Daily News Mail - News of 28/02/2015

Economic Survey 2014-15 highlights
Following are the highlights of Economic Survey 2014-15 presented by Finance Minister Arun Jaitley in Parliament today:

• GDP growth seen at 8.1-8.5% in 2015-16
• Double digit growth trajectory; 8–10% GDP in coming years
• Inflation shows declining trend during April-December
• Current Account Deficit (CAD) to decline to about 1% in 2015-16
• To adhere to fiscal deficit target of 4.1% of GDP; to aim for 3%
• Committed to fiscal consolidation; to enhance revenue generation
• More reforms on anvil; Goods and Services Tax, expanding direct benefit transfers to be game-changers
• Foodgrains production for 2014-15 estimated at 257.07 million tonnes; will exceed last 5-year average by 8.5 million tonnes
• NITI Aayog, 14th Finance Commission to enhance fiscal federalism
• External Sector returning to strength, resilience
• Need balance between ‘Make in India’ and ‘Skilling India’
• Services sector negotiations at WTO crucial for India in removing many market access barriers
• Revitalise PPP model to revive investment
• Manufacturing and services equally important for growth
• Consumer inflation in 2015-16 to be between 5-5.5%
• Lower inflation opens up space for more monetary easing
• There is scope for big bang reforms
• Labour, capital, land, market reform and skills to be engines of growth
• JAM Trinity - Jan Dhan Yojana, Aadhaar, Mobile - to help transfer of funds to poor without leakage
• Shield domestic industry to promote ‘Make In India’
• Borrowings to fund investment, not for meeting expenses
• Food subsidy bill in April-Jan up 20% to Rs. 1.08 lakh cr
• Reform Railway’s structure, commercial practices, overhaul of technology
• Public investment key growth engine in short-run for Railways, but not a substitute for private investment
• More disinvestments on the anvil in current fiscal
• Under-recoveries on petroleum products to come down to Rs. 74,664 crore in 2014-15, from Rs. 1.39 lakh crore in FY14
• 4Ds — Deregulation, Differentiation, Diversification, Disinter (better bankruptcy laws) - to push financial sector growth
• Implementation of GST to boost GDP, exports
• Suggests medium to long term fiscal policy to target deficit, expenditure
• Global commodity prices to remain weak in 2015
• Ecommerce sector to witness 50% growth in 5 years (Source - Business Line)

'4-D model for Banking Sector'

• The Economic Survey has prescribed a '4-D model' for the banking sector to face competition in the changed environment."Banking is hobbled by policy, which creates double financial repression, and by structural factors, which impede competition," the Economic Survey 2014-15, tabled in Parliament by Finance Minister Arun Jaitley, said.
• 4Ds of deregulation (addressing the statutory liquidity ratio (SLR) and priority sector lending (PSL), differentiation (within the public sector banks in relation to recapitalisation, shrinking balance sheets and ownership), diversification (of source of funding within and outside banking), and disinterring (by improving exit mechanisms),” it said.
• The Survey has recommended SLR, a portion of deposits mandatorily invested in Government securities, requirements can be gradually relaxed.This will provide liquidity to the banks, depth to the Government bond market, and also encourage the development of the corporate bond market, it said.The right sequence would be to gradually reduce SLR and then provide incentives for a deeper bond market, it added. Since 2010 RBI has slashed SLR by 350 basis points. Earlier this month, RBI slashed the SLR by 50 basis points to 21.5%. SLR, the proportion of deposits banks will have to keep in assets specified by RBI, including government bonds and securities, is more of a conduit for financing government deficits, although it is also an instrument of credit control. 
• The Survey has highlighted that further SLR reduction could help reduce the need for Government resources for bank recapitalisation. This is a better and cleaner way of recapitalising the banks than to allow banks to mark their G-secs to market and realise the accounting profits, according to the Survey. Reducing SLRs are critical to finding better sources of infrastructure financing, the Survey said, adding time is ripe for developing other forms of infrastructure financing, especially through bonds market.
• “PSL norms can be re-assessed. There are two options: one is indirect reform, bringing more sectors into the ambit of the PSL, until in the limit every sector is a priority sector; the other is to redefine the norms to slowly make the priority sector more targeted, smaller, and need-driven,” it said.
• The dual responsibility of building a modern economy and lifting the standard of living at the lowest percentiles of income demand creativity, including more evidence-based policy-making, especially in relation to PSL, it said.
• The Survey further said the analysis suggests that there is sufficient variation in the performance of public sector banks. The policy implication is that a one-size-fits-all approach to governance reforms, public ownership, exit and recapitalisation should cede to a more selective approach.
• It also suggested that more banks and more diversified ones must be encouraged.
• Healthy competition from capital markets is essential too, which will require policy support, it said.
• Besides, better bankruptcy procedures for the future are essential.

India in a sweet spot, says Economic Survey

• India has reached a sweet spot and could finally be on a double-digit medium-term growth trajectory, says the Economic Survey, projecting over 8 per cent growth in 2015-16.
• Decisive policy shifts by the Centre that have stabilised the macro-economic situation, a declining trend in inflation, and a benign external environment make India the cynosure of investors, says the report-card on the economy for 2014-15, tabled in Parliament on Friday.
• The Survey, which sets the tone for the Budget, sent the stock market surging, with the Sensex closing 473 points up on expectations of a business friendly initiative by Finance Minister Arun Jaitley tomorrow.
• The Survey, authored by Chief Economic Advisor, Arvind Subramanian, listed four factors for higher growth: the cumulative effect of reforms, declining oil prices, monetary easing due to lower inflation and a normal monsoon.

Growth surge

• “In the coming year, real GDP growth at market prices is estimated to be 0.6-1.1 percentage points higher vis-a-vis 2014-15,” the Survey said. Using 2014-15 as the base, growth at market prices is expected at 8.1-8.5 per cent in 2015-16, it said.
• Overall, the Survey said that in the short run, growth will receive a boost from lower oil prices, likely monetary policy easing facilitated by lower inflation, lower inflationary expectations, and the forecast of a normal monsoon this year.
• In the medium term, growth prospects will be conditioned by the ‘balance sheet syndrome with Indian characteristics,’ which has the potential to hold back rapid increases in private sector investment.
• The Survey observed that there has been a structural shift in the inflationary process due to lower oil prices and deceleration in agri prices and wages. “Going forward inflation is likely to remain in the 5-5.5% range, creating space for easing of monetary conditions,” it said.
• The Survey has expressed concern over the alarming rise in the stalling of projects in the last five years.However, “the good news is that the rate of stalling seems to have plateaued in the last three quarters. The stock of stalled projects has come down to about 7% of GDP at the end of the third quarter of 2014-15 from 8.3% the previous year,” it said.
• The Survey, which focuses on the broad themes of creating opportunity and reducing vulnerability, suggested India must meet its medium-term fiscal deficit target of 3% of GDP. This will provide the fiscal space to insure against future shocks.
• “The nation must also reverse the trajectory of recent years and move towards the golden rule of eliminating the revenue deficit and ensuring that, over the cycle, borrowing is only for capital formation. The way to achieve this objective should be based on firm control over expenditure, most notably by eliminating leakages in subsidies and social expenditures,” it said.

Opposition unimpressed

• The Survey, however, hit the political hotspot, with the Congress terming it a “statistical jugglery”, and the Left parties saying that the basic thrust of the Survey is anti-people.

Carbon tax on coal can be increased five-fold

• An almost five-fold increase in carbon tax on coal would still allow coal-fired power plants to remain profitable, the Survey said.
• Carbon tax on coal can be hiked from the current Rs. 100 a tonne to as much as Rs. 498 a tonne without compromising on the profitability of coal plants.

Skilling India is the key to future growth trajectory

• The future trajectory of India’s development depends on both ‘Make in India’ and ‘Skilling India’, says the Survey, adding there is a dual challenge of skilling and employing these in a proper way.
• It said a major impediment to the pace of quality job generation in India was because of the small share of manufacturing in total employment, calling for promoting growth of micro, small and medium enterprises. The survey said only 2% of the country’s workforce is skilled, which is much lower than in developing nations.
• According to a Labour Bureau report, the number of people aged 15 years who have or are receiving skills is a mere 6.8%. According to the National Skill Development Corporation, there was need of 120 million skilled people in the non-farm sector in 2013-14. To meet the challenge, the Narendra Modi government has created a separate Ministry for Skill Development as also skilling schemes for poor rural youth and minority dropouts.
• The Survey was also concerned at the deceleration in the compound annual growth rate of employment during the 2004-05 to 2011-12 period to 0.5% from 2.8% during 1999-2000 to 2004-05, against growth rate of 2.9% and 0.4%, respectively, in the labour force for the same periods.
• The National Skill Development Agency (NSDA) attempts to increase Employability of Youth in India. It is a fully autonomous body, constituted on the approval of Union Cabinet of India.On May 9, 2013, the Union Cabinet gave its nod to form NSDA.
• The National Skill Development Corporation India, (NSDC) is a one of its kind, Public Private Partnership in India. It aims to promote skill development by catalyzing creation of large, quality, for-profit vocational institutions. 
• The Modi government is set to launch a new skill development policy (Skilling India) by March 2015 that would bridge the gap between educational institutions and the labour market, minister of state for skill development and entrepreneurship Sarbananda Sonowal said here on Wednesday. The new scheme is expected to move beyond the target of skilling 500 million youth by 2020 that was set by the UPA government.

Renewables, a $160-billion investment opportunity

• Over the next five years, India’s renewable energy sector is likely to provide business opportunities worth $160 billion, according to the Survey.
• “Some of India’s major immediate plans on renewable energy include scaling up cumulative installed capacity to 170 gigawatts (GW) and establishing a National University for Renewable Energy,” the Survey stated.
• As on December 31, 2014 India’s total renewable power capacity has reached 33.8 GW of which wind energy continues to dominate the sector with 66% of installed capacity, followed by bio mass, small hydro power and solar power.
• India scaled up the National Solar Mission target by five fold to 100 GW by 2022.(earlier it was 20 GW by 2022).
• “The aim of this initiative is primarily to provide energy access to nearly 300 million households. The collateral benefit would be lower annual emissions of CO2 by about 165 million tonnes,” the Survey stated.
• “With more than half of the India of 2030 yet to be built, we have an opportunity to avoid excessive dependence on fossil fuel-based energy systems and carbon lock-ins that many industrialised countries face today,” it added.
• Meanwhile, the clean energy cess on coal which was introduced in 2010 was doubled in 2014 to Rs. 100 per tonne. Total collections under the National Clean Energy Fund has reached Rs. 17,000 crore as on September 2014 and 46 clean energy projects worth around Rs. 16,000 crore have been recommended support out of this fund.

Insuring Health

• The recently announced ‘Draft National Health Policy’ has the overarching objective of ensuring universal healthcare access. In this context, it is pertinent to note that currently, only around 4% of the population in the country has health insurance coverage. This has led to a situation where out-of-pocket healthcare spending constitutes 86% of total healthcare spends in India.

Economic Survey moots three-point action plan to realise ‘Make in India’ dream

• The Economic Survey of 2014-15 has suggested three initiatives in the decreasing order of effectiveness and the increasing order of controversy to realise the ‘Make in India’ dream.
• The non-controversial response lies in improving the business environment by making regulations and taxes less onerous((of a task or responsibility) involving a great deal of effort, trouble, or difficulty), building infrastructure, reforming labour laws, and enabling connectivity. “All these will reduce the cost of doing business, increase profitability, and, hence, encourage the private sector, both domestic and foreign, to increase investments,” the Survey said.
• The next response could be in the form of ‘industrial policy’. This could focus on promoting manufacturing by providing subsidies, lowering the cost of capital, and creating special economic zones (SEZs) for manufacturing activity.
• And then, it suggested a ‘protectionist’ response. Essentially, this would focus on the tradability of manufacturing intended to shield domestic manufacturing from foreign competition via tariffs, local content requirements, and export-related incentives. “The effectiveness of these actions is open to debate given past experience. Moreover, they could run up against India’s external obligations under the WTO and other free trade agreements, and also undermine India’s openness credentials,” the Survey said.
• Eliminating all exemptions for the countervailing duty (CVD) and special additional duties on imports would eliminate the negative protection facing the Indian manufacturers, it pointed out. The Survey went on to illustrate how the tax policy was effectively penalising domestic manufacturing. This could be addressed by enacting a well-designed GST preferably with one internationally competitive rate and with narrowly defined exemptions.
•  'Countervailing Duties' - Tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting country.

REMOVING ROAD BLOCKS:The tax policy was effectively penalising local manufacturing. This could be addressed by enacting a well-designedGoods and Services Tax.

GDP on a new base year

• New method to calculate the Gross Domestic Product (GDP) has two key elements: new base year and market price.
• It is a normal practice to change the base year once in five years.
• The new base year will be 2011-12 against the previous base year of 2004-05.
• Earlier, calculation was based on the factor cost or costs of production. Now, keeping in line with international practices, tabulation will be done on the basis of market price or the price which consumer pays. This is also called Gross Value Addition (GVA).
• New method also includes more detailed data on corporate activity, newer surveys of spending by households and informal businesses and taxes paid (after deducting subsidy).
• This changes growth estimate for 2013-14 to 6.9% from 4.7%.
• Similarly, the number for 2014-15 is likely to be 7.4% against 5.5-6%.
• Growth estimate for 2015-16 has also been made on new series and it is likely to be 8.1 to 8.5%.

Roaming to get cheaper as TRAI proposes lower tariffs.

• Under the latest draft amendment of the Telecommunication Tariff Order, TRAI proposes cutting down the maximum charges that can be imposed on outgoing local calls in roaming mode to 65 paise per minute, from the ceiling rate of Rs. 1 per minute.
• It also proposed cutting STD call rates in roaming mode to Rs. 1 per minute, from the maximum of Rs. 1.5 per minute. For incoming calls, it has asked telecom companies to charge a maximum of 45 paise per minute instead of 75 paise now.
• For SMS, it has proposed a maximum of 25 paise per STD SMS in roaming mode compared to the current ceiling of Rs. 1.50 per SMS. For local SMS, it has recommended a maximum of 20 paise compared with Rs. 1 now.

Australia lobbying to stop Great Barrier Reef making ‘in danger’ list

• Australia has embarked on a “whole of government” diplomatic and ministerial lobbying(seek to influence (a legislator) on an issue) campaign to correct “misinformation” and prevent the Great Barrier Reef from being placed on the UNESCO world heritage committee’s “in danger” list, a Senate committee has been told.