Daily Archives: February 27, 2015

27Feb

Union Budget 2015-16 Economic Survey: Need fixed income products; see GDP at 7.8%, says Barclays

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Siddhartha Sanyal, Chief India Economist, Barclays says there is a lot of foreign institutional investor (FII) interest in fixed income instruments and the government should launch these soon in order to pool in significant capital. In an interview to CNBC-TV18, Sanyal says areas like defence and railways can get a lot of capital by means of bonds. Furthermore, Sanyal expects the real growth rate for FY16 to be at 7.8 percent; WPI inflation at 3 percent and revenue growth in the low teens.

I do not expect that and I do not necessarily see any conflict in the statements what they have made and I tend to agree a lot Dr Chaudhuri what he mentioned just now. Basically what is happening now if you see the effect of lower petroleum prices that itself is giving the government a benefit close to one percentage point of the gross domestic product (GDP) as per our estimate. We are factoring in FY16 fuel subsidy to be lower by around Rs 50,000 crore and the higher excise duty on petroleum products can be anywhere around Rs 60,000 -70,000 crore for the full year. As a whole we are talking about a number close to around Rs 1,20,000 crore for the full year benefits only from the petroleum affect which is one percent of the GDP.

Now you can channelise this expenditure much more meaningfully towards some of the more productive investments. If you see in terms of some other numbers fiscal deficit to meet 4.1percnet fiscal deficit will be around Rs 5,30,000 crore. To meet 3.6 percent next year we are talking about something like Rs 5,00,000 crore so you to eventually stable out Rs 30,000 crore odd you have a buffer of around Rs 1,20,000 crore that is a very meaningful buffer.

The other part of the story we all talk about the revenue buoyancy or the revenue linkage with growth. The other part which we tend to miss out is the benefit the fiscal headlines the fiscal numbers can get from a lower inflationary situation. A lot of government’s expenditure is actually due to wages or salary which are inflation-linked, interest out go as well as subsides etc which we mentioned and project cost overrun so all these things will enjoy very significant tailwinds going ahead.

27Feb

Union Budget 2015-16 Economic Survey: Modify PPP model, highway projects must shift to e-tolling

The rate of stalling of projects has reduced over the last three quarters, said the Economic Survey. Stall projects accounted for 7 percent of GDP in the December quarter, compared with  8.3 percent during the same period last year.

The key now was to revive public investment to grow infrastructure, the Survey said. It said, the revival of interest by private players and banks in public private partnership (PPP) would require a review of contracts. It said the risk in PPP model should be transferred to those who can manage it.

The Survey said PPP Financing structure should attract pension and insurance funds, adding that high projects should shift to e-toll systems and escrow accounts. The Survey also said efforts were needed to reform direct tax system.

27Feb

Union Budget 2015-16 Economic Survey: Cheap oil will lift growth, but challenge is to create jobs

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In the short run, growth will receive a boost from lower oil prices, from likely monetary policy easing facilitated by lower inflation and lower inflationary expectations, and forecasts of a normal monsoon, the Economic Survey 2014-15 said. The Survey estimates GDP growth at market prices for FY16 at 8.1-8.5 percent, 0.6-1.1 percentage points higher vis-a-vis 2014-15.

Four factors that could drive this growth according to the Survey:

*The government has undertaken a number of reforms and is planning several more

* A further impetus to growth will be provided by declining oil prices and increasing monetary easing facilitated by ongoing moderation in inflation.Simulating the effects of tax cuts, declining oil prices will add spending power to households, thereby boosting consumption and growth.

* Further declines in inflation and the resulting monetary easing will provide policy support for growth both by encouraging household spending in interest-sensitive sectors and reducing the debt burden of firms, strengthening their balance sheets.

* The final favourable impulse will be the monsoon which is forecast to be normal compared to last year

Still the challenge will to create enough jobs in the economy so that the fruits of this growth are shared by everybody. “There has probably been a decline in long run employment growth in the 2000s relative to the 1990s and probably also a decline in the employment elasticity of growth: that is, a given amount of growth leads to fewer jobs created than in the past,” the Survey said. “Given the fact that labour force growth (roughly 2.2-2.3 percent) exceeds employment growth (roughly about 1.5 percent), the challenge of creating opportunities will remain significant,” the Survey said.

27Feb

Union Budget 2015-16 India Update : It is about development, not names of schemes Says PM Modi

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In his reply on motion of thanks to President Pranab Mukherjee’s address to the joint session of the Parliament, Prime Minister Narendra Modi said the debates that ensued were very good. Many MPs expressed their thoughts and several of them sent their views in writing, said Modi.

For sometime now, the Opposition has been saying that the NDA government has been simply renaming old schemes and policies started by them. Modi replied by saying that the issue is not about names of the schemes, it is about development. “I am simply trying to find solutions to problems that have been existing for many years now,” he said. He says his government inherited a legacy of problems.

On Swachh Bharat Abhiyan, he said, cleanliness is key and there is a need to address the root problem. “You talk of Nirmal bharat, and that we have brought in ‘Swacch Bharat’. Name is not the issue, the problem is the issue. Swacchta is an issue and it is about the mindset. In my mind are poor people,” he said.

Raising the pitch further, he said cleanliness is also related to respect and dignity of women. According to him, many female students drop out of schools due to lack of toilets. Taking a dig at Congress, Modi said he will never shut down MNREGA as it showcases the failure of the prior government. He jokingly said no one can question his political wisdom and his instinct says ‘do not end MNREGA’. However, he added that his government will add value to it to benefit poor people further.

On his fight against corruption, he urged everyone to join hands and ensure there is no corruption in the future. “I believe corruption free services can be developed, everyone needs to work together to fight corruption.” On the controversial Land Acquisition Ordinance, Modi assured the Parliament that it is not anti-farmer.

Claiming that his government’s biggest achievement was it managed to get the country talking on black money, Modi said despite the Supreme Court’s directives, a special investigating team (SIT) was not formed by the previous government.

Modi assured everyone that his government was not playing vindictive politics.

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