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Daily Financial News Analysis – 11th Nov’19 | PDF Download

Can India do a FTA with US/EU?

  •  India walked out of RCEP
  1. Chinese imports will hurt India. Asean FTA is held up as an example of how FTAs are hurting.
  2. India’s interests are better served by concluding an FTA with the US or the EU.
  • since both are higher-cost economies than India, India’s exports will also grow faster than, say, in an RCEP FTA. Asean FTA has hurt India is incorrect World’s fastest-growing region

  •  Countries in the RCEP are more competitive than India.
  • They will continue to export more to the US/EU.

  •  1990-2018: Vietnam’s overall exports grew 102 times versus just 18 for India—as a result, Vietnam’s exports are now 75% those of India’s.
  • This makes it clear that the Asean FTA is hardly the issue.
  •  India’s lack of competitiveness is a factor that can’t be ignored.
  • As India gets more inward-focussed—it has been raising import duties—it will get less competitive.
  • What are we doing about our poor domestic policies?
  • The sharpest deterioration in India’s deficit is with China, a country it has no FTA with; once again, FTAs are not the problem.
  • There is a long gestation before any FTA gets actualised.
  • Only about 16% of world trade takes place on a preferential basis.
  • India has not even been able to resolve its dispute with the US on simple issues like duties on Harley Davidson motorbikes.
  • It is not clear how soon India can sign an FTA with US/EU.
  • An FTA with India, along the lines of the TPP that the US was working on, will presumably be as stringent.

Labour laws

  •  Intellectual property protection (India will have to grant patents to a lot more US drugs as US rules are more liberal than India’s)
  •  Reducing sops to PSUs
  • The need for unfettered market access to US firms
  •  If lobby groups like Amul could stop an RCEP, surely they will try and do the same when the US/EU want even more market access and have even larger subsidy levels?
  •  Since most Indian markets will have to be opened, other lobbies will also get active.

Economy under stress

  • Weakness could stretch into the next fiscal.
  •  Green shoots of a recovery in key indicators — from industrial production, exports and corporate sales to non-food credit growth — are barely visible.
  •  Economists, who were earlier optimistic about a rebound in the September quarter itself, are now much less sanguine.
  • Unlikely to be a V-shaped recovery despite a favourable base.
  • Compression in the government’s capital expenditure has a multiplier effect.
  • The recent sharp corporate tax cut will draw private investments only in the medium term.
  • Apart from that things need to improve on land and labour fronts.
  •  Pronab Sen, former chairman of the National Statistical Commission, said: Rural distress is the root cause of faltering demand in the economy.
  •  GDP growth projections to 4.9% y-o-y (from 5.7%) in 2019 and to 6.0% (from 6.9%) in 2020.
  •  The recent steps taken by the finance ministry, including those for MSMEs, NBFCs/HFCs and exports, will certainly help but their positive impact will flow in only after a time lag.

Diesel demand drops

  •  India’s diesel demand has slowed down sharply.
  • Sluggish economy
  • Structural changes like gst-induced road transport efficiency
  • Trucks being allowed to carry a bigger load
  • Increased power supply
  • Consumer preference for petrol vehicles
  • Diesel makes up 40% of India’s total oil demand

Income Tax task force report

  • Govt revenue can boost by more than Rs 55,000 crore
  •  The report has suggested a radical shift to taxation approach.
  • No prosecution or reopening of assessment for people who declare and pay higher income tax for a past period of up to six years with interest and 50 per cent penalty.
  • The report has also suggested new income-tax slabs of
  • 10%: up to Rs 10 lakh per year
  • 20%: over Rs 10 lakh – Rs 20 lakh
  •  30%: over Rs 20 lakh – Rs 2 crore
  •  35%: for individuals earning more than Rs 2 crore

The current IT rates are

  • % 5% + 4% cess: Rs 2.5 lakh – Rs 5 lakh,
  • 20% + 4% cess: more than Rs 5 lakh up to Rs 10 lakh
  • 30% + 4% cess: for those earning over Rs 10 lakh
  • The task force has suggested removal of surcharge that ranges between 15- 37

 50th WEF annual meet

  • Over 100 Indian CEOs, several political leaders and select Bollywood stars including Deepika Padukone will be in the Swiss ski resort town of Davos.
  • Discussion on what requires to make it a ‘cohesive and sustainable world’ .
  • 2020 Theme: ‘Stakeholders for a Cohesive and Sustainable World
  • ‘ 1971 forum’s first meeting: Business should serve all stakeholders -– customers, employees, communities, as well as shareholders.
  •  It was reaffirmed in 1973 in the ‘Davos Manifesto’, a document that has shaped the work of the WEF ever since.



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