<ul><li>The latest estimates from the government portend a contraction in agricultural <keyword id="6366990" type="UNKNOWN" weightage="20" keywordseo="Prices">prices</keyword> in 2018-19</li><li>Worst year for farmers' pricing power in a decade, according to a report</li><li>Both <keyword id="6359453" type="UNKNOWN" weightage="20" keywordseo="consumption">consumption</keyword> and <keyword id="6354642" type="PERSON" weightage="20" keywordseo="Modi">Modi</keyword>'s political capital likely to be hit</li></ul> More than three years ago Indian Prime Minister Narendra Modi <a href="https://indianexpress.com/article/india/india-news-india/farmers-rally-bareilly-target-to-double-farmers-income-by-2022/" data-type="tilCustomLink" target="_blank">promised</a> that he would double the income of the country's farmers by 2022. As his five-year tenure nears an end, the <keyword id="42546" type="PERSON" weightage="20" keywordseo="Growth">growth</keyword> in prices of agricultural commodities has hit it's lowest point in a decade. The latest set of growth estimates from the government are set to discolor <keyword id="3658" type="COUNTRY" weightage="20" keywordseo="India">India</keyword>'s image as the world's fastest-growing economy. "The most striking fact is that <keyword id="6355165" type="UNKNOWN" weightage="20" keywordseo="agriculture">agriculture</keyword> deflator for FY19 at –0.1% is lowest in 10 years, indicating continued distress (or low demand) in rural areas," Soumya Kanti Ghosh, group chief economic advisor at State Bank of India, said in a report released on 7 January. The deflator is a measure of <keyword id="22195" type="COMPANY" weightage="20" keywordseo="Inflation">inflation</keyword>. The data essentially reflects how much of the clocked growth is due to rise in prices. The estimate from India's chief statistician has pegged agricultural <keyword id="35050" type="CITY" weightage="20" keywordseo="gdp">GDP</keyword> growth at a measly 3.8% for 2018-19 compared to 4.5% a year earlier. However, there is a troubling detail: "We believe that the estimate is primarily due to growth in allied activities (livestock, forestry and fishing)," Ghosh's report warned. In effect, Indian farmers are looking at a second straight year of below-par performance. That combined with 
 
 
 
 
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 will further stoke the discontent among rural voters, much to the worry of the Modi government. Cost of the crisis The concern for the Indian government is both economic and political. Farmers in financial distress will consume even less and that will further squeeze overall economic growth, which, at this point, is heavily dependent on services and consumption. Both manufacturing and fresh investments have been uninspiring so far. New projects fell to an appalling <a href="https://www.livemint.com/Politics/djaa4hxQTklGR3lOws8hzJ/New-investments-in-India-plunge-to-14yearlow.html" data-type="tilCustomLink" target="_blank">14-year low</a> in December 2018. Capital investments have remained the government's prerogative as private investors shied away from betting big bucks. The slowing rural consumption has been visible in the recent slowdown in <a href="https://www.bloombergquint.com/markets/december-auto-sales-live-maruti-suzuki-declines-the-most-in-four-months" data-type="tilCustomLink" target="_blank">two-wheeler sales and budget cars</a>, which derive traction mainly from the affordability for Indians in smaller cities and villages. High interest rates and soaring fuel prices in the recent past have also dented people's purchasing power while their ability to afford increase prices has been limited, as reflected by the latest estimates. Additionally, Indian government's attempts to fix the narrative with recent hikes in 
 
 
 
 
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 have clearly not had a reasonable impact yet. All of this has led to growing resentment among rural voters; something that was a crucial factor in the ruling Bharatiya Janata Party losing three state elections in late 2018. Dearth of private investments and the consequent 
 
 
 
 
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 have left people with few alternatives. As of Tuesday (January 8), farmers organisation have joined hands with 150 million workers who have gone on a 2-day <keyword id="6358138" type="PERSON" weightage="20" keywordseo="Strike">strike</keyword> to protest the government's "anti-labour" policies. Modi has five months from now to calm irate voters before he faces the national test in May 2019. After all, 67% of India's population does not live in cities.

India's rural distress just went from bad to worse

To ease the pain of transactions, the <keyword id="6354335" type="CITY" weightage="20" keywordseo="reserve-bank-of-india">Reserve Bank of India</keyword> (RBI) has finally started printing Rs 200 currency notes. This is pegged as the last exercise of <keyword id="4136024" type="UNKNOWN" weightage="20" keywordseo="remonetisation">remonetisation</keyword>. "For day-to-day transaction purposes, the introduction of 200 rupee notes will add to the ease of operations," Soumya Kanti Ghosh, group chief economist at the SBI Group, told ET. The new Rs 200 note will bring some respite after the government decided to scrap Rs 1000 note and re-introduce Rs 500 note. “The introduction of 200 rupee notes will replenish the missing middle, triggered by the withdrawal of the old series of 500 rupee notes,” Ghosh added. During <keyword id="3315394" type="UNKNOWN" weightage="20" keywordseo="demonetisation">demonetisation</keyword>, the government withdrew old Rs 500 and Rs 1,000 currency notes, which accounted for about 86% of currency in circulation of Rs 17.9 lakh crore. As on June 9 this year, the currency circulation with the public is at Rs 14.6 lakh crore, still 18.4% lower than the pre-demonetisation level. The printing of currency notes is done either in printing units run by the government-run Security Printing and Minting Corporation of India Ltd or at printing presses in Mysore (Karnataka) and Salboni (West Bengal), managed by the RBI-owned Bharatiya Reserve Bank Note Mudran Private Ltd.

Finally, RBI begins printing Rs 200 currency notes

<ul><li>After cutting rates from 6.5% to 6.25% at its last meeting in February - in a bid to spur economic growth in the last quarter of the year - it seems that the central bank is all set to lower <keyword id="6371181" type="UNKNOWN" weightage="20" keywordseo="interest-rates">interest rates</keyword> by 25 basis points again. </li><li><keyword id="22195" type="COMPANY" weightage="20" keywordseo="Inflation">Inflation</keyword> is still subdued, which in turn, can keep a lid on economic growth. Meanwhile, industrial production and rural demand have been especially sluggish. </li><li>Another rate cut will spur investment and credit growth, especially for consumer loans and businesses’ working capital needs. It will also further reduce bond yields. </li></ul>The Reserve Bank of India’s (<keyword id="30067" type="ORGANIZATION" weightage="20" keywordseo="RBI">RBI</keyword>) upcoming monetary policy meeting on April 4th is important for two reasons. It’s the first meeting of the financial year and it’s taking place a week before the first phase of polling in India’s general elections begins. After cutting rates from 6.5% to 6.25% at its last meeting in February - in a bid to spur economic growth in the last quarter of the year - it seems that the central bank is all set to lower interest rates by 25 basis points again. At least, the market seems to be betting on it. Benchmark index, Sensex, touched a record high <a href="https://economictimes.indiatimes.com/markets/stocks/news/sensex-jumps-250-points-nifty-nears-11700-amid-progress-in-us-china-trade-talks/articleshow/68664374.cms">of 39,017 points</a> this morning on expectations of a rate cut. In a report by the State Bank of India (SBI), the bank’s chief economic advisor, Soumya Kanti Ghosh, said that <a href="https://www.thehindubusinessline.com/money-and-banking/rbi-may-go-for-25-bps-rate-cut-on-april-4/article26693679.ece">rural and urban demand continued to be weak,</a> translating into a drag on the economy. Ghsh actually felt that a rate cut <a href="https://economictimes.indiatimes.com/markets/stocks/news/et-poll-rbi-likely-to-go-for-another-25-bps-cut/articleshow/68663230.cms">of more than 25 basis points</a> might be in order. At the February meeting, the six-member <keyword id="6375120" type="COMPANY" weightage="20" keywordseo="monetary-policy-committee">monetary policy committee</keyword>, led by RBI Governor <keyword id="6359111" type="UNKNOWN" weightage="20" keywordseo="Shaktikanta-Das">Shaktikanta Das</keyword>, changed the bank’s policy stance from “calibrated tightening” to “neutral”, indicating a higher probability of a few more rate cuts this calendar year. The reason? Inflation is still subdued, which in turn, can keep a lid on economic growth. Despite the fact that consumer price inflation <a href="https://www.business-standard.com/article/economy-policy/retail-inflation-rises-to-4-month-high-of-2-57-in-february-2019-119031200605_1.html">rose to 2.57% </a>in February 2019 after hitting a 19-month low of 1.97% the previous month, it is still well below the RBI’s 4% target. Inflation is expected to <a href="https://www.indiaratings.co.in/PressRelease?pressReleaseID=36434&amp;title=-Fiscal-Stance%2C-Declining-Households-Savings-Impacting-Bond-Market-Yields-">stay benign in the near term</a>, according to India Ratings, and households will prioritise savings over consumption. Meanwhile, industrial production has been sluggish, with output growth fell <a href="https://www.businessinsider.in/indias-industrial-production-rate-plunges-to-1-7-in-january/articleshow/68377304.cms">to 1.7%</a> in January 2019 from 2.6% the previous month. Another rate cut will spur investment and credit growth, especially for consumer loans and businesses’ working capital needs. It will also further reduce bond yields, <a href="https://www.livemint.com/market/stock-market-news/fpi-investments-in-bonds-cross-2-billion-in-march-1553403283555.html">prolonging a rally in bond markets</a>, driven by a surge in foreign portfolio investment inflows owing to confidence that the Modi administration will secure a second term. A rise in value of government bonds helps in keeping the borrowing costs lower. Bryan Carter, of BNP Paribas Asset Management, highlighted market expectations for a continued softening of rates. He told <a href="https://www.business-standard.com/article/markets/bulls-eye-more-gains-pin-hope-on-rbi-as-markets-stage-a-comeback-in-march-119040100065_1.html">Business Standard,</a> “India has already fired the first easing shot, so the expectation is naturally for more.” SEE ALSO: <a href="https://www.businessinsider.in/rbi-policy-update-cuts-interest-rate-citing-low-inflation-and-it-may-boost-growth/articleshow/67880230.cms">India’s central bank cuts interest rate to give growth a chance</a> <a href="https://www.businessinsider.in/rbi-pushes-banks-to-pass-on-interest-rate-cuts-to-consumers/articleshow/68105967.cms">India’s central bank is calling on the country’s lenders to lower rates</a>

Here’s why India’s central bank could cut interest rates again this week

<img class="gwt-Image" src="/photo/56371103.cms" /> Post <keyword id="3315394" type="UNKNOWN" weightage="20" keywordseo="demonetisation">demonetisation</keyword>, banks have been working really hard to get back the old money and distribute the new denominations. The country faced a severe <keyword id="6380684" type="UNKNOWN" weightage="20" keywordseo="cash-Crunch">cash crunch</keyword> after the demonetisation was announced and things are settling down slowly. According to a report by State Bank of India, the Reserve Bank of India replaced as much as 44% of the currency extinguished by demonetisation with new notes by December 30. 
 
The report also confirmed that India's currency supply is likely to return to near normal by February end and growth, which has been hit by the withdrawal of 500 and 1,000 notes, is likely to bounce back faster than earlier expected. 
 The level of replenishment is perhaps not rising faster because the central bank, having initially focused on pumping new 2,000 notes into the system, is now concentrating on currency of lower denominations, <keyword id="13222" type="CITY" weightage="100" keywordseo="SBI">SBI</keyword> group chief economist Soumya Kanti Ghosh told ET . 
 
The SBI also forecasted that by the end of this month, 67% of the cancelled currency will get replaced if the central bank prints notes of various denominations at the current pace, and to 80-89% by the end of next month. 
 
"Either way, contrary to market perception, things will be closer to normal by February-end as opposed to predictions of the crisis lasting longer. If this is the case, the possibility of a GDP bounce-back faster than anticipated may not be ruled out,” Ghosh told ET.

SBI sees India getting close to normal by end Feb 2017, if the RBI continues printing new currency at the current pace

<keyword id="107284" type="ORGANIZATION" weightage="100" keywordseo="housing-board">Housing Board</keyword>, India’s apex financial institution for housing, wants home-ownership costs in India to fall. For this purpose, it is holding talks with state governments, in a bid to convince them to cut stamp duties and registration fees. "We have engaged with some state governments on how they could reduce stamp duty for affordable housing," <keyword id="2940929" type="PERSON" weightage="100" keywordseo="Sriram-Kalyanaraman">Sriram Kalyanaraman</keyword>, MD of the <keyword id="152130" type="COMPANY" weightage="100" keywordseo="National-Housing-Bank">National Housing Bank</keyword> (NHB), told <a href="http://economictimes.indiatimes.com/wealth/real-estate/if-housing-board-has-its-way-stamp-duty-registration-fees-on-house-may-fall-to-5-6/articleshow/58451019.cms">ET</a>. "If they accept it, stamp duties and registration charges should come down significantly. Such a reduction will bring down their margin money and provide relief to many Indians, for whom owning a 'home' is still an aspiration." Also read: <a href="http://www.businessinsider.in/thelife/real-estate/indians-pay-too-much-interest-on-home-loans-reveals-study/articleshow/57936834.cms">Indians pay too much interest on home loans, reveals study</a> If the NHB successfully convinces state governments, stamp duties and registration fees might come down to 5-6% of the basic cost of the property. As of now, these rates go up to 12.5% in some states. This would also help the government in achieving its "<a href="http://www.businessinsider.in/markets/budget2016/infrastructure/real-estate/Housing-for-All-Budget-2016-expectations/articleshow/50901695.cms">Housing for All</a> by 2022" objective, started two years ago. Also read: <a href="http://www.businessinsider.in/PM-Modis-Housing-For-All-to-remain-adistant-dream/articleshow/46745016.cms">PM Modi’s ‘Housing For All’ to remain a distant dream?</a> In order to achieve the pre-set target, 29.5 million additional homes need to be built by 2022. As per Kalyanaraman, states can make up for their losses from reduced rates by the increases revenues from increased housing. "Alternative sources of revenue from the housing sector need to be looked at," said Soumya Kanti Ghosh, the chief economic adviser at the <a href="http://www.businessinsider.in/small-business/finance/are-you-a-sbi-card-user-get-ready-to-pay-rs-100-on-small-payments-via-cheque/articleshow/58243746.cms">State Bank of India</a>. "To compensate the proposed reductions (stamp duty and registration charges), state governments could explore imposing <a href="http://www.businessinsider.in/markets/budget2017/your-money/Budget-2017-here-are-vat-rates-of-india-china-uk-germany-and-brazil-find-out-which-country-has-the-highest-rate/articleshow/56759073.cms">value-added tax</a> on luxury items, and on goods such as liquor. Such reductions will not only give shelters millions but also create jobs."

Housing board might talk states into slashing stamp duty & registration fees on houses

<img class="gwt-Image" src="/photo/56681445.cms" style="height: 772px; width: 800px;" /><a href="http://www.businessinsider.in/searchresult.cms?query=rbi&amp;sortorder=effectivedate">Reserve Bank of India</a>’s Governor <a href="http://www.businessinsider.in/searchresult.cms?query=urjit+patel&amp;sortorder=effectivedate">Urjit Patel </a>could not give details on how much money was deposited in banks post <a href="http://www.businessinsider.in/searchresult.cms?query=demonetisation&amp;sortorder=effectivedate">demonetisation</a>, and this did not go well with the nation. 
 
There could be several reasons behind Patel’s silence. One of the possible reasons is the double counting of money. 
 
There is a possibility that RBI must have counted money twice. Also, there is an issue of segregating the banned Rs 500 and Rs 1,000 currency from deposits of notes which are legal tender. 
 
Around 17.165 billion pieces of old Rs 500 notes and 6.858 billion pieces of old Rs 1,000 notes amounting to Rs 15.4 lakh crore were in circulation. 
 
The RBI could also not come up with a figure as the time frame to deposit banned notes for NRIs has been extended till March end. 
 
"What the RBI has done is, it has collected figures from not only the commercial banks but also post offices, district cooperative banks, petrol pumps and what has happened is there is a lot of overlap,” Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, told ET. 
 
For instance, the post offices bank with SBI but also report numbers directly with RBI. Since SBI's numbers include post office's money, RBI would have to exclude them to arrive at the correct figure. 
 
"A petrol pump may have an account with <a href="http://www.businessinsider.in/searchresult.cms?query=SBI&amp;sortorder=effectivedate">SBI </a>and when that money is deposited, it could be counted twice,” Ghosh told ET. 
 
"On the basis of the number RBI has put out, 95% currency may be back into the system. Probably, RBI could give a timeline by when they expect to finish physical reconciliation of currency. But I would assume that at least one level of counting and checking has been done by the banking system. So, it is not as if all the money that has returned has to be counted again. It's only where there this is a need to reconcile, they should do it,” A Prasanna, Chief Economist at ICICI Securities PD, told ET.

Two possible reasons why RBI Guv Urjit Patel could not tell amount of money deposited in banks post demonetisation

After <keyword id="3315394" type="UNKNOWN" weightage="20" keywordseo="demonetisation">demonetisation</keyword>, there has been a phenomenal rise in the number of point-of-sale (PoS) terminals to over 28 lakh till July this year from 13.8 lakh in March last year. But, despite the rise in debit and card transactions, factors like low merchant discount rates (MDR), low card usage, poor telecom infrastructure, lack of incentives to merchants to accept cards among others have led to huge losses for <keyword id="6368751" type="PERSON" weightage="20" keywordseo="Banks">banks</keyword>, ET finds out from the <keyword id="13222" type="CITY" weightage="20" keywordseo="SBI">SBI</keyword> report . Banks are suffering a staggering Rs 3,800 crore loss to run the current payment infrastructure, according to the report. "We believe the current humongous PoS infrastructure that the banks have developed have to be supported wholeheartedly," the SBI report authored by Soumya Kanti Ghosh, the bank's Group Chief Economic Advisor, says. "Though the government has proposed various measures to incentivise PoS infrastructure and banks are installing PoS terminals. But, in the long-run, the business would be viable, only if the transactions at PoS surpass the ATM transactions, an enviable task indeed," the report added. The payment card industry in India is based on a four-party model which includes the issuing bank, acquiring bank, merchant and the customer. The acquiring bank bears the entire cost to create the infrastructure for PoS terminals, clearing &amp; settlement, merchant training, terminal maintenance, supply of consumables etc. The issuing bank bears the cost of issuing the cards and also manages other risks related to cardholders like failed transactions, frauds, etc. If the issuing bank and acquiring bank is the same bank, the transactions at PoS are termed as ON-US transactions. While, if the issuing bank and acquiring bank are different entities, then it is known as OFF-US transactions. Acquiring bank, in turn, receives revenues only in the form of MDR and monthly rental. The MDR on debit cards has been at 1%, while there is no fixed MDR on credit card transactions. "Needless to say, such revenue is grossly inadequate for banks to support revenue earned and hence a loss," the report says. "Post demonetisation, RBI has lowered the MDR to 0.25% till the end Mar 2017, for transactions up to Rs 1000. These incentivised merchants to accept cards for the payment, but impacted the revenues of banks, as most of the transactions are in small amounts."

Banks lose Rs 3,800 crore to run current payment infra system: SBI report

<ul><li>The GDP growth rate for the first quarter of the 2019-20 came lower than expectations, at a mere 5%.</li><li>However, online searches for ‘<keyword id="121430" type="PERSON" weightage="20" keywordseo="recession-in-india">recession in India</keyword>’ had spiked many times over in the last couple of months.</li><li>Afraid of a severe slowdown, Indian consumers had cut back expenses, even on items of daily use, setting in motion a vicious cycle of slowdown in manufacturing, investments, and unemployment.</li><li>Economists hope the recent stimulus from both the government and the RBI, as well as good rains, will help in reviving both the economy and the sentiment.</li></ul> India’s growth in gross domestic product (GDP) between April and June 2019 was a mere 5%, the worst in over six years and way below estimates. The data was released on Friday (August 30) but people in India had already been fearing a recession much before the government admitted to a sharp slowdown. Google Trends show that online searches for ‘recession in India’ spiked in the last couple of months, many times over, showing that people had already started to feel the pinch. 
	
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 The very first day of trading after the Finance Minister Nirmala Sitharaman announced the mega merger of ten public sector banks (PSB) into four, the stock markets went tumbling down on Tuesday September 3. Sensex shed 600 points whereas Nifty lost over 180 points. This fall was led by PSB stocks and most of their stocks were down by over 5%. This is one of the many measures taken to revive the economy. The economic wheel was brought to a grinding halt by demonetisation in November 2016, and the recovery was delayed by the disruptions caused by the introduction of Goods and Services Tax (GST) in mid-2017. As tax revenue fell, the Narendra Modi government <a href="https://www.indiatoday.in/business/story/bonds-indian-economy-government-spending-1580704-2019-08-14">reduced spending</a> to keep the fiscal deficit under check. Private investments had already <a href="https://www.thehindu.com/business/performance-of-corporate-firms-declines/article29231755.ece">gone into a shell</a>, and as the Modi government tightened its purse strings in the last year of its first term, economic activity spiraled down. 
 
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 The report authored by Soumya Kanti Ghosh is pushing for more aggressive interest rate cuts by the RBI. “We believe it is incorrect for central bankers to suggest that they have this challenge under control - or that with their current toolkit they will be able to get it under control,” said SBI Ecowrap. This deep slowdown is a culmination of many areas, in addition to decline in consumer sentiment right from slowing auto sales to reduced air traffic growth to cut backs on items of daily use. Before taking a look ahead, let’s look at the three main areas where growth is slowing down. Consumption hits a standstill with job losses Weary Indians are cutting down on expenses like no other, and that has affected the economy. As many as 350,000 jobs were cut in the formal sector of automobiles. This massive number does not count in <a href="https://www.businessinsider.in/a-third-of-indias-textile-workers-30-million-lost-their-jobs-and-more-could-go/articleshow/70781257.cms">textiles, diamond workers and </a>others. Combined with the informal sector job loss, the consumption loss would translate to around ₹15,000 crore. The growth in consumption expenditure slumped to 3.1% in the three months ending June 2019-- the weakest in five years. More than half of India lives outside the cities, and the broad-based consumption slowdown reflects the deep distress in the rural parts. “Agriculture, forestry and fishing output grew by 2% improving slightly from de-growth (contraction) of 0.1%,” said a report by Edelweiss. Manufacturing shutters down With low consumption and almost no demand growth in sight, the quarter’s manufacturing growth was as low as 0.6%. This is in spite of high growth in electricity and utility expansion. Investment lowers with less to spend Indian companies are seeing less reasons to keep their plants running, there is much less to invest either. As a result, investments growth has slipped to just 3.7%. Companies are choosing to park their money in financial assets rather than betting on a slowing economy. “With low wage growth rate, household savings are also particularly down. Thus, households are not closing the savings-investments gap and this is bringing down overall investments,” said Edelweiss. Simply put, people are choosing to hold on to cash rather than invest anywhere <a href="https://www.businessinsider.in/gold-prices-on-a-rally-set-to-test-new-highs-of-1450-per-ounce/articleshow/69970217.cms">other than gold</a>. Will the Indian economy weaken further or enter a recession? An economy is defined to be in a recession if growth contracts for two straight quarters. That isn’t the case with India. However, many sectors within the Indian industry like automobiles and textiles-- two of the largest providers of jobs-- are already in recession. So there are reasons to worry but may be not for panic. The chickens have come home to roost. But the government has woken up to the emergency and is <a href="https://www.businessinsider.in/nirmala-sitharam-address-on-india-economic-stimulus-live-updates-and-highlights/articleshow/70804926.cms">shoring up money</a> to battle the slowdown. “Based on fiscal deficit numbers, in Pradhan Mantri Kisan Yojana (PMKY), the government will save ₹30,000 crore. If we add <a href="https://www.businessinsider.in/sensex-today-jumps-150-points-after-rbi-move-to-transfer-surplus/articleshow/70852202.cms">RBI surplus transfer</a>, the Government further would have adequate cushion for make up for revenue loss,” said a report by SBI Ecowrap. The more money the government spends in stimulating demand and investments in the economy either through sops for consumers or incentives for industries, the sooner the economy will revive. Aside from giving the government a part of its reserves, the RBI has already cut interest rates four times this year hoping to bring down lending rates, and Edelweiss believes that India’s GDP growth will start improving hereon as the effect of RBI’s measures start to trickle in. The rains will also have a role to play. “This number is likely to improve further the next quarter as a South-west monsoon season has been normal for this year,” the Edelweiss report said. Just like the pain of demonetisation and GST have lingered on for over two years, the government’s recent measures to boost economic growth may show effect with a lag.

Indians were fearing recession even before data showed that GDP growth hit a six-year low

<img class="gwt-Image" src="/photo/36487582.cms" /> The Reserve Bank of India (<keyword id="30067" type="ORGANIZATION" weightage="100" keywordseo="RBI">RBI</keyword>) bought $5.8 billion from the market in April, which took net purchases to more than $25 billion since Raghuram Rajan took charge as RBI governor in September 2013. 
 The RBI is buying US <keyword id="35208" type="ORGANIZATION" weightage="100" keywordseo="dollar">dollar</keyword> aggressively to check appreciation of the <keyword id="6355302" type="ORGANIZATION" weightage="100" keywordseo="Rupee">rupee</keyword> and consolidate foreign exchange reserves, which decreased last year. 
 
The rupee has gained 12% against the US dollar since September 4, 2013, when Rajan took charge. It had hit an all-time low of 68.85/$ in August, 2013. 
 
In April 2014, foreign institutional investors sold Rs 9,200 crore in debt instruments while they invested Rs 9,600 crore. The rupee fell 45 paisa or 0.75% to 60.34/$ during the same period. 
 
“The Reserve Bank of India may continue with the intervention strategy if the foreign portfolio inflows rise at the current pace,” said Soumya Kanti Ghosh, chief economic advisor and general manager of the State Bank of India. “The central bank is buying dollars in the spot market, but selling in the forward market to neutralise the liquidity impact,” she added.

RBI Bought $5.8 Billion In April To Check Rupee’s Rise

<img class="gwt-Image" src="/photo/47514018.cms" />India’s happiness over January-March <keyword id="35050" type="CITY" weightage="80" keywordseo="gdp">GDP</keyword> growth figure of 7.5% may be short-lived and there are high chances of downward revision in nearly three months due to new method of GDP calculation. 
 
In new method of calculation, Indian Government captures revenue and profit numbers of about five lakh companies registered with the Ministry of Corporate Affairs. 
 
Earlier, the government used to capture data from a sample of about 2,000 companies only from Reserve Bank of India’s quarterly survey of industries. 
 
Even though the government is willing to make the GDP estimates more broad-based, lack of timely disclosure of data by Indian companies, including unlisted, is making the GDP estimates more prone to large scale revisions. 
 
As corporates reported dismal numbers for the January-March quarter, economists believe India's Q4 GDP will be revised downwards as sharply as in Q3. 
 
Economic Times reported that the Q3 (October -December 2014) estimates were revised sharply lower to 6.6% from 7.5% a quarter down the line, a fall of 90 basis points (100 basis points = 1 percentage point). 
 
Soumya Kanti Ghosh, chief economic advisor, SBI, told ET that going by the GDP and Gross Value Added (GVA) and the wide divergence between the two points to a significant moderation in growth in the second half of fiscal 2015. 
 
“The latest batch of corporate results from the listed space is showing a fall in profitability and also muted volume growth. Now if the listed space shows such a large fall, it is unlikely to be any different with the unlisted space. So in the coming months, when the full data is captured, this can possibly lead to downward revision of GDP growth,” Ghosh told the financial daily. 
 
According to World Bank data, In Q4, China's GDP grew at 7% whereas India grew at 7.5%. 
 
"The new GDP calculation captures data from MCA21 for the corporate performance, compared to earlier practice from IIP. Since MCA21 is a much larger database, it is hard to believe that most of the companies have already filed their latest quarterly numbers. As current corporate earnings are showing muted performance, hence there is legitimate scope for downward revision of GDP while we get the complete updated data for Q4," Soumyajit Niyogi, interest rate strategist, SBI DFHI, told ET. 
 
(Image: Reuters)

New method to calculate GDP may spill bad news for India. Here’s why

India’s main opposition party The Indian National Congress has raised the stakes for the incumbent Narendra Modi government. On Monday, Congress president <keyword id="5268" type="PERSON" weightage="20" keywordseo="Rahul-Gandhi">Rahul Gandhi</keyword> promised a minimum income guarantee for every poor person if the party won the 2019 elections. The Modi administration is also reportedly preparing to unveil its own income support in the upcoming interim budget. What is the promise from Congress President Rahul Gandhi? Congress has promised to give the country’s poor a minimum amount of money from the government as monthly income, but hasn’t specified how much it will be. Is it the same as universal basic income (UBI)? It is unlikely to be the same as UBI, which by definition would mean an assured amount of money from the government to every citizen of the country. However, minimum income guarantee may only be available to people below a certain income threshold. How much will it cost the government? It is difficult to ascertain the cost without the details of the programme. India’s total population is 1.36 billion, of which 22% of people below poverty line. Assuming that the government supports only those below the poverty line, it will still have to pay nearly 300 million people a fixed sum of money every month. India Ratings estimates that the BJP's potential income support scheme, to be released in its budget, could end up costing at least ₹1.5 trillion a year - or 0.7% of GDP - in the absence of other support schemes. Separately, SBI’s Chief Economist Soumya Kanti Ghosh recently <a href="https://www.businessinsider.in/what-if-interim-budget-2019-replaces-subsidy-with-cash-transfer/articleshow/67658379.cms">estimated</a> that about 143 million farmers get one kind of subsidy or another. Accounting for possible omissions for lack of proper identification of beneficiaries and for those who have no land or documentation, the report said that the cost of giving direct cash transfer in lieu of subsidy will be about ₹1.2 trillion a year. Meanwhile, Pranab Bardhan, professor of graduate school at the department of economics, University of California, Berkeley, estimated that if a scheme like the UBI were to be implemented, the government would have to pay ₹16,000 per household and it would cost ₹2.1 trillion a year, or 1.25% of the gross domestic product (GDP). Government has 940 centrally sponsored schemes, according to a <a href="http://www.iitd.ac.in/CEAIITD/pdfs/3/MOOC_Sub&amp;UBI_14Jun_v10.pdf">report </a>from former Chief Economic Advisor Arvind Subramanian in 2016. According to that estimate, the cost of giving every citizen some money every month would cost the exchequer about 4-5% of GDP. Who will bear the cost? If the central government raises taxes on the rich, the additional burden will be on the really well-off. However, it may affect the political donations that help parties fight elections. Raising the burden of middle-class taxpayer may have a political cost and won't win votes. If the government borrows money to fund additional expense, the burden will be on every taxpayer in the form of higher interest cost, weaker rupee and higher inflation. Can India afford such a huge burden? In theory, something like a minimum income guarantee can be funded by three ways: withdrawing or reducing existing subsidies or by raising taxes on richer sections of the people. So to give poor people given minimum income, would everyone else lose subsidies or pay more tax? Not necessarily. And certainly, no one will lose all subsidies. The subsidies available from the state governments will continue. If at all, only the central government subsidies may be withdrawn once it implements minimum income guarantee. So, if you live in Tamil Nadu or Punjab and get subsidised electricity, that will likely continue. Raising taxes will be a different matter. So which of the central government subsidies remain? As of now, the biggest subsidies that the central government offers are on food, fuel, fertilisers, liquified petroleum gas (LPG) cooking cylinders, as well as on tax and interest rates to specific sections of the population. One cannot say for sure how the government chooses to rationalise the existing subsidies. Can they withdraw food subsidy? Unlikely. Food subsidies are made available through the public distribution system, or ration shops, and are unlikely to be dismantled. 52.3% of all households purchased cereals from ration shops in 2011-12 compared to 27% in 2004-05, according to a Niti Aayog <a href="https://niti.gov.in/writereaddata/files/document_publication/Final%20PDS%20Report-new.pdf">report</a> from 2016. It won’t be a politically savvy move to increase the cost of food for half of the country’s households in one go. India also has a law that gives every citizen a right to affordable food, with the National Food Security Act 2013. So no government can withdraw food security without going back to the Parliament for permission. Do we still get fuel subsidy? While petrol and diesel prices have been deregulated, kerosene prices are subsidised as it is used mostly by the very poor and bought at ration shops. While the cost of kerosene subsidy was budgeted in February 2018 at about ₹4,500 crore, withdrawing the support will only hurt the poorest. What about the subsidy on cooking gas? The subsidy on LPG cooking cylinders is already transferred online to the eligible buyers. Current prime minister Narendra Modi pushed millions of Indians to adopt LPG cylinders instead of coal hearths. [hyperlink] Now, it will be a politically sensitive decision for any party to withdraw benefits on basic necessities like LPG, especially after literally forcing them to use it. What about fertilisers? Fertiliser subsidies are once again availed by farmers and the recent rural distress will make it difficult for the government to withdraw any farm subsidy. Moreover, India <a href="https://www.thehindubusinessline.com/economy/agri-business/india-to-continue-importing-fertiliser-in-medium-term-ind-ra-study/article24679053.ece">imports</a> 28% of all the fertilisers it needs, according to India Ratings and Research. On one hand the global prices of fertilisers have been rising, and the weaker rupee has made these imported fertilisers even more expensive. Withdrawing fertiliser subsidy will make farmers really angry. What about health and education subsidy? Ayushman Bharat, a scheme that was launched in 2018, is a centrally sponsored insurance programme targeting 10 crore families across India who are either poor and deprived or identified as urban workers' families. It covers hospitalisation cost up to ₹5 lakhs a year, and is likely to continue. Primary health centres are at funded by state governments. Central government subsidises higher education in places like IITs, IIMs, AIIMS, JNU etc, which are also likely to stay. What are interest subsidies? Often, the state-owned banks offer cheap loans to different sections of the population and the government bears the difference in interest rate. But don’t India’s farmers already get a lot of subsidies? Yes, India’s farmers are entitled to minimum support (MSP) price on their produce. Even if the market price of the crop is less than the MSP, the government is supposed to make for the difference. However, while many governments have either promised or increased the MSP, the <a href="https://indianexpress.com/article/opinion/columns/msp-kharif-crops-narendra-modi-minimum-support-price-gst-farmers-5270286/">net impact </a>on the farmers has been minimal. “No matter how hard the government tries, it cannot procure even 25% of the production of various kharif crops, except in paddy and cotton, as a robust procurement system does not exist for other crops,” experts at Indian Council For Research On International Economic Relations commented in July 2018. Therefore, withdrawing key subsidies, including those on fertilisers or interest on loans, will make the minimum income guarantee a zero-sum offer for the farmers. Will MGNREGA continue? Yes, it’s an employment guarantee scheme, not a subsidy. People are assured a certain number of days of work every year, for which they are paid. Is the Congress' promise a political gimmick? Minimum income guarantee will allow poor people to poor people to access basic necessities. Of course, this is assuming that the minimum amount given to the people is enough to cover their basic expenses. Further, the government will have to ensure that the infrastructure is in place to implement a massive programme like this in a complex country like India. The biggest problem in India is that it is very difficult to accurately identify those who need such a programme. So to analyse the merits of the promise, we will need more details. See more <a href="https://www.businessinsider.in/Presidential-ego-or-a-dynasts-charm-what-Indian-voters-like-is-still-a-mystery-to-the-countrys-politicians/articleshow/67685811.cms">Presidential ego or a dynast’s charm — what Indian voters like is still a mystery to the country’s politicians</a>

Explained: What is minimum income guarantee and how it may work?

<img class="gwt-Image" src="/photo/47936766.cms" /> 
A rise in projects under implementation as well as a decline in the number of stalled projects point towards the fact that there is a pickup in economic activities. 
 Data released by independent economy tracker <keyword id="6493461" type="ORGANIZATION" weightage="100" keywordseo="CMIE">CMIE</keyword> showed an 8.4per cent rise in projects under implementation in the quarter ended June 30, fastest since the September 2012 quarter. 
 Private sector projects under implementation rose 0.8 per cent in the June quarter, the first expansion in eight quarters, providing boost to the <keyword id="6387077" type="ORGANIZATION" weightage="80" keywordseo="Narendra-Modi-government">Narendra Modi government</keyword> that has faced criticism of late for a slackening of reforms. 
 "Bottom line from this quarter's release is that the data looks encouraging with projects under implementation improving for the fourth quarter," <keyword id="48670" type="CITY" weightage="100" keywordseo="Morgan-Stanley">Morgan Stanley</keyword> noted in a report analysing the CMIE data. 
 
Another report said the stock of stalled projects has declined for the fifth successive quarter. 
 From a peak of 8.4 per cent of <keyword id="35050" type="CITY" weightage="80" keywordseo="gdp">GDP</keyword> in the quarter ended March 31, 2014, stalled projects' stock declined to 6.6 per cent in June 2015 quarter, helped by the government's emphasis on capital spending at the start of the new fiscal. 
 "Since March 2014, projects worth about 2 per cent of GDP have been installed. Progressing steadily, they have now reached a critical mass and can potentially start impacting domestic activity notably," <keyword id="6358584" type="CITY" weightage="100" keywordseo="HSBC">HSBC</keyword> noted in a report, which however also noted that new projects were conspicuous by their absence. This view is consistent with a rise in production of capital goods as per <keyword id="6427912" type="ORGANIZATION" weightage="80" keywordseo="IIP">IIP</keyword> data. 
 
Investments worth Rs 1.15 lakh crore were announced during the June quarter, a 33 per cent rise from a year ago but on a weak base, CMIE had said on July 1. 
 
Also, the first quarter of fiscal 2015-16 saw around 165 projects getting scrapped, which is up from 106 projects stalled in June 2014 quarter. 
 
A heavily indebted private sector has largely been unable to step up investment in the face of weak demand while banks, struggling with bad loans, are finding it difficult to cut rates or lend more to stimulate consumption. 
 
Further, bank credit growth fell to lowest in more than two decades in FY15. 
 
 
 
Further, bank credit growth fell to lowest in more than two decades in FY15. 
 
"Broad-based recovery seems far off. There might be green shoots here but both domestic and external demand remains extremely weak. There are noisy signals in the economy. Private investments will still take time to pick up. We should see action in the infra sector, which should push investment, but the financial institutions data does not reflect that. Who would lend to the infra sector at this juncture," said DK Joshi, chief economist, Crisil. 
 
Morgan Stanley says recent government action should sustain the revival in capital expenditure. 
 
"We believe that recent government action to accelerate the pace of medium term reforms (addressing issues related to land, labour and taxation) will help sustain the recovery in capex..." the report, authored by Chetan Ahya, Upasana Chachra and Nupur Gupta, noted. 
 It sees the economy growing at 6.5 per cent in FY16 as per the old GDP series, by which measure growth in FY14 was 4.9 per cent. Under the new GDP methodology <keyword id="6356076" type="UNKNOWN" weightage="100" keywordseo="indian-economy">Indian economy</keyword> expanded by a perkier 7.3 per cent in FY15 and is expected to accelerate to near 8 per cent in the current year. 
 
 
 
HSBC said that installing projects would provide momentum for some time in the absence of new factories and mines. 
 
 
 
"True, new projects are not showing any increase, but they may not really be the right indicator to track turning points. Right now, resolving a substantial number of stuck projects could in itself trigger notable investment spending," said Pranjul Bhandari, chief India economist, urging government to get state-run companies to step up investments. 
 
Much of the improvement is visible in the roads and railways sector where higher spending and policy initiative has resulted in investment picking up. 
 
In the April-May period, the government has managed to spend 14.8 per cent of its budgeted spending for the year. Within that, 13 per cent of plan funds for the entire year have been spent in the first two months, a fast start to the year. 
 
Many economists caution that investment activity remains weak. "While macro numbers, right from inflation to current account look under control, the domestic private investment remains weak. 
 
The credit growth does not show that manufacturing pickup is on way. It will take a while to gather momentum. As far as project implementation numbers go, they are coming from a very low base. Government's planned capital expenditure slowed down in May versus April," said Soumya Kanti Ghosh, chief economic advisor, SBI. 
 
(image credits: unep.org)

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