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    Hello and welcome to a webchat with Radhika Rao, Chief India Economist, DBS Bank on analysis of Economic Survey 2016-17



  • A


    India forecast its economy would grow 7-7.5% in the fiscal year to March 2017, the Economic Survey said today. Do you think this is achievable?


    The forecasts are cautious but realistic. One should note that these are a big markdown from last February's Eco survey, where 8% seemed the more likely threshold. To that extent, there is a recognition that stressed banks/ corporate balance sheets are negative for growth. By extension, a realistic growth numbers will also add up to a realistic nominal growth projections, which bodes well for credibility on budgetary assumptions (primarily deficit, tax buoyancy etc). Yes we do think it is achievable.

  • J


    What are the immediate steps that the government should take for fiscal consolidation?


    As a start, one should recognize that fiscal consolidation has been underway in the past three years, as the target has been met even though qualitative aspects have been in doubt. Looking ahead, immediate steps would include rationalization in subsidies, expanding tax base to improve buoyancy (tax base is currently very narrow in India), accelerate divestments, adopt GST to simplify and stop revenue leakages and gradually tilt the adverse balance between revenue/ capital expenditure, to favour the latter.

  • N


    The Eco Survey suggests that tax revenues are likely to be higher than budgeted in FY16. With tax receipts under pressure is this scenario possible?


    Raising direct tax revenues from this year will be a challenge, especially as the corporate tax rates will fall to 29% from 30% last year. But scrapping of exemptions (likely to be staggered) could raise the effective rate for the corporates. Health of the private sector is also sub-par, thus stifling profitability and in turn collections. We are more hopeful about the indirect collections (with as service tax increase also on the cards). To that extent, the persistent problem of weak direct tax buoyancy won't receive much respite next year

  • V


    To what extent has the country benefited from lower crude oil prices during FY16?


    The windfall from low oil prices was significant for the economy, with benefits felt across the board - inflation, fiscal balances, current account and broader macro stability. The first leg of fall from Jun14 levels to around USD 50/bbl by 2Q15 helped reduce subsidies by 0.3% of GDP, helping to meet fiscal balances. Inflation got a hand, as did current account which shrank to sub-2% last year and will be close to -1% this year. But the impact on consumption was limited because of the partial relief to the end-consumers (as fuel product taxes were raised).

  • D


    Global economic growth continues to remain sluggish while Chinese economy is also struggling. Do you see global economic slowdown weighing on our GDP in FY16?


    We are more plugged into the global economic backdrop that before, with exports making up a quarter of GDP growth. To that extent, external sector will be unable to play a supportive role for recovery, with related industries also facing a tough demand backdrop. That also explains why a weakening rupee has been unable to buoy export performance to a great extent. Additionally, we have also cautioned that commodity fall is a double-edged sword, as a fifth of our exports earnings are from this space.

  • T


    Will the burden of the 7th Pay Commission hamper the fiscal scenario in FY17?


    Our base case is that it would. If implemented in full, the deficit position is likely to worsen, as was the case back in 2008-09. While there might still be defacto consolidation compared to the year ago, the pace of tightening will be much slower. If we rely on today's Economic survey thoughts, it seems to suggest that the consolidation should be adhered to. In which case, we expect a partial implementation of the commission's proposals, but accompanied by restrained fresh capex spending.

  • S


    The Indian rupee under considerable pressure. Do you think the Indian currency has further downside from current levels and what could possibly the impact of global volatility?


    The Indian rupee is amongst the worst performers in the region, outdone only by the Korean Won (on ytd basis). Our official forecasts does assume that there is further room for INR depreciation against the dollar. But we should note here that on basis of competitiveness, this weakness is one-sided. On nominal terms (i.e compared to trading partners), rupee is almost flat. Adjusted for inflation, INR has appreciated more than 10% since '14 levels. To compensate for its strength against the trading peers, authorities might be more tolerant of interim weakness in the INR/USD.

  • R


    Global crude oil prices seem to be consolidating at current levels. At what price points do you see that could alter the fiscal math?


    For now, there is little to suggest that a big rebound in oil prices is on the cards, with a material supply squeeze necessary to push prices higher. For argument sake, a rebound beyond USD 50-55/bbl might be a lose gauge, as these were the range assumed by the central bank and budgetary assumptions last year.

  • N


    Recent data indicates that exports in January 2016 exports declined for the 14th straight month on the back of falling non-oil export volumes. With slowdown in global growth how long do you see the declining export trend to continue?


    India is not the only economy facing slowing exports, in fact many of the Asian economies are on a similar footing with the export sector in midst of a recessionary phase. This is much more detrimental for those Asian peers in particular whose growth models are export-oriented and even more, if they were commodity exporters. With demand from the G3 economies still to make a comeback, Gulf economies (key trading partner for India) facing dwindling revenues at home and China in midst of a structural slowdown - we don't think there is sufficient ground for India's exports to recover in the near-term.

  • R


    The Eco survey suggests that 7th Pay Commission recommendations not likely to destabilize prices and will have little impact on inflation taking into account the monsoon uncertainties. the inflation forecast is pegged at 4.5-5%. What are your views?


    The inflation forecast at 4.5-5% is optimistic, with the central bank's own assumption at 5% by Mar17 but excluding pay commission changes. To that extent, if the Eco survey has laid out these numbers, the built-in assumption appears to be that the HRA increase stands deferred. Also the wage bill increase might not be taken up fully, but staggered over the next one or two years.