INDIAN ECONOMY: OVERVIEW, GROWTH & DEVELOPMENT
RBI cuts repo rate by 25 bps to 6 percent, 2nd in 2-month
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will announce its resolution under the first bi-monthly monetary policy statement for 2019-20 on Thursday. Economist and analysts expect a rate cut. The central bank is also expected to take a relook at its inflation numbers, growth target and the liquidity framework. Here is what you need to watch out in the RBI monetary policy announcement and its impact your money:
Most economists predict a 25 basis points (bps) cut in repo rate, according to a Bloomberg survey. One bps is one-hundredth of a percentage point. Repo rate, the key policy rate, is the rate at which the central bank lends money to the banks.
“Our base case expectation is of a 25 bps repo rate cut along with a dovish commentary to suggest more room to cut in the coming months,” said Arvind Chari, head –fixed income and alternatives, Quantum Advisors Pvt. Ltd.
The impact: A cut in repo rate can translate into cheaper loans. However, in the previous monetary policy, though the RBI had cut key policy rate by 25 bps to 6.25percent, transmission continued to remain a problem. Considering the way floating rates are structured linked to marginal cost of funds based lending rate (MCLR), if you are an existing borrower you will not see an impact due to the reset clause. If you are a new borrower, you are likely to benefit from the rate cut.
The apex bank’s inflation expectations continue to remain high despite low food prices. “In the last policy, RBI has estimated inflation for Q4FY19 at 2.8percent which is likely to be breached on the downside, with January-February 2019 inflation at 2.3percent. On the growth front, index of industrial production number, eight core data and auto sales has continued to show slack growth,” said Vinay Khattar, head of research, Edelweiss Financial Services in a note. Another concerning is liquidity in the system. “Despite RBI’s continued open market operations and the dollar-rupee swap, systemic liquidity as of March-end is in deficit. The tight liquidity is visible in high credit-deposit ratio and elevated corporate bond spreads. RBI’s commentary on liquidity should be closely watched,” said Khattar.
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RBI lowers gdp growth projection to 7.2 from 7.4 percent
At its first bi-monthly monetary policy review of the new fiscal on Thursday, the Reserve Bank of India on Thursday said that it was lowering the GDP growth projection for 2019-20 at 7.2 percent as against the earlier projection of 7.4 percent.
RBI Governor Shaktikanta Das said that the GDP growth for 2019-20 in the February policy had been projected at 7.4 percent in the range of 7.2-7.4 percent, but since then there were some signs of weakening in domestic investment, which was visible in the production and imports of capital goods.
He said keeping in mind various factors such as the moderation of grown in global economy that might impact India’s exports, higher financial flows to the commercial sector etc, the “GDP growth for 2019-20 is projected at 7.2 percent in the range of 6.8-7.1 percent in H1:2019-20 and 7.3-7.4 percent in H2 – with risks evenly balanced”.
On its inflation outlook, the RBI said that several uncertainties were influencing it and could have a negative impact.
“First, with the domestic and global demand-supply balance of key food items expected to remain favourable, the short-term outlook for food inflation remains benign. However, early reports suggest some probability of El Niño effects in 2019. There is also the risk of an abrupt reversal in vegetable prices, especially during the summer months,” the RBI said.
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RBI cuts repo rate by 25 bps for second time in 2019
Your home loans, car loan and personal loans are set to get cheaper as the Reserve Bank of India on Thursday decided to cut its benchmark repo rate by 25 basis points (bps) to 6percent from 6.25percent with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4percent and to support growth. The rate cut was anticipated by the economist and the markets. This is the second rate cut announced by the central bank in 2019 which indicates a falling rate environment. One bps is one-hundredth of a percentage point. Repo rate, the key policy rate, is the rate at which the central bank lends money to commercial banks. The reverse repo rate stands adjusted to 5.75percent, and the marginal standing facility rate and the Bank Rate to 6.25percent. The monetary policy committee (MPC), however, has maintain the neutral monetary policy stance. The MPC voted 4:2 in favor of the repo rate cut. MPC members Chetan Ghate and Viral V. Acharya voted to keep the policy rate unchanged. Only Ravindra H. Dholakia voted to change the stance from neutral to accommodative while rest of the MPC members voted in favour of the decision to maintain the neutral stance of monetary policy. In 2018, the central bank had raised rates by 50 bps to 6.5percent which in 2019 has been cut and repo rate is back at 6percent.
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ADB lowers India’s growth forecast on eve of RBI policy
The Asian Development Bank (ADB) has cut India’s growth forecast to 7.2percent for 2019-20 because of a slower-than-expected pickup in investment demand. ADB, which had estimated 7.6percent economic growth in December, is the first multilateral lending agency to slash India’s growth estimate. Despite this, India will remain the fastest growing economy, as China is projected to grow at 6.3percent in 2019, according to ADB’s estimate. In February, India’s statistics office revised its earlier growth forecast of 7.2percent for 2018-19 to 7percent. With ADB’s downgrade of India’s growth estimates, the attention shifts to the Reserve Bank of India (RBI) and the International Monetary Fund (IMF), which had earlier projected 7.4percent and 7.5percent growth, respectively. The IMF will release its World Economic Outlook next week, which will contain India’s growth estimates as well. ADB expects inflation in India to climb from 3.5percent in 2018-19 to 4.3percent in 2019-20, as food inflation accelerates with the increase in procurement prices paid to farmers, higher wages to agricultural workers, and higher fertilizer prices. ADB also cautioned that its projection could see further revision if downside risks materialize. The Manila-based multi-lateral funding agency said recent policy measures by the government to improve the investment climate and boost private consumption will help India lift economic growth in the current fiscal year and the following. Income support to farmers, hikes in procurement prices for food grains, and relief to tax payers earning less than ₹5 lakh will boost household income.
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India has offered new package to US to fix trade irritants
India has offered a conciliatory package to defuse trade tensions with Washington sparked by a decision by President Donald Trump last month to deny India preferential market access to the US, minister of commerce and industry Suresh Prabhu said on Wednesday.
India has also significantly narrowed its trade deficit with China by reducing Chinese imports by about $13 billion, and is set to post robust growth in overseas shipments, which are set to reach $540 billion, Prabhu said in an interview .
According to Prabhu, the Indian offer of a conciliatory trade package is currently being examined by the Trump administration.
In March, Washington announced that it will end preferential trade treatment for thousands of Indian products guaranteed under the Generalised System of Preferences (GSP), which promote trades with developing countries by giving duty-free entry for their exports.The US action, in retaliation for the high tariffs that Trump says India levies on its imports, triggered a 60-day countdown before the move takes effect.
Notwithstanding about $170-180 million net impact of the US Trade Representative’s (USTR) action, India is keen to address the concerns of the US.
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Govt, RBI will have to bring new rules
The government and the Reserve Bank will have to bring in a new set of regulations to ensure that borrowers repay their debt on time following the Supreme Court striking down an earlier rule of the monetary authority, Niti Aayog chief executive Amitabh Kant said Wednesday.
Amidst a rash of announcements over income support schemes, the bureaucrat also stressed on the need to ensuring higher growth to fund such dole-outs.
With the Supreme Court striking down (the February 12, 2018 RBI circular on NPAs) as ultra vires, the issue needs to be relooked by both the RBI and government to arrive at a new regulation that will ensure that financial discipline from borrowers should continue, he told .
Speaking on the side-lines of a conference of the world federation stock exchanges, Kant said such a move ensuring timely repayment and resolution of stressed assets is essential for long-term growth.
Kant said a lot of work has been done by the government and the RBI to bring in financial discipline and good regulation to end crony capitalism.
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EU launches wto case against India over import duties
The European Union has launched two World Trade Organization disputes against India over import duties on IT products and against Turkey over measures affecting pharmaceutical producers. The European Commission, which oversees trade policy for the 28-member European Union, said in a statement on Tuesday that the total value of affected EU exports was more than 1 billion euros ($1.1 billion) per year. In the case against India, the EU is challenging the introduction of import duties of between 7.5 and 20 percent for a wide range of IT products, such as mobile phones and components, as well as integrated circuits, the Commission said. In the case against Turkey, the Commission said the bloc is challenging measures that force foreign pharmaceutical producers to move their production to Turkey. The first step of WTO dispute settlement is a 60-day consultation period. The EU can request a WTO panel ruling on the cases if the consultations do not resolve the issues.
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SC order quashing RBI circular to give relief to power companies
The Supreme Court order quashing a Reserve Bank of India circular on resolving bad debt will provide relief to power companies and lenders as well as flexibility to restructure debts but will slowdown bankruptcy proceedings, experts said Tuesday.
The Supreme Court on Tuesday quashed RBI’s February 12 circular, which prescribed rules for recognising one-day defaults by large corporates and initiating insolvency action as a remedy.
Vishrov Mukerjee, Partner, J Sagar Associates said after the Supreme Court judgment, the RBI may have to issue revised guidelines/circulars for the restructuring of stressed assets.
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March GST collections hit a record Rs 1.06 lakh crore
Goods and Services Tax (GST) collection in March rose 15.6percent from a year ago to hit Rs 1.06 lakh crore, the highest since the new indirect tax system took effect on July 1, 2017.
Total gross GST revenue collected in March, 2019 is Rs 1,06,577 crore, of which CGST (Central GST) is Rs 20,353 crore, SGST (State GST) is Rs 27,520 crore, IGST (Integrated GST) is Rs 50,418 crore (including Rs 23,521 crore collected on imports) and cess is Rs 8,286 crore (including Rs 891 crore collected on imports), the finance ministry said in a statement.
Average monthly GST revenue during August-March of 2017-18 was Rs 89,885 crore, which rose to Rs 98,114 crore during AprilMarch of 2018-19.
The finance ministry said revenue growth has picked up in the last few months, despite various rate cuts by the GST Council. GST mop-up for the whole of 2018-19 stands at Rs 11.77 lakh crore.
Finance minister Arun Jaitley tweeted that the March figures indicate an expansion in manufacturing and consumption.
As many as 75.95 lakh GSTR3Bs (summary returns) were filed till March 31 for February, against 73.48 lakh a month ago.
According to Devendra Kumar Pant, chief economist at India Ratings, higher GST collection will reduce pressure on the centre emanating from compensation paid to the states for any revenue loss.