Reserve Bank may hike interest rate by 0.35 per cent before pause
The monetary policy committee of the Reserve Bank of India is likely to announce a hike of 0.35 percentage point in the repo rate on December 7 to bring retail inflation back to its 4 per cent target, according to a poll of 10 economists by Business Standard. The committee’s next meeting is scheduled from December 5-7. Since May 4, the central bank has raised the repo rate by a total of 1.9 percentage points to 5.9 per cent. The monetary panel is seen increasing the repo rate by 0.35 percentage points in the upcoming meeting, taking the benchmark policy rate to 6.25 per cent.
Why it’s important: Retail inflation is likely to be around 6.7 per cent in the year to March, still above the central bank’s upper tolerance limit. Corporate India has asked for a moderation in the pace of rate hikes.
Commerce ministry to offer incentives for revival of merchandise exports
The commerce ministry has devised a plan that includes offering incentives and exploring new markets to revive outbound shipments amid a slump in demand in major markets, which led to Indian October goods exports contracting for the first time in 19 months. Among measures proposed by the ministry are tapping new markets in Africa and Latin America and offering exporters additional credit guarantees and tariff protection measures to boost exports and expand local manufacturing.
Why it’s important: Exports have declined because demand has slowed in major markets amid rising interest rates, a recessionary outlook in the West and intermittent lockdowns in China. Shipments will continue to face challenges.
Offshore payments by Indian companies now under tax scanner
Tax authorities have widened the hunt for black money in foreign shores from individuals to companies. For the first time, the Foreign Asset Investigation Unit, an arm of the Income Tax department, has sent notices to local companies, including a few listed entities. Information about undisclosed assets of promoters and their relatives and aides, obtained from data leaks or details shared by other jurisdictions, have been the basis for invocation of the I-T Act and the Black Money Act.
Why it’s important: Laws have made carrying out irregular offshore transactions a lot tougher, but success in recovering funds stashed abroad has been limited with tax tribunals sometimes ruling in favor of those charged with irregularities.
Need more direct and indirect tax reforms, says revenue secretary
There is need for further reforms in the direct and indirect tax regimes, revenue secretary Tarun Bajaj has said. There is a need to “fix the capital gains on all fronts,” he said. The tax code should be rewritten to simplify it, Bajaj said in an interview. The goods and services tax needs to be rationalized and there is a case for making the exemption-less personal income tax regime better than the old one.
Why it’s important: The Indian economy has matured to a stage when a stable and transparent tax regime will pay higher dividends to the government.
Air India flying more on metro routes, exiting unviable ones
Tata Group-owned Air India under its new CEO Campbell Wilson is optimizing its domestic strategy under which the carrier is intensifying its presence on metro routes and exiting from unviable ones. Air India has increased its flights on routes such as Delhi-Mumbai, Delhi-Bengaluru, Mumbai-Chennai, Mumbai-Bengaluru, and Hyderabad-Mumbai between June and November. It has stopped flights on eight routes to smaller cities.
Why it’s important: It would be good to see Air India return to profitability after privatization. It makes more sense to have a higher presence on metro routes than have a thin presence across multiple routes.
International clothing brands see a strong revival in sales
Half a dozen global apparel and lifestyle brands have expanded anywhere between 30 and 70 per cent to garner combined annual revenues of nearly $ 2 billion in 2021-22, reversing their performance from a year ago when pandemic-induced curbs on mobility and business operations caused sales to shrink significantly. The surge comes at a time when most of these retailers are facing higher competition from local and global rivals in an increasingly crowded market where firms continue to offer steep discounts.
Why it’s important: India remains an attractive market for aspirational apparel brands as rising disposable incomes have caused the consuming base of the pyramid to broaden further. The competition from smaller brands, however, is likely to intensify.
Indian microlenders start providing secured loans to reduce risk
Some microfinanciers are venturing into secured asset classes such as mortgages and gold loans to diversify their portfolio and balance the risk of unsecured microlending with loans that require collateral. The change in strategy took shape after a Reserve Bank of India circular in March allowed microfinance institutions to lend 25 per cent of their total assets in non-microfinance loans. Before that, they were allowed to lend 15 per cent to such customers.
Why it’s important: There is a concentration of non-collateralized assets on the books of microfinance institutions and increasing secured loans will help them diversify while de-risking their portfolios.
Government looks at land near airports to build aircraft assembly lines
The government has started the groundwork for local manufacturing of passenger aircraft. The aviation ministry has been tasked with identifying potential sites with adequate land as the facilities for aerospace manufacturing will need large space for assembly lines, aircraft parts, ancillary units and other storage requirements.
Why it’s important: the move to build local aircraft assembly lines could help India pare its reliance on importing Airbus and Boeing aircraft. It’ll be in line with the country’s accent on self-reliance.
Rural housing plan to get an additional infusion of Rs 28,000 crore
The central government is looking to allocate an additional Rs 28,000 crore for the flagship Pradhan Mantri Awas Yojana Gramin in the current financial year to ensure completion of the targeted dwellings before the next general election in 2024. This fund infusion would be over and above Rs 20,000 crore that had been allocated for PMAY-G in the Budget of 2022-23.
Why it’s important: There is increased demand from states for more money for the rural housing scheme. The additional boost is likely to pay electoral dividends in the 2024 parliamentary polls.
Lower labor costs and growing workforce give India edge over China
A combination of low labor costs and a large surplus workforce, which will continue to grow until 2031, is one of the key competitive edges that India is leveraging to challenge its rivals in southeast Asia in the race for a China-Plus-One strategy. Besides India, the nations in the race to woo global companies that manufacture in China include Thailand, Indonesia, Malaysia, the Philippines, and Vietnam.
Why it’s important: India needs a cost advantage to lure global manufacturing and supply chains to shift base from China. The going will not be easy as other southeast countries also have similar strategies.
