India Economic Survey 2017: India will grow at 6.75-7.5% in 2017-18

India will grow at 6.75-7.5 percent in 2017-18, the Economic Survey 2016-17 said in a guarded forecast on Tuesday, tempering expectations of an early revival in the broader economy still reeling under the effects of demonetisation.

“Demonetisation will have both short-term costs and long-term benefits as detailed in the attached table,” the annual Economic Survey 2016-17 tabled in Parliament on Tuesday said.

“Briefly, the costs include a contraction in cash money supply and subsequent, albeit temporary, slowdown in GDP growth; and benefits include increased digitalization, greater tax compliance and a reduction in real estate prices, which could increase long-run tax revenue collections and GDP growth,” it said.

Data released at the beginning of the month showed that the economy will likely grow at 7.1 percent in 2016-17, 0.5 percentage points slower than the previous year’s 7.6 percent expansion, underlining fears of an economy-wide cash-crunch due to demonetisation.

Projections were based on incomplete output and corporate income data, amid signs of faltering investment and weak consumer spending, leading to fears that the actual numbers could be worse.

The Economic Survey, authored by Chief Economic Adviser Arvind Subramanian and his team, also strongly advocated the roll-out of a universal basic income (UBI) scheme for the poor in India, an ambitious plan involving direct money transfers to families’ bank accounts.

It hinted at greater flexibility in fiscal deficit targets to allow for greater government spending to pump-prime the economy, cautioned against rising crude prices, and obliquely observed that Parliamentary disruptions were delaying critical reforms initiatives.

The survey’s observations and growth estimates came a day before Finance Minister Arun Jaitley presents the annual Budget for 2017-18 amid growing expectations that he will unveil measures to raise people’s spending power, boost farm income, revive investment activity and expand welfare schemes to soothe the demonetisation pain, ahead of state Assembly polls.

The Survey supported a system to transfer, to identified poor families.

The government runs a string of state-funded poverty alleviation initiatives including the food-security plan and rural jobs scheme MNREGS, but some of the rights-based programmes have not achieved the desired results because of a leaky subsidy regime.

UBI, the Survey argued, will aid better targeting of subsidies, removing wastages and plugging leakages, and help people move out of poverty faster as they will receive money directly in their Aadhar-linked bank accounts.

As people move out of poverty, the UBI can eventually replace the existing poverty alleviation schemes, subsuming a patchwork of existing welfare programmes.


The survey acknowledged that the economy is still recovering from the after effects of demonetisation, as the sudden currency drain out shock have forced a slowdown in household spending and corporate investment.

The resultant multiplier effects have hurt the broader economy, but the survey was hopeful that the worst was over and Asia’s third-largest economy will turn the corner by March this year.

“Once the cash supply is replenished, which is likely to be achieved by end March 2017, the economy would revert to the normal.  Therefore the real GDP growth in 2017-18 is projected to be in the range of 6.75-7.5 percent,” it said.

It defended the government’s move to demonetise Rs 500 and Rs 1000 notes, saying the benefits outweigh the costs.

Prime Minister Narendra Modi, in a surprise announcement scrapped Rs 500 and Rs 1000 notes, taking away their legal tender status from midnight of November 8. It triggered the world’s largest currency recall exercise, as part of the Modi-government’s move to crack down on India’s thriving black transactions and also push the country towards a “less-cash” economy.

The remonetisation will ensure that the cash squeeze is eliminated by April 2017. The cash squeeze in the meantime will have significant implications for GDP, reducing 2016-17 growth by 0.25 to 0.50 percentage points compared to the baseline of 7 percent.

“Recorded GDP will understate impact on informal sector because, for example, informal manufacturing is estimated using formal sector indicators (Index of Industrial Production),” it said.

These contractionary effects will dissipate by year-end when currency in circulation should once again be in line with estimated demand, which would also allow growth to converge to a trend by 2017-18, it said.

Containing Deficit

The Survey also called for a moving to a new public debt management roadmap, setting the stage for a significant shift in a decade-long policy practice where the government was required, by law, to pursue a rigid borrowing target over a three-to-five year period.

“Even as the basic tenets of the Fiscal Responsibility and Budget Management (FRBM) remain valid, the operational framework designed in 2003 will need to be modified for the fiscal policy direction of India of today, and even more importantly the India of tomorrow. This setting out a new vision through an FRBM for the 21st century will be the task of the FRBM Review Committee,” it said.

Jaitley is likely to announce a new medium-term fiscal policy framework in Budget 2017

He would like to contain the fiscal deficit—a measure of how much the government borrows to fund its expenses—within manageable limits.

India has budgeted to control fiscal deficit to 3.5 percent of GDP in 2016-17, bring it down to 3 percent next year and maintain it at that level the year after.

The NK Singh-panel, is learnt to have argued against bringing down the fiscal deficits to below 3 percent of GDP in the near term, allowing more elbow room to the government to stimulate the economy through greater public spending.

A government-appointed panel headed by former revenue secretary NK Singh, of which Subramanian was a member, has suggested a fresh fiscal consolidation roadmap.

The committee was set up to review the working of the FRBM Act over the last 13 years and suggest the way forward “keeping in view the broad objective of fiscal consolidation and prudence and the changes required in the context of the uncertainty and volatility in the global economy”.

Under the current practice, the target for fiscal deficit—a measure of how much the government borrows in a year to meet part of its spending needs—is determined by the FRBM Act. The law was enacted in 2003 to ensure that government does not borrow beyond a certain limit that Parliament ratifies.

India Inc seeks a stimulus Budget from FM

Corporate India’s crying out for a stimulus Budget from Finance Minister Arun Jaitley on Wednesday, which can boost growth as demand and investments remain anemic. While private investments have been down thanks to the ongoing corporates deleveraging their balance sheets, consumption, too, has taken a beating after demonetisation.

Demand for homes, automobiles, consumer goods or loans have come off since November as sentiment has taken a beating. With two key drivers of economic growth – consumption and private capex — in trouble, Corporate India is looking to the government to stimulate growth.

Reviving demand seems to be on top of India Inc’s wishlist this time around. Higher government spending and lower taxes are being seen as two key drivers of growth. In an interview to Moneycontrol, AM Naik, Chairman of Larsen & Toubro   Group, said he expected the government to come out with a Budget that will stimulate the economy, following the slowdown in economic activity that was triggered by the note ban. The ask remains the same across sectors, as demand has significantly come off since November and analysts do not expect it to revive in a meaningful way in the near-term.

The Street is hoping that the government would consider relaxing its fiscal deficit target for the year and give away some goodies. Arundhati Bhattacharya, Chairman, State Bank of India ( SBI   ) said that the government can incentivise home loans and could provide some relief on direct taxes.

Rana Kapoor, MD and CEO, YES Bank said, “Financial savings must be promoted by improving tax incentives (enhancing 80C limits to Rs 3 lakh from current level of Rs 1.5 lakh), increasing their inflation adjusted post tax returns.”

Arijit Basu, MD & CEO, SBI Life Insurance, explained that since insurance as a product is still not understood properly in the country. “Tax sops for the industry will go a long way to boost insurance as a product,” he said.

“Lower income tax and the focus on rural markets could put two-wheeler industry back on the growth path. This, coupled with the benefit of normal monsoon and Seventh Pay Commission, could drive two-wheeler volume CAGR of 10-12 percent over FY17-19E,” says Motilal Oswal in its pre-Budget report.

Given that large Indian corporates are still in the process of deleveraging, capex cycle is not likely to revive in FY18. Order inflows will have to depend on government spending, which has a cascading effect on the broader economy.

A higher allocation under flagship schemes like MNREGA and housing schemes could give a boost to several sectors like consumers, cement, steel, housing finance and banks. According to IDFC Securities, the thrust on “Housing for all” would be positive for housing finance companies as well as banks doing mortgage financing, but more for lenders who focus on affordable housing.

Speaking to Moneycontrol Ravi Pisharody, Executive director, Tata Motors, said, “Last year, the outlay on government spending was very high and we have seen the benefits of that. Because of that spending the construction tipper segment was not impacted even during the demonetization phase. Road construction, building of airports, and ports should continue.”

Lower taxes are not just a way to revive consumer sentiment. Corporate India hopes that the Finance Minister will set a roadmap in the upcoming Budget to bring corporate tax rate down from the current level. Kanchana TK, Director General, Organisation of Pharmaceutical Producers of India (OPPI).

“Expectations from the 2017-18 Union Budget are high, in setting the tone and direction. Some of that is about building upon intent already announced as well. In the past, the government has said it would bring the corporate income tax down to 25 per cent. At OPPI, we hope to see a roadmap to this end.”

Corporate India and the Street is keen to get more clarity on the rollout of GST in FY18 as well as it its implementation is expected to lead to some disruption, too. Implementation of Goods and Services Tax (GST) will be a key positive for the automotive sector which has been struggling since the start of demonetisation in early November. GST could reduce multiple tax slabs ranging from 12-30 percent at present to perhaps just two slabs making cars cheaper by at least two percent.

Considering the likely GST implementation from July 2017, there is not any expectation of changes in indirect taxes. However, there could be an increase in income tax exemptions and higher allocation toward rural-focused schemes, which would give a boost to at least two-wheeler consumption.

Companies will need a six-month transition period for implementation. The pharma industry expects that with the GST, the inverted duty structure that the industry has to deal with will become a thing of the past. This year hopes are that greater clarity will be provided in whether input tax credits will be refunded if unutilised at the end of the assessment year.

Ranjit Shahani, Vice-Chairman and Managing Director, Novartis India, hopes the Finance Minister will increase the healthcare Budget from one percent to 2.5 percent, which is a promise made a long time ago. On corporate tax reduction – directionally that’s the right way to go, it encourages investments into manufacturing, which will certainly help.

Infosys, TCS fall 3-5%; H1-B bill proposes double minimum wage

Shares of technology stocks tanked, dragging the index around 4 percent on visa concerns. Stocks like TCS   , Infosys   and Wipro   fell 3-5 percent while  Tech Mahindra   tanked 10 percent intraday Tuesday as minimum salary of H-1B visa holders is proposed to be more than double.

A legislation has been introduced in the US House of Representatives which among other things calls for more than doubling the minimum salary of H-1B visa holders to USD 130,000, making it difficult for firms to use the programme to replace American employees with foreign workers, including from India.

How the number stack up?

Infosys had 14,659 employees on H-1B visas and 1364 employees on L-1 visas in the US at end-FY2016. So as per calculations, H-1B ratio would be 30:70. A look at FY2016 H-1B filings data indicates that Infosys has the highest per-capita onsite wage in the peer group. TCS historically had high dependence on visa but it would have reduced in the past three years given that the company has stepped up local hiring. As per H-1B filings data, TCS’ onsite compensation is on the lower side in the peer group.

Wipro’s last disclosed local headcount was 40 percent in the US. The ratio between visa holders and locals would have remained steady or increased marginally in favor of locals since then. Additionally, acquisition of Appirio and HPS provides additional 3000 local headcount in the US.

HCL Tech has 65 percent locals in its US workforce and its wages are also at the top end among Indian IT. Accordingly, it is likely to be the least impacted.

Tech Mahindra’s dependence on visas is high for core IT services. The acquisition of LCC (has improved the local mix. It has 9,000 people including LCC headcount in US of which about 5000 are on visas (45 percent locals).

According to Bank of America Merrill Lynch, every 10 percent hike in H-1B wages can hurt earnings of Tech Mahindra by 4-11 percent. Tech Mahindra has earnings negative impact of 11 percent due to 10 percent hike in wage bill.

The legislation proposal

The High-Skilled Integrity and Fairness Act of 2017 introduced by California Congressman Zoe Lofgren prioritises market based allocation of visas to those companies willing to pay 200 percent of a wage calculated by survey, eliminates the category of lowest pay, and raises the salary level at which H-1B dependent employer are exempt from non displacement and recruitment attestation requirements to greater than USD 130,000.

This is more than double of the current H-1B minimum wage of USD 60,000 which was established in 1989 and since then has remained unchanged.

It raises the salary level at which H-1B dependent employer are exempt from attestation requirements to a new required wage level of 35 percentile points above the median national annual wage for Computer and Mathematical Occupations published by the Department of Labour Occupational Employment Statistics (roughly USD132,000), which would be adjusted in the future without the need for new legislation, and eliminates the Master’s Degree exemption for dependent employers.

The legislation sets aside 20 percent of the annually allocated H-1B visas for small and start-up employers (50 or fewer employers) to ensure small businesses have an opportunity to compete for high-skilled workers, while still protecting against outsourcing.

It among other things removes visa hurdles for students and other temporary visa holders by building a bridge from F-1 student status to Lawful Permanent Residence and removes paperwork burdens by streamlining H-1B filing requirements and reducing administrative costs.

The legislation tightens employee protection by stipulating that employers may not reduce beneficiary wages, regardless of whether the deduction is in accordance with a voluntary authorisation by the employee.

UIDAI warns against agencies printing plastic Aadhaar cards

UIDAI today cautioned against unscrupulous entities charging anywhere between Rs 50-200 for a plastic Aadhaar card and emphasised that paper printed Aadhaar is “perfectly valid” and there is no concept such as smart or plastic card.

Warning the public not to fall for such ploys, the Unique Identification Authority of India (UIDAI) said Aadhaar letter or its cutaway portion or downloaded version of Aadhaar on ordinary paper is valid for all uses.

The Aadhaar card or the downloaded Aadhaar card printed on ordinary paper is perfectly valid for all uses. If a person has a paper Aadhaar card, there is absolutely no need to get his/her Aadhaar card laminated or obtain a plastic Aadhaar card or so called SMART Aadhaar card by paying money. There is no concept such as smart or plastic Aadhaar card, Ajay Bhushan Pandey, CEO of UIDAI, said in a statement.

Advising users to protect their privacy, Pandey asked public not to share their Aadhaar number or personal details with unauthorised agencies for getting it laminated, or printed on plastic card.

“UIDAI has cautioned unauthorised agencies not to collect Aadhaar information from general public for printing of Aadhaar card as collecting such information or unauthorised printing of Aadhaar card or aiding such persons in any manner amounts to a criminal offence punishable with imprisonment under Indian Penal Code and, also, Chapter VI of The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016,” the statement added.

The print out of the downloaded Aadhaar card, even in black and white form, is as valid as the original Aadhaar card sent by UIDAI, it said adding that there is absolutely no need to print it on plastic card or get it laminated.

GM moving more than 600 jobs from Canada to Mexico: union

General Motors is shifting 625 jobs from a plant in Canada that makes popular crossover utility vehicles to Mexico, the Canadian auto workers union said today.

The cuts represent one-fifth of the facility’s workforce and comes less than a year after GM expanded the Canadian plant, with part of a Canadian Dollars 560 million (USD 426 million) investment in its overall Canadian operations.

The layoffs at the plant in Ingersoll, Ontario — which produces the Equinox and Terrain models — are a “betrayal” that show “why NAFTA is a terrible deal for Canadian jobs,” Unifor said in a statement on the North American Free Trade Agreement.

“It is another example of how good jobs are being shifted out of Canada for cheaper labor in Mexico,” Unifor president Jerry Dias said.

The announcement is “a shining example of everything wrong with NAFTA, it must be renegotiated,” he added. “It is imperative that we have trade rules that help ensure good jobs in Canada.” GM spokesman Mathew Palmer told AFP in an email the cuts “are strictly related to the end of the older generation Equinox production” at the Ingersoll plant, and have nothing to do with moving Terrain production to Mexico, which had already been announced.

The new Equinox model is to start production at the Ingersoll plant in July.

NAFTA has linked Canada, the United States and Mexico since 1994.

US President Donald Trump has vowed to renegotiate the trade pact, threatening to impose stiff import duties on foreign-made cars sold in the United States.

Auto makers responded with goodwill overtures, playing up their efforts to create jobs and invest in the United States.

Asked for a comment, Canadian Economic Development Minister Havdeep Bains said through a spokesman that the government “is concerned about the impact of job losses on workers and their families and our thoughts go out to those affected.” But, he added, “We remain optimistic about the strength and future of Canada’s automotive industry.

Govt has increased investment in railways, infra: Prabhu

The central government is spending huge amounts to modernise infrastructure, particularly in the railways sector to push growth, Railways Minister Suresh Prabhu said today.

He said the government will invest more in railways this year as compared to the previous years.

“Railways used to put Rs 30,000- Rs 40,000 crore in a year into railway infrastructure…We increase the investment to Rs 1 lakh crore. Last year, it was Rs 1.21 lakh crore and this year, it will be definitely higher…almost Rs 3 lakh crore has been invested in the span of two-and-half years,” he said.

These investments are in addition to whatever the ministry allocates out of the budget and by giving contracts to different agencies, the minister said.

He said these huge investments in infrastructure and the new indirect tax regime Goods and Services Tax (GST) would help in spurring the economic growth of the country.

Talking about opportunities in Andhra Pradesh, the minister said the state has all the ingredients, including mineral resources, power and water to attract both global and domestic investors.

“If all states grow at higher rates, India will grow at 10 per cent,” he added.

Speaking at the summit, GMR Group Chairman G M Rao too said that huge potential for investments exists in the state.

“We are partnering with the state in developing the port based special investment region near Kakinada in East Godavari district. This region would house various industries including petrochemicals, food and agro processing, electronics, sport goods and apparels…,” he said.

Suzlon Energy Chairman Tulsi Tanti said that out of the target of deploying 175 GW renewable power capacities by 2022, “18 GW of the national target, we will deliver in Andhra Pradesh”.

The firm is also committed to building projects of 4 GW capacity in the next five years, he said.

Essel Chairman Subhas Chandra said that the company has signed an MoU worth Rs 5,000 crore for developing a smart city in the state.

Seeking investments from global and domestic investors, Chief Minister Chandrababu Naidu said under ‘Vision 2050′, Andhra Pradesh aims to be among the top three states of India by 2022 and increase per capita income.

He has divided this vision into certain goals and thrust areas like giving gas connection to all household by 2019, toilets in all houses, social and sanitation security, 24×7 power supply and job and water security to all.

Tata Steel to increase capacity of Kalinganagar plant

Private steel major Tata Steel   today said it has plans to enhance the capacity of its Kalinganagar project in Odisha to 8 million tonnes per annum (mtpa) against 6 mtpa proposed earlier.

“Tata Steel had plans to produce six million tonne in two phases originally, but we are now discussing to enhance the capacity to eight million tonne,” Tata Steel Managing Director (India and South East Asia) T V Narendran said.

“We will have to make investment for the second phase and we are discussing how and when to invest for the purpose. The issue will be put before the Tata Board in a couple of months,” he said after unfurling the national flag to mark the Republic Day function in the Tata works here.

The company’s performance is expected to improve in the last quarter compared to the previous two quarters, he said. “We witnessed slow down in demand of steel in November due to demonetisation but the situation has improved,” he said.

Normally, the period from January to June remained good for the steel sector, Narendran added.

Referring to the cashless campaign launched by the government, he said that 80 to 90 per cent business of Tata Steel has been cashless.

“In fact, our business up to dealer level is 100 per cent cashless but dealing from dealers to rural customers was cash-driven,” Narendran said.

Though Tata Steel’s production capacity has doubled to 10 million tonnes since 2005, but its emission level came down now compared to what it was in 2005, he further said.

Regretting an incident in the Tube division claiming the life of a contract labourer recently, he said the company has invested a huge amount on safety at workplace during last 10 years particularly on training and awareness among workers.

This safety-related incident had taken place after a gap of 14 months, he said adding the company needs to do a lot more in this front.

Toshiba decides to split off core chip business, sell stake

Toshiba Corp’s board on Friday approved plans to make its core chip business a separate company and seek outside investment in it, aiming to avoid being crippled by an upcoming multi-billion dollar writedown for its US nuclear business.

Toshiba estimates the value of its chip business – the world’s biggest NAND flash memory producer after Samsung Electronics – at 1-1.5 trillion yen (USD 9-13 billion), a person with direct knowledge of the matter has told Reuters.

The partial sale of its chip business would provide a lifeline for Toshiba as a massive charge could wipe out shareholders equity at the end of the financial year in March.

Toshiba has said it will unveil the size of the writedown on Feb. 14 when it reports third-quarter results.

Potential investors in the chip business include private equity firms as well as business partner Western Digital Corp and the government-backed Development Bank of Japan (DBJ), sources have said.

Toshiba’s memory chip business generated sales of 845.6 billion yen (USD 7.4 billion) and operating profit of 110 billion yen for the year ended in March 2016.

India-EU FTA to benefit apparel sector: Report

A free trade agreement with the European Union (EU) besides rationalisation of taxes and duties would help in promoting the growth of India’s apparel sector, says a report.

The CII-BCG report also suggested that the state governments should promote infrastructure with plug and play facilities.

“Duties and taxes must be rationalised to avoid inefficiencies and high energy and overall costs. A power subsidy, inclusion of power charges under GST, and similar rates for both cotton and synthetic products are recommended,” the report said.

It said industry should engage in driving productivity through extensive training and investments in process improvements and automation.

The report “strongly calls for a free trade agreement with the EU. An added provision could be to treat the poor states of India on a similar basis as least developed countries,” the report added.

India and EU are negotiating a free trade pace since June 2007. The talks were stalled on several issues including IPR.

It also said that rebranding is essential, accompanied by focused marketing interventions such as global roadshows.

Companies should invest in product development and in cutting edge innovations, it said.

Ticking forex time bomb? Most Indian firms are under-hedged

Most Indian companies with overseas debt have not hedged enough of their foreign currency risk, making them vulnerable to any sharp movements in the rupee, according to a study by credit ratings agency India Ratings.

The study of 100 companies holding Rs 19.5 trillion (USD 286.30 billion) of debt abroad as of March 2016, showed 54 of them, with 14.5 trillion exposure, were vulnerable given only 35 percent of their balance sheets were hedged, India Ratings, a unit of Fitch, said on Tuesday.

Of those 54 companies, 42 holding Rs 8.9 trillion in foreign currency debt could see their credit profiles “weaken substantially” should the rupee weaken by 10 percent, the rating agency said.

The high cost of hedging and the range-bound movement in the rupee over the last three years is deterring companies, said Rakesh Valecha, head of credit and market research at India Ratings.

“It is important that corporates don’t get complacent with rupee moving in a narrow band because if the rupee weakens sharply then corporates can see their margins hit, borrowing cost rise and even credit matrices moving down,” Valecha said in a briefing with reporters.

The rupee has been relatively range-bound since 2013, when it suffered its worst crisis in more than two decades, though it hit a record low of 68.865 to the dollar in November.

The relative stability of the rupee and cheaper overseas rates have led to more Indian companies raising debt abroad, increasing concerns over whether they are prepared to deal with a sudden plunge in the currency or falls in global markets.