The deceleration in GDP growth which commenced in the second quarter of the last financial year [FY] has continued during the current year even as the growth during the first quarter ending June 30, 2019 has plummeted to a record low of 5%. Moreover, there appears to be no sign of reversal even as the Reserve Bank of India [RBI] – in its latest [October 4, 2019] monetary policy review – has projected growth of just 6% for 2019-20 – down from its previous estimate [August, 2019 policy review] of 6.9% . Analysts have propounded several theories from purely cyclical to decline being of a ‘structural’ nature to doomsayers predicting that Indian economy is heading for a prolonged recession. The...
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Why subsidy reforms are not taking off
At present, tens of millions persons [including undeserving] are getting a variety of subsidies from the government. These cost hundreds of thousand crore seriously impairing its ability to maintain fiscal deficit [excess of total expenditure over total revenue] within the target range mandated by the Fiscal Responsibility and Budget Management [FRBM] Act. The manner of administering these subsidies is marked by ‘ad-hocism’ and ‘arbitrariness’. It leads to mis-allocation of resources, promotes inefficiency in production, distribution and use, encourages misuse of funds, makes way for controls through the backdoor, enables bureaucrats to meddle in the affairs of the industry and creates fertile ground for nepotism and corruption. Even as Modi – government has vowed to make India a US$ 5 trillion...
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Oil sector – is it ready for competition
Last year, the union minister of petroleum and natural gas [MPNG], Dharmendra Pradhan had set up an expert committee under Dr Kirit Parikh to “look at various issues related to implementation of existing guidelines for grant of marketing authorization of market fuels – petrol, diesel and aviation turbine fuel [ATF], identity entry barriers, if any, for expansion of retail outlets for private marketing companies and recommend easing of fuel retailing licensing rules ”. This was in the backdrop of persistent demand from various stakeholders for relaxing extant norms for granting authorization for marketing of oil products with a view to get more private players into retailing so as to increase competition, reduce price, improve services and give more choice to...
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E-commerce norms – violations continue unabated
The global e-commerce majors have been in the news, yet again, for violating norms for foreign direct investment [FDI]. The Confederation of All India Traders [CAIT] has complained to the government that Amazon, Flipkart are giving huge discounts, selling exclusive brands [including their own] and controlling inventory of sellers etc – all of which is prohibited under FDI policy. Under the guidelines on FDI in e-commerce [issued in 2016-17, Press Note 3], 100% FDI is permitted in the ‘market-place’. The market-place is a platform where sellers and buyers meet to conduct sale and purchase transactions even as the owner of market-place [read: e-commerce company] merely acts as a facilitator. It can provide services such as book orders, raise invoice, arrange...
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PSUs – privatization and controls can’t go hand-in-hand
In her budget presented on July 5, 2019, the finance minister, Nirmala Sitharaman announced disinvestment of governments’ shareholding in public sector undertakings [PSUs] to a level below 51% on a ‘case-by-case’ basis. The cabinet committee on economic affairs [CCEA] is expected to approve this policy any time soon. The 51% threshold is very crucial as shareholding at this level or above enables the government to have majority ownership and control over the undertaking. If, the holding is reduced to below 51%, this will lead to relinquishment of majority ownership and control, or privatization in plain words. This will be transformative – a bold reform indeed. But, hold your breath, there is a caveat appended to it. In the budget speech, Sitharaman...
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RCEP – shed protectionist mindset
The Regional Comprehensive Economic Partnership [RCEP] is a conglomeration of 10 members of the Association of South East Asian Nations [ASEAN] viz. Malaysia, Indonesia, Thailand, Vietnam, Singapore, Philippines, Myanmar, Brunei, Laos and Cambodia plus 6 others viz. Australia, New Zealand, Japan, South Korea, China and India. If, it materializes [29 negotiation rounds have already been held since start in 2012], this will be a giant group covering a population of 3.6 billion or 50% of the world and GDP [gross domestic product] at US$ 25 trillion or nearly one-third of the global. During the Summit of ASEAN held in Singapore last year [November 11-15, 2018], prime minister, Narendra Modi had called for early conclusion of the process so that the...
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Sagging GST collection – time to wield the stick
The finance minister, Nirmala Sitharaman has constituted a high level committee consisting of the representatives of the centre and states to study the reasons as to why tax collections under GST [Goods and Services Tax] have been slack and suggest measures to boost. The GST was launched on July 1, 2017. While, it may not be realistic to expect the desired buoyancy during the first year [as it takes time for the system to stabilize], during 2018-19, in all fairness, one would have expected the tax collection to pick up. But, the year ended up with big disappointment as the actual collection for the union government [it includes CGST (central GST), compensation cess and undistributed portion of IGST (integrated GST)]...
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Discoms – burgeoning losses, continued populism
The increasing losses of power distribution companies [discoms] – firms which procure electricity from the generators and distribute to the consumers – have once again started haunting the states and union government alike. In 2015, the union government had orchestrated a financial restructuring package [FRP] under which over 75% of the outstanding debt about Rs 400,000 crore of discoms was taken over by state governments whereas for the balance 25%, they were allowed to issue bonds – backed by sovereign guarantee – to raise funds at concessional interest rate. The FRP was intended to enable discoms start on a clean slate, reduce losses and eventually eliminate them. During 2016-17 and 2017-18, they did show significant reduction but during 2018-19, this...
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Growth remains slack, despite booster doses
The downward revision in the GDP [gross domestic product] estimate for current year by the Reserve Bank of India [RBI] in its latest monetary policy review from the previous estimate of 6.9% [that itself was a significant reduction from the original 7.4%] to 6.1% now confirms the lingering fear of substantial deceleration in the economic activity that started from the second quarter of last year. When, the GDP growth declined to a six year low of 5% during the first quarter of current year, the expectation was that the growth momentum would pick during the 3rd and 4th quarter with the banking regulator projecting growth rate of 6.6% and 7.4% respectively. Now, if RBI itself is forecasting 6.1% for the...
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PSU privatization – will Modi crack the whip?
The ‘strategic disinvestment’ is an acronym used to denote transfer of a sizeable portion of ownership and management control of the state in a public sector undertaking [PSU] to an investor [call him ‘strategic’ investor] by selling commensurate shares. In a transformative sense, the government could reduce its holding to below 51% so as to lead to relinquishment of its majority ownership and control, or privatization in plain words. The governments, the world over, have used this as an instrument to vacate areas of economic activity where they believe the state ought not to be involved in the very first place or after having operated for a certain period, currently feel it is no longer necessary. It is also used...
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