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Jindal Drilling & Industries standalone net profit declines 3.66% in the June 2016 quarter

Jindal Drilling & Industries standalone net profit declines 3.66% in the June 2016 quarter

Sep 14,2016

Net profit of Jindal Drilling & Industries declined 3.66% to Rs 9.48 crore in the quarter ended June 2016 as against Rs 9.84 crore during the previous quarter ended June 2015. Sales rose 11.24% to Rs 92.66 crore in the quarter ended June 2016 as against Rs 83.30 crore during the previous quarter ended June 2015.

ParticularsQuarter Ended
n++Jun. 2016Jun. 2015% Var.
Sales92.6683.3011
OPM %9.8912.74-
PBDT14.5518.68-22
PBT12.0915.01-19
NP9.489.84-4

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Redistributive Resource Transfers (RRT) should be significantly linked to fiscal and governance efforts on the part of the states: Economic Survey
Jan 31,2017

The Economic Survey 2016-17, which was presented today in parliament by the Finance Minister Shri.Arun Jaitly, examines whether the effects associated with the n++aid cursen++ and the n++natural resources cursen++ internationally are discernible in the context of the Indian States. It calculates Redistributive Resource Transfers (RRT) from the Centre (between 1994 and 2015) and value of natural resources for Indian States (over 1980 and 2014) and correlates these with several economic outcomes and an index of governance

Redistributive Resource Transfer or RRT to a state (from the Centre) is defined as gross devolution to the state adjusted for the respective states share in aggregate Gross Domestic Product(GDP). The top 10 recipients are: Sikkim, Arunachal Pradesh, Mizoram, Nagaland, Manipur, Meghalaya, Tripura, Jammu and Kashmir, Himachal Pradesh and Assam.

Annual per capita RRT flows for all north-eastern states (except Assam) and Jammu & Kashmir have exceeded the annual per-capita consumption expenditure that defines the all-India poverty lines, especially the rural line.

The Economic Survey 2016-17 points out that there is no evidence of a positive relationship between these transfers and various economic outcomes, including per capita consumption, GSDP growth, development of manufacturing, own tax revenue effort, and institutional quality.

Instead, there is a suggestive evidence of a negative relationship. For example, larger RRT flows seem to negatively affect fiscal effort (defined as the share of own tax revenue to GSDP). These trends are robust to alternative definitions of RRT.

Also, whether mineral rich states like Jharkhand, Chhattisgarh, Odisha, Rajasthan and Gujarat ,are doing well on the metrics of economic outcomes and governance is considered in the context of redistributive transfers. However, this does not reveal conclusive results and there is no evidence of a negative relationship between fiscal effort and reliance on revenue from natural resources over the period 2001-14.

Thus, the existence of a RRT curse and the lack thereof of a natural resource curse in the context of Indian States implies that both the Centre and States need to act to mitigate the effects of the former and guard against the emergence, in future, of the latter. In this context, the question is whether RRT, in future, can be linked more saliently to fiscal and governance efforts on the part of the States.

The Economic Survey 2016-2017, also suggests providing a part of the RRTs or to redistribute the gains from resource use as a Universal Basic Income (UBI) directly to households in relevant states which receive large RRT flows and are more reliant on natural resource revenues.

Finally, recognizing and responding creatively to possible pathologies created by large bounties-either in the form of redistributive resources or natural resources, will be important to avoid making the errors of history.

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Tourism Finance Corporation of India shifts registered office
Jan 31,2017

Tourism Finance Corporation of India announced that the Companys Registered Office is being shifted from 13th Floor, IFCI Tower, 61, Nehru Place, New Delhi-110019 to 4th Floor, Tower-1, NBCC Plaza, Pushp Vihar, Sector-5, Saket, New Delhi-110017, Tel : 011-29561180 / Fax : 011-29561171 w.e.f 01 February 2017.

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&FS Transportation Networks intimates of receipt of provisional completion certificate for road project in Maharashtra
Jan 31,2017

IL&FS Transportation Networks announced that a Provisional Completion Certificate has been issued effective 31 January 2017 for the Four Laning of Khed - Sinnar Section of NH-50 From Km 42.000 to Km 177.000 (Design Length - 137.946 Km) in the State of Maharashtra awarded on DBFOT Basis (the Project) by the National Highways Authority of India to Khed Sinnar Expressway, a wholly owned subsidiary of the Company

The Project is on Toll basis with a concession period of 20 years including construction period of 910 days.

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Labour migration in India increasing at an accelerating rate, reveals new study: Economic Survey 2016-17
Jan 31,2017

New estimates of labour migration in India have revealed that inter-state labor mobility is significantly higher than previous estimates. This was stated in the Economic Survey 2016-17 presented by the Finance Minister Shri Arun Jaitley in the Parliament today. The study based on the analyses of new data sources and new methodologies also shows that the migration is accelerating and was particularly pronounced for females. The data sources used for the study are the 2011 Census and railway passenger traffic flows of the Ministry of Railways and new methodologies including the Cohort-based Migration Metric (CMM) .

The new Cohort-based Migration Metric(CMM) shows that inter-state labor mobility averaged 5-6.5 million people between 2001 and 2011, yielding an inter-state migrant population of about 60 million and an inter-district migration as high as 80 million. The first-ever estimates of internal work-related migration using railways data for the period 2011-2016 indicate an annual average flow of close to 9 million migrant people between the states. Both these estimates are significantly greater than the annual average flow of about 4 million suggested by successive Censuses and higher than previously estimated by any study.

The second finding from this new study is that migration for work and education is accelerating. In the period 2001-2011 the rate of growth of labour migrants nearly doubled relative to the previous decade, rising to 4.5 per cent per annum. Interestingly, the acceleration of migration was particularly pronounced for females and increased at nearly twice the rate of male migration in the 2000s. There is also a doubling of the stock of inter-state out migrants to nearly 12 million in the 20-29year old cohort alone. One plausible hypothesis for this acceleration in migration is that the rewards (in the form of prospective income and employment opportunities) have become greater than the costs and risks that migration entails. Higher growth and a multitude of economic opportunities could therefore have been the catalyst for such an acceleration of migration.

Third, and a potentially exciting finding, for which there is tentative but no conclusive evidence, is that while political borders impede the flow of people, language does not seem to be a demonstrable barrier to the flow of people. For example, a gravity model indicates that political borders depress the flows of people, reflected in the fact that migrant people flows within states are 4 times than migrant people flows across states. However, not sharing Hindi as a common language appears not to create comparable frictions to the movement of goods and people across states.

Fourth, the patterns of flows of migrants found in this study are broadly consistent with what is expected - less affluent states see more out migration migrating out while the most affluent states are the largest recipients of migrants. Relatively poorer states such as Bihar and Uttar Pradesh have high net out-migration. Seven states take positive CMM values reflecting net in-migration: Goa, Delhi, Maharashtra, Gujarat, Tamil Nadu, Kerala and Karnataka. Fifth, the costs of moving for migrants are about twice as much as they are for goods - another confirmation of popular conception.

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Vimal Oil and Foods announces resignation of company secretary and compliance officer
Jan 31,2017

Vimal Oil and Foods announced that Mehulkumar K.Vyas has resigned as Company Secretary (KMP) and Compliance Officer with effect from the closing of business hours on 30 January 2017. Consequently, he has ceased to be designated as a Company Secretary (KMP) and Compliance Officer of the Company with effect from the closing of business hours on 30 January 2017

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Real per capita GSDP between 1983 and 2014, shows across-the-board improvement: Economic Survey 2016-17
Jan 31,2017

The Union Finance Minister Shri Arun Jaitley presented the Economic Survey 2016-17 in the Parliament today. The Economic Survey states that while economic performance has been remarkable in the aggregate, Indias success as a federation depends on the progress of each of its individual states. What is a reasonable standard for assessing how well the states are doing? One intuitive metric is to see how well individual states have done over time on two sets of indicators: economic indicators, such as income and consumption, and health/demographic indicators such as infant mortality rate, life expectancy, and total fertility rate. Our analysis of these indicators begins in the 1980s, when the structural break from the previous era of the n++Hindu Growth Raten++ occurred.

The Economic Survey states that seeing only the shift in the levels of these indicators does not give us the full picture because there is no benchmark for relative assessment. Here, economic theory provides us a useful metric: convergence (or unconditional convergence). Convergence means that a state that starts off at low performance levels on an outcome of importance, say the level of income or consumption, should grow relatively faster over time, improving its performance so that it catches up with states which had better starting points.

The Economic Survey mentions that when studying real per capita GSDP over time between 1983 and 2014 ,there has been a clear increase in levels indicating an across-the-board improvement. For example, between 1984 and 2014, the poorest state (Tripura, with a per capita income of INR 11,537 in 1984 to INR 64,712 in 2014) increased its per capita GDP 5.6 fold; the median state (Himachal Pradesh) increased its income level 4.3 fold.

The Economic Survey mentions that, when convergence in real per capita GDP is studied for the latest decade (2004-2014), it is found that while incomes converge for provinces in China and for countries in the world, in India, they diverge. When convergence in real per capita consumption for states in India is studied, the same trend of divergence is observed. Despite growing rapidly on average, there is sign of growing regional inequality among the Indian states. This is puzzling because the underlying forces in favor of equalization within Indian++namely strong and rising movements of goods and peoplen++are strongly evident. This is not found to be the case in the previous decade (1994-2004), when we see that incomes in China, India and the world were all diverging/weakly converging.

The Economic Survey elaborates that to observe convergence, we should see a downward sloping line - this means that the countries/provinces/states that start off poorer subsequently grew faster, closing the gap with more developed countries/states. The opposite is happening in India.

The Economic Survey states that a similar trend of consumption divergence is observed within India for the three time periods of 1983-1993, 1993-2004 and 2004-2011. All this suggests that over time, regional income/consumption inequality in India is not narrowing despite such gaps narrowing across countries in the world and within China. The Indian paradox is doubly confounding: thicker international borders that are more impervious to the equalizing flows of factors if production lead to convergence but the supposedly porous borders within India perpetuate spatial inequality.

The Economic Survey further states that one possible hypothesis for seeing a regional dispersion in income and consumption is that there might be governance traps that impede the catch-up process. And if there are such traps, labor and capital mobility might even aggravate underlying inequalities. But why such traps persist if competitive federalism is forcing change upon the lagging states remains an open question.

The Economic Survey remarks that in contrast, on health, there is strong evidence of convergence amongst the states in the 2000s. But here it is the international contrast that is striking. With regards to life expectancy, the Indian states are close to where they should be given their level of income. But that is not true of IMR (Infant Mortality Rate), suggesting that the n++mother and childn++ (discussed also in last years Survey) bear the brunt of weaker delivery of health services.

The Economic Survey states that but what really stands out in the international comparison is fertility (measured using Total Fertility Rate), where we find that for their levels of development, the Indian states have much lower levels of fertility than countries internationally. These unusually large declines in fertility have strongn++and potentially positiven++implications for Indias demographic dividend going forward.

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Apparel and Leather industry key to generation of formal and productive jobs: Economic Survey 2016-17
Jan 31,2017

Apparel and Leather & Footwear sectors are eminently suitable for generating jobs that are formal and productive, providing bang-for-buck in terms of jobs created relative to investment and generating exports and growth. This was stated in the Economic Survey 2016-17 presented by the Finance Minister Shri Arun Jaitley in the Parliament today. The Survey adds that these sectors provide immense opportunities for creation of jobs for the weaker sections, especially for women, and can become vehicles for broader social transformation in the country.

The Survey highlights the opportunity for India in this sector in global context by saying that India has an opportunity to push exports since rising wage levels in China has resulted in China stabilizing or losing market share in these products. India is well positioned to take advantage of Chinas deteriorating competitiveness due to lower wage costs in most Indian states, it adds.

The Survey also lists a number of challenges faced by these sectors. It says that the space vacated by China is fast being taken over by Bangladesh and Vietnam in case of apparels and Vietnam and Indonesia in case of leather and footwear, while Indian companies struggle in face of a set of common challenges related to logistics, labour regulations, tax & tariff policy and disadvantages emanating from the international trading environment compared to competitor countries.

On logistics, the Survey says that costs and time involved in getting goods from factory to destinations are greater in India than those for other countries. On labour costs, Indias source of comparative advantage in this sector, also seem not to work in its favour due to problems like regulations on minimum overtime pay, onerous mandatory contributions that become de facto taxes for low-paid workers in small firms that result in a 45 per cent lower disposable salary, lack of flexibility in part-time work and high minimum wages in some cases.

According to the Survey, in both apparel and footwear sectors, tax and tariff policies create distortions that impede India gaining export competitiveness. India imposes a 10 percent tariff on man-made fibers vis- a-vis 6 percent on cotton fibres. On the other hand, domestic taxes also favor cotton-based production rather than production based on man-made fibers, and leather footwear rather than non leather footwear. The global demand for apparel is moving from cotton fibre products to manmade fibre and similarly footwear of non leather, it adds. Indias competitors enjoy better market access by way of zero or at least lower tariffs in the two major importing markets, namely, the United States of America (USA) and European Community (EU), the Survey says.

Another problem faced by the leather sector highlighted by the Survey is that despite having a large cattle population, Indias share of cattle leather exports is low and declining due to limited availability of cattle for slaughter in India.

The Survey suggests several measures to make these sectors globally competitive and unlock its potential for creating new jobs and generating growth. It recommends that there is a need to undertake rationalization of domestic policies which are inconsistent with global demand patterns.

. Several measures have been initiated that form part of the package approved by the Government for textiles and apparels in June 2016, the Survey notes. Accordingly, textile and apparel firms will be provided a subsidy for increasing employment, but these need to be complemented by further actions such as the following:

n++ An FTA with EU and UK in the case of apparel will offset an existing disadvantage by Indias competitors- Bangladesh, Vietnam and Ethiopia. In the case of leather and footwear, the FTA might give India an advantage relative to competitors. In both cases, the incremental impact would be positive.

n++ The introduction of the GST offers an excellent opportunity to rationalize domestic indirect taxes so that they do not discriminate in the case of apparels against the production of clothing that uses man-made fibers; and in the case of footwear against the production of non-leather based footwear.

n++ Third, a number of labor law reforms would encourage employment creation in these two sectors.

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Property Tax can be tapped to generate Additional Revenue at City Level
Jan 31,2017

The Economic Survey 2016-17, presented today in the Parliament by the Union Finance Minister Shri Arun Jaitley, stated that Urban Local Bodies (ULBs), having primary responsibility for the development and service provisioning of cities, face major and inextricably linked problems: large infrastructure deficits, inadequate finances, and poor governance capacities. Every Indian city faces serious challenges related to water and power supply, waste management, public transport, education, healthcare, safety, and pollution.

The analysis carried out for the Survey has found that greater service delivery is correlated with more resources, own revenue, staffing and capital spending per capita. Analysis indicates no clear relationship between service delivery and governance.

Currently, tax revenues are not constrained by inadequate taxation powers of ULBs. One promising source is property tax. The study done for the Survey shows that property tax potential is large and can be tapped to generate additional revenue at city level. Satellite imagery can be a useful tool for improving urban governance by facilitating better property tax compliance. The study has shown that Bengaluru and Jaipur are currently collecting no more than 5-20 per cent of their respective potentials for property tax.

Competition between States is becoming a powerful dynamic of change and progress, that dynamic must extend to competition between States and Cities and between cities. Cities that are entrusted with responsibilities, empowered with resources, and encumbered by accountability can become effective vehicles for competitive federalism and, indeed, competitive sub-federalism to be unleashed.

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Fiscal activism embraced by advanced economies not relevant for India: Economic Survey 2016-17
Jan 31,2017

Indias economic experience shows that the fiscal activism embraced by advanced economies- giving a greater role to counter-cyclical policies and attaching less weight to curbing debt- is not relevant for India. This observation was made in the Economic Survey 2016-17 presented by the Finance Minister Shri Arun Jaitley in the Parliament today. The Economic Survey has also stated that Indias fiscal experience has underscored the fundamental validity of the fiscal policy principles enshrined in the Fiscal Responsibility and Budget Management Act (FRBM) Act 2003.

Since the 2008-09 Global Financial Crisis (GFC), internationally fiscal policy has seen a paradigm shift from the emphasis on debts to deficits, arguing for greater activism in flows (deficits) and minimizing concerns about sustainability of the stocks (debt). But Indias experience has reaffirmed the need for rules to contain fiscal deficits, because of the proclivity to spend during booms and undertake stimulus during downturns. Indias experience has also highlighted the danger of relying on rapid growth rather than steady and gradual fiscal and primary balance adjustment to do the n++heavy liftingn++ on debt reduction. In, short it has underscored the fundamental validity of the fiscal policy principles set out in the FRBM.

Even as the basic tenets of the FRBM remain valid, the operational framework designed in 2003 will need to be modified for the fiscal policy direction of India of today, and even more importantly the India of tomorrow. This setting out a new vision through an FRBM for the 21st century will be the task of the FRBM Review Committee.

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Economic Survey advocates reforms to unleash economic dynamism and social justice
Jan 31,2017

India needs an evolution in the underlying economic vision across the political spectrum and further reforms are not just a matter of overcoming vested interests that obstruct them. This was stated in the Economic Survey 2016-17 presented in the Parliament today by the Union Finance Minister Shri Arun Jaitley.

The Survey lists the some of the challenges that might impede Indias progress. These challenges are classified by the Survey as follows: ambivalence about property rights and the private sector, deficiencies in State capacity, especially in delivering essential services and inefficient redistribution.

The Survey highlights difficulties in privatizing public enterprises, even for firms where economists have made strong arguments that they belong in the private sector. In this context, the Survey points towards the need to further privatize the Civil Aviation, Banking and Fertilizer sectors.

The Survey points out that the capacity of the State in delivering essential services such as health and education is weak due to low capacity, with high levels of corruption, clientelism, rules and red tape. At the level of the states, competitive populism is more in evidence than competitive service delivery, the Survey adds. Constraints to policy making due to strict adherence to rules and abundant caution in bureaucratic decision-making favours status quo, the Survey cautions.

According to the Survey, redistribution by the government is far from efficient in targeting the poor. This is intrinsic to current programs because spending is likely to be greatest in states with better institutions and which will therefore have fewer poor.

The Survey notes that over the past two years, the government has made considerable progress toward reducing subsidies, especially related to petroleum products. Technology has been the main instrument for addressing the leakage problem and the pilots for direct benefit transfer in fertilizer represent a very important new direction in this regard, the Survey adds.

Noting that India has come a lon++n++ng way in terms of economic performance and reforms, Economic Survey 2016-17 says that there is still a journey ahead to achieve dynamism and social justice. Completing this journey will require broader societal shifts in the underlying vision, the Survey adds.

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Economic Survey: Universal Basic Income (UBI) Scheme an alternative to plethora of State subsidies for poverty alleviation
Jan 31,2017

The Economic Survey 2016-17 tabled in Parliament today by the Union Finance Minister Shri Arun Jaitley has advocated the concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty. The survey juxtaposes the benefits and costs of the UBI scheme in the context of the philosophy of the Father of the Nation, Mahatma Gandhi. The Survey states that the Mahatma as astute political observer, would have anxieties about UBI as being just another add-on Government programme, but on balance, he may have given the go-ahead to the UBI.

The Survey says the UBI, based on the principles of universality, unconditionality and agency, is a conceptually appealing idea but with a number of implementation challenges lying ahead especially the risk that it would become an add-on to, rather than a replacement of, current anti-poverty and social programmes, which would make it fiscally unaffordable.

Based on a survey on misallocation of resources for the six largest Central Sector and Centrally Sponsored Sub-Schemes (except PDS and fertilizer subsidy) across districts, the Economic Survey points out that the districts where the needs are greatest are precisely the ones where State capacity is the weakest. This suggests that a more efficient way to help the poor would be to provide them resources directly, through a UBI.

Exploring the principles and prerequisites for successful implementation of UBI, the Survey points out that the two prerequisites for a successful UBI are: (a) functional JAM (Jan Dhan, Aadhar and Mobile) system as it ensures that the cash transfer goes directly into the account of a beneficiary and (b) Centre-State negotiations on cost sharing for the programme.

The Survey says that a UBI that reduces poverty to 0.5 percent would cost between 4-5 percent of GDP, assuming that those in the top 25 percent income bracket do not participate. On the other hand, the existing middle class subsidies and food, petroleum and fertilizer subsidies cost about 3 percent of GDP.

The Survey concludes that the UBI is a powerful idea whose time even if not ripe for implementation, is ripe for serious discussion.

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Economic Survey 2016-17 suggests setting up of a centralised Public Sector Asset Rehabilition Agency
Jan 31,2017

The Union Finance Minister Shri Arun Jaitley presented the Economic Survey 2016-17 in the Parliament today. The Survey shows that our country has been trying to solve its Twin Balance Sheet(TBS) problem - overleveraged companies and bad-loan-encumbered banks, a legacy of the boom years around the Global Financial Crisis. So far, there has been limited success. The problem has consequently continued to fester: Non-Performing Assets (NPAs) of the banking system (and especially public sector banks) keep increasing, while credit and investment keep falling. Now it is time to consider a different approach - a centralised Public Sector Asset Rehabilitation Agency (PARA) that could take charge of the largest, most difficult cases, and make politically tough decisions to reduce debt.

As per the Survey, gross NPAs has climbed to almost 12 per cent of gross advances for public sector banks at end-September 2016. At this level, Indias NPA ratio is higher than any other major emerging market, with the exception of Russia. The consequent squeeze of banks has led them to slow credit growth to crucial sectors-especially to industry and medium and small scale enterprises (MSMEs)-to levels unseen over the past two decades. As this has occurred, growth in private and overall investment has turned negative . A decisive resolution is urgently needed before the TBS problem becomes a serious drag on growth.

The Survey reaches to the conclusion that a PARA may be necessary because

n++ Public discussion of the bad loan problem has focused on bank capital. But far more problematic is finding a way to resolve the bad debts in the first place.

n++ Some debt repayment problems have been caused by diversion of funds. But the vast majority has been caused by unexpected changes in the economic environment after the Global Financial Crisis, which caused timetables, exchange rates, and growth rate assumptions to go seriously wrong.

n++ This concentration creates a challenge since large cases are difficult to resolve, but also an opportunity since TBS could be overcome by solving a relatively small number of cases.

n++ Restoring them to financial health will require large write-downs.

n++ Among other issues, they face severe coordination problems, since large debtors have many creditors, with different interests. And they find it hard -financially and politicallyn++to grant them sizeable debt reductions, or to take them over and sell them.

n++ It increases the costs to the government since bad debts of the state banks keep rising, and increases the costs to the economy, by hindering credit, investment, and therefore growth.

n++ Since, private run Asset Reconstruction Companies (ARCs) have not been successful either in resolving bad debts, though international experience (especially that of East Asian economies) shows that a professionally run central agency with the government backing could overcome the coordination and political issues that have impeded progress over the past eight years

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Good fiscal performance by States should be incentivized to keep the overall fiscal performance on track: Economic Survey 2016-17
Jan 31,2017

The Economic Survey 2016-17 presented in the Parliament today has highlighted the need for fiscal prudence both by the Centre as well as the States in order to maintain overall fiscal health of the economy. The Economic Survey states that the Centres Fiscal Responsibility and Budget Management (FRBM) Act, was mirrored by Fiscal Responsibility Legislations (FRL) adopted in the States.

As per the Economic Survey, there has been an improvement in the financial position of the States over the last few years. The average revenue deficit has been eliminated, while the average fiscal deficit was curbed to less than 3 percent of GSDP. The average debt to GSDP ratio has also fallen.

However, just because fiscal progress followed the introduction of the FRL, it doesnt mean that the progress can be attributed entirely to FRLs. The following points are important with respect to the improvement in fiscal variables:

I. The deficit reduction owes much to favorable exogenous factors:

n++ An acceleration of nominal GDP growth (of 6 percentage points on average after 2005) helped boost States revenues by about 1 percent of GSDP;

n++ Increased transfers from the centre of about 1 percent of GSDP both because of the 13th Finance Commission recommendations and the surge in central government revenues;

n++ Reduced interest payments of about 0.9 percent of GSDP on account of the debt restructuring package offered by the Centre; and

n++ Reduced need for spending by the Statesn++estimated at about 1.2 percent of GDP--as the Centre took on a number of major social sector expenditures under the Centrally Sponsored Schemes (CSS).

I. Desisting from splurging rather than belt-tightening was probably the real contribution of the States. Despite the revenue surge, non interest revenue expenditure rose by only 0.4 percent of GSDP.

II. Off-budget expenditures fell, as measured by the flow of explicit guarantees and loans to public utilities fell.

III. There was a sharp drop in the magnitude of forecast errors suggesting an improvement in the process of budget formation. The shortfalls between budgeted and actual own tax revenue went from an average of 5.9 percent of actuals (optimistic forecasts) before the FRL to -0.6 percent of actuals after.

IV. All of these positive indicators show signs of decay in later years; fiscal deficits for example are close the limit of 3 percent on average 10 years after the FRL.

Economic Survey 2016-17 elaborates that as the fiscal challenges mount for the states because of the Pay Commission recommendations, and mounting payments from the UDAY bonds, there is a need to review how fiscal performance can be kept on track. Greater reliance will need to be placed on incentivizing good fiscal performance, not least because states are gradually repaying their obligations to the Centre, removing its ability to impose a hard budget constraint on them says the Economic Survey. Above all, however, incentivizing good performance by the States will require the Centre to be an exemplar of sound fiscal management itself.

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GDP growth in 2017-18 is projected at 6 n++ to 7 n++ percent Post-demonetisation
Jan 31,2017

The Government says that the adverse impact of demonetisation on GDP growth will be transitional. The Economic Survey 2017 presented in Parliament today by the union Finance Minister, Shri Arun Jaitley states that once the cash supply is replenished, which is likely to be achieved by end March 2017, the economy would revert to the normal. Therefore the real GDP growth in 2017-18 is projected to be in the range of 6n++-7n++ percent.

The Economic Survey points out that demonetisation will have both short-term costs and long-term benefits as detailed in the attached table. Briefly, the costs include a contraction in cash money supply and subsequent, albeit temporary, slowdown in GDP growth; and benefits include increased digitalization, greater tax compliance and a reduction in real estate prices, which could increase long-run tax revenue collections and GDP growth.

On the benefits side, early evidence suggests that digitalization has increased since demonetisation. On the cost side, effective cash in circulation fell sharply although by much less than commonly believed - a peak of 35 percent in December, rather than 62 percent in November since many of the old high denomination notes continued to be used for transactions in the weeks after 8th November Additionally, remonetisation will ensure that the cash squeeze is eliminated by April 2017. The cash squeeze in the meantime will have significant implications for GDP, reducing 2016-17 growth by n++ to n++ percentage points compared to the baseline of 7 percent. Recorded GDP will understate impact on informal sector because, for example, informal manufacturing is estimated using formal sector indicators (Index of Industrial Production). These contractionary effects will dissipate by year-end when currency in circulation should once again be in line with estimated demand, which would also allow growth to converge to a trend by FY 2017-18.

The Economic Survey states that the weighted average price of real estate in eight major cities which was already on a declining trend fell further after November 8, 2016 with the announcement of demonetization. It goes on to add that an equilibrium reduction in real estate prices is desirable as it will lead to affordable housing for the middle class and facilitate labour mobility across India currently impeded by high and unaffordable rents.

The Survey suggests a few measures to maximize long-term benefits and minimize short-term costs. One, fast remonetisation and especially, free convertibility of cash to deposits including through early elimination of withdrawal limits. This would reduce the GDP growth deceleration and cash hoarding. Two, continued impetus to digitalization while ensuring that this transition is gradual, inclusive, based on incentives rather than controls and appropriately balancing the costs and benefits of cash versus digitalization. Three, following up demonetisation by bringing land and real estate into the GST. Four, reducing tax rates and stamp duties. And finally, an improved tax system could promote greater income declaration and dispel fears of over-zealous tax administration.

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Fitch: Risks to Indian Homebuilders Rise; Sales to Fall in 2017
Jan 31,2017

Fitch Ratings expects property sales in India to fall by at least 20%-30% in 2017, owing to disruption caused by demonetisation and general caution on the part of buyers. Homebuilders already have high levels of unsold inventory and are likely to cut selling prices as demand weakens. We expect risks to homebuilders to rise further this year, with leverage likely to increase and liquidity to tighten. Homebuilders with access to diversified funding channels are likely to be more insulated from the downturn.

We expect home prices to decline this year because demand for residential property has weakened significantly in 4Q16, following the demonetisation of large denomination notes in November last year. Demonetisation has made it harder for home buyers to use undeclared wealth for property payments. The number of residential property units sold in 4Q16 fell by 44% yoy, dragging down overall units sold in 2016 by 9%, based on data compiled by Knight Frank Research. The volume of new units launched fell by 61% yoy.

We expect the largest cuts to selling prices in the National Capital Region (NCR) followed by Mumbai, where unsold inventory is the highest at 16 and 10 quarters of sales, respectively, based on market estimates. The NCR is also known to have the largest cash-based economy in the country, and therefore demand is likely to suffer more from the currency demonetisation than other regions. We expect demand for homes in Chennai and Pune to be less affected by the downturn, as unsold inventory is the lowest in these cities, at around 6-7 quarters of sales.

Top-tier homebuilders like Indiabulls Real Estate Limited (IBREL, B+/Stable) and Lodha Developers Private Limited (Lodha, B/Negative) - whose sales benefit from their brand strength - have yet to start cutting home prices substantially. However, we understand that smaller and second-tier homebuilders across the country have started offering discounts of around 25%-30% to attract buyers.

The worst of the downturn in home sales is likely to occur in 1H17. Demand is likely to recover moderately in 2H17 as the festive season approaches, and because banks have cut interest rates on home loans by 50bp-60bp over the last 12 months to multi-year lows.

Fitch continues to expect homebuilders that have a large pipeline of pre-sold projects, such as IBREL and Lodha, to be better off than those that do not. However, even these homebuilders credit profiles may weaken if demand does not recover for an extended period. Although property construction was hampered for a few weeks after the demonetisation announcement, we understand that most homebuilders have been able to work around practical issues related to making payments to suppliers and contractors, and that construction has since resumed.

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