IMF sees growth cooling to 6% in second half of FY17

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India’s economic growth would slow to about six per cent in the second half of this financial year (October-March) due to demonetisation, against 7.2 per cent in the first half, the International Monetary Fund (IMF) said on Wednesday.

India’s representative in IMF Subir Gokarn said the growth projections came at a time when hard data was unavailable. He described the assessment as “unduly pessimistic”. In the medium term, however, the IMF is hopeful that implementation of the Goods and Services Tax could raise India’s growth rate to more than eight per cent.

The Fund said the cost of recapitalising public sector banks would be affordable even under a negative scenario. In a report on India, the IMF said growth would gradually rebound in 2017-18.

In January, it had cut India’s growth estimate to 6.6 per cent for 2016-17 due to the note ban, against 7.6 per cent estimated earlier. Growth was estimated to be 6.2 per cent in the fourth quarter of the financial year.

Taking both the estimates into consideration, the IMF said, third quarter growth might fall below six per cent.

The Central Statistics Office will come out with the third quarter gross domestic product (GDP) data and the revised advance estimates on the coming Tuesday. Its first advance estimates had shown economic growth at 7.1 per cent in 2016-17, against 7.6 per cent the previous year. The office had not taken into account the effect of demonetisation.

Commenting on IMF’s revision of growth rates, Gokarn said, “While we do not question the methodologies used to revise the estimates, the fact is that there isn’t very much hard data to base the revisions.” He said different assumptions about the impact would obviously lead to different conclusions. While virtually all forecasters have revised their projections for 2016-17 downwards, the range was relatively wide, he added.

To buttress his points, Gokarn said the World Bank and the Asian Development Bank have pegged growth at seven per cent, after accounting for change in the currency policy. The authorities’ estimate was 7.1 per cent. IMF directors supported India’s efforts to tackle illicit financial flows, but noted the strains that have emerged from the currency exchange initiative. They called for action to quickly restore the availability of cash to avoid further payment disruptions, and encouraged prudent monitoring of the potential side-effects of the initiative on financial stability and growth.
On tackling India’s $130 billion in stressed loans, the IMF said “recapitalisation costs should be manageable” at between 1.5 and 2.4 per cent of the GDP forecast, according to Reuters.

Of that, the government’s share would be between 1.0 and 1.6 per cent of GDP over the four years to March 2019, assuming 40 per cent of the loans have to be provided against. “It’s very positive that both the Reserve Bank of India (RBI) and the government are putting a shared focus on addressing the balance-sheet problem,” IMF Resident Representative Andreas Bauer told a conference call.

The chief economic advisor, Arvind Subramanian, on Wednesday backed a call by the RBI to set up an institution similar to “bad bank”, saying urgency was needed to address troubled loans weighing on the banking sector.

In a special report on corporate and banking sector risks in India, the IMF said recapitalisation costs would be “significantly higher if there is a policy shift to more conservative provisioning requirements”.

In case of a rise in the provisioning ratio to 70 per cent, cumulative recapitalisation needs would increase to 3.3-4.2 per cent of forecast GDP in the financial year to March 2019, with a government share of 2.2-2.8 per cent, the IMF said.

The IMF said with temporary demand disruptions and increased monsoon-driven food supplies, inflation was expected at about 4.75 per cent by early 2017— in line with the Reserve Bank of India’s inflation target of 5 per cent by March 2017.

The Fund said domestic risks flow from a potential further deterioration of corporate and public bank balance sheets, as well as setbacks in the reform process, including in GST design and implementation, which could weigh on domestic demand-driven growth and undermine investor and consumer sentiment.

On the upside, IMF said larger than expected gains from GST and further structural reforms could lead to significantly stronger growth; while a sustained period of continued-low global energy prices would also be very beneficial to India.

Source: http://www.business-standard.com/article/economy-policy/imf-sees-growth-cooling-to-6-in-second-half-of-fy17-117022300100_1.html

India knocking at rare club of fast, steady growth economies says Edelweiss

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There are only 28 episodes ever when countries grew at over 6 per cent for 8 years or longer, Edelweiss Securities said in a research note, adding India is entering this rare club.

Indian economy is becoming more efficient through five broad themes — fast and steady rate of growth, market reforms, expanding digital footprint, revival in rural growth and creation of modern infrastructure, says a report.

 

Indian economy is becoming more efficient through five broad themes — fast and steady rate of growth, market reforms, expanding digital footprint, revival in rural growth and creation of modern infrastructure, says a report. “India is growing at a fast pace, largely driven by efficiency gains in doing business, tax collections, infrastructure and rural economy,” it added. There are only 28 episodes ever when countries grew at over 6 per cent for 8 years or longer, Edelweiss Securities said in a research note, adding India is entering this rare club. On landmark reforms, the report said while GST can increase highly productive formal organised employment, bankruptcy code can enhance liquidation and better utilisation of assets. Moreover, there has been a marked improvement in global competitiveness among major emerging markets and 90 per cent of FDI is now coming through the automatic route, replacing hot money, it added.

Regarding digital India, it said that apart from gains from extinguished liability, the real effect of demonetisation has been a repair of banks’ balance sheets and an increase in digital transactions.

An efficient rural India means higher rural income, which in turn would lead to large increase in discretionary spend hence stronger growth in India.

Edelweiss Securities further noted that equities are cheap relative to bonds.

“A comparison of Nifty’s earning yield vs the 10-year government bond yield shows that equities are currently very cheaply priced as compared to debt instruments and we should expect a shift in the allocation of funds from debt to equity,” it said.

The broader market is also showing bullish prospects.

“The number of stocks hitting 52-week highs are rising steadily and the total market cap of all NSE listed stocks (above 200 cr MCAP) is also at a new all-time high; suggesting strong momentum in broader market,” it said.

Source: http://www.financialexpress.com/economy/india-knocking-at-rare-club-of-fast-steady-growth-economies-says-edelweiss/552425/

Union Budget 2017: Economic Survey says reforms to power India potential growth

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India’s economy could grow at 6.5-6.75% in the current financial year and might not gather significant momentum next year but that doesn’t warrant a fiscal/monetary easing, according to Economic Survey 2016-17 tabled in Parliament on Monday. Projecting a 0.25-0.5% demonetisation-induced reduction in the FY17 gross domestic product (GDP) growth relative to the 7% annual expansion the country would have otherwise reported, the survey cautiously estimated FY18 growth within a broad low-equilibrium range of 6.75-7.5%.

A clutch of states in India have suffered from an “aid curse” — that is, a negative effect on redistributive resource transfers on fiscal effort and governance quality — the survey noted and invited a debate on universal basic income (UBI) for households in these states.

Direct UBI transfers to the households could be a more efficient way to reduce poverty, cementing the recent gains in redistributive efficiency through the JAM (Jan Dhan, Aadhaar and mobile) platform, the authors of the survey felt, but they cautioned against UBI implementation until the tax-GDP ratio showed tangible rise.

“There is a big potential to improve the weak targeting of current (anti-poverty) schemes,” chief economic adviser Arvind Subramanian said, amid rumours that Wednesday’s Union Budget might launch a pilot UBI.

According to the survey, the short-term effect of the note ban on the economy will be less adverse than many others predicted: The International Monetary Fund (IMF), for instance, saw a 1 percentage point growth reduction in FY17; the Reserve Bank of India had pegged a 0.5% loss in growth. The IMF, Subramanian said, relied on an “over-optimistic baseline”.

Given that growth was 7.2% in the first half of this fiscal and the survey assumption is against the baseline scenario of around 7% FY17 growth, the forecast is that second-half growth, at worst, could be around 6%.

This is still a bit more optimistic than what many independent analysts prognosticated — Morgan Stanley Research, for instance, put H2 FY17 growth at 5.5%.

However, the survey appreciated the limitation of capturing informal activity in the national income data, suggesting the pain of note recall might have been more severe. A set of structural reforms could take the economy towards the potential real GDP growth of 8-10%.

As for FY18, exports, which are “recovering”, based on an uptick in the global economy — the IMF has projected global growth to rise to 3.4% in 2017 from 3.1% in 2016 — would be a significant growth driver, the survey said, but admitted that the outlook for private consumption was less clear (oil prices are a potential drag while low interest rates might help a smart recovery in spending on housing and consumer durables). It also said candidly that given the sticky TBS or twin balance sheet problem, private investment was unlikely to recover from the FY17 level (fixed investment, according to the central statistics office, declined 0.2% this fiscal and investment as a share of GDP is now seen at 29%, down 5 percentage points from FY12). Demand-driven remonetisation, a push to digital payments using incentives, bringing land and real estate into the goods and services tax (GST) net, lowering tax rates and stamp duties and improving the tax system would help take growth back to trend in FY18, it said. However, the threat of trade tensions among major countries prevailed, especially given the Trump administration’s proclivity to step into a protectionist groove.

Giving the fiscal outlook for the Centre, the survey warned that the increase in tax-GDP ratio of about 0.5 percentage point each in the last two years owing to the oil windfall would disappear in FY18: “Excise-related taxes will decline by about 0.1 percentage point of GDP, a swing of about 0.6 percentage points relative to FY17,” it said. According to Crisil Research, about a third of the likely excise revenue of Rs 2.3 lakh crore in FY17 could be ascribed to excise duty increases on petroleum products. There would be windfalls from cessation of the RBI’s liability with respect to demonetised banknotes not returned to banks and the new income disclosure scheme PMGKY. Revenue potential from GST could, however, take some some time to be fully exploited.

While a committee on fiscal consolidation is believed to have recommended some well-defined escape clauses to provide the fiscal support to consumption and investment in the near term, the survey noted that primary balance (obtained after netting interest payments from the fiscal deficit) needed more attention. “The vulnerability is the country’s primary deficit… Put simply, India’s government is not collecting enough revenue to cover its running costs, let alone the interest on its debt obligations.” Although the survey noted that there was nothing extraordinary about this (other emerging market economies too run primary deficits), given India’s rapid rates of growth, its primary deficit should have been much lower than others.

This is still a bit more optimistic than what many independent analysts prognosticated — Morgan Stanley Research, for instance, put H2 FY17 growth at 5.5%.

However, the survey appreciated the limitation of capturing informal activity in the national income data, suggesting the pain of note recall might have been more severe. A set of structural reforms could take the economy towards the potential real GDP growth of 8-10%.

As for FY18, exports, which are “recovering”, based on an uptick in the global economy — the IMF has projected global growth to rise to 3.4% in 2017 from 3.1% in 2016 — would be a significant growth driver, the survey said, but admitted that the outlook for private consumption was less clear (oil prices are a potential drag while low interest rates might help a smart recovery in spending on housing and consumer durables). It also said candidly that given the sticky TBS or twin balance sheet problem, private investment was unlikely to recover from the FY17 level (fixed investment, according to the central statistics office, declined 0.2% this fiscal and investment as a share of GDP is now seen at 29%, down 5 percentage points from FY12). Demand-driven remonetisation, a push to digital payments using incentives, bringing land and real estate into the goods and services tax (GST) net, lowering tax rates and stamp duties and improving the tax system would help take growth back to trend in FY18, it said. However, the threat of trade tensions among major countries prevailed, especially given the Trump administration’s proclivity to step into a protectionist groove.

Giving the fiscal outlook for the Centre, the survey warned that the increase in tax-GDP ratio of about 0.5 percentage point each in the last two years owing to the oil windfall would disappear in FY18: “Excise-related taxes will decline by about 0.1 percentage point of GDP, a swing of about 0.6 percentage points relative to FY17,” it said. According to Crisil Research, about a third of the likely excise revenue of Rs 2.3 lakh crore in FY17 could be ascribed to excise duty increases on petroleum products. There would be windfalls from cessation of the RBI’s liability with respect to demonetised banknotes not returned to banks and the new income disclosure scheme PMGKY. Revenue potential from GST could, however, take some some time to be fully exploited.

While a committee on fiscal consolidation is believed to have recommended some well-defined escape clauses to provide the fiscal support to consumption and investment in the near term, the survey noted that primary balance (obtained after netting interest payments from the fiscal deficit) needed more attention. “The vulnerability is the country’s primary deficit… Put simply, India’s government is not collecting enough revenue to cover its running costs, let alone the interest on its debt obligations.” Although the survey noted that there was nothing extraordinary about this (other emerging market economies too run primary deficits), given India’s rapid rates of growth, its primary deficit should have been much lower than others.

Source: http://www.financialexpress.com/budget/economic-survey-2017/union-budget-2017-economic-survey-says-reforms-to-power-india-potential-growth/531664/

With GST on its way, India rises to second spot on global biz optimism index

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India improved its ranking by one spot in a global index of business optimism, with policy reforms and Goods and Services tax (GST) expected to become a reality soon, says a survey.

According to the latest Grant Thornton International Business Report, India was ranked second on the optimism index during the third quarter (July-September 2016).

Indonesia took the top spot, with the Philippines coming in third.

India was ranked third during the April-June period after being on top for two consecutive quarters.

“The improvement in the optimism ranking in the recent past clearly reflects that the reform agenda of the government and its efforts on improving the climate for doing business are having an impact,” Grant Thornton India LLP Partner – India Leadership Team Harish H V said.

High business optimism was also complimented by the rise of employment expectations. India regained its top position on this parameter, from second position in the April-June period, while profitability expectations also moved up.

“…all the programs and initiatives of the government as well as its focus on building relationships with all major economic powers has made India a bright spot in the global economy,” Harish said, adding the recent push for GST augurs well and should give a further boost to business optimism.

While India continues to be amongst the top five countries citing regulations and red tape as a constraint on growth, for the first time in the year, the country’s ranking on this parameter has dropped from second to fourth.

As per the survey, 59 per cent of the respondents have quoted this as an impediment in the growth prospects compared to 64 per cent in the previous quarter.

The report is prepared on the basis of a quarterly conducted global business survey of 2,500 businesses across 36 economies.

Meanwhile, in terms of revenue expectations, India slipped to third position from top in the previous quarter.

In spite of the downturn, India is much ahead of China where only 30 per cent respondents expect an increase in revenue, whereas in India, 85 per cent respondents have voted in favour of increasing revenue.

The survey further noted that 68 per cent of respondents have voted for an upsurge in selling prices. On this parameter too, China lags India with only 10 per cent of respondents expecting an upsurge in selling prices. The global average is 19 per cent.

Globally, business optimism stands at net 33 per cent, rising 1 percentage point from the previous quarter but falling 11 percentage points over the year.

“Political events such as Brexit and the US presidential election understandably rattle the global economy and test the resilience and elasticity of businesses worldwide. In general, businesses do not like uncertainty, and that is what is happening,” Grant Thornton Global CEO Ed Nusbaum said.

Source : http://economictimes.indiatimes.com/articleshow/55277143.cms

 

With GST on its way, India rises to second spot on global biz optimism index

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High business optimism was also complimented by the rise of employment expectations. India regained its top position on this parameter

India improved its ranking by one spot in a global index of business optimism, with policy reforms and Goods and Services tax (GST) expected to become a reality soon, says a survey.

According to the latest Grant Thornton International Business Report, India was ranked second on the optimism index during the third quarter (July-September 2016).Indonesia took the top spot, with the Philippines coming in third.

India was ranked third during the April-June period after being on top for two consecutive quarters.

“The improvement in the optimism ranking in the recent past clearly reflects that the reform agenda of the government and its efforts on improving the climate for doing business are having an impact,” Grant Thornton India LLP Partner – India Leadership Team Harish H V said.

 

High business optimism was also complimented by the rise of employment expectations. India regained its top position on this parameter, from second position in the April-June period, while profitability expectations also moved up.

“…all the programs and initiatives of the government as well as its focus on building relationships with all major economic powers has made India a bright spot in the global economy,” Harish said, adding the recent push for GST augurs well and should give a further boost to business optimism.

While India continues to be amongst the top five countries citing regulations and red tape as a constraint on growth, for the first time in the year, the country’s ranking on this parameter has dropped from second to fourth.

As per the survey, 59 per cent of the respondents have quoted this as an impediment in the growth prospects compared to 64 per cent in the previous quarter.

The report is prepared on the basis of a quarterly conducted global business survey of 2,500 businesses across 36 economies.

Meanwhile, in terms of revenue expectations, India slipped to third position from top in the previous quarter.

In spite of the downturn, India is much ahead of China where only 30 per cent respondents expect an increase in revenue, whereas in India, 85 per cent respondents have voted in favour of increasing revenue.

The survey further noted that 68 per cent of respondents have voted for an upsurge in selling prices. On this parameter too, China lags India with only 10 per cent of respondents expecting an upsurge in selling prices. The global average is 19 per cent.

Globally, business optimism stands at net 33 per cent, rising 1 percentage point from the previous quarter but falling 11 percentage points over the year.

“Political events such as Brexit and the US presidential election understandably rattle the global economy and test the resilience and elasticity of businesses worldwide. In general, businesses do not like uncertainty, and that is what is happening,” Grant Thornton Global CEO Ed Nusbaum said

Source: http://economictimes.indiatimes.com/articleshow/55277143.cms

 

Assam gets off the block with GST registration

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The BJP-ruled Assam, the first state to ratify the GST Amendment Bill, has started the process for providing registration to taxpayers in the new indirect tax regime that is slated to kick in from April next year.

The state tax department has started collecting mobile numbers and e-mail IDs of registered dealers or taxpayers under VAT, CST, entry tax, luxury tax and entertainment tax to provide Goods and Services Taxpayers Identification Number (GSTIN) on a provisional basis.

In order to facilitate communication of GST registration number to the existing registered entities, the Assam tax department has asked them to furnish the mobile number and email ID on or before November 5, 2016.

“If such mobile numbers and e-mails IDs are not furnished on or before November 5, 2016, GST registration number will not be generated.

Moreover, such dealers will be disabled to upload their tax returns and apply for statutory forms under the existing Acts,” it said. It has asked the taxpayers to log into the tax department website of the Assam government and after feeding the mobile number, PAN and e-mail ID, the provisional GSTIN will be sent.

The government plans to roll out GST, which will subsume excise, service tax and other local levies, from April 2017. In the run-up to the biggest indirect tax reform, the states have to get their taxpayers registered with the pan-India GST Network, which will help in seamless movement of goods and services throughout the country.

After the GST Constitutional Amendment Bill was passed by Parliament on August 8, Assam was the first state to ratify it on August 12.

A constitution Amendment requires ratification by 50 per cent of state Assemblies before presidential assent.

With the President approving it last month, GST is now a law and the GST Council, chaired by Union Finance Minister Arun Jaitley, will decide on the crucial tax rate in its three-day meeting beginning tomorrow.

Source: http://www.moneycontrol.com/news/economy/assam-gets-offblockgst-registration_7635021.html

IPO fund-raising in India highest since 2011

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Fund raising through initial public offerings (IPOs) has crossed $2.9 billion in 2016 and another $2.9 billion is to be raised through these offerings this year, according to a research report by Baker & McKenzie.

Around 22 companies are waiting to tap the markets bringing the year-end estimated total deal value to $ 5.8 billion, more than double last year’s $2.18 billion from 71 listings, and also the highest since 2011, the report said.

The report further said that 16 companies are in the pipeline to be listed domestically in 2017, raising as much as $5.86 billion, including Vodafone’s highly anticipated $3 billion IPO, which could potentially surpass the state-run Coal India’s IPO in 2010 to become India’s biggest IPO.

The report said the momentum in India’s IPO market continues to build, boosted by the central government’s push to ease of doing business in India.

The report added that Goods & Services Tax (GST) Bill which will take effect on 1 April 2017 will have a positive effect on the market.

“The GST Bill will not only bring about the immediate benefit of widening the country’s tax base and improving the revenue productivity of domestic indirect taxes, but more importantly, it sends the message to the people of India and the rest of the world that the Indian government is committed to the country’s economic reform, further bolstering India’s attractiveness as an investment destination,” said Ashok Lalwani, head of Baker & McKenzie’s India Practice.

The report said dual listing on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India accounted for 98.8% of Indian companies’ listings by value in 2016 year to date, raising a total of $ 2.9 billion from 19 IPOs, including ICICI Prudential Life Insurance’s $909 million IPO, which is the country’s biggest IPO this year.

A total of 33 companies are expected to dual list on both the BSE and the NSE by the end of 2016, raising a total of $4.62 billion. Improved business confidence is also driving Indian companies to look at growth and market expansion opportunities overseas by way of cross-border IPOs, the report said.

Among the 22 IPOs in the 2016 pipeline is Strand Life Sciences’ listing on NASDAQ, which if it goes ahead, will be India’s first cross-border IPO since early 2015 when Videocon d2h got listed, the report added.

Source: http://www.financialexpress.com/industry/companies/ipo-fund-raising-in-india-highest-since-2011/415830/