RBI assures industry
- Shaktikanta Das assured the industry that the Central Bank will take all necessary measures to ensure liquidity in the system and promote economic growth.
- Addressing a FICCI members at a webinar, he said, the economic recovery has not fully entrenched.
- The recovery is likely to be gradual as efforts towards reopening of the economy are confronted with increasing infections.
- The Governor also assured the industry that RBI is carefully monitoring the evolving economic scenario and is battle ready to help the industry and businesses to come out of the COVID-19-induced crisis.
- He underlined that the bank investments in commercial papers, bonds, debentures and shares of corporate bodies from April to August 2020 has increased by Rs. 5,615 crore.
- In his address, Mr Das spoke about the initiatives taken by the Central Bank to ease the liquidity situation and make available funds to the businesses impacted by the pandemic and subsequent lockdowns.
- Mr. Das said, financial market conditions in India have significantly eased across segments in response to front-loaded cut in policy repo rate by the RBI.
OECD on World Economy
- The Organisation for Economic Cooperation and Development now predicts a decline of 4.5% in 2020, versus the 6% drop forecast in June.
- Covid-19 led damage to the global economy this year will be less than previously expected.
- OECD said that the damange is going to be “unprecedented in recent history“
- The agency’s chief economist Laurence Boone said “there is no way to sugar coat it“.
- It may be “less bad than we expected” she said, “but it is not a good outcome“.
- The new revised figures predict several countries, including Italy, India and South Africa will experience contractions larger than the UK’s.
- It says the support needs to be continued next year and governments should avoid “premature budgetary tightening at a time when economies are still fragile.“
- Consumer spending on durable goods, including cars, has rebounded quite strongly the OECD says.
- But it has been subdued for services which involve social interaction or international travel.
- For next year, the OECD is now predicting a slightly weaker rebound for the global economy.
- For the global economy, the agency’s chief economist said that the loss of economic activity due to the pandemic by the end of 2021 would be equivalent to the combined annual gross domestic product of France and Germany.
- Attorney General: GST Council is empowered to ask the Central government to permit the states to borrow for meeting GST compensation shortfall.
- Article 279A (4)(h) of the Constitution
- Minister of state for finance Anurag Thakur said that the AG had, however, left it to the Centre to take the final call on the borrowing by states, citing laws laid down in the Constitution.
- The AG has also said that the GST Council can recommend continuance of cess beyond the transition period of five years – that is beyond 2022 – to raise funds for paying compensation in the event of a shortfall during the transition period.
- The step to be taken on account of any ‘extra ordinary circumstances causing a steep fall in GST revenues and shortfall in the fund’ move can be made under Section 8(1) of the Act, but would “require a decision by a three-fourth majority of the weighted votes,” the AG had added in his opinion.
- India’s exports declined for the sixth straight month in August, falling 12.66% on year to $22.7 billion, pulled down by lower shipments of petroleum, leather, engineering goods and manmade yarns.
- A surge in gold imports led to a trade deficit of $6.77 billion in August, the widest in five months.
- India’s total imports declined 26% to $29.47 billion.
- Oil imports declined 41.6% to $6.42 billion last month.
- Exports in 16 of the 30 major commodities declined last month, with certain employment-generating sectors including leather, gems and jewellery and readymade garments showing a fall in outbound shipments.
- During the April-August period, exports declined 26.65% to $97.66 billion, while imports fell 43.73% to $118.38 billion.
- The trade deficit in the first five months of the financial year was $20.72 billion.
- Non-oil, non-gold imports, an indicator of the strength of domestic demand, shrank 29.6% last month.
- Imports of machinery, transport equipment, project goods and machine tools fell.
- With consumption trends likely to adjust to a new normal with the further reopening of the Indian economy, imports of gold may increase further in the run-up to the festive and marriage season.
- A relapse of the healthy recovery recorded since May is a reminder of the likely hiccups ahead before the economy normalises from the impact of the ongoing crisis.
FDI from China
- Anurag Thakur: The total foreign direct investment (FDI) received from China stood at $1.02 billion in the last four fiscal years (April 2016 to March 2020).
- A sector-wise breakup showed that the automobile industry received the most FDI from China at $172 million, followed by the book printing industry at $151 million and $144 million for the electronics industry.
GST on Healthcare
- The government is not considering reducing GST on healthcare products used in treatment and prevention of Covid-19.
- The rates are fixed on the recommendations of GST Council.
- “At present, there is no such recommendation from the GST Council for reducing GST rates on healthcare products used in the treatment and prevention of Covid-19. ,” Anurag Thakur said.
Growing Convergence with Last Yr’s Activity Levels
- The government has said sharp improvements in high frequency indicators – such as the index of eight core industries, E-way bills, Kharif sowing, power consumption, railway freight and cargo traffic and passenger vehicle sales – during July and August indicated growing convergence with previous year’s activity levels.
- Thakur’s statement comes a day after Nomura India Business Resumption Index (NIBRI), which monitors economic activity normalisation, rose to 81.6 from 79 in the week ended September 6.
- Thakur said the impact of the pandemic on the economy resulted in the 23.9% contraction in gross domestic product against 5.2% growth recorded in the first quarter of FY20.
- There was a 26.7% decline in consumption demand and a 47.1% drop in investment demand during the quarter.
- The supply side was hit by a broadbased fall in gross value added, led by a 50.3% contraction in construction, followed by services like trade, hotels, transport, communication, manufacturing and mining.
- He said agriculture was the only bright spot with 3.4% growth.