India’s June trade deficit highest in 5 years, and this is the biggest reason
India’s trade deficit widened to its highest in more than five years in June, the trade ministry said on Friday, driven largely by a surge in oil imports. Though merchandise exports rose 17.57 percent year-on-year in June, the trade deficit widened to $16.6 billion due to a rise in oil imports that surged 56.61 percent to $12.73 billion. In May the trade deficit stood at $14.62 billion.
Merchandise exports last month rose to $27.7 billion from a year ago, while imports rose 21.31 percent on year to $44.3 billion, the Ministry of Commerce and Industry said in a statement. India’s gold imports fell 2.8 percent year-on-year to $2.39 billion in June from a year ago, the statement said.
Retail inflation at 5 month high; will MSP hike by government further increase RBI’s headache?
After inflation surged in June to a 5-month high, economists expressed concerns about inflation even rising further in the next few months in the wake of the recent MSP hike. The CPI Inflation for the month of June touched 5 percent, according to the data released by the Central Statistics Office (CSO). The government has mandated the Reserve Bank to keep inflation at 4 percent, with a margin of 2 percent on either side. The RBI Governor headed Monetary Policy Committee will be meeting later this month to review interest rate regime.
“The movement has been on expected lines, however, what will become important would be to see how inflation plays out in the coming period, especially in the backdrop of the recent hike in minimum support prices (MSP), high crude oil prices and the pass through of input costs…while the setting in of favorable base impacts may provide some cushion, the MSP hikes may trigger a larger inflationary pressure,” PTI reported citing Anis Chakravarty, lead economist and partner, Deloitte India.
After MSP hike, several estimates placed inflation impact between 50-100 bps on Consumer Price Index (CPI), while fiscal impact would be in the range of 0.2 percent to 0.4 percent of GDP.
“For the statistically minded, our estimate suggests that, post announcement of MSP with 150 per cent hike in cost of production, the CPI inflation could increase by 73 bps and this could materialise in one or two quarters but purely subject to procurement by the Government/State Government,” SBI had said in its ‘Ecowrap’ report released recently.
The retail inflation based on Consumer Price Index (CPI) was 4.87 percent in May. It was 1.46 per cent in June 2017. The earlier high was in January this year at 5.07 per cent. The inflation in the food basket was 2.91 percent, compared to 3.1 percent in May.
“Going forward, while base effect is likely to provide some cushion to inflation, elevated oil prices are likely to keep pressure on retail inflation. Another cog in the wheel would be the announced kharif MSP. Our estimate shows that this has potential to add 70 basis points to retail inflation,” Source reported citing Sunil Kumar Sinha, principal economist, India Ratings.
Modi magic! in just 4 years, India beats these 4 countries to become world’s 6th largest economy
In the last four years, since the election of Narendra Modi to power in 2014, India has beaten four big economies to secure its position as the world’s sixth largest economy, pipping France this year, the World Bank said. The country will likely beat the United Kingdom by the end of this year if the GDP growth continues its 7% plus trajectory.
In 2014, India was at the 10th spot, behind the United States, China, Japan, Germany, the United Kingdon, France, Brazil, Italy, and Russia. With a consistent GDP 7% plus growth, except in the financial year 2017-18, India left behind France, Brazil, Italy, and Russia. Between 2011 and 2014, India’s remained at the 10th rank for four continuous years.
India, with a total GDP of $2.597 trillion at the end of the year 2017, is just $25 billion behind the United Kingdom, according to the World Bank. The International Monetary Fund (IMF) projects India to grow at 7.4% in the current year 2018 and 7.8% in 2019, leaving its nearest rival China behind at 6.6 and 6.4% respectively.
BofA Merrill Lynch Global Research projects that India can surpass Germany and Japan in nominal GDP in dollar term by 2028. India is also expected to be a $6 trillion economy — the third largest in the world — in the next 10 years, majorly helped by digitisation, a report by Morgan Stanley said.
However, while India is growing fast and leaving developed countries behind, the per capita income continues to be minuscule as compared to them. India’s per capita income is just $2,130, while that of France is $44,930, Brazil is $10,220, Italy is $35,910, and Russia is $11,950, as per the IMF. India is 126th in terms of per capita income, one rank up from 2016, as per latest data.
And while India’s huge population continues to put pressure on country’s resources, income inequality is a big issue too. Oxfam survey earlier this year found that India’s richest 1% own 73% of wealth generated in India. With India expected to surpass China’s total population by 2024, the policymakers will have a tough challenge in not only making India grow at a faster rate but also to ensure an inclusive growth.
Indian retaliatory measure on steel not ‘appropriate’, says USTR
A top official from the US Trade Representative has said the recent retaliatory measure by India against America’s decision to impose import tariff on steel and aluminum was not “appropriate”. Deputy USTR Jeffrey Gerrish yesterday told a Washington audience that the last year’s reduction in US-India trade deficit was not satisfactorily enough. “We were disappointed with the fact that India actually has imposed retaliatory measures… actually it’s not imposed them yet but announced retaliatory measures. “They (India) are approaching this as a safeguard metric that we have imposed. On that basis, they’ve determined that they have a basis to impose retaliatory measures,” Gerrish said yesterday. The imposition of import tariff on steel and aluminum is not a safeguard measure, he said, adding that the safeguard measure was taken recently on washers and a solar panel.
“We know how to do a safeguard measure. So there’s no basis at all to retaliate against us,” he said at the first Annual Leadership Summit of US India Strategic and Partnership Forum (USISPF) here. “We think that it was not appropriate. We’ve made that very clear. That being said, India could have at least postpone the retaliation until August 4 and there may be some basis to have further discussions on that issue as we approach that date,” the top USTR official said. Responding to a question on Indo-US bilateral trade, Gerrish said the progress made in bilateral relationship has been truly historic over the last several years. The two-way trade last year reached USD 126 billion and that was a landmark, he said, adding that there’s a lot of positive factors in these ties.
“We are certainly pleased with that. That being said, we can certainly improve the trade relationship that we have with India. “We are two of the biggest economies in the world. US biggest economy, India is the sixth largest economy in the world. Given how larger economies are, we think we can grow our trade significantly, we think that it should be much larger than it is,” he said. The Trump administration, he said, hopes to grow trade with India to build new platforms. That being said, the US wants this trade to grow on a more balanced basis. The trade deficit is 2017, he said, adding the USD 28 billion trade deficit, the eighth largest, still remains large. “That’s something we would like to address and bring down,” he said. “We think one of the big factors driving that are the barriers to trade that our companies face in trying to access the Indian market. Those can take the form of tariff barriers but also non-tariff barriers as well,” Gerrish said.
Some of the barriers that US companies face in India, he said, is in the information and communications technology sector. There has been an increase in tariff in India recently, there’s also testing requirements that are in place, which the US is also trying to address in its engagement and not to miss the issue of medical devices, he said, adding there are price controls in place which often results in US companies having to sell at a loss. On the agricultural side, India-bound tariffs exceed 100 per cent at this point on an average basis. US farmers and ranchers and growers are facing barriers on products like dairy and pork, he said. “So we really want to try to address those barriers and we have active engagement with India and we’re hopeful that we will be able to resolve those issues,” Gerrish said.
The Trump Administration, he said, has put in place a mechanism to address the issues related to trade. Market issues is part of those discussions. “Those discussions so far we think have been frank and positive. But there’s a lot of work still to be done and a lot of issues still to be addressed,” the USTR official said, asserting that America’s engagement with India on these issues is going to be a positive development for the relationship. “We think that a greater economic liberalization and a growth in our trade with India will be a benefit to both economies. Businesses and workers and consumers in both countries will benefit and will be mutually beneficial to both the countries,” he said.
Responding to a question, Gerrish said that US President Donald Trump has been clear that economic security is part of the national security. “Part of economic security is developing strong economic relationships with our closest allies and India would be one of those closest allies that we have. And it’s a way of sort of counterbalancing China’s influence in the region,” he said. “I think we want to build up that economic relationship as much as possible and defense sales certainly would also help in that regard,” Gerrish said.
Government to garner just Rs 6,000-cr benefit
As much as 66% of the tax disputes at various fora will be withdrawn under the government’s plan to increase the monetary threshold for departmental appeals, finance minister Piyush Goyal said on Thursday. However, the move would impact only around Rs 6,000 crore under litigation, a tiny fraction of the total disputed amount of Rs 7.6 lakh crore. The government on Wednesday raised threshold monetary limit for the tax department to file appeal before Income Tax Appellate Tribunal/Customs, Excise and Service Tax Appellate Tribunal (ITAT/CESTAT) to Rs 20 lakh from Rs 10 lakh earlier; for cases before high courts, the limit was revised to Rs 50 lakh from Rs 20 lakh; and as for those before the Supreme Court, the threshold was hiked to Rs 1 crore from Rs 25 lakh.
The direct tax department will be able to reduce matters under litigation by 41% while the indirect tax vertical would see a 18% reduction in such disputes. “Historically, the government loses more money as cost of litigation than what it is able to recover from cases involving relatively small tax demands,” Goyal said. However, he said that the process of withdrawal of these cases could take up to a year as the tax department would consult with law officers to ensure cases involving substantial points of law are concluded as they set a precedent for similar cases.
“This is a major step in the direction of litigation management of both direct and indirect taxes as it will effectively reduce minor litigation and help the departments focus on high value litigation,” the government said in a statement. It added that the step will also reduce future litigation flow from the department side.
Pranav Sayta, tax partner, EY India, said: “This will enable the tax administration to focus on more important matters rather than spread their energy on a plethora of small matters. It will further the government’s avowed objectives of promoting a taxpayer-friendly environment and help promote ease of doing business.”
In the case of the Central Board of Direct Taxes (CBDT), out of the total cases filed by the department in the ITAT, 34% of matters would be withdrawn. Around half the cases in filed in high courts (48%) and the Supreme Court (52%) would stand withdrawn once the new norms come into effect.
Similar gains would accrue to the Central Board of Indirect Taxes and Customs (CBIC) with aggregate reduction of 18% in litigation. At the tribunal level, the department would withdraw 16% of the cases while 22% matters in high courts and 21% matter in the Supreme Court would not be litigated any further. “The revised limits should see elimination of about 30-40% of tax litigation matters presently pending before the tribunal/courts and costing tax payers heavily. It will also help reducing burden on the courts where there is already long pendency,” said Sanjay Sanghvi, partner, Khaitan & Co.
How banks detect fake notes: here are common security features used in world’s banknotes
Currency notes are just paper unless they are backed by a country’s central banking system, and when others are kept away from copying it. And while there’s a long history of fake notes and coins, countries around the world try to incorporate security features in their notes that help them curb counterfeiting. For example, the new Rs 500 and Rs 2,000 currency notes introduced after demonetisation have security features such as the micro letter ‘RBI’ and ‘2000 and motif of Mangalyaan.
Plastic money: Countries like Canada introduced polymer notes to identify fake notes easily. A report by World Economic Forum said that the country took the decision after 470 notes were found fake for every one million legitimate banknotes. But the idea of polymer notes was introduced by Australia in 1988 and countries such as the United Kingdom, Malaysia, Chile, New Zealand, and Mexico have switched to it.
Watermarks: This is one of the most common security features for banknotes. Even India uses Mahatma Gandhi portrait and electrotype watermarks to give the notes distinct features. Many countries use watermarks created by different thicknesses of paper in the printing process, which illuminate in the light.
Holograms: More than 300 denominations in 97 currencies use holograms for protection, making them one of the most common security features globally, the WEF said. Holograms can consist of several other security features such as security threads, patches etc. The old notes, prior to demonetisation, had security thread with visible features and inscription ‘Bharat’ (in Hindi), and ‘RBI’.
Microtext: Extremely tiny texts that cannot be read with naked eyes are also one of the most common safety features on many country’s banknotes. In India, notes of Rs 20, Rs 10, and Rs 5 contain the denominational value of the notes in micro-letters. This feature can be seen better under a magnifying glass.