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FY18 - Another Year In Search of Economic Growth; GDP to Grow 7.4% yoy-Ind-Ra
Feb 15,2017

India Ratings and Research (Ind-Ra) expects the gross domestic product (GDP) to grow 7.4% yoy in FY18. Backed by consumption demand and government spending, the gross value added of the three production sectors namely agriculture, industry and services would grow at 3%, 6.1% and 9.1% yoy, respectively, in FY18. While private final consumption expenditure is expected to grow at 8.9%, the government final consumption expenditure is expected to clock 9% growth in FY18.

Ind-Ra, however, has revised down its GDP growth estimate for FY17 to 6.8% from 7.9%, which is even lower than Central Statistical Organisations advanced estimate of 7.1%.

Although GDP growth after bottoming out in FY13 has recovered, sustaining it in the medium to long term has emerged as a key challenge for the India economy. Two factors that contributed significantly to the GDP growth during the last decade were - (i) total factor productivity (TFP) growth and (ii) investments as measured by gross capital formation (GCF). However, both are languishing presently. In fact, the period of 2005-2010 saw a synchronised movement in investment and TFP growth. Indias TFP, which grew at 3.8% during 2006-2010 dropped to 0.3% during 2011-2014. As a result, the contribution of TFP to Indias GDP growth declined from a staggering 46.2% during 2006-2010 to a meagre 4.6% during 2011-2014.

A suboptimal capacity utilisation in the manufacturing sector and stalled infrastructure projects during 2011-2014 caused inefficient/low intensity utilisation of capital invested pulling down the TFP growth.Similarly, GCF which grew at an average rate of 17.7% during FY06-FY10 dropped to 4.2% during FY12-FY16. As against the popular perception, the main setback to investment growth came from the negative 2.2% growth in the gross fixed capital formation (GFCF) of household sector. During FY12-FY16, 82.6% of the household investment was in dwellings, other buildings & structures. Further, dwelling, other building and structures accounted for about 55.8% of the total investment in the economy. This suggests that a more nuanced approach to policy making is required to revive the investment cycle which is currently focused on government capex. Ind-Ra expects GFCF to grow at 4.9% in FY18.

Although firming up of global commodity prices especially crude will exert some pressure on inflation, Ind-Ra expects Wholesale and Consumer Price Index based inflation to come in at 4.5% and 4.2%, respectively, in FY18. A normal monsoon in 2017 would keep the food inflation soft, yet aberration in the prices of select agricultural commodities due to unforeseen supply shocks cannot be ruled out. Ind-Ra therefore expects one rate cut of 25bp by the Reserve Bank of India in FY18 and 10-year benchmark G-sec yield to trade in the range of 6.4%-6.5% by March 2018.

The agency expects the current account deficit to come in at 1% of the GDP in FY18 as against 0.9% in FY17. This will help the rupee trade at an average 69.18/USD in FY18. While India is likely to face continued headwinds on the exports front due to the play out of Brexit and the anti-globalisation stance of US President Donald Trump, imports are unlikely to pick up so long as the domestic investment cycle does not revive. The Union Government budget FY18 has pegged the fiscal deficit to GDP ratio at 3.2%. Although achieving this target looks plausible, much would depend on the governments disinvestment receipt which has been pegged at INR725 billion for FY18.

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Agreement between India and Croatia on Economic Cooperation
Feb 15,2017

Agreement between the Government of the Republic of India and the Government of the Republic of Croatia on Economic Cooperation was signed by Commerce and Industry Minister Smt. Nirmala Sitharaman, Government of India and Ms. Martina Dalic, Deputy Prime Minister and Minister of the Economy, Government of the Republic of Croatia on 14th February, 2017 in Zagreb, Croatia.

India and Croatia had earlier signed an Agreement on Trade and Economic Cooperation in September, 1994 with an aim to promote and develop bilateral trade and economic relations. The present Agreement between India and Croatia would be a step in continuity as the last one expired in November, 2009.

Indias bilateral trade with the Republic of Croatia during 2013-14, 2014-15 and 2015-16 were US$ 148.86 million, US$ 205.04 million and US$ 148.44 million respectively. The bilateral trade during the last three years has remained stable despite global slowdown.

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Ind-Ra: Bonds and Rupee to Witness Measured Weakness in FY18
Feb 15,2017

India Ratings and Research (Ind-Ra) expects overall yield curves to stay elevated. The expectation is against a backdrop of evolving unfavourable global conditions and limited role by the Reserve Bank of India (RBI). However, the agency believes that the banking sectors large appetite for government bonds will anchor interest rates in FY18. The 10-year benchmark government security yield is likely to stay within 6.50%-7.00% in 1HFY18 and 6.40%-7.00% in 2HFY18.

Neutral Monetary Policy Stance: Given the change in the RBIs monetary policy stance and pressure from global rate markets, Ind-Ra expects an extremely limited scope for a reduction in monetary policy rates in FY18. The agency expects a possible room for a 25bp cut during FY18.

Demonetisation: The demonetisation drive and the promotion of digital transactions by the government and the RBI will impact reserve money requirements. Increasing scope and role of digital transaction are likely to reduce the currency in circulation over the coming years. Currency accounts for about 80% of reserve money. Moreover, the banking system was flooded with a liquidity of over INR5 trillion. In such a scenario, the agency does not foresee any open market operation (purchase) in FY18 as per the base case.

Low Banking Credit Blessing in Disguise: Ind-Ra believes that in the absence of any significant pickup in bank credit, the banking sector will have a large appetite for investment in low-risk interest-bearing government bonds. Moreover, banks can invest a part of existing liquidity surplus in government bonds. The agency believes commercial banks could subscribe to INR3 trillion-INR3.5 trillion worth of government bonds.

High State Borrowings to Affect Corporate Bond Curve: State development bonds (SDLs) are close alternatives to corporate bonds. The agency believes that a sustained increase in SDLs would put pressure on the corporate bond curve.

Rupee to Gradually Weaken: The narrowing differential between global and domestic interest rates will keep the rupee trading with a depreciation bias through FY18. With the US Federal Reserve likely to hike interest rates and major central banks rationalising their policy stances, the rupees gradual depreciation trend is expected to continue through FY18, with the domestic currency edging lower towards INR69.5-70/USD by March 2018.

RBIs Calibrated Intervention Likely to Continue: Ind-Ra believes that while the RBI is unlikely to halt the rupees depreciation, the pace of movement will be calibrated.

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Govt. should increase cyber security spending to match growing threat landscape: ASSOCHAM-PwC paper
Feb 15,2017

The government should sharply increase spending on cyber security to a level that matches the changing threat landscape, noted a paper jointly conducted by ASSOCHAM-PwC.

n++The government should allocate adequate budget for cyber security related initiatives such as capacity building, training of the workforce, implementing awareness programmes, and promoting research and development,n++ according to paper titled Recommendations - Cyber & network security, jointly conducted by ASSOCHAM and consulting firm PricewaterhouseCoopers (PwC).

It also suggested the industry to make budgets to expand efforts to attract and retain qualified cyber professionals.

n++It is important to take proactive measures rather than reactive methods as building safe environments will always be the best line of defence against rising cybercrime,n++ suggested the paper.

It said that government should look at developing comprehensive and mature security policies to ensure that emerging technologies such as cloud and Smart Cities are protected from cyber threats and risks, and help create a dynamic digital economy.

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Insolvency and Bankruptcy Board of India invites public comments on Draft Regulations for Voluntary Liquidation by 8th March, 2017
Feb 15,2017

The Ministry of Corporate Affairs had set-up four Working Groups to facilitate implementation of the Insolvency and Bankruptcy Code, 2016. The Working Group-3 had a mandate to deliberate and submit its recommendations on rules and regulations and other related matters for the insolvency and liquidation process under the Insolvency and Bankruptcy Code, 2016. This Working Group had earlier developed draft regulations for corporate insolvency resolution and liquidation process. Based on these drafts and after considering public comments on the same and following the due process, the Insolvency and Bankruptcy Board of India (Board) has notified (a) the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and (b) the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

This Working Group has now submitted draft regulations for Voluntary Liquidation of Corporate Persons. A corporate person who has not committed any default may initiate voluntary liquidation subject to certain conditions. It has been decided to to invite public comments on the draft regulations. Accordingly, comments on each provision of the draft regulations are invited by 8th March, 2017.

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Mission to provide Affordable, Quality Healthcare for All: Coronary Stent Prices capped, to bring down cost by about 380%
Feb 14,2017

Pursuing Prime Minister, Shri Narendra Modis vision of Affordable, Quality Healthcare for All, Government of India has issued the notification for fixing the ceiling prices of coronary stents, informed Union Minister for Chemicals & Fertilizers and Parliamentary Affairs, Shri Ananthkumar. The step would bring down the cost of coronary stents by about 380%, the Minister added.

Shri Kumar informed that now the ceiling prices of Bare Metal Stents (BMS), having 10% market share, has been capped at Rs. 7,260 and Drug Eluting stents (DES), having 90% market share, at Rs. 29,600. These prices are exclusive of VAT and other local taxes. The Minister further stated that since most of the States have 5% VAT on stents, the MRP of BMS and DES would be Rs.7623 and Rs. 31,080. National Pharmaceutical Pricing Authority (NPPA) has fixed the prices within 60 days as required, he added.

Informing that the step is a major decisive action on the unethical margins charged at each stage in the supply chain of coronary stents, the Minister stated that the new prices are not likely to make much adverse impact on industry. The average MRP in the market for BMS was Rs. 45,000 and for DES Rs. 1,21,000. This has been reduced to Rs. 7623 for BMS and Rs. 31,080 for DES. Thus, based on price reduction, patients will get average benefit of 80-90 thousand per stent resulting into a gross relief of Rs. 4450 crores in one year.

Shri Kumar informed that the Ministry of Health and Family Welfare included Coronary Stents in the National List of Essential Medicines, 2015 (NLEM, 2015) on 19th July 2016 and the Ministry of Chemicals and Fertilizers incorporated Coronary Stents in Schedule I of the Drug Prices Control Order (DPCO), 2013 on 21st December 2016.

Shri Kumar informed that the Ministry, after reviewing the recommendation of Ministry of Health, had directed the NPPA to hold multi-stakeholder consultations with industry and industry associations, manufacturers, importers, hospital associations, distributors associations, doctors and NGOs and other civil society members for fixing the ceiling prices of coronary stents. All the data provided by industry was put on NPPA website and major options for price fixation and prices put in public domain for consultation. The new ceiling prices decided by the Government have taken into account interests of all the stakeholders.

Shri Kumar assured that he will write to the Ministry of Health and Family Welfare to keep a check on increase the price of procedure, doctors fee and prolong the patients stay by hospitals to make up for losses it and also ensure that price reduction is passed on to patients. He also said that the prices of all stocked stents will have to be revised according to the new ceiling price. The Minister laid stress that the landed price/manufacturing cost of imported BMS is Rs. 5415 and for DES is Rs. 16,918, hence the ceiling prices have been set taking into account the ethical profit margins and R&D costs of each member of the supply chain of coronary stents.

Shri Kumar also added that in case of serious violations of the ceiling prices, the NPPA has the authority to recover the overcharged amount along with 15% interest. For addressing the grievances of the common people, the Minister informed that the Ministry has already started two mobile apps, Pharma Jan Samadhan and Pharma Sahi Daam, on which aggrieved person can register complaints and the Ministry would act swiftly to resolve it.

Cardiovascular Diseases (CVD) are major cause of death in India, about 25% of total deaths. Out of these, 90-95% CVD deaths happen due to coronary artery diseases. As per the report of National Commission on Macroeconomics and Health, prevalence of CAD in India is about 61.5 million as per 2015 report. As per Health Ministry report, more than 3.5 lakh procedures were done in 2015 which used 4.73 lakh stents. In 2016, the figure of cardiac stent must have been above 5 lakhs. Presently market size of India made stents is roughly 30%. The Minister thus stated that the new ceiling prices will promote Make in India in a big way and seeing the huge number of patients and future requirement, foreign companies will also try to make in India for cutting costs and remain competitive.

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MoU signed between Publications Division and Sasta Sahitya Mandal for Joint Publication of books
Feb 14,2017

Publications Division, a Media Unit under Ministry of Information & Broadcasting and Sasta Sahitya Mandal (SSM) has today signed a Memorandum of Understanding (MoU) for joint publication of books on heroes of freedom struggle, cultural leaders and other eminent personalities who worked towards Nation development. The agreement is a joint initiative between the two organisations to sensitise the young generation about Indias rich and diverse culture and history. It would promote availability of good literature for the people on diverse topics.

The MoU included joint publication of a set of 20 books out of which 10 books will be selected through each others catalogue. In addition a set of 10 small new books would be finalized on topics such as the freedom struggle, Indian culture, ethics and values for Joint Publication. The agreement would also provide an opportunity, for both the organizations to enhance their reach by displaying and offering on sale any of publications published by either of the organizations. This MOU is valid for three years from the date of signing of this MOU, which can be extendable for similar terms by mutual agreement.

SSM is a Trust established by Mahatma Gandhi in 1925 and mandated to promote, develop and publish high class literature in Hindi and to make it available to the public at affordable prices. Since its inception SSM has brought out more than 2500 titles on Indian culture, heritage, Indian epics, & stories and has created a huge corpus of children literature to infuse in them the values of life and love for the nation and humanity.

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Pandit Deendayal Upadhyay Unnat Krishi Shiksha Scheme launched in the year 2016 to promote agricultural education
Feb 14,2017

The Union Minister of Agriculture and Farmers Welfare, Shri Radha Mohan Singh said that all courses upto Agricultural Graduate are being linked with employment and are being made profession oriented. This will be a big help for the students in earning their livelihood. Shri Radha Mohan Singh said that from last year, 5th Dean Report has been implemented in all the Agricultural Universities of the country and will be enforced from the academic session of 2016-17. Agriculture Minister gave this statement today in the Annual Vice Chancellors and Directors Meeting being organised in New Delhi. On this occasion, State Agriculture and Farmer Welfare Minister Shri Parshottam Rupala, Secretary, Department of Agriculture Research and Education & DG ICAR, Dr. Trilochan Mohapatra and all Vice Chancellors of the Agricultural Universities were present.

Shri Singh said that youth are the strength of this nation and it is imperative for the overall development of agriculture that these youth are attracted towards this sector. Therefore, Agricultural Universities and Research Institutes play a very important role. ICAR has launched Student Ready scheme in this direction. In this scheme, from the year 2016-17, scholarship to the students has been increased from Rs. 1000 to Rs. 3000. Beside this, another scheme ARYA is also being implemented successfully. Pandit Deendayal Upadhyay Unnat Krishi Shiksha Scheme was launched in the year 2016 to promote agricultural education under which 100 centres are being opened with a fund of Rs.5.35 crore.

Shri Singh also informed that with the opening of new Universities and Colleges, many initiatives are being taken to promote agriculture education such as Rajendra Agricultural University, Pusa, Bihar has been upgraded to Rajendra Central Agricultural University, Pusa, Bihar and 4 new colleges have been opened under this University. One National Research Centre has been established on Integrated Agricultural System in Motihari, six new colleges have been opened in CAU, Imphal and with this, the number of colleges has been increased to 13. Four new colleges have been opened in Rani Laxmibai Central Agricultural University, Jhansi, Bundelkhand, out of which 2 are in Uttar Pradesh and 2 Colleges are in Madhya Pradesh.

Shri Singh said that IARI-Jharkhand has been established and students of the state are studying in various courses. To promote agriculture education in the north-east states of the country, land for IARI has been identified in Assam. An amount of Rs. 122.5 cr. each has been released for Acharya NG Ranga Agriculture University in Andhra Pradesh & SKTLSHU in Telengana. Agriculture Minister said that in the arena of International Co-operation, our relations with foreign Govts., foreign Universities, and International Bodies have been strengthened. A MoU has been signed for Establishing a BRICS Agriculture Platform (a Virtual Network). Agriculture Ministry of Afghanistan is providing assistance for establishing of Afghan National Science and Technology University (ANASTU) in Afghanistan. It is also providing assistance to establish Advance Centre for Agriculture Research and Education in Mayanmar. Similar cooperation is also being provided in the African Continent.

Shri Singh was very hopeful that with this Conference, PSP, viz. productivity, sustainability and profitability will be improved. Shri Radha Mohan Singh also said that it is necessary to take forward Lab to Land Programme and for this KVKs have a major role to play. Shri Singh said that to achieve the Govts target of doubling the income of farmers, all the institutes of ICAR should emphasise on developing economically feasible models. It is necessary for the Institutes to work pro-actively in the area of digitization. In the end, Agriculture Minister appealed to all the representatives present in the Conference to work in synergy for research and education and contribute fully in building a viable nation.

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Fitch: Number of AAA-Rated Countries Lowest Since 2003
Feb 14,2017

The number of Fitch-rated sovereigns with AAA ratings is at its lowest level since 2003 and is expected to remain unchanged over the next two years, says Fitch Ratings.

Eleven countries have AAA status, compared with an all-time high of 16 during 2004 to 2009, reflecting the longer term impact of the global financial crisis.

This is less than 10% of Fitchs global sovereign portfolio, the smallest ever share for the rating category, and consistent with AAA sovereigns now accounting for 40% of global government debt at end-2016, down from 48% a decade ago, said James McCormack, Global Head of Sovereign Ratings at Fitch.

All Fitchs AAA sovereigns have a Stable Outlook, suggesting we do not anticipate downgrades in the coming 12 to 24 months. Furthermore, no AA+ rated sovereign has a Positive Outlook, suggesting upgrades to AAA are unlikely over the same time-frame.

Japan was the first sovereign to lose its AAA rating in 1998, followed by another six in the aftermath of the global financial crisis over the seven years since 2009. These are: Austria (AA+/Stable), Finland (AA+/Stable), France (AA/Stable), Ireland (A/Stable), Spain (BBB+/Stable) and the UK (AA/Negative).

Australia is the only sovereign to have been upgraded to AAA in the last decade, in November 2011. No former AAA sovereign has ever regained its AAA status, although we have upgraded Spain and Ireland from their post-crisis lows.

AAA remains our most stable rating. Fitchs latest transition and default study shows the average annual transition rate for AAA sovereigns over the past 20 years was 2.5%, or that 97.5% of sovereigns that start the year at AAA remain there over the next 12 months, added McCormack.

Fitchs AAA sovereigns are: Australia, Canada, Denmark, Germany, Luxembourg, Netherlands, Norway, Singapore, Sweden, Switzerland and the United States.

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OECD unemployment rate stable at 6.2% in December 2016
Feb 14,2017

The OECD unemployment rate was stable, at 6.2%, for the second consecutive month in December 2016. Across the OECD area, 38.5 million people were unemployed, 5.9 million more than in April 2008, before the crisis.

The unemployment rate in the euro area declined in December by 0.1 percentage point, to 9.6%, its lowest level since May 2009, with the largest falls recorded in Portugal (down 0.3 percentage point, to 10.2%), Spain (down 0.3 percentage point, to 18.4%), the Slovak Republic (down 0.2 percentage point, to 8.8%) and the Netherlands (down 0.2 percentage point, to 5.4%). On the other hand, the unemployment rate increased by 0.2 percentage point in Latvia (to 9.8%) and by 0.1 percentage point in France (to 9.6%) and Luxembourg (to 6.3%).

Outside Europe, the unemployment rate increased in December by 0.1 percentage point in Canada (to 6.9%), Mexico (to 3.8%) and the United States (to 4.7%), while it was stable in Japan (at 3.1%) and fell by 0.2 percentage point in Korea (to 3.4%). For the United States, more recent data for January 2017 point to a further increase of 0.1 percentage point, to 4.8%.

Over the last year, the unemployment rate in the euro area (down 0.9 percentage point) fell at a faster pace than in the OECD as a whole (down 0.3 percentage point). The largest year-on-year declines within the euro area occurred in Spain (down 2.3 percentage points), Portugal (down 2.0 percentage points), the Slovak Republic (down 1.9 percentage point), Ireland (down 1.7 percentage point) and Greece (down 1.5 percentage point between October 2015 and October 2016, the latest month available). By contrast, the unemployment rate increased by 0.4 percentage point over the year in Italy.

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In India, the CLI points to easing growth momentum
Feb 14,2017

Growth is anticipated to pick-up in the United States, Canada, Japan as well as Germany and France, says Composite leading indicators (CLIs) by OECD. In the United Kingdom, there are tentative signs of growth gaining momentum, although the CLI remains below trend and uncertainty persists about the nature of the agreement the UK will eventually conclude with the EU.

In the OECD area as a whole, as well as the in the euro area and in Italy, the CLIs indicate stable growth momentum.

Amongst major emerging economies, growth is expected to gain momentum in China, Brazil and Russia. In India, the CLI points to easing growth momentum.

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Mobile broadband penetration at 95% in OECD area
Feb 14,2017

High-speed Internet use continues to grow in OECD countries with mobile broadband penetration reaching 95 subscriptions per 100 inhabitants in June 2016, up from 86 per 100 a year earlier, according to data released by the OECD.

The addition of 123 million new mobile broadband subscriptions in the 35-country OECD area made a year-on-year rise of 11.3%, driven by continued growth in the use of smartphone and tablets, and lifted the OECD total to 1.214 billion subscriptions in a population of 1.27 billion people.

Twelve countries - Japan, Finland, Sweden, Denmark, the US, Estonia, Australia, Korea, Norway, Iceland, New Zealand and Switzerland, in descending order of mobile subscriptions per capita - now lie above the 100% penetration threshold, up from nine countries a year ago.

Fixed-line broadband subscriptions in the 35-country OECD area reached 380 million as of June 2016, up from 363 million a year earlier and making an average penetration of 29.8%, up from 28.6%. Switzerland leads the pack with a penetration rate of 51 subscriptions per 100, followed by Denmark (43%), the Netherlands (42%), France (41%) and Korea (40%).

DSL remains the prevalent technology, making up 44.7% of fixed broadband subscriptions, but it continues to be gradually replaced by fibre, now accounting for 20.1% of subscriptions thanks to a 16% jump in fibre subscriptions since June 2015. Cable (32.2%) made up most of the rest.

Data on machine-to-machine communications, such as for Internet-connected vehicles, show that Sweden, New Zealand, Norway, Finland and the Netherlands remain the leaders in the number of M2M SIM cards in use, with the caveat that data is not yet fully comparable for all countries. Sweden counts 77 M2M SIM cards per 100 inhabitants - a much higher level than for most other OECD countries that provided data. Overall, M2M/embedded mobile cellular subscriptions grew by almost 20% in the last year in countries were the data was available

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WPI inflation jumps to 30-month high of 5.25% in January 2017
Feb 14,2017

The Wholesale Price Index (WPI)-based inflation accelerated further to 30-month high of 5.3% in January 2017 from 3.4% in December 2016. An increase in WPI inflation was mainly driven by higher inflation for fuel and power group, while inflation for primary articles and manufactured products group also moved up in January 2017.

Inflation of primary articles rose to 1.3% in January 2017 from 0.3% in December 2016. The inflation for manufactured products moved up to 4.0% in January 2017. The inflation for fuel items zoomed to 18.1% in January 2017 from 8.7% in December 2016.

As per major commodity group-wise, inflation rose for fruits, vegetables, milk, fish, poultry chicken, spices, fibres, oilseeds, flowers, metallic minerals, crude petroleum, coal, mineral oils, electricity, grain mill products, edible oils, textiles, chemical products and basic metals in January 2017. On the other hand, inflation of foodgrains, sugarcane, sugar, oilcakes, wood products, leather products, non-metallic mineral products, and transport equipment declined in January 2017.

Inflation of food items (food articles and food products) was flat at 2.8% in January 2017 from December 2016 level. Meanwhile, inflation of non-food items (all commodities excluding food items) moved up to 6.4% in January 2017 from 3.7% in December 2016.

Core inflation (manufactured products excluding foods products) accelerated to 2.7% in January 2017 from 2.1% in December 2016.

The contribution of primary articles to the overall inflation, at 5.25%, was 37 basis points (bps) in January 2017 compared with 08 bps in December 2016. The contribution of manufactured products was 226 bps compared with 206 bps, while that of fuel product group was 263 bps against 129 bps in December 2016.

The contribution of food items (food articles and food products) to inflation fell to 89 bps in 5.25% in January 2017 compared with 91 bps to 3.43% in December 2016. Meanwhile, the contribution of non-food items (all commodities excluding food items) was 436 bps in January 2017 compared with 250 bps in December 2016.

As per the revised data, the inflation figure for November 2016 was revised up to 3.4% compared with 3.2% reported provisionally.

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Moodys: Continued robust demand for aircraft will support aircraft financing in 2017
Feb 14,2017

New commercial aircraft funding requirements will continue to grow at a steady pace in 2017 on the back of robust expansion in the global aircraft fleet, Moodys Investors Service says in a new report. Growth in the availability and trading of mid-life and older aircraft will further sustain the need for financing, and funding sources will remain abundant.

More than 1,300 aircraft are scheduled for delivery this year, and that figure will be even higher in 2018. Boeing Capital Corp. forecasts the value of deliveries at $126 billion in 2017 and $141 billion in 2018, with the majority financed by debt.

The need for aircraft financing will rise along with growth in passenger and, therefore, aircraft demand, says Moodys Senior Credit Officer, Jonathan Root. We expect aircraft finance markets to remain strong in the year ahead, providing airlines and lessors with ample liquidity and a wide variety of funding sources.

The three main sources of aircraft financing -- cash, commercial banks and capital markets -- will all either maintain or grow in overall volume in 2017, according to Boeing Capital. Bank appetite for aircraft lending could decline if proposed modifications to Basel III rules are adopted, however. The changes would restrict banks use of internal risk models to determine capital levels for specialized lending, and would likely raise the cost of financing.

Regulatory pressures on banks and the limited availability of export credit agency financing are leading to capital market innovation for financing aircraft, with some structures designed to replace bank funding and others to appeal to investors new to aviation finance. Still others combine elements of traditional asset-backed securities (ABS) and managed funds to segment risk in new ways.

Issuance of aircraft ABS, the majority collateralized by mid-life and older assets, will strengthen in 2017, says Moodys Senior Credit Officer, Tracy Rice. Larger aircraft lessors will issue ABS on an opportunistic basis, including to sell aircraft portfolios, while mid-tier leasing companies will use ABS for permanent financing.

Favorable industry conditions will support the credit performance of aircraft ABS transactions and EETCs in the year ahead, Moodys says. And steady demand for aircraft will help ease the rate of decline in the value of older aircraft in outstanding rated deals.

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Strong Payment Mechanism Partly Contributes to Solar Tariff Free Fall; Solar Projects Funding To Ease
Feb 14,2017

The strong payment security mechanism from the counterparty in the recently concluded auctions for 750 MW of solar projects in Rewa Solar Park, Madhya Pradesh, will enable fund raising at competitive rates, says India Ratings and Research (India Ratings). The agency believes that the reduced risk from the counterparty because of payment security mechanisms is one of the levers for the steep fall in tariffs quoted by the bidders.

The new payment security mechanism includes the state government payment guarantee, payment security fund (about 35-40% of revenue at plant load factor of 22%) and a deemed generation compensation for the grid unavailability, in addition to the regular letter of credit. Low tariff will also incentivise the offtakers to pay on-time. Notwithstanding the new payment structure, in the event of the tariffs not being commensurate with the capital cost - reminiscent to the aggressive bids seen in the road sector - will stress the coverage ratios of these projects. Thus the cost of funding and lower solar panel prices (fallen by ~28% yoy) are critical factors for the sharp fall in solar bids.

While the state guarantee and payment security fund (PSF) provides a cushion, however it is imperative to know the terms for invocation of the guarantee and the replenishment of PSF. In the event of guarantee invocation or tapping of PSF after a substantial delay in payments - beyond 60 days - the players could be forced to avail working capital facilities and bear the related financial costs.

In another development, Solar Energy Corporation of India (SECI) is now included as a beneficiary in the tripartite agreement with the Reserve Bank of India, Government of India and the states. This development will allow withholding of central assistance to states in case of a default to SECI. As a result, SECIs future bids are likely to fall to lower tariffs than earlier. The reduced counterparty risk will aid in curtailing the borrowing costs for these projects.

Evolving Security Mechanism A Positive

Though solar projects relatively enjoy stable receivable days from most counterparties, the underlying risk from the weak financial profile of most distribution utilities remain. Certain distributionutilities however exhibit different payment days for different generation assets (thermal and wind) and this pattern among discoms provides limited comfort in assessing the reliability of the offtakers. Thus the inclusion of SECI as a beneficiary in the tripartite agreement gains significance in providing reliability of collections.

Threat of Grid Uncertainty Partially Addressed

In light of grid curtailment faced by wind projects in few states and also by solar projects in Tamil Nadu, the development of providing deemed generation benefits for grid non-availability is a positive development. India Ratings had highlighted this in the report Market Wire: Grid Curtailment Contagion Puts Pressure on Credit Profiles of Renewable Energy Projects.

However, Ind-Ra believes that it may be unsustainable for the off-takers to carry this risk as the distribution utilities do not operate the grid. The responsibility of grid operation lies with the loaddespatch centres within the constraints posed by the transmission infrastructure and load-generation balancing. Thus, the onus of enabling evacuation also lies with the open access provider and network operator. Clarity in responsibilities and contractual incentives and penalties will ensure that all the stakeholders (including off-takers, open access providers and network operators) are aligned towards the goal of uninterrupted evacuation for renewable power.

Bids Reach New Lows

Auction for implementing 750MW in Rewa Solar Park was concluded at INR2.970-/kWh, INR2.979 and INR2.974 for three units of 250MW each, with 5 paise per year escalation for first 15 years. Offtakers are Delhi Metro Rail Corporation and Madhya Pradesh Power Management Corporation Ltd. The previous low in terms of tariffs of INR4.34/kWh was offered by Fortum of Finland was exactly a year ago in January 2016. Rewa Ultra Mega Solar, which is developing the Rewa solar park, is a joint venture of SECI and Madhya Pradesh Urja Vikas Nigam Limited. Land acquisition and evacuation are the responsibility of the solar park, thus mitigating significant risks for the project developers. The low tariffs discovered makes the solar projects highly competitive in merit order, as the variable charges of marginal power for most states lie above INR3.5/kWh.

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