New Delhi, ‘India’s economy faces a new challenge in deflation’, chief economic adviser Arvind Subramanian said on Wednesday, after GDP data earlier this week showed lower first quarter growth.
“One real challenge that looms ahead appears not to be the price inflation but the possible price deflation,” Subramanian told reporters here.
“Overall, economic growth is moving in the right direction, although its pace is still below what the economy needs,” he added.
India’s annual inflation rate based on wholesale prices continued in the negative territory in June, falling to (-)2.4 percent from (-)2.36 percent in May, provoking India Inc. to call in unison for a Reserve Bank rate cut.
The annual rate of inflation, as per the official wholesale price index, stood at 5.66 percent in the corresponding month of the previous year, according to data released by the commerce and industry ministry.
Regarding the below-than-expected first quarter growth figures released earlier this week, Subramanian said the GDP numbers suggest that the “economy is recovering” and is consistent with the other more high-frequency indicators such as revenue collection and real credit growth.
The Indian economy grew 7 percent in the first quarter of this fiscal, showing signs of slowing vis-a-vis the 7.5 percent expansion in the quarter before. But the growth was much higher than 6.7 percent registered in the first quarter of the last fiscal.
India’s indirect tax revenue in the first four months of the current fiscal (April-July) rose more than 37 percent to over Rs.201,000 crore, an official announcement said last month.
The indirect tax collections were at Rs.153,000 crore during the same period of the last fiscal.
Month on month, the July indirect tax collections grew by 39.1 percent over that recorded in the same period a year ago.
“Indirect tax revenue collections have increased from Rs.40,802 crore in July 2014 to Rs.56,739 crore during July 2015,” a finance ministry statement said.
“Thus an increase of 39.1 percent has been registered during July 2015 over the corresponding period in the previous year,” it added.
New Delhi, November 8, 2017 : On November 8 2016, every Indian citizen sat glued to their TV screens as Narendra Modi was set to make a big announcement. Outcome? The Indian Prime Minster shocked the entire nation with the introduction of Demonetisation, a move that was to change the very foundation of the cash-dependent Indian economy.
The much-debated move by Modi garnered the attention of several well-versed economists from the country and abroad, alike. While some people willingly welcomed the move, there were others who stood in staunch criticism.
As the move completes its first year, the Bharatiya Janata Party (BJP) is set to observe November 8 as ‘anti-black money day’ to celebrate Demonetisation anniversary in the country.
On the eve of the Demonetisation anniversary, the BJP released a cheeky video claiming to depict how ‘corrupt’ politicians have been criticizing the move, as the nation won following demonetisation.
In the video, the BJP attempted to take a dig at corrupt politicians, who have been criticizing PM Modi’s Demonetisation move.
In the video, a woman, playing the character of a frustrated, corrupt politician can be seen going on a rant over PM Modi’s note ban initiative, which was aimed to combat black money, corruption, fake currency and terrorism.
The video ends with a voice-over saying demonetisation has not only brought out this frustration of corrupt citizens, but also black-money, claiming that almost 99 per cent cash which was previously lying hidden with people has now entered the banking system.
The one-minute video, which is now going viral on social media, has already been re-tweeted more than 2 thousand times since it was released on November 7, on the eve of demonetization move.
Ahead of the Demonetisation anniversary, the last few days have witnessed several leaders present their opinions on PM Modi’s demonetization move.
Finance Minister Arun Jaitley called PM Modi’s note ban initiative a ‘watershed moment’ while Piyush Goyal, Minister of Railways believes the move has pushed India towards a more transparent economy.
However, the move is being criticized by ex-Prime Minister Manmohan Singh calling it ‘irresponsible’. The opposition maintains that PM Modi’s note ban initiative has caused reckless damage to the country and the Indian economy.
On Demonetisation anniversary, the BJP is set to observe November 8 as ‘anti-black money day’, while opposition leaders are set to observe the day as ‘black day’ in protest against the note ban initiative.
Finance Minister Jaitley tabled the second volume of Economic Survey 2016-17 in both Houses of Parliament
Second volume to be presented by Chief Economic Adviser Arvind Subramanian and his team
New Delhi, August 12, 2017: The last day of the Monsoon session of the Parliament saw the Indian Finance Minister Arun Jaitley table the second part of Economic Survey 2016-2017.
The survey revealed that a sharp, however balanced decline has been observed in the use of cash after Prime Minister Narendra Modi heralded the demonetization move in November last year. This trend has been observed both, in levels, and as a share of GDP and money.
Before assessing whether the move was a success or a failure, we must first identify what were the objectives behind stalling Rs. 500 and Rs. 1,000 notes,
Immediate objective – flush out large amounts of black money that were hoarded in cash at the moment
Long term objective – transform the cash-based Indian economy into a digital economy
It was assumed that these objectives would make India an efficient economy with higher tax revenues.
Before the introduction of demonetization, India heavily relied on cash, which in turn led to an unhealthy cash-to-GDP ratio (12 percent) – a trend that was only worsening with time.
The finance minister presented the second volume of Economic Survey 2016-17 in both the houses of the Parliament with demonetization being discussed for a significant part. The following has been revealed in an attempt to gauge the outcome of the move,
At present, total cash in holding is Rs. 3.5 lakh crore. This figure is 20 percent less than what it would have been had the economy not been demonetized.
Cash as a share of GDP has also witnessed a decline by 1.6 percentage points. Previously it was 11.3 percent of GDP and now stands at 9.7 GDP.
Cash as a share of M1 which economically represents liquid portions of money supply, has also declined by five percentage points.
To ease understanding of everybody from a non-economic background, these trends indicate a significant reduction in Indian economy’s reliance on cash since November 2016.
Another bonus point is the huge amount of cash that was previously lying dormant with people and has now entered the banking system.
When talking about the long term objective of the move- digitalization, a significant movement can be observed across all sectors :
The affluent segment of the society has increasingly shifted to mobile banking, online transactions, and app-based banking solutions
The middle segment are using their debit and credit cards
People from the less affluent segment are slowly joining the digital economy with their Jan Dhan accounts and RuPay cards
Pensioners who were previously only undertaking transactions in cash are now being encouraged to use card-based techniques.
Farmers, who comprise a significant part of the Indian economy, are also being encouraged to issue and use Kisan credit cards.
The Indian banking sector is not only promoting the issuance of debit and credit cards but also their use.
The question that comes to mind here is, was demonetization successful?
It would be wrong to say that the economy has completely transformed into a digital economy as many people have shifted back to cash. However, digital transactions are higher than pre-demonetization levels, and the overall movement is in the positive direction.
The Indian economy can thus, be rightly considered on the path to a holistic digital economy as the Economic Survey 2016-2017 notes “surge has moderated but the level and pace of digitalization are still substantially greater than before demonetization.”
However, while there is proof that the reliance on cash has declined sharply, it has also been pointed out in the survey that a “definitive judgments can only be passed if current levels of cash relative to GDP persist over time but so far”.
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Sept 17, 2016: T.R. Vijaya Kumar, the great Indian clothes maker thinks it’s time for his country to take on Bangladesh, Vietnam, and even China for leadership in the global apparel industry.
He’s a second-generation manufacturer, who transformed his small family clothing business in southern India into an apparel exporter of 1,700 employees and his goal is to double its sales by 2020. When it comes to his hometown of Tiruppur, which is mostly referred to as the knitwear capital of India, his ambitions are bigger and broader, tripling exports and adding 500,000 jobs in the process, reported Bloomberg.
But the problem that is occurring is that other Asian countries are more ahead than India. India’s $17 billion exports of apparel were half as much as Bangladesh’s last year and its 3.7 percent global market share were behind Vietnam’s 5.1 percent. Apparel is a labor-intensive industry, which has helped developing economies transition out of agriculture. The Indian economy needs to generate more than eighty million new jobs by 2025 to keep up with its fast-growing population.
PM Narendra Modi’s biggest failure so far has been an inability to boost employment, according to a recent poll. His new government recently announced a nearly $1 billion package for textile and garment makers, including subsidies for hiring, tax refunds and relaxation of overtime rules with a goal to create 10 million jobs and boost exports by $30 billion in the next three years. Adding to the challenge is that the textile industry suffered a reputation blow last month, August 2016, when Target Corp. terminated $90 million of business with Welspun India Ltd. for labelling cheaper bedsheets as premium Egyptian cotton.
A key weakness of the sector is worker productivity, which is almost three times lower than in China. About 78 percent of Indian companies employ less than 50 workers, compared with 15 percent in China, according to Subramanium. That also means a lot of them remain below the threshold of government taxes and regulation, known by economists as the “informal” economy. A report released this year by the World Bank showed that Bangladesh had 15 times more garment workers formally employed than in the informal sector, while India has about seven times more informal garment workers than formal.
That gap could widen as foreign garment and textile producers continue to embrace automation. “India needs to start climbing the ladder fast to take advantage of its young population,” said Russell Green, an international economics fellow at Rice University’s Baker Institute for Public Policy in Texas. “Automation is making the ladder shorter and shorter over time.”
There’s more holding India back. A focus on cotton garments limitThat gap could widen as foreign garment and textile producers continue to embrace automation. “India needs to start climbing the ladder fast to take advantage of its young population,” said Russell Green, an international economics fellow at Rice University’s Baker Institute for Public Policy in Texas. “Automation is making the ladder shorter and shorter over time.”s its access to the winter clothes market, while buyers perceive the country as slower and less reliable than China or Vietnam, according to the World Bank report. In neighbouring Bangladesh, where garments account for 80 percent of overseas shipments, the monthly minimum wage is about 30 percent lower than India’s $105, and exporters don’t pay duties to the European Union.
Among them is Venkatachalam Babu, a small business owner who pays workers by the piece. In a workshop attached to his home, his staff of 12, including two family members, cut and stitch children’s underwear and pants from leftover fabric he buys from exporters.
While foreign markets are out of reach, Babu can bank on a fast-expanding domestic market that smaller rivals don’t have. Once an employee himself, he started his company 20 years ago with four workers. He’ll register it, he said, when the headcount crosses 20 people.
“We want to grow big,” he said as his mother sat cross-legged on the floor sorting pieces, surrounded by bags of fabric. “A problem is labor shortage.”
Tiruppur exporters have also joined forces to lower costs by educating companies on “lean” production management techniques and training factory staff to raise output. The government is partly funding the programs.
Kumar said the push was inspired by Modi, who during a 2013 campaign stop told the manufacturers to make proposals to expand, rather than just list concerns. Now the group hopes to take its action plan to the capital, 1,500 miles north, and have Modi mobilize all ministers at once.