Thursday, 23 February 2017

Note ban to drag down India's GDP this fiscal to 6.6%: IMF-The Total Investment & Insurance Solutions

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23 February 2017

India's GDP growth during the current fiscal ending March has been estimated by the International Monetary Fund to slow down to 6.6 per cent due to the temporary disruptions caused by the government's demonetisation drive, the multilateral lender said on Wednesday. The Total Investment & Insurance Solutions

"Growth is projected to slow to 6.6% in FY2016/17, then rebound to 7.2 per cent in FY2017/18, due to temporary disruptions, primarily to private consumption, caused by cash shortages," the IMF said in its latest annual country report on India. The Total Investment & Insurance Solutions

"A key domestic risk stems from the government's currency exchange initiative, where the near-term adverse economic impact of accompanying cash shortages remains difficult to gauge, while it may have a positive economic impact in the medium term," the report said.

The report called for "action to quickly restore the availability of cash to avoid further payment disruptions and encouraged prudent monitoring of the potential side-effects of the initiative on financial stability and growth". The Total Investment & Insurance Solutions

The IMF also said that a favourable monsoon, low oil prices, continued progress in resolving supply-side bottlenecks and robust consumer confidence will support near-term growth as cash shortages ease. The Total Investment & Insurance Solutions

However, India's investment recovery is expected to remain modest and uneven across sectors, as corporate de-leveraging takes place and industrial capacity utilisation picks up, the report said.

From the external perspective, it said that despite the reduced imbalances and stronger reserve buffers, the impact from global financial market volatility could be disruptive, including from US monetary policy normalization or weaker-than-expected global growth.


According to IMF, domestic risks also emanate from a potential deterioration of corporate and state-run bank balance sheets, as well as setbacks in the reform process, including in the design and implementation of the proposed Goods and Services Tax (GST).The Total Investment & Insurance Solutions

Rs 10,290 crore health budget boost hides key funding cut -The Total Investment & Insurance Solutions

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23 February 2017
 
Health Budget (The Total Investment & Insurance Solutions)
Despite a Rs10,290-crore increase for 2017-18, an analysis of the Union governments health budget reveals that most of this money is not being spent on Indias health priorities, which, instead, now face funding cuts. The Total Investment & Insurance Solutions

Elimination of tropical diseases (kala azar, filariasis and leprosy) over two years; elimination of a vaccine-preventable disease (measles) by 2020; elimination of tuberculosis (TB) by 2025; and "significant reduction" of infant and maternal mortality by 2020 -- these were some key proclamations related to health made by Union Finance Minister Arun Jaitley during his February 1 budget speech.

Given that India has an infant mortality rate (IMR) of 37 per 1,000 live births (higher than the average for 154 middle- and low-income countries), the world's highest TB burden (with 27 per cent of new cases), and accounts for 58 per cent of new leprosy cases detected globally, Jaitley appeared to address some of the country's most significant public-health concerns.

Adequate funding could lead to significant improvement in health systems and health status. But Jaitley's budget indicates inadequate allocations or funding cuts to his declared priorities.

To eliminate measles, India will need to invest in stronger immunisation systems and social mobilisation. It is starting the first phase of a measles-rubella vaccine campaign to immunise 35 million children in 2017 and 410 million children over the next two years. The Total Investment & Insurance Solutions

Has money been set aside to achieve these targets? It appears not.

The Union health budget includes a separate head, the National Rural Health Mission (NRHM), to fund state rural healthcare. Within the NRHM budget is a sub-head called the "Reproductive and Child Health (RCH) Flexi-pool", which sets aside funds for immunisation, including funding of the polio-eradication campaign. The Total Investment & Insurance Solutions

To improve healthcare in urban areas (where measles remains a significant problem due to high population densities), the budget sets aside money under the head National Urban Health Mission (NUHM). The Total Investment & Insurance Solutions

To fund the measles campaign and eliminate measles, funding under RCH flexipool (for rural areas) and under NUHM (for urban areas) should have been higher than previous years.

Instead, funding for the RCH flexi-pool has been cut 23 per cent, from Rs 5,932 in 2016-17 to Rs 4,566 in 2017-18. Similarly, funding for the National Health Mission, which aims to provide universal access to affordable and quality healthcare and funds both NRHM and NUHM, has been reduced by Rs 197 crore over a year. The Total Investment & Insurance Solutions

India has 27 per cent of the world's new TB cases -- one of its biggest infectious disease killers. As we said, the Union budget's NHRM head provides for healthcare in rural India. Within this budget head is a sub-head called "Flexible Pool for Communicable Diseases", which includes funding for the Revised National Tuberculosis Programme. The Total Investment & Insurance Solutions

Now, funding appears to have increased by Rs 87 crore over a year to 2017-18, but the revised budget estimates -- drawn up after the budget is presented -- reveals a drop of Rs 13 crore over 2016-17.

In the 2017-18 budget, funding for Indira Gandhi Matritva Sahyog Yojna (Maternal Benefit Scheme) has risen 226 per cent, from Rs 634 crore ($94.6 million) in 2016-17 to Rs 2,700 crore ($298 million) in 2017-18, but this allocation isn't enough to cover all expectant mothers.

The government itself had estimated that the the annual requirement for this maternity benefit scheme -- which provides iron and folic-acid supplements to pregnant women to prevent maternal anaemia, sepsis, low birth weight, and preterm birth -- would be Rs 14,512 crore ($2.1 billion), according the report of the Standing Committee on Food, Consumer Affairs and Public Distribution (2012-13).

So, the ministry plans to provide maternity benefits only to first-borns, leaving other children vulnerable.

So where is the additional money going? A major increase in allocation has been towards more medical colleges at district hospitals, an increase of Rs 2,855 crore, accounting for about 27 per cent of the Rs 10,290-crore rise in health funding. The Total Investment & Insurance Solutions

India does need more medical graduates, but increasing medical colleges will not be easy, considering that even premier institutes, such as branches of the All India Institute of Medical Sciences (AIIMS), in state capitals are struggling. For instance, five years after the first batch was admitted, AIIMS Bhopal does not yet have a blood bank and does not conduct surgeries, and important faculty positions are vacant.

That bring us to the other significant increase: Rs 1,525 crore more for Pradhan Mantri Swasthya Suraksha Yojna (the Prime Minister's Health Protection Scheme), which is supposed to set up new branches of AIIMS in the states. In addition to the 11 that exist, Jaitley announced setting up of two more AIIMS, in Jharkhand and Gujarat. The Total Investment & Insurance Solutions

Instead of opening new institutes, and investing about eight per cent of the health budget (Rs 3,975 crore of Rs 47,352 crore) to do so, the government should ideally focus on making sure that the ones already opened are functioning. The Total Investment & Insurance Solutions

Another significant increase of about Rs 3,000 crore is under the "Health System Strengthening" subhead of NRHM. This is likely to be allocated to another pronouncement: Converting 150,000 health sub-centers nationwide into "health and wellness centres". The Total Investment & Insurance Solutions

Again, this is not a bad idea, since functional sub-centers can take primary healthcare closer to where people live. But with no plan for this transformation made available -- not even how many will be converted this year -- Rs 3,000 crore appears inadequate.

For example, even if 25 per cent of the increased allocation under this sub-head is to upgrade sub-centres, no more than Rs 60,000 would be spent per sub-centre. The Total Investment & Insurance Solutions


So, while the current budget's health proclamations are apt, the funding increases for issues of low health priority are unlikely to make a significant impact on the overall well-being of the people.The Total Investment & Insurance Solutions

NPCI commences project to digitise MFI transactions -The Total Investment & Insurance Solutions

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23 February 2017

The National Payments Corporation of India (NPCI) on Wednesday said that it has started a pilot project to digitise transactions of micro finance institutions (MFIs). The Total Investment & Insurance Solutions

"Potential of such a system in MFI sector itself for digitisation of payments is as high as 80 million annual disbursements and over 900 million repayment transactions," NPCI Managing Director and CEO A.P. Hota was quoted as saying in a statement. The Total Investment & Insurance Solutions

According to the retail payments umbrella organisation, under the new initiative, RBL Bank has been manadated to disburse loans, while HDFC Bank will receive the repayments. The Total Investment & Insurance Solutions


Currently, there are 268 MFIs catering to over 40 million low income customers with an outstanding portfolio of Rs 53,500 crore and repayment rate of over 99 per cent.The Total Investment & Insurance Solutions

Trump policies may lead to rate hike 'soon': Fed -The Total Investment & Insurance Solutions

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23 February 2017

The Federal Reserve said the economys continued growth might convince it to raise its benchmark interest rate "fairly soon" due to the ambitious policies proposed by President Donald Trump that may have unforeseen effects, the media reported. The Total Investment & Insurance Solutions

The Federal Reserve made the statement on Wednesday after officials spent their meeting three weeks ago consumed with the changes brought on by a new administration in the White House, NBC News reported. The Total Investment & Insurance Solutions

The Federal Open Market Committee - the central bank's policymaking arm - discussed at length the impact from lower taxes and regulations and higher domestic spending under President Trump, according to minutes of the January 31 - February 1 session.

The meeting was the first since Trump took office on January 20. 

The President's name was never mentioned in the minutes, but the broad brushes of his agenda show up often, according to sources. The Total Investment & Insurance Solutions

"Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon" if data on jobs and inflation are "in line with or stronger than their current expectations", or if the risk increased that the Fed might overshoot its goals, the meeting summary stated.

Jobs numbers indeed have been solid and the Consumer Price Index inflation indicator is at its highest level in years, NBC News reported. The Total Investment & Insurance Solutions

The US Treasury yield curve flattened slightly following the minutes' release, with the short-term two-year note yield trading higher, near 1.23 per cent, and the benchmark 10-year note yield slipping to 2.41 per cent. The Total Investment & Insurance Solutions

One example of the policy dilemma was "upside risks" that would come with "more expansionary fiscal policy or a more rapid build-up of inflationary pressures," as well as the downside risks of an appreciating US dollar. The Total Investment & Insurance Solutions

Ultimately, the Fed decided not to act on rates until they had a clearer view on the effects the new policies would have. The Total Investment & Insurance Solutions


"Most participants continued to see heightened uncertainty regarding the size, composition, and timing of possible changes to fiscal and other government policies, and about their net effects on the economy and inflation over the medium term, and they thought some time would likely be required for the outlook to become clearer," the minutes added.The Total Investment & Insurance Solutions

Wednesday, 22 February 2017

Nifty, Sensex still trending higher but short-term risks rising – Wednesday closing report -The Total Investment & Insurance Solutions

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22 February 2017

I had mentioned in Tuesday’s closing report that Nifty, Sensex were trending higher. The major indices of the Indian stock markets were range-bound on Wednesday and closed with small gains over Tuesday’s close. The trends of the major indices in the course of Wednesday’s trading are given in the table below: The Total Investment & Insurance Solutions
 
Major Indices (The Total Investment & Insurance Solutions)
Positive global cues, coupled with a strengthened rupee, pushed the Indian equities markets higher on Wednesday. Besides, an exponential rise in Reliance Industries Ltd (RIL) stocks, a day after Reliance Jio announced its tariff plans, buoyed investors sentiments. However, caution prevailed ahead of the release of minutes of the US Fed's Federal Open Market Committee (FOMC) and the Reserve Bank of India's Monetary Policy Committee (MPC) as well as derivatives expiry. In contrast, the BSE market breadth was tilted in favour of the bears -- 1,748 declines and 1,092 advances. The Total Investment & Insurance Solutions

Automotive and industrial lubricant manufacturer Castrol India on Tuesday reported a rise of 10.7% in its net profit for the quarter ended December 31, 2016. The company informed the BSE that its net profit during the quarter under review increased to Rs155.8 crore from Rs140.8 crore. On the contrary, the automotive and industrial lubricant manufacturer reported a decline of 1.1% in its net sales for the fourth quarter to Rs782.2 crore from Rs790.9 crore. For the financial year ended December 31, 2016, the company reported that its profit from operations was up by 12.2% at Rs959.9 crore, whilst net profit was higher by 9.7% to Rs674.9 crore. "We are delighted to announce that despite the external challenges faced in the last few months of 2016, Castrol India delivered a strong set of results for the financial year as well as Q4 2016," Omer Dormen, Managing Director, Castrol India was quoted as saying in a statement. "These results have been delivered by excellent performance across both automotive and industrial segments." However, Dormen added that the company expects volatility to increase during the first half of 2017, due to rising input costs and the continued impact of demonetisation. Besides, the company's Board of Directors recommended a final dividend of Rs4.50 per share and a special dividend of Rs2 per share for the financial year 2016. "These are in addition to the interim dividend of Rs4.50 per share paid on August 18, 2016. All dividends for the financial year 2016 aggregate to Rs11 per share," the statement added. Castrol India shares closed at Rs423.70, down 2.22% on the BSE. The Total Investment & Insurance Solutions

Sheenlac Paints, which entered into a joint venture with Jenson and Nicholson India, has drawn up a five-year roadmap to achieve Rs350 crore revenue. The company may explore the possibilities to increase its stake in the joint venture, a company official said on Wednesday. The joint venture is in the form of a special purpose vehicle (SPV) called Jenson and Nicholson Paints Pvt Ltd. Chennai-based Sheenlac has 49% stake while Jenson & Nicholson India holds 51% equity in the JV company. "The joint venture company has drawn up a five-year roadmap and aims to achieve Rs350 crore revenue by end of the five years. As per agreement, all the options are open, including the increase of our stake in the JV. We will sit and negotiate after five years," Sheenlac's CEO Sridhar K. said. Despite being the minority stakeholder, Sheenlac will have the managerial control in the JV and plans to pump in initial investments of Rs50 crore, Sridhar said. The JV will manufacture paints from four facilities with a combined capacity of one lakh KL per annum. The JV is a strategic move in gain traction in markets which are highly competitive like the North- East. Jenson & Nicholson India shares closed at Rs8.09, down 0.37% on the BSE.

The top gainers and top losers of the major indices are given in the table below:
 
Top Gainer (The Total Investment & Insurance Solutions)

The closing values of the major Asian indices are given in the table below:The Total Investment & Insurance Solutions
Asian Indices (The Total Investment & Insurance Solutions)

G-sec yields hit by note ban; public debt rises 2.4% in Q3 -The Total Investment & Insurance Solutions

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22 February 2017

Union government securities' (G-sec) yields declined sharply during the third quarter ended December 2016 on account of the demonetisation drive that led to a surge in bank deposits and bullish market sentiment, an official said on Tuesday. The Total Investment & Insurance Solutions

"G-sec yields declined sharply across the curve during the quarter, post the government's decision in November to demonetise high denomination notes, which was viewed positively by markets as deposits were expected to surge in banks and led to bullish market sentiment, particularly for short end bonds," said a Finance Ministry statement here as the Quarterly Report on Debt Management for October-December 2016 was released. The Total Investment & Insurance Solutions

"The trading volume of government securities on an outright basis during the third quarter of 2016-17 decreased by 11.87 per cent over the previous quarter," it said.

"The bullish market sentiment was however, restrained to a certain extent with rise in global crude prices on OPEC agreement with Russia in its meeting to cut oil output, hiking by US Fed of key policy rate by 25 bais points and FOMC (Federal Open Market Committee) commentary suggesting further rate hikes at a faster pace," it added. The Total Investment & Insurance Solutions

The public debt of the Union government increased 2.4 per cent in the third quarter ended December, compared to the previous quarter. The Total Investment & Insurance Solutions

"The Public Debt (excluding liabilities under the 'Public Account') of the central government provisionally increased by 2.4 per cent in second quarter of 2016-17 on Q-o-Q basis," the ministry said.

Internal debt made up 92.6 per cent of public debt as at end-December 2016, while marketable securities accounted for 83.6 per cent, the report said. The Total Investment & Insurance Solutions

About 26.6 per cent of outstanding stock has a residual maturity of up to 5 years, which implies that over the next five years, on an average, around 5.3 per cent of outstanding stock needs to be rolled over every year. The Total Investment & Insurance Solutions

"Thus, the rollover risk in debt portfolio continues to be low. The implementation of budgeted buyback/switches in coming months is expected to further reduce roll over risk," it added.

The government issued dated securities worth Rs 1.61 lakh crore during the third quarter of the fiscal, taking gross borrowings in first nine months 2016-17 to Rs5.02 lakh crore, or 83.7% of Budget Estimates (BE), as compared to 85.6% of BE in the April-December period of 2015-16. 


"Net market borrowings during April-December of the ongoing fiscal was at Rs3,62,012 crore, 85.1 per cent of BE Auctions, both government dated securities and treasury bills, during third quarter of 2016-17 were held in accordance with the pre-announced issuance calendar," the report said. The Total Investment & Insurance Solutions

Government considers cutting MDR charges on card payments -The Total Investment & Insurance Solutions

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22 February 2017

The government is looking to reduce Merchant Discount Rate (MDR) charges to encourage digital payments, Niti Aayog Chief Executive Amitabh Kant said on Tuesday.

"We are pushing digital transactions. Our aim is to bring down MDR charges. Also, if volume of transactions increase, MDR charges will come down," Kant told reporters here while briefing about the Lucky Grahak Yojna (LGY) for consumers and Digi-Dhan Vyapar Yojna (DVY) for merchants launched post demonetisation to incentivise and promote digital payments. 

"We are examining RBI's draft circular on MDR. There are challenges to bring MDR rates down... We will meet those challenges," he added, referring to the Reserve Bank of India (RBI) circular last week on rationalisation of MDR for debit card transactions. The Total Investment & Insurance Solutions

Proposing to cut MDR charges on debit card payments from April 1, the RBI proposed an MDR charge on debit card transaction at 0.40 per cent of the transaction value for small merchants with annual turnover of Rs 20 lakh and special category merchants like utilities, insurance, mutual funds, educational institutions and government hospitals. The Total Investment & Insurance Solutions

The central bank said MDR charges would be even less at 0.3 per cent if the transaction is through digital mode using the QR Code. The Total Investment & Insurance Solutions

The scrapping of high value currency notes of Rs 500 and Rs 1,000 on November 8 created an unprecedented crash crunch, with people across the country queuing up outside banks and ATMs to withdraw money. The Total Investment & Insurance Solutions

Finance Minister Arun Jaitley told Parliament earlier this month that the RBI is working to reduce the MDR for debit card transactions above Rs 2,000. The Total Investment & Insurance Solutions

"The RBI is deciding on this...the work is in progress. I am sure as volumes (of digital transactions) are increasing, the charges will come down," Jaitley told the Rajya Sabha during Question Hour.

Jaitley said that under the Payments and Settlements Act, the RBI has recently fixed the MDR rate at 0.25 per cent for transactions up to Rs 1,000, while for transactions up to Rs 2,000 it has been fixed at 0.50 per cent. The Total Investment & Insurance Solutions

These charges have been introduced for the period from January 1, 2017, and will be applicable till March 31, 2017. The Total Investment & Insurance Solutions

As per the RBI's rate structure announced in 2012, the MDR for transactions valued above Rs 2,000 has been capped at 1 per cent. The Total Investment & Insurance Solutions

The RBI also announced last week that it will start reimbursing MDR charges to banks for payments made through debit cards of tax and non-tax dues to the central government since January 1.


The Centre had, in December, decided to reimburse banks' MDR charges on taxes and receipts paid through debit and credit cards.The Total Investment & Insurance Solutions

'Currency shortage could result in recessionary conditions'-The Total Investment & Insurance Solutions

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22 February 2017

One of India's leading experts on the black economy, who has studied, written about and lectured extensively on the phenomenon for nearly four decades, has said that the demonetisation design is flawed, the objective has not been achieved and there is a very real danger of the shortage of currency translating into recessionary conditions as the economy continues to suffer.

"While the objective of dealing with the black economy and terrorism has not been achieved, the economy is suffering. Any move to check the generation of black money should have been targeted at those who generate it without hitting others. It will not have any long-term impact on the black economy," economist Arun Kumar, who taught at Delhi's Jawaharlal Nehru University (JNU) from 1984 to 2015, told IANS in an interview.

"Events in the last three months show that demonetisation cannot tackle the black economy since cash does not mean black. Hence, the design of the policy move is basically flawed. While the notes shortage will dissipate slowly in the coming months, the slowdown in the economy is not getting less. Thus, the problem is transforming from notes shortage to recessionary conditions in the economy," said Arun Kumar, who played a role in drafting the Janata Party's manifesto ahead of the 1989 Lok Sabha elections. The Total Investment & Insurance Solutions

Arun Kumar's book "Understanding the Black Economy and Black Money in India" (Aleph/Rs 399) argues that the Narendra Modi government's sudden demonetisation of Rs 500 and 1,000 notes in November 2016 "failed to put a dent in the black economy but caused untold hardship" to hundreds of millions of Indians. The Total Investment & Insurance Solutions

He said that cash is a stock and its removal, even temporarily, does not mean that the generation of black income by various devices will stop. "The black and the white economy are not parallel and the same currency circulates the black incomes as the white incomes; so any black cash demobilised would soon get regenerated," contended the author, who was educated at Delhi University, Princeton University and JNU. The Total Investment & Insurance Solutions

He, however, agreed that the government is trying to take supplementary steps but said that their impact has to be dealt with separately. "Moving towards a cashless economy can be dealt with independent of demonetisation and should be evaluated separately. If raids are to be conducted to unearth black money, that also can be done independent of demonetisation. The two should not be linked with each other," he argued. The Total Investment & Insurance Solutions

Arun Kumar lamented that India's black economy results in policy failure and tremendous inefficiency, in continuing poverty and unfulfilment of national goals.

What then is the reason behind the enormous presence of black economy in the country?

"Since the black economy is now 62 per cent of GDP, it implies illegality in 62 per cent of economic activity. It can only be so large if the black economy is systematic and systemic. This is only possible if the state apparatus is a party to the process of committing illegality and generation of black incomes. Thus, the involvement of the policymakers (politicians) and the implementer (executive) is needed along with the businessman," Arun Kumar quipped.

There have been dozens of committees and commissions in the last 70 years that have gone into various aspects of the black economy. They have given thousands of suggestions and hundreds have been implemented and yet the black economy has been growing.

"Demonetisation is not the first step taken. The problem has to be tackled politically, so that the triad (involvement of politicians, executive and the businessmen) is dismantled. Even if one of its three arms are severed the problem will begin to dissipate.

"This requires accountability from each of the wings and that will only take place when movements force them to do so. It will not happen by anyone's goodwill but would be triggered by change in the consciousness of the people of the country," Arun Kumar said.

He expects the readers of this recent offering to understand the political nature of the black economy and not think that there is a "magic wand" which can instantly solve the problem.

"In this sense, there are no immediate solutions and everyone has to work to strengthen democracy in the country so that accountability is brought about. The more people understand this and the more they oppose it politically, the quicker the problem would be solved," he added.


"Understanding the Black Economy and Black Money in India" attempts to tell its readers why the November 8 gambit failed.The Total Investment & Insurance Solutions