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EAC Newsletter
February 2017

According to the recent second advance estimates of national income 2016-17, Gross Domestic Product (GDP) at constant prices in the year 2016-17 is likely to attain a level of Rs.121.65 lakh crore, as against the first revised estimate of GDP for the year 2015-16 of Rs.113.58 lakh crore. The growth in GDP during 2016-17 is estimated at 7.1% as compared to the growth rate of 7.9% in 2015-16. GDP growth rates for Q1 2016-17 stands at 7.2%, Q2 2016-17 stands at 7.4% and for Q3 2016-17 stands at 7%.

The Goods and Services Tax (GST) Council on 18th Feb, 2017 formally approved a Bill for compensating the state governments for any revenue loss they might have to suffer in the first five years in the GST regime, as the constitutionally empowered body entered the last lap of its key legislative business. Hon’ble Finance Minister announced Union budget 2017-18 on 1st February 2017. It is a balanced and growth-oriented budget which focuses on small taxpayers by offering tax benefits, enhancing competitiveness of MSMEs and providing infra status to affordable housing.

The agenda “Transform, Energize and Clean India” – TEC to transform the quality of governance and quality of life of people, energize various sections of society and clean the country from the evils of corruption is inspiring and pragmatic. The socio-economic focus across the segments including farmers, rural population, youth, poor and underprivileged will have a significant impact on the inclusive development of the country. The fiscal deficit target at 3.2% of GDP in 2017-18 is in line with the overall thought process of the government. It will strengthen macroeconomic stability and improved growth outlook, going forward.

Announcements about the proposed amalgamation of existing labour laws into four codes pertaining to wages, industrial relations, social security and welfare and safety and working conditions will enhance the business sentiment particularly production possibility frontier of the MSMEs as the sector is impacted by existing stringent labour laws. There is no change in MAT and corporate tax rates in general. Corporate tax was expected to reduce to the level of 25% to increase India’s competitiveness in global market as most of the economies have less than 23% effective rate of corporate tax which is significantly lower than India’s effective rate of more than 30%. Last year Hon’ble Finance Minister reduced the rate to 29% for select companies; this year cut in corporate tax to 25% is only for MSME companies with a turnover of under Rs. 50 crore.

According to recently released Economic Survey 2016-17, despite the global headwinds, Indian economy holds immense growth potential to grow more than 8 percent in the next couple of years. It is inspiring to know from the Economic Survey that demonetisation has the potential to generate long-term benefits in terms of reduced corruption, greater digitalization of the economy, increased flows of financial savings, and greater formalization of the economy, all of which could eventually lead to higher GDP growth, better tax compliance and greater tax revenues. RBI in its Sixth Bi-monthly Monetary Policy Statement 2016-17 maintained status quo by keeping the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25%. Consequently, the reverse repo rate under the LAF remains unchanged at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

At the macro-economic front, growth in industry output, as measured in terms of IIP, for the month of December 2016 declined to (-)0.4% as compared to 5.7% in November 2016. WPI inflation increased to 5.25% in January 2017 compared to 3.39% in December 2016. The core infrastructure grows at 3.4% in January 2017 as against 5.6% in December 2016. While, India’s merchandize exports exhibited growth rate of 4.3% in January 2017 to the value at USD 22,115.03 million as compared to USD 21,199.02 million during January 2016. Foreign Direct Investment (FDI) equity inflows stood at USD 35.84 billion during April-Dec 2016 as against USD 29.44 billion in the corresponding period of last year representing 22% y-o-y growth. CPI inflation has remained steady at 3.2% in January 2017 stands and 3.4 % in December 2016.