News behind the News – 08 July 2019

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indianeconomicpanorama


40 News the Newsbehind JULY 08, 2019

India’s case, GST and demonetisation
are likely to play a major role in this
formalisation.




  • Financialisation of savings: RBI’s
    move to adopt infl ation-targeting a few
    years ago — and establishing positive
    real interest rate — coupled with GoI’s
    decision to bring more transparency
    in the real estate sector, has started an
    irreversible structural shift of household
    savings from physical to fi nancial assets,
    a trend that should accelerate further.
    Th e share of fi nancial savings in total
    household savings is likely to touch
    50% by 2024 (from 38.5% now), with
    most of this incremental household
    savings likely to fi nd its way into India’s
    capital markets.




  • Drive inflation expectations of
    households lower to 6-7%: Th e focus on
    maintaining positive real rates through
    prudent monetary policy stance will
    continue. Infl ation expectations saw a
    sharp decline only when RBI managed
    to turn real interest rate positive.
    This implies that to lower inflation
    expectations further, RBI would need
    to keep real interest rates positive, as it
    has done in the last few years.




  • Lower public debt-GDP to 60%
    by 2024-25: Th e government should
    eventually institutionalise the Fiscal
    Responsibility and Budget Management
    (FRBM) recommendations, which sets
    a path to reduce India’s debt-GDP to
    60% over the next few years.




  • Double gross FDI fl ows to $100
    billion: Reforms related to FDI should
    continue, which, along with the focus
    on improving ease of doing business
    and simplifying tax administration
    through GST, should help to sustain
    the positive momentum in the period
    ahead. Gross FDI infl ows should rise
    close to $100 billion by 2024-25, from
    the current $45 billion. Th is will remain
    a key support for fi nancing the current
    account defi cit (CAD).




  • Increase FX reserves to $600
    billion: India’s foreign exchange reserves




currently stand at about $424 billion,
which amounts to import cover of
over nine months. Based on medium-
term CAD and short-term external
debt estimates (close to 150% cover
combined and one-year residual
maturity), forex reserves need to rise
to about $600 billion by 2024-25 to
maintain a strong reserves adequacy
position.
EMPLOYMENT GENERATION
As far as the generation of new jobs
is concerned, the Survey’s focus is on
the unshackling of small enterprises.
Th ese have to grow from being dwarfs to
becoming giants. Size-based incentives
often ensure they remain small in
size. Activities have to be scaled up
and employment created, notes Th e
Telegraph. The second aspect of
job creation mentioned is the need
for a well-designed minimum wage
scheme for the entire nation, though
not necessarily uniform. There is a
great deal of emphasis put on data —
quality, comparability and data being
amenable to technical analysis. The
survey describes data as a public good
— for the people, by the people and of
the people. Job creation has also been
linked to the growth in use of renewable
energy.
Th e focus on medium and small
enterprises not only as key drivers of
growth, but also for creating new jobs
is a timely nudge to the government in
Economic Survey 2019. Interestingly,
notes the Asian Age, the survey comes
when the country has seen the lowest
employment rate in 46 years, and
private investment has been languishing
for various reasons, including political
uncertainty before the recent elections.
Th e government’s capital expenditure,
which has hitherto been primarily in
the infrastructure sector and helped to
create employment, has been falling in
recent quarters as it strives to maintain
the fi scal defi cit target. It is therefore
imperative that the private sector steps

in with investments that would lead to
the creation of jobs and employment
opportunities.

STATE OF THE


ECONOMY
MANUFACTURING SECTOR
LOSES MOMENTUM
India’s factory production lost
momentum in June as the Manufacturing
Purchasing Managers’ Index (PMI)
slowed down to 52.1 in June, as against
52.7 of May.
This index by IHS Markit, is
prepared on the basis of a survey
which is conducted among purchasing
executives in over 400 companies. Th ese
companies are divided into 8 broad
categories: basic metals, chemicals and
plastics, electrical and optical, food
drink, mechanical engineering, textiles
and clothing, timber and paper, and
transport.
An index over 50 shows expansion,
while below 50 mean contraction.
Pollyanna de Lima, Principal
Economist at IHS Markit, said that the
PMI data highlighted a slight setback
in the Indian manufacturing sector
during June. Gauges of factory orders,
production, employment and exports
remained inside the growth territory,
but the rates of expansion softened in
all cases as domestic and international
demand showed some signs of fading.
Upbeat growth projections
continued to underpin job creation
and the stockpiling of inputs, but cracks
appeared in the form of a softer rise in
employment and waning optimism.
“A further decline in unfinished
business points to excess capacity
among goods producers, meaning that
job creation may come to a halt in the
near term should demand growth fail
to revive. Firms tried to boost sales
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