General Affairs
PM Modi as pure as Ganga, Rahul Gandhi's allegations are baseless: BJP
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Barely hours after Congress vice-president slammed Prime Minister Narendra Modi for allegedly receiving kickbacks during his tenure as Gujarat chief minister, senior BJP leader and Union Minister Ravi Shankar Prasad rubbished the allegations.
HERE'S WHAT HE SAID:
- Prasad said that Rahul Gandhi's statements were a gimmick ahead of the Uttar Pradesh Assembly elections.
- Congress promotes looters of public money and protects them, said Prasad.
- Prasad said that the Gandhis did not spare air, land and sea when it came to corruption.
- "Rahul Gandhi himself is involved in National Herald Case," said Prasad.
- Prasad added that demonetisation was an effort to fight black money and that he is proud of PM Modi for his bold move.
- Rahul Gandhi never does his home work: Prasad.
- People are not giving TRP to Rahul so he is making all these baseless allegations.
- Rahul Gandhi is mistaken if he thinks by making such allegations that the cases against his family will not be probed. The CBI will do its job.
- Earlier today, Gandhi had made explosive attack on PM Modi claiming that he was paid huge money during his stint as Gujarat chief minister.
- Gandhi said that Modi received crores from private companies and demanded an independent probe into the matter.
- He said the company paid money to PM Modi on at least nine occasions within a period of six months.
CONGRESS HITS BACK
Meanwhile, Congress has hit back at BJP after it called PM Modi honest and as pure as Ganga.
"Credibility, honesty and integrity of PM Modi at stake; Congress has great respect for PM Modiji," said Congress spokesperson Randeep Surjewala.
Surjewala added that Ganga has been polluted and that is why there is an ongoing campaign to clean it.
Barely hours after Congress vice-president slammed Prime Minister Narendra Modi for allegedly receiving kickbacks during his tenure as Gujarat chief minister, senior BJP leader and Union Minister Ravi Shankar Prasad rubbished the allegations.
HERE'S WHAT HE SAID:
- Prasad said that Rahul Gandhi's statements were a gimmick ahead of the Uttar Pradesh Assembly elections.
- Congress promotes looters of public money and protects them, said Prasad.
- Prasad said that the Gandhis did not spare air, land and sea when it came to corruption.
- "Rahul Gandhi himself is involved in National Herald Case," said Prasad.
- Prasad added that demonetisation was an effort to fight black money and that he is proud of PM Modi for his bold move.
- Rahul Gandhi never does his home work: Prasad.
- People are not giving TRP to Rahul so he is making all these baseless allegations.
- Rahul Gandhi is mistaken if he thinks by making such allegations that the cases against his family will not be probed. The CBI will do its job.
- Earlier today, Gandhi had made explosive attack on PM Modi claiming that he was paid huge money during his stint as Gujarat chief minister.
- Gandhi said that Modi received crores from private companies and demanded an independent probe into the matter.
- He said the company paid money to PM Modi on at least nine occasions within a period of six months.
CONGRESS HITS BACK
Meanwhile, Congress has hit back at BJP after it called PM Modi honest and as pure as Ganga.
"Credibility, honesty and integrity of PM Modi at stake; Congress has great respect for PM Modiji," said Congress spokesperson Randeep Surjewala.
Surjewala added that Ganga has been polluted and that is why there is an ongoing campaign to clean it.
Companies paid crores to Modi: Rahul Gandhi's explosive corruption charge on PM
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Congress vice president Rahul Gandhi today made explosive attack on Prime Minister Narendra Modi claiming that he was paid huge money in kickbacks during his stint as Gujarat chief minister.
Gandhi said that Modi received crores from a big corporate house and demanded an independent probe into the matter. He said the company paid money to PM Modi on at least occasions within a period of six months.
Gandhi, who had recently claimed to be in possession of evidence regarding Prime Minister Narendra Modi's personal involvement in corruption, also attacked the Centre over demonetisation calling it an anti-poor move during a rally in Gujarat's Mehsana.
He said that the Income Tax department raided a company on 22 November, 2014 and the records of raid are with the department for the last two and half years yet no action has been taken. "An independent enquiry must be initiated," Rahul Gandhi said.
"As per record with I-T, Rs 2.5 crore was given to PM Modi on 30 Oct 2013; Rs 5 crore on 12 November 2013; Rs 2.5 crore on 27 November 2013; Rs 5 crore on 29 November 2013," Gandhi claimed.
HERE'S WHAT RAHUL GANDHI SAID:
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If Narendra Modi ji's government takes any big or small step to eradicate corruption, Congress party will support them.
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Demonetisation move wasn’t made against corruption or black money; it was against the honest poor people.
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All cash is not black money and all black money is not in cash.
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This government is anti-poor, anti-dalits. The government has snatched land from tribals in states like Madhya Pradesh, Chhattisgarh, Jharkhand.
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Dalits are being harassed and killed. They live in fear here in Gujarat.
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Patidars didn't resort to violence during their protests but their women and children were thrashed.
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The Switzerland government has sent names of black money hoarders to PM Modi but he is protecting them. Why don't you (PM Modi) reveal the names in Parliament?
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Don't know why Modiji did not target the 94% of black money but the other 6 per cent, did not target the 1 per cent corrupt but 99 per cent hones people.
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The demonetisation move was not a surgical strike on black money, it was fire-bombing on the poor.
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A farmer does not purchase his seeds by cheque or card but in cash, you (Modi) have taken away that cash from them.
"We are pretty much unconditionally ready for a debate in Parliament. The government is not allowing me to speak. I have personal information about PM Modi's corruption. He is personally terrified. He cannot run away from the House," Gandhi had said last week.
Congress vice president Rahul Gandhi today made explosive attack on Prime Minister Narendra Modi claiming that he was paid huge money in kickbacks during his stint as Gujarat chief minister.
Gandhi said that Modi received crores from a big corporate house and demanded an independent probe into the matter. He said the company paid money to PM Modi on at least occasions within a period of six months.
Gandhi, who had recently claimed to be in possession of evidence regarding Prime Minister Narendra Modi's personal involvement in corruption, also attacked the Centre over demonetisation calling it an anti-poor move during a rally in Gujarat's Mehsana.
He said that the Income Tax department raided a company on 22 November, 2014 and the records of raid are with the department for the last two and half years yet no action has been taken. "An independent enquiry must be initiated," Rahul Gandhi said.
"As per record with I-T, Rs 2.5 crore was given to PM Modi on 30 Oct 2013; Rs 5 crore on 12 November 2013; Rs 2.5 crore on 27 November 2013; Rs 5 crore on 29 November 2013," Gandhi claimed.
HERE'S WHAT RAHUL GANDHI SAID:
- If Narendra Modi ji's government takes any big or small step to eradicate corruption, Congress party will support them.
- Demonetisation move wasn’t made against corruption or black money; it was against the honest poor people.
- All cash is not black money and all black money is not in cash.
- This government is anti-poor, anti-dalits. The government has snatched land from tribals in states like Madhya Pradesh, Chhattisgarh, Jharkhand.
- Dalits are being harassed and killed. They live in fear here in Gujarat.
- Patidars didn't resort to violence during their protests but their women and children were thrashed.
- The Switzerland government has sent names of black money hoarders to PM Modi but he is protecting them. Why don't you (PM Modi) reveal the names in Parliament?
- Don't know why Modiji did not target the 94% of black money but the other 6 per cent, did not target the 1 per cent corrupt but 99 per cent hones people.
- The demonetisation move was not a surgical strike on black money, it was fire-bombing on the poor.
- A farmer does not purchase his seeds by cheque or card but in cash, you (Modi) have taken away that cash from them.
"We are pretty much unconditionally ready for a debate in Parliament. The government is not allowing me to speak. I have personal information about PM Modi's corruption. He is personally terrified. He cannot run away from the House," Gandhi had said last week.
Samajwadi Party, Congress on verge of forging alliance for 2017 UP polls
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The Samajwadi Party and the Congress are likely to contest the upcoming assembly elections in Uttar Pradesh as allies next year. The two parties have been negotiating behind the scenes for almost a fortnight and are close to finalising a seat-sharing arrangement.
1. Sources say senior Congress leaders Ghulam Nabi Azad and Raj Babbar have held several rounds of meetings with SP supremo Mulayam Singh Yadav. The alliance, many say, will have a significant impact on the battle for Uttar Pradesh.
2. According to sources, top leaders of both parties have had to overcome misgivings and set aside petty differences in order to make the alliance happen. It is common knowledge that SP chief Mulayam Singh Yadav has viewed the Congress with suspicion and has been reluctant to tie up with it out of fear of reviving the grand old party in the state.
3. The SP has over the years managed to push the Congress to the margins and establish itself as the main "secular force" in the state. Mulayam Singh Yadav has been of the view that the revival of the Congress party will attract minority votes in the state.
4. The Congress leadership too has had its share of misgivings about the SP chief in the past. Rahul Gandhi believes he can do business with Chief Minister Akhilesh Yadav, but has clearly been uncomfortable about dealing with the SP chief.
5. The two parties also have a common history married with suspicion and mistrust. In 1991, former Prime Minister Rajiv Gandhi believed he had forged an alliance with the SP chief. Once, they parleyed late into the night. Mulayam Singh Yadav promised to announce the alliance in Lucknow and left Delhi by an early morning flight. However, much to the dismay of the Congress, he dissolved the assembly and went on to contest elections on his own.
6. The alliance, if and when it is forged, is clearly a desperate move on the part of both the parties to prevent the BJP from coming to power in UP and also in preserving their own turf. It will help the Samajwadi party prevent its minority vote from being divided and provide a lifeline to the Congress party, which is clearly fighting for survival in the state.
7. The BJP swept the state in the 2014 Lok sabha elections, winning 71 seats and 42 per cent of the vote share. Both the SP and Congress, however, fared dismally in the general elections with the SP winning 5 Lok Sabha seats with 22.2 per cent of the vote share and the Congress managing only 2 Lok Sabha seats with 7.5 per cent vote share.
8. During the 2012 assembly elections in UP, the Samajwadi party won 224 seats and 29.15 per cent vote share, while the Congress won 28 seats and 11.6 per cent of the vote share. Elections are not just about statistics, a winning combination is also about chemistry, and the jury is still out on whether the proposed alliance will reap the kind of dividends that the political managers of both the parties hope it does.
The Samajwadi Party and the Congress are likely to contest the upcoming assembly elections in Uttar Pradesh as allies next year. The two parties have been negotiating behind the scenes for almost a fortnight and are close to finalising a seat-sharing arrangement.
1. Sources say senior Congress leaders Ghulam Nabi Azad and Raj Babbar have held several rounds of meetings with SP supremo Mulayam Singh Yadav. The alliance, many say, will have a significant impact on the battle for Uttar Pradesh.
2. According to sources, top leaders of both parties have had to overcome misgivings and set aside petty differences in order to make the alliance happen. It is common knowledge that SP chief Mulayam Singh Yadav has viewed the Congress with suspicion and has been reluctant to tie up with it out of fear of reviving the grand old party in the state.
3. The SP has over the years managed to push the Congress to the margins and establish itself as the main "secular force" in the state. Mulayam Singh Yadav has been of the view that the revival of the Congress party will attract minority votes in the state.
4. The Congress leadership too has had its share of misgivings about the SP chief in the past. Rahul Gandhi believes he can do business with Chief Minister Akhilesh Yadav, but has clearly been uncomfortable about dealing with the SP chief.
5. The two parties also have a common history married with suspicion and mistrust. In 1991, former Prime Minister Rajiv Gandhi believed he had forged an alliance with the SP chief. Once, they parleyed late into the night. Mulayam Singh Yadav promised to announce the alliance in Lucknow and left Delhi by an early morning flight. However, much to the dismay of the Congress, he dissolved the assembly and went on to contest elections on his own.
6. The alliance, if and when it is forged, is clearly a desperate move on the part of both the parties to prevent the BJP from coming to power in UP and also in preserving their own turf. It will help the Samajwadi party prevent its minority vote from being divided and provide a lifeline to the Congress party, which is clearly fighting for survival in the state.
7. The BJP swept the state in the 2014 Lok sabha elections, winning 71 seats and 42 per cent of the vote share. Both the SP and Congress, however, fared dismally in the general elections with the SP winning 5 Lok Sabha seats with 22.2 per cent of the vote share and the Congress managing only 2 Lok Sabha seats with 7.5 per cent vote share.
8. During the 2012 assembly elections in UP, the Samajwadi party won 224 seats and 29.15 per cent vote share, while the Congress won 28 seats and 11.6 per cent of the vote share. Elections are not just about statistics, a winning combination is also about chemistry, and the jury is still out on whether the proposed alliance will reap the kind of dividends that the political managers of both the parties hope it does.
EC to ask I-T authorities to look into finances of 200 parties
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The Election Commission of India (ECI) is set to write to the Income Tax (I-T) authorities asking it to look into the finances of over 200 political parties, it has delisted over a period of time for not contesting elections.
GUIDELINES AND INSTRUCTIONS BY EC
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ECI identified various parties which have not contested polls since 2005 and has delisted around 200 of them.
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It believes that most of the parties exist on papers to help people convert their black money into white by accepting donations.
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ECI will send the list of delisted parties to the I-T authorities seeking action against relevant laws if they are found to be involved in money laundering.
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ECI has the mandate to register a political party but, it lacks power under electoral laws to deregister any party.
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ECI used its powers under Article 324 of the Constitution to delist parties for being dormant and not contesting elections for a long time, as its demand to get power to deregister a party is pending with the Law Ministry.
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There are over 1780 registered, but unrecognised political parties in the country. Besides, there are seven national parties like- Bharatiya Janata Party (BJP), Congress, Bahujan Samaj Party (BSP), All India Trinamool Congress (TMC), Communist Party of India (CPI), Communist Party of India-Marxist (CPI-M) and Nationalist Congress Party (NCP) and 58 state parties.
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It has proposed a slew of electoral reforms but most are pending with the government.
The Election Commission of India (ECI) is set to write to the Income Tax (I-T) authorities asking it to look into the finances of over 200 political parties, it has delisted over a period of time for not contesting elections.
GUIDELINES AND INSTRUCTIONS BY EC
- ECI identified various parties which have not contested polls since 2005 and has delisted around 200 of them.
- It believes that most of the parties exist on papers to help people convert their black money into white by accepting donations.
- ECI will send the list of delisted parties to the I-T authorities seeking action against relevant laws if they are found to be involved in money laundering.
- ECI has the mandate to register a political party but, it lacks power under electoral laws to deregister any party.
- ECI used its powers under Article 324 of the Constitution to delist parties for being dormant and not contesting elections for a long time, as its demand to get power to deregister a party is pending with the Law Ministry.
- There are over 1780 registered, but unrecognised political parties in the country. Besides, there are seven national parties like- Bharatiya Janata Party (BJP), Congress, Bahujan Samaj Party (BSP), All India Trinamool Congress (TMC), Communist Party of India (CPI), Communist Party of India-Marxist (CPI-M) and Nationalist Congress Party (NCP) and 58 state parties.
- It has proposed a slew of electoral reforms but most are pending with the government.
AgustaWestland: CBI seeks more time, says a serious case is emerging
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Air Force Chief SP Tyagi, who is currently in judicial custody has pressed for an expeditious hearing of his bail while the CBI had sought more time to present its arguments opposing the bail. The special court will hear the matter again on Friday and CBI will present its case then.
WHAT WE KNOW SO FAR
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The case pertains to alleged irregularities in the Rs 3,600 crore deal with AgustaWestland to acquire a dozen VVIP choppers.
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Tyagi had earlier blamed the then Prime Minister Office for tweaking the deal in favour of the UK-based helicopter maker.
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Arguing for CBI, ASG Tushar Mehta told the special court that the present record with CBI is voluminous and they need more time and reasonable opportunity to present the case. Mehta also told the court that on the face of it, a serious case seems to be emerging.
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Defending himself, Tyagi told the Special Court that the investigation is in a preliminary stage. Tyagi's lawyer told the court that the 72-year-old 'war hero' suffers from a heart condition and has undergone bypass surgery.
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Tyagi's lawyer pointed out that the CBI has justified its case citing judgement from Italy court.
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But the appeals court judgement has been struck down by Supreme Court of Italy as the judgement was wrong about identification of persons, places and dates. Hence the matter has been remanded back.
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CBI will now present the case on Friday (December 23).
Air Force Chief SP Tyagi, who is currently in judicial custody has pressed for an expeditious hearing of his bail while the CBI had sought more time to present its arguments opposing the bail. The special court will hear the matter again on Friday and CBI will present its case then.
WHAT WE KNOW SO FAR
- The case pertains to alleged irregularities in the Rs 3,600 crore deal with AgustaWestland to acquire a dozen VVIP choppers.
- Tyagi had earlier blamed the then Prime Minister Office for tweaking the deal in favour of the UK-based helicopter maker.
- Arguing for CBI, ASG Tushar Mehta told the special court that the present record with CBI is voluminous and they need more time and reasonable opportunity to present the case. Mehta also told the court that on the face of it, a serious case seems to be emerging.
- Defending himself, Tyagi told the Special Court that the investigation is in a preliminary stage. Tyagi's lawyer told the court that the 72-year-old 'war hero' suffers from a heart condition and has undergone bypass surgery.
- Tyagi's lawyer pointed out that the CBI has justified its case citing judgement from Italy court.
- But the appeals court judgement has been struck down by Supreme Court of Italy as the judgement was wrong about identification of persons, places and dates. Hence the matter has been remanded back.
- CBI will now present the case on Friday (December 23).
Business Affairs
Sensex extends losses, down 66 pts; IT stocks weigh
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The Sensex fell for the sixth day today, this time about 66 points, to end at nearly two-week low of 26,242, dragged down by major IT stocks such as Infosys and TCS amid mixed global cues.
Infosys fell 0.66 per cent and TCS 1.07 per cent.
The index, which had lost 389.84 points in the previous five session, dropped another 65.60 points, or 0.25 per cent, to end at 26,242.38, its lowest closing since December 7. It shuttled between 26,396.00 and 26,213.51 today.
The 50-share NSE Nifty also declined by 21.10 points, or 0.26 per cent, to end at 8,061.30, after moving between 8,112.55 and 8,053.25.
The volume remained low in view of the approaching holiday year ending.
FMCG, IT, technology, capital goods and healthcare sectors led the fall by up to 0.95 per cent. However, buying interest was witnessed in select sectors like realty, consumer durables, power and PSU.
Shares of Sun Pharma suffered the most by plunging 2.25 per cent, followed by ITC 1.44 per cent.
Other losers were TCS, Wipro, Tata Motors, Axis Bank, L&T Hero MotoCorp, Infosys, Hindustan Unilever, GAIL and Dr Reddy's, while Maruti Suzuki, M&M, Lupin, NTPC, ONGC, Powergrid, ICICI Bank and Adani Ports rose, which minimised the fall.
Overseas, Asian stocks ended largely mixed. Japan Nikkei closed lower by 0.26 per cent on today, slipping off a one-year high hit the previous day as investors shuffled their positions before the holiday season.
However, Hong Kong's Hang Seng rose 0.37 per cent and Shanghai Composite Index was up 1.11 per cent.
Europe opened lower in early trade, with Frankfurt falling 0.20 per cent and Paris 0.40 per cent. London's FTSE was down by 0.20 per cent.
As many as 17 scrips out of 30-share Sensex pack ended lower.
Sector-wise, FMCG index was down 0.95 per cent, followed by IT 0.75 per cent, technology 0.74 per cent and capital goods 0.40 per cent.
Broader market saw a mixed trend, with mid-cap index falling 0.16 per cent. Small-cap edged up 0.03 per cent.
Foreign funds sold shares worth Rs 685.93 crore yesterday, as per provisional data.
The Sensex fell for the sixth day today, this time about 66 points, to end at nearly two-week low of 26,242, dragged down by major IT stocks such as Infosys and TCS amid mixed global cues.
Infosys fell 0.66 per cent and TCS 1.07 per cent.
The index, which had lost 389.84 points in the previous five session, dropped another 65.60 points, or 0.25 per cent, to end at 26,242.38, its lowest closing since December 7. It shuttled between 26,396.00 and 26,213.51 today.
The 50-share NSE Nifty also declined by 21.10 points, or 0.26 per cent, to end at 8,061.30, after moving between 8,112.55 and 8,053.25.
The volume remained low in view of the approaching holiday year ending.
FMCG, IT, technology, capital goods and healthcare sectors led the fall by up to 0.95 per cent. However, buying interest was witnessed in select sectors like realty, consumer durables, power and PSU.
Shares of Sun Pharma suffered the most by plunging 2.25 per cent, followed by ITC 1.44 per cent.
Other losers were TCS, Wipro, Tata Motors, Axis Bank, L&T Hero MotoCorp, Infosys, Hindustan Unilever, GAIL and Dr Reddy's, while Maruti Suzuki, M&M, Lupin, NTPC, ONGC, Powergrid, ICICI Bank and Adani Ports rose, which minimised the fall.
Overseas, Asian stocks ended largely mixed. Japan Nikkei closed lower by 0.26 per cent on today, slipping off a one-year high hit the previous day as investors shuffled their positions before the holiday season.
However, Hong Kong's Hang Seng rose 0.37 per cent and Shanghai Composite Index was up 1.11 per cent.
Europe opened lower in early trade, with Frankfurt falling 0.20 per cent and Paris 0.40 per cent. London's FTSE was down by 0.20 per cent.
As many as 17 scrips out of 30-share Sensex pack ended lower.
Sector-wise, FMCG index was down 0.95 per cent, followed by IT 0.75 per cent, technology 0.74 per cent and capital goods 0.40 per cent.
Broader market saw a mixed trend, with mid-cap index falling 0.16 per cent. Small-cap edged up 0.03 per cent.
Foreign funds sold shares worth Rs 685.93 crore yesterday, as per provisional data.
Seven things that defined aviation sector in 2016
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- In June, the central government introduced the much-awaited civil aviation policy, the first such integrated policy for the sector since independence. The sector is likely to benefit immensely from the policy. The highlight includes bringing down the airfares to about Rs 2,500 per passenger for a one-hour flight. The ministry will support airlines in the form of viability gap funding.
- Subsequently, in October, the government launched the UDAN scheme, acronym for Ude Desh Ka Aam Naagrik, that will make flying affordable for small town common man. Under the scheme, a new cess will be applicable on domestic flights - Rs 7,500 for every flight up to 1,000 km, Rs 8,000 for those between 1,000 and 1,500 km and Rs 8,500 above 1,500 km. The move has been challenged in court by airlines.
- The government firmed up plans to revive non-operational airstrips and airports under the civil aviation policy. It will cost between Rs 50 and Rs 100 crore per airport. The selection of airports will be based on passenger demand from these airports. The revival is to be done in consultation with respective state governments and airlines.
- The controversial 5/20 rule was replaced with 0/20 rule which means that all domestic carriers can start flying on international routes if they deploy 20 aircraft or 20 per cent of the total capacity. The decision would benefit new airlines such as Vistara, AirAsia India and Air Costa whereas older airlines such as IndiGo, Jet Airways and SpiceJet will now have to prepare for more competition on international routes.
- The government announced that it will enter into open sky agreements with SAARC countries and countries within 5,000 kms from Delhi.
- The return of Jet Airways into profitability in 2015/16 after four consecutive years of registering losses. The carrier introduced a series of cost-cutting measures in addition to more sweating of its aircraft, better network planning, and renegotiating old contracts.
- In June, the aviation regulator DGCA capped the excess baggage and cancellation charges. As per the new rules, the carriers cannot fix cancellation charges at more than base fares plus fuel surcharge. Moreover the excess baggage charges have been capped at Rs 100 per kg for 5 kg over the 15 kg that airlines offer for free. The decision has impacted the revenues of most airlines.
- In June, the central government introduced the much-awaited civil aviation policy, the first such integrated policy for the sector since independence. The sector is likely to benefit immensely from the policy. The highlight includes bringing down the airfares to about Rs 2,500 per passenger for a one-hour flight. The ministry will support airlines in the form of viability gap funding.
- Subsequently, in October, the government launched the UDAN scheme, acronym for Ude Desh Ka Aam Naagrik, that will make flying affordable for small town common man. Under the scheme, a new cess will be applicable on domestic flights - Rs 7,500 for every flight up to 1,000 km, Rs 8,000 for those between 1,000 and 1,500 km and Rs 8,500 above 1,500 km. The move has been challenged in court by airlines.
- The government firmed up plans to revive non-operational airstrips and airports under the civil aviation policy. It will cost between Rs 50 and Rs 100 crore per airport. The selection of airports will be based on passenger demand from these airports. The revival is to be done in consultation with respective state governments and airlines.
- The controversial 5/20 rule was replaced with 0/20 rule which means that all domestic carriers can start flying on international routes if they deploy 20 aircraft or 20 per cent of the total capacity. The decision would benefit new airlines such as Vistara, AirAsia India and Air Costa whereas older airlines such as IndiGo, Jet Airways and SpiceJet will now have to prepare for more competition on international routes.
- The government announced that it will enter into open sky agreements with SAARC countries and countries within 5,000 kms from Delhi.
- The return of Jet Airways into profitability in 2015/16 after four consecutive years of registering losses. The carrier introduced a series of cost-cutting measures in addition to more sweating of its aircraft, better network planning, and renegotiating old contracts.
- In June, the aviation regulator DGCA capped the excess baggage and cancellation charges. As per the new rules, the carriers cannot fix cancellation charges at more than base fares plus fuel surcharge. Moreover the excess baggage charges have been capped at Rs 100 per kg for 5 kg over the 15 kg that airlines offer for free. The decision has impacted the revenues of most airlines.
From demonetisation to global oil prices to Fed rate. RBI reveals why it did not go for rate cut
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Reserve Bank of India's monetary policy committee (MPC) has shifted its focus towards inflation while playing down concern about economic growth, minutes from its meeting this month showed on Wednesday.
RBI's six-member MPC decided unanimously to keep the policy repo rate unchanged at 6.25 percent on Dec. 7, instead of delivering a 25 basis points cut expected by a majority of analysts.
The minutes showed that all members of the committee considered that the impact on growth of Prime Minister Narendra Modi's demonetisation of large denomination bank notes would be transitory.
They all expressed concern about the rising risk of inflation from global oil prices, as well as domestic non-oil and non-food inflation.
The government announced on Nov. 8 that 500- and 1,000-rupee bank notes would be banned, as a way to flush out billions of dollars in unaccounted wealth and hit the finances of militants suspected of using fake currency.
Many financial market participants believe the ban will have a strong impact on economic growth and they predict inflation will ease to below the RBI's 5 percent target for March 2017.
The MPC, which has three members from the RBI and three academics appointed by a government panel, said the stance of policy should be geared to achieving a medium-term inflation target of 4 percent and a more immediate 5 percent target by March.
"Achieving the inflation target ... remains the primary objective," RBI Governor Urjit Patel said in the minutes.
Data after the RBI's announcement showed inflation eased to a two-year low of 3.63 percent in November as the demonetisation dented consumer spending though core inflation was sticky at near 5 percent.
Analysts have downgraded their India growth forecast by 100-150 basis points to 6.3-6.4 percent for the 2016/17 fiscal year ending in March and also expect the impact of the demonetisation to linger for one more year.
Most committee members also expressed concern about the slow pace of lending rate cuts by banks, despite the 175 basis points in rate cuts by the RBI since January 2015.
RBI Deputy Governor R. Gandhi said it was important for monetary policy transmission to work through more effectively while Executive Director M. Patra highlighted the need to monitor global developments to assess the impact of inflation in India.
While India is seen as relatively better off compared with its emerging market peers in weathering the impact of higher U.S. Fed rates, it is still not immune to the risk of inflation arising out of exchange rate volatility, one reason cited by the RBI for not lowering rates this month.
External member Chetan Ghate reiterated his concern over core inflation, which excludes food and fuel, and added that the federal budget in February would provide further cues for the policy stance.
The other external member, Pami Dua, expressed confidence about the recovery of export growth while the third external member, Ravindra Dholakia, raised concern about the central bank's household inflation expectation survey which stood at an elevated 10.5 percent for one-year ahead.
HERE IS FULL TEXT
1- Global growth picked up modestly in the second half of 2016, after weakening in the first half. Activity in advanced economies (AEs) improved hesitantly, led by a rebound in the US. In the emerging market economies (EMEs), growth has moderated, but policy stimulus in China and some easing of stress in the larger commodity exporters shored up momentum. World trade is beginning to emerge out of a trough that bottomed out in July-August and shows signs of stabilising. Inflation has ticked up in some AEs, though well below target, and is easing in several EMEs. Expectations of reflationary fiscal policies in the US, Japan and China, and the waning of downward pressures on EMEs in recession are tempered by still-prevalent political risks in the euro area and the UK, emerging geo-political risks and the spectre of financial market volatility.
2- International financial markets were strongly impacted by the result of the US presidential election and incoming data that raised the probability of the Federal Reserve tightening monetary policy. As bouts of volatility fuelled a risk-off surge into US equities and out of fixed income markets, a risk-on stampede pulled out capital flows from EMEs, plunging their currencies and equity markets to recent lows even as bond yields hardened in tandem with US yields. The surge of the US dollar from late October intensified after the election results and triggered sizable depreciations in currencies around the world. Commodity prices firmed up across the board from mid-November on an improvement in the outlook for demand following the US election results, barring gold which lost its safe haven glitter to the ascendant US dollar. Crude prices have firmed after the OPEC's decision to cut output.
3- On the domestic front, the growth of real gross value added (GVA) in Q2 of 2016-17 turned out to be lower than projected on account of a deeper than expected slowdown in industrial activity. Manufacturing slowed down both sequentially and on an annual basis, with weak demand conditions and the firming up of input costs dragging down the profitability of corporations. Gross fixed capital formation contracted for the third consecutive quarter. Although government final consumption expenditure slowed sequentially, it supported private final consumption expenditure, the mainstay of aggregate demand. The contribution of net exports to aggregate demand remained positive, but on account of a sharper contraction in imports relative to exports.
4- Turning to Q3, the Committee felt that the assessment is clouded by the still unfolding effects of the withdrawal of specified bank notes (SBNs). The steady expansion in acreage under rabi sowing across major crops compared to a year ago should build on the robust performance of agriculture in Q2. By contrast, industrial activity remains weak. Among the core industries in the index of industrial production (IIP), the output of coal contracted in October due to subdued demand, while the production of crude oil and natural gas shrank under the binding constraint of structural impediments. The production of cement, fertilisers and electricity continued to decelerate, reflecting the sluggishness in underlying economic activity. On the other hand, steel output has recorded sustained expansion following the application of countervailing duties. Refinery output accelerated on the back of a pick-up in exports and capacity additions. The withdrawal of SBNs could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited. In the services sector, the outlook is mixed with construction, trade, transport, hotels and communication impacted by temporary SBN effects, while public administration, defence and other services would continue to be buoyed by the 7th Central Pay Commission (CPC) award and one rank one pension (OROP). GVA by financial services is expected to receive a short-term boost from the large inflow of low-cost deposits.
5- Retail inflation measured by the headline consumer price index (CPI) eased more than expected for the third consecutive month in October, driven down by a sharper than anticipated deflation in the prices of vegetables. Underlying this softer reading, however, was an upturn in momentum as prices rose month-on-month across the board. Still elevated prices of sugar and protein-rich items, coupled with a turning up of prices of cereals, pulses and processed foods pushed up the momentum of food prices, which partly offset the moderation in food inflation brought about by a strong favourable base effect. In the fuel category, inflation eased with the decline in LPG prices on an annual basis and a fall in electricity prices from a month ago. Inflation excluding food and fuel continues to show strong persistence. Although housing and personal care inflation softened marginally, the steady rise in inflation in respect of education, medical and health services, and transport and communication has imparted stickiness to inflation in this category.
6- Liquidity conditions have undergone large shifts in Q3 so far. Surplus conditions in October and early November were overwhelmed by the impact of the withdrawal of SBNs from November 9. Currency in circulation plunged by ?7.4 trillion up to December 2; consequently, net of replacements, deposits surged into the banking system, leading to a massive increase in its excess reserves. The Reserve Bank scaled up its liquidity operations through variable rate reverse repo auctions of a wide range of tenors from overnight to 91 days, absorbing liquidity (net) of ?5.2 trillion. The Reserve Bank allowed oil bonds issued by the Government as eligible securities under the LAF. From the fortnight beginning November 26, an incremental CRR of 100 per cent was applied on the increase in net demand and time liabilities (NDTL) between September 16, 2016 and November 11, 2016 as a temporary measure to drain excess liquidity from the system. From November 28, liquidity absorption fell back and the Reserve Bank undertook variable rate repo auctions of ?3.3 trillion on November 28. As expected, money market conditions tightened thereafter and the weighted average call rate (WACR) traded near the upper bound of the LAF corridor on that day before dropping back to the policy repo rate on November 30. All other rates in the system firmed up in sympathy, with term premia getting restored gradually. Through this episode, active liquidity management prevented the WACR from falling even to the fixed rate reverse repo rate, the lower bound of the LAF corridor. Liquidity management was bolstered by an increase in the limit on securities under the market stabilisation scheme (MSS) from ?0.3 trillion to ?6 trillion on November 29. There have been three issuances of cash management bills under MSS for ?1.4 trillion by December 6, 2016.
7- In the external sector, India's merchandise exports rebounded in September and October. The return to positive territory was supported by a pick-up in both POL and non-POL exports. After a prolonged fall for 22 months, imports rose in October on the back of a sharp rise in the volume of gold imports and higher payments for POL imports. Non-oil non-gold import growth also turned positive after a gap of seven months. For the period April-October, the merchandise trade deficit was lower by US $ 25 billion from its level a year ago. Accordingly, the current account deficit is likely to remain muted, notwithstanding some loss of remittances and software exports under invisibles. Net foreign direct investment has remained reasonably robust, with more than half going to manufacturing, communication and financial services. By contrast, portfolio investment outflows of the order of US $ 7.3 billion occurred in October-November from both debt and equity markets - as in peer EMEs across the board - reflecting a strong home bias triggered by the outcome of the US presidential election and the near-certainty of monetary policy tightening in the US. The level of foreign exchange reserves was US$ 364 billion on December 2, 2016.
Outlook
8- The Committee took note of the upturn in the prices of several items that is masked by the easing of inflation on base effects during October. Despite some supply disruptions, the abrupt compression of demand in November due to the withdrawal of SBNs could push down the prices of perishables in the reading that becomes available in December. On the other hand, prices of wheat, gram and sugar have been firming up. While discretionary spending on goods and services in the CPI excluding food and fuel - constituting 16 per cent of the CPI basket - could have been affected by restricted access to cash, the prices of these items may weather these transitory effects as they are normally revised according to pre-set cycles. Prices of housing, fuel and light, health, transport and communication, pan, tobacco and intoxicants, and education - together accounting for 38 per cent of the CPI basket - may remain largely unaffected. Going forward, base effects are expected to reverse and turn unfavourable in December and February. If the usual winter moderation in food prices does not materialise due to the disruptions, food inflation pressures could re-emerge. Furthermore, CPI inflation excluding food and fuel has been resistant to downward impulses and could set a floor to headline inflation. With the OPEC's agreement to cut production, crude prices may firm up in the coming months. Global developments, especially as financial markets factor in the future stance of US monetary and fiscal policy, could impart volatility to the exchange rate thereby feeding into inflation. The withdrawal of SBNs could result in a possible temporary reduction in inflation of the order of 10-15 basis points in Q3. Taking these factors into account, headline inflation is projected at 5 per cent in Q4 of 2016-17 with risks tilted to the upside but lower than in the October policy review. The fuller effects of the house rent allowances under the 7th CPC award are yet to be assessed, pending implementation, and have not been reckoned in this baseline inflation path.
9- The outlook for GVA growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of SBNs which are still playing out. Downside risks in the near term could travel through two major channels: (a) short-run disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector; (b) aggregate demand compression associated with adverse wealth effects. The impact of the first channel should, however, ebb with the progressive increase in the circulation of new currency notes and greater usage of non-cash based payment instruments in the economy, while the impact of the second channel is likely to be limited. In October 2016, GVA growth in H2 was projected at 7.7 per cent and for the full year at 7.6 per cent. Incorporating the expected loss of growth momentum in Q3 and waning effects in Q4 alongside the boost to consumption demand from higher agricultural output and the implementation of the 7th CPC award, GVA growth for 2016-17 is revised down from 7.6 per cent to 7.1 per cent, with evenly balanced risks.
10- The liquidity management framework was refined in April with the objective of meeting short-term liquidity needs through regular facilities, frictional and seasonal mismatches through fine-tuning operations and more durable liquidity needs for facilitating growth by modulating net foreign assets and net domestic assets. The Reserve Bank has conducted liquidity management consistent with this framework, progressively moving the system level ex ante liquidity conditions to close to neutrality. In Q3 up to early November, liquidity conditions remained in mild surplus mode. The Reserve Bank injected liquidity of ?1.1 trillion through OMO purchases during the fiscal year so far, including an OMO purchase auction of ?100 billion in October. Although the replacement of SBNs has engendered large surplus liquidity warranting exceptional operations, this needs to be seen as transitory. The Reserve Bank is committed to conducting liquidity operations in pursuit of the objectives of the revised framework put in place in April to restore system level liquidity to a position of neutrality as the surplus liquidity pressures abate.
11. In the view of the Committee, this bi-monthly review is set against the backdrop of heightened uncertainty. Globally, the imminent tightening of monetary policy in the US is triggering bouts of high volatility in financial markets, with the possibility of large spillovers that could have macroeconomic implications for EMEs. In India, while supply disruptions in the backwash of currency replacement may drag down growth this year, it is important to analyse more information and experience before judging their full effects and their persistence - short-term developments that influence the outlook disproportionately warrant caution with respect to setting the monetary policy stance. If the impact is transient as widely expected, growth should rebound strongly. Turning to inflation, food prices other than vegetables are exhibiting sustained firmness and a pick-up in momentum. Another disconcerting feature of recent developments is the downward inflexibility in inflation excluding food and fuel which could set a resistance level for future downward movements in the headline. Moreover, volatility in crude prices and the surge in financial market turbulence could put the inflation target for Q4 of 2016-17 at some risk. Given these indicators of underlying inflation, it is appropriate to look through the transitory but unclear effects of the withdrawal of SBNs while setting the monetary policy stance. On balance, therefore, it is prudent to wait and watch how these factors play out and impinge upon the outlook. Accordingly, the policy repo rate has been kept on hold in this review, while retaining an accommodative policy stance.
12. Six members voted in favour of the monetary policy decision. The minutes of the MPC's meeting will be published on December 21, 2016. The next meeting of the MPC is scheduled on February 7 & 8, 2017 and its resolution will be placed on the Reserve Bank's website on February 8, 2017.
Statement by Dr. Chetan Ghate
13. Because of the increased uncertainty due to the withdrawal of SBNs, and virtually no hard data for November, it would be prudent to 'wait-and-watch'.
14. While a negative demand shock because of the withdrawal of SBNs will lead to a decline in consumption demand, the risks that such a reduction will have longer term effects by impinging on overall investment sentiment and investment activity are low. The risks that weakening aggregate demand could exacerbate a current type of "credit cycle" where a weakening of the real economy leads to a reduction in bank profits, leading to credit restrictions which further weaken the real economy, are also low. What counters the adverse effects of the withdrawal of SBNs is the aggressive pace of digitisation, and the fast restoration of the transaction demand for money from the re-tendering process. I therefore expect the demand and supply effects from the withdrawal of SBNs to be transient with the accompanying increase in the output gap likely to be temporary. This makes it inappropriate to respond with a rate cut.
15. My paramount concern at this juncture has to do with the stickiness of inflation excluding food and fuel. While headline inflation declined in October, inflation excluding food and fuel increased to 4.9 per cent in October, and remains sticky despite favourable base effects. It may be that a decline in core only comes after there is a substantial decline in inflationary expectations. Since the last review, there has also been a reversal of the non-food commodity cycle (e.g., metals, oil). Having said this, food inflation declined sharply in October although cereal inflation has been increasing gradually, and pulses and products continue to be major contributors of food inflation. While cereal prices may be constrained by buffer stocks, vegetable inflation is transient in nature, with possible reversals in trend. What is comforting though is that fewer commodities are driving inflation now compared to last month, which means that inflation is less generalised. Some disinflation will also come about because of the withdrawal of SBNs, although with a lag.
16. Despite a 175 basis points cut in the policy rate between January 2015 and November 2016, the reduction in the weighted average lending rate (WALR) on outstanding rupee loans for data up to September 2016 was only 71 basis points. Because of imperfect interest-rate pass through so far, an additional cut at this juncture may not yield any further transmission from banks.
17- Once the union budget is announced in the first week of February, there will be one more data point.
18- Taking into account these considerations, I vote for keeping the policy repo rate unchanged at 6.25 per cent at today's meeting of the Monetary Policy Committee. I also believe that the Committee should now focus on the mid-point of the medium-term inflation target of 4 +/- 2 per cent given the lags associated with the transmission of monetary policy.
Statement by Dr. Pami Dua
19. On the basis of the Indian leading indices produced by the Economic Cycle Research Institute (ECRI), it can be inferred that the Indian economy was in a resilient state ahead of the decision to withdraw SBNs. It may be noted that a leading index predicts changes in economic activity and thus, cyclical turns in the economy. Specifically, with the Indian Leading Index growth in a clear cyclical upswing and rising to a two-year high before the withdrawal of SBNs, the economic growth outlook going into the autumn months had become increasingly optimistic, underscoring the economy's resilience to potential negative shocks. Thus, from a business cycle perspective, at the time, the Indian economy was not vulnerable. Moreover, growth in ECRI's Indian Leading Exports Index, a harbinger of India's exports growth, was also in a decisive cyclical upturn. This indicates that improved exports growth may provide additional support to growth in economic activity, particularly in the context of the brighter global growth prospects suggested by ECRI's global leading indices. In this backdrop, the withdrawal of SBNs is expected to have only a transitory impact on economic activity.
20. Moreover, with a cumulative reduction in the policy rate by 175 basis points since January 2015, conditions are conducive for further transmission to lending rates by banks. Meanwhile, in the light of higher international bond yields and a strong upturn in ECRI's U.S. Future Inflation Gauge (that anticipates U.S. inflation), the U.S. Federal Reserve is expected to raise its policy rate this month.
21. Keeping in view the above, I fully endorse the resolution to keep the policy repo rate unchanged at 6.25 per cent.
Statement by Dr. Ravindra H. Dholakia
22. After carefully considering all arguments for and against holding the policy rate constant in the December review, I find the following reasons convincing for my vote:
23. The Reserve Bank's forecast of the CPI headline inflation rate obtained by assessment of commodity groups in the CPI basket for the end of March 2017 is about 5 per cent with some upside risks. While my own point forecast based on a more aggregative econometric model is lower, the range estimates of the same indicate a significant chance of the inflation rate exceeding the threshold in March 2017 and in June 2017.
24. Stickiness in the core inflation (other than food and fuel) at close to 5 per cent over the past several months is observed. This coupled with marginally declining but still very high inflationary expectations revealed by the RBI surveys need to be considered seriously.
25. Given the recent developments on SBNs and related policies, the banking sector is likely to be flooded with liquidity for some time to come that on its own may exert a greater influence on the lending rates of banks than the repo rate.
26. Transmission out of the cumulative reduction of 175 basis points in the repo rate since January 2015 has so far been substantially less than 50 per cent in the weighted average lending rate (WALR) for the outstanding Rupee loans and around 60 per cent in the WALR for the fresh rupee loans, whereas it is above 70 per cent in the deposit rates. Thus, there exists enough space for further transmission in the lending rates by the banks.
27. Both external and domestic economic environments are currently impacted by some unique uncertainties as pointed out in the resolution of the Committee. The magnitude of individual and net impact is not very clear at this juncture. In such an environment characterised by uncertainties, any policy intervention in terms of repo rate with acknowledged longer outside lags is likely to add to the uncertainties, which will not be good for the economy.
28. While the recent developments on SBNs can be considered as an exogenous shock to the economy that results in downward revision of the GDP growth forecast, it is widely perceived to be a transitory or temporary phenomenon. If it is so, it is not advisable to respond with a policy intervention that involves longer distributive lags, because otherwise it can destabilise the system or create avoidable uncertainty in policy stance and action in future.
Statement by Dr. Michael Debabrata Patra
29- As the resolution of the Monetary Policy Committee (MPC) sets out, an exceptional configuration of factors is obscuring a clear assessment of the outlook. While domestic supply disruptions and demand compression appear to be transient, global developments, including the morphing of political changes into macroeconomic risks, could likely be longer-lived and more challenging. Under these conditions, precaution warrants careful monitoring of the manner in which these forces play out and influence the near- to medium-term. In particular, it is critical to stay focused on the inflation target of 5 per cent for Q4 of 2016-17 amidst subsiding but still-present upside risks in the form of firmness in prices of several food items barring vegetables, hardening international commodity prices - especially of crude oil - and the downward inflexibility in inflation excluding food and fuel. Achieving 5 per cent will imbue credibility into the commitment of monetary policy to the inflation target of 4 per cent, i.e., the centre of the target band. Accordingly, I vote for keeping the policy rate unchanged, while allowing the transmission of policy rate reductions of 175 basis points effected from January 2015 to maintain accommodation in the monetary policy stance.
Statement by Shri R. Gandhi
30. I fully concur with the assessment set out in the monetary policy resolution of the MPC and vote in favour of no change in the repo rate because of the following reasons:
31. There is uncertainty about the short-term impact of the decision to withdraw the legal tender status of ?500 and ?1000 denomination bank notes on the macro-economy, although the impact is likely to be transitory. I, however, don't see any significant downside risks to the medium-term growth prospects of the economy. However, there are other uncertainties as well, especially the oil price situation and geo-political situation. For a forward looking monetary policy framework, given the lags in monetary policy transmission, a policy rate action amidst heightened uncertainty will only implicitly allow short-term developments and expectations to impact the medium-term outlook, which needs to be avoided.
32. In an environment characterised by uncertainty, it is more important to create or reinforce enabling conditions for monetary policy actions to work more effectively, going ahead. Hence, my vote for maintaining the policy rate at current level.
Statement by Dr Urjit R. Patel
33. Inflation excluding food and fuel remains sticky. International crude oil prices have firmed up. Global financial conditions pose a threat to macroeconomic and financial stability, with large fluctuations in capital flows and asset prices imparting volatility which gets transmitted into inflation. This uncertainty shows no sign of subsiding, and is likely to get accentuated in the coming year as US macroeconomic and trade policies realign. Even as growing credibility in the disinflation process in India has lowered households' inflation expectations from double digits prevailing until December 2015, they remain elevated and feed into the services component of inflation. More recently, the steady easing of food inflation has brought about a decline in inflation expectations in the latest round of the survey.
34. The impact of the withdrawal of SBNs on growth and inflation, while uncertain, is transitory. Against this backdrop, it is important for monetary policy to stay focused on the medium-term and strive to achieve, on a durable basis, the middle of the notified inflation target range i.e., 4 per cent. There are other risks to this objective. The full cost-push effects of higher allowances under the 7th CPC's award will impact inflation outcomes and inflation expectations in 2017-19. Also, the implementation of the goods and services tax could produce a one-off step-up, albeit modest, in inflation. The decision of the Organisation of Petroleum Exporting Countries (OPEC) to cut production, supported by key non-OPEC members, will harden crude prices further as demand and supply get balanced out. Recent movements in other commodity prices also suggest that the global commodity price cycle could be turning. Inflation in advanced economies is turning up incipiently and is expected to rise significantly in 2017 from 2016 levels. Achieving the inflation target of 5 per cent for Q4 of 2016-17 and securing 4 per cent - the central point of the notified target range - remains the primary objective.
Reserve Bank of India's monetary policy committee (MPC) has shifted its focus towards inflation while playing down concern about economic growth, minutes from its meeting this month showed on Wednesday.
RBI's six-member MPC decided unanimously to keep the policy repo rate unchanged at 6.25 percent on Dec. 7, instead of delivering a 25 basis points cut expected by a majority of analysts.
The minutes showed that all members of the committee considered that the impact on growth of Prime Minister Narendra Modi's demonetisation of large denomination bank notes would be transitory.
They all expressed concern about the rising risk of inflation from global oil prices, as well as domestic non-oil and non-food inflation.
The government announced on Nov. 8 that 500- and 1,000-rupee bank notes would be banned, as a way to flush out billions of dollars in unaccounted wealth and hit the finances of militants suspected of using fake currency.
Many financial market participants believe the ban will have a strong impact on economic growth and they predict inflation will ease to below the RBI's 5 percent target for March 2017.
The MPC, which has three members from the RBI and three academics appointed by a government panel, said the stance of policy should be geared to achieving a medium-term inflation target of 4 percent and a more immediate 5 percent target by March.
"Achieving the inflation target ... remains the primary objective," RBI Governor Urjit Patel said in the minutes.
Data after the RBI's announcement showed inflation eased to a two-year low of 3.63 percent in November as the demonetisation dented consumer spending though core inflation was sticky at near 5 percent.
Analysts have downgraded their India growth forecast by 100-150 basis points to 6.3-6.4 percent for the 2016/17 fiscal year ending in March and also expect the impact of the demonetisation to linger for one more year.
Most committee members also expressed concern about the slow pace of lending rate cuts by banks, despite the 175 basis points in rate cuts by the RBI since January 2015.
RBI Deputy Governor R. Gandhi said it was important for monetary policy transmission to work through more effectively while Executive Director M. Patra highlighted the need to monitor global developments to assess the impact of inflation in India.
While India is seen as relatively better off compared with its emerging market peers in weathering the impact of higher U.S. Fed rates, it is still not immune to the risk of inflation arising out of exchange rate volatility, one reason cited by the RBI for not lowering rates this month.
External member Chetan Ghate reiterated his concern over core inflation, which excludes food and fuel, and added that the federal budget in February would provide further cues for the policy stance.
The other external member, Pami Dua, expressed confidence about the recovery of export growth while the third external member, Ravindra Dholakia, raised concern about the central bank's household inflation expectation survey which stood at an elevated 10.5 percent for one-year ahead.
HERE IS FULL TEXT
1- Global growth picked up modestly in the second half of 2016, after weakening in the first half. Activity in advanced economies (AEs) improved hesitantly, led by a rebound in the US. In the emerging market economies (EMEs), growth has moderated, but policy stimulus in China and some easing of stress in the larger commodity exporters shored up momentum. World trade is beginning to emerge out of a trough that bottomed out in July-August and shows signs of stabilising. Inflation has ticked up in some AEs, though well below target, and is easing in several EMEs. Expectations of reflationary fiscal policies in the US, Japan and China, and the waning of downward pressures on EMEs in recession are tempered by still-prevalent political risks in the euro area and the UK, emerging geo-political risks and the spectre of financial market volatility.
1- Global growth picked up modestly in the second half of 2016, after weakening in the first half. Activity in advanced economies (AEs) improved hesitantly, led by a rebound in the US. In the emerging market economies (EMEs), growth has moderated, but policy stimulus in China and some easing of stress in the larger commodity exporters shored up momentum. World trade is beginning to emerge out of a trough that bottomed out in July-August and shows signs of stabilising. Inflation has ticked up in some AEs, though well below target, and is easing in several EMEs. Expectations of reflationary fiscal policies in the US, Japan and China, and the waning of downward pressures on EMEs in recession are tempered by still-prevalent political risks in the euro area and the UK, emerging geo-political risks and the spectre of financial market volatility.
2- International financial markets were strongly impacted by the result of the US presidential election and incoming data that raised the probability of the Federal Reserve tightening monetary policy. As bouts of volatility fuelled a risk-off surge into US equities and out of fixed income markets, a risk-on stampede pulled out capital flows from EMEs, plunging their currencies and equity markets to recent lows even as bond yields hardened in tandem with US yields. The surge of the US dollar from late October intensified after the election results and triggered sizable depreciations in currencies around the world. Commodity prices firmed up across the board from mid-November on an improvement in the outlook for demand following the US election results, barring gold which lost its safe haven glitter to the ascendant US dollar. Crude prices have firmed after the OPEC's decision to cut output.
3- On the domestic front, the growth of real gross value added (GVA) in Q2 of 2016-17 turned out to be lower than projected on account of a deeper than expected slowdown in industrial activity. Manufacturing slowed down both sequentially and on an annual basis, with weak demand conditions and the firming up of input costs dragging down the profitability of corporations. Gross fixed capital formation contracted for the third consecutive quarter. Although government final consumption expenditure slowed sequentially, it supported private final consumption expenditure, the mainstay of aggregate demand. The contribution of net exports to aggregate demand remained positive, but on account of a sharper contraction in imports relative to exports.
4- Turning to Q3, the Committee felt that the assessment is clouded by the still unfolding effects of the withdrawal of specified bank notes (SBNs). The steady expansion in acreage under rabi sowing across major crops compared to a year ago should build on the robust performance of agriculture in Q2. By contrast, industrial activity remains weak. Among the core industries in the index of industrial production (IIP), the output of coal contracted in October due to subdued demand, while the production of crude oil and natural gas shrank under the binding constraint of structural impediments. The production of cement, fertilisers and electricity continued to decelerate, reflecting the sluggishness in underlying economic activity. On the other hand, steel output has recorded sustained expansion following the application of countervailing duties. Refinery output accelerated on the back of a pick-up in exports and capacity additions. The withdrawal of SBNs could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited. In the services sector, the outlook is mixed with construction, trade, transport, hotels and communication impacted by temporary SBN effects, while public administration, defence and other services would continue to be buoyed by the 7th Central Pay Commission (CPC) award and one rank one pension (OROP). GVA by financial services is expected to receive a short-term boost from the large inflow of low-cost deposits.
5- Retail inflation measured by the headline consumer price index (CPI) eased more than expected for the third consecutive month in October, driven down by a sharper than anticipated deflation in the prices of vegetables. Underlying this softer reading, however, was an upturn in momentum as prices rose month-on-month across the board. Still elevated prices of sugar and protein-rich items, coupled with a turning up of prices of cereals, pulses and processed foods pushed up the momentum of food prices, which partly offset the moderation in food inflation brought about by a strong favourable base effect. In the fuel category, inflation eased with the decline in LPG prices on an annual basis and a fall in electricity prices from a month ago. Inflation excluding food and fuel continues to show strong persistence. Although housing and personal care inflation softened marginally, the steady rise in inflation in respect of education, medical and health services, and transport and communication has imparted stickiness to inflation in this category.
6- Liquidity conditions have undergone large shifts in Q3 so far. Surplus conditions in October and early November were overwhelmed by the impact of the withdrawal of SBNs from November 9. Currency in circulation plunged by ?7.4 trillion up to December 2; consequently, net of replacements, deposits surged into the banking system, leading to a massive increase in its excess reserves. The Reserve Bank scaled up its liquidity operations through variable rate reverse repo auctions of a wide range of tenors from overnight to 91 days, absorbing liquidity (net) of ?5.2 trillion. The Reserve Bank allowed oil bonds issued by the Government as eligible securities under the LAF. From the fortnight beginning November 26, an incremental CRR of 100 per cent was applied on the increase in net demand and time liabilities (NDTL) between September 16, 2016 and November 11, 2016 as a temporary measure to drain excess liquidity from the system. From November 28, liquidity absorption fell back and the Reserve Bank undertook variable rate repo auctions of ?3.3 trillion on November 28. As expected, money market conditions tightened thereafter and the weighted average call rate (WACR) traded near the upper bound of the LAF corridor on that day before dropping back to the policy repo rate on November 30. All other rates in the system firmed up in sympathy, with term premia getting restored gradually. Through this episode, active liquidity management prevented the WACR from falling even to the fixed rate reverse repo rate, the lower bound of the LAF corridor. Liquidity management was bolstered by an increase in the limit on securities under the market stabilisation scheme (MSS) from ?0.3 trillion to ?6 trillion on November 29. There have been three issuances of cash management bills under MSS for ?1.4 trillion by December 6, 2016.
7- In the external sector, India's merchandise exports rebounded in September and October. The return to positive territory was supported by a pick-up in both POL and non-POL exports. After a prolonged fall for 22 months, imports rose in October on the back of a sharp rise in the volume of gold imports and higher payments for POL imports. Non-oil non-gold import growth also turned positive after a gap of seven months. For the period April-October, the merchandise trade deficit was lower by US $ 25 billion from its level a year ago. Accordingly, the current account deficit is likely to remain muted, notwithstanding some loss of remittances and software exports under invisibles. Net foreign direct investment has remained reasonably robust, with more than half going to manufacturing, communication and financial services. By contrast, portfolio investment outflows of the order of US $ 7.3 billion occurred in October-November from both debt and equity markets - as in peer EMEs across the board - reflecting a strong home bias triggered by the outcome of the US presidential election and the near-certainty of monetary policy tightening in the US. The level of foreign exchange reserves was US$ 364 billion on December 2, 2016.
Outlook
Outlook
8- The Committee took note of the upturn in the prices of several items that is masked by the easing of inflation on base effects during October. Despite some supply disruptions, the abrupt compression of demand in November due to the withdrawal of SBNs could push down the prices of perishables in the reading that becomes available in December. On the other hand, prices of wheat, gram and sugar have been firming up. While discretionary spending on goods and services in the CPI excluding food and fuel - constituting 16 per cent of the CPI basket - could have been affected by restricted access to cash, the prices of these items may weather these transitory effects as they are normally revised according to pre-set cycles. Prices of housing, fuel and light, health, transport and communication, pan, tobacco and intoxicants, and education - together accounting for 38 per cent of the CPI basket - may remain largely unaffected. Going forward, base effects are expected to reverse and turn unfavourable in December and February. If the usual winter moderation in food prices does not materialise due to the disruptions, food inflation pressures could re-emerge. Furthermore, CPI inflation excluding food and fuel has been resistant to downward impulses and could set a floor to headline inflation. With the OPEC's agreement to cut production, crude prices may firm up in the coming months. Global developments, especially as financial markets factor in the future stance of US monetary and fiscal policy, could impart volatility to the exchange rate thereby feeding into inflation. The withdrawal of SBNs could result in a possible temporary reduction in inflation of the order of 10-15 basis points in Q3. Taking these factors into account, headline inflation is projected at 5 per cent in Q4 of 2016-17 with risks tilted to the upside but lower than in the October policy review. The fuller effects of the house rent allowances under the 7th CPC award are yet to be assessed, pending implementation, and have not been reckoned in this baseline inflation path.
9- The outlook for GVA growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of SBNs which are still playing out. Downside risks in the near term could travel through two major channels: (a) short-run disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector; (b) aggregate demand compression associated with adverse wealth effects. The impact of the first channel should, however, ebb with the progressive increase in the circulation of new currency notes and greater usage of non-cash based payment instruments in the economy, while the impact of the second channel is likely to be limited. In October 2016, GVA growth in H2 was projected at 7.7 per cent and for the full year at 7.6 per cent. Incorporating the expected loss of growth momentum in Q3 and waning effects in Q4 alongside the boost to consumption demand from higher agricultural output and the implementation of the 7th CPC award, GVA growth for 2016-17 is revised down from 7.6 per cent to 7.1 per cent, with evenly balanced risks.
10- The liquidity management framework was refined in April with the objective of meeting short-term liquidity needs through regular facilities, frictional and seasonal mismatches through fine-tuning operations and more durable liquidity needs for facilitating growth by modulating net foreign assets and net domestic assets. The Reserve Bank has conducted liquidity management consistent with this framework, progressively moving the system level ex ante liquidity conditions to close to neutrality. In Q3 up to early November, liquidity conditions remained in mild surplus mode. The Reserve Bank injected liquidity of ?1.1 trillion through OMO purchases during the fiscal year so far, including an OMO purchase auction of ?100 billion in October. Although the replacement of SBNs has engendered large surplus liquidity warranting exceptional operations, this needs to be seen as transitory. The Reserve Bank is committed to conducting liquidity operations in pursuit of the objectives of the revised framework put in place in April to restore system level liquidity to a position of neutrality as the surplus liquidity pressures abate.
11. In the view of the Committee, this bi-monthly review is set against the backdrop of heightened uncertainty. Globally, the imminent tightening of monetary policy in the US is triggering bouts of high volatility in financial markets, with the possibility of large spillovers that could have macroeconomic implications for EMEs. In India, while supply disruptions in the backwash of currency replacement may drag down growth this year, it is important to analyse more information and experience before judging their full effects and their persistence - short-term developments that influence the outlook disproportionately warrant caution with respect to setting the monetary policy stance. If the impact is transient as widely expected, growth should rebound strongly. Turning to inflation, food prices other than vegetables are exhibiting sustained firmness and a pick-up in momentum. Another disconcerting feature of recent developments is the downward inflexibility in inflation excluding food and fuel which could set a resistance level for future downward movements in the headline. Moreover, volatility in crude prices and the surge in financial market turbulence could put the inflation target for Q4 of 2016-17 at some risk. Given these indicators of underlying inflation, it is appropriate to look through the transitory but unclear effects of the withdrawal of SBNs while setting the monetary policy stance. On balance, therefore, it is prudent to wait and watch how these factors play out and impinge upon the outlook. Accordingly, the policy repo rate has been kept on hold in this review, while retaining an accommodative policy stance.
12. Six members voted in favour of the monetary policy decision. The minutes of the MPC's meeting will be published on December 21, 2016. The next meeting of the MPC is scheduled on February 7 & 8, 2017 and its resolution will be placed on the Reserve Bank's website on February 8, 2017.
Statement by Dr. Chetan Ghate
Statement by Dr. Chetan Ghate
13. Because of the increased uncertainty due to the withdrawal of SBNs, and virtually no hard data for November, it would be prudent to 'wait-and-watch'.
14. While a negative demand shock because of the withdrawal of SBNs will lead to a decline in consumption demand, the risks that such a reduction will have longer term effects by impinging on overall investment sentiment and investment activity are low. The risks that weakening aggregate demand could exacerbate a current type of "credit cycle" where a weakening of the real economy leads to a reduction in bank profits, leading to credit restrictions which further weaken the real economy, are also low. What counters the adverse effects of the withdrawal of SBNs is the aggressive pace of digitisation, and the fast restoration of the transaction demand for money from the re-tendering process. I therefore expect the demand and supply effects from the withdrawal of SBNs to be transient with the accompanying increase in the output gap likely to be temporary. This makes it inappropriate to respond with a rate cut.
15. My paramount concern at this juncture has to do with the stickiness of inflation excluding food and fuel. While headline inflation declined in October, inflation excluding food and fuel increased to 4.9 per cent in October, and remains sticky despite favourable base effects. It may be that a decline in core only comes after there is a substantial decline in inflationary expectations. Since the last review, there has also been a reversal of the non-food commodity cycle (e.g., metals, oil). Having said this, food inflation declined sharply in October although cereal inflation has been increasing gradually, and pulses and products continue to be major contributors of food inflation. While cereal prices may be constrained by buffer stocks, vegetable inflation is transient in nature, with possible reversals in trend. What is comforting though is that fewer commodities are driving inflation now compared to last month, which means that inflation is less generalised. Some disinflation will also come about because of the withdrawal of SBNs, although with a lag.
16. Despite a 175 basis points cut in the policy rate between January 2015 and November 2016, the reduction in the weighted average lending rate (WALR) on outstanding rupee loans for data up to September 2016 was only 71 basis points. Because of imperfect interest-rate pass through so far, an additional cut at this juncture may not yield any further transmission from banks.
17- Once the union budget is announced in the first week of February, there will be one more data point.
18- Taking into account these considerations, I vote for keeping the policy repo rate unchanged at 6.25 per cent at today's meeting of the Monetary Policy Committee. I also believe that the Committee should now focus on the mid-point of the medium-term inflation target of 4 +/- 2 per cent given the lags associated with the transmission of monetary policy.
Statement by Dr. Pami Dua
Statement by Dr. Pami Dua
19. On the basis of the Indian leading indices produced by the Economic Cycle Research Institute (ECRI), it can be inferred that the Indian economy was in a resilient state ahead of the decision to withdraw SBNs. It may be noted that a leading index predicts changes in economic activity and thus, cyclical turns in the economy. Specifically, with the Indian Leading Index growth in a clear cyclical upswing and rising to a two-year high before the withdrawal of SBNs, the economic growth outlook going into the autumn months had become increasingly optimistic, underscoring the economy's resilience to potential negative shocks. Thus, from a business cycle perspective, at the time, the Indian economy was not vulnerable. Moreover, growth in ECRI's Indian Leading Exports Index, a harbinger of India's exports growth, was also in a decisive cyclical upturn. This indicates that improved exports growth may provide additional support to growth in economic activity, particularly in the context of the brighter global growth prospects suggested by ECRI's global leading indices. In this backdrop, the withdrawal of SBNs is expected to have only a transitory impact on economic activity.
20. Moreover, with a cumulative reduction in the policy rate by 175 basis points since January 2015, conditions are conducive for further transmission to lending rates by banks. Meanwhile, in the light of higher international bond yields and a strong upturn in ECRI's U.S. Future Inflation Gauge (that anticipates U.S. inflation), the U.S. Federal Reserve is expected to raise its policy rate this month.
21. Keeping in view the above, I fully endorse the resolution to keep the policy repo rate unchanged at 6.25 per cent.
Statement by Dr. Ravindra H. Dholakia
Statement by Dr. Ravindra H. Dholakia
22. After carefully considering all arguments for and against holding the policy rate constant in the December review, I find the following reasons convincing for my vote:
23. The Reserve Bank's forecast of the CPI headline inflation rate obtained by assessment of commodity groups in the CPI basket for the end of March 2017 is about 5 per cent with some upside risks. While my own point forecast based on a more aggregative econometric model is lower, the range estimates of the same indicate a significant chance of the inflation rate exceeding the threshold in March 2017 and in June 2017.
24. Stickiness in the core inflation (other than food and fuel) at close to 5 per cent over the past several months is observed. This coupled with marginally declining but still very high inflationary expectations revealed by the RBI surveys need to be considered seriously.
25. Given the recent developments on SBNs and related policies, the banking sector is likely to be flooded with liquidity for some time to come that on its own may exert a greater influence on the lending rates of banks than the repo rate.
26. Transmission out of the cumulative reduction of 175 basis points in the repo rate since January 2015 has so far been substantially less than 50 per cent in the weighted average lending rate (WALR) for the outstanding Rupee loans and around 60 per cent in the WALR for the fresh rupee loans, whereas it is above 70 per cent in the deposit rates. Thus, there exists enough space for further transmission in the lending rates by the banks.
27. Both external and domestic economic environments are currently impacted by some unique uncertainties as pointed out in the resolution of the Committee. The magnitude of individual and net impact is not very clear at this juncture. In such an environment characterised by uncertainties, any policy intervention in terms of repo rate with acknowledged longer outside lags is likely to add to the uncertainties, which will not be good for the economy.
28. While the recent developments on SBNs can be considered as an exogenous shock to the economy that results in downward revision of the GDP growth forecast, it is widely perceived to be a transitory or temporary phenomenon. If it is so, it is not advisable to respond with a policy intervention that involves longer distributive lags, because otherwise it can destabilise the system or create avoidable uncertainty in policy stance and action in future.
Statement by Dr. Michael Debabrata Patra
Statement by Dr. Michael Debabrata Patra
29- As the resolution of the Monetary Policy Committee (MPC) sets out, an exceptional configuration of factors is obscuring a clear assessment of the outlook. While domestic supply disruptions and demand compression appear to be transient, global developments, including the morphing of political changes into macroeconomic risks, could likely be longer-lived and more challenging. Under these conditions, precaution warrants careful monitoring of the manner in which these forces play out and influence the near- to medium-term. In particular, it is critical to stay focused on the inflation target of 5 per cent for Q4 of 2016-17 amidst subsiding but still-present upside risks in the form of firmness in prices of several food items barring vegetables, hardening international commodity prices - especially of crude oil - and the downward inflexibility in inflation excluding food and fuel. Achieving 5 per cent will imbue credibility into the commitment of monetary policy to the inflation target of 4 per cent, i.e., the centre of the target band. Accordingly, I vote for keeping the policy rate unchanged, while allowing the transmission of policy rate reductions of 175 basis points effected from January 2015 to maintain accommodation in the monetary policy stance.
Statement by Shri R. Gandhi
Statement by Shri R. Gandhi
30. I fully concur with the assessment set out in the monetary policy resolution of the MPC and vote in favour of no change in the repo rate because of the following reasons:
31. There is uncertainty about the short-term impact of the decision to withdraw the legal tender status of ?500 and ?1000 denomination bank notes on the macro-economy, although the impact is likely to be transitory. I, however, don't see any significant downside risks to the medium-term growth prospects of the economy. However, there are other uncertainties as well, especially the oil price situation and geo-political situation. For a forward looking monetary policy framework, given the lags in monetary policy transmission, a policy rate action amidst heightened uncertainty will only implicitly allow short-term developments and expectations to impact the medium-term outlook, which needs to be avoided.
32. In an environment characterised by uncertainty, it is more important to create or reinforce enabling conditions for monetary policy actions to work more effectively, going ahead. Hence, my vote for maintaining the policy rate at current level.
Statement by Dr Urjit R. Patel
33. Inflation excluding food and fuel remains sticky. International crude oil prices have firmed up. Global financial conditions pose a threat to macroeconomic and financial stability, with large fluctuations in capital flows and asset prices imparting volatility which gets transmitted into inflation. This uncertainty shows no sign of subsiding, and is likely to get accentuated in the coming year as US macroeconomic and trade policies realign. Even as growing credibility in the disinflation process in India has lowered households' inflation expectations from double digits prevailing until December 2015, they remain elevated and feed into the services component of inflation. More recently, the steady easing of food inflation has brought about a decline in inflation expectations in the latest round of the survey.
34. The impact of the withdrawal of SBNs on growth and inflation, while uncertain, is transitory. Against this backdrop, it is important for monetary policy to stay focused on the medium-term and strive to achieve, on a durable basis, the middle of the notified inflation target range i.e., 4 per cent. There are other risks to this objective. The full cost-push effects of higher allowances under the 7th CPC's award will impact inflation outcomes and inflation expectations in 2017-19. Also, the implementation of the goods and services tax could produce a one-off step-up, albeit modest, in inflation. The decision of the Organisation of Petroleum Exporting Countries (OPEC) to cut production, supported by key non-OPEC members, will harden crude prices further as demand and supply get balanced out. Recent movements in other commodity prices also suggest that the global commodity price cycle could be turning. Inflation in advanced economies is turning up incipiently and is expected to rise significantly in 2017 from 2016 levels. Achieving the inflation target of 5 per cent for Q4 of 2016-17 and securing 4 per cent - the central point of the notified target range - remains the primary objective.
RBI's latest notification: Yes, you can now deposit over Rs 5000 in old notes
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The RBI on Wednesday withdrew an earlier notification which said that people can make only one deposit over Rs 5000 during the remaining period of cash exchange that ends on December 30.
RBI's earlier notification had said: "Tenders of SBNs in excess of Rs 5000 into a bank account will be received for credit only once during the remaining period till December 30, 2016."
It also said that the credit in such cases shall be afforded only after questioning tenderer, on record, in the presence of at least two officials of the bank, as to why this could not be deposited earlier and receiving a satisfactory explanation.
"The explanation should be kept on record to facilitate an audit trail at a later stage. An appropriate flag also should be raised in CBS to that effect so that no more tenders are allowed," it further said.
However, responding to the public concerns that it had caused, the central bank today relaxed its restrictions. It withdrew the notification which said that people can make only one deposit over Rs 5000 during the remaining period of cash exchange that ends on December 30.
While there is still some confusion over the ever-changing notifications, what exactly is the implication of RBI's 'notification today? We have tried to simplify it a bit for you:
1. Yes, you can now deposit over Rs 5,000 in the banks in old Rs 500 and Rs 1000 notes.
2. No, you will not be questioned by bank officials if you make a deposit of over Rs 5000.
3. Yes, you can make deposit your money more than once, and the bank will not question even if it the total amount exceeds Rs 5000.
Please note that the RBI mentions that for these to be valid, the bank account has to be KYC compliant.
The RBI on Wednesday withdrew an earlier notification which said that people can make only one deposit over Rs 5000 during the remaining period of cash exchange that ends on December 30.
RBI's earlier notification had said: "Tenders of SBNs in excess of Rs 5000 into a bank account will be received for credit only once during the remaining period till December 30, 2016."
It also said that the credit in such cases shall be afforded only after questioning tenderer, on record, in the presence of at least two officials of the bank, as to why this could not be deposited earlier and receiving a satisfactory explanation.
"The explanation should be kept on record to facilitate an audit trail at a later stage. An appropriate flag also should be raised in CBS to that effect so that no more tenders are allowed," it further said.
However, responding to the public concerns that it had caused, the central bank today relaxed its restrictions. It withdrew the notification which said that people can make only one deposit over Rs 5000 during the remaining period of cash exchange that ends on December 30.
While there is still some confusion over the ever-changing notifications, what exactly is the implication of RBI's 'notification today? We have tried to simplify it a bit for you:
1. Yes, you can now deposit over Rs 5,000 in the banks in old Rs 500 and Rs 1000 notes.
2. No, you will not be questioned by bank officials if you make a deposit of over Rs 5000.
3. Yes, you can make deposit your money more than once, and the bank will not question even if it the total amount exceeds Rs 5000.
Please note that the RBI mentions that for these to be valid, the bank account has to be KYC compliant.
Economic shock from cash ban to last until March: NITI Aayog's Bibek Debroy
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The negative shock from India's ban on high-value banknotes will last until the end of March but improved growth next year should fully compensate for the loss, a top economic adviser to Prime Minister Narendra Modi told Reuters.
Bibek Debroy, a member of the government's main policy think tank, said on Wednesday the "demonetisation" drive would improve the fiscal position and urged the government to spend any extra revenue on public investment.
By outlawing all 500 and 1,000 rupee notes in the surprise Nov. 8 announcement, the government hoped people would deposit illicit or untaxed income into banks, boosting tax collection and incentivising the millions operating in the "shadow" economy to enter the formal economy.
The decision sucked 86 percent of cash out of circulation, forcing millions of people to cut outlays and clog banks in search of money, and leaving businesses struggling to pay wages.
"There is certainly going to be a negative shock in Q3 and Q4 of 16/17, which should be compensated by a positive impact in 17/18," Debroy said in an interview, referring to the Indian fiscal year that runs until March.
"A whole lot that was informal will become formal and a bit more organised," he added. "That is a positive externality in the slightly longer term."
PAIN, THEN GAIN
Most economists predict a short-term hit to economic growth from demonetisation, while the Reserve Bank of India has trimmed its growth forecast for the current fiscal year by half a percentage point to 7.1 percent.
Debroy, however, said it was impossible to quantify the impact, because the government does not yet know how much cash will come back into the system and what it would do with any extra tax revenue.
Some economists have called for emergency fiscal stimulus to stave off a sharp slowdown, but Debroy said the government should instead focus on public investment.
"I don't like the word fiscal stimulus - even before Nov. 8 there was an issue about increasing investments, both private and public," he said.
"What we are talking about is greater public investments in the form of creating assets. That requirement existed before Nov. 8."
Debroy said the political fallout from demonetisation meant the government was now unlikely to meet an April 1 deadline to finalise its crucial nationwide Goods and Services Tax - the largest taxation overhaul in independent India. He said Sept. 1 was a more reasonable target.
Modi needs to clinch a deal with India's 29 states on the tax, but the last parliamentary session was a washout as the opposition and government squabbled over the impact of his cash crackdown.
Debroy expects the next session, set to begin before the government presents its federal budget in early February, to be more productive, narrowing the risk that GST is further delayed.
"We are all suffering from a bit of myopia because the last parliamentary session was a bit of a mess. It might well be that the budget session would be a bit more productive," he said.
The negative shock from India's ban on high-value banknotes will last until the end of March but improved growth next year should fully compensate for the loss, a top economic adviser to Prime Minister Narendra Modi told Reuters.
Bibek Debroy, a member of the government's main policy think tank, said on Wednesday the "demonetisation" drive would improve the fiscal position and urged the government to spend any extra revenue on public investment.
By outlawing all 500 and 1,000 rupee notes in the surprise Nov. 8 announcement, the government hoped people would deposit illicit or untaxed income into banks, boosting tax collection and incentivising the millions operating in the "shadow" economy to enter the formal economy.
The decision sucked 86 percent of cash out of circulation, forcing millions of people to cut outlays and clog banks in search of money, and leaving businesses struggling to pay wages.
"There is certainly going to be a negative shock in Q3 and Q4 of 16/17, which should be compensated by a positive impact in 17/18," Debroy said in an interview, referring to the Indian fiscal year that runs until March.
"A whole lot that was informal will become formal and a bit more organised," he added. "That is a positive externality in the slightly longer term."
PAIN, THEN GAIN
Most economists predict a short-term hit to economic growth from demonetisation, while the Reserve Bank of India has trimmed its growth forecast for the current fiscal year by half a percentage point to 7.1 percent.
Debroy, however, said it was impossible to quantify the impact, because the government does not yet know how much cash will come back into the system and what it would do with any extra tax revenue.
Some economists have called for emergency fiscal stimulus to stave off a sharp slowdown, but Debroy said the government should instead focus on public investment.
"I don't like the word fiscal stimulus - even before Nov. 8 there was an issue about increasing investments, both private and public," he said.
"What we are talking about is greater public investments in the form of creating assets. That requirement existed before Nov. 8."
Debroy said the political fallout from demonetisation meant the government was now unlikely to meet an April 1 deadline to finalise its crucial nationwide Goods and Services Tax - the largest taxation overhaul in independent India. He said Sept. 1 was a more reasonable target.
Modi needs to clinch a deal with India's 29 states on the tax, but the last parliamentary session was a washout as the opposition and government squabbled over the impact of his cash crackdown.
Debroy expects the next session, set to begin before the government presents its federal budget in early February, to be more productive, narrowing the risk that GST is further delayed.
"We are all suffering from a bit of myopia because the last parliamentary session was a bit of a mess. It might well be that the budget session would be a bit more productive," he said.
General Awareness
India Achieves 4th rank in Global Wind Power Installed Capacity Index
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India has been ranked 4th in the Global Wind Power Installed Capacity index after China, USA and Germany with cumulative installed wind power generation capacity of 28,279 MW in 2016.
- The Government is aiming to increase share of clean energy through massive development and deployment of new and renewable energy in India to meet Energy security, Electricity shortages, Energy access and Climate change among others.
Various new and renewable energy targets installed by Government
India achieved the largest-ever wind power capacity addition of 3,423 MW in 2015-16, exceeding the target by 43 per cent. During 2016-17, a total of 1,502 MW capacity has been added till 31 October 2016, making cumulative achievement 28,279 MW.
The country also achieved the biggest ever solar power capacity addition of 3,019 MW in 2015-16, exceeding target by 116 per cent. During 2016-17, a total 1,750 MW capacity has been added till 31 October 2016, making cumulative achievement of 8,728 MW.
- India installed 31,472 solar pumps in 2015-16, which is higher than the total number of pumps installed during last 24 years, ie, since the beginning of the programme in 1991. So far, 92,305 solar pumps have been installed in the country as of 31 October 2016.
- During 2016-17, against a target of 400 MW, 51 MW installations of biomass power plants have been achieved making a cumulative achievement to 4,882 MW. Biomass power includes installations from biomass combustion, biomass gasification and bagasse co-generation.
- During 2016-17, against a target of 1.00 lakh biogas plants, 0.26 lakh biogas plant installations have been achieved, making a cumulative achievement to 4.94 million biogas plants as of 31 October 2016.
- A capacity addition of 14.30 GW of renewable energy has been reported during the last two and half years under Grid Connected Renewable Power, which include 5.8 GW from Solar Power, 7.04 GW from Wind Power, 0.53 from Small Hydro Power and 0.93 from Bio-power.
Future Targets of Government
The Government of India in its submission to the United Nations Frame Work Convention on Climate Change has stated that India will achieve 40 per cent cumulative Electric power capacity from non-fossil fuel based energy resources by 2030 with the help of transfer of technology and low cost International Finance including from Green Climate Fund.
- In order to achieve the renewable energy target of 175 GW by the year 2022, the government has launched various programmes/schemes during the last two years such as Solar Defence Scheme, Solar scheme for CPUs Solar PV power plants on Canal Bank and Canal Tops, Solar Pump, Solar Rooftop etc.
- Various measures have been initiated and special steps taken in addition to providing financial support to various schemes being implemented by the Ministry of New and Renewable Energy.
- These include suitable amendments to the Electricity Act and Tariff Policy for strong enforcement of Renewable Purchase Obligation (RPO) and for providing Renewable Generation Obligation (RGO); setting up of exclusive solar parks; development of power transmission network through Green Energy Corridor project; identification of large Government complexes/buildings for rooftop projects among others.
- Other steps are provision of roof top solar and 10 per cent renewable energy as mandatory under Mission Statement and Guidelines for development of smart cities; amendments in building bye-laws for mandatory provision of roof top solar for new construction or higher Floor Area Ratio; infrastructure status for solar projects among others.
- The target of 175 GW renewable power, 2022 includes 60 GW from wind power, 100 GW from solar power, 10 GW from biomass power and 5 GW from small hydro power. A target of 16660 MW grid renewable power (wind 4000 MW, solar 12000 MW, small hydro power 250 MW, bio-power 400 MW and waste to power 10 MW), has been set for 2016-17.
- Besides, under off-grid renewable system, targets of 15 MW equivalent waste to energy, 60 MW equivalent biomass non-bagasse cogeneration, 10 MW equivalent biomass gasifiers, 1.0 MW eq. small wind/hybrid systems, 100 MW equivalent solar photovoltaic systems, 1.0 MW equivalent micro hydel and 100,000 nos. family size biogas plants have been set for 2016-17.
India has been ranked 4th in the Global Wind Power Installed Capacity index after China, USA and Germany with cumulative installed wind power generation capacity of 28,279 MW in 2016.
- The Government is aiming to increase share of clean energy through massive development and deployment of new and renewable energy in India to meet Energy security, Electricity shortages, Energy access and Climate change among others.
Various new and renewable energy targets installed by Government
India achieved the largest-ever wind power capacity addition of 3,423 MW in 2015-16, exceeding the target by 43 per cent. During 2016-17, a total of 1,502 MW capacity has been added till 31 October 2016, making cumulative achievement 28,279 MW.
The country also achieved the biggest ever solar power capacity addition of 3,019 MW in 2015-16, exceeding target by 116 per cent. During 2016-17, a total 1,750 MW capacity has been added till 31 October 2016, making cumulative achievement of 8,728 MW.
- India installed 31,472 solar pumps in 2015-16, which is higher than the total number of pumps installed during last 24 years, ie, since the beginning of the programme in 1991. So far, 92,305 solar pumps have been installed in the country as of 31 October 2016.
- During 2016-17, against a target of 400 MW, 51 MW installations of biomass power plants have been achieved making a cumulative achievement to 4,882 MW. Biomass power includes installations from biomass combustion, biomass gasification and bagasse co-generation.
- During 2016-17, against a target of 1.00 lakh biogas plants, 0.26 lakh biogas plant installations have been achieved, making a cumulative achievement to 4.94 million biogas plants as of 31 October 2016.
- A capacity addition of 14.30 GW of renewable energy has been reported during the last two and half years under Grid Connected Renewable Power, which include 5.8 GW from Solar Power, 7.04 GW from Wind Power, 0.53 from Small Hydro Power and 0.93 from Bio-power.
Future Targets of Government
The Government of India in its submission to the United Nations Frame Work Convention on Climate Change has stated that India will achieve 40 per cent cumulative Electric power capacity from non-fossil fuel based energy resources by 2030 with the help of transfer of technology and low cost International Finance including from Green Climate Fund.
- In order to achieve the renewable energy target of 175 GW by the year 2022, the government has launched various programmes/schemes during the last two years such as Solar Defence Scheme, Solar scheme for CPUs Solar PV power plants on Canal Bank and Canal Tops, Solar Pump, Solar Rooftop etc.
- Various measures have been initiated and special steps taken in addition to providing financial support to various schemes being implemented by the Ministry of New and Renewable Energy.
- These include suitable amendments to the Electricity Act and Tariff Policy for strong enforcement of Renewable Purchase Obligation (RPO) and for providing Renewable Generation Obligation (RGO); setting up of exclusive solar parks; development of power transmission network through Green Energy Corridor project; identification of large Government complexes/buildings for rooftop projects among others.
- Other steps are provision of roof top solar and 10 per cent renewable energy as mandatory under Mission Statement and Guidelines for development of smart cities; amendments in building bye-laws for mandatory provision of roof top solar for new construction or higher Floor Area Ratio; infrastructure status for solar projects among others.
- The target of 175 GW renewable power, 2022 includes 60 GW from wind power, 100 GW from solar power, 10 GW from biomass power and 5 GW from small hydro power. A target of 16660 MW grid renewable power (wind 4000 MW, solar 12000 MW, small hydro power 250 MW, bio-power 400 MW and waste to power 10 MW), has been set for 2016-17.
- Besides, under off-grid renewable system, targets of 15 MW equivalent waste to energy, 60 MW equivalent biomass non-bagasse cogeneration, 10 MW equivalent biomass gasifiers, 1.0 MW eq. small wind/hybrid systems, 100 MW equivalent solar photovoltaic systems, 1.0 MW equivalent micro hydel and 100,000 nos. family size biogas plants have been set for 2016-17.
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