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Centre may have to cut capital spending by Rs 700 bn, says SBI report

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New Delhi : The shortfall in goods and services tax (GST) collection would severely affect the spending ability of the government this fiscal, a report by State Bank of India’s research wing has said. The cut in federal spending could be a massive Rs 700 billion, which is about a fourth of the capital expenditure for 2018-19.

This cut would be twice the Rs 363 billion reduction in capital spending the government did in 2017-18 in order to restrict fiscal deficit at 3.5 per cent of the gross domestic product (GDP).

Coupled with an “inevitable” slowdown in global growth, this would have a substantial impact on India’s GDP growth, said Soumya Kanti Ghosh, group chief economic advisor at SBI, and the author of the report. “The growth in the fourth quarter of 2018-19 (Q4) could well go below 7 per cent,” he said.

 

He said growth would reduce along the financial year, from 7.5 per cent in Q2, to near 7 per cent in Q3, to below 7 per cent in Q3, FY19. However, if oil stabilises at near $65/bbl, India’s current account deficit (CAD) would come down to 2.6 per cent of the GDP, from the earlier estimate of 2.8 per cent, it said.

The report estimates the shortfall in indirect tax collections at Rs 900 billion, of which the major chunk would be due to GST, to the tune of Rs 700 billion. This includes a reduction of Rs 105 billion due to excise duty cuts on petrol and diesel. In addition, a low performing stock market would make the collection of Rs 200 billion as long-term capital gains tax difficult.

Finance ministry officials maintain that the shortfall from GST would be nearly Rs 500 billion. While analysts from research departments of Kotak and YES Bank have their estimate of GST shortfall in line with the government, leading global brokerage CLSA has not ruled out a deficit of more than Rs 1 trillion under GST.

To balance this, direct taxes, customs duties and anti-evasion measures would help the government restrict the expenditure cut. While direct tax collection could exceed the budgeted target by Rs 200 billion, higher realisation from customs duties could add Rs 140 billion over and above the expectation. The excess from recoveries from evaded taxes is put at the higher end of Rs 200 billion.

An additional subsidy burden close to Rs 120 billion would be another pressure point, the report said.

The reduction in capex would hurt the road and infrastructure sector, as the National Highways Authority of India could resort to extra budgetary resources for its spend plan, said Ghosh.

The report indicated that to boost rural sector in times of revenue shortfall, fiscal expansion could possibly be resorted to. “We should not be obfuscated solely with a rigid fiscal policy stance as we must support our rural sector in terms of aggressive policy measures to boost farm income given declining prices,” it said.


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Saudi signs deals to invest USD 20 bn in cash-strapped Pakistan

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Islamabad: Pakistan and Saudi Arabia have signed a slew of investment agreements worth USD 20 billion which will provide a welcome relief to the teetering economy of the cash-strapped South Asian country.

At a ceremony in the Prime Minister House, Pakistan and Saudi officials signed MoUs for bilateral cooperation in a number of areas a process overseen by Pakistan premier Imran Khan and Saudi Crown Prince Mohammad bin Salman, who arrived in Pakistan on Sunday evening on a two-day visit.

“Today we signed MoUs. The amount of that kind of investment is USD 20 billion. It is big for phase one and definitely it (Saudi investment in Pakistan) will grow every month, every year in bigger numbers and it will be beneficial for both the countries,” the crown prince said.

 

“Pakistan is going to be very, very important country in the future and we want to be sure we are part of that,” he added.

Seven agreements, including MoUs in power, petrochemical and mining sectors, were inked as Prince Salman launched his diplomatic trip to Asia in Islamabad.

After Pakistan, the crown prince will travel to India, where he will meet Prime Minister Narendra Modi and Petroleum Minister Dharmendra Pradhan.

He is expected to finish the trip with a visit to China on Thursday and Friday.

Prince Salman said Saudi “cannot say no to Pakistan, whatever you (Pakistan) want we will do.”

“For Pakistanis, this is a great day,” the Pakistani premier said while addressing a dinner reception held in honour of the visiting Saudi guests at the PM House.

He said Saudi Arabia has always been there when Pakistan needed friends.

“I want to thank you for the way you helped us when we were in (a) bad situation,” Khan told the royal guest, adding that Pakistan and Saudi Arabia were now taking their relationship to a new level, where investment agreements would be mutually beneficial for the countries.

“The future is exciting for both Pakistan and Saudi Arabia after joining hands,” he said.

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Cement, fruit shipments from Pakistan among 10 most hit imports after duty hike

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New Delhi: Fresh fruits, cement and leather are among the 10 main imported items from Pakistan that would take a major hit following the imposition of 200 per cent customs duty by India on products from the neighbouring country in the aftermath of Pulwama attack, say experts.

The top ten products exported by Pakistan to India include fresh fruits, cement, petroleum products, minerals, and leather. Processed minerals, inorganic chemicals, raw cotton including waste, cotton fabrics, and glass and glassware are also among such items that account for 95 per cent of the total shipments.

“After drastically hiking the import duty on goods coming from Pakistan, we will isolate them in front of trade. Hiking of the duty at this level would completely hit exporters of Pakistan,” Professor Biswajit Dhar of Jawaharlal Nehru University (JNU) said.

 

Sharing similar views, Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said that Pakistan would face significant impact due to this decision.

The two main items imported from Pakistan are fruits and cement, which attracted customs duty of 30-50 per cent and 7.5 per cent, respectively.

Domestic importers who have already placed their orders from Pakistan may face issues after this decision. They may have to pay the 200 per cent duty or undertake lot of paperwork to get their consignments, an industry source said.

Taking strong economic action against Pakistan following the Pulwama attack, India Saturday raised the customs duty to 200 per cent on all goods imported from the neighbouring country.

India’s imports from Pakistan had increased to USD 488.5 million in 2017-18 from USD 455.5 billion in 2016-17.

Hike in the duty would drastically increase the prices of Pakistani goods in Indian markets which would make them far less competitive as compared to other imported goods. Slapping an import duty of 200 per cent effectively means almost banning the imports from Pakistan.

Total India-Pakistan trade has increased marginally to USD 2.41 billion in 2017-18 as against USD 2.27 billion in 2016-17.

At least 40 CRPF personnel were killed and five injured on Thursday in one of the deadliest terror attacks in Jammu and Kashmir when a Jaish-e-Mohammad suicide bomber rammed a vehicle carrying over 100 kg of explosives into their bus in Pulwama district.

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India needs fewer but stronger, mega banks: FM Jaitley after RBI meet

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New Delhi: Finance Minister Arun Jaitley addressed the customary post-budget meeting of the central board of the Reserve Bank on Monday.

Post the meeting, Jaitley said India needs fewer and mega banks which are strong.

“India needs fewer and mega banks which are strong because in every sense from borrowing rates to optimum utilisation the economies of scale as far as the banking sector is concerned are of great help,” Jaitley said.

 

On interim dividend, RBI Governor Shaktikanta Das said the central bank will take the decision based on the report by Bimal Jalan-led Committee.

Das also said that the RBI will discuss the issue of transmission of rate cut with bank chiefs on February 21.

Earlier this month, the Reserve Bank cut the benchmark interest rate by 0.25 per cent to 6.25 per cent.

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