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Operation Clean Money by IT Dept gets overwhelming response
Feb 13,2017

The Income Tax Department (ITD) had initiated Operation Clean Money on 31st January, 2017 for the e-verification of large cash deposits made during the period from 9th November to 30th December, 2016. Email and SMS were sent to 18 lakh taxpayers for submitting online response on the e-filing portal.

The operation has seen an overwhelming response and till 12th February, 2017 more than 5.27 Lakh taxpayers have already submitted their response. Out of the 7.41 Lakh accounts confirmed by the 5.27 Lakh taxpayers, the cash deposit amount has been confirmed in more than 99.5 per cent accounts. The Department is encouraged to note that taxpayers have increased the cash deposit amount in nearly 90,000 accounts and provided details of additional 25,000 bank accounts in which cash was deposited. The explanation of cash deposit submitted by the taxpayer is being analysed in the context of nature of business and business profile in the earlier returns of the taxpayer.

This exercise has identified around 4.84 lakh taxpayers not yet registered with the e-filing portal. SMS have been sent on the mobile number of these unregistered persons. Income Tax Department is keeping a vigil on the PAN holders who have still not registered on the e-filing portal or who have not yet submitted their online response.

In order to facilitate online responses, the last date for their submission has been extended up to 15th February, 2017 and a detailed Frequently Asked Question (FAQs) has also been issued to assist the taxpayers in submitting their response. The taxpayers should submit their response within this further extended period with a view to avoid enforcement actions under the Income-tax Act and other applicable laws.

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Expeditious issue of Refunds is a High Priority for the Central Board of Direct Taxes (CBDT)
Feb 13,2017

The Centralised Processing Centre (CPC) of the Income Tax Department (ITD) at Bengluru has already processed over 4.19 crore Income Tax Returns (ITRs) and issued over 1.62 crore refunds during the current financial year up to 10th February, 2017. The amount of refunds issued at Rs.1.42 Lakh Crore is 41.5% higher than the corresponding period last year.

As a result of emphasis on expeditious issue of refunds, 92% of all Income Tax returns were processed within 60 days demonstrating CBDTs commitment to faster and more efficient taxpayer service. Of the refunds issued, 92% are below Rs.50,000 due to the high priority given to expeditious issue of refunds to small taxpayers. Only 2% of refunds less than Rs. 50,000 are remaining to be issued. Majority of these cases relate to recently filed ITRs or where the taxpayers response to the Department is awaited.

Taxpayers reposed faith in CBDTs e-governance initiatives by filing electronically a whopping 4.01 Cr ITRs till 10th February 2017 representing an increase of 20% over the previous year. Also, more than 60 lakh other online forms were filed with an increase of nearly 41% compared to the previous year.

Taxpayers are advised to verify and update their email address and mobile number on the e-filing website to receive electronic communication. CBDT is committed to ensuring best possible taxpayer services through its e-governance programs and increasing the coverage and scope of electronic filing and processing of various forms and applications.

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CPI inflation dips to 3.2% in January 2017
Feb 13,2017

The all-India general CPI inflation dipped to 3.17% in January 2017 (new base 2012=100), compared with 3.41% in December 2016. The CPI inflation in January 2017 has touched a lowest level for CPI inflation data with base 2012 available since January 2014.

The corresponding provisional inflation rate for rural area was 3.36% and urban area 2.90% in January 2017 as against 3.83% and 2.90% in December 2016. The core CPI inflation rose to 5.00% in January 2017 from 4.83% in December 2016. The cumulative CPI inflation was slightly up at 4.85% in April-January FY2017 compared with 4.79% in April- January FY2016.

Among the CPI components, inflation of food and beverages declined to 1.29% in January 2017 from 1.98% in December 2016 contributing to the fall in CPI inflation. Within the food items, the inflation eased for pulses and products to (-) 6.62%, meat and fish 2.98%, vegetables (-) 15.62%, spices 5.04% and sugar and confectionery 18.69%. The inflation also eased for egg 2.64%, milk and products to 4.23% and non-alcoholic beverages 3.10%. On the other hand, inflation moved up for oils and fats 3.12% and fruits 5.81% in January 2017.

The inflation for housing was nearly flat at 5.02%, while that for miscellaneous items moved up to 5.06% in January 2017. Within the miscellaneous items, the inflation for Transport and communication jumped to 5.40%, and Education 5.62%, while inflation declined for personal care and effects to 6.29%, household goods and services 4.19% and health 4.18% in January 2017.

The inflation for clothing and footwear eased to 4.71% in January 2017, while the CPI inflation of fuel and light also declined to 3.42% in January 2017.

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New National Urban and Habitat Policy, National Rental Housing Policy and Model Tenancy Act in the works
Feb 13,2017

The Government is drafting a National Urban and Habitat Policy, National Rental Housing Policy and Model Tenancy Act for efficient functioning of the real estate sector and imparting transparency in its working. This was stated by Mr. Rajiv Ranjan Mishra, Joint Secretary, Ministry of Housing and Urban Poverty Alleviation, Government of India.

Mr. Mishra said that budget was critical to the real estate sector as it addressed many of the industrys issues by way of policy and legislative interventions. He said that the government has extended the benefits of affordable housing schemes to middle income groups as well and was now encouraging developers to enter the affordable housing segment by way of granting infrastructure status to it. He added that the government welcomes feedback from the industry to make better and effective policies.

Mr. Suraj Malik, Director - Mergers & Acquisitions, PwC India, said that the key policy announcements made in the Budget 207-18 such as grant of infrastructure status to affordable housing segment; refinancing of individual housing loans by the National Housing Bank and permission to monetize Airport Authority of India owned land, the proceeds of which will received be used for airport upgradation.

He said that the other modifications in the budget such as reduction of the period of holding for immovable property for long term characterization from 36 months to 24 months would have an impact on the sector. Mr. Malik delved on several other amendments and provisions of the budget that would influence the real estate sector both in the short and long term and sought industrys views on them.

Dr. A. Didar Singh, Secretary General, FICCI, said that the government has taken many constructive steps towards making the system transparent and easier to comply with which has resulted in efficient governance. The Budget has implications on various sectors and it was another step towards the reforms agenda of the government. He assured that FICCI would continue to support the initiatives of the government.

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Tax Collection at Source within the ambit of Model GST Law presents an existential challenge for the e-commerce marketplaces
Feb 13,2017

E-Commerce is one of the flourishing sectors of the country and has remained as a core part of the Governments Start up India, Make in India, Digital India and Skilled India programs. The sector needs to be nurtured with right policy framework and guidelines in order to make it more productive.

FICCI appreciates the Government for the passing of the much awaited Goods and Services Tax Bill and is certain that the implementation of GST will help in increasing the productivity and transparency in the country by increasing the tax-GDP ratio. Moreover, the much awaited One-Country-One-Tax policy will be implemented in the greater interest of the national economy.

However, the draft Model GST law that is due to be finalized soon has proposed a clause called Tax Collection at Source (TCS - Section 56). The Tax Collection at Source (TCS - Section 56) clause under the GST draft model law, mandates e-commerce marketplaces, to deduct 2% of the transaction value and submit it to the government. As an estimate, this clause would lead to locking up about Rs. 400 crores of capital per annum for the e-commerce sector. In addition, it would result in a loss of an estimated 1.8 lakh jobs, putting a halt to the growth and investments in the sector.

TCS would have a direct impact on the sellers of the marketplace, who are generally small in nature with a turnover in the range of INR 50 lakhs to INR 10 crores per annum. The ecommerce marketplace model facilitates sellers in maximising their capital efficiency by rotating it frequently, which helps to provide the volumes required to generate profit for the sellers. Blocking capital, would disrupt the cash flow, thus making it difficult for sellers to generate profits. Additionally, TCS is bound to increase the working capital requirements for the sellers, who might resort to increasing margins or internalising the costs, to cover the additional burden. There is a need to find out alternatives which could be employed to ensure that regular information on tax, is made available to the government, without jeopardising the business model and future growth prospects of the nascent e-commerce sector.

Dr Didar Singh, Secretary General, FICCI appreciated the moves of the Government towards digitization and formalization of the economy further, and quoted the recent example of demonetization in this perspective. He added that passing of the much awaited GST Bill would bring further uniformity in the market and boost the national economy. However, he stressed that there is a need to have a conducive tax environment for the sector as also reflected in the agenda of World Trade Organization (WTO) globally. The Tax Collection at Source (TCS) clause within the Model GST Law mandates the e-commerce marketplaces to deduct a portion of the amount payable to the supplier of goods / services and remit it to the government. At the moment, the e-commerce sector in India is at less than 2% of the entire retail segment and moreover, at a very nascent stage, with a promise of high growth in the future. Subjecting the sector to a major compliance at such an early stage will not only result in slowing it down but also deter the benefits that e commerce fosters in terms of employment creation and giving a boost to both the manufacturing and services space by providing an apt platform. Moreover, this clause is discriminatory towards online sellers as it does not exist in the offline retail segment.

Dr. Singh backed that the Government should find out alternative ways to replace the clause, may be the information related to the sellers declared to the Government would be the best feasible option available. He also stressed that the sector is one of the core pillars of the Governments Digital India campaign and is needed to be nurtured with right set of policy frameworks and guidelines.

Mr. Kunal Bahl, Co-founder and CEO, Snapdeal said that GST is a key tax reform, which will simplify the tax compliance burden for the entire economy. However, the proposal of tax collection at source, directed only at e-commerce marketplaces, in the Draft Model GST Law, will hurt lakhs of small sellers by making online sales expensive and cumbersome for them. The proposal, while adding needless complexity for the sellers, provides no benefit to the tax authorities and will lead to duplication of information followed by the need for its reconciliation. It is a measure, which goes against the spirit of making India digital and improving the ease of doing business in the country. We are positive that the government will address this crucial concern.n++

Mr. Amit Agarwal, Country Head, Amazon India mentioned that n++we welcome the introduction of the new GST Bill. E-commerce has opened up immense growth opportunities for Small & Medium Businesses by enabling easy and convenient access to not only a nationwide consumer base but also to global markets. We believe GST is good for the ecommerce industry as it would eliminate hurdles in inter-state delivery and subsume the entry tax introduced on e-commerce shipments by some states. However, we remain concerned about the Tax Collection at Source provision which we believe will negatively impact the growth of marketplaces at a stage when the industry is still in its infancy. There is an urgent need to re-evaluate such an onerous requirement/ we are working with the government on this and hope for a favourable resolution.n++

Mr. Sachin Bansal, Co-founder & Executive Chairman, Flipkart said n++the Indian e-commerce growth story is marvellous. Flipkart alone has on boarded around ten thousand sellers and has contributed a lot towards the growth of first generation entrepreneurs, Im sure that the other companies have the similar numbers. GST is in fact one of the most forward looking moves being made by the Government and would bring the one country - One Tax policy. However, the Tax Collection at Source (TCS) clause would lead to blockage approx. Rs. 400 crore of working capital into the system, and will discourage sellers to come online. Also, the Government needs to set a level playing field as the clauses is not pertinent to the off-line retail segment. Central and the state Governments needs to find out alternative ways to address the situation and the e commerce platforms may give a self-declaration about the taxes being reimbursed by the sellers. Some of the states namely Kerala, Rajasthan and Delhi are already doing the same. Im sure that the clause would be removed in the greater benefit of the Indian digital space as a whole.

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CEA Advisory Could Lift Profitability of Domestic BTG Manufacturers
Feb 13,2017

The recently issued Central Electricity Authority (CEA) advisory with regard to indigenous manufacturing of supercritical equipment and doing away of the deed of joint undertaking (DJU) in case certain conditions are met is positive for the domestic Boiler-Turbine- Generator (BTG) manufacturers, says India Ratings and Research (India Ratings). India Ratings believes the effect of this advisory will have a trickle down benefit on the profitability of the BTG manufacturers with a lag of around 1.5-2.5 years, as the order execution cycle for Bharat Heavy Electricals Limiteds (BHEL; IND AA+/Negative) is 36-48 months.

The advisory is positive for BTG manufacturers in two respects. Firstly, CEA has extended the advisory dated 2nd February 2010 for a further period of three years to October 2018 from October 2015. The earlier advisory had asked the BTG procurers (central and state power generating entities) to incorporate the condition of setting up of phased indigenous manufacturing facilities in the bids to be invited for supercritical projects by them. It is interesting to note that, the advisory is only applicable to the central and state utilities and is only an advisory which cannot be enforced upon the procurers. However, India Ratings notes that most central and state utilities tend to fall in line with the CEA advisory. The private sector is free to choose from the BTG supplier. India Ratings believes that the private sector participation will remain muted since they have been hit the most on account of muted demand and lack of power purchase agreements, thus leading to the declining PLFs of 56.3% from 83.9% over 9mFY17- FY10 (Figure 1). Therefore at a time when bulk of the fresh capacity orders will come from the central and state utilities, such an extension in the timelines is positive for BTG manufacturers.

Secondly, CEA has also advised that in the event a BTG manufacturer meets three conditions then there will be no need to furnish a DJU. India Ratings believes that these conditions will be fulfilled by BHEL and hence in its future orders, it will not need to furnish DJU which is likely to increase its gross margins. The three conditions that need to be fulfilled are i) eight supercritical boilers manufactured/supplied in India by the company have achieved commercial operation ii) four such boilers should have achieved commercial operation for a duration of at-least one year and iii) performance guarantee tests have been successfully completed by any two boilers. Under the DJU clause, the domestic manufacturer has to furnish a guarantee from one of the collaborators, a large international technology company such as Siemens AG/Alstom. In order to provide guarantees, collaborators have been taking a higher share of the orders, thus impacting the gross margins of BTG manufacturers. As of October 2016, BHEL commissioned 12 sets of supercritical boilers and 10 sets of supercritical turbine generators. BHELs gross margins which have been historically stable or rising, due to BHELs indigenization efforts had declined in 9MFY16 to 37.7% and further to 36.6% during 9MFY17 (Figure 2), on account of the higher share of contracts executed under DJU clause, as the order book shifted towards supercritical projects. The order book of BHEL now has supercritical set contracts with DJU clauses, thus the gross margin expansion in India Ratings opinion is some time away. The execution of the new projects without DJU clause, will begin to reflect in the gross margins only once BHEL wins new projects.

India Ratings notes, that through this advisory, BHELs gross margins in future projects can expand, however, the overhang of slow moving order book, high employee cost, lower ordering activity given the subdued PLFs, limited participation from the private sector and stretched working capital cycle will continue to weigh on the overall financial profile of the company.

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Gartner Says IT Spending in the Banking and Securities Industry in India to Reach $8.9 Billion in 2017
Feb 13,2017

IT spending by banking and securities firms in India will reach $8.9 billion dollars in 2017, an increase of 9.7 percent from 2016, according to Gartner, Inc. This forecast provides total enterprise IT spending for internal spending and spending data on data center systems, devices, software, IT services and telecom services.

IT services will grow the fastest at 13.8 percent in 2017, as firms in the banking and securities industry invest more in business processes, specifically in business process outsourcing. The focus is on outsourcing the activities to achieve operational efficiency and reduce costs in the banking and securities industry in India.

The banking and securities industry in India saw a sea of change from earlier years in 2016 due to the sudden demonetization announcement, said Moutusi Sau, principal research analyst at Gartner. Banks are increasingly working to enhance their customer facing platforms and investing in payment tools.

Further information on the banking and securities industry IT spending is available in the Gartner report: Forecast: Enterprise IT Spending for the Banking and Securities Market, Worldwide, 2014-2020, 4Q16 Update. The banking and securities industry forecast provides total enterprise IT spending, including internal spending and multiple lines of detail surrounding spending on data center, devices, software, IT services and telecom services for 43 countries within 11 regions.

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Bring in Land & Real Estate within GST Purview & Keep Consumer Durables at Lower Rates Post GST: Manish Sisodia
Feb 13,2017

Deputy Chief Minister and Minister of Finance, Government of NCT of Delhi, Manish Sisodia on Thursday demanded that land and real estate ought to be brought in within the ambit of GST and its taxation slab for vast majority of consumer durables be kept at lower ceilings to make GST a mass friendly taxation.

The Minister assured India Inc. that he would still take up the aforesaid issues in the forthcoming GST Council meetings as he felt that land and real estate being outside purview of GST and that higher taxation slab for consumer durables would kill its basic purpose.

Addressing a n++National GST Conclave : One Nation One Tax-Pivotal Tax Reformsn++ organized by the PHD Chamber of Commerce and Industry, Mr. Sisodia also declared that dual control of GST also defeated its intended objectives and sought more intense consultations on the issue in future course of GST Council, arguing that the objective of the GST should be consumer and traders oriented and it should not entirely aim at raising taxation with higher rates.

n++I fought tooth and nail for inclusion of land and real estate within the ambit of GST but somehow there couldnt be an absolute consensus on the issue at number of GST Council Meetings of all the States Finance Ministers because of obvious reasons. I will still try for its inclusion in GST as land and real estate has received huge investments both outside and inside the countryn++, the Minister pointed out making a prophecy that the future generations will suffer its pain in the long run if land and real estate remain outside purview of GST.

n++Consumer durables such as TV, Mobiles, electric appliances and host of similar such articles should not be taxed luxuriously. That is our view and we will continue to articulate them whenever necessary in the interest of Aam Aadmi though the GST tax rates have yet to be finalizedn++, said Mr. Sisodia.

Chairman, CBEC, Mr. Najib Shah in his remarks, emphasized asking industry not to keep seeking exemptions under the GST regime as most of such exemptions would go away after it is put in place after July 1st although the deciding authority on doing away with exemptions post GST and fixing its rates would be the prerogative of the GST Council.

The Chairman also clarified that the anti-profiteering clause in GST Law is there as an enabler and industry should not read too much on it, promising that post GST host of indirect taxes would subsume in it making the new law user friendly.

President, PHD Chamber, Mr. Gopal Jiwarajka in his welcome remarks, demanded to know the justification of anti-profiteering clause in GST regime though he felt that post GST, indirect taxation would be by and large compliant by all sections of society and pave the way for higher revenue generation for the government.

In his opening remarks, Chairman, Indirect Taxes Committee, PHD Chamber, Mr. Bimal Jain said that for implementation of GST Law by July 1, find GST Law with Rules made public for impact and IT preparedness as also 4-tier rates classification of goods list be provided. Training and awareness programme should be conducted for both government officials and trade for better implementation of GST so that it becomes seamless and easier for its timely implementation.

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Fitch: The Trump Administration Poses Risks to Global Sovereigns
Feb 13,2017

The Trump Administration represents a risk to international economic conditions and global sovereign credit fundamentals, Fitch Ratings says. US policy predictability has diminished, with established international communication channels and relationship norms being set aside and raising the prospect of sudden, unanticipated changes in US policies with potential global implications.

The primary risks to sovereign credits include the possibility of disruptive changes to trade relations, diminished international capital flows, limits on migration that affect remittances and confrontational exchanges between policymakers that contribute to heightened or prolonged currency and other financial market volatility. The materialisation of these risks would provide an unfavourable backdrop for economic growth, putting pressure on public finances that may have rating implications for some sovereigns. Increases in the cost or reductions in the availability of external financing, particularly if accompanied by currency depreciation, could also affect ratings.

In assessing the global sovereign credit implications of policies enacted by the new US Administration, Fitch will focus on changes in growth trajectories, public finance positions and balance of payments performances, with particular emphasis on medium-term export prospects and possible pressures on external liquidity and sustainable funding. US positions on some countries may change quickly, at least initially, but any potential rating adjustments will depend on consequent changes to sovereign credit fundamentals, which will almost certainly be slower to materialise.

Elements of President Trumps economic agenda would be positive for growth, including the long-overdue boost to US infrastructure investment, the focus on reducing the regulatory burden and the possibility of tax cuts and reforms, assuming cuts dont lead to proportionate increases in the government deficit and debt. One interpretation of current events is that, after an early flurry of disruptive change to establish a fundamental reorientation of policy direction and intent, the Administration will settle in, embracing a consistent business- and trade-friendly framework that leverages these aspects of its economic programme, with favourable international spill-overs.

In Fitchs view, the present balance of risks points toward a less benign global outcome. The Administration has abandoned the Trans-Pacific Partnership, confirmed a pending renegotiation of the North American Free Trade Agreement, rebuked US companies that invest abroad, while threatening financial penalties for companies that do so, and accused a number of countries of manipulating exchange rates to the USs disadvantage. The full impact of these initiatives will not be known for some time, and will depend on iterative exchanges among multiple parties and unforeseen additional developments. In short, a lot can change, but the aggressive tone of some Administration rhetoric does not portend an easy period of negotiation ahead, nor does it suggest there is much scope for compromise.

Sovereigns most at risk from adverse changes to their credit fundamentals are those with close economic and financial ties with the US that come under scrutiny due to either existing financial imbalances or perceptions of unfair frameworks or practices that govern their bilateral relations. Canada, China, Germany, Japan and Mexico have been identified explicitly by the Administration as having trade arrangements or exchange rate policies that warrant attention, but the list is unlikely to end there. Our revision of the Outlook on Mexicos BBB+ sovereign rating to Negative in December partly reflected increased economic uncertainty and asset price volatility following the US election.

The integrative aspects of global supply chains, particularly in manufactured goods, means actions taken by the US that limit trade flows with one country will have cascading effects on others. Regional value chains are especially well developed in East Asia, focused on China, and Central Europe, focused on Germany.

Tighter immigration controls and possible deportations could have meaningful effects on remittance flows, as the US has the worlds largest immigrant population. World Bank data confirm that the US and Mexico share the worlds top migration corridor and have the largest bilateral remittance flows. Relative to GDP, remittances are even larger for Honduras, El Salvador, Guatemala and Nicaragua, all of which receive most inflows from the US.

Countries hosting US direct investment, at least part of which has financed export industries focused back on the US, are at risk of being singled out for punitive trade measures. The list of these countries is potentially long, since US-based entities account for nearly one-quarter of the stock of global foreign direct investment. Countries with the highest stock of US investment in manufacturing are Canada, the UK, Netherlands, Mexico, Germany, China and Brazil.

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Moodys: Demonetization hits collections and delinquencies of Indian ABS transactions, but impact expected to be short-lived
Feb 13,2017

Moodys Investors Service says that the Indian governments decision to remove a high proportion of currency notes from circulation (demonetization) in November 2016 has proved negative for the performance of Indian auto asset backed securities (ABS) in the short term, leading to a 1.3% decline in collections for November and December 2016, and a 1.9% increase in 30+ days delinquencies in December 2016.

During December, the first month when the full effects of demonetization were felt, the 30+ days delinquency rate for Indian auto ABS increased 1.9 percentage point to 10.9% from 9.0% in October 2016. On the other hand, at 0.6%, 0.5% and 0.3%, the increase in the 60+ days, 90+ days and 180+ days delinquency rates, respectively and over the same period, were more subdued.

In such an environment, we expect the performance of the 15 Indian auto ABS transactions that we rate to continue to be weaker than was the case prior to demonetization until at least the end of March 2017, owing to the temporary drag on consumption and investment triggered by the policy announced on 8 November 2016, says Vincent Tordo, a Moodys Analyst.

Moodys notes that demonetization has disrupted the recovery observed in the commercial vehicle (CV) loan segment for the past two years. According to ICRA data, CV loan delinquencies fell to 6.3% in June 2016 compared with peak levels of about 9.0% at the end of 2014.

However, the deterioration in performance has been limited to early-stage delinquencies and supports Moodys expectations of a short-lived slippage in performance and proactive delinquency management by servicers, rather than as a precursor of permanent losses.

Cash collateral and excess interest spread protect Indian auto ABS against the drop in collections, and we note that such securities have large levels of cash collateral and excess interest spread, leaving them well placed to withstand the impacts of demonetization and the economic slowdown, adds Tordo.

Moreover, our analysis shows that our rated transactions can weather a stressed scenario of a 25% shortfall in collections and still fund investor payouts for a minimum of 24 months and an average of 34 months, says Tordo. And, even if we stress the collections by 50%, investors can be paid for at least 10 months and 17 months on average.

Moodys also notes that nine of the 15 auto ABS transactions that we rate had utilized on average less than 1% of their credit facilities to fund investors payouts in January 2017, while the other six had funded investor payouts solely out of collections.

We expect our current ratings for Indian auto ABS deals to hold against the backdrop of a mild and temporary deterioration in performance. To rate those transactions, we have assumed mean loss levels that are higher than what has occurred historically during prolonged economic downturns, thereby providing sufficient buffer in our opinion to the deterioration in performance observed.

Looking ahead, Moodys expects Indian auto ABS delinquencies and collections to return during 2017 to levels prior to demonetization, as the economic slowdown triggered by the decision to remove a very large proportion of high denomination currency notes from circulation wanes, oil prices remain around current levels and positive policy initiatives announced in the Union Budget on 1 February 2017 take hold to support earnings of CV operators.

Income tax rates for lower-income individuals were cut by half in the budget, while the tax rate for micro and small- and medium-sized enterprises with annual turnovers of up to INR500 million was reduced to 25% from 30%. These lower tax rates will increase the disposable incomes of people with CV loans, which will be positive for the performance of auto ABS backed by such loans.

Furthermore, the Indian government has a target to double farmers incomes. As such, the performance of agriculture-linked assets that back ABS, such as loans for tractors or CVs used in agriculture-allied activities -- and present in most of the deals we rate although at low levels -- should improve, contingent on the implementation of schemes designed to achieve the governments target.

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Enough funds for road building, orders worth Rs 5 lakh crore signed: Gadkari
Feb 13,2017

With the National Highway Authority of India having received a mandate from the Budget to raise Rs 70,000 crore through infrastructure bonds and easy availability of low cost overseas loans for the AAA rated NHAI, the governments road and highway building programme has enough cash to build the crucial infrastructure, Road Transport, Highway and Shipping Minister Mr Nitin Gadkari has said.

n++We have signed the contracts worth Rs five lakh crore for infrastructure, roads, ports. It is a very remarkable contribution from our investorsn++we do not have any problem, we are receiving public, private investment, we are receiving good response for the Public-Private Partnership, Build-Operate-Transfer and hybrid annuity (models)n++, Mr Gadkari said.

He said as many as 101 projects are ready for take off and funding the same would not be a problem. n++For NHAI, triple AAA rating is there. We already have permission from the Finance Minister for raising Rs 70,000 crore infrastructure bondsn++My toll income is Rs 10,000 crore per year. So, I can monetize for 15 years (and) I get Rs 2 lakh crore . There are 101 projects which are ready with where I am going to monetize and I will get Rs 1.25 lakh crore.. so money is not the problemn++, the senior Minister said.

Sharing a similar optimism for the port sector, Mr Gadkari said n++n++we are getting 3000 crore in dollar loans with 2.25 pc interest and we can raise Rs 50,000 crore without hedge with two per cent interestn++.

He made these optimistic observations in response to a question by ASSOCHAM. TV as how realistic the plans for the entire transport sector were when the private sector in particular, was facing a severe financial stress. The balance sheet stress is visible across different large contract firms in sectors such as roads, highways, ports ad, airports.

Mr Gadkari said his ministry was working on a number of waterway projects for improving the inland connectivity within big metros like Mumbai and for inter-city connectivity. During his recent visit to Davos in Switzerland for the World Economic Forum annual meeting, the minister said, he received a good response from the global investors for an array of infrastructure projects including water sports and skiing.

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Centre cautions Chief Ministers of vacuum if Real Estate Act timelines not met by April 30
Feb 13,2017

With buyers entitled to seek relief under the Real Estate (Regulation & Development) Act,2016 with effect from the first of May this year, the central government has cautioned the States of a serious situation of vacuum arising if necessary institutional mechanisms, as required under the Act were not put in place before that.

In the context of only four States and six Union Territories so far notifying the final Real Estate Rules and complaints of violation of some of the provisions of the Act by some States, Minister of Housing & Urban Poverty Alleviation Shri M. Venkaiah Naidu last week urged the Chief Ministers to take personal interest in ensuring implementation of the Act in letter and spirit. In a letter dated February 9, 2017, to all the Chief Ministers of States, he stressed that n++Real Estate Act is one of the most important reforms for the sector, which would bring benefits to all stakeholders. It is therefore, my sincere request to please bestow your personal attention to this matter so that the Act is implemented in time and in the spirit with which it was passed by the Parliamentn++.

Shri Naidu also cautioned the Chief Ministers stating n++Appropriate Governments are required to establish the Real Estate Regulatory Authorities and the Appellate Tribunals, maximum by 30th April, 2017. The timelines are important as the Act would commence its full operation from 1st May, 2017and in the absence of Rules and Regulatory Authority and Appellate Tribunal, the implementation of the Act would be affected in your State, leading to a vacuum in the sectorn++.

The Minister in his two page letter to the Chief Ministers said that the Real Estate Act, 2016 was one of the most consumer friendly laws passed by the Parliament and its timely implementation is the responsibility of both the Central and State Governments and this would not only provide the much needed consumer protection, but would also give a fillip to the sector, benefitting all the stakeholders.

Ministry of HUPA had organized a consultative workshop with all the States/UTs on the 17th of last month to review the progress made by them and apprise them of their responsibilities under the Act and the timelines to be met to enable the consumers take benefits of the Act from the first of May this year and the need to ensure that the Rules were not in variance with the spirit of the Act.

Over 60 Sections of the Act were notified by the Ministry of HUPA on May 1st last year, including Section 84 under which States were required to notify Real Estate Rules by October 31st last year thereby setting the ground for implementation of the Act.

So far, Rules have been notified by only four States and for six Union Territories. Ministry of HUPA, mandated with the responsibility of making Rules for UTs without legislatures has done so for Andaman & Nicobar Islands, Chandigarh, Dadra & Nagar Haveli, Daman & Diu and Lakshadweep while the Ministry of Urban Development has done so for Delhi. A few other States have been reported to have notified only Draft Rules seeking views and suggestions from stakeholders.

States that have notified final Rules are: Gujarat, Madhya Pradesh, Kerala and Uttar Pradesh. The Ministry has received some complaints of violations of some of the provisions of the Act by some of these States resulting in dilution of the spirit of the Act. The Ministry has referred the complaints to the Committee on Subordinate Legislation of Rajya Sabha. In this back drop, Shri Venkaiah Naidu urged the Chief Ministers to ensure compliance with the Act, as passed by the Parliament. From May 1st this year, under the provisions of the Act, both buyers and developers of real estate property can approach Real Estate Regulatory Authorities seeking relief against the other for violation of the contractual obligations and other provisions of the Act. For this to happen, Real Estate Rules including the General Rules and the Agreement for Sale Rules, Real Estate Authorities and Appellate Tribunals were required to be in place and in a position to start functioning.

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Industrial production declines 0.4% in December 2016
Feb 10,2017

Indias industrial production declined 0.4% in December 2016 over December 2015, snapping strong 5.7% growth recorded in November 2016. The manufacturing sectors production declined 2.0% in December 2016 contributing to the overall decline in industrial production. However, the mining output increased 5.2%, while the electricity generation also moved up 6.3% in December 2016.

In terms of industries, seventeen out of the twenty two industry groups in the manufacturing sector have shown negative growth during the month of December 2016 as compared to the corresponding month of the previous year.

The industrial production rose 0.3% in April-December 2016, compared with 4.2% growth in the corresponding period last year. The manufactured product sector output declined 0.5%, while the mining and electricity generation improved 0.9% and 5.1% in April-December 2016.

As per the use-based classification, the basic goods output improved 5.4% in December 2016 over a year ago, but the output of intermediate goods declined 1.2%. The consumer goods output dipped 6.9%, while the output of capital goods also fell 3% in December 2016. Within consumer goods, the production of consumer durables plunged 10.3%, while that of consumer non-durables also slipped 5% in December 2016.

The IIP growth in November 2016 has been retained nearly unchanged at 5.7% in the first revision compared with the figure reported provisionally. Meanwhile, the growth in September 2016 has been also maintained unchanged at 0.7% at the final revision from first revision as well as its provisional figure.

The industry group Office, accounting and computing machinery has shown the highest negative growth of (-) 23.9% followed by (-) 22.9% in Other transport equipment and (-) 14.4% in Luggage, handbags, saddlery, harness & footwear; tanning and dressing of leather products.

On the other hand, the industry group Basic metals has shown the highest positive growth of 11.1% followed by 9.8% in Radio, TV and communication equipment & apparatus and 3.0% in Coke, refined petroleum products and nuclear fuel.

Some important items that have registered high negative growth include Woollen Carpets (-) 51.3%), Three-Wheelers (including passenger and goods carrier) (-) 43.3%, Ayurvedic Medicaments (-) 39.6%, Molasses (-) 37.9%, Rice (-) 32.8%, Propylene (-) 28.5%, Scooter and Mopeds (-) 26.3%, Transformers (small) (-) 26.1%, Air Conditioner (Room) (-) 25.7%, Motor Cycles (-) 24.6%, Leather Garments (-) 23.2%, Conductor, Aluminium (-) 21.1% and Pressure cooker (-) 20.4%.

Some important items showing high positive growth during the current month over the same month in previous year include Fruit Pulp 120.1%, Electric sheets 99.9%, Cable, Rubber Insulated 55.5%, HR Coils/ Skelp 50.4%, Vitamins 37.4%, Aviation Turbine Fuel 32.7%, Ship Building and Repairs 31.2%, Sponge iron 28.9%, Plates 22.3% and Tractors complete 21.4%.

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Non-expansionary Budget, Unlikely to Catalyse Investment Demand in FY18
Feb 10,2017

Despite fiscal deficit pegged at 3.2% of GDP, a deviation from the target of 3% set out in the Medium Term Fiscal Policy of FY17, Ind-Ra opines that the Union Budget FY18 is non-expansionary. In fact, the total expenditure to GDP ratio at 12.7% for FY18 is lower than 13.4% for FY17 revised estimate (RE).

As the capital expenditure has remained at about 1.8% of GDP in both FY18 and FY17RE, lowering of total expenditure has been on account of compression in revenue expenditure. Revenue expenditure to GDP ratio, therefore, declined to 10.9% in FY18 as compared to 11.5% in FY17RE. This has also led to improvement in the quality of deficit which is measured as percentage of revenue deficit in fiscal deficit. Although the quality of fiscal deficit is still nowhere close to the levels attained before the global financial crisis, it has been estimated at 58.8% for FY18, down from 81.0% in FY10.

Ind-Ra, however, believes the target for debt sustainability should be primary deficit and not fiscal deficit. From the point of view of debt sustainability two items that are critical are - (i) primary deficit (fiscal deficit net of interest payment) and (ii) rate spread (difference between the nominal growth of the economy and average interest rate on debt stock). Since FY11, rate spreads have reduced and primary deficit has increased leading to escalation in debt to GDP ratio. Reduction in primary deficit with some support from a stable rate spread can help India achieve general government debt to GDP ratio of 60% over the next three years as recommended by the N. K. Singh Committee.

Although the net tax/GDP ratio in FY17 improved to 7.2% from 6.9% in FY16 and is budgeted to increase to 7.3% in FY18, it is still nowhere close to the pre-global financial crisis level of 8.8%.

The budgeted growth in excise duty and service tax collection for FY18 appears to be conservative. Ind-Ra believes this has been done to keep the headroom available to offset the shortfall, if any, arising out of other tax/non tax heads such as disinvestment and still meet the fiscal deficit target.

Despite budgeted 10.7% growth in governments capital expenditure in FY18, Ind-Ra feels investment demand will remain muted as the government capex share in total investment is just about 5%.

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Large Corporates Pull Through from Cash Shortage, Demonetisation Impact Credit Neutral
Feb 10,2017

The impact of demonetisation on the credit profile of large corporates (revenue over INR2.5 billion) is neutral, with no major rating changes envisaged due to its after-effects, says India Ratings and Research (India Ratings). Based on a sensitivity analysis of all corporates in our portfolio India Ratings believes large corporates have sufficient liquidity buffers to meet debt servicing obligations.

The immediate impact of demonetisation on revenues of large corporates in 3QFY17 ranges from nil for the export-oriented sectors namely IT/ITeS, to a significant impact on the auto, real estate, gems and jewellery sectors, with a gradual recovery expected as cash availability improves in 4QFY17. Despite the cash shortage hurting some sectors significantly in 3QFY17, the impact on their credit profile is cushioned by the availability of sufficient liquidity (in the form of cash & equivalents or unutilised working capital limits) to meet the debt servicing obligations. India Ratings believes large corporates also have sufficient rating headroom to absorb the transitory impact on revenue, profitability and working capital.

The impact of demonetisation has been varied, depending on the extent and nature of cash usage within an industry. The revenue of sectors which are predominantly digital due to their focus on exports or business to business sales (for instance, IT/ITeS) is not impacted by the tight liquidity conditions. However sectors which are predominantly digital may also face temporary disruption due to of their employee payments, for instance, construction or supply chain payments historically which were done in cash.

Sectors which rely on consumer spending saw a fall in sales during the cash shortage period, with eventual recovery once normalisation of cash availability is achieved. The extent of impact would depend on the level of discretion involved in spending (impact on hospitals is lower compared to auto or luxury retail) and the proportion of transactions in cash.

A couple of sectors wherein the nature of cash usage is often considered dubious (such as real estate, gems and jewellery) faced a significant fall in sales during the cash shortage period, with a lasting impact on the sector and the sector adapting to a new normal, especially in the unorganised segment. Organised players and large corporates in such sectors will benefit in the long-run.

The sectors which are ancillary to the impacted sectors such as auto components, cement, steel or other metals will also see the ripple effects of demonetisation.

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