EUpDates March 2016 A A M M o o n n t t h h l l y y S S t t a a t t i i s s t t i i c c a a l l B B u u l l l l e e t t i i n n 2016 S S S u u u r r r g g g e e e R R R e e e s s s e e e a a a r r r c c c h h h S S S u u u p p p p p p o o o r r r t t t w w w w w w w w w . . . e e e c c c o o o f f f i i i n n n - - - s s s u u u r r r g g g e e e . . . c c c o o o . . . i i i n n n
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USD per Metric Ton Coal, Australian Thermal 66.90 66.54 65.79 55.85 53.37 54.54
USD per Metric Ton Aluminum 1909.46 1814.72 1817.82 1497.20 1481.10 1531.26
USD per Metric Ton Copper 6446.45 5830.54 5729.28 4638.83 4471.79 4598.62
USD per Metric Ton Zinc 2175.76 2113.05 2097.76 1527.79 1520.36 1709.85
US Cents per Metric Ton Iron Ore 68.80 67.39 62.69 39.60 41.25 46.18
US cents per Pound Rubber 72.72 75.03 82.03 56.59 55.33 57.04
US cents per Pound Cotton 68.30 67.35 69.84 70.39 68.75 66.57
USD per Metric Ton Palm oil 624.54 641.60 634.38 520.60 531.62 595.90
USD per Metric Ton Sunflower Oil 1049.03 1004.20 960.52 1022.14 1020.14 1039.58
USD per Metric Ton Soybean Oil 705.56 707.88 697.94 677.20 659.90 686.90
USD per Metric Ton Soybeans 378.78 367.49 364.74 323.32 323.20 320.13
US cents per Pound Sugar, European 26.02 25.17 25.49 24.93 23.95 23.77
US cents per Pound Sugar, Free Market 14.99 15.06 14.51 15.00 14.29 13.29
US cents per Pound Sugar, U.S. 24.81 25.24 24.62 25.83 25.83 25.50
US cents per Kg. Tea 243.31 269.62 296.35 343.49 319.83 287.26
US cents per Pound Coffee, Arabicas 200.59 190.90 179.94 149.52 146.32 148.94
USD per Metric Ton Rice, Bangkok 410.74 409.68 409.50 354.35 359.48 373.33
USD per Metric Ton Wheat, US 232.97 210.61 201.71 163.79 164.56 159.25
*Base 2005=100
Primary Commodity Indices*/ Prices
Global Commodity Prices
0 50 100 150 200 250
2014
2015
2016
2017
Observed & Projected Price Movements, IMF WEO DatabaseFuel and Non-Fuel Price Indices
Food Price Index includes Cereal, Vegetable
Oils, Meat, Seafood, Sugar, Bananas, and Oranges Industrial Inputs Price Index includes
Agricultural Raw Materials and Metals
Agricultural Raw Materials Index includes
Timber, Cotton, Wool, Rubber, and Hides PriceCrude Oil Index(Petroleum), Brent, West
Texas Intermediate, and the Dubai Fateh
Metals Price Index, Copper, Aluminum, Iron
Ore, Tin, Nickel, Zinc, Lead, and Uranium Price Indices
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Following are some highlights of the Union Budget 2016-17
� Nine pillars of the Budget — Agriculture and farmers' welfare, rural sector, social sector including healthcare, education, skills
and job creation, infrastructure, financial sector reforms, ease of doing business, fiscal discipline, tax reforms to reduce compliance
burden.
� To give statutory status to Aadhaar programme
� Create closer engagement between states and districts
� Continue with the ongoing reform programme and ensure passage of the Goods and Service Tax bill and Insolvency and
Bankruptcy law
FISCAL DEFICIT
• Fiscal deficit in RE 2015-16 and BE 2016-17 retained at 3.9% and 3.5%.
• Revenue Deficit target from 2.8% to 2.5% in RE 2015-16
• Total expenditure projected at Rs. 19.78 lakh crore
• Plan expenditure pegged at Rs. 5.50 lakh crore under Plan, increase of 15.3%
• Non-Plan expenditure kept at Rs. 14.28 lakh crores.
• Rs. 1,060 crore revenue loss through direct tax proposals, and Rs. 20,670 crore revenue gain through indirect tax proposals.
• Total resources going to States including the devolution of State’s share in taxes, Plan and Non Plan grants/loans, and
releases under centrally sponsored scheme in BE (2016-17) is Rs. 9,11,330 crore, with a jump of Rs. 99,846 crore over RE
(2015-16) and Rs. 2,43,093 crore more than the Actual (2014-15).
• Mobilisation of additional finances to the extent of Rs. 31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland
Water Authority by raising Bonds.
• Plan / Non-Plan classification to be done away with from 2017-18. Every new scheme sanctioned will have a sunset date
and outcome review.
• Rationalised and restructured more than 1500 Central Plan Schemes into about 300 Central Sector and 30 Centrally
Sponsored Schemes.
• Committee to review the implementation of the FRBM Act.
TAXES
• Companies with revenue less than Rs 5 crore to be taxed at 29% plus surcharge
• Tax holiday for startups setup between April, 2016 to March, 2019, for three of five years of setting up the company. MAT will be
applicable for startups that qualify for 100 per cent tax exemption.
• Increase the turnover limit under Presumptive taxation scheme under section 44AD of the Income Tax Act to Rs. 2 crores to bring
relief to a large number of assessees in the MSME category.
• Corporate IT rate for companies not exceeding Rs. 5 crore turnover lowered of to 25% plus surcharge.
• Limited tax compliance window from Jun 1 - Sep 30 for declaring undisclosed income by paying tax at 30%, and surcharge at
7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarations will have immunity from prosecution..
• Excise duty raised from 10 to 15 per cent on tobacco products other than beedis.
• Excise 1 per cent imposed on articles of jewellery, excluding silver.
• 1 per cent service charge on purchase of luxury cars over Rs. 10 lakh and in-cash purchase of goods and services over Rs. 2 lakh.
• SUVs, Luxury cars to be more expensive. 4% high capacity tax for SUVs.
• Infrastructure and agriculture cess to be levied. 0.5 per cent Krishi Kalyan Cess to be levied on all services.
• Pollution cess of 1 per cent on small petrol, LPG and CNG cars; 2.5 per cent on diesel cars of certain specifications; 4 per cent on
higher-end models.
• Dividend in excess of Rs. 10 lakh per annum to be taxed at additional 10 per cent.
• 13 different cesses levied by various ministries with collections less than Rs.50 crore a year to be done away with.
• Long term capital gains for unlisted companies to be reduced from 3 to 2 years.
• Dividend distribution tax on Real Estate Investment Trusts (REITs) removed to help developers to raise funds.
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PERSONAL FINANCE
• No changes have been made to existing income tax slabs.
• Relief for tax payers who earn below Rs 5 lakh; ceiling of rebate u/s 87A raised to Rs 5,000 from Rs 2,000.
• 15 per cent surcharge on income above Rs. 1 crore.
• 40% of withdrawal at the time of retirement under National Pension Scheme to be tax exempt.
• Deduction for rent paid will be raised from Rs 20,000 to Rs 60,000 to benefit those living in rented houses.
• Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh.
• 100% deduction for profits in housing project for flats up to 30 sq metres in four metros; 60 sq mts in other cities, approved during
June 2016 to March 2019 and completed in 3 years. MAT to apply.
INVESTMENTS AND INFRASTRUCTURE
• Total outlay for infrastructure in Budget 2016 stands at Rs. 2,21,246 crore.
• 65 eligible habitats to be connected via 2.23 lakh kms of road. Current construction pace is 100 kms/day. Pace of completion of
road projects to rise to 10,000 km in 2016-17.
• Rs. 55,000 crore for roads and highways. Total allocation for road construction, including PMGSY, - Rs 97,000 crore.
• New greenfield ports to be developed on east and west coasts.
• Centre to partner with States to revive small airports for regional connectivity.
• Further relaxation of FDI rules in insurance, pension, stock exchanges, asset reconstruction companies
• 100 per cent FDI in marketing of food products produced and marketed in India.
• Rs. 3,000 crore per annum for the power sector, where the government is drawing up a plan for 15-20 years to augment investment
in nuclear power.
• 100% rural electrification by May 1, 2018
AGRICULTURE
• Total allocation for agriculture and farmer welfare at Rs. 35984 crores
• 28.5 lakh heactares of land will be brought under irrigation.
• Dedicated irrigation fund in NABARD of Rs. 20.000 crore
• Rs. 5 lakh acres to be brought under organic farming over a three year period
• Rs. 60,000 crore for recharging of ground water recharging as there is urgent need to focus on drought hit areas cluster
development for water conservation.
• Nominal premium and highest ever compensation in case of crop loss under the PM Fasal Bima Yojna. Govt to allocate Rs. 5,500
crore for crop insurance scheme.
• Direct Benefit Transfer for fertiliser subsidy.
• 2,000 model retail outlets of Fertilizer companies will be provided with soil and seed testing facilities during the next three years
• Soil Health Card scheme will cover all 14 crore farm holdings by March 2017.
• Unified Agricultural Marketing ePlatform to provide a common e- market platform for wholesale markets.
To reduce the burden of loan repayment on farmers, a provision of ` 15,000 crore has been made in the BE 2016-17 towards
interest subvention.
SOCIAL Sector, SKILL Development and JOB Creation
• Allocation for social sector including education and health care – Rs. 1,51,581 crore.
• Rs. 2,000 crore allocated for initial cost of providing LPG connections to BPL families.
• Rs. 2.87 lakh crore for gram panchayats as per recommendation of 14th finance commission.
• New health protection scheme will provide health cover up to Rs. 1 lakh per family.
• For senior citizens an additional top-up package up to Rs. 30,000 will be provided.
• Rs. 9,000 crore for Swachch Bharat Abhiyan.
• Rs. 38,500 crore for MNREGA.
• Rs. 1,700 crore for 1500 multi-skill development centres.
• Rs 1,000 crore allocated for new EPF (Employees' Provident Fund) scheme.
• Govt. will pay EPF contribution of 8.33% for all new employees for first three years.
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• Amendments in Companies Act to improve enabling environment for start-ups.
FINANCIAL SECTOR
• Rs. 25,000 crore allocated towards recapitalisation of public sector banks.
• Target of disbursement under MUDRA increased to Rs.1,80,000 crore.
• Banking Board Bureau will be operationalised.
• Process of transfer of government stake in IDBI Bank below 50% started.
• PSU General Insurance companies will be listed in the stock exchange.
• Govt to increase ATMs, micro-ATMs in post offices in next three years.
• NBFCs to get deduction of 5% of its income in respect of provision for bad and doubtful debts.
• Comprehensive Code for providing specialised resolution mechanism for bankruptcy of banks/insurance firms.
• To amend SEBI Act for more benches for SAT.
• GAAR to be implemented from April 1, 2017.
• New credit rating system for infrastructure projects.
• New derivative products for the commodity market to be developed by SEBI.
• RBI Act 1934 to be amended to provide statutory basis for monetary policy framework and a Monetary Policy Committee through
the Finance Bill 2016.
• Financial data management centre to be set up.
• RBI to facilitate retail participation in Government securities.
• Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non
institutional investors to invest in securitization receipts.
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Following are the some highlights of the RBI’s Sixth Bi-Monthly Monetary Policy Statement, 2015-16:
Policy Decisions
On the basis of an assessment of the current and evolving macroeconomic situation, RBI decided to:
• reduce the policy repo rate under the LAF from 6.75 per cent to 6.5 per cent;
• reduce the minimum daily maintenance of the cash reserve ratio (CRR) from 95 per cent of the requirement to 90 per cent
with effect from the fortnight beginning April 16, 2016, while keeping the CRR unchanged at 4.0 per cent of net demand and
time liabilities (NDTL);
• continue to provide liquidity as required but progressively lower the average ex ante liquidity deficit in the system from one
per cent of NDTL to a position closer to neutrality; and
• narrow the policy rate corridor from +/-100 basis points (bps) to +/- 50 bps by reducing the MSF rate by 75 basis points and
increasing the reverse repo rate by 25 basis points, with a view to ensuring finer alignment of the weighted average call rate
(WACR) with the repo rate; (consequently, the reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the MSF
rate and the Bank Rate to 7.0 per cent)
• Effective April 2, 2016 the SLR was reduced by 25 basis points from 21.5 per cent to 21.25 per cent of NDTL. Also, from
February 2016, banks were allowed to reckon additional government securities held by them up to 3 per cent of their NDTL
within the mandatory SLR requirement as level 1 high quality liquid assets (HQLA) for the purpose of computing their
liquidity coverage ratio (LCR), thereby taking the total carve-out from SLR available to banks equivalent to 10 per cent of
their NDTL. These measures will create space for banks to increase their lending to productive sectors on competitive terms
so as to support investment and growth.
Global Economy
Perceptions of downside risks to recovery in some advanced economies (AEs) at the beginning of 2016 have eased, while major
emerging market economies (EMEs) continue to contend with weak growth and still elevated inflation amidst tighter financial
conditions. World trade remains subdued due to falling import demand from EMEs and stress in mining and extractive industries. In
China, sluggish industrial production, contracting exports, capital outflows and substantial excess capacity in factories and the property
market remain formidable headwinds, notwithstanding significant monetary and fiscal policy stimulus. EME commodity exporters have
benefited recently from the firming up of commodity prices and risk-on investor sentiment has appreciated their currencies. Across
EMEs, however, weak domestic fundamentals, lacklustre external demand and country-specific constraints continue to restrain growth.
Global financial markets have recouped the losses suffered in the turbulence at the beginning of the year. From mid-February, a
firming up of crude prices buoyed market sentiment, allaying fears of global recessionary risks. With China reducing reserve
requirements, the ECB expanding accommodation and the Fed providing dovish guidance while staying on hold, equity markets rallied.
In bond markets across AEs and EMEs, yields gradually eased, with country-specific variations. The US dollar has retreated from
January peak and has eased further in the aftermath of the FOMC’s March meeting. On the other hand, the euro and the yen have
appreciated, reacting perversely to exceptional accommodation. Currencies across EMEs have also appreciated as portfolio flows
returned cautiously to local debt and equity markets.
Indian Economy
Gross value added (GVA) in agriculture and allied activities moderated in H2 of 2015-16, pulled down by the contraction in Q3
due to the year-on-year decline in kharif production. Advance estimates of the Ministry of Agriculture indicate that despite acutely low
reservoir levels and a deficient north-east monsoon, rabi foodgrains production increased in Q4 over its level a year ago. The implicit
estimate of GVA for agricultural and allied activities in Q4 in the CSO’s advance estimates is likely to be achieved, if not revised
upwards. Value added in industry accelerated in H2, led by manufacturing which benefited from the sustained softness in input costs.
By contrast, industrial production remained flat with manufacturing output shrinking since November. Robust expansion in coal output
has buoyed both mining activity and electricity generation and stemmed the weakening of industrial output. However, capital goods
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production fell into deep contraction since November. Consumer non-durables production has been shrinking, with a pronounced
decline in Q4. This reflects the continuing slack in rural demand. On the other hand, consumer durables remained strong, even after
abstracting from favourable base effects, which suggests that urban demand is holding up. The RBI’s Consumer Confidence Survey of
March 2016 shows marginal improvement in consumer sentiments. The March PMI continued in expansionary mode on the back of
new orders, including exports. The RBI’s industrial outlook survey suggests that business expectations for Q1 of 2016-17 continue to
be positive. Services sector activity expanded steadily through the year, with trade, hotels, transport, communication and public
administration, defence and related services turning out to be the main drivers in H2. The construction sector continues to be
overburdened by unsold inventory in the residential space. Cement production, steel consumption, air passenger traffic, air cargo
volumes, foreign tourist arrivals and auto sales increased during H2.The services PMI remained in expansion mode during H2 on new
business and expectations. The outlook for services in surveys is upbeat for Q1 of 2016-17. While exports declined in February in US
dollar terms for the fifteenth successive month, the rate of contraction narrowed to a single digit for the first time in this period and
volume growth turned positive, while the decline in non-POL exports was even smaller. The prolonged contraction in imports also
slowed significantly, and non-POL non-gold import growth turned positive for the first time after seven months. The prolonged
contraction in imports also slowed significantly, and non-POL non-gold import growth turned positive for the first time after seven
months. The trade deficit narrowed to its lowest monthly level since September 2013. In turn, this has likely lowered the current
account deficit (CAD) in Q4 below 1.3 per cent of GDP recorded in Q3, despite a moderation in net receipts from services exports and
remittances. Net FDI inflows were robust in Q4 (up to January), more than sufficient to fund the external financing requirement. FPIs,
who were net sellers in the domestic capital market up to February, became net buyers in March.
CPI inflation dropped sharply in February after rising for six consecutive months due to a larger than anticipated decline in vegetable
prices, helped by prices of pulses starting to come off the surge that began in August, and effective supply management that helped limit
cereal price increases. Accordingly, food inflation eased for the first time in the second half of 2015-16. Inflation in the fuel group
moderated across items. Three months ahead household inflation expectations declined to a single digit for the second consecutive round
of the survey in response to these dynamics.
Liquidity conditions, which had tightened since mid-December, were stretched further by the larger-than-usual accumulation of cash
balances by the Government, unusually heightened and persistent demand for currency, a pick-up in bank credit and flatter deposit
mobilisation relative to past years. The RBI supplemented normal operations with large amounts of liquidity injected through fine-tuning
variable rate repo auctions in tenors ranging between overnight and 56 days. The average daily liquidity injection (including variable rate
overnight and term repos) increased from Rs.1,345 billion in January to Rs.1,935 billion in March. Besides, durable liquidity was also
provided through OMOs of the order of ₹ Rs.14 billion and Rs. 375 billion through buy-back operations in February and March. The RBI
also started conducting reverse repo and MSF operations on holidays to enable the frictionless functioning of the payment and settlement
system.
Policy Stance
The uneven recovery in growth in 2015-16 is likely to strengthen gradually into 2016-17, assuming a normal monsoon, the likely boost to
consumption demand from the implementation of the 7th Pay Commission recommendations and OROP, and continuing monetary policy
accommodation. On the other hand, the fading impact of lower input costs on value addition in manufacturing, persisting corporate sector
stress and risk aversion in the banking system, and the weaker global growth and trade outlook could impart a downside to growth outcomes
going forward. The GVA growth projection for 2016-17 is accordingly retained at 7.6 per cent, with risks evenly balanced. Inflation has
evolved along the projected trajectory and the target set for January 2016 was marginally undershot. Going forward, CPI inflation is expected
to decelerate modestly and remain around 5 per cent during 2016-17 with small inter-quarter variations. There are uncertainties emanating
from recent unseasonal rains, the likely spatial and temporal distribution of monsoon, the low reservoir levels by historical averages, and the
strength of the recent upturn in commodity prices, especially oil. The implementation of the 7th Central Pay Commission awards will impart
an upside to the baseline through direct and indirect effects. Inflation is expected to trend towards the 5 per cent target in March 2017. Given
weak private investment in the face of low capacity utilisation, a reduction in the policy rate by 25 bps will help strengthen activity and aid
the Government’s initiatives as outlined in the Union Budget.
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Developmental and Regulatory Measures
Several measures, aimed at broadening and deepening of financial markets, were set out in the RBI’s February monetary policy
statement: (I) On a review of the external sector outlook and as a further exercise in macro prudential management, the RBI has decided
to enhance the limit under the LRS to US$250,000 per person per year. The RBI had reduced the eligibility limit for foreign exchange
remittances under the LRS to US$75,000 in 2013 as a macro-prudential measure.1 (II) To harmonise requirements with respect to
government and corporate debt securities, the RBI has decided in consultation with the Government of India that all future investment by
FPIs in the debt market in India will be required to be made with a minimum residual maturity of three years.2 The measure would impart
more stability to the corporate debt market. (III) In order to develop the money and Government securities markets, cash settled 10-year
IRF contracts were permitted to be introduced by stock exchanges in December 2013. A cash settled IRF contract on the 10-year GoI
security was launched in January 2014 and has received an encouraging response. In order to provide market participants with greater
flexibility to hedge their interest rate risk, it has been decided to permit stock exchanges to introduce cash settled IRF contracts on 5-7
year and 13-15 year GoI securities. (IV) Learning from the Libor-fixing scandal that hurt large European banks, RBI is changing the way
Mibor is calculated. In the policy, RBI announced the formation of Financial Benchmarks India, an independent firm that would
transform the Mibor from a polled rate to a transaction-based rate. This is aimed to minimise manipulation. Unlike the Libor, the Mibor
is not used to price loan products, but it is regularly used as a benchmark for inter rate swap transactions that banks and institutions enter
into to cover risks arising from interest-rate fluctuations. (V) With a view to providing greater flexibility to both FPIs and domestic
participants in the ETCD market, it has been decided that:
• domestic entities and FPIs will henceforth be allowed to take foreign currency positions in the US$-INR pair up to US$
15 million per exchange without having to establish the existence of any underlying exposure. In addition, they shall be
allowed to take foreign currency positions in EUR-INR, GBP-INR and JPY-INR pairs, all put together up to US$ 5
million equivalent per exchange, without having to establish the existence of any underlying exposure.
• for domestic participants who are importers of goods and services, the limit up to which they can take appropriate
hedging positions in ETCD markets will be determined as 100 per cent of the higher of the (i) average of their last three
years’ imports turnover or (ii) the previous year’s turnover, instead of 50 per cent at present.
• documentation and other administrative requirements for hedging on the ETCD markets are also being rationalised.
Detailed operational guidelines for all the above policies are expected to be issued by end-March 2015.
1 With stability in the foreign exchange market, this limit was enhanced to US$125,000 in June 2014 without end-use restrictions, except for prohibited foreign exchange transactions such as margin trading, lotteries and the like. 2 FPIs are currently permitted to invest in government securities with a minimum residual maturity of three years, while no such condition has been stipulated for their investments in corporate bonds.
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