February 2020 Economic Affairs

Sakshi Education

India’s GDP growth to be 4.9% in 2019-20: NCAER
National Council of Applied Economic Research (NCAER),a New Delhi based non-profit think tank of economics, has estimated India’s economic growth rate to be 4.9 % for the current Financial year-FY 2019-20, which is lower than the 5 % estimation by the National Statistical Office (NSO).

Key Points:
i. At the same time, NCAER has expressed the hope that in the year 2020-21, the country’s growth rate can be up to 5.6%.

ii. In the quarterly review of the economy, the institute has predicted the growth rate could be 4.9 % in the third quarter of the current financial year (Q3: 2019-20) and it is expected to increase to 5.1 % in the fourth quarter (Q4: 2019-20).

iii. The Reserve Bank of India (RBI) has also predicted a growth rate of 5% for 2019-20.

iv. Food inflation will come down: As per NCAER, due to monsoon and subsequent good rains, the water reserves in the major water sources of the country have increased, due to which the prospects of the agricultural sector are looking good. So, this year agricultural production is estimated to be better than in 2019.
RBI unveils 5 year National Strategy for Financial Inclusion (NSFI): 2019-2024
In order to promote financial literacy among customers and to provide access to formal financial services in an affordable manner, the Reserve Bank of India (RBI) has released a National Strategy for Financial Inclusion (NSFI) 2019-24. The strategy has been prepared by Financial Inclusion Advisory Committee (FIAC) of the RBI in consultation with the Centre, Securities Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and Pension Fund Regulatory and Development Authority of India (PFRDA).

NSFI has been finalized and approved by the Financial Stability Development Council (FSDC). The document was formally released by Mahesh Kumar Jain, Deputy Governor, RBI at the High Level Meeting on Financial Inclusion for the North East region convened at Agartala, Tripura.

Here are the key recommendations:
There should be universal access to financial services wherein every village should have access to a formal financial services provider within a 5-km radius.

The banking outlets of commercial banks to be increased to provide easy and hassle-free digital process.

The strengthening of digital financial services in all tier-II to tier-VI centres is required to facilitate a less-cash society by March 2022.

Every eligible adult should be provided with basic financial services like savings account, credit, micro-life and non-life insurance products, pension product, and a suitable investment product.

By March 2020, every adult enrolled under the PradhanMantri Jan DhanYojna (PMJDY) should be enrolled under an insurance scheme and pension scheme.

The public credit registry has to be made fully operational by March 2022.
Securities market regulator SEBI redefines ‘pledge’ to protect client securities
On February 17, 2020, Securities and Exchange Board of India (SEBI) ,the regulator for the securities market in India, has amended the SEBI (Depositories and Participants) Regulations,2018 by including an extra explanation that states that ‘pledge’ would also refer to ‘re-pledge of securities for margin or settlement obligations.’

The decision was approved by the SEBI Board meet in Mumbai, Maharashtra.

Key Points:
i. Changes: With this SEBI’s amendment, now the depository will have the liability of the bonafide pledge ,which is created from the margin account of a stock broker

ii. Benefit: This move will reduce the instances where stock brokers misuse client securities by pledging such shares for their own benefit in terms of meeting their margin requirements.

iii. Background: It is being seen the brokers pledge shares without telling owner. In the recent past, the Karvy Stock Broking Limited, Hyderabad (Telangana) pledged shares of customers & took loan from firms such as Bajaj Finance, ICICI Bank, HDFC Bank and IndusInd Bank & owners of the share were not aware of it.

Pledged share: It means taking loan against the shares one holds. It can be done by both investors and promoters.
Sweden’s Riksbank begun testing world’s 1st digital version of currency, e-krona
Sveriges Riksbank (or simply the Riksbank), the central bank of Sweden, had begun testing its digital version of currency, e-krona. If this year-long pilot project successful, this would lead to the creation of world’s 1st central bank digital currency (CBDC).

The pilot project will be in operation for one year, until February 2021, will use distributed ledger technology inspired by the blockchains that operates crypto currencies.

The digital currency e-krona will be used to simulate day-to-day banking functions like payments from a digital wallet such as a mobile phone application.
IMF warns coronavirus epidemic could put at risk the recovery of global economy
International Monetary Fund (IMF) has warned that the deadly coronavirus epidemic could put at risk the recovery of an already fragile global economy.

IMF chief Kristalina Georgieva said that global growth is poised for a modest rebound to 3.3 per cent this year, up from 2.9 per cent last year.

The projected recovery is fragile. Georgieva said the COVID-19 virus - a global health emergency - has disrupted economic activity in China and could put the recovery at risk.

Financial leaders also discussed ways to achieve consensus on a global taxation system for the digital era by the end of 2020. The gathered financial leaders vowed to enhance global risk monitoring of the outbreak.
NABARD approves Rs.400 crore to boost infrastructure in JK
National Bank for Agriculture and Rural Development (NABARD) sanctioned an amount of Rs.400.64 crore to the Union Territory of Jammu & Kashmir during the current financial year.

The aim is to boost the infrastructure in rural areas. The funding is a part of the NABARD's 'Rural Infrastructure Development Fund (RIDF)-Trench XXV' which aims at augmenting rural infrastructure.

Background:
Earlier in 2020, NABARD has sanctioned Rs.209.87 crore for the construction of 82 rural roads and 3 bridges.

A road length of 291kms has been proposed to be constructed benefiting 9.15 lakh people in 19 districts of UT of J&K.

The construction of roads and bridges will provide all-weather improved connectivity to 461 remote villages.

A sum of Rs.143.66 crore has been sanctioned for the implementation of 38 water supply schemes.

The schemes are expected to benefit over 3.54 lakh people across 86 villages in 17 districts of UT of J&K.

Similarly, NABARD has also sanctioned an amount of Rs.47.11 crore towards improving the Animal and Sheep Husbandry sectors.
Ministry of Corporate Affairs (MCA) Secretary Injeti Srinivas launched Spice plus form
Secretary of Ministry of Corporate Affairs (MCA) Injeti Srinivas has launched the new company incorporation "Spice+" Web form on 24th February.

It is a part of a comprehensive package to make life easier for someone starting a business. The move is in line with India's Ease of Doing Business (EODB) initiatives.

Spice+ form:
Spice+ form will replace the existing Spice form.

The form offers 10 services by 3 Central government Ministries & Departments namely the Ministry of Corporate Affairs, Ministry of Labour& Department of Revenue in the Ministry of Finance and Maharashtra State Government. It will save many procedures, time and cost for Starting a Business in India. It will be applicable for all new company incorporations.

The form has at least five new formalities including Employees' Provident Fund Organisation (EPFO), Employees' State Insurance Corporation (ESIC) and professional tax registration, the opening of bank account and GST registration.

SPICe+ will reduce the time taken for the process and the cost of registering a company that was estimated at around 4 hours in December-January.

It has been estimated that on average, the name reservation takes around 3 hours.

This was tested by the Ministry and has already processed 90% of the forms that are received in a day.

There are two parts in Spice+ form:
1) The first one deals with name registration

2) The second part for a bouquet of services, including incorporation, issue of Primary Account Number (PAN) and Tax Deduction and Collection Account Number (TAN), along with the issue of director's identification number.

People opting for EPFO and ESIC registration will be directed to the websites of the two agencies.

Under the new form, registration for Profession Tax will be mandatory for all new companies that are to be incorporated in the State of Maharashtra through SPICe+.
The US became India’s top trading partner
The data provided by the Ministry of Commerce stated that in 2018-2019 the US had surpassed China to become India's top trading partner.

It shows greater economic ties between the two countries. The trend is expected to continue in the coming years as India and the US are engaged in further deepening the economic ties.

Highlights:
The bilateral trade between India and the US stood at $87.95 billion in the year 2018-2019.

On the other hand, India's two-way commerce with China aggregated at $87.07 billion in the same year.

During April-December of the year 2019-20, the bilateral trade between the US and India stood at $68 billion and at $64.96 billion with China.

Both countries are expected to finalize a free trade agreement (FTA) so that the bilateral trade would reach different levels.

India is demanding a cut in visa fees, exemption from high duties imposed on certain steel and aluminum products, and greater market access for its products from sectors such as agriculture, automobile, automobile components, and engineering by the US.

On the other hand, the US wants market access for its farm and manufacturing products, medical devices, dairy items, and data localization. It also demanded a cut on import duties on some information and communication technology (ICT) products. The US has also raised concerns over a high trade deficit with India.
RBI lifted its ban on Bandhan Bank
The Reserve Bank of India (RBI) lifted its ban on Bandhan Bank after considering the efforts made by the Bank to comply with the licensing conditions on 25 February.

Now, the Bank can expand its branch network.

Background:
In September 2018, RBI had banned Bandhan Bank from expanding its network as the Bank failed to reduce the promoters' stake to 40% from close to 82% within the stipulated three-year time frame of commencing operations.

The Bank has not complied with the licensing condition on dilution yet. But considering the efforts taken by the private lender, the ban was lifted by the RBI. Bandhan bank ensured at least 25% of the total number of banking outlets opened during a financial year is opened in unbanked rural centers.
RBI directed banks to link all new floating rate loan
The Reserve Bank of India (RBI) directed banks to link all the new floating-rate loans to medium enterprises with external benchmark. It will be effective from 1 April 2020. The floating rate loans of the micro and small enterprises are already linked with external benchmarks.

Aim:
The move by RBI is aimed to further strengthen the monetary policy transmission. The benefits of a reduction in key lending rates can be passed on to medium enterprises.

Highlights:
The external benchmarks will include RBI repo rate, Treasury bill yields, and the market interest rate published by the Financial Benchmark India Private Ltd (FBIL).

The floating rate loans to micro and small enterprises, personal and retail loans have already been linked to external benchmarks.

RBI states that the monetary policy transmission has improved in respect of the sectors where new floating rate loans have been linked to external benchmarks.
DoT asks telcos to clear Rs 1.4 lakh crore dues by midnight
The Telecom Department has withdrawn its order that asked for no coercive action against telecom companies defaulting on statutory dues payment after the Supreme Court on 14th February, 2020 took a strong view of non-compliance with its order.

The order also directed field offices to take immediate necessary action in compliance with the October judgment of the Supreme Court.

The direction by the DoT said its previous order dated 23rd January stands withdrawn with immediate effect.

The Department of Telecommunications has also ordered firms such as BhartiAirtel and Vodafone Idea to clear dues before midnight tonight.

The department's move came after the Supreme Court today directed the managing directors and directors of telcos and other firms to explain why contempt action be not taken against them for non-compliance of its order to pay Adjusted Gross Revenue (AGR) of 1.47 lakh crore rupees to the Department of Telecommunications.
SEBI decides to permit the use of regulatory sandbox
Securities and Exchange Board of India (SEBI) has decided to permit the use of regulatory sandbox, a system that will allow live testing of new products, services and business models by market players on select customers. The decision was taken at SEBI’s board meeting held in Mumbai.

The proposed 'regulatory sandbox' is intended to serve as a testing ground for new business models and technologies that benefit investors, Indian markets and the economy at large.

Under this framework, the eligible entities will be granted certain facilities and flexibilities to experiment with fintech solutions in a live environment and on real customers, while ensuring that there are necessary safeguards for investor protection and risk mitigation.
Special Economic Zones continue to take lead in expanding exports
The Special Economic Zones, SEZ continue to take the lead in expanding the exports for the country. Even in the midst of a volatile global economy, SEZs in India have shown resilience and have achieved 100 billion dollar worth of exports so far.

Sectors that saw healthy growth in this financial year include gems and jewellery, trading and Logistics, leather and footwear, non-conventional energy, textiles and garments. Petrochemicals constitute a major segment of SEZ exports; however, growth was muted in this segment this year which may be attributed to the softening of global crude prices. There are 241 SEZs operational in the country.
India’s sugar export may cross 5 million tonne this year
India's sugar export may cross 5 million tonnes in the marketing year ending September 2019, on higher demand from overseas amid a global deficit of 8-9 million tonne, industry body ISMA said.

For the current year, the government has allowed export of 6 million tonne of sugar under Maximum Admissible Export Quota to help deal with the surplus sugar.

The country's sugar production has reached nearly 17 million tonnes till February 15th of the current marketing year.
Government to facilitate doubling of milk processing capacity by 2025
Union Government will facilitate doubling of milk processing capacity from over 53 million tonne to 108 million tonne by 2025.

Ministry of Fisheries, Animal Husbandry and Dairying said, the government is continuously working towards increasing milk productivity through genetic improvement and reduction of input cost.

In India, milk production is growing by 6.4 per cent during the last five years and has increased from over 146 million tonne in 2014-15 to over 187 million Tonne in 2018-19. The Ministry said, about 54 per cent of milk produced is marketable surplus and remaining 46 per cent is retained in villages for local consumption.

Out of the marketable surplus available with farmers, only 36 per cent is handled by cooperative and private sector. It said, there is a need to bring the remaining 64 per cent surplus milk under the organized fold. A special programme has also been launched recently for improvement of milk quality by providing required testing facilities at village and dairy plant level for safe human consumption.
Group of Ministers (GoM) has recommended for GST
Group of Ministers (GoM) has recommended 5% GST for under construction properties and 3% GST for affordable housing sector without input tax credit.

Group of Ministers (GoM) is led by Gujarat Deputy Chief Minister Nitinbhai Patel.

RBI has doubled the limit for ‘bulk’ Deposits to over 2 crore from 1 crore.
ICAI signs pact with ‘Invest India’ to promote foreign investment
ICAI has signed an agreement with ‘Invest India’ to promote foreign investments in the country and Indian’s investments in abroad.

Invest India is the National Investment Promotion and Facilitation Agency of India and acts as the first point of reference for investors in India. Its experts, specializing across different countries, Indian states and sectors, handhold investors through their investment lifecycle from pre-investment to after-care.

The Institute of Chartered Accountants of India is the national professional accounting body of India.
Lending from CRR buffer to get 5-year exemption: RBI
The Reserve Bank of India on 10 February, 2020 said that the special lending window with Cash Reserve Ratio exemption will be open from 14th of February and incremental loans disbursed under this facility will have CRR exemption for the next five years.

The central bank circular issued in Mumbai said that the window will open for six months ending 31st of July, 2020, but the Net Demand and Time Liabilities (NDTL) will be calculated as of 31st of January. It asked banks to report the CRR exemption availed at the end of a fortnight under exemptions/others in the Section 42 return, under the provisions of the master circular on CRR and SLR issued on 1st of July, 2015.
China’s CPI rose at their highest rate in more than 8 years
China's consumer price index (CPI) rose at their highest rate in more than eight years with inflation more than expected on the back of Lunar New Year demand and a deadly virus outbreak.

Official data shows the consumer price index, a key gauge of retail inflation, came in at 5.4 per cent last month with food prices spiked 20.6 per cent. The rise in January was the highest since October 2011 when CPI inflation was 5.5 per cent.

Beijing had already been battling a slowing domestic economy before the Novel Coronavirus emerged, disrupting businesses, travel and supply chains.
IMF wants India to focus on medium-term fiscal consolidation
The International Monetary Fund (IMF) says that the recent Indian budget's "accommodative fiscal stance" is appropriate in the weaker economic scenario, but wants New Delhi to focus in the medium term on fiscal consolidation because of the growing debt levels.

While the budget touches on ongoing sectoral efforts, there remains an urgent need for more ambitious structural and financial sector reform measures and a medium-term fiscal consolidations strategy anchored in tangible revenue and expenditure measures especially given rising debt levels".

The IMF sharply cut its growth estimate for the current fiscal year for India to 4.8% last month from the 7.5% made in January, 2019.
CBDT issues clarification on the new provision in Finance Bill 2020
Central Board of Direct Taxes (CBDT) has said that The Finance Bill, 2020 has proposed that an Indian citizen shall be deemed to be resident in India if he or she is not liable to be taxed in any country or jurisdiction.

It said that the new provision in Finance Bill, 2020 is not intended to include in tax net those Indian citizens who are bonafide workers in other countries.

CBDT issued a clarification on the new provision pertaining to residence in India saying this is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction countries to avoid payment of tax in India.

CBDT noted that the interpretation by some section of the media that Indians who are bonafide workers in other countries, including in the Middle East, and who are not liable to tax in these countries, will be taxed in India on the income that they have earned there is incorrect.

It stated that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India, shall not be taxed in India unless it is derived from an Indian business or profession.
Insurance cover on bank deposits increases from Rs one lakh to five lakh
Insurance cover on bank deposits has been increased to five lakh rupees from one lakh rupees. The decision came into effect from 4 February, 2020.

The Reserve Bank of India (RBI) said in a statement that the cover is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI. This, the RBI said, has been done with a view to providing a greater measure of protection to depositors.

The move will help boost confidence of people in the banking system.

As the insurance cover stands increased, the banks will pay a premium of 12 paise against 10 paise per 100 rupees deposited.

The deposit insurance scheme covers all banks operating in India, including private sector, cooperative and even branches of foreign banks. There are some exemptions such as deposits of foreign governments, deposits of Central and State Governments, and inter-bank deposits. Deposit insurance was static at one lakh rupees since 1993.

The demand for raising the deposit insurance limit gained momentum after a run on a large-sized multi-state cooperative bank, the Punjab and Maharashtra Cooperative Bank (PMCB) after it came under an RBI Administrator for financial irregularities pertaining to loans to real estate firm HDIL.
Government takes several steps to boost investment in renewable energy sector
Union Government has taken many steps to boost the investment in renewable energy sector in the country.

An investment of over 36 thousand crore rupees have been made in the year 2019-20 up to December 2019.

It is expected that renewable energy capacity addition in the current fiscal will exceed the capacity addition achieved in the year 2018-19.

The Minister said the Renewable Energy capacity commissioned in 2018-19 was over 8,500 Megawatt. In the year 2019 up to December 2019 renewable energy capacity of around 7,600 Megawatt has been commissioned and renewable energy capacity of 34,160 Megawatt is under various stages of implementation.
RBI keeps repo rate, reverse repo rate unchanged
RBI Governor Shaktikanta Das on 6 February, 2020 said that the Monetary Policy Committee’s decision to maintain status quo on policy rates for the second time in a row, must not be viewed as a pointer for future action.

While stating that inflation outlook remains uncertain, the RBI Governor informed that a spike in onion prices last year, was alone responsible for a hike of 328 basis points in food inflation.

RBI’s Monetary Policy Committee will continue to remain proactive as it was last year when the repo rate was reduced by 135 basis points. On the policy transmission front, the RBI Governor said, the transmission has remained sizeable so far.

In order to ensure availability of adequate liquidity in the banking system and also to encourage banks to lend more to productive sectors of the economy, the RBI Governor announced that it will soon start conducting long-term repos of one-year and three-year tenors of appropriate sizes for up to a total amount of 1,00,000 crore rupees.

This measure will assure banks about the availability of durable liquidity at a reasonable cost relative to prevailing market conditions.

Several budgetary announcements like reduction in Income Tax slabs and other sector-specific announcements are likely to boost demand and spurt public spending; he also clarified that the five-fold hike in deposit insurance will not have any large impact on bank balance sheets.

In another major announcement, RBI has announced that banks will now be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans from their net demand and time for maintenance of cash reserve ratio.

This exemption will be available for incremental credit extended up to the fortnight ending 31st July, 2020 and only be valid for retail loans offered for automobiles, residential housing and loans to micro, small and medium enterprises.
EAM S Jaishankar calls upon Indian businesses to take initiatives vis-a-vis Central Asian markets
External Affairs Minister Dr S Jaishankar has called upon Indian businesses to take initiatives vis-a-vis the Central Asian markets. He said, the time has come for India and Central Asia to create common platform to share ideas and translate the goodwill and desires into practical outcomes.

Addressing India - Central Asia Business Council organized by FICCI in New Delhi, Dr Jaishankar said, Central Asia is not a distant region for India and it is a part of country's extended neighbourhood.