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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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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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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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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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Fitch: Less Global Negative-Yielding Debt No Easier on Investors
Jan 31,2017

Global negative-yielding sovereign debt declined slightly to $9.1 trillion outstanding as of 29 December 2016, from $9.3 trillion as of 28 November 2016, according to Fitch Ratings. The decline came from the strengthening of the US dollar and little net change in European and Japanese sovereign long-term bond yields.

In December 2016, unchanged long-term yields were accompanied by a decline in short-term eurozone bond yields. Since short-term eurozone yields were already less than zero, this trend had little effect on the total amount of negative-yielding debt outstanding. However, it exacerbated the challenges bond investors face.

Investors with short-term liquidity needs, such as short-term money market funds (ST MMFs), were confronted with yields less than negative 1% on many short-dated eurozone bonds at year-end 2016. As seen in the chart below, the weighted average yield on eurozone debt with less than one year in remaining maturity declined to negative 77 bps from negative 38 bps at the end of June 2016. Short-term yields have risen slightly since year-end 2016, but generally remain below levels seen in June.

European ST MMFs are incentivized to hold short-term government securities as part of their eligible overnight liquidity bucket. Funds will be forced to assume additional incremental risks in their portfolios in order to maintain returns if short-term government bond yields decline further. On average, as of December 2016, Fitch-rated European prime ST MMFs held 6% of assets in short-term government securities.

Institutions such as insurance companies have significant allocations to longer-term sovereign debt. Yields on these institutions portfolios remain low and are crimping profits. Despite the slight decline in negative yielding debt, we expect these institutions to continue to assume incremental risk to compensate for negative yields.

The downward move in short- and medium-term yields was particularly strong in Italy and Spain during December 2016. Many of these bond issues returned to negative territory in these countries near year-end 2016. Combined, Italy and Spain added approximately $300 billion to the negative-yielding total between Nov. 28, 2016 and Dec. 29, 2016.

There was $5.5 trillion in Japanese government bonds yielding less than 0%, down about $2.4 trillion since the end of June 2016. Slight increases in Japanese yields and a weaker yen contributed to the ongoing decline in the amount of negative-yielding debt outstanding in Japan.

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Fitch: Global Ratings Outlook Weaker Than Last Year
Jan 31,2017

Global rating outlooks are more negative than a year ago across most rating sectors, Fitch Ratings says in its latest global Credit Outlook report.

The greatest challenges are undoubtedly faced by emerging market issuers in all sectors, but this is a global trend - the outlook bias is also negative for developed-market entities across the majority of sectors, said Monica Insoll, Managing Director, in Fitchs Credit Market Research team.

Our sovereign ratings have the greatest share of Negative Outlooks on a net basis, at 21%. This points to the likelihood of a third consecutive year in which downgrades outnumber upgrades in this sector, possibly by a wide margin. Pressures include a strengthening US dollar, global trade weakness and policy uncertainty. Many commodity export-dependent countries in the Middle East and Africa also still struggle to adjust to the dramatic decline in prices, despite the recent recovery.

The negative outlook bias is 10% for corporates and 11% for banks. The industries facing the greatest challenges include natural resources and traditional retail. The expected boost to US economic growth would be positive for corporates but the increased likelihood of rising interest rates is not.

In contrast, financial institutions stand ready to benefit from rising rates, which should allow a widening of their net interest margin. Banks in Europe face still slow economic growth and high NPLs in some countries (notably Italy and Portugal). Low rates remain a challenge for earnings, but do limit impairment charges.

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Fitch: Demonetisation May Delay Indian Bank Asset-Quality Recovery
Jan 31,2017

Demonetisation is likely to push back the recovery in Indian banks asset quality, given the disruptive impact that cash shortages have had on the countrys large informal economy, Fitch Ratings says.

Cash shortages caused by the demonetisation of large-denomination currency notes have affected the income of many borrowers - by holding back economic activity - and reduced their short-term repayment abilities. The Reserve Bank of India has allowed forbearance on some loans to the agricultural sector and small businesses, but these account for a relatively small share of outstanding lending.

The impact of demonetisation on asset quality is likely to only start showing up significantly in data for the January-March quarter. However, most state banks have already indicated publicly that loan recovery has been affected.

Fitch had previously expected the stressed-asset ratio for Indian bank to increase to 12% in the financial year to 31 March 2017 (FY17), from 11.4% in FY16. There is now a risk that the ratio will climb higher. We still believe that asset-quality indicators are close to their weakest level and will recover slowly over the next few years, but any turnaround is likely to have been pushed back by at least two quarters.

Demonetisation has also weighed on loan growth, at least in the short term. Loan demand has weakened in the uncertain economic environment and banks have had to focus on cash management instead of normal lending activities. Mortgage lending is likely to be affected, with home sales down by 44% yoy last quarter. Loan growth slowed to 4.8% in November 2016, from 6.7% in October. We now think it is likely that loan growth will be below our previous forecast of 10% in FY17 and may even slow from the 8.8% recorded in FY16.

It is still possible that demonetisation will support loan growth over the longer term. Indian banks have received a surge of low-cost funding as demonetised notes have been deposited. Deposit growth accelerated to 15.9% yoy in November, from 9.2% in October, and the handful of banks that have released figures for the October-December quarter have reported low-cost deposit growth of 25%-30% yoy. Some banks have already responded by lowering lending rates - by up to 90bp in State Bank of Indias case - which could help revive credit demand, particularly if there are further cuts.

We think there is scope for further lending rate cuts, but much will depend on the proportion of new deposits that remains in the banking system. Tight restrictions on cash withdrawals were imposed at the start of demonetisation and have so far been relaxed only slightly. The lasting impact on bank deposits - and lending rates - will become clear only after withdrawal limits are lifted.

Furthermore, lending growth is likely to remain constrained by other factors. Excess capacity and the large number of stalled projects across much of the industrial sector will limit loan demand from capital-intensive businesses. The under-capitalisation of state-owned banks will also hold back lending. Fitch estimates Indian banks will require around USD90bn in new total capital by end-FYE19 to meet Basel III standards. The government is providing core equity, but its earmarked sum of USD10.4bn - around 70% of which is due to be paid out by March 2017 - may not be sufficient to meet needs, particularly if lending growth eventually picks up.

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Shri Ram Vilas Paswan approves recommendations of 7th CPC for employees of Bureau of Indian Standards (BIS)
Jan 30,2017

Shri Ram Vilas Paswan, Union Minister of Consumer Affairs, Food and Public Distribution, has given approval for applicability of revised pay scales to employees of Bureau of Indian Standards (BIS) as per recommendations of 7th CPC.

The Union Minister said n++Approval given to Bureau of Indian Standards (BIS) for applicability of revised pay scales to its employees on recommendations of 7th CPC. Financial arrangements to provide new pay scales to the employees of BIS will be made from own resources of this organization.n++

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Fitch: Indian Small Auto Borrowers Face More Short-Term Pressure
Jan 30,2017

Demonetisation appears to have had a negative impact on Indian auto-loan repayments, based on collection reports from Fitch-rated securitisation transactions. Small auto-loan borrowers have been affected the most. Demonetisation is likely to have had a detrimental effect on the income and cash flows of commercial vehicle operators, which could continue to feed through into repayments in the next few months, but Fitch-rated Indian ABS transactions have sufficient external credit enhancement to cover the likely short-term impact. We do not expect ratings to be affected.

The collections (as a percentage of investor payment obligations) of Fitch-rated ABS transactions dropped by an average of around 100bp in November 2016 (the first month of demonetisation), to 101.5% from 102.5% in October. Fitch has received December 2016 collection data for around 40% of its rated transactions, which points to a further average drop of 60bp.

Borrowers were initially permitted to use demonetised notes for loan repayments, which helped in managing collections in November. However, demonetisation has disrupted economic activity - particularly in the informal sector - and is likely to have hit borrowers incomes. It is possible that collections will fall further in early 2017, and we believe it could take at least another two to three months before for collections to return to normal.

The cash shortage has affected used-vehicle operators - which generally have weaker credit profiles - more than the new-vehicle borrowers. Pools backed predominantly by used-vehicle loans saw an average drop in collections of 130bp in November 2016. Those with a higher concentration of light and small commercial vehicles, which again have relatively weaker borrower credit profiles compared with medium and heavy vehicle owners, also dropped significantly - by almost 200bp.

The collection of pools securitised in 2016 fell by an average 120bp compared with 80bp for pools securitised before 2016. More seasoned pools are on average likely to have more experienced borrowers, with a stronger ability to meet their repayments. Furthermore, borrowers in seasoned pools will on average have serviced their loans for longer and have higher equity than those in less seasoned pools, leading to a greater willingness to pay.

Fitch-rated auto-loan ABS transactions remain resilient to a drop in collections. Only four transactions made any utilisation of credit enhancement in November 2016. All Fitch-rated transactions are currently able to withstand a 30% drop in collections for a minimum of eight months and an average of 22 months.

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Reduce customs duty on chilled & frozen sea food and poultry to 10% & 20% respectively: ASSOCHAM plea
Jan 30,2017

Apex industry body ASSOCHAM has urged the Union Government to reduce customs duty on chilled and frozen sea food from present level of 30 per cent to 10 per cent to bring down food inflation and satiate high demand for sea food in India.

n++Local fisheries will not get affected by imports because sea food availability in India is much lower than its demand,n++ highlighted ASSOCHAM in its pre-budget memorandum (indirect taxes) submitted to the Centre.

n++High import duty makes it unviable to bring-in a variety of sea food products available globally which shall reduce food inflation tremendously and provide much-needed proteins to Indians at cheap cost,n++ said Mr D.S. Rawat, secretary general of ASSOCHAM.

The chamber has also suggested the Union Government to reduce customs duty on chilled and frozen poultry meat (chicken) to 20 per cent for whole chicken and that in parts as it is unlikely to destabilise the Rs 40,000 crore Indian poultry industry because majority of Indian market prefers live poultry over frozen food.

n++Though chicken is a basic non-vegetarian food, but import duty on chicken products is as high as 100 per cent on its parts as such India is not able to import chicken,n++ highlighted the ASSOCHAM pre-budget recommendation.

Considering that prices of chicken produced in India are mostly much higher than that in rest of the world as its cost is decided upon its production, ASSOCHAM has appealed that it should be based on international prices.

n++This shall have huge impact on food inflation,n++ it said.

Factors like growing affordability, rising health consciousness, increasing consumer awareness and with more women getting into jobs are together likely to boost demand for frozen chicken and sea food products.

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GST on healthcare will make medicare unaffordable: ASSOCHAM-TechSci study
Jan 30,2017

The healthcare sector catering to the unmet health needs of the society should be kept out of the purview of the Goods and Services Tax (GST) or else medical care would become expensive and unaffordable for the common persons, said an ASSOCHAM-TechSci Research paper.

Currently healthcare is exempted from service tax and a similar dispensation should continue even after implementation of the GST regime at least for ten year. Besides, the Finance Minister, Mr Arun Jaitley in the forthcoming Budget should raise tax exemption on preventive health check-up and announce a healthcare infrastructure medical innovation fund, it said.

A large number of items like food and other essentials for a common household are being kept outside the purview of the GST. The healthcare is equally important and essential, important only next to food. So, there is a strong case for the sector to be spared the GST, said ASSOCHAM Secretary General Mr D S Rawat.

The paper cautioned that if GST is levied on healthcare services and facilities, the much avowed national goal to provide universal healthcare coverage would take a hit.

The paper also pressed for significantly raising the tax exemption on preventive health check-up under section 80-D of the Income Tax Act, 1961 from current value of Rs 5,000-20,000 in order to achieve the aim of universal healthcare coverage. Additionally, the GST exemption should cover the health insurance premium, as the same is exempted from the service tax at present.

The other pre-Budget demand with regard to the healthcare sector includes increasing the depreciation rate on medical devices, equipment from 15% to 30%.

Also, the need of healthcare facilities in midsized and smaller cities could be met by revising the corporate income tax incentives, which are currently given on capital expenditure for hospitals having 100 beds and above. This incentive needs to be extended to greenfield hospitals with 50 beds, thereby encouraging the healthcare facilities in tier 2, 3 and 4 cities. In addition, medical innovation fund and healthcare innovation fund should be set up in order to encourage new business models and entrepreneurship in healthcare sector, said the paper.

The Indian pharma industry, with an estimated turnover at USD36.7 billion in 2015, is amongst the largest producers of pharma products in the world. Due to economies of scale, the Indian pharma industry also enjoys low cost of production But the imposition of multiple taxes, litigation cost associated with the current tax setup and loss of credit of tax paid tend to raise product prices. Discontinuance of CST would be the most obvious impact that appears to be proposed with the introduction of GST. It is a cost to pharmaceutical manufacturers whenever they obtain raw materials from outside their state and if sale is on inter-state basis. This is due to the fact that CST paid in purchases is not creditable against VAT liability of manufacturer.

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