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February 2020 Economy News

  • India has overtaken France and the UK to become the world’s fifth-largest economy, as per IMF’s October World Economic Outlook. 

    The IMF data from last year shows that when ranked by nominal GDP, India has jumped past both France and the UK to regain its fifth-largest economy spot. On the other hand, India's real GDP is predicted to witness slow growth in the year ahead due to credit weakness. 

    India had previously slipped down the seventh position following a major slowdown in economic growth. However, despite the current jump, India is battling with challenges concerning sustainability and infrastructure.

  • Online payment processor Worldline India reported that Bengaluru accounted for the highest number of digital transactions in India in 2019. 

    The aim is to move India towards a less-cash economy. 

    Highlights :
    1.) As per the report, Bengaluru is followed by Chennai, Mumbai, and Pune.

    2.) United Payments Interface (UPI) was the most preferred mode of payment. It is followed by debit cards, immediate payment service (IMPS), and credit cards, in terms of volume share of digital transactions. In 2019, the four payment modes recorded a combined transaction volume of over 20 trillion and a combined value of over Rs.54 trillion.

    3.) UPI, which is operated by the National Payment Council of India (NPCI), recorded around 10.8 billion transactions in 2019, a 188% year-on-year (YoY). In terms of value, UPI facilitated transactions worth Rs.18.36 trillion in 2019, up 214% YoY compared to 2018.

  • Reserve Bank of India Governor Shaktikanta Das has said that slowing credit growth is one of the most critical challenges for the banking industry. He said credit growth has moderated to 7-7.5 per cent this year and there is a need to focus on prudent lending by the banks. 

    Addressing the Mint annual banking conclave in Mumbai on February 24, 2020 the apex Bank Governor stated that to facilitate the flow of credit, the RBI has taken several steps like reducing repo rate, facilitating bank refinance to NBFCs for onlending to priority sector and providing long-term repo operation (LTRO), among others. He said the strength of a banking system depends on the strength of its corporate governance that fosters a robust and ethics-driven compliance culture.

  • 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. 

    Key recommendations:
    1.) 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.
    2.) The banking outlets of commercial banks to be increased to provide easy and hassle-free digital process.
    3.) 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.
    4.) 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.
    5.) By March 2020, every adult enrolled under the PradhanMantri Jan DhanYojna (PMJDY) should be enrolled under an insurance scheme and pension scheme.
    6.) The public credit registry has to be made fully operational by March 2022.

  • 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 on February 17, 2020. 

    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.

  • The U.S. government has changed an administrative rule making it easier for it to impose countervailing duties (CVDs) on goods from India and certain other countries. The Office of the United States Trade Representative (USTR) has published a notice, amending lists of developing and least-developed countries that are eligible for preferential treatment with respect to CVD investigations. 

    To harmonise U.S. law with the World Trade Organization’s (WTO) Subsidies and Countervailing Measures (SCM) Agreement, the USTR had, in 1998, come up with lists of countries classified as per their level of development. These lists were used to determine whether they were potentially subject to U.S. countervailing duties. 

    India was, until February 10, on the developing country list and therefore eligible for these more relaxed standards. It has now been taken off of that list. The new lists consist of 36 developing countries and 44 least developed countries.

  • The Institute of Chartered Accountants of India (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. ICAI is the national professional accounting body of India.

  • The International Monetary Fund (IMF) has said Sri Lanka’s economy is gradually recovering after Easter Sunday terrorist attacks last year with GDP growth projected at 3.7 percent in 2020. An IMF staff mission to Sri Lanka estimated the real GDP growth at 2.6 percent last year but expected the GDP to bounce back this year on the back of a recovery in tourism.

  • Reserve Bank of India (RBI) Governor Shaktikanta Das has been named the Central Banker of the Year, Asia-Pacific 2020, and Conferred by the London-based The Banker magazine, the award recognizes Shaktikanta Das’efforts to make the banking system more robust.

  • Insurance cover on bank deposits has been increased to five lakh rupees from one lakh rupees effective from February 04, 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. 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.

  • Union Cabinet has decided to bring Cooperative banks under the regulatory mechanism of Reserve Bank of India. Information and Broadcasting Minister Prakash Javadkar said the move will ensure greater accountability and transparency in the functioning of Cooperative Banks.

  • Central Board of Direct Taxes 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.

  • Budget 2020-21: New power generation companies to be taxed at 15%.
    1.) To boost power generation capacity, government has extended the new corporate tax regime for new manufacturing plants to new power generation companies.
    2.) New power generation companies will have to pay just 15 per cent tax under the new corporate tax regime.
    3.) The move will help is setting up of new power generation companies to meet the growing energy needs of India.

  • Budget 2020-21 : Government mulls changes in PFRDA Act; to separate it from NPS Trust for government staff. 
    Finance Minister Nirmala Sitharaman has proposed to make amendments for separation of government pension trust from the PFRDA to strengthen the pension fund regulatory body. She also said that the government will help ease in mobility while in jobs. "We wish to infuse into the universal pension coverage with auto enrolment facility. Also, we wish to place such mechanism which will enable inter-operability and provide safeguards to the accumulated (pension) deposits," she said.

  • Budget 2020-21 : FY 20 fiscal deficit seen at 3.8 per cent.
    1.) FM Sitharaman informed Parliament during Budget presentation that India's fiscal deficit is now pegged at 3.8% for FY20, a significant loosening over the widely touted target of 3.3%.
    2.) India's fiscal deficit — the gap between expenditure and revenue — touched 114.8% of 2019-20 Budget Estimate at Rs 8.07 lakh crore at the end of November.
    3.) With the aim to limit fiscal deficit at 3.3% of GDP, Modi govt had originally pegged its projections for the current financial year at Rs 7.03 lakh crore.
    4.) For the entirety of FY20, govt's revenue receipts had been projected at Rs 19.62 lakh crore, while the total projected expenditure for the fiscal had been pegged at Rs 27.86 lakh crore.
    5.) GST collections turned out to be a major dampener during a year marred by persistent lag in growth. Besides, the corporate tax cut, which Nirmala Sitharaman announced in September to push the downturn-affected investment cycle, likely hit revenues to the tune of Rs 1.45 lakh crore.
    6.) After the revenue shortfall hit home, the govt had brought in austerity measures by pruning the January-March spending limit, telling all of its departments to keep expenditure at 25% of BE for the period.

    Up to November, as per Controller General of Accounts' figures:
    a) The Central govt received Rs 10,12,223 crore (48.60% of total BE receipts for FY20), consisted of Rs 7,50,614 crore Tax Revenue (Net to Centre), Rs 2,32,600 crore of Non-Tax Revenue and Rs 29,009 crore of Non-Debt Capital Receipts.
    b) Non-Debt Capital Receipts comprised the loan recovery worth Rs 10,910 crore and divestment proceeds to the tune of Rs 18,099 crore.
    c) Rs 4,21,850 crore transferred to State govts in the form of devolution of share of taxes. This sum was Rs 10,113 crore less compared to the corresponding period a year ago.
    d) The total expenditure by the Centre was Rs 18,20,057 crore (65.3% of BE). Of this, Rs 16,06,215 crore was on Revenue Account and Rs 2,13,842 crore on Capital Account.
    e) Of the total revenue expenditure, Rs 3,41,812 crore was on account of interest payments and Rs 2,35,015 crore on account of major subsidies.

  • Budget 2020-21: DDT is gone! Big Budget move for stock markets. FM Nirmala Sitharaman proposed to remove the deeply unpopular dividend distribution tax (DDT). According to industry and markets, dividend distribution tax is a surrogate tax and it obstructs the flow of foreign direct investment. Therefore, doing away with this tax can give a major push to investment. 

    The abolition of this tax can also boost market sentiment and make Indian equities more attractive. The clamour had been growing for the abolition of DDT ever since the corporate tax cut in September. The task force on the direct tax code had also recommended scrapping this tax in order to boost investments.

  • Presenting the Budget for 2020-21, Sitharaman said Rs 99,300 crore has been allocated for the education sector and Rs 3,000 crore for skill development for the next fiscal. She said that, the government plans to start a programme for urban local bodies to provide opportunities for internship to young engineers. She also said National Police University and National Forensic University are being proposed, while planning to allow degree level full-fledged online education programme by institutions ranked in top 100. Special bridge courses will be designed for teachers, nurses, para medical staff, caregivers, she said.

  • Finance Minister Nirmala Sitharaman announced Nirvik (Niryat Rin Vikas Yojana) scheme to provide enhanced insurance cover and reduce premium for small exporters and simplified procedures for claim settlements. The scheme is being prepared by the commerce ministry. Under the scheme, also called the Export Credit Insurance Scheme (ECIS), the insurance guaranteed could cover up to 90 per cent of the principal and interest. The ministry has also proposed to subsidise the premium under the scheme that has to be paid by exporters of certain key sectors. 

    The Export Credit Guarantee Corporation currently provides credit guarantee of up to 60 per cent loss. The development assumes significance as exporters have raised concerns over availability of credit. The country's exports contracted for a fifth month in a row by 1.8 per cent in December 2019 to USD 27.36 billion. During April-December 2019-20, exports slipped 1.96 per cent to USD 239.29 billion, imports declined 8.9 per cent to USD 357.39 billion, leaving a trade deficit of USD 118.10 billion.

  • The government of India raised the deposit insurance coverage to Rs 5 lakh from the current Rs 1 lakh. The move comes after the government and RBI were widely criticised over their handling of the closure PMC bank in September last year, leaving thousands of people helpless and unable to withdraw their own money. SBI analysis shows that 61% of the total deposit accounts in India are under Rs 1 lakh, around 70% are under Rs 2 lakh and 98.2% are under Rs 15 lakh. There have been widespread calls to raise the cover.

  • Economic Survey 2019-20 has projected economic growth at 6 to 6.5 per cent in the next fiscal. It calls for more reforms for making it easier to do business in the country. The Survey, tabled by Finance Minister Nirmala Sitharaman in Parliament, emphasises on entrepreneurship and Wealth Creation at the Grassroots. It has suggested that industrial sector performance is a key to achieve the target of a five trillion dollar economy.

  • Budget 2020-21 : Union Finance Minister Nirmala Sitharaman said that PAN shall now be instantly allotted online on the basis of Aadhaar. She said, is aimed at further easing the process of allotment of PAN by eliminating the need to fill up detailed documents.

  • Budget 2020-21 : Finance Minister Nirmala Sitharaman said nominal GDP growth for 2020-21 is estimated at 10 per cent. Presenting the Budget for 2020-21, Sitharaman said receipts for 2020-21 are pegged at Rs 22.46 lakh crore while expenditure at Rs 30.42 lakh crore. The revised estimated expenditure for FY20 has been pegged at Rs 26.99 lakh crore and receipts at Rs 19.32 lakh crore, she said. The net market borrowings would be at Rs 4.99 lakh crore in FY 2019-20 and are estimated at Rs 5.36 lakh crore in the next fiscal.

  • Budget 2020-21 : Foreign direct investment (FDI) into the country has increased to USD 284 billion during 2014-19, says Finance Minister Nirmala. "India's FDI got elevated to the level of USD 284 billion during 2014-19 from USD 190 billion that came in during the years 2009-14," she said. The foreign inflows into India grew 15 per cent to USD 26 billion during the first half of the current financial year. Sectors which attract maximum foreign inflows include services, computer software and hardware, telecommunications, automobile and trading.

  • Union Budget has proposed a 16-point action plan to boost agriculture and farmers welfare and doubling farmers' income by 2022. It also seeks to double farmers' income by 2022. Finance Minister said, the budget is aimed at boosting the income of people and enhancing their purchasing power. Comprehensive measures for 100 water-stressed districts have also been proposed in the Budget. Meanwhile, agricultural credit target has been set at 15 lakh crore rupees. 

    Twenty lakh farmers will be provided funds for setting up standalone solar pumps. Farmers will also be allowed to set up solar units on barren and fallow lands and supply power to grids. Youth and fishery extension work will be enabled by rural youth as Sagar Mitras, forming 500 fish farmer producing organizations.

Last updated : 29/02/2020



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