28 February 2015

Key highlights of Economic Survey 2014-15

The survey prepared by the finance ministry's chief economic adviser Arvind Subramanian on the state of Indian economy was released ahead of Saturday's Union Budget announcement for 2015/16 fiscal year that begins on April 1.

Centre forecast GDP growth of over 8 per cent (y/y) in the 2015/16 fiscal year, a key economic report said.

Following are the highlights of the survey:

Fiscal Deficit
* India must meet its medium-term fiscal deficit target of 3 percent of GDP
* Government will adhere to fiscal deficit target of 4.1 percent of GDP in 2014/15
* Government should ensure expenditure control to reduce fiscal deficit
* Expenditure control and expenditure switching to investment key

* 2015/16 GDP growth seen at over 8 pct y/y
* Double digit economic growth trajectory now a possibility
* Economic growth at market prices seen between 8.1 - 8.5 percent in 2015/16 on new GDP calculation formula
* Total stalled projects seen at about 7 percent of GDP, mostly in private sector

* There is scope for big bang reforms now
* India can increase public investments and still hit its borrowing targets

* Inflation shows declining trend in 2014/15
* Inflation likely to be below central bank target by 0.5 - 1 percentage point
* Lower inflation opens up space for more monetary policy easing
* Government and central bank need to conclude monetary framework pact to consolidate gains in inflation control
* Consumer inflation in 2015/16 likely to range between 5-5.5 percent

Fiscal Consolidation
* Govt remains committed to fiscal consolidation
* India can balance short-term imperative of boosting public investment to revitalize growth with fiscal discipline
* Outlook for external financing is correspondingly favourable

Current Account Deficit
* Estimated at about 1.3 percent of GDP in 2014/15 and less than 1.0 percent of GDP in 2015/16

* Overhauling of subsidy regime would pave the way for expenditure rationalisation


* Liquidity conditions expected to remain comfortable in 2015/16

27 February 2015

Railway Budget 2015-16: On the right track for a long journey

Key points

The Union Railway Budget for 2015-16 aims to achieve the dual objectives of improving the financial health of the Indian Railways and significantly increase the capital expenditure (capex) on modernisation, expansion and improvement of customer amenities & services of the railways at the same time.

The new rail minister’s mantra for improving the financial health of the railways is to improve the operational efficiencies and customer experience through better management, transparency and accountability.

On the other hand, the minister has increased the planned expenditure by 52% to over Rs1 trillion in 2015-16 for an aggressive network expansion plan including 16,400km of new lines, gauge conversion, doubling/tripling of lines, electrification and freight corridor. What’s more, the government has come out with a five-year plan that envisages capital investment of Rs8.5 trillion. The aggressive capital outlay would boost the morale of the domestic industry especially with a five-year visibility of possible business opportunity spelt out. It is also a step towards reviving the industrial activity and the investment cycle in India. In this regard, the government is also going to release a vision document outlining investments to be made till 2030.

A marginally negative step from the corporate standpoint is the revision done in the freight charges that would increase the freight cost for cement, coal, steel, urea and some other commodities. Moreover, there are questions regarding the government’s ability to raise financial resources to fund the aggressive capital investment plan outlined in the rail budget.

However, the positive takeaway is that the government has shown a clear intent to considerably increase the capital outlay for infrastructure projects and we could see a similar policy push in the Union Budget for 2015-16. Thus, we believe that the railway budget is positive for corporate India and the equity market. To play on the capital spending by the railways from the long-term investment perspective we prefer stocks like: Larsen and Toubro, Kalpataru Power Transmission and Thomas Cook (its subsidiary Quess is among the largest maintenance & housekeeping companies in India) in our coverage stocks along with companies like Gateway Distriparks and Container Corporation of India, which would see a significant improvement in their rail freight business with a better railway line network and a lower turnaround time.

08 February 2015

NITI Aayog: Forget differences for growth, investment & jobs, PM Modi tells CMs

Exhorting Chief Ministers to personally monitor factors slowing projects, Prime Minister Narendra Modi today asked states to bury differences to boost growth, create jobs and revive investment cycle.

He also suggested that an officer be identified in state governments to monitor and ensure a smooth resolution of pending issues so as to expedite projects implementation.

Addressing the first meeting of the Governing Council of NITI Aayog, the Prime Minister identified "alleviation of poverty" as the biggest challenge before the county and said the newly formed body will forge a model of co-operative and competitive federalism".

The recently constituted National Institution for Transforming India (NITI Aayog) has replaced over six-decade old Planning Commission as a think-tank for Centre and state governments as also to suggest policy directions. The Prime Minister is the chairperson of the new body.

"Forgetting all our differences, let us focus on the cycle of investment, growth, job creation and prosperity," he said at the meeting attended by several Chief Ministers and representatives of 31 states and Union Territories.

The Prime Minister announced constitution of three sub-groups comprising Chief Ministers to suggest rationalisation of 66 central schemes, on skill development and to make Clean India a continuous programme.

The first sub-group will suggest which of the central schemes should be continued and those which need to be curtailed or transfered to states for better implementation.

"We will move away from 'one size fits all' schemes and forge a better match between the schemes and the needs of states," Modi said.

Noting that projects are often held up for want of timely decisions, Modi asked Chief Ministers "to give personal attention" to factors slowing down projects and asked them to "focus on the cycle of investment, growth, job creation and prosperity".

He also asked states to set up two task forces each to help the country get out of problem of poverty and increase agricultural production.

West Bengal Chief Minister Mamata Banerjee skipped the meet, but Bihar Chief Minister Jitan Manjhi, who is facing a political turmoil back home, was present.

Others who attended the meeting included Akhilesh Yadav (Uttar Pradesh), Tarun Gogoi (Assam), Prakash Singh Badal, O Panneerselvam (Tamil Nadu), Oommen Chandy (Kerala) and Virbhadra Singh (Himachal Pradesh), as well as Chief Ministers from BJP ruled states.
Modi called upon Chief Ministers to work with the Centre to forge a model of co-operative federalism where the two work as Team India and "come together to resolve differences, and chart a common course to progress and prosperity." 

Describing the meeting as one that has the potential to bring about historic changes, he said the Governing Council of NITI Aayog would help advance the national cause "as we jointly define it". 

Noting that India cannot advance without all its states advancing in tandem, the Prime Minister said the idea was to bring up all states together in the spirit of 'Sabka Saath, Sabka Vikas'.