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Insurance Cover For Railway Passengers
Nov 17,2016

An Optional Travel Insurance Scheme on a pilot basis for one year has been launched w.e.f 01 September 2016 for the railway passengers who book e-ticket through official website of Indian Railway Catering & Tourism Corporation (IRCTC). Under the scheme reserved passengers who expire or are disabled permanently or partially due to train accident and untoward incidents during train journey will be entitled to sum assured as per the details given below. The objective behind the scheme is to maximize compensation to the passengers for the loss caused to them by train accident and untoward incidents.

IRCTC which is a wholly owned undertaking of Ministry of Railways has entered into an agreement with three Insurance Companies through Limited Tender, namely

(i) Shriram General Insurance Company,

(ii) ICICI Lombard General Insurance Company, &

(iii) Royal Sundaram General Insurance

The amount of compensation to be given to passengers are as follows

(i) In case of Death- ₹ 10 lakh

(ii) Permanent Total Disability - ₹ 10 Lakh

(iii) Permanent Partial Disability - ₹ 7.5 Lakh

(iv) Hospitalization Expenses for Injury - ₹ 2 Lakh &

(v) Transportation of mortal remains - ₹ 10 Thousand.

The insurance cover will cover all reserved classes (SL, 1AC, 2AC, 3AC) and trains except passenger trains & Sub-Urban trains for tickets booked online on the IRCTC website. Personal belongings are not covered under the said scheme.

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Assistance to Tamil Nadu for Purchase of Turmeric Boilers
Nov 17,2016

Government through the Spices Board provides assistance to the turmeric growers for installing turmeric polishers under the Mission for Integrated Development of Horticulture (MIDH). As per the scheme, 35% of the actual cost of the turmeric polisher subject to a maximum of Rs. 87,500/- is provided as subsidy to SC, ST, small, marginal & Women farmers and Rs.62500/- as subsidy to other farmers in the major turmeric growing states including Tamil Nadu. During 2016-17, out of Rs.10.80 lakhs allotted for Turmeric Polisher under MIDH to Spices Board, an amount of Rs.2.62 lakhs has been allotted to Tamil Nadu.

Government through Spices Board also implements the scheme n++Export Oriented Production, Export Development & Promotion of Spicesn++, under which inter alia assistance is provided to the turmeric growers for installing turmeric boilers at the rate of 50% of the actual cost of the turmeric boilers, subject to a maximum of Rs.1.50 lakhs. During 2016-17, no financial assistance has been provided to the farmers in the turmeric growing areas of Tamil Nadu as of now.

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Revamped Aadhaar Toll-Free Helpline No. 1947 Launched
Nov 17,2016

With the growing use of Aadhaar in transactions related to services like Banking, Government Welfare Schemes, etc., the Unique Identification Authority of India (UIDAI), launched a revamped version of its Toll-free helpline number: 1947, to help residents get quick access to information about Aadhaar. The free of cost helpline 1947 will be available 24x7 throughout the year on IVRS mode, while Call-Centre agents will be available from 7 am to 11 pm (Monday to Saturday). On Sundays, agents will answer calls from 8 am to 5 pm. On an average the helpline number handles about 1.5 lakh calls per day. n++Our toll-free helpline 1947, which has been revamped to handle more incoming calls, brings Aadhaar closer to everyone. It can be accessed through mobile or landline and will be especially beneficial in these times when the Aadhaar number is being increasingly used in the banking sector to identify individuals,n++ said Dr. Ajay Bhushan Pandey, Chief Executive Officer, UIDAI. The Aadhaar toll-free helpline 1947 will among other things, enable residents to locate an Aadhaar Enrolment Centre, know generation status of an Aadhaar number (after enrolment) and help retrieve Aadhaar details of any person who has lost his/her Aadhaar or hasnt received it through post. As Aadhaar is being used widely by people in the wake of the de-monetization exercise, UIDAI cautioned the public to clearly indicate purpose of providing photocopies of their Aadhaar letter to prevent misuse of the same. n++Photocopies of the Aadhaar letter are being submitted by the general public to banks. We urge them to clearly indicate the purpose for which they are submitting the same along with the date and time. This actually is a good practice whenever they submit photocopies of documents,n++ said Dr. Pandey.

n++However, as Aadhaar is a digitally verifiable identity and can be authenticated anytime, anywhere, the chances of its misuse are limited,n++ added Dr. Pandey.

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Reduce corporate tax to 25%, ASSOCHAM to Govt.
Nov 17,2016

In its pre-Budget presentation with the Finance Ministry, the ASSOCHAM has sought immediate reduction in the corporate tax to 25% to attract more investment in the country while for driving the consumption led demand, income tax for individuals should also be reduced along with upward revision in the exemption limit upto Rs 5 Lakhs.

The Associated Chamber of Commerce and Industry of India (ASSOCHAM) in its Pre-budget meeting with the Revenue Secretary Dr. Hasmukh Adhia made some important suggestions. The proposed multiple Good Service Tax (GST) rate structure could increase classification disputes. Therefore, the categorisation of products under each duty slab should be carefully done.

Corporate tax needs to be reduced to 25% to attract more investment in the country. The income tax rate for individuals to be reduced and threshold limit should be increased in view of the current situation prevailing in the country at the pre-budget meeting with the Revenue Secretary.

The Associated Chamber of Commerce and Industry of India (ASSOCHAM) in its Pre-budget meeting with the Revenue Secretary today made some important suggestions. The proposed multiple Good Service Tax (GST) rate structure could increase classification disputes. Therefore, the categorisation of products under each duty slab should be carefully done.

It said the committed investment link tax incentive for specifies period should be grant fathered under GST for the un-expired period of committed incentives.

During the initial period of two year after implementation of the GST penal provision should not be made applicable unless there are frauds cases, the chamber.

The tax administrative provision under the draft GST law are quite harsh and may leave to Inspector Raj and this need to modify in the final GST law.

The valuations of stop transfers and inter branch transaction need certainty in the GST law.

Inverted Duty structure under excise on pharmaceutical products needs to be corrected. The basic custom duty rate on some of the products like aluminium, copper, steel and polymer need to be reduced in the current scenario.

ASSOCHAM further suggested that corporate tax needs to be reduced to 25% to attract more investment in the country. The income tax rate for individuals to be reduced and threshold limit should be increased in view of the current situation prevailing in the country.

Demonetisation of currency notes of Rs. 500/1000 will have a short term adverse impact on demand on items for mass consumption hence duty rates for such products should be reduced in the next budget to revive the demand.

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Setting up of Industry Driven SRTMI
Nov 17,2016

Ministry of Steel is facilitating an Industry driven institutional mechanism namely Steel Research & Technology Mission of India (SRTMI), to facilitate joint collaborative research projects in the iron & steel sector in India. The salient features of SRTMI are as under:

n++ SRTMI is an industry driven initiative which has been setup as a Registered Society wherein Ministry of Steel is a facilitator.

n++ SRTMI will be governed and administered by a Governing Body comprising the steel CEOs, Domain Experts and a representative of Ministry of Steel.

n++ The executive functioning of SRTMI will be carried out by the Director, SRTMI, who will be assisted by a suitable/appropriate supporting structure.

n++ Initial corpus for setting up of SRTMI is Rs. 200 crore of which 50% is to be provided by Ministry of Steel and the balance by the participating steel companies.

n++ Thereafter, the centre will run on yearly contributions from the steel companies based on their turnover of the previous year.

The R&D investment of the leading steel companies in India in terms of percentage of their turnover ranges from 0.05 to 0.5% vis-n++-vis upto 1% in leading steel companies internationally. Some of the steel companies have also formulated their R&D masterplans to increase their R&D expenditure to 1% of their turnover. SRTMI is likely to enhance the R&D investments in the industry to international levels.

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Cabinet approves Status-cum-Progress Report and constitution of n++Special Committee for Inter-Linking of Riversn++
Nov 16,2016

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval to the Status-cum-Progress Report and constitution of n++Special Committee for Inter-Linking of Riversn++ in compliance of Supreme Court judgment dated 27 February 2012 in the matter of Writ Petition (Civil) 512 of 2002: Networking of Rivers along with Writ Petition No. 668 of 2002.

Approval of the Union Cabinet will help in monitoring of the precious Inter-linking of River Projects to be carried out under National Perspective Plan 1980 of Government of India. The Status-cum-Progress Report of Special Committee for Inter-linking of Rivers will be submitted bi-annually for information of Cabinet, which will facilitate faster and appropriate decisions in the interest of the country as expeditiously as possible.

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Milk availability Per Capita with the Existing Level of 337 Gram is Likely to Go Up 500 Gram Per day by the Year 2021-22
Nov 15,2016

The Union Agriculture and Farmers Welfare Minister, Shri Radha Mohan Singh said that the hard labour extended by the people engaged in diary sector and unabated efforts of Central Government, India has achieved 4.2% average growth in milk production and has left behind the world average of 2.2%. During 2015-16 the growth in milk production in India has been 6.7%. The Minister of Agriculture and Farmers Welfare said it in the conference of stake holders related to dairy industry in National Dairy Development Board, here, today. Speaking on the occasion the Union Minister informed that owing to the enhancement in milk production the availability of milk statistics based on daily basis per capita with the existing level of 337 gram is likely to go up 500 gram daily by the year 2021-22. A sum of Rs. 2242 crore will be incurred on this scheme. Shri Singh said that it is also very much imperative to create awareness and to improve veterinary services.

Shri Radha Mohan Singh said that India ranks first in milk production in the world for last fifteen years and credit for this goes to the small milk producers. Agriculture Minister added that demand of milk and milk made products is increasing and it is likely to go up by 24 crore tonnes by the year 2025.

The Minister said that it is extremely necessary to utilize scientific outputs and sophisticated technique in dairy because there is no enhancement of milk productivity in spite of the availability of best species of bovines in India.

Shri Singh said that Ministry of Agriculture and Farmers Welfare has taken a number of steps to increase the production of milk in which Gokul Mission is very much prominent. Under this mission for the year 2014-15 to 2016-17 a provision of Rs. 500 crore has been made. NDDB with the assistance of World Bank and Central Government has taken several measures under National Dairy Scheme Phase - I, a centrally sponsored scheme. It includes a genetic improvement among bovines, betterment of rural infrastructure in dairy and to provide better opportunities for milk vendors. The initiation of NDDB -I had been made in 14 states and at present it is being carried out in 18 states along with Jharkhand, Chattisgarh, Uttarakhand and Telangana.

Shri Radha Mohan Singh further added that an enhancement of more than 6% in milk production sector is necessary for a true development meant for this sector. In order to achieve this object, improved technologies, capacity building, marketing, scientific livestock management, knowhow related to milk production and better arrangement of loans is necessary so as to operate a dairy systematically and in a balanced way. Agriculture Minister opined that the youth and females are enjoying handsome employment opportunities in dairy sector. Shri Singh also said that by the year 2022 the income of the farmers is to be made as double and to achieve this target the dairy sector is to play a very important role.

Thereafter, the Union Minister of Agriculture and Farmers Welfare participated in the programme organized by the Society of Pesticides Science India at National Agricultural Science Complex, Pusa, New Delhi. Speaking on this occasion, Shri Singh added that various disorders prevalent on crops and pests have cast a very serious adverse impact on food grains production. Owing to these pests and maladies the crop production on global level is reducing by 15 to 25% every year. It is estimated that on various stages of agricultural production and their storage 35% chunk of total crop production is damaged due to pests, diseases, weeds, rats, birds as well as nematodes etc. India ranks on 10th place in the world with regard to the consumption of pesticides. This is the country that consumes lowest degree of chemicals (pesticides). Earlier the use of pesticides rate was 2 to 5 kg per hectare which has been reduced from 100 to 200 grams per hectare. For a few last years on account of the remains of pesticides in the crops, an adverse impact has affected the export of agricultural products. Therefore, it is also very necessary to have this scenario monitored.

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CPI Inflation eases to 4.2% in October 2016
Nov 15,2016

The all-India general CPI inflation dipped to 4.20% in October 2016 (new base 2012=100), compared with 4.39% in September 2016. The corresponding provisional inflation rate for rural area was 4.78% and urban area 3.54% in October 2016, as against 5.04% and 3.64% in September 2016. The core CPI inflation was nearly flat 4.81% in October 2016 from 4.77% in September 2016. The cumulative CPI inflation rose to 5.24% in April-October 2016 compared with 4.58% in April-October 2015.

Among the CPI components, inflation of food and beverages declined to 3.71% in October 2016 from 4.12% in September 2016 contributing to the fall in CPI inflation. Within the food items, the inflation eased for pulses and products to 4.11%, fruits 4.42%, oils and fats 3.80%, sugar and confectionery 23.62% and spices 7.40%. On the other hand, inflation moved up for vegetables (-) 5.74%, prepared meals, snacks, sweets etc to 6.17%, cereals and products 4.40%, meat and fish 6.16% and milk and products 4.42% in October 2016.

The inflation for housing was steady at 5.15%, while that for miscellaneous items inched up to 4.58% in October 2016. Within the miscellaneous items, the inflation for transport and communication rose to 3.41%, education 5.16%, health 4.73%, and household goods and services 4.39%, while eased for personal care and effects to 7.20% in October 2016.

The inflation for clothing and footwear was flat at 5.24% in October 2016, while the CPI inflation of fuel and light eased to 2.81% in October 2016.

The CPI inflation figure for September 2016 has been revised upwards to 4.39% from 4.31% reported earlier.

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NHAI initiates DPRS for Logistic Efficiency Enhancement Programme (LEEP) under Bharatmala Pariyojna
Nov 15,2016

Under a programme entitled Logistic Efficiency Enhancement Programme (LEEP) aimed to enhance the freight transportation in India through improving cost, time, tracking and transferability of consignments through infrastructure, procedural and Information Technology (IT) interventions, Consultants are being tasked to carry out critical examination of existing logistic infrastructure and destination of freight movement in the country, and 44 freight corridors (Economic Corridors), Inter corridors and feeder routes to reduce cost and time of freight movement. These are proposed to be developed by taking an end-to-end corridor view, rather than stretch-by-stretch road construction view to ensure consistent infrastructure along the corridor, as per discussion between NHAI and Government.

As a first step towards this task, preparation of Detailed Project Reports is being undertaken by NHAI. In the first phase, DPRs of identified 15000 km is proposed to be prepared. In LOT1, NHAI has invited bids for preparation of DPRs for 15,000 km of length in the country. Bids have been invited in 45 packages of about 300 Km length each.

In order to drastically reduce the time taken for conducting surveys, it has been decided to use latest technologies such as LiDAR, Satellite mapping and Ground Penetration Radar (GPR) in preparation of DPRs. This will also help to make data collection comprehensive with accurate measure points and increase the safety for project personnel.

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WPI inflation declines to 3.39% in October 2016
Nov 15,2016

The Wholesale Price Index (WPI)-based inflation eased for the second straight month to 3.39% in October 2016 from 3.6% in September 2016 and 3.9% in August 2016. The decline in WPI inflation was mainly driven by dip in inflation for primary articles, while inflation for fuel & power and manufactured products group moved up in October 2016. Further, the unfavourable base effect restricted sharp decline in inflation in October 2016.

Inflation of primary articles dipped to 3.3% in October 2016 from 4.8% in September 2016. The inflation for manufactured products rose to 2.7% in October 2016. Further, the inflation for fuel items accelerated further to 6.2% in October 2016 from 5.6% in September 2016.

As per major commodity group-wise, inflation eased for foodgrains, fruits, fish, mutton, spices, fibres, oilseeds, raw rubber, flowers, grain mill products, sugar, oil cakes, edible oils, textiles, wood and products, and paper & products in October 2016. On the other hand, inflation rose for vegetables, milk, iron ore, copper ore, crude petroleum, mineral oils, dairy products, tea & coffee products, cashew kernel, leather products, rubber and plastic products, chemical products, non-metallic mineral products, and basic metals in October 2016.

Inflation of food items (food articles and food products) eased to 6.3% in October 2016 from 7.5% in September 2016. Meanwhile, inflation of non-food items (all commodities excluding food items) moved up to 2.1% in October 2016 from 1.8% in September 2016.

Core inflation (manufactured products excluding foods products) rose to 1.1% in October 2016 from 0.6% in September 2016.

The contribution of primary articles to the overall inflation, at 3.39%, was 96 basis points (bps) in October 2016 compared with 137 bps in September 2016. The contribution of manufactured products was 151 bps compared with 140 bps, while that of fuel product group was 92 bps against 83 bps in September 2016.

The contribution of food items (food articles and food products) to inflation fell to 1.97 bps in 3.39% in October 2016 compared with 233 bps to 3.57% in September 2016. Meanwhile, the contribution of non-food items (all commodities excluding food items) was 144 bps in October 2016 compared with 126 bps in September 2016.

As per the revised data, the inflation figure for August 2016 was revised up to 3.9% compared with 3.7% reported provisionally.

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Huge Import of RBD Palmolein says The Solvent Extractors Association of India
Nov 15,2016

Import of vegetable oils during Oil Year 2015-16 (November 2015 to October 2016) i.e. edible oil and non-edible oil reported at 147.4 lakh tons (14.74 MnT) compared to 146.1 lakh tons (14.61 MnT) for the same period of last year practically remained stagnant from the previous year, thanks to reduction in oil stock by 435,000 tons during the year.

Import of Vegetable Oils during October 2016 is reported very low at 1,173,254 tons compared to 1,670,891 tons for October 2015 and 13.99 lakh tons in September 2016 reducing overall incremental growth of 5% upto September 2016 to just 1% for the whole year 2015-16.

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n++Demonetisation a Masterstroken++, Give it time to play out - CII
Nov 15,2016

The recent move by the government to demonetise high denomination notes is likely to have far-reaching impact, striking a blow at the heart of the illegal economy. While it is not possible to have a firm estimate of unaccounted wealth, it is widely estimated at around a fifth of Indias GDP or around $450 billion. While some of this may be stored in cash, some may be in assets such as real estate and jewellery. This negatively affects the business environment, especially for those who comply with the law of the land and follow ethical practices, CII has said.

n++After a short period of some pain when the economy adjusts to the sudden withdrawal of cash, CII expects a much stronger economy. Indias cash-dependence is extremely high with a currency-GDP ratio of around 12 per cent compared to 4-5 per cent in other developing countries. High level of cash usage tends to slow down the flow of money through the economy. As we transition to a greater usage of fintech for payments, spending will rise leading to additional economic growth. This is an economic masterstroke by the Prime Minister and must be allowed time to play outn++ said Chandrajit Banerjee, Director General, CII.

The prevalence of cash use has also made India prone to high inflation. Corruption and excessive cash use tends to erode the purchasing power of money. Lower cash use will have a dampening impact on inflation and this will be a further positive for Indias macro-fundamentals. n++The Reserve Bank will now have more room to cut interest rates as inflation subsides. Already, the bond market has reacted to the news with a reduction in the bond yieldsn++ Mr Banerjee observed.

The CII release further elaborated, that this move will be positive for banks whose deposit mobilisation will be strengthened. The old currency notes will be deposited with banks and more households will find it imperative to open bank accounts and make use of card payments. Currency in the form of Rs 1000 and Rs 500 notes amounted to Rs 14.2 lakh crore as of March 2016, or about 85 per cent of total currency in circulation. If this is converted to current and savings deposits, there will be an increase in banks liquidity. This is also a great opportunity to transition to a n++plastic economyn++, where there is a prevalence of debit and credit cards for transactions, CII said in the release.

CII has stated that in all likelihood, a fair proportion of the Rs 14 lakh crore in high-denomination currency will not return to the banking system, for fear of accounts being scrutinized. If one assumes that about 20 per cent of the cash does not return to the system, this would amount to about Rs 3 lakh crore or $42 billion. This is a reduction in the RBIs liability to the public, allowing it to print a similar amount of fresh money or transfer the gain to the government.

n++The biggest gain from this move will be greater formalisation of the economy. Currently, the costs of informality are evident in low tax base which impacts government revenues, lack of economic control through monetary instruments, and lower economies of scale. Indias tax base is low and its tax to GDP ratio needs to increase from the current level of 16.6 per cent, which is much lower than about 21 per cent in other emerging economies. Less than 30 million Indians filed personal income tax with more than half of these paying no taxn++ said the CII Director General.

The demonetization of high denomination notes is ultimately a strong message that goes out to all those who used cash for illicit activities. A big blow has been dealt to those who engaged in corruption and took cash bribes. The message will have far-reaching implications for those who indulge in such illicit activities. This would greatly curb such transactions and will be a body blow to corruption, racketeering, human trafficking, gambling, and other such activities which vitiate the entire security system of the country, said the CII release.

For industry, this is indeed a historic and welcome move with very positive implications. The existence of a parallel economy provides unfair competition to organised industry which pays taxes and complies with standards. Such a decisive move will change the perception of India completely and bring about much-needed transparency. It will prevent people from violating the law with impunity even for daily business transactions, CII said.

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Elevated Global Yields, Benign Domestic Conditions to Keep Markets Choppy
Nov 15,2016

Rising global yields are posing challenges for markets at a time when domestic developments are anchoring investment interests, says India Ratings and Research (Ind-Ra). Domestically, currency and debt markets will take cues from global developments while considering domestic inflation data and interbank liquidity conditions. The 10-year G-sec yield could trade at 6.64%-6.74% (6.72% at close on 11 November 2016). The rupee is likely to trade at 67.25/USD-67.95/USD (67.25/USD at close on 11 November 2016).

Demand Boost for Bonds, Global Risks Continue: With a large cash component (INR14.1trn currency consists of INR500 and INR1000 notes at an aggregate level) entering the banking channel, the first impact will be a deposit boost. This durable increase in the deposit base will create more demand for government bonds and other high rated bonds in an environment of tepid credit demand. Additionally, benign retail inflation trajectory will keep aid investors appetite for bonds. Headwinds to bond market momentum will emerge from a surge in global bond yields - US 30-year and 10-year treasury yields surged over 50bp in less than a month to 2.96% and 2.25% respectively, following the alignment post the US election outcome.

Improvement in Liquidity Conditions: Interbank liquidity will increase as a large amount of cash in circulation moves in to the formal banking channel - translating to almost no scope for open market purchase operations. The sharp improvement in interbank liquidity and deposit will lead to a reduction in certificate of deposits issuances and a drop in deposit rates.

Rupee Weakening Bias to Intensify: As the dust settles following the US presidential elections and as investors ascertain implications of the outcome, risk aversion sentiment dominates globally. Additionally, the US Feds stance on rates is in focus, keeping the dollar firm. The rupee has emerged as a low beta asset among the major Asian currencies, exhibiting relative stability. This resilience is likely to continue, keeping it anchored on account of domestic fundamentals. However, vulnerability to global sentiments will keep the currency trading with a depreciation bias in the near term.

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IIP Continues to Disappoint, Divergence with Industrial GDP to Continue
Nov 15,2016

The continued dismal performance of factory output, particularly in manufacturing, in the run-up to the festival season in October 2016 is a clear pointer that a recovery is nowhere in sight, says India Ratings and Research (Ind-Ra). The Index of Industrial Production (IIP) grew at a marginal 0.7% yoy in September 2016 and negative 0.1% yoy for 1HFY17.

Although the broad trend shown by the IIP data reflects the state of affairs prevailing in the industrial sector in India, these numbers need to be taken with a pinch of salt. The old base of 2004-2005 for IIP broadly reflects the corporate mood; but it is somewhere missing the point by not capturing the output getting generated in the new industrial/ manufacturing segments. This was clearly reflected in the dichotomy witnessed in the IIP and the industrial gross valued added data for 1QFY17. So maybe it is also the time to not read too much into the IIP data with 2004-2005 base and wait for the IIP data with 2011-2012 base to make full sense of the industrial output trend.

The consumer durables sector has sustained positive growth rates since June 2015. This was to be reflected in improved performance in manufacturing prior to the start of the festival season. However, although consumer durables clocked robust growth of 14% yoy in September 2016 and 7.6% yoy in 1HFY17, this has not resulted in a boost in manufacturing output. Manufacturing output grew at 0.9% yoy in September 2016.

At the use-base level, capital goods output contracted 21.6% yoy in September 2016 against a contraction of 22.1% yoy in the previous month. Capital goods output contracted 21.4% during 1HFY17, which serves to reinforce the lack of investment demand in the economy already evident from monthly numbers. Cable, rubber insulated once again pulled down capital goods growth (negative 3% contribution to overall IIP); this sector has been very volatile and in the past also was responsible for a sharp contraction in capital goods output. The primary reason for this has been the small number for respondents/factories and the long turnaround time of production which are recognised as the output. Basic and intermediate goods growth came in at low single digit levels. Consumer non-durables growth, although positive after two consecutive months of negative growth, came in at a negligible 0.1% in September 2016.

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Moodys: Outlook for the global airline industry changed to stable from positive
Nov 15,2016

The outlook for the global airline industry has been changed to stable from positive, Moodys Investors Service says in a new report. Airlines operating margins and operating profits are expected to decline in the coming 12 to 18 months, as capacity continues to outstrip demand.

Capacity will continue to grow a bit more than passenger demand over the next year or so, said Moodys analyst, Jonathan Root. As a result, both the aggregate operating margin and operating profit of Moodys-rated airlines will drop to ranges that are within our range for a stable, rather than a positive, industry outlook.

Aggregate operating margin is expected to fall to 9.4% in 2017 from a projected 10.8% this year, while operating profit will contract by about 11% in 2017, against a projected 1.2% contraction this year, Root says in Global Airline Industry-Changing Outlook to Stable; Operating Margin to Decline Below 10%. Moodys estimates that global capacity will grow between 5.5% and 6.5% next year, against 6.1% growth during the first nine months of this year, spurred by the still-low cost of fuel and increased deliveries of new aircraft that need to be placed in service, primarily by airlines in developing markets.

Meanwhile, growth in passenger demand will slow modestly next year due to lackluster global economic expansion, as well as geopolitical uncertainties and the effect of the threat of terrorism on Asian demand for long-haul travel, particularly to Europe. The strong US dollar, excess capacity growth and competing business models will continue to pressure yields until more players reduce capacity or limit growth, Moodys says. Demand will expand between 5.2% and 6.2% over the next 12 to 18 months, against 5.9% in the first nine months of this year.

For US airlines, a combination of slightly higher fuel costs and higher labor costs at American Airlines, Delta Air Lines, Southwest Airlines and United Continental Holdings will contribute to a 20% contraction in operating profits over Moodys outlook horizon. Conversely, improving economic activity, along with significant capacity adjustments, will drive a recovery in operating profit for rated Latin American carriers, though volatility in local currencies remains a key risk.

Moodys is now basing its outlook for the global airline industry on its expectations for operating margins and changes in operating profits on a reported basis for rated airlines only, in order to better reflect changes in operating conditions for airlines. Previously, the outlook was based on the rating agencys forecasts for aggregate adjusted operating margin, changes in industry yields and revenue passenger kilometers for all carriers.

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