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AUGUST 12, 2017

Growth likely to be in the lower range, closer to 6.5%

  • The Indian economy’s growth in 2017-18 is more likely to be closer to 6.5% than 7.5%, according to Chief Economic Adviser Arvind Subramanian.

Demonetisation impact

  • Stressing that it would be premature to say that growth can rebound very quickly unless there is a ‘clean-up’ and significant ‘deleveraging’ in the Indian economy, Mr. Subramanian said there has been an ‘across-the-board deceleration in real activity since the first or second quarter of last year,’ which could have intensified owing to demonetisation of high-value currency notes by the government last November. The economy grew by 7.1% in 2016-17.

Farm loan waivers

  • While refusing to get drawn into a debate on whether farm loan waivers announced by States are good or bad, he said such waivers will act as a ‘drag on growth’ rather than have an inflationary impact.
  • “To accommodate the loan waiver, States will have to cut down either expenditure or raise taxes which will be deflationary. This is not something I am making up. Look at the Uttar Pradesh Budget – capital expenditure has been slashed by 13% or so. That represents less demand, less growth,” he said, suggesting this could impact demand by as much as 0.7% of GDP, drag down growth in the short run and worsen States’ aggregate fiscal deficit indicators.
  • Another drag on growth and demand will be the rising stress in the telecom and power sectors, though triggered by events that have positive long-term implications, the Survey noted.
  • The appreciation in the rupee’s exchange rate and the high real interest rates, especially when inflation targets have been ‘over-achieved’ for nearly a year and are likely to stay below the 4% target on an average through 2017-18, are also dragging down growth, the Survey asserted, making it clear in no uncertain terms that there is considerable room for the central bank to ease interest rates.
  • While the RBI cut the repo rate for banks to 6% last week, Mr. Subramanian argued that there is scope to bring it as low as 4.25% to 5.25% considering the slack in the economy.
  • Terming the distress in the agriculture sector ‘a puzzle’ as revenues have reduced for farmers of non-cereal crops despite a good monsoon and output growth, the CEA said: “This is the first time in recent memory that you had good output and monsoon, but revenue has fallen because prices have come down by a lot. That’s a bit of a puzzle. Why have prices come down so much – because of policy that restrict market access to farmers, weak demand or liquidity. But it’s very unusual. That’s going to impact demand in the short run.”

‘Rekindled optimism’

  • Terming the government and the central bank’s efforts to resolve the banking system’s non-performing assets, the implementation of GST and the proposed divestment of Air India as signs of ‘rekindled optimism’ about structural reforms, Mr. Subramanian also flagged the ‘extraordinary exuberance’ in financial markets.
  • “Asset valuations in India have just taken off. Bond prices have gone up, reflected in lower rates on government securities. But the assets that have really gone up in value are stocks. The Sensex has shot up and our price earnings ratios are now very high, well above the historic average and close to the levels seen in 2007-08,” he said.

Mehbooba discusses Article 35A with Modi

  • Jammu and Kashmir Chief Minister Mehbooba Mufti met Prime Minister Narendra Modi on Friday to discuss the position of political parties in the Valley on the legal challenge to Article 35A that prevents “outsiders” from owning property in the State.
  • The heated debate in the State around Article 35A was triggered by a recent petition in the Supreme Court arguing that the provision is discriminatory against women if they marry anyone outside the State.
  • Men don’t lose their right to own property or the right of inheritance if they marry someone outside.

Law itself allows cattle slaughter, SC tells govt.

  • If slaughtering cattle for food or religious sacrifice is allowed under the Prevention of Cruelty Act, why did the government ban the sale of cattle for these purposes in the new livestock market rules, the Supreme Court asked the Centre on Friday.
  • A Bench of Chief Justice of India J.S. Khehar and Justice D.Y. Chandrachud pointed out that the Prevention of Cruelty to Animals Act of 1960 allowed slaughter for food and religious sacrifices.
  • On the other hand, the Prevention of Cruelty to Animal (Regulation of Livestock Market) Rules of 2017 require a person coming to the market to give a written undertaking that he will not sell his cattle for slaughter.

Confirms HC order

  • The Bench confirmed the order of the Madurai Bench of the Madras High Court staying certain provisions of the livestock rules banning sale or purchase of cattle in markets for slaughter and religious sacrifices. It, however, clarified that there was no stay on the implementation of the Prevention of Cruelty to Animals (Maintenance of Case Property Animals) Act of 2017.

Push for law to ensure transparency rules

  • The government could consider introducing a new law to ensure transparency of rules, the Economic Survey has recommended, stressing that the ‘opaque mesh’ of regulations prevalent in India not only make life difficult for citizens who cannot feign ignorance of the rules as a valid defence, but also act as a magnet for corruption and endless litigation.
  • Arguing that India would benefit enormously if the average citizen could easily access the latest rules and regulations in a comprehensible format, the survey suggests a Transparency of Rules Act (TORA) as a possible solution.

‘Attempt to change’

  • “The TORA is an attempt to change in some ways the relationship between the average normal citizen and the State. All forms of governance are based on citizens being expected to follow the rules. Unfortunately, in India, very often, the rules are not so transparent. I don’t mean the grand laws passed in Parliament, but the administrative rules, forms, procedures that citizens have to follow,” said Principal Economic Advisor Sanjeev Sanyal.

India keen to run Sri Lanka airport

  • India has expressed interest to operate Sri Lanka’s second international airport situated in Mattala, about 40 km from the southern town of Hambantota, where China has majority stake in a strategic port it built.
  • India proposes to “operate, manage, maintain and develop” the airport through a joint venture, holding 70% of the equity for 40 years. According to the Minister’s Cabinet paper, India is to invest $205 million in the venture, while Sri Lanka would pitch in the balance $88 million.
  • The development comes less than a fortnight after Sri Lanka signed a $1.1 billion deal with China, giving the state-run China Merchants Port Holdings a 70% stake in a joint venture to run the port. Additionally, Colombo also roped in China to help develop an industrial zone in the adjoining land, spanning some 15,000 acres.

Chinese loans

  • Built in 2010 by the government of former President Mahinda Rajapaksa with Chinese loans, the port was deemed commercially unviable by his successor government, which decided to sell a majority stake to service part of the $8-billion debt Sri Lanka owes China. Beijing sees the port as a useful link in its ambitious One Belt One Road initiative.
  • Amid New Delhi and Washington’s known apprehension over the Hambantota agreement — given the town’s strategic location on the island’s southern coast — Colombo tweaked the port deal last month and said no foreign naval ship could call at the port without prior clearance.
  • With India expressing interest to run the Mattala Rajapaksa International Airport (MRIA) nearby, Hambantota appears poised to become a hub of rival strategic interests in the Indian Ocean region.

Financial strain

  • As in the case of the port, it was Mr. Rajapaksa who built the airport with a $190 million loan from the Exim Bank of China. Opened in 2013, the airport has proved a major financial strain, with barely two daily flights. As operational losses persisted, Sri Lanka in December 2016 sought expressions of interest to operate the airport through a public-private partnership. The government received a total of eight proposals, but the recent Cabinet committee has been asked to evaluate India’s proposal alone.

PETA moves SC for ban on glass-coated manja

  • The People for the Ethical Treatment of Animals , India on Thursday filed an appeal in the SC seeking expansion of the ban on manja by National Green Tribunal to include glass-coated cotton threads as they are deadly for animals and humans. The petition seeks to expand the scope of the NGT order banning use of synthetic and nylon.