Mid-year economic report in Parliament today: 10 things to watch out for
The government will table the Mid-Year Economic Review for 2015-16 in Parliament on Friday. According to the Fiscal Responsibility and Budget Management Act (FRBMA), the mid-year review also provides an update on the economy and its status while explaining any deviations in meeting the fiscal obligations.business Updated: Dec 18, 2015 09:26 IST
Will the government revise its GDP growth forecast for the current fiscal? That is one of the key things to watch out for as the Mid-Year Economic Review for 2015-16 will be tabled in Parliament on Friday.
The mid-year review, according to the Fiscal Responsibility and Budget Management Act (FRBMA), provides an update on the economy and its status while explaining any deviations in meeting the fiscal obligations.
Here are 10 aspects the review is likely to touch upon:
The review is largely expected to cut down growth projection for the current financial year from 8-8.5% to about 7.5%. GDP growth in the first quarter of the current financial year was 7% while in the second quarter it was 7.4%. The manufacturing and services sectors have registered healthy growth at 9.3% and 8.8% respectively in the July-September quarter of 2015-16.
The Centre’s plan to roll-out Goods and Services Tax (GST) from April 1, 2016 has run into stiff political opposition. The Congress wants the GST rate to be capped at 18% in the legislation itself and has demanded that the 1% entry tax to compensate the so-called “manufacturing” states be scrapped. The review could contain the government’s observations on the status of GST’s roll-out plans.
The government has set a stiff target of Rs 69,500 crore. However, until now only Rs 12,700 crore has been raised through the disinvestment exercise due to volatility in the market. Though the Cabinet has approved 10% disinvestment in Coal India Ltd, it needs to be seen when it hits the market.
The 7th Pay Commission has submitted its report and if it is accepted, it would result in an additional annual burden of Rs 1.02 lakh crore on the exchequer. The question is whether it can be implemented from January 1, as was slated. The report has to be approved by the Cabinet.
The government has set a fiscal deficit target of 3.9% for the current financial year. It remains to be seen if the government can adhere to the target without reducing expenditure.
US Fed rate hike
US Federal Reserve has increased interest rate by 25 basis points. The economic review is expected to outline the possible impact on the Indian economy. In 2013, there was a record outflow of dollars when former US Federal Reserve chairman Ben Bernanke announced that there could be a hike in interest rate.
India’s exports have been declining for 12 straight months due to weak global demand. In November, it was down 24% compared to the corresponding month in the previous year. A weak export market would impact India’s overall growth story.
Inflation based on the consumer price index increased 5.4% in November compared to 5.0% in October 2015. However, it is still within the target set by the Reserve Bank of India for January 2016. It is also to be seen if the implementation of the Pay Commission report further pushes prices. The review will likely have comments on the price front.
The government’s thrust on improving infrastructure through public private partnerships (PPPs). The appraisal mechanism for the PPP projects has been streamlined to ensure speedy appraisal of projects, eliminate delays, adopt international best practices and have uniformity in appraisal mechanism and guidelines.
Non-performing assets (NPAs)—loans that do not yield results—have increased to about 6%. Corporate sector balance sheets continue to remain under stress. Recovery would be critical. For recapitalizing the public sector banks, a sum of Rs 12,000 crore has already been provided n the Supplementary Demand, in addition to Rs.7,940 crore already provided for in the Union Budget this year.