12, August 2017

1.Economic Survey 2016-17 Volume-2 : State of the Economy – An Analytical

Overview and Outlook for Policy

Source: PIB

The Survey notices a rekindled optimism on structural reforms in Indian economy.

Various factors such as

  • Launch of the GST;
  • Positive impacts of demonetization;
  • Decision in principle to privatize Air India;
  • Further rationalization of energy subsidies and Actions to address the Twin Balance Sheet (TBS) challenge contribute to this optimism.
  • The document also adds that a growing confidence that macro-economic stability has become entrenched is evident because of a series of government and RBI actions and because of structural changes in the oil market have reduced the risk of sustained price increases.

However the Survey cautions that anxiety reigns because a series of deflationary impulses are weighing on an economy, yet to gather its full momentum and still away from its potential.

These include: stressed farm revenues, as non-cereal food prices have declined; farm loan waivers and the fiscal tightening they will entail; and declining profitability in the power and telecommunication sectors, further exacerbating the TBS problem.

What are the Impacts

  • Examining if India is undergoing a structural shift in the inflationary process toward low inflation, the Survey notes that the oil market is very different today than a few years ago in a way that imparts a downward bias to oil prices, or at least has capped the upside risks to oil prices.
  • Also Farm loan waivers could reduce aggregate demand by as much as 0.7 percent of GDP, imparting a significant deflationary shock to an economy.
  • Spurt in New Tax Payers and Reported Income after Demonetization; 5.4 lakh New Tax Payers Post-Demonetization.
  • Demonetization’s impact on the informal economy increased demand for social insurance, particularly in less developed states.
  • MGNREGS and its implementation by the Government have met the programme’s stated role of being a social safety net during times of need. It also adds that sustaining current growth trajectory will require action on more normal drivers of growth such as investment and exports and cleaning up of balance sheets to facilitate credit growth.
  • The ratio of stressed companies in the power sector (defined as the share of debt owed by companies with an interest coverage (IC) ratio of less than 1) has been steadily rising this year, reaching 70 percent, with an associated vulnerable debt of over Rs. 3.6 lakh crore. The telecommunications sector has experienced its own version of the “renewables shock” in the form of a new entrant that has dramatically reduced prices for, and increased access to, data, thereby benefitting—at least in the short run— consumers; after launching of services by the new entrant in September 2016, the average revenue per user (ARPU) for the industry on aggregate has come down by 22 percent vis-à-vis the long term (December 2009-June 2016) ARPU, and by about 32 percent since September 2016.

As regards Outlook for Growth 2017-18, Survey (Volume I) had forecast a range for real GDP growth of 6.75 percent to 7.5 percent for FY 2018. For Outlook for Prices & Inflation 2017-18, the Survey notes the outlook for inflation in the near-term will be determined by a number of proximate factors, including:

  • The outlook for capital flows and exchange rate which in turn will be influenced by the outlook and policy in advanced economies, especially the US;
  • the recent nominal exchange rate appreciation;
  • the monsoon;
  • the introduction of the GST;
  • the 7th Pay Commission awards;
  • likely farm loan waivers; and
  • the output gap

 The document says that the fact that current inflation is running well below the 4 percent target, suggests that inflation by March 2018 is likely to be below the RBI’s medium term target of 4 percent.

As regards Review of Economic Developments 2016-17, the Survey notes that

  • Real economy grew by 7.1 per cent in 2016-17 compared with 8 percent the previous year.
  • This growth suggested that the economy was relatively resilient to the large liquidity shock of demonetization which reduced cash in circulation by 22.6 percent in the second half of 2016-17. The apparent resilience was even more marked in nominal growth magnitudes because both nominal GVA and GDP growth accelerated by over 1 percentage point in 2016-17 compared with 2015-16.
  • Annual inflation averaged 5.9 per cent in 2014-15 and has since declined to 4.5 per cent in FY 2017. More dramatic have been developments during 2016-17- inflation declined sharply from 6.1 percent in July 2016 to 1.5 percent in June 2017.
  • The sharp dip in WPI inflation in late FY 2015 and throughout FY 2016 owed to the deceleration in global commodities prices, especially crude oil prices. With global commodity prices recovering and the ‘base effect’ (low inflation in the previous year) giving an upward push, wholesale inflation perked up during FY 2017
  • With the green shoots slowly becoming visible in merchandise trade, and robust capital flows, the external position appears robust, reflected inter alia in rising reserves and a strengthening exchange rate.
  • The current account deficit narrowed in 2016-17 to 0.7 percent of GDP, down from 1.1 percent of GDP the previous year, led by the sharp contraction in trade deficit which more than outweighed the decline in net invisibles
  • Export growth turned positive after a gap of two years and imports contracted marginally, so that India’s trade deficit narrowed to 5.0 per cent of GDP (US$ billion) in FY 2017 as compared to 6.2 per cent (US$ 130.1 billion) in the previous year.

2.Highlights of Reforms Measures in the Economic Survey 2016-17 Volume-2 – Agriculture and Food Management

Source: PIB

The progress in agriculture needs to be evaluated in terms of outcomes such as catching up with global yields of various crops as a means to increase incomes of farmers. Managing and reducing the various risks in agriculture activities can make the sector resilient, increase profitability and can ensure stable income flows to the farmers.

Challenges:

  • Land holding size: The average farm size in India is small, and declining since 1970-71. The predominance of small operational holdings is a major limitation to reap the benefits of economies of scale in agriculture operations.
  • Credit: Credit is an important mediating input for agriculture to improve productivity. The predominance of informal sources of credit for farmers is a concern. There is regional disparity in the distribution of agricultural credit which also needs to be addressed.
  • Post- harvest losses: The key challenge that the horticulture sector faces in India are post-harvest losses, availability of quality planting material and lack of market access for horticultural produce of small farmers.

Reforms:

Managing and reducing the various risks in agriculture activities can make the sector resilient, increase profitability and can ensure stable income flows to the farmers.

The following reforms are suggested for increasing productivity in agriculture and allied sector:

  • To address the price risks in agriculture and allied sectors, marketing infrastructure along the entire value chain needs to be built and strengthened.
  • To address production risks, the share of irrigated area should be expanded by increasing the coverage of water saving irrigation systems like micro irrigation systems.
  • To increase productivity of crops, standards should be set and enforced for better quality, pest and disease resistant seeds.
  • Trade and domestic policy changes should be announced well before sowing and should stay till arrivals and procurement is over.
  • To enhance women’s involvement in the dairy projects, funds should be earmarked through appropriate mechanisms.
  • Providing timely and affordable formal and institutional credit to the small and marginal farmers is the key to inclusive growth.
  • Regime based on timely interventions needs to be adopted.

Benefits of new Crop Insurance Schemes

  • Government of India has launched the Pradhan Mantri Fasal Bima Yojana ( PMFBY) with simplified provisions making them more farmer friendly.
  • The scheme provides the farmers maximum financial protection against non-preventable natural risks.

Simplification of the Scheme

  • Following review of erstwhile crop insurance schemes PMFBY has been formulated, with simplified provisions and reduced premium for farmers which has resulted in both increased awareness among farmers and increase in coverage of area and crops.

Reduction in Premium        

The farmers premium has been reduced for all food and oilseeds crops and kept at a maximum of 1.5% for Rabi, 2% for Kharif and 5% for annual horticultural/commercial crops.

3.Highlights of Reforms Measures in the Economic Survey 2016-17 Volume-2-

Social Infrastructure, Employment and Human Development

Source: PIB

India, is emerging as a knowledge based economy, poised for double digit growth, and needs to strengthen social infrastructure by investing in health and education.

Key facts:

  • The education policies need to be designed with focus on learning outcomes and remedial education with interventions which work and maximize the efficiency of expenditure. There is need for bio-metric attendance of school staff, independent setting of examination papers, neutral examination and for DBT for schools. There is need to adopt outcome measures for the education and skilling activities to ensure improvement in delivery of schemes/ programmes.
  • In order to make the labour market system dynamic and efficient, the government has taken several reforms/initiatives, both legislative as well as technological such as notification of ‘Ease of Compliance to maintain Registers under various Laws Rules, 2017’ and introduction of e-Biz Portal. These registers/forms can also be maintained in a digitized form.
  • Government has been imparting short term skill training through Pradhan Mantri Kaushal Vikas Yojana (PMKVY) and long term training through Industrial Training Institutes (ITIs). Model Skill Centers are being set up in every district of the country under Pradhan Mantri Kaushal Kendra Scheme. The emphasis is on enhancing the quality of skill training programmes and making a competency-based framework with giving individuals an option to progress through education, training, prior learning and experiences.
  • There has to be concerted efforts by the Central and State governments to reform the health sector, by addressing quality issues, standardising rates for diagnostic tests, generating awareness about alternative health systems and introduction of punitive measures like fines on hospitals and private health providers for false claims through surgery, medicines etc. For more equitable access to health services, government should provide health benefits and risk cover to poorer sections of the society.
  • Towards addressing the challenges in health sector, the Government has formulated the National Health Policy, 2017, which aims at attaining the highest level of good health and well-being, through a preventive and promotive health care orientation in all developmental policies, and universal access to good quality health care services, without anyone having to face financial hardship as a consequence.
  • Addressing the social security of large number of vulnerable workers in the informal economy should be prioritized by the Government along with ensuring the safety and security of women to raise their participation in economic activities.

4.BIMSTEC meeting

Source: The Hindu

The 15th ministerial meeting of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation concluded recently in Kathmandu, endorsing the memorandum of understanding for the establishment of BIMSTEC grid interconnection and also agreed to expedite the negotiations for BIMSTEC Free Trade Area Agreement.

  • The meeting of the BIMSTEC also pledged to deepen cooperation for shared prosperity in the region.
  • The meeting decided to establish cells focused on areas, like energy, environment and culture, among others, for effective cooperation and to elevate BIMSTEC as a vibrant and visible regional cooperation. The meeting also decided to form an eminent persons’ group to prepare the future roadmap of BIMSTEC.

5.Push for law to ensure transparency rules

Source: PIB

The Economic Survey has proposed Transparency of Rules Act (TORA), a legislation to end any asymmetry of information regarding rules and regulations faced by an average citizen.

TORA

  • The TORA is an attempt to change in some ways the relationship between the average normal citizen and the State.
  • TORA will require all departments to mandatorily place all citizen-facing rules on their website. Officials will not be able to impose any rule not mentioned beforehand.
  • All laws will have to be updated by the department while providing access to history of the same webpage.
  • Once a department has shifted to the platform, it can be deemed “TORA compliant” and citizens can be sure that the information is authentic and updated.
  • The ‘opaque mesh’ of regulations prevalent in India not only make life difficult for citizens who cannot feign ignorance of the rules as a valid defence, but also act as a magnet for corruption and endless litigation.

6.Highlights of the Economic Survey 2016-17 Volume-2 – Climate Change, Sustainable Development and Energy

Source: PIB

NDC- UNEP

India ratified the Paris Agreement on 2nd October, 2016. India’s actions for the post-2020 period are based on its Nationally Determined Contribution (NDC).

  • India’s NDC targets to lower the emissions intensity of GDP by 33 – 35 per cent by 2030 from2005 levels, to increase the share of non-fossil based power generation capacity to 40 per cent of installed electric power capacity(cumulative) by 2030, and to create an additional carbon sink of 2.5-3 Gt CO2e through additional forest and tree cover by 2030.
  • At the multilateral level, the international community is engaged in writing the “Paris rule book” which includes guidelines and modalities for the implementation of the Paris Agreement for the transparency framework for action and support, features and accounting of NDCs etc.

India’s Renewable Energy Target-  UNEP and UNDP

  • India has set itself ambitious targets in the area of renewable energy. Moving ahead in this direction, India is implementing the largest renewable energy expansion programme in the world.
  • It envisages a 5-fold increase in the overall renewable energy capacity to 175 GW by 2022. This includes 100 GW of solar, 60 GW of wind, 10 GW of biomass, and 5 GW of small hydro power capacity.
  • There is an urgent need to further increase the access of the poor to more efficient energy resources. Many schemes have been implemented by the government to tackle this like Pradhan Mantri Ujjwala Yojana, PAHAL scheme, Deen Dayal Upadhyaya Gram Jyoti Yojana.
  • A large number of focused initiatives have been taken in various sectors of the economy to ensure a pathway of lower emission and climate resilient development.

Social Development Goals- UNDP

India is at a stage of development that requires it to grow at a fast rate and lift the large number of their citizens from below the poverty line. Energy deprivation levels for a sizeable portion of population remain at high levels. The SDG 7 is to ensure access to affordable, reliable, sustainable and modern energy for all.

Renewable Energy- UNEP

  • Social cost analysis of coal and renewables based power done in the chapter indicate higher social costs for renewables. Storage costs and stranding of assets based on coal based power are major costs associated with the renewables based power. Given that the first goal for India is to provide 100 per cent energy access to its population and bridge the development deficit gap, all energy sources need to be tapped.
  • A number of initiatives have been taken in the Indian financial sector also. In the renewable energy segment, as per the notification of the RBI in May 2016, bank loans of up to Rs.15 crore for solar-based power generators, biomass-based power generators, wind mills, micro-hydel plants, etc. will be considered part of Priority Sector Lending.
  • The External Commercial Borrowing (ECB) norms have been further liberalized so that green projects can tap this window for raising finance across the borders. The Securities and Exchange Board of India (SEBI) has, in May 2017, put in place the framework for issuance of green bonds.

5 things to know about green bonds

What are green bonds?

  • A green bond is like any other regular bond but with one key difference: the money raised by the issuer are earmarked towards financing `green’ projects, i.e. assets or business activities that are environment-friendly.
  • Such projects could be in the areas of renewable energy , clean transportation and sustainable water management.

What are its benefits?

  • Green bonds enhances an issuer’s reputation, as it helps in showcasing their commitment to wards sustainable development.
  • It also provides issuers access to specific set of global investors who invest only in green ventures. With an increasing focus of foreign investors towards green investments, it could also help in reducing the cost of capital.

When did the concept start?

  • In 2007, green bonds were launched by few development banks such as the European Investment Bank and the World Bank.
  • Subsequently, in 2013, corporates too started participating, which led to its overall growth. Back home, Yes Bank was the first bank to come out with a issue worth Rs 1,000 crore in 2015. Following this, few other banks too had green bond issuances. CLP India, was the first Indian company to tap this route. So far, Rs 7,200 crore has b een raised via green bonds.

Has Sebi mandated additional rules on such issues?

  • For designating an issue of a corporate bond as green bond, an issue apart from complying with the issue and listing of debt securities regulations, would have to disclose additional information in the offer document such as use of proceeds.

What are the avenues where these funds can be invested?

Sebi’s indicative list includes renewable and sustainable energy such as wind and solar, clean transportation, sustainable water management, climate change adaptation, energy efficiency , sustainable waste management and land use and biodiversity conservation.



Leave a Reply