The Reserve Bank of India as expected did not throw any surprises in its monetary policy announcement this week as no change was brought about in any of the key policy rates.
RBI Governor, as a matter of fact, indirectly hinted at the reduction of rates and future course of action actually being subject to sufficient structural reforms for boosting growth that need to be undertaken by the government. However, at the same time, he was optimistic about rate cut while stressing upon the fact that inflation was in line with the target. Nevertheless things are not as simple as confirmed by the Governor himself, the inflationary targets that we are looking at presently; do not take into account the impact of increased expenditures on account of seventh pay commission recommendations and one rank one pension.
Whereas, presently the inflationary targets may be well within projections, but these targets have already been revised to 5 from 4.8 in case of March 2017. What is more concerning is that households around the country are expecting inflation to be around 10% as against the RBI target of 5% in March 17 according to RBI’s inflation Expectation survey, which was held in Dec 15 and whose results were declared during the week .
Individual consumption basket of 4828 urban households across 16 cities were covered in this survey. Thus the spectre of rising prices, which had been under control for some time now, has returned to haunt the policy making corridors. There is a school of thought in the country who do not attribute the present inflation control to any policy level change undertaken by the RBI or government, but instead feel that controlled inflation has actually been possible because of continuous fall in the oil prices during the last one year. Governor Rajan has however rejected this theory saying that the government has retained 75% of the oil price windfall through taxes.
After the monetary policy, interest has now shifted to the upcoming budget with the budget session of parliament scheduled to commence on February 23. The Rail Budget will be presented on February 25, the pre-budget economic survey on February 26 and the General budget on February 29.
As we all know that despite a global gloom, leading experts are unanimously of the view that India remains a bright spot in the global economy with a growth rate of over 7 percent , presently highest in the world for any large economy and moreover in view of the fact that Modi Govt has unleashed a number of programmes like Make in India and Start up India, it is expected that the upcoming budget would not only address the concerns of the start up community but bring in other policy level changes in the shape of positive FDI investment norms, and easy licensing policies. There is no doubt about the fact that Arun Jaitley has a very difficult job at his hand, but he has already hinted that unlike earlier budgets he wants to propose realistic and actually achievable targets for receipts through taxes and sale of assets. Moreover he is also making efforts towards rationalization of Direct tax system so as to make it as good as is prevailing in leading developed economies around the globe . As regards the pay commission award and one rank one pension, FM needs to provide Rs.1.10 lakh crore in the budget for their implementation
For now, Stock markets had another bad week , as the market again ended in negative territory , primarily because of the global sentiments on account of falling crude prices and continuous poor earning season at the domestic level as reflected in the various quarterly results announced during the week. As against the overall gain of 330 points for BSE and 95 points for Nifty in the last week , there was an overall loss of 254 points for BSE and 74 points for Nifty with these indices falling from 24870 to 24616 and from 7563 to 7489 respectively. Shares which suffered heavily during the week included NTPC which lost 12% , Maruti and ICICI Bank which were down 8% .During the week gold prices moved up from 1117 dollars to 1160 dollars per ounce and rupee appreciated by 0.35% to close at 67.64 against the dollar. Foreign institutional investors continued to be net sellers in the equity markets. What is interesting is that the equity markets are now trading around the same levels as prevailing at the time of formation of central govt by NDA in 2014 and the valuations have become quiet attractive. There are many blue chip companies like Colgate, Proctor & Gamble and many more which are available at cheap valuations.
The banking sector of the country continues to be under strain, as the worries on account of stressed assets continue unabated. India Rating Agency in a report published during the week has reported that stressed assets in the banking system are expected to rise up to 12.5 percent by next year and during the current year , same are expected to be at 12 percent against 10.5 percent last year. In its report the agency has shockingly put 33 percent of the corporate sector credit to be actually stressed , out of which only one half has been presently treated as stressed. As per the data circulated by government, gross non performing assets of public sector banks increased to 3.14 lakh crores as at the end of Sept 2015, as compared to 2.5 lac crores, a year earlier. RBI has already given the deadline of March 2017 to banks to clean their balance sheets. However, an important announcement made by the govt during the week regarding the Bankruptcy law could reverse the trend in favour of the banks as they may find it easier to resolve the issues related to impaired and stressed assets. Govt sources have confirmed that the relevant law could be passed in the budget session of parliament. At the end of the week , RBI pleasantly surprised public sector banks , when its Deputy Governor S. S. Mundra asked the government to free these banks from social obligations so that they are in a position to stand up to the commercial competition. There was another good news on the banking front during the week , as RBI Dy Governor, S S Mundra said that the Indian banking sector is well-placed to move towards account number portability and customers should be able to move seamlessly between banks without having to change their account numbers, should they be dissatisfied with the services offered by their bank.
In order to attract investment in infrastructure sectors from global pension funds and sovereign wealth funds Finance Minister during the week Inaugurated India Investment Summit 2016 and called for a faster Pace of growth to achieve global standards and for this we need to put in place a better infrastructure, better private sector and banking sector among others. Foreign direct investment into the country has already more than doubled to 4.5 billion dollars as at the end of December.
Nielsen’s global consumer confidence index for the fourth quarter of 2015 was issued during the week and India again topped the index with a score of 131, ahead of other developing economies like the Philippines , Indonesia and Thailand . But half of the respondents opined that the country was still in an economic recession, implying that the recessionary sentiment was strong.
In another important development this week, The government is reportedly planning to extend the scope of direct benefit transfer (DBT) to the power sector. The finance ministry is working out the details of a plan that will ensure that the benefit of subsidised power tariff is passed directly into consumer accounts. Subsidies on account of gas are now being directly credited into consumer accounts all around the country. Government has been successful in its compaign of reducing subsidy burden by asking the people to give up their subsidies , as 6.5 million people have of their own accord given up their gas subsidies till date in terms of the data released this week.
In terms of a statement made during the week by the Telecom Minister Ravi Shankar, the manufacturing capacity of mobile phone factories in India has surpassed the 100 million mark following the opening of 15 new factories over the past year and smart phone sales in India also reached 100 million by the end of December, 2015.
At the end of the week, Auto Expo 2016 started at New Delhi and it will continue up to 9th of the month. Many major vehicle manufacturing companies are expected to launch their new vehicles in this five day show. However, automobile industry in the country is up in the arms against a decision of the government to skip an intermediate stage and introduce world’s toughest emission norms by 2020.
On the macro economic front, the Goods and Services Tax bill which will replace all indirect taxes like excise duty, service tax and sales tax into one uniform rate, is still stalled in the Rajya Sabha as the opposition Congress is pressing for three changes. Finance Minister Arun Jaitley has again hoped that the opposition parties will see reason and the act will become a reality soon.
On the international front Reserve Bank Governor Raghuram Rajan along with Bank of England Governor Mark Karney has joined a task force of the World Economic Forum (WEF) to study the future of global financial system .
In the week ahead, Gross domestic Product growth rate figures for the fourth quarter are scheduled to be released on February 8 and these figures should in all likelihood decide the market momentum in the short term. However it is expected that the financial markets will again be under stress, as US markets had a fall of 3 percent on Friday and Nasdaq was pushed to lowest close since 2014. This week JK Bank would also be coming out with its December quarter results on Feb 11.