Saturday, August 10, 2013

INDIAN ECONOMY, UNION BUDGET, AND THE EXPECTED GROWTH OF THE COUNTRY

The Indian economy has continuously recorded high growth rates and has become an attractive destination for investments, according to Ms Pratibha Patil, the Indian President. "Today India is among the most attractive destinations globally, for investments and business and FDI had increased over the last few years," said Ms Patil.

India's economic growth is expected to remain robust in 2012 and 2013, despite likely headwind of double-dip recessions in Europe and the US, according to a United Nations' annual economic report - World Economic Situation and Prospects 2012. The Indian economy is expected to grow between 7.7 per cent and 7.9 per cent this year, as per the report.

India is the second most preferred destination for foreign investors, according to the report 'Doing Business in India' by Ernst & Young. The report explores India's key sectors, investment climate, funding scenario, laws and regulations, to aid companies that are doing, or plan to do business in India.

The wealth of high net worth individuals (HNIs) in India, is set to grow by a compounded annual growth rate (CAGR) of 23 per cent over the next four years and will touch a staggering Rs 249 trillion (US$ 5.05 trillion), highlighted a report by Karvy Private Wealth - the wealth management arm of the financial services firm Karvy Group.

India has emerged as the world's top recipient of officially recorded remittances for the fourth straight year. India is expected to receive US$ 58 billion this year, followed by China, and Mexico, as per the latest issue of the World Bank's Migration and Development Brief.

THE ECONOMIC SCENARIO 

Innovation and efficiency are the keys to boost the growth of exports from the country, according to Mr M Veerappa Moily, Union Minister for Corporate Affairs. He also suggested that there is a need to develop innovation centres at the district levels to boost exports.

·    Exports from special economic zones (SEZ) grew by 17 per cent to Rs 260,973 crore (US$ 52.99 billion) during April-December 2011 from Rs 223,132 crore (US$ 45.31 billion) during the corresponding period in the previous year, according to a statement by the Export Promotion Council for Export-oriented Units and SEZs (EPCES)
·                                                                                                                                                                        The total amount of foreign direct investment (FDI) equity inflows during April 2011- November 2011 stood at US$ 22,835 million, according to the latest data published by Department of Industrial Policy and Promotion (DIPP)

·    The Government of India has approved 20 proposals of FDI worth Rs 1,935.24 crore (US$ 392.94 million), according to an official statement. The approvals were given, based on the recommendations of the Foreign Investment Promotion Board (FIPB)

·    "India's GDP is expected to grow at 7.7 per cent, which clearly underlines India's potential as an investment destination. The fact that FDI has increased by 31.5 per cent across major sectors further evidences the attractiveness of the Indian economy,” as per Gaurav Karnik, Tax Partner, Ernst & Young

·    India's manufacturing sector expanded to 57.9 in December 2011 from 52.8 in November 2011, index rising to a six month high on back of new orders. The HSBC Market India Manufacturing Purchasing Managers' Index (PMI) increased to 54.2 from 51.0 in November 2010

·    Indian employers have emerged as the most optimistic, as far as hiring goes, among 41 countries surveyed by the Manpower Group, a world leader in the workforce solutions

·    The revenues from the Indian media and entertainment (M&E) industry is expected to reach over US$ 25 billion in the next four years, according to an Ernst & Young report 'Spotlight on India's Entertainment Economy.' Growing digitisation, media consumption and improving demographics are the most important drivers responsible for the growth of this industry

·    The Indian handset market witnessed a 14.1 per cent growth in 2011 to touch a total volume of 182 million handsets. The total handset volume is expected to reach 335 million units by 2017, according to ABI Research, a US-based market intelligence company

·    Smartphone shipments touched 10 million units in the first eleven months of the calendar year 2011, according to a report titled 'India Monthly Mobile Handsets Market Review', by CyberMedia Research (CMR). Total 3G phone shipments touched 15.5 million in the first eleven months of 2011, according to CMR analysts, with close to 224 models launched by 26 vendors. Moreover, the multi-SIM mobile handset shipments accounted for 54 per cent of the total India mobile handsets market in November 2011

·    In addition, the Indian banking sector is poised to become the world's third-largest in terms of assets over the next 14 years—with its assets poised to touch US$ 28,500 billion by 2025—according to a report titled 'Being five-star in productivity—Roadmap for excellence in Indian banking', prepared for the Indian Banks' Association (IBA) by The Boston Consultancy Group (BCG), IBA and an industry body

·    The entire textile and apparel industry in India is expected to grow by 11 per cent to touch Rs 10.32 trillion (US$ 209.5 billion) by 2020. Currently, menswear is the major chunk of the market at 43 per cent, according to Technopak Advisors, a retail consultancy. Industry estimates peg the formal suits, jackets and blazers segment at Rs 4,500 crore (US$ 913.71 million)

·    Driven by fashion trends, many Indian consumers now spend as much on footwear as on apparels, as they associate variety of shoes to different occasions. The footwear industry in India has almost doubled in the past five years to an estimated Rs 20,000 crore (US$ 4.06 billion)

·    The Indian food processing industry is set to triple to reach US$ 900 billion by 2020, provided the key issues are addressed, as per a study by Boston Consulting Group (BCG) and an industry body

UNION BUDGET 2013-14: HIGHLIGHTS

Union Budget for the Fiscal Year 2013-14 was presented by the Finance Minister Mr.P.Chidambaram on 28th February 2013. Prepared against the backdrop of an overall deceleration in the economy the FM was expected to do a balancing act of encourage savings and investment, bridging CAD deficit, revive the economic growth, boost investor sentiments, attain fiscal targets and yet deliver a politically acceptable Budget. Budget was prepared after considering  pre-budget memoranda from various business groups. In the Budget there are echoes of some of the suggestions made by the Economic Survey released on 27th February 2013 which  inter alia suggested growth revival through investment route, broad-basing of taxes instead of hike in tax rates, raising private investment in agriculture, achieving fiscal consolidation etc. Considering the socio- politico-economic compulsions the FM has delivered a non-exciting yet sensible Budget.
 Highlights of the Budget are as follows.

Select Budget Statistics

Particulars
2012-13 (Revised Estimates)
2013-14 (Budget Estimates)
% Change

(Rs.Crores)


Total Revenue
 Tax Revenue

871,828
742,115

1,056,331
884,078

21.2
19.1

Capital Expenditure

Revenue Expenditure
 Interest Payments


167,753

1,263,072
316,674

229,129

1,436,169
370,684

36.6

13.7
17.1
Revenue Deficit
 As % of GDP
391,245
(3.9)
379,838
(3.3)
-2.9
Fiscal Deficit
 As % of GDP
520,925
(5.2)
542,499
(4.8)
4.1

·   Before going into the provisions of the Budget, the FM provides the economic context in which the Budget was prepared i.e. slowdown in global and domestic economies. Yet FM is not pessimistic. In fact, he perceives 13.4% nominal GDP (at market prices) growth in FY 2013-14. Assuming a 7% inflation, the real growth works to around 6.4% which is in the range of 6.1-6.7% estimated by the Economic Survey 2012-13.

·     The Budget seems to have taken cue from some of the suggestions made by the Economic Survey with respect to the measures for reviving economic growth, stimulating savings and investments and formulating the tax policy. The Survey, among other things investment-led growth, no increase in tax-rates, widening of tax-base, improving tax-GDP ratio etc .
·          
Tax Proposals:

(I)         Direct Taxes:

Personal Tax

By and large there are no changes in basic income slabs or the rates. Accordingly the tax rates will be:

Income Slab (Rs.)
Tax Rate %

Upto 200,000

Nil

200,001 to 500,000

10

500,001 to 10,00,000

20

Above 10,00,000

30

New Proposals:
Tax Credit: A tax credit of Rs.2,000 is provided for the assessees falling in the category of Rs.200,000-500,000.

Surcharge:

10% surcharge on the assessees (individuals, HUFs, firms, entities with similar tax status) whose taxable income is more than Rs.1 crore per annum.

Corporate Tax:

Though the corporate tax rates remain unchanged the Budget proposes anincrease in the surcharge from 5% to 10% on domestic companieswhose taxable income is more than Rs.10 crores per year.

In the case of foreign companies, the surcharge is increased from 2% to 5%.

In all other cases, like dividend distribution tax and tax on distributed income the surcharge is raised from 5% to 10%

The additional surcharges will be in force only for one year 2013-14.

(II)        Indirect Taxes:

NO change in the peak rate of customs duty from its current levels of 10% on non-agricultural products. Similarly, normal rate of excise duty and service tax are retained at their current level of 12%.

Budget Proposals and Economy:

Savings, Investment & Growth: 

Recognizing the adverse impact of sharp decline witnessed in the savings and investment rates in recent years on the overall economic growth, the FM has proposed several measures to prop-up savings and investments. They include:
Savings:
·         
     Liberalization of Rajiv Gandhi Equity Savings scheme. Raising the income limit from Rs.10 laca to Rs.12 lacs.
·     
     Additional deduction of interest upto Rs.1 lac on housing loan upto Rs.25 lacs taken during 2013-14.
·         
      Introduction of Inflation Indexed Bonds or Inflation Indexed National Security Certificates.
Investment:
·         
     Emphasis on infrastructure investment. Encouraging Infrastructure Debt Funds (IDFs). India Infrastructure Finance Corporation along with ADB to offer credit enhancement to infrastructure companies that wish to tap o=long term bond market.
·         
     Regulatory authority for road sector to address issues relating to financial stress, construction risk, contract management issues etc.
·         
     Investment Allowance of 15% available as deduction for the investment of Rs.100 crores or more in plant and machinery during 2013-15.
Infrastructure:
·         
      Funding support for industrial corridors; Deli-Mumbai, Chennai-Bengaluru and Bengaluru-Mumbai
·         
     Awarding of 3,000 kms of road projects in Gujarat, MP, UP, Maharashtra, Rajasthan in the first six months of 2013-14
·         
     Rs.14,873 crores allocated for JNNURM to mainly to purchase 10,000 buses especially by the hilly states.
·         
      Two new ports in West Bengal and Andhra Pradesh.
·         
      Review of oil and gas exploration policy. Encouraging shale gas exploration and production. Clearing of stalled blocks.

Capital Market:
There are several proposals in the Budget which can impact capital market. Such major proposals are:
·         
     Removing ambiguity in the definition of FDI and FII. Foreign investment with a stake of 10% or less will be treated as FII and more than 10% will be FDI.
·         
   Permitting FIIs: (i) to trade in exchange traded currency derivatives and (ii) using their corporate bonds and government securities as collateral securities.
·         
     Allowing SMEs to list on SME segment of stock exchanges without making IPOs subject to the condition that the issue will be restricted to informed investors.
·         
      Allowing stock exchanges to introduce dedicated debt segment
·         
   Allowing mutual fund distributors to become members of mutual fund segment of stock exchanges.
·         
     Enlarging the list of eligible securities for Pension Funds and Provident Funds by including exchange traded funds, debt mutual funds and asset backed securities.
·         
     Securities Transaction Tax (STT) reduced on equity futures (0.017 to 0.01%) and Mutual Fund Redemption at fund counters (from 0.25% to 0.001%) and Mutual Fund sale/purchase on exchanges (from 0.1% to 0.001%).
·         
      A final withholding tax of 20% on profits distributed by unlisted companies through buyback of shares.

Banking & Insurance:
·         
     Additional funding to the tune of Rs.14,000 crores for capital infusion in public sector banks to enable them meeting Basel III norms.
·     Higher funding for National Housing Bank for rural and urban housing.
·     A multi-pronged approach to increase the penetration of insurance –life and general.
·     A comprehensive and integrated social security package for unorganized sector.

Budget & Fiscal Reforms:
·         
      A Draft Bill on Goods and Service Tax and Constitutional Amendment Bill to be introduced  in the next few months.
·         
       Contentious issue pertaining to GAAR postponed to 2016.
·         
       Proposal to achieve 3% Fiscal Deficit Ratio and 1.5% Revenue Deficit Ratio by 2016-17.

Conclusion:

The Budget is not a Dream-budget. In fact it is an attempt to tide over  the current economic situation while keeping in view socio-political expectations. It is a humane budget with higher allocations for various welfare programmes. Though it clarifies certain confusions and plugs loopholes, it is not aggressive. It is a passable budget.


ECONOMIC SURVEY 2013: INDIAN ECONOMY MORE VULNERABLE TO GLOBAL SHOCKS


NEW DELHI: Indian economy has greater vulnerability to global shocks and economic re-balancing will help in reducing the risks, the Economic Survey said today.

Emphasizing that India cannot take the external environment for granted, the Survey said the country is exposed to shifts in risk tolerance of global investors.

Another external risk is that India's import bill is strongly tied to the price of oil.

"Globalization of Indian economy has helped raise growth, it has also meant greater vulnerability to external shocks. A focus on domestic macroeconomic re-balancing will help reduce vulnerability," said the Economic Survey 2012-13, which was tabled by Finance Minister P Chidambaram in Parliament.

It is unlikely that the support to Indian growth from the global economy would be significant, it added.

"India cannot take the external environment for granted, and has to move quickly to restore domestic balance," the survey said.

"The government is committed to fiscal consolidation. This along with demand compression and augmented agricultural production should lead to lower inflation, giving the RBI the requisite flexibility to reduce policy rates," it added.

It also said that global recovery would depend on risks managed from the US fiscal adjustment and Euro zone area.

Crisis in the Euro zone has become deep, structural and multifaceted, despite several rescue packages over the last two years, posing a major downside risk to the global outlook.

 ECONOMIC SURVEY 2013 PEGS GDP GROWTH AT 6.1-6.7% FOR FY14 

NEW DELHI: The Economic Survey 2012-13 has pegged the country's economic growth forecast at 6.1-6.7% in the coming financial year. The survey has painted an optimistic picture for the economy, stating that the downturn is 'more or less over'.

Stating that the medium term fiscal consolidation plan is credible, the Survey has emphasized the need to step up reforms. "Economic slowdown is a wake up call for stepping up reforms," the survey has said.

The survey predicts that the global economies also likely to recover in 2013 and various government measures will help in improving the Indian economy's outlook for 2013-14.

"Following the slowdown induced by the global financial crisis in 2008-09, the Indian economy responded strongly to fiscal and monetary stimulus and achieved a growth rate of 8.6 per cent and 9.3 per cent respectively in 2009-10 and 2010-11, but due to a combination of both external and domestic factors, the economy decelerated growing at 6.2% and an estimated 5% in 2011-12 and 2012-13 respectively," the survey said.

The survey has highlighted the domestic causes that have caused the economic slowdown. "The slowdown in the rate of growth of services in 2011-12 at 8.2%, and particularly in 2012-13 to 6.6 percent from the double-digit growth of the previous six years, contributed significantly to slowdown in the overall growth of the economy, while some slowdown could also be attributed to the lower growth in agriculture and industrial activities," the survey said.

However, despite the slowdown, the services sector has shown more resilience to worsening external conditions than agriculture and industry, the survey has noted.

For improved agricultural growth, the survey underlines the need for stable and consistent policies where markets play an appropriate role, private investment in infrastructure is stepped up, food price, food stock management and food distribution improves, and a predictable trade policy is adopted for agriculture.

FDI in retail allowed by the government can pave the way for investment in new technology and marketing of agricultural produce in India. Fast agricultural growth remains vital for jobs, incomes and food security, the survey opines.

The Finance Minister P Chidambaram tabled the annual economic survey in Parliament on Wednesday.

The Survey asssumes importance the light of declining Gross Domestic Product (GDP) growth. The Central Statistical Organisation (CSO) has estimates that growth year for the current fiscal will be at 5 per cent, sharply lower than the original estimate of 7.6 per cent (+/- 0.25 per cent).

The latest GDP data is due to be released on Thursday, shortly before Finance Minister Palaniappan Chidambaram announces the Union Budget 2013-14.


No comments:

Post a Comment