Indian Economy News & Discussion - Nov 27 2017

Supratik · Post by **Supratik** » 11 Jan 2020 20:35

Q3 results of companies have started coming out.

https://economictimes.indiatimes.com/ma ... 188430.cms

JayS · Post by **JayS** » 11 Jan 2020 20:47

https://economictimes.indiatimes.com/ma ... 193360.cms

After contracting for three consecutive months, Index of Industrial Production (IIP) grew at 1.8 per cent in November on the back of improving manufacturing sector. The IIP growth in November 2018 was at 0.2 per cent.

The IIP growth during April-November came in at 0.6 per cent, down from 5 per cent in the same period of 2018-19.

Data on IIP here:
http://mospi.nic.in/iip

Supratik · Post by **Supratik** » 12 Jan 2020 16:10

D-mart Q3 profit.

https://www.moneycontrol.com/news/busin ... 07471.html

Supratik · Post by **Supratik** » 12 Jan 2020 16:26

Avenue supermart Q3 profit.

https://economictimes.indiatimes.com/ma ... 202393.cms

Kaivalya · Post by **Kaivalya** » 13 Jan 2020 20:55

More innovation in the credit market:

Indian users will have new, immediate access to their own financial information, and they’ll control who sees what and when. It’s a marked contrast with what happens in the U.S., where three big credit reporting agencies collect -- and resell -- a limited array of consumers’ financial data directly from the banks, with only cursory consent.

India’s newly established digital rules and practices lay the groundwork for this kind of system. The central bank now requires financial data to be reported in a standard, machine-readable format, which means it’s easier to automatically slice and share

https://www.bloomberg.com/news/articles ... y-dream-of

ldev · Post by **ldev** » 14 Jan 2020 00:34

Retail inflation spikes to 7.35% in December, highest in six years

Way higher than the RBI target of 4%. Will put on hold any plans for reduction of interest rates. And GDP growth has slowed to ~5%.

vijayk · Post by **vijayk** » 14 Jan 2020 19:09

https://swarajyamag.com/magazine/good-t ... of-destiny

Good To Great? 2020-21 Is Nirmala Sitharaman’s Year Of Destiny

The big mistake made during the Jaitley years was not demonetisation (or even a poorly-designed goods and services tax or GST), but its failure to realise the depth of the ditch the United Progressive Alliance (UPA) with its world famous economists had landed the country in.

The double balance-sheet problem was recognised too late, banks were recapitalised too little, too late, and the fiscal consolidation roadmap was accepted too eagerly by the Narendra Modi government when the economy was far from robust and the UPA’s account-keeping dodgy.

The adoption of a new methodology for gross domestic product (GDP) measurement just as the new government came in — the gross value added method — gave the Modi government a false sense of comfort over growth, when the underlying problems were deep-rooted and needed strong medicine and effective handling.

The problems were compounded by the huge structural problems faced by several key sectors like banking and finance and telecom, all of which were pummelled by the pressures of competition and consolidation in a fast digitising world. The unexpected collapse of IL&FS, and an additional crisis of confidence was triggered in the non-bank financial companies sector.

Sitharaman comes in at a juncture when the problems and solutions are a lot clearer than they were in 2014.

Thanks to the lack of ideological baggage from the past, she has nothing to lose in terms of reputation and everything to gain from doing things differently.

Not surprisingly, she has had one of the steepest learning curves in the Finance Ministry, and since August has been a blur of activity, with most of the policy steps being in the right direction.

Consider the major morale-boosters she has delivered for the economy, no doubt with the behind-the-scenes support of the Prime Minister, over the last four months.

• She has offered a massive corporate tax cut to boost investment, with the net top rate falling to 25 per cent and going even lower to 15 per cent of new manufacturing units. She has given in one day what Jaitley promised to deliver over four years in the 2015 budget, and yet left the promise unfulfilled when he demitted office earlier this year due to poor health. His last pre-election budget was handled by Piyush Goyal.

• Sitharaman has front-loaded recap funds for banks, which means she has instantly boosted banks’ ability to restart lending by writing off loans faster. This should have been done in 2015, when the banking industry’s skeletons were just beginning to tumble out of the closet, but Sitharaman has now ensured that this happens fast.

• Bank consolidation has been given a big leg-up, with 10 public sector banks being merged into four — a process that could start delivering results from the second half of the next financial year, after the mergers are fully digested and consummated.

• A Rs 25,000 crore fund has been created to ensure that real estate projects left unfinished can be completed by providing last-mile funding. The money is still a drop in the ocean given that more than 576,000 housing projects worth Rs 4.6 lakh crore are stalled, but even if a tenth of these projects get restarted over the next six months after the fund starts investing its corpus, money will start flowing into housing and prime the pump for a larger revival where other lenders begin to fund stuck projects. The job of the government is to build confidence, so that risk-aversion ends. Rs 25,000 crore is not a bad amount for starters.

• Central public sector companies have been asked to front-load investments and pay vendors so that money starts flowing into parched hands and improves cash-flows.

• The cash-starved telecom industry has been given a two-year moratorium on spectrum payments, providing another bout of relief to another struggling sector.

One, even as the financial markets, rating agencies and macroeconomists are issuing dire warnings over fiscal slippages — International Monetary Fund chief economist Gita Gopinath has just issued another call to return to fiscal consolidation — Sitharaman has ignored this advice, at least for this fiscal year.

This is wise, for tightening the belt just when growth is slowing sharply is the wrong policy response. She has clearly stated that fiscal consolidation is not her priority right now. Good for her.

Two, despite a serious shortfall in GST collections, Sitharaman — no doubt with the help of saner elements in the GST Council — has opted out of making another destabilising change in tax rates.

Even though a Reserve Bank of India study has indicated that weighted GST rates are now well below 12 per cent (as against the much-touted revenue-neutral rate of around 15-15.5 per cent), Sitharaman has avoided the temptation to raise rates. This is the right decision. You don’t raise taxes in the midst of a bad slowdown.

Supratik · Post by **Supratik** » 14 Jan 2020 20:40

That is only food inflation. Core inflation is less than 4%. You can't fight food inflation with interest rates. Food inflation maybe due to season, middlemen or rising input costs of farmers. If it is the latter remember food inflation is good for farmers but bad for buyers specially in cities where it goes through several middlemen.

khatvaanga · Post by **khatvaanga** » 14 Jan 2020 21:37

Supratik wrote:That is only food inflation. Core inflation is less than 4%. You can't fight food inflation with interest rates. Food inflation maybe due to season, middlemen or rising input costs of farmers. If it is the latter remember food inflation is good for farmers but bad for buyers specially in cities where it goes through several middlemen.

Looks like food inflation only. Prices of vegetables, dals, oils and, rice is on the rise since October. For example rice which was 30/32 per kg is now at 45. of course given this is still off season for it I think we are still okay. But by Ugadi it has to come down. Else we will be in deep trouble. Every year vegetable costs rise during winter but seems to be a bit steep this year around. I do not know the reasons though.

Supratik · Post by **Supratik** » 14 Jan 2020 23:50

Whoever is advising Nirmala Sitharaman on the IT tax front is doing a bad job and will ruin this govt IMO. Why should people with different income pay the same flat tax rate? Only the tax brackets should change and the exemption limits and taxes on incentives/investments should change. Going for a flat tax rate will not increase consumption by much. Private investments should be mobilized with even more gusto to make up for the shortfall in govt spending. Instead of 3 stations, 2 airports, 4 trains, 2 expressways etc in 5 years which this govt has done in NDA2 make progress in bulk with private investments e.g. 50 stations, 50 airports, 200 trains, 20 expressways, etc.

https://swarajyamag.com/commentary/inco ... ndividuals

JayS · Post by **JayS** » 15 Jan 2020 00:12

https://swarajyamag.com/insta/office-sp ... ive-growth

Buoyed by high demand for office spaces, leasing activity in India touched a record high in 2019 with a gross leasing volume of 69.4 million square feet - a rise of 40 per cent from the last year’s figure of 49.5 million square feet, Economic Times has reported.

Office Space Leasing Activity In India Touched Record High In 2019; IT Sector, Co-Working Spaces Drive Growth
Representative image of a startup office. (Hemant Mishra/Mint via Getty Images)
Buoyed by high demand for office spaces, leasing activity in India touched a record high in 2019 with a gross leasing volume of 69.4 million square feet - a rise of 40 per cent from the last year’s figure of 49.5 million square feet, Economic Times has reported.

Pre-leasing activity too rose to record levels in 2019 and vacancy levels stayed low as a result. The pre-leasing activity stood at 17.2 million square feet, up by 7.2 per cent. Hyderabad led the line for the same with a demand of 5.8 million square feet, followed by Bengaluru at 4.7 million square feet.

Rentals too increased as a result of strong demand, a large chunk of which was propelled by rise in co-working spaces. The co-working space demand increased 1.43 times as compared to last year.

IT industry was very active in leasing office spaces and rapidly expanded its real estate footprint, thus becoming the largest contributor for surging demand. Information technology and Business Process Management (IT-BPM) sector clocked a share of 32.6 per cent followed by captive and global capability centres with a 19.8 per cent share.

The absorption figures (total spaces leased divided by total available spaces) for 2019 exceeded the cumulative figure for 2018 and 2017. The net absorption figure for 2019 stood at 45 million square feet as compared to 2018 figure of 29 million square feet.

The year was also favourable for flexible work spaces, which saw a leasing activity of 7 million square feet.

Supratik · Post by **Supratik** » 15 Jan 2020 00:30

It means new hiring in the IT/ITES sector and therefore expansion is happening or will happen.

Raveen · Post by **Raveen** » 15 Jan 2020 00:32

Supratik wrote:Whoever is advising Nirmala Sitharaman on the IT tax front is doing a bad job and will ruin this govt IMO. Why should people with different income pay the same flat tax rate? Only the tax brackets should change and the exemption limits and taxes on incentives/investments should change. Going for a flat tax rate will not increase consumption by much. Private investments should be mobilized with even more gusto to make up for the shortfall in govt spending. Instead of 3 stations, 2 airports, 4 trains, 2 expressways etc in 5 years which this govt has done in NDA2 make progress in bulk with private investments e.g. 50 stations, 50 airports, 200 trains, 20 expressways, etc.

https://swarajyamag.com/commentary/inco ... ndividuals

Flat tax is a long standing right wing dream in the US

consumption only taxes is a wetter dream

Bart S · Post by **Bart S** » 15 Jan 2020 03:43

Supratik wrote:Whoever is advising Nirmala Sitharaman on the IT tax front is doing a bad job and will ruin this govt IMO. Why should people with different income pay the same flat tax rate? Only the tax brackets should change and the exemption limits and taxes on incentives/investments should change. Going for a flat tax rate will not increase consumption by much.
https://swarajyamag.com/commentary/inco ... ndividuals

I think that you have misread this. Exemptions (with perhaps the exception of long-term retirement savings, and housing) are just a massive waste of everybody's time (employees, employers, tax dept) and a massive source of corruption. This was the case with the medical bill exemption which was thankfully done away with (though it was mainly the paperwork that went away). Much better to lower taxes and do away with these stupid exemptions like house rent allowance etc.

nandakumar · Post by **nandakumar** » 15 Jan 2020 14:27

The logic for tax exemption on house rent allowance goes something like this. In large metropolitan areas house rents are exorbitant. So between two persons having same gross income a person earning the same but living in a smaller town with a lower rental burden ends up having a higher post-tax income. So a tax concession on house rent allowance for the person living in a metropolitan area and paying higher rent.

Yagnasri · Post by **Yagnasri** » 15 Jan 2020 15:35

The simpler the law and better will be compliance. It will also reduce corruption. But they need to increase the minimum income taxable to a big amount say 10 Lakhs and remove all exceptions including yearly deductions on housing loans PF etc. This will reduce lot of work to IT department and will put money in the pockets of people and thereby contribute to GST. In any way rate of IT in these areas is quite low and therefore the beneficiaries will be more and reduction in total tax in % terms will be small.

kit · Post by **kit** » 15 Jan 2020 22:11

https://www.bloomberg.com/news/articles ... nomy-india

Just two years ago, Prime Minister Narendra Modi was helming an economy expanding 8%, spurring optimism India was on a path to become a major global growth driver.

Now, stagflation looms as the economy grinds toward its slowest expansion in more than a decade and inflation spikes above the central bank’s target, driven by higher food prices. Social unrest against a restrictive new citizenship law is yet another challenge.

And there are few good options to deal with the slowdown. Dwindling government revenue and an already-stretched budget limit scope for fiscal support, while the shock 7.35% surge in retail inflation in December and the threat of higher oil prices mean the door for further interest rate cuts is closing.
Sovereign bonds dropped after the inflation data. The yield on the benchmark 10-year bond rose as much as 10 basis points to 6.7% on Tuesday, the most since Dec. 5. Wholesale price inflation quickened to a seven-month high of 2.59% last month, latest data show.
So what went wrong? At the heart of India’s problems is a slump in consumption following a combination of policy missteps, from the unprecedented decision to ban high-value cash notes at the end of 2016, to the chaotic implementation of a unified goods and services tax the following year. That was followed shortly after by a credit crunch, which triggered -- and then was worsened by -- a crisis among shadow lenders which are a key provider of small loans to hundreds of millions of consumers and businesses..

Volatile Oil
Consumption makes up about 60% of gross domestic product, and spending has slumped as businesses shed jobs and put off investment plans. Consumer sentiment remains in the doldrums and the recent volatility in oil prices could be a further drag on spending. Economic growth in the fiscal year through March 31 is set to slow to an estimated 5%, the weakest pace in more than a decade.

“The recovery is likely to be very gradual and a stagflation scenario is likely,” Teresa John, an economist at Nirmal Bang Equities Pvt in Mumbai, said. Stagflation refers to a condition of accelerating inflation and weakening growth.

The central bank’s five interest-rate cuts last year and billions of dollars of liquidity pumped into financial markets have done little to spur lending. That’s because banks are already saddled with one of the worst stressed-asset ratios in the world and are neither lending much nor transmitting ratcuts to borrowers.

What Bloomberg’s Economists Say
India’s recovery is still sputtering. Our GDP tracker shows growth slamming into reverse in November after a pickup in October, adjusted for year-earlier base effects. This cautions against any premature withdrawal of policy support. Our view is that the government and the central bank need to step up stimulus.

Click here to read the full report.

Abhishek Gupta, India economist

India Finance Minister Nirmala Sitharaman News Conference
Nirmala SitharamanPhotographer: T. Narayan/Bloomberg
The government has taken steps to revive the economy, but they aren’t bearing fruit yet. Finance Minister Nirmala Sitharaman gave companies $20 billion worth of tax cuts, merged weak state-run banks with stronger ones and eased foreign investment rules. The government will also sell state assets in its biggest privatization drive in more than a decade.

Read: Why in India, 5% GDP Growth Is Cause for Alarm: QuickTake

“We are really extremely close to a point where we could be dipping into a major recession,” Abhijit Banerjee, winner of the Nobel prize for economics last year, said this month in Mumbai. “The critical problem in the Indian economy is demand. You definitely want to stimulate demand,” he said, urging authorities to abandon their inflation and budget deficit targets.
Sitharaman may outline more measures to boost growth in the annual budget scheduled for Feb. 1. Expectations are for the fiscal deficit to widen to as much as 3.8% of gross domestic product in the current financial year against a target of 3.3%.

There are some early signs that the economy may be bottoming out. The latest high-frequency indicators, such as the purchasing managers indexes for manufacturing and services, show activity is picking up. Industrial production and capital expenditure also improved late last year.

Economists are forecasting a rebound in growth to 6.2% in the fiscal year through March 2021, although much will depend on how quickly global demand and domestic spending recovers.

Nouriel Roubini, a New York University professor and well-known economic doomsayer, told delegates at a Mumbai conference last week that he doesn’t see evidence yet that the “slowdown is going to give way to a significant pick-up in growth in this financial year.” He added that policy makers’ attention “should have been concentrated on the economy and is instead distracted by political things.”

Supratik · Post by **Supratik** » 15 Jan 2020 22:21

I have no problem with simplification of taxation as long as it is rational e.g. they can bunch up all the exemptions into a standard deduction. Like what they do with the 1.5 lakh investment limit. But flat tax rates, doing away with exemptions, etc are stupid ideas which is going to lead to suicide for this govt.

Supratik · Post by **Supratik** » 15 Jan 2020 22:26

Demo and GST has killed the informal black money economy. This black money was being used to fund consumption. So a slump in demand is to be expected. Now the job of the govt is to ensure that the formal cleaner economy takes up the space and generates demand. How fast will depend on how fast the govt can move.

Supratik · Post by **Supratik** » 15 Jan 2020 22:31

I am not sure why India should be heading towards stagflation. As demand is weak it means supply is greater than demand and there should be no reason for high inflation. It is going to be a recovery. How fast is the question.

Suraj · Post by **Suraj** » 15 Jan 2020 23:08

Supratik wrote:Demo and GST has killed the informal black money economy. This black money was being used to fund consumption. So a slump in demand is to be expected. Now the job of the govt is to ensure that the formal cleaner economy takes up the space and generates demand. How fast will depend on how fast the govt can move.

Exactly. This isn't a sudden inexplicable slowdown - it's the painful throes of an economy that's restructuring and formalizing itself the hard way. There's really no way around this. Every developing economy went through this with a lot of pains involved - temporarily. China had a very hard time closing down loss making SoEs, firing millions, and formalizing their economy, back between about 1997-2002 .

Suraj · Post by **Suraj** » 15 Jan 2020 23:50

In the previous page, there was some discussion about China getting things done - building things or clearing things - allegedly because they're not a democracy and can do as they please. I'm sorry, but please don't parrot that here. It's been quoted unchanged on BRF for 2 decades and offers nothing useful, and what's more, it is wrong.

What makes China so good is that they've figured out how to align personal motives with larger policy motives. No entity can compel growth for 3 decades by threat of personal harm or violence otherwise. It can achieve some temporary gains like Stalinist USSR, but not a sustainable structure of multidecadal growth as PRC have.

What that have done extremely well at, is to carefully understand motives, and apply policies to accomplish it. Let's take mass surveillance. They have cameras everywhere. Well, they don't remotely have the money, manpower or time to run those cameras and keep an eye on 1.4 billion people. Many of those cameras don't work. What those cameras do is result in self policing. People don't know which cameras work and which do not. Police regularly use some of the cameras to apprehend people, and make a big show of its utility. It yields compliance.

A larger example is SEZs. They didn't open up all at once. They started just four - Shenzhen, Xiamen, Shantou, Zhuhai. They went through several iterations of reforms, understanding how economic activity built. Some of these four did better than others due to circumstances. Shenzhen of course became the crown jewel. But the most important thing is that they took time to learn carefully. Nobody, not even them, gets laws and policies correct on first try. But they are excellent at operating a feedback loop to learn and polish their policy and execution framework.

This is the reason they accomplish things - the ability to tailor solutions to their situation. Sure they use cynical means - outright IP theft, market protection, coercion where required... but these are not the primary reason for 40 years of economic growth. The stewardship of effective policymaking and execution, is.

This is the primary reason India has trouble managing growth . It is NOT 'democracy'. "We can't prevent people from overwhelming cities. Chinese have internal passport to restrict movement." they say. That is nonsense. Any modern developed country city has laws to permit overcrowding. You cannot build homes without proper zoning and permit requirements. One cannot have more than a certain number of people per household unless certain requirements for number of rooms, sqft-age and other requirements are met. Reasons like "It will tear apart people. It is heartless" , "What, do you want them to starve in villages ?" are just emotional noise. This is a matter of civilized law-abiding behavior - which ultimately is the foundation of high standard of living.

Zoning and permitting ensures that city administration can plan for delivery of PUs - water, electricity, sewerage, etc. It lets them estimate property tax income as well. Properly enforced tenement residence restrictions ensure that public services like police, hospitals and emergency services can cope , and are aware of how many people to deal with in a crisis. In a fire, the services know that 20 people aren't going to spill out of a crowded flat they're trying to douse.

None of these problems are due to 'democracy' . For most part, at local, state or even national level, our administrative apparatus is between fair and poor. In many places, it is between poor and deplorable. There are administrations at the center who show competence. This administration for example, in 5 years, solved decades long problems with access to public banking, rural sanitation, rural cooking fuel, rural roads, rural electricity access, and is now working on universal water access. Much credit to them. But it's a huge indictment of the system that this needed solving in 2014-2019, not 20-30 years ago. It's why I like them most. I care little for blue sky pronouncements - I value the ability to put head down and execute, even on a simple goal like rural toilet construction. Get. It. Done. If you do, you have my abiding respect.

The central government can do nothing to solve our major cities being incapable of implementing basic administrative capabilities. That is the reason the quality of life in India is poor. We have very unevolved adminstrative structures and weak institutions who lack the ability to clearly implement solutions in a well thought out and unemotional way. The best possible answer to this is STOP being emotional and superficial - the solutions lie in thinking carefully and implementing simple solutions effectively.

Here's an example: unpermitted/unsanitary street hawkers. China, Singapore all had issues with this. China city police regularly has drives to evict hawkers. The goal is not to fix it in one go. It won't be fixed. It also serves no point to destroy their livelihoods. It will just create additional public policy problems associated with poverty, crime, and welfare. The goal is to enforce proper behavior through repeated action. Ensure a) they can hawk only in specific areas and b) ensure their sanitary standards are up to a level . Meanwhile ensure policing the police is possible by enabling citizens to report demands for bribery though pictures/videos sent over cellphones to an independent authority who can suspend an official. Do this repeatedly in high profile incidents that both sides remember. Self policed civilized behavior follows. At a larger scale, do the same for builders who don't follow permitting. A few high profile builders are to be regularly arrested for their transgressions, on suitable basis - their conduct involved inter state crime, so a national crime enforcement agency could override local police/state patronage. Do this on a regular basis in a high profile way.

Improving our standard of living takes more than GDP growth. We have had world beating growth for 30 years now - only China makes it look bad. But even after 25 years of growth, barely half the villages had electricity, sanitation or roads. It took specific, targeted execution to complete. Growth doesn't automatically yield rapid improvement in standard of living. It takes effective policymaking and administration. I place FAR more value on a government able to implement policy effectively, than one that makes grandiose statements.

That's the fundamental reason I like this central government; they have accomplished tasks - utterly BASIC tasks like build roads and electricity lines - that 70 years of prior governments could not marshall effort to do. The Soviet Union got electrification done in the 1920s/30s under GOELRO. The US followed during FDRs Depression public works. The Chinese between 1990s-00s. The greatest value and improvement in standard of living comes from effective policymaking that learns from errors. Don't waste time arguing that some new policy is bad because just like war a plan only survives until the first hail of bullets - what matters far more is do they learn and improve it ? Do they continuously show the ability to execute plans quietly but efficiently ? Do they apply what they learn, elsewhere ? If they do, that is the hallmark of competence.

Uttam · Post by **Uttam** » 16 Jan 2020 00:49

The transient state of economic formalization certainly played a big role in slowing down the economy. However, I wonder if we were a little too ambitious with inflation control. Very high real interest rates when banking sector was sitting on piles of worthless assets, probably had a bigger impact. As the informal economy contracted because of Demo and GST, the formal was supposed to take its place. This did not happen because of a really weak banking sector.

What will pull out the economy from this slow growth? Continued efforts to formalize the economy and strengthening of IBC and its enforcement will make banks more agreeable to lend to businesses. At the same time, the govt and RBI should be more accommodating on fiscal and monetary fronts, respectively. Here is my prescription:

1) Continue the process of economic formalization. Instead of following a punitive approach that gives too much power to the tax department employees, emphasize on the use of information technology. The FasTag for toll collection is a nice step, the GSTN can do something similar to improve tax compliance. AAdhaar's to limit misuse of subsidy is an excellent effort.

2) No more economic disruptions. I am not contesting the importance of past decisions like demo and GST. But, I firmly believe businesses need continuation on the policy front and not disruption. Businesses plan investments based on the current policy. Too many policy changes frighten them. Not raising GST rates in face of rising deficit was an excellent decision.

3) Too much protection is not good in the long run. Import substitution is a myth. It has not succeeded in past and is unlikely to succeed in future. The cost of tariffs and/or noncompetitive products ultimately falls on Indian consumers. A case in point is the solar panel manufacturing. Even after heavy tariffs, there is little movement in increasing solar manufacturing. It certainly increased the prices at auctions or led to failure of many auctions. Focus should be on increasing competitiveness of local manufacturers and not protection. As much as we hate to see foreigners make a buck by selling things to us, these things also help improve lives of our people, e.g. cell phones, solar panels, EV scooters, etc.

4) Focus on reducing the cost of doing business. During the last few years the govt has paid a lot of attention on the ease of doing business. This was a great step in the right direction. The govt also focused on making more transportation infrastructure available, another commendable step. However, petrol/diesel prices are still very high India. See this link:https://www.globalpetrolprices.com/diesel_prices/

Diesel is about $1.01/ liter in India ; $0.80 in US; $0.96 in China; $0.77 in Bangladesh; $0.57 in Sri Lanka; $0.72 in Vietnam; $0.92 in Thailand. You get the point. India is not that high if you look at the entire world, but it is definitely higher than most of its competitors. The manufacturer has to pay this cost and therefore adds to the price it wants to charge. Agreed that diesel/petrol taxes are needed to build roads and stuff, which will improve long run competitiveness. However, there should be a recognition that it adds to short-term cost and noncompetitiveness of our manufacturers.

5) Allow fiscal and monetary expansion As long as the fiscal deficit is caused by increasing assets that will pay in the long run, like infrastructure, health, education, some amount of fiscal and monetary expansion will be easily tolerated by financial markets. Most countries are expanding their deficits these days. China (close to 5%), US (close to 4%) and others are running record deficits this year. India should be allowed too.

kit · Post by **kit** » 16 Jan 2020 00:57

Uttam wrote:The transient states of economic formalization certainly played a big role in slowing down the economy. However, I wonder if we were little too ambitious with inflation control. Very high real interest rates when banking sector was sitting on piles of worthless assets, probably had a bigger impact. As the informal economy contracted because of Demo and GST, the formal was supposed to take its place. This did not happen because of really weak banking sector.

What pull out the economy from this slow growth? Continued efforts to formalize the economy and strengthening of IBC and its enforcement will make banks more agreeable to lend to businesses. At the same time, the govt and RBI should be more accommodating on fiscal and monetary fronts, respectively. Here is my prescription:

1) Continue the process of economic formalization. Instead of following a punitive approach that gives too much power to the tax department employees, emphasize on the use of information technology. The FasTag for toll collection is a nice step, the GSTN can do something similar to improve tax compliance. AAdhaar's to limit misuse of subsidy is an excellent effort.

2) No more economic disruptions. I am not contesting the importance of past decisions like demo and GST. But, I firmly believe businesses need continuation on the policy front and not disruption. Businesses plan investments based on the current policy. Too many policy changes frighten them. Not raising GST rates in face of rising deficit was an excellent decision.

3) Too much protection is not good in the long run. Import substitution is a myth. It has not succeeded in past and is unlikely to succeed in future. The cost of tariffs and/or noncompetitive products ultimately falls on Indian consumers. A case in point is the solar panel manufacturing. Even after heavy tariffs, there is little movement in increasing solar manufacturing. It certainly increased the prices at auctions or led to failure of many auctions. Focus should be on increasing competitiveness of local manufacturers and not protection. As much as we hate to see foreigners make a buck by selling things to us, these things also help improve the life of our people, e.g. cell phones, solar panels, EV scooters, etc.

4) Focus on reducing the cost of doing business. During the last few years the govt has paid a lot of attention on the ease of doing business. This was a great step in the right direction. The govt also focused on making more transportation infrastructure available, another commendable step. However, petrol/diesel prices are still very high India. See this link:https://www.globalpetrolprices.com/diesel_prices/

Diesel is about $1.01/ liter in India ; $0.80 in US; $0.96 in China; $0.77 in Bangladesh; $0.57 in Sri Lanka; $0.72 in Vietnam; $0.92 in Thailand. You get the point. India is not that high if you look at the entire world, but it is definitely higher than most of its competitors. The manufacturer has to pay this cost and therefore adds to the price it wants to charge. Agreed that diesel/petrol taxes are needed to build roads and stuff, which will improve long run competitiveness. However, there should be a recognition that it adds to short-term cost and noncompetitiveness of our manufacturers.

5) Allow fiscal and monetary expansion As long as the fiscal deficit is caused by increasing assets that will pay in the long run, like infrastructure, health, education, some amount of fiscal and monetary expansion will be easily tolerated by financial markets. Most countries are expanding their deficits these days. China (close to 5%), US (close to 4%) and others are running record deficits this year. India should be allowed too.

I would suppose increasing the tax base would help to reduce the fuel prices, India s tax base is much lower than many other countries including its competitors , after all the federal government needs funds to do whatever is required!

Sops to manufacturers and multinational to start businesses and lure away investors to India by virtue of its market size can be made only if imports become costlier / more difficult. low hanging fruits include increasing taxes for luxury items coming from SE Asia, getting out of FTAs where it does not benefit India ( the mutual agreements were supposed to but some countries notably in SEA are playing truant )

kit · Post by **kit** » 16 Jan 2020 01:02

Suraj wrote:
Supratik wrote:Demo and GST has killed the informal black money economy. This black money was being used to fund consumption. So a slump in demand is to be expected. Now the job of the govt is to ensure that the formal cleaner economy takes up the space and generates demand. How fast will depend on how fast the govt can move.
Exactly. This isn't a sudden inexplicable slowdown - it's the painful throes of an economy that's restructuring and formalizing itself the hard way. There's really no way around this. Every developing economy went through this with a lot of pains involved - temporarily. China had a very hard time closing down loss making SoEs, firing millions, and formalizing their economy, back between about 1997-2002 .

also quite possible the GOI underestimated the amount of black money, the parallel economy almost disappeared

Suraj · Post by **Suraj** » 16 Jan 2020 01:48

kit wrote:also quite possible the GOI underestimated the amount of black money, the parallel economy almost disappeared

By it's nature they have no way to estimate it accurately. That's the whole reason it's black to begin with. Policymaking can only attempt to address knowable factors, or orient itself to keep up with information as it's available.

The lack of knowledge about the extent of the black economy does not eliminate the need to implement policy to formalize the economy. All the talk about 'Demo was done badly' makes no sense to me. It was a necessary step, but only one piece of a range of policymaking actions involved in implementing economic formalization.

Suraj · Post by **Suraj** » 16 Jan 2020 02:54

Uttam: Great long post . Agree with all the points.

Uttam · Post by **Uttam** » 16 Jan 2020 03:25

Suraj wrote:Uttam: Great long post . Agree with all the points.

Thank you for your kind words.

SRajesh · Post by **SRajesh** » 16 Jan 2020 18:40

https://timesofindia.indiatimes.com/bus ... 300565.cms
Here SC ordering Telcos to payup!!
Looks like the government is using/making Judiciary pass judgment on the actions taken(as the so called 'Suit Boot' people are feeling the pinch and going Hiz Honours for help)
The Indian Business community have been taking the successive governments for ride as they feel they are entitled(having coughed-up for the party fund)
Is every sector the same i.e, playing footsie with the govt and not paying their dues??
I know the 'Agri sector' is the 'poison chalice' and no government wants to reform that
What are possible sectors to target for growth this year??

hgupta · Post by **hgupta** » 16 Jan 2020 20:51

Uttam, GOI won't be able to do away with fuel/diesal taxes. It is one of their biggest revenue streams and until the GOI are able to collect income taxes from 80% of the population, the fuel/diesel is a indirect way (not perfect but still) of collecting the actual income tax from the 80% that don't pay up.

Fiscal expansion is very hard without getting 80% of the people to pay their income taxes.

Uttam · Post by **Uttam** » 16 Jan 2020 21:15

hgupta wrote:Uttam, GOI won't be able to do away with fuel/diesal taxes. It is one of their biggest revenue streams and until the GOI are able to collect income taxes from 80% of the population, the fuel/diesel is a indirect way (not perfect but still) of collecting the actual income tax from the 80% that don't pay up.

Fiscal expansion is very hard without getting 80% of the people to pay their income taxes.

Agreed. But, what can be done to reduce the cost of production and transportation to compensate for higher energy cost? I don't know the answer but here is my guess list:

1) Reduce transportation time: Faster, safer roads will reduce the time goods are on the road. It will also reduce the amount of fuel used in transportation. GST is also helping by removing "chungi" stops and bribes. The DFC and expressways once constructed will provide booster shots.

2) Create more and cheaper sources of electricity. Diesel generators are one of the most expensive and polluting sources of energy. Cheap and reliable electric supply from the grid will reduce the cost of energy significantly. Captive solar can do wonders. The govt. should consider tax breaks on battery storage as well.

3) Labor laws: Allow industries the ease to higher efficient workers and fire inefficient ones. For the last 70 years, we have expected and pushed businesses to create social infrastructure. With better pension schemes, health coverage from the govt., there should be reduced pressure on businesses to provide the safety net. Unemployment insurance will go long way in reducing labors' anxiety from changing labor laws.

4) Land: One of the most expensive factor of production in India. Change land acquisition laws. Start auctioning land locked with bleeding PSUs. Privatize the ones that have a buyer. Close the rest and sell land to private industry.

kit · Post by **kit** » 16 Jan 2020 22:00

Uttam wrote:
hgupta wrote:Uttam, GOI won't be able to do away with fuel/diesal taxes. It is one of their biggest revenue streams and until the GOI are able to collect income taxes from 80% of the population, the fuel/diesel is a indirect way (not perfect but still) of collecting the actual income tax from the 80% that don't pay up.

Fiscal expansion is very hard without getting 80% of the people to pay their income taxes.
Agreed. But, what can be done to reduce the cost of production and transportation to compensate for higher energy cost? I don't know the answer but here is my guess list:

1) Reduce transportation time: Faster, safer roads will reduce the time goods are on the road. It will also reduce the amount of fuel used in transportation. GST is also helping by removing "chungi" stops and bribes. The DFC and expressways once constructed will provide booster shots.

2) Create more and cheaper sources of electricity. Diesel generators are one of the most expensive and polluting sources of energy. Cheap and reliable electric supply from the grid will reduce the cost of energy significantly. Captive solar can do wonders. The govt. should consider tax breaks on battery storage as well.

3) Labor laws: Allow industries the ease to higher efficient workers and fire inefficient ones. For the last 70 years, we have expected and pushed businesses to create social infrastructure. With better pension schemes, health coverage from the govt., there should be reduced pressure on businesses to provide the safety net. Unemployment insurance will go long way in reducing labors' anxiety from changing labor laws.

4) Land: One of the most expensive factor of production in India. Change land acquisition laws. Start auctioning land locked with bleeding PSUs. Privatize the ones that have a buyer. Close the rest and sell land to private industry.

Its not so bad everywhere, Defence ministry is apparently one of the largest landowners, and its quite likely parts of it can be made into Special Economic Zones for military-industrial factories/production lines etc. Similarly, PSU s like BSNL is land rich why not privatise and let MSMEs set up industrial corridors/factories/assembly lines pertaining to telecommunications, even if subsidized it will be win-win for all. Invest in infrastructure in these areas and then let the private companies come in for a fee.
To an advanced level, even semiconductor fabs can be persuaded to open in such corridors given the right conditions.

Supratik · Post by **Supratik** » 16 Jan 2020 22:30

Uttam, minor nitpick. Even if we had low interest rates banks wouldn't lend much given the amount of NPAs they had. The other thing we don't appreciate is that the govt is managing to return banks to heath with much less recapitalization. That is one more reason why it took more time. Now with IBSC this should not be needed in future except for emergency situations.

Kit, we have discussed this before. Most Indians who can or need to pay taxes are paying them now. No further increase can happen without further expansion of the economy. Remember all Indians pay indirect taxes in one way or the other. Direct taxes increase will require creation of more and more well paying jobs which means expansion of the economy.

I am hearing that the corporates got a 20 billion dollars bonanza from the corporate tax cuts. Soon many will be sitting on a pile of cash. Given slow consumer demand this is the right time to move like a cheetah on infrastructure using private money. Build 50 expressways, 100 airports, 500 trains, 200 stations, 10 DFCs etc. Go China on infra. This is the right time.

hgupta · Post by **hgupta** » 16 Jan 2020 22:44

Uttam wrote:
Agreed. But, what can be done to reduce the cost of production and transportation to compensate for higher energy cost? I don't know the answer but here is my guess list:

1) Reduce transportation time: Faster, safer roads will reduce the time goods are on the road. It will also reduce the amount of fuel used in transportation. GST is also helping by removing "chungi" stops and bribes. The DFC and expressways once constructed will provide booster shots.

2) Create more and cheaper sources of electricity. Diesel generators are one of the most expensive and polluting sources of energy. Cheap and reliable electric supply from the grid will reduce the cost of energy significantly. Captive solar can do wonders. The govt. should consider tax breaks on battery storage as well.

3) Labor laws: Allow industries the ease to higher efficient workers and fire inefficient ones. For the last 70 years, we have expected and pushed businesses to create social infrastructure. With better pension schemes, health coverage from the govt., there should be reduced pressure on businesses to provide the safety net. Unemployment insurance will go long way in reducing labors' anxiety from changing labor laws.

4) Land: One of the most expensive factor of production in India. Change land acquisition laws. Start auctioning land locked with bleeding PSUs. Privatize the ones that have a buyer. Close the rest and sell land to private industry.

1. Build better road and infrastructure. You need fuel/diesel taxes & tolls for that. All developed countries have that.
2. Will not be possible without the discoms paying timely and in full on all arrears and current invoices. That's the problem. Most electricity producers have been burned in the past and will not create more cheaper sources of electricity until they get assurances of timely payments by discoms.
3. Until we can get the 80% of people to pay income taxes, that will not change.
4. Agreed but you also need to reform Landlord/Tenant laws that are more in favor of landlords. Right now it is titled too heavily in the direction of tenants. Tenants are not encouraged to pay rent on time and in full and also not encouraged to pay market rates. It is very risky to become a landlord and have tenants because if they don't pay up, it is very burdensome to evict the tenants out and get another paying tenant. So it is hard to get a mortgage for investment properties. And it is also hard to transfer properties with existing tenants from one owner to another owner.

Suraj · Post by **Suraj** » 16 Jan 2020 22:52

Uttam wrote:
hgupta wrote:Uttam, GOI won't be able to do away with fuel/diesal taxes. It is one of their biggest revenue streams and until the GOI are able to collect income taxes from 80% of the population, the fuel/diesel is a indirect way (not perfect but still) of collecting the actual income tax from the 80% that don't pay up.

Fiscal expansion is very hard without getting 80% of the people to pay their income taxes.
Agreed. But, what can be done to reduce the cost of production and transportation to compensate for higher energy cost? I don't know the answer but here is my guess list:

1) Reduce transportation time: Faster, safer roads will reduce the time goods are on the road. It will also reduce the amount of fuel used in transportation. GST is also helping by removing "chungi" stops and bribes. The DFC and expressways once constructed will provide booster shots.

2) Create more and cheaper sources of electricity. Diesel generators are one of the most expensive and polluting sources of energy. Cheap and reliable electric supply from the grid will reduce the cost of energy significantly. Captive solar can do wonders. The govt. should consider tax breaks on battery storage as well.

3) Labor laws: Allow industries the ease to higher efficient workers and fire inefficient ones. For the last 70 years, we have expected and pushed businesses to create social infrastructure. With better pension schemes, health coverage from the govt., there should be reduced pressure on businesses to provide the safety net. Unemployment insurance will go long way in reducing labors' anxiety from changing labor laws.

4) Land: One of the most expensive factor of production in India. Change land acquisition laws. Start auctioning land locked with bleeding PSUs. Privatize the ones that have a buyer. Close the rest and sell land to private industry.

For what it's worth, GoI has used the annual Ease of Doing Business Index as a barometer to benchmark its efforts to reduce soft costs across the board. They have done quite well going by that index. Until 2014, India essentially did not move the needle on that index, ranking around 130-145th in the world every year. Since then:
2014: 134
2015: 142
2016: 130
2017: 130
2018: 100
2019: 77
2020: 63

While no index is perfect, it serves as a metric. Pursuit of improvement on a metric drives efforts to organize and plan a course of action, and implement measurable actions. This is extremely important for demonstrating the ability to accomplish things in a visible manner. In the 2020 rankings, India's #63 position means peers are the likes of Italy (58), Mexico (60), Colombia (67), Vietnam (70) etc. A slight bump into the 40-50 positions would put us firmly among a number of OECD countries.

I value this kind of metric driven process and outcome improvement in a government. There's very little day to day political glamour in it, but it results in hard outcomes that matter to the population, and also counts for a lot during general elections, as the focus on improving rural life paid such enormous dividends in 2019 GE.

Supratik · Post by **Supratik** » 16 Jan 2020 23:22

To elucidate on one of Suraj's points. I think Indian cities look so insufferable because governance is centralized in the hands of the state govt with the city administration being a mere spectator or a municipality doing some cleaning stuff and road tarring or power line fixing work. If we can strengthen city governance and make the mayor the defacto city administrator with financial and governance powers our cities will get the attention they need. This will need legislation in parliament I think but a pending reform IMO. Without this our cities will continue to suffer. The local administration should be able to decide which projects are needed for the city or town and have the administrative and financial powers to execute it.

hgupta · Post by **hgupta** » 17 Jan 2020 03:46

Supratik, now you are veering into political discussion territory.

kit · Post by **kit** » 17 Jan 2020 04:05

hgupta wrote:Uttam, GOI won't be able to do away with fuel/diesal taxes. It is one of their biggest revenue streams and until the GOI are able to collect income taxes from 80% of the population, the fuel/diesel is a indirect way (not perfect but still) of collecting the actual income tax from the 80% that don't pay up.

Fiscal expansion is very hard without getting 80% of the people to pay their income taxes.

How much or rather how many Indians are there in the taxable bracket for Income tax ?!

Charge to income tax

About 1% of the national population, called the upper class, fall under the 30% slab. It grew 22% annually on average during 2000-10 to 0.58 million income taxpayers. The middle class, who fall under the 10% and 20% slabs, grew 7% annually on average to 2.78 million income taxpayers.

And that on a population of one billion plus

China has seen its ratio of tax revenue to GDP grow from 10.5% in 1994 to 20.1% in 2015.

As for the OECD

nam · Post by **nam** » 17 Jan 2020 04:09

This discussion around what needs to be done generally happens regularly. Here is something which I have commented earlier.

Take the 4 big boys of the world: US, China, Japan, Germany.

They are dominant in one or other commodity of world demand. Technology, manufacturing, automobile, engineering goods etc.

What is our dominating commodity? None. Issue is GoI's obsession to have it's pie in every possible area and the resultant attitude of our people towards risk taking.

It is not land reforms or labour reforms or tax reform, which is stopping us. The biggest demand generator in our country is GoI. All we need to do is analyse whom does GoI buy from, will tell you why we struggle.

Suraj · Post by **Suraj** » 17 Jan 2020 04:11

hgupta wrote:Supratik, now you are veering into political discussion territory.

No it's not; there's plenty to discuss without getting into political specifics. It's an urban public policy discussion. There's an entire thread about it I created years ago:
Indian Urban Development and Public Policy Thread