This has shored up their capital funds and also increased their loan loss provision to ensure that the PCA parameters were complied with.


 These two banks have also made the necessary disclosures to the Stock Exchange that post infusion of capital, the capital adequacy ratio (CAR), Common Equity Tier 1, Net Non-Performing Assets and Leverage Ratios are no longer in breach of the PCA thresholds...Read More

Explainer: How GST cut on under-construction houses will help home buyers

Economy & Policy:

The Modi government announced a cut in the goods and services tax charged on sales of residential properties under construction as it looks to stimulate the economy by driving up consumption.
The Goods and Services Tax Council, comprising central and state finance ministers, announced that the new rate will be 5 percent, down from 12 percent, on all new housing projects except those that are classified as af fordable housing. The council also decided to slash the tax rate on affordable housing projects to 1 percent from 8 percent.However, builders will not be able to claim input tax credit (ITC) under the new GST rates. The new rates will be applicable from April 1.

The Council also made changes in the definition of affordable housing carpet area and cost. Properties costing up to Rs 45 lakh will now be considered as affordable. Houses with a carpet area of 90 square metre in metro cities and 60 square metre in non-metro cities will be considered affordable, the Council said.

Properties, where the construction has been completed, attract stamp duty, not GST. Hence, ready properties that have received the occupancy certificate (OC) do not attract GST.

What does this mean for home buyers?


 The GST Council’s decision will benefit buyers who are currently on construction-linked payment schemes. Data from property consulting form shows there are 5.88 lakh under-construction homes lying unsold in India's top 7 cities. Of these, 34% are priced below Rs 40 lakh alone. With affordable housing now being defined within Rs 45 lakh budget, more properties qualify for this ‘sweet spot category. The GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range...Read More

Bank credit up 14.5% to Rs 94.29 trn, deposits rise 9.63%: RBI data

Economy & Policy:

The pace of growth in bank credit, as well as deposits, has moderated on a fortnightly basis. While credit grew 14.5 per cent to Rs 94.29 trillion, deposits rose a tepid 9.63 per cent to Rs 121.22 trillion for the fortnight ending February 1, according to the latest Reserve Bank of India (RBI) data. In the fortnight ended January 18, deposits had increased by 9.69 per cent to Rs 119.86 trillion and credit grew 14.61 per cent to Rs 93.32 trillion, the RBI data showed.

The gap between pace of credit disbursal and deposits mobilisation is widening. This would maintain the pressure on deposits rates. According to bankers, these may not soften, even though the RBI reduced policy repo rate by 25 basis points, bankers said.
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The RBI in its sixth monetary policy review said the aggregate bank credit and overall financial flows to the commercial sector continue to be strong but are yet to be broad-based
According to the RBI’s monthly bulletin released in February, the sectoral deployment of bank credit saw a qualitative shift with aggressive lending to the retail segment and in the form of personal loans.

 Credit to industry has gradually gained momentum in 2018-19 so far after a prolonged contraction.

 The pick-up in economic activity has boosted credit demand. However, their lending rates have remained in the shadow of the large pool of bad loans, the bulletin added.

Indigo crisis: India facing pilot shortage; 2,000 more needed this year

Economy & Policy:

The cancellation of over 30 flights by IndiGo has bought the growing shortage of pilots to the fore, especially when airlines are expanding their fleet.
According to industry estimates, more than 100 new planes will be added in the next 12 months, a bulk of which will come from IndiGo alone, currently adding nine planes every month. As a result, around 1,500-2,000 additional pilots will be required in 2018-19 to fly new aircraft and tide over the existing crisis in the cockpit.

Despite more flights in operation, the number of additional commanders being recruited is slowing down. Aviation industry estimates the number of additional commanders recruited by carriers fell by around 10 per cent in 2017-18 over 2016-17. This was despite domestic carriers scrambling for more expatriates to make up for the dwindling pool of qualified home-grown commanders.

According to CAPA Research, the country has over 7,963 pilots and will require an additional 17,000 pilots in the next 10 years, of which 9,000 first officers will be upgraded to commanders.
IndiGo currently has 3,100 pilots on its payroll. The carrier constitutes for 38 per cent of pilots recruited by domestic airlines. It also has a domestic market share of 41 per cent and is planning an aggressive overseas flightpath. It has over 1,250 captains, which effectively constitutes for over 31 per cent of the 4,000 commanders in service.


According to an airline executive, the ballpark figure of five to six commanders and an equal number of co-pilots, or a total of 12 per aircraft, is needed. “It also takes four to five years for a pilot to become a commander,” he said.