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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

Practice First, Then Preach

Akhilesh Bhargava



A recent issue of the Financial Express carried a few interesting news items. In an address to the Bohra Muslim community, the PM preached or rather warned that business should be done within the rules and laws. Good advice, but looks to be one-sided for sure. Another news item on the same page said that even if someone who has inadvertently claimed a wrong GST credit, has on his own noted the error and has rectified it, he will yet be liable to pay penalty for putting up a wrong claim. An innocent unintentional error rectified by a person on his own should be pardoned and be not visited with a penalty, but it yet is. Yet another news item was about the fact that the government does not make timely payments towards power purchased from power producers under agreements signed, due to which they face severe financial problems and perhaps bankruptcy too. The government merrily defaults, only to put these power producers in a severe crisis, with no practical recourse but go with a begging bowl. And yet another news item is that government tenders worth over Rs.15000 crore were canceled due to highly discriminatory conditions against domestic companies. So while the government talks about make in India on one hand, on the other, its very purchase tenders discriminate against the domestic enterprises. It smacks of hypocrisy at the government level, which is the one that should actually be the role model and paragon of sincerity and fairness.

The fact is that dealing with the government is a totally one-sided process, where the government has only rights and no responsibilities, which it enforces with brute power. You are required to file your tax return on time, but there is no timeline whatsoever for the receipt of refunds due to you. A small innocent error in your returns results in heavy fines and penalties, but no compensation is received if the government commits errors, often deliberate. A single window timely clearance from the government is an utter myth and even if the law guarantees timely approvals, it is never so. High pitched demands from the government that can prove fatal to enterprises are a routine matter and the system is devoid of any sensitivity to even give you on time, what is legally due to you. And if you want to beat red-tapism, the only way out of it is corruption. This list of woes of the common man is endless, but it cannot stand against the might of the government. It builds resentment and impacts growth, but the government which holds all the cards does nothing in this regard.

So the Hon. PM is no doubt correct in demanding/warning that business should be done within the rules/laws, but the reality is that the law is not followed in spirit at the other side of the table where he stands at present, with no recourse whatsoever to the common man.

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Indian Economy

RCom to exit telecom fully to focus on realty: Ambani





RCom owes over Rs 40,000 crore to a group of 38 lenders, including Chinese banks, and was resolving the debt through a strategic debt restructuring (SDR) process.


Mumbai, Sep 18 (PTI) Billionaire Anil Ambani Tuesday announced that the cash-strapped Reliance Communications will be completely exiting the telecom business to concentrate on real estate in future.

The first priority for RCom, which is credited for democratizing telecom services through cheaper offers in the early 2000s, is to resolve its over Rs 40,000 crore debt, he told shareholders at the company’s 14th annual general meeting here.

“We have decided that we will not proceed in this sector. And many other companies have taken a similar call. This is very much a writing on the wall, the future.”

“As we have moved out of the mobile sector, we will monetize at an appropriate stage our enterprise business. Reliance Realty will be the engine of growth for the future of this company,” Ambani said.

Pointing out to the 133-acre Dhirubhai Ambani Knowledge City (DAKC) on the outskirts of the financial capital, he said there is huge realty play opportunity that RCom’s erstwhile corporate headquarters possesses, and pegged the potential value creation at the site at Rs 25,000 crore.

RCom owes over Rs 40,000 crore to a group of 38 lenders, including Chinese banks, and was resolving the debt through a strategic debt restructuring (SDR) process.

Ambani said he is confident of getting a resolution in the next few months, and added that other monetization measures, including the sale of telecom infrastructure and fiber to Reliance Jio, are at an advanced stage of closure.

He said the company is awaiting final approvals for spectrum sharing and trading from the Department of Telecom.

Anil Ambani also thanked his elder brother Mukesh Ambani, who is credited with conceptualizing the undivided group’s telecom foray and also bought the assets as part of the beleaguered RCom’s monetization efforts.

“It would be most appropriate for me to thank and acknowledge the support (and) guidance extended to RCom and me personally by my brother Mukesh bhai Ambani,” the younger sibling told shareholders.

It can be noted that Mukesh Ambani re-entered the telecom sector by buying out a company which had successfully bid for 4G spectrum, along with which he also announced the end of a no-compete pact.

His company Reliance Jio’s aggressive play is widely blamed for wrecking the telecom sector, which has seen an erosion of profits, asset sales, bankruptcies and consolidation following the entry of the deep-pocketed new entrant.

Anil Ambani Tuesday said there has been a “creative destruction” of the telecom sector that has resulted in the creation of oligopoly which is going towards a duopoly and maybe even a monopoly in the future.

Banks are saddled with over Rs 7.7 lakh crore in debt and the financial troubles of operators have resulted in over 20 lakh job losses, he said.

He said the residual company will serve 35,000 businesses through the enterprise, data centers, undersea cables and international voice calling verticals and will get half of its revenues from abroad.

RCom is “committed” to exit these verticals as well to pay-off banks and will take a call on the same at an appropriate time, Ambani said.

Reliance Realty is a wholly-owned subsidiary of RCom, which will develop the DAKC in Navi Mumbai, he said, adding that it is an already registered IT and fintech park.

The company already has three million sq ft of built-up space, which will be leased out to multi-nationals, Ambani said, adding that he expects revenue accruals through it this year itself.

Some of the shareholders appreciated efforts taken by the company while wading through choppy waters, but there were a few critical ones as well.

When one such shareholder persisted, a company official patted him on the back, probably pointing to the time constraints.

When he complained, Anil Ambani said from the stage this is a pat and not a stab, and asked him to continue with the question.

The mention of the Rafale controversy prompted Anil Ambani to stop him from speaking further.

“Shailesh bhai, who is a very educated person and comes with non-facts, half-baked facts, untruth, lies, is in my father’s words, a true well-wisher of all of you. I do respect, in a democratic world, his comments. But none of them have any relevance to what is in front of us today as a company and for all of you shareholders,” Ambani said.

The RCom scrip was trading 6.10 percent down at Rs 16.15 apiece on the BSE at 1242 hrs as against a marginal correction in the benchmark.

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Indian Economy

CAD Band-Aid

Ali Azar




A depreciating rupee, widening current account deficit (CAD), rising oil and fuel prices, hardening bond yields, no visible solution for global trade war concerns, US Fed increasing rates, FII’s pulling out money from emerging markets and the list of the headwinds goes on. You may have to rewind the clock at least to a decade ago, just after the global financial crisis of 2008 to when the macroeconomic conditions were as bad. The government and RBI have to tread a thin line in these times of concern. Intervention may be the outcry of the public at large, but such intervention at the cost of an increased fiscal deficit could be damaging in the larger scheme of things, especially since the fiscal deficit has already touched 86.5% of the budgeted estimate in the first four months of the current financial year itself.

A crisis of this magnitude requires an equally innovative solution. With this in mind, the country’s two top politicians i.e. PM Narendra Modi and FM Arun Jaitley met with the country’s top banking official, RBI governor Urjit Patel and several other important policymakers such as Economic Affairs Secretary, Subhash Chandra Garg to chart out a plan of action to encourage more dollar inflows and to curb the ever-widening CAD. A five-step plan was drafted and announced by the Finance Minister on Friday night after market close. We take a look at the fine print of this five-point plan.


  • Manufacturing sector entities can now avail external commercial borrowings of up to 50 million $ with a minimum maturity of one year. Until now it was three years. Companies will now be able to raise dollar-denominated loans at a cheaper cost and roll it over quicker.


  • Earlier the limit for foreign portfolio investors (FPI’s) to invest in debt securities/bonds of a single corporate group was 20% and that of a single issuance of corporate paper was 50%. These restrictions have been lifted. These limits were looked upon as restrictive and now funds can invest in debt securities with renewed interest and in accordance with their risk profile.


  • Mandatory hedging conditions in case of external commercial borrowings for infrastructure loans will be reviewed. Presently hedging costs are approximately 4 – 4.5% of cost of borrowing. A revision of this condition will enable companies to raise dollar-denominated loans more comfortably.


  • Withholding Tax requirement of 5% for Masala Bonds (rupee-denominated overseas bonds) are done away with for the current year ending 31st Mar 2019. Investors in overseas markets can now invest without worrying about the tax cut and the cost of issuing such bonds also reduces.


  • There will be a removal of restrictions for market making in Masala Bonds including underwriting of such bonds by Indian banks. Indian companies can now go to local branches of Indian banks to manage masala bond issuances, also investor base for such bonds would widen.

Other than these five specific measures, the government has also decided to cut non-essential imports in consultation with other ministries and shore up exports to give the CAD a shot in the arm. These measures, according to the Economic Affairs Secretary Mr. Garg, were expected to increase inflows by $ 8 – 10 billion and let the public at large know that the government does not intend to leave them at sea and is serious about implementing measures to stabilize the rupee. Stock markets being the economic barometer of the country were expected to show buoyancy on the back of this crucial announcement. To the government’s dismay though, it didn’t go as per plan as the BSE fell 505 points and NSE fell 137 points which translates into a fall of greater than 1.2% on both indices after Monday’s trade. To add to the government’s woes the rupee did not see any significant change and is still hovering the 72.50 mark per dollar.

With so many macro concerns thrown into the foray at once, perhaps market participants only viewed these measures as the government signalling its intentions to curb speculation driving the rupee down and did not consider it to be big enough to calm their aspersions about the state of the economy as a whole.

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