Download April 2017

(16-30TH April 2017)
GOVERNMENT OF INDIA
DIRECTORATE GENERAL OF SUPPLIES & DISPOSALS
JEEVAN TARA BUILDING, 5 SANSAD MARG,
NEW DELHI - 110001
SUMMARY OF ECONOMIC INTELLIGENCE BULLETIN
Economic Intelligence Bulletin includes abstracts of important economic/commercial/
technical development and reviews as reported in the issues of financial dailies. The Bulletin
pertains to the fortnight ending 30th April, 2017.
1. PRICE TREND
1.26
STEEL MAKERS FEEL THE HEAT OF INPUT COST RISE
The recent increase in prices of iron ore and coking coal
has made steel manufacturing costlier by at least Rs 8,000 a tonne
for producers without captive mines.
This is likely to put pressure on their margins, being
unable to pass on the extra cost to consumers in a market situation
where domestic demand is subdued.
Of the 122 million tonnes installed capacity of steel in the
country, about 70 per cent come from industries without captive
mines, dependent on iron ore bought from merchant miners.
The price of iron ore lumps (62.5 per cent iron) has gone
up from Rs 1,744 a tonne in September 2016 to Rs 3,000 a tonne
this month, a rise of 72 per cent. The FOB price of coking coal has
doubled in two weeks this month, from $150 a tonne to $300 a
tonne. Its September 2016 price was $220 a tonne.
The spiralling ore price has had an impact of Rs 2,000 a
tonne of steel for those buying it from the market. The rise in
coking coal price has pushed up the input cost by Rs 6,000 a
tonne.
Interestingly, the domestic ore price is showing a rising
trend while the international price has fallen by 20 per cent in the
past two months, from $93.75 a tonne in February to $74.65 a
tonne in April.
“The cause of this pricing anomaly is the lack of a
mechanism to ensure long-term linkage facilities for
domestic steel industries, encompassing the merchant miners at a
price derived for dedicated e-auction of ore sector-wise, as is the
case with fuel supply auctions for coal,” said a steel producer
whose plant needs ore from the market.
(BUSINESS STANDARD 20TH APRIL, 2017)
1.27
EXPORT CURBS MAY RAISE RUBBER RATE
Even as declining natural rubber (NR) prices have rekindled hopes of revival of
imports, the announcement by major global producers to limit exports may push up prices in
the coming weeks.
The international rubber consortium, comprising three major rubber producers of
Thailand, Indonesia and Malaysia, said it was considering reduction of export volumes to
stabilise NR prices.
However, the organisation has not set a time frame to implement it. Together, the
three countries account for over 60% of the total NR output in the world.
NR prices, after reaching a five-year high in Thailand, following a flood there in
January-end, have been on the decline since then. International prices have dropped 25% in
over two months and stood at Rs 143 per kg on 21st April. Indian NR prices have dropped
only 13% in the same period.
(THE ECONOMIC TIMES 24TH APRIL, 2017)
1.28
OIL PRICES SLIP AHEAD OF U.S. STOCK DATA AFTER SURPRISE API
BUILD
Oil prices edged lower on 26th April ahead of data that will shed light on U.S. crude
inventories after an industry report indicated a surprise build in fuel stocks, underscoring the
persistence of global oversupply.
Brent crude, the international benchmark for oil prices, was down 50 cents to $51.60
per barrel at 1350 GMT. Brent is now around 8.5 percent below its April peak. U.S. West
Texas Intermediate (WTI) was down 40 cents at $49.16 per barrel, heading for its eighth fall
in nine sessions. U.S. inventory data issued late on 25th April by the American Petroleum
Institute (API) weighed on prices and showed the difficulty OPEC and non-OPEC producers
are having in eliminating a supply glut despite output cuts they have made since January.
The report showed crude stockpiles rose 897,000 barrels in the week to April 21,
defying expectations of a fall of 1.7 million barrels, and also showed a large build in gasoline
stocks, unusual for this time of the year. The U.S. Energy Information Administration (EIA)
will issue its inventory data at 1430 GMT on 26th April. Brent and WTI found some support
from Saudi Energy Minister Khalid al-Falih, who said he was interested in talks between the
Organization of the Petroleum Exporting Countries and non-OPEC producers to stabilise
prices.
OPEC and a handful of big producers, including Russia, pledged to cut output by 1.8
million barrels per day (bpd) in the first half of 2017. Gulf and some other producers have
indicated cuts could be extended to the end of 2017.
(FINANCIAL EXPRESS 27TH APRIL, 2017)
1.29
GOLD REGAINS GLITTER ON GLOBAL CUES, JEWELLERS' BUYING
Staging a comeback after three straight days of losses, gold rose Rs 100 to Rs 29,450
per 10 grams at the bullion market on 27th April on firm global cues and pick up in buying by
local jewellers.
However, silver remained under selling pressure and slipped below the Rs 41,000mark by falling Rs 300 to Rs 40,700 per kg on poor offtake by industrial units and coin
makers.
Traders attributed the recovery in gold prices to a firm trend overseas and increased
buying by local jewellers to meet the ongoing wedding season demand.
Globally, gold rose 0.40 per cent to USD 1,269 an ounce in New York in 26th April trade.
In the national capital, gold of 99.9 per cent and 99.5 per cent purity rebounded by Rs
100 each to Rs 29,450 and Rs 29,300 per 10 grams, respectively. It had lost Rs 650 in the last
three days.
Sovereign, however, remained unaltered at Rs 24,400 per piece of eight grams in
limited deals.
On the other hand, silver ready fell by Rs 300 to Rs 40,700 per kg and weekly-based
delivery by Rs 305 to Rs 39,960 per kg.
Silver coins also plunged by Rs 1,000 to Rs 70,000 for buying and Rs 71,000 for
selling of 100 pieces.
(FINANCIAL EXPRESS 28TH APRIL, 2017)
2. FISCAL POLICY
2.21
100% FDI LIKELY IN CASH, ATM FIRMS
Cash and ATM management companies will soon be allowed to attract 100
per cent foreign direct investment as they are not required to comply with the Private Security
Agencies (Regulation) Act (PSARA).
A clarification to this effect is likely to be issued by the home ministry shortly.
The clarification will be against the backdrop of the confusion among firms in cash
and ATM management relating to compliance with the Act, under which they can receive FDI
only up to 49 per cent.
The issue was discussed at a meeting convened by the Prime Minister’s Office
(PMO) last month.
“In that meeting, it was decided that the home ministry would be asked to issue a
clarification that these companies will not have to comply with PSARA and would be eligible
to attract 100 per cent FDI,” an official said.
There are about a dozen cash management players in the country, including Writer
Safeguard, SIS Securitas, CMS, Secure Value, Logicash, Brinks Arya, Securitrans and
Scientific Security Management Services.
According to experts, companies managing cash for banks have so far been caught in
a policy tangle, with the home ministry insisting that 100 per cent FDI could not be allowed
for them if they provide private security guards or armoured vehicles.
Companies that make devices such as currency authenticators and sorting and
currency counting machines will also benefit from this clarification, they added. Several
players, including TVS Electronics and ITI, are in such businesses.
Cash management companies handle over ~40,000 crore of cash per day.
The government in 2015 permitted 100 per cent FDI under the automatic route for
white label ATM operations with an aim to promote financial inclusion.
FDI into the country grew 22 per cent to $35.85 billion during April-December of
2016-17.
(BUSINESS STANDARD 20TH APRIL, 2017)
2.22
‘REMOVE CORPORATE TAX SOPS IN 3 YEARS’
NITI Aayog, in its report titled ‘Three Years Action Plan’, has has endorsed doing
away with corporate tax exemptions in the next three years to improve tax collections.
Additionally, the report also bats for exempting the un-incorporated entities of tax liabilities
and their income taxed in the hands of individual owners to avoid taxing income twice.
On the personal tax front, the report noted that only 3.65 crore of the population files
income tax returns. To expand the personal income tax base, the report suggested that the
nominal income exemption should remain unchanged such that the real value of the threshold
is reduced, leading to the inclusion of a greater proportion of individuals in the tax net over
time.
On the indirect tax front, the draft plan said the GST system will expand the tax base
allowing government to lower the tax rates without loss of revenue.
On custom duty, it said all custom duties should be unified at 7 per cent without
violating the World Trade Organization (WTO) obligation. “Once duties are unified at a
single rate, no basis for complaints regarding inversion of duties will go. The 7 per cent rate
will also lead to a substantial rise in custom revenue,” the plan said.
State governments should also bring stamp duty inclusive of property registration fee
to 3-3.5 per cent to curb black money generation, the report said. “It’s important to note that,
in the past, some states which reduced stamp duties gained revenue perhaps because of an
increase in declared property value by buyers,” it added.
Moreover, to improve tax administration and minimise litigation, the report suggested
reduction in scope for interpretation of tax laws, creation of separate dispute management
vertical under indirect and direct taxation boards. It also recommended performance
assessment of tax officials based on the success rates of their cases. This is reflected in the
low success rate of 30 per cent achieved by tax officials in tax appeals filed by taxpayers
across courts.
(FINANCIAL EXPRESS 28TH APRIL, 2017)
3.
IMPORT AND EXPORT POLICY
3.21
EXPORT REVIVAL: STRONG RS. COULD PLAY SPOILSPORT
The rupee’s march towards a 20-month high against the dollar on 26th April has cast a
shadow over the sustenance of a recent rebound in export growth that touched a six-and-ahalf-year high in March. While the sustained rise in the rupee poses risk of an erosion of
India’s export competitiveness, persistent volatility in the movement of the domestic
currency, unless managed, could make it difficult for exporters while firming up contracts,
according to exporters from a range of sectors like garments, engineering goods and even
farm products.
Garment exporters said while the rupee surged, currencies of competing nations have
devalued, brightening their export prospects. The Chinese Yuan got depreciated by around
13%, the Bangladesh Taka by roughly 6% and the Vietnam Dong by about 7% over the last
three months or so. If the rupee clocks below 63 and continues to fluctuate for the rest of the
fiscal, garments exports could drop by 5-10%, said a major garment exporter, who didn’t
want to be named.
Typically, the average currency hedging by exporters across key manufacturing
sectors is to the the tune of 50%, an exporter said.
(FINANCIAL EXPRESS 27TH APRIL, 2017)
4. MISCELLANEOUS
4.42
STATSGURU: DIVORCED FROM REALITY?
In the third quarter of 2016-17, gross domestic product (GDP) grew at a
robust 7 per cent. But there is little evidence of a broad-based revival in economic activity.
The index of industrial production (IIP) contracted by 1.2 per cent in February.
Within the IIP, all major segments such as manufacturing, capital goods, consumer
durables and non-durables have contracted.
In the light of the recent economic data, HSBC Global Research expects FY18 gross
domestic product (GDP) growth to be lower than what the Reserve Bank of India (RBI) is
currently projecting. Despite this uncertain outlook, the stock markets in India have soared.
As Chart 1 shows, the Sensex is hovering around its all-time high.
But India isn’t really an outlier. As Chart 2 shows, major emerging market stock
indices have also rallied of late. On a price to earnings ratio comparison, the Sensex is the
most expensive emerging market after the Jakarta composite index and the Mexico IPC, as
seen in Chart 3. Much of this surge is a consequence of global liquidity. As Chart 4 shows,
FII flows into India since January totalled Rs 43,728 crore.
A similar surge in capital flows is also observed across other emerging markets as
well, suggesting that global liquidity is at play. As shown in Chart 5, since January Mexico
has received $9.5 billion while Taiwan has received $5.9 billion. Stock market volatility has
also declined. As seen in Chart 6, the NSE volatility index has fallen in the last few months,
in line with the decline seen in the US. One could argue that stock markets are forward
looking and as such have priced in an earnings growth rate of 27 per cent in FY18 (Chart 7).
But there is reason to be cautious.
There is still no sign of a resolution of the twin balance sheet problem. Sentiment
remains weak. And with the RBI expecting the inflation rate to firm up in the coming months,
the scope for easing monetary policy remains limited.
(BUSINESS STANDARD 20TH APRIL, 2017)
4.43
WHOLESALE INFLATION COOLS TO 5.7% EVEN AS FOOD PRICES
HEAT UP
Inflation at the wholesale level eased to 5.7 per cent in March on declining fuel prices
and appreciating rupee even as food prices hardened.
Based on the Wholesale Price Index (WPI), inflation was at 6.55 per cent in February.
In March last year, it was at (-)0.45 per cent.
According to the official data released on 17th April, food prices saw a sharp rise of
3.12 per cent last month compared to 2.69 per cent in February. According to the official data
released today, food prices saw a sharp rise of 3.12 per cent last month compared to 2.69 per
cent in February.
This was primarily because of a big jump in vegetable prices where inflation stood at
5.70 per cent. As for fruits, the figure was also high at 7.62 per cent, while for eggs, meat and
fish, it was 3.12 per cent. Fuel inflation declined to 18.16 per cent, from 21.02 per cent in
February.
Manufactured items witnessed some softening in the rate of price rise,
with inflation at 2.99 per cent in March, as against 3.66 per cent in the previous month.
Experts said while the rupee has been on an appreciating trend against the US
dollar since February, cut in fuel prices in March pushed down fuel and manufactured product
prices.
A stronger rupee lowers import costs and cuts down the cost of
manufacturing. International oil prices dipped in a month's time to USD 49 per barrel from
USD 55, reflecting in a Rs 3.77 per litre cut in petrol price and Rs 2.91 in diesel. Rates have
since climbed to USD 54 per barrel.
International oil prices dipped in a month's time to USD 49 per barrel from USD 55,
reflecting in a Rs 3.77 per litre cut in petrol price and Rs 2.91 in diesel. Rates have since
climbed to USD 54 per barrel. The rupee which was at 66.7 to a dollar in February end
strengthened to 64.85 to a dollar.
(FINANCIAL EXPRESS 18TH APRIL, 2017)
4.44
GST TO BOOST GROWTH BY 4.2%: FED
The goods and services tax (GST) can boost India’s GDP growth by up to 4.2% —
double the previous estimate — as lower taxes on manufactured goods will bump up output
and make products cheaper, a U.S. Federal Reserve paper said. GST, it said, could reduce
inefficiencies in the production process while eliminating the current compounding effect of
central and state levies.
Dubbed as the biggest tax reform since Independence, GST will unify at least 10
indirect taxes to be collected at State and central levels.
In the International Finance Discussion Paper (IFDP), the US Fed researchers said
GST is an inclusive policy that is also expected to bring down overall domestic and
international trade barriers.
"GST is expected to raise overall Indian welfare and is projected to be an inclusive
policy in that it would be welfare improving for all Indian states," the paper dated March 24
said.
The Fed research note stated that assuming the aggregate weighted GST rate is 16 per
cent, there would be positive impact on real GDP of 4.2 per cent.
"The model suggests that GST would lead to real GDP gains of 4.2 per cent under the
baseline assumptions, driven by a surge in manufacturing output... GST would raise overall
welfare by 5.3 per cent in India," it said.
Under the existing structure, at each point of sale, additional taxes are applied to the
after-tax value of each goods and services.
The main purpose for GST is to eliminate this compounding effect by fixing the final
tax rate, where goods will fall into one of the four rate categories of 5, 12, 18, and 28 per cent.
The unified structure is currently expected to be rolled out in July.
GSTs impact on GDP growth as estimated by Fed economists is much higher than the
1-2 per cent as expected by the Indian government.
The International Monetary Fund (IMF) had earlier this year said GST could help
raise Indias medium-term GDP growth to over 8 per cent and create a single national market
for enhancing efficiency of movement of goods and services.
(FINANCIAL EXPRESS 24TH APRIL, 2017)
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