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Indian Economy

Are growth figures overestimated?

Akhilesh Bhargava



As a result of an impressive growth of 13.5% recorded by the manufacturing sector, the Indian economy recorded a growth rate of 8.2% during the quarter ended 30th June, 2018 This rate of GDP growth was way above the street/market consensus of about 7.6% for this quarter. This growth rate is a bit of a surprise because it is at variance with other related macro economic parameters. A 13.5% growth in the manufacturing sector should mean that industrial production is humming loudly, unemployment should have dropped sharply, bank credit should be at a peak and a slump in any correlated sector should be an exception. But that is not so. Many industries, including textiles, consumer goods/durables, engineering goods, transport, real estate etc. are still in the dumps and have yet to record a sharp growth rate, which does not match the growth rate of 13.5% in the manufacturing sector.

A doubt thus arises about the veracity of this growth rate of 13.5% claimed to have been recorded in the manufacturing sector. Ravindra Dholakia, former director of IIM Ahmedabad and a member of the RBI, Monetary Policy Committee, which sets the interest rates in India, says that India probably overestimated its manufacturing output while calculating economic growth that crossed 8% during the June 2018 quarter. He says that the new GDP series has replaced the Annual Survey of Industries, with corporate financial data, for estimating the manufacturing sector value add, which has resulted in a higher share in GDP and a much faster growth rate compared to the calculation under the older method. He says that the higher manufacturing growth rate gives rise to serious doubts about the veracity of the new estimates and is at variance with other macro economic correlates. He doubts whether this new series data represents a fuller description of the manufacturing value-add and thinks that it could be an overestimation.

Prof. Dholakia’s comments reflect a confirmation in the direct taxes collections during the period April-July 2018. The CAG figures reveal that during this period, as against a target of 14.4%, the direct tax collections recorded a growth rate of 6.6% only, of which corporate tax grew by a mere 0.57%, the lowest growth in tax collections, recorded in the past seven years. And this is despite the fact that there has been a huge surge in income tax returns filed, recording an increase of over 60% during the period ended 31st August, 2018. The government mavens say that the subdued tax collection figures could be due to the large amounts of taxes refunded during this period, but that does not yet explain the huge mismatch between the claim of 13.5% growth in the manufacturing sector and the expected buoyancy in tax collection. In addition to a flat growth in tax collections, the rise in bank credit to the manufacturing sector too remains tepid, adding to the feeling that Prof. Dholakia’s contentions could be correct. If we keep the statistics aside and do a ground level survey, there is little euphoria or confidence in the manufacturing sector, which also raises a question on the government claim that the manufacturing sector recorded a growth rate of 13.5% in the June 2018 quarter.

Indian Economy

Rupee spurts 48 paise to close at 1-month high




Nepal rupee

Mumbai | Indian rupee appreciated by 48 paise to close at one-month high of 70.70 against the US dollar on Tuesday, registering its sixth straight session of gain on hopes of weak inflation data for December.

In the six trading sessions, the rupee has gained 110 paise.

At the Interbank Foreign Exchange, the rupee opened stronger at 71.21 a dollar. The local unit moved in a range of 71.21 to 70.69 before finally ending at 70.70, showing a gain of 48 paise over its last close.

This is the highest closing level since January 11 when the rupee had closed at 70.49.

On Monday, the rupee had ended higher by 13 paise to close at 71.18 against the dollar on easing crude oil prices.

According to forex traders, optimism ahead of index of industrial production (IIP) numbers for December and retail inflation for January supported the rupee.

At the end of Tuesday’s trading session in the forex exchange, market was awaiting retail inflation and Industrial output numbers.

According to the official data released after market hours, retail inflation eased further to 2.05 per cent in December from 2.11 per cent in November, raising hopes of further rate cut by the RBI to boost growth.

Industrial production growth, on the other hand, remained subdued at 2.4 per cent in December due to weak performance of mining and manufacturing sectors.

Rising crude prices, foreign fund outflows and heavy selling in domestic equities, however, capped the gains for the domestic market, dealers said.

Brent crude, the global oil benchmark, was trading at USD 62.74 per barrel, higher by 2 per cent.

The BSE Sensex dropped over 200 points, ending in the negative terrain for the fourth straight session Tuesday. The broader Nifty finished at 10,831.40, down 57.40 points, or 0.53 per cent.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, fell 0.04 per cent to 97.01.

Foreign portfolio investors (FPIs) sold shares worth Rs 466.78 crore, and domestic institutional investors (DIIs) sold shares to the tune of Rs 122.64 crore Tuesday, provisional data showed.

The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 70.9353 and for rupee/euro at 80.0259. The reference rate for rupee/British pound was fixed at 91.2620 and for rupee/100 Japanese yen at 64.15.

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Indian Economy

Income Tax sleuths bust hawala operation worth ₹ 20,000 crore

News Desk



Income Tax

Incidentally or co-incidentally, as the general elections come closer, the Income Tax department seems to be swinging more into action. Perhaps in his attempt to prove that he is truly a crusader against black money, the IT Dept. under the Modi administration has regularly been conducting raids and unearthing black money more than ever. In its latest series of raids and surveys over the last few weeks in Delhi, the sleuths of the Delhi investigation unit of the IT Dept. have unearthed illegal financial activities of 3 groups of operators and busted a nexus of hawala operators and massive money laundering racket with a total value of a staggering 20,000 crore ₹.

The 1st  such case relates to fake billing racket where the illegal operators had floated a dozen or so bogus entities to generate such fake bills and book bogus expenses to avoid tax. The operators were busted after a survey was conducted in the Naya Bazar area of the National Capital and the racket was estimated to be around 18,000 crore ₹

In the second case, a highly organised “money laundering” racket was busted where transactions in well known shares were fraudulently carried out and beneficiaries were found to be claiming bogus “long term capital gains”. The taxman suspects this scam to have netted over a 1,000 crores. However, they believe that it has been going on for years and this figure of 1,000 crores is just the tip of the iceberg.

The final racket was discovered when the IT Dept. conducted searches against a group and found undisclosed foreign bank accounts and a well established network of claiming bogus duty draw back relating to customs and GST taxes through over-invoicing of exports and estimates of this scam was upwards of 1,500 crore ₹.

The identities of the accused are not disclosed till now until a further investigation is carried out.


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Indian Economy

RBI raises collateral-free farm loan limit to Rs 1.6 lakh





Mumbai | The Reserve Bank of India (RBI) on Thursday raised the limit of collateral-free agricultural loans to Rs 1.6 lakh from the current Rs 1 lakh with a view to help small and marginal farmers.

The central bank also decided to set up an internal working group (IWG) to review agricultural credit and arrive at a workable policy solution. The Union Budget had also announced measures to farming sector in addition annual payment of Rs 6,000 to small and marginal farmers.

Currently, the banks are mandated to extend collateral-free agricultural loans up to Rs 1 lakh. This limit was fixed in the year 2010. “Keeping in view the overall inflation and rise in agriculture input costs since then, it has been decided to raise the limit for collateral free agriculture loans from Rs 1 lakh to Rs 1.6 lakh.

“This will enhance coverage of small and marginal farmers in the formal credit system,” said the central bank’s ‘Statement on Developmental and Regulatory Policies’. A circular in this regard will be issued shortly, it added. It further said agricultural credit growth has been significant over the years.

In spite of this, there remain issues related to agricultural credit such as regional disparity and the extent of coverage, among others. “There is also the issue of deepening long-term agricultural credit for capital formation,” the RBI said while announcing setting up of the IWG.

The IWG will examine issues related to agricultural credit and arrive at workable solutions and policy initiatives.

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