Asset sales, tax cuts, RBI policy & more

The Reserve Bank of India left interest rates unchanged for a second straight meeting, while keeping the door open for more easing to support the economy when inflation eases. Union Budget 2020-21 proposed tax cuts for individuals and wider deficit targets, but analysts said it failed to provide specific steps to fix a struggling financial sector, improve infrastructure and create jobs. The Budget said the government will sell part of its stake in the state-run behemoth Life Insurance Corp. of India to meet its record asset-sale target. The government is considering issuing in the first half of 2020-21 a special series of securities (G-secs) that will not have any limit for foreign portfolio investors. Here is more on what made news this week.

Business Standard
8th February

  • The Reserve Bank of India held rates steady and retained an accommodative policy stance as it sought to support faltering growth and avoid stoking already high inflation levels. The central bank said it expects inflation in the ongoing fourth quarter of fiscal 2020 to hit 6.5 per cent. In December it had forecast that inflation would be in the 5.1 per cent-4.7 per cent range during the second half of the current fiscal year. Growth in the year starting April is expected to rebound to 6 per cent from an estimated 5 per cent in the current fiscal year, according to the RBI.
  • Finance Minister Nirmala Sitharaman delivered the longest Union Budget speech in history, vowing to boost income of people and their purchasing power in a bid to revive domestic economic growth. The Budget estimates economic growth this fiscal year, which ends on March 31, will slip to 5 per cent--its weakest pace since the global financial crisis of 2008-09. The government will miss its deficit goals for a third year, pushing the shortfall to 3.8 per cent of gross domestic product from a planned 3.3 per cent in the year ending March. The deficit target for the coming fiscal year starting April 1 was widened to 3.5 per cent.
  • The listing of Life Insurance Corporation (LIC) will likely take about one year, and the government is not willing to sell more than 10 per cent stake in the company. The idea behind the listing was to “bring in more transparency and allow the company to share gains with its stakeholders. It is very important as it will bring in the disclosure norms,” said Finance Secretary Rajiv Kumar about the Budget proposal. LIC has total assets of $434 billion and its proposed stake sale is being compared to the initial public offer of Saudi Aramco.
  • The government is considering issuing in the first half of 2020-21 a special series of securities (G-secs) that will not have any limit for foreign portfolio investors (FPIs). Global bond indices may include Indian G-secs after such issuances, which will bring in foreign capital to India. Some global bond indices that could embrace Indian G-secs include Bloomberg Barclays Global Aggregate Index, FTSE Russel Asia Pacific Government Bond Index, and JP Morgan Government Bond Index-Emerging Markets.
  • Finance Minister Nirmala Sitharaman urged India Inc. to end its hesitation and make investments, listing the government’s reforms such as reduction in corporation tax rates, removing minimum alternate tax, and scrapping dividend distribution tax (DDT) to help business. "We expect you to be an equal engine to pull the economy forward,” she told business leaders.
  • The government unveiled details of a new scheme that could fetch the exchequer part of the Rs 9.32 trillion direct taxes under dispute and free up courts and tribunals crippled by prolonged litigation. The Direct Tax Vivad se Vishwas Bill, 2020 offers immunity from prosecution to those who opt for the scheme. While a complete waiver of interest and penalty will be given in case of payment made by March 31, an additional 10 per cent of the disputed amount will have to be paid after that.
  • The services sector began the year with a bang as new orders in January rose at the fastest pace in seven years, dwarfing December’s five-month high growth, according to a survey released. The widely tracked Nikkei India Services Purchasing Managers Index (PMI) stood at 55.5 in January, up from 53.3 in December.

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A few links for further reading

Hard path to growth

The signals for the economy are not positive: overall demand is yet to pick up; the share of total exports in India’s GDP is declining, and industrial output pattern remains worrying.

Small savings scheme

Investors breathed a sigh of relief when the government announced that interest rates on these instruments would not be revised for the fourth quarter of the calendar year.

Invest and emigrate

The great Indian dream of settling abroad is achievable if one has a few crores to invest. Rich nations offer a variety of investment options in a quid pro quo arrangement: immigrants get a better quality of life and revenue from them helps these countries’ finances. Wealthy Indians, troubled by polluted cities and the red tape holding up entrepreneurship, may want a quick ticket out of the country. Sanjay Kumar Singh lists a range of options: from a Canadian province’s investor programme to America’s US EB-5 plan.

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