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ES FY16 Presentation
ES FY16 Presentation
2015-16
New Delhi
February 26, 2016
Overview
Description of Contents
Macro-economy and Current Prospects
Contents
Volume 1: Analytical, forward looking, and prescriptive
Volume 2: Summary of current economic situation
i. State of the Economy: An Overview
ii. Public Finance
iii. Monetary Management and Financial Intermediation
iv. External Sector
v. Prices, Agriculture and Food Management
vi. Industrial, Corporate, and Infrastructure Performance
vii. Services Sector
viii.Climate Change and Sustainable Development
ix. Social Infrastructure, Employment and Human Development
Volume I
Macro and current
economic situation
i.
i.
i.
ii.
iii. Outlook
ii.
iv.
v. Medium-Term Fiscal
v.
iv.
vi.
Framework
Labour Markets
Summary
I.
growth slowdown
V. No longer a twin deficit but a twin balance sheet challenge
105
100
100
95
95
90
90
85
85
80
80
75
75
70
70
USA
Germany
India
Japan
China (RHS)
Originating
Countries
Latin
American
EMEs (Latin
America 1982; India
1991); Small
advanced country
(Greece 2010
onwards)
Asian
Financial
Crisis
Global
Financial
Crisis
The NEXT
Systemically
Important
Origin of
problem
Exchange
Rate Regime
Remarks
Fixed rate
"Sudden stop" of
capital flows and
exchange rate
collapse
Fixed rate
Correction in asset
prices
Flexible
exchange rate
US dollar
appreciated.
Manifestation
Trigger
Government
borrowing
Current account
deficit
Speculative attack
and exchange rate
collapse
Corporate
borrowing
Asset price
bubbles; High
corporate leverage
Bank and
consumer
borrowing
Corporate
borrowing
Crisis country's
currency could
depreciate
substantially.
10
8
Correlation = 0.42
India
4
2
0
World
Policy repo rate cut 125 bps - Base rate cut 63 basis points Term Deposit rate cut 93 basis points
63 bps
Base Rate
9.5
9.0
8.5
8.0
93 bps
7.5
125 bps
7.0
6.5
* Vertical Lines in all these boxes refer to dates when repo rate changes were announced.
68
1.2
Policy cut
passed
through
1
0.8
0.6
66
Policy cut not
passed through
64
62
0.4
60
0.2
58
Cons
i. Feasibility when large Pay
Commission and infrastructure
obligations loom
0.7
0.5
Debt/Equity
0.6
0.4
0.3
6.0
4.0
0.2
2.0
0.1
0
0
-0.1
8.0
20
40
60
80
(0.5)
0.5
1.0
1.5
Interest cover
2.0
2.5
3.0
40
30
20
10
0
-10
-20
Exit
The Chakravyuha or Exit Challenge: From socialism with limited entry to marketism without exit
Impeded Exit is pervasive, costly but fixable..
Sector
Inefficiency Measure/Cost
PUBLIC SECTOR
Capital infusion between 2009-10 and 2015-16 (H1): Rs. 1.02 lakh crore.
Accumulated losses over 2008-09 and 2013-14-15 about Rs. 2.3 lakh crores.
Administrative Schemes
Number of central sector and centrally sponsored schemes increased from 908 in 2006-07 to 1086
in 2014-15.
PRIVATE SECTOR
Steel
Infrastructure (few large groups)
Cost of production 50-75% higher for few inefficient firms in comparison to global norms.
As of FY15 the average interest cover is about 0.3.
Small Savings
ECONOMY WIDE
Trade Liberalisation
Labour
Nearly highest restrictions on imports; gains from liberalisation of goods and services estimated at
1% of GDP
Not enough big firms and too many small and inefficient firms (Hsieh & Klenow, 2014; Bloom
and van Reenen (2010)
Ideas/Ideology
Protecting vulnerable in a poor economy
Sanctification of the small
Trade Policy and FTAs : How should India respond to megaregional agreements
TTP coverage
30% of world GDP
33% of world trade
80
i.
70
ii.
60
50
40
30
20
10
0
% of farmer
Small Famer
price paid higher than MRP (%)
Consumer Category
LT-I:DOMESTIC (Telescopic)
LT I(A):Upto 50 Units/Month
Power: Complex
tariff schedules;
One price for
petroleum but 100
prices for power
Energy
Charge Consumer Category
(Rs /Unit)
LT-V:AGRICULTURE **
1.45
LT-V(A):AGRICULTURE WITH DSM
MEASURES
Corporate Farmers & IT Assesses
1.45
2.60
2.60
2.60
101-150
151-200
LT I(D):Above 20 0 Units/Month
3.60
3.60
First 50
51-100
101-150
151-200
201-250
251-300
301-400
401-500
Above 500
2.60
3.25
4.88
5.63
6.70
7.22
7.75
8.27
8.80
LT-II:NON DOMESTIC/COMMERCIAL
LT II(A):Upto 50 Units/Month
5.40
LT II(B):Above 50 Units/Month
Energy
Charge Consumer Category
(Rs /Unit)
SEASONAL INDUSTRIES (off season Tariff)
11 kV
Energy
Charge
(Rs /Unit)
7.25
2.50
0.50
0.50
0.00
0.00
33 kV
132 kV & Above
TIME OF DAY TARIFFS (6 PM to 10 PM)
11 kV
33 kV
132 kV & Above
3.50
1.00
1.00
0.50
0.50
Municipal Corporations
6.69
6.91
Panchayats
4.59
33 kV
6.31
6.01
3.70
3.70
5.64
6.16
LT-VI(B):PWS SCHEMES
6.59
6.33
7.07
6.62
6.20
5.68
5.23
4.81
7.25
6.59
6.33
8.30
7.64
7.38
First 50
6.63
Municipalities
5.64
51-100
7.38
Municipal Corporations
6.16
101-300
8.54
4.00
11 kV
7.96
301-500
9.06
LT-VII:GENERAL
33 kV
7.36
Above 500
9.59
LT-VII(A):GENERAL PURPOSE
6.86
7.06
LT II(C):ADVERTISEMENT HOARDINGS
11.58
4.70
LT-III:INDUSTRY
Industry (General)
Seasonal Industries (off season)
9.90
6.38
7.09
Pisciculture/Prawn culture
4.63
11 kV
6.02
5.96
Sugarcane crushing
4.63
33 kV
5.57
HT-VII:GREEN POWER
11.32
Poultry farms
5.63
5.15
HT-VIII:TEMPORARY
5.63
INDUSTRIAL COLONIES
5.63
11 kV
5.96
Kuppam
0.24
33 kV
5.96
Anakapally
1.38
5.96
Chipurupally
0.22
3.75
3.75
5.64
4.61
6.68
Cross Subsidy Surcharge imposed by states for purchasing electricity from power exchange, 2015-16
2.5
Rs/kWh
1.5
0.5
0
TN
AP
WB
HR
MP
DL
GJ
TL
MH
OR
KA
PB
CH
BR
UT
JH
UP
HP
RJ
KL
JK
Three developments
Contractualisation of labour
Competitive federalism
Relocation of labour-intensive manufacturing to second tier cities and towns
Mandatory deductions from employees salaries higher for poor than rich
workers (15% versus 0.5%)
Country
Total
Expenditur
Total
Expenditur
e in human
Tax
e
capex*
35
Income
tax
China
19.4
29.7
7.2
5.3
--
2.0
12.7
India
16.6
26.6
5.1
5.6
2.1
0.8
10.1
Brazil
35.6
40.2
11.0
7.3
2.3
2.0
15.7
Korea
24.3
20.0
8.4
7.1
3.7
2.5
7.5
Vietnam
22.2
28.0
8.8
8.4
--
--
--
South Africa
28.8
32.0
10.7
15.0
--
1.4
10.2
Turkey
29.3
37.3
7.2
5.9
4.1
1.4
13.5
7.2
--
1.1
7.1
Russia
23.0
38.7
7.2
UK
32.9
41.4
13.4
11.7
9.1
4.0
10.8
US
25.4
35.7
13.3
12.0
9.8
2.9
4.4
EMEs Avg
21.4
30.9
7.5
7.4
2.2
1.0
10.8
42.8
11.6
11.5
9.5
1.9
11.0
OECD Avg
34.2
30
Post Great
Depression
America
25
Independent
India
20
15
10
Post civil-war
America
5
0
t
t+10
US (1870-1910)
t+20
t+30
t+40
t+50
t+60
US (1930-1990)
India (1951-2011)
10
0
250
40
1949-50
1955-56
1960-61
1970-71
1971-72
1972-73
1973-74
1975-76
1980-81
1985-86
1990-91
1991-92
1995-96
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
20
Thousands
100
Norway
Sweden
Canada
Netherlands
Australia
Portugal
Belgium
Poland
Estonia
France
Malta
Austria
Slovenia
NZ
Lithuania
US
Hungary
Greece
Italy
Luxembourg
Spain
Finland
Germany
Singapore
Lithuania
Taiwan
Japan
Thailand
Tajikistan
Czech Rep
Vietnam
Bulgaria
Phillipines
Brazil
UK
Latvia
Colombia
Ireland
Korea
Cyprus
Israel
S.Africa
Malaysia
Chile
Russia
India
Romania
Mexico
Argentina
Indonesia
Turkey
The ratio of tax payers to voters is ~ 4 per cent while it should be ~23 per
cent for a country at its level of economic and political development
Solutions: Not increasing exemption limits
Building legitimacy in state: Delivering public goods for all; reducing bounties
for well-off; and taxing well-off regardless of source of income
Exemption limit and per-capita income (Rs, current prices)
90
80
70
200
60
150
50
100
30
50
Exemption limit
Per capita income
0.08
0.06
1998
2012
1998
2012
1998
2012
0.04
USA
15.2
18.9
11.6
14.7
6.2
8.4
0.02
UK
12.5
12.7
9.1
9.2
4.4
4.6
India
9.0
12.6
7.0
9.6
3.6
5.1
Share of 1%
Share of 0.5%
Share of 0.1%
Increasing effectiveness of
interventions requires changing
social norms and behaviour
1,000
200
950
180
900
170
850
160
800
150
140
750
Aadhaar
Jan Dhan
Aadhaar
190
Jan Dhan
Rural
Conclusion
Pending agenda
GST
Strategic disinvestments
Twin Balance Sheet
Subsidy rationalization (rich and poor)
For now,
But not indefinitely,