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High oil prices, trade deficit widen India’s current account deficit

According to the RBI data, the CAD for last fiscal widened to 1.9 per cent of the GDP (Gross Domestic Product) from 0.6 per cent in 2016-17.

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Reserve Bank of India RBI

Mumbai, June 13 (IANS) A rise in trade deficit due to higher crude oil prices widened India’s current account deficit (CAD) for 2017-18, Reserve Bank of India’s (RBI) data showed on Wednesday.

According to the RBI data, the CAD for last fiscal widened to 1.9 per cent of the GDP (Gross Domestic Product) from 0.6 per cent in 2016-17.

The current account is the net difference between inflows and outflows of foreign currencies.

Accordingly, the country’s trade deficit increased to $160 billion in 2017-18 from $112.4 billion in 2016-17.

“Net invisible receipts were higher in 2017-18 mainly due to increase in net services earnings and private transfer receipts,” the RBI said in a statement on “Developments in India’s Balance of Payments”.

In terms of inflows, gross FDI (Foreign Direct Investment) into India increased to $61 billion in 2017-18 from $60.2 billion in 2016-17.

However, net FDI inflows in 2017-18 fell to $30.3 billion from $35.6 billion in 2016-17.

As per the RBI data, portfolio investment recorded a net inflow of $22.1 billion in 2017-18 as compared with $7.6 billion a year ago.

“In 2017-18, there was an accretion of US$ 43.6 billion to the foreign exchange reserves (on a BoP basis),” RBI said.

On the quarterly basis, the data showed that the country’s CAD rose to $13 billion during the fourth quarter (January-March) of 2017-18 from $2.6 billion in the like quarter of 2016-17.

“The widening of the CAD on a year-on-year (y-o-y) basis was primarily on account of a higher trade deficit ($41.6 billion) brought about by a larger increase in merchandise imports relative to exports,” the statement said.

The Q4 CAD accounted for 1.9 per cent of the GDP as against 0.4 per cent of the GDP in the like quarter of 2016-17.

“Net services receipts increased by 8.8 per cent on a y-o-y basis mainly on the back of a rise in net earnings from software services and other business services,” the statement said.

“Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $18.1 billion, increasing by 15.1 per cent from their level a year ago.”

In the financial account, net FDI stood at $6.4 billion in Q4 of 2017-18 higher than $5 billion in Q4 of 2016-17.

The data disclosed that net inflow of portfolio investment was just $2.3 billion as against net inflow of $10.8 billion during Q4 2016-17; on account of moderation in net purchases in both the debt and equity markets.

“Net receipts on account of non-resident deposits amounted to US$ 4.6 billion in Q4 of 2017-18 as compared with US$ 2.7 billion a year ago,” the statement said.

In Q4 of 2016-17, foreign exchange reserves (on BoP basis) increased by $13.2 billion as against an accretion of $7.3 billion during the like period of 2016-17.

ICRA’s Principal Economist Aditi Nayar said: “The deterioration in India’s current account deficit to $13.0 billion in Q4 FY2018, is in line with our forecast of around $12-14 billion.”

“The size of the current account deficit in Q4 FY2018 nearly rivalled the full year deficit recorded in FY2017, underscoring the impact that rising commodity prices have on the external balances of net importers such as India.”

Nayar pointed out that despite the contraction in gold imports, the merchandise trade deficit worsened in Q4 FY2018.

“Around half of the magnitude of this deterioration is attributable to the larger oil import bill, following the rise in crude oil prices,” Nayar said.

India Ratings Chief Economist Devendra Kumar Pant said: “Nearly 46 per cent deterioration in trade deficit in FY18 was due to oil. However, higher services exports and remittances in FY18 reduced ballooning of CAD. Despite widening of CAD, strong capital and financial account flows resulted in US$43.6 billion increase in foreign exchange reserves, which provided strength to currency.”

“Going forward current account situation in FY19 is likely to worsen and this coupled with weak capital flows will exert pressure on currency. Deteriorating current account and fiscal slippage does not augur well for macro fundamentals.”

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PM Modi unveils ‘transparent taxation’, Rights’ Charter for taxpayers

The Income Tax department will adopt a ‘taxpayer charter’ which outlines rights and responsibilities of both tax officers and taxpayers.

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Narendra Modi

New Delhi, Aug 13 : Prime Minister Narendra Modi on Thursday launched the ‘transparent taxation’ platform, which brings into effect faceless assessment of taxpayers, and the Rights’ Charter for the taxpayers.

Also the Income Tax department will adopt a ‘taxpayer charter’ which outlines rights and responsibilities of both tax officers and taxpayers.

Launching the platform ‘Transparent Taxation – Honoring the Honest’, Modi said the department will start faceless appeals from September 25.

“Effort is to make tax system seamless, painless and faceless… Honest taxpayer plays an important role in nation development,” he said.

Asking people to pay taxes due to them, Modi said while it is the responsibility of tax officers to deal with taxpayers with dignity, people should also consider paying taxes as their responsibility.

Fundamental reforms were needed in Indian tax system, he said, adding India is among the nations with lowest corporate tax rates.

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Gold, silver prices now collapse after record run

Futures of silver, which surged to record levels after crossing Rs 70,000 per kilogram mark, have declined below the Rs 66,000 mark.

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Mumbai, Aug 12 : Futures of gold and silver which were touching new highs every other day lately have started to falter in line with international markets and traders booking profits.

The fall in gold prices, which is considered as a safe haven asset, has also been induced post Russia’s announcement that it has developed the first vaccine for novel coronavirus.

Gold futures slumped for the second straight day on Wednesday. Currently, the October contract of gold on the Multi-Commodity Exchange (MCX) is trading at Rs 51,672 per 10 gram, lower by Rs 257 or 0.49 per cent from its previous close.

It has, however, recovered from the day’s low of Rs 49,955 per 10 gram.

The slump was in line with the international spot prices where gold prices fell as US bond yields advanced and the dollar recovered.

Analysts, however, are of the view that the sentiments in the bullion market are still bullish and the yellow metal would soon be back on the upward trend.

Futures of silver, which surged to record levels after crossing Rs 70,000 per kilogram mark, have declined below the Rs 66,000 mark.

The September contract of silver is trading at Rs 65,758 per kg, lower by Rs 1,176, or 1.76 per cent from its previous close.

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Flurry of lockdowns interrupted recovery in July 2nd half: Bajaj Auto

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New Delhi, Aug 12 : The flurry of lockdowns across the country in many major cities and states interrupted the recovery in the second half of July, according to Rakesh Sharma, Executive Director, Bajaj Auto. “As a result the outcome in July was a bit lower than June retails,” he added.

In an interview with IANS, Sharma said the demand for motorcycles saw smart recovery to previous year’s levels by end June.

On the target for sales, he said “At the start of the quarter, our plan was to achieve cumulative sales of 1 million vehicles between domestic and export, including motorcycles and 3 wheelers. So far, we have achieved sales of just over 2,50,000 vehicles, including three-wheelers in July. Hence, barring unforeseen issues caused by Covid, we should be in line to achieve our Q2 objective of 1 million vehicles,” Sharma added.

Pent up demand is playing a major role in the recovery. “Certainly there is a strong element of pent up demand as there was a blank out of retails for almost 60 days. This has been a major factor in driving the rapid recovery to normalcy witnessed in June and early July,” he said.

He added that the experience of June and July suggests that demand can stage a recovery quite rapidly and is strongly as well as singularly dependent on the progression of COVID and the administration’s response to it. “Hence it is difficult to make forecasts. Our approach is to manage our business in shorter time horizons and recover faster than the industry,” Sharma said.

The three-wheeler segment is yet to pick up across domestic markets, he said. “With people working from home or avoiding the public transport, the demand for three wheeler transportation has taken a hit. This has severely impaired the earning power of 3 wheeler drivers and owners which weakens their ability to take loans or service them. Hence the recovery in 3 wheelers is very poor at only 40% levels,” he said.

Sharma said there is no evidence of downtrading. Bajaj Auto offers a range of motorcycles, starting from the affordable CT 100 and Platina to the KTM 390 series, priced above Rs 3 lakh. “We have not seen preference shifting towards CT100 kick-start, which is the most affordable motorcycle in the industry. On the contrary our new introduction – the Pulsar 125 has outperformed all brands despite being the most expensive 125 cc motorcycle in the market,” he added.

Here are the excerpts…

Q: How do you assess the month of July for Bajaj Auto and the two-wheeler industry?

A: The demand for motorcycles had started to show a smart recovery to previous year levels by end of June and this trend had continued in July. However, the flurry of lockdowns across the country in many major cities and states interrupted the recovery in the second half of July. As a result the outcome in July was a bit lower than June retails. Bajaj Auto’s performance was in line with the industry performance except for the mid 125 cc segment where we recorded handsome retails ahead of the industry and market share gains.

Q: How much capacity is Bajaj Auto operating at and what are the targets for the coming months?

A: At the start of the quarter, our plan was to achieve cumulative sales of 1 million vehicles between domestic and export, including motorcycles and 3W. So far, we have achieved sales of just over 2,50,000 vehicles, including 3W in July. Hence, barring unforeseen issues caused by COVID, we should be in line to achieve our Q2 objective of 1 MN vehicles. This volume is well within our manufacturing capacity.

Q: There is some evidence on the ground that the demand being seen is pent up demand of the last two or three months when the country was under lockdown. What is your view?

A: Certainly there is a strong element of pent up demand as there was a blank out of retails for almost 60 days. It is correct to assume that the decision making process of many customers was interrupted and with the roll back of the lockdowns , these customers are returning to the dealerships. This has been a major factor in driving the rapid recovery to normalcy witnessed in June and early July.

Q: What are the growth estimates for the company and industry for the coming months?

A: The experience of June and July suggests that demand can stage a recovery quite rapidly and is strongly as well as singularly dependent on the progression of Covid and the administration’s response to it. Hence it is difficult to make forecasts. Our approach is to manage our business in shorter time horizons and recover faster than the industry.

Q: How is Bajaj Auto adopting safety measures for the plants and retail dealerships?

A: We have undertaken abundant measures for safe operations of our facilities and to ensure that our employees also feel reassured about their well being. The measures include new work protocols, adequate social distancing, screening and monitoring, regular sanitisation, installation of safety features, training and communication. In doing this we have ensured compliance to Government standards. We have defined these protocols for our dealerships too and provided them with training and monitoring support under the Bajaj SECURE programme. The objective is also to ensure that the customers feel safe about visiting our dealerships.

Q: What is the outlook for three wheelers in the domestic market?

A: The three-wheeler segment is yet to pick up across domestic markets. With people working from home or avoiding the public transport, the demand for three wheeler transportation has taken a hit. This has severely impaired the earning power of 3 wheeler drivers and owners which weakens their ability to take loans or service them. Hence the recovery in 3 wheelers is very poor at only 40% levels. For the outlook to improve, there needs to be more passenger traffic and the finance companies need to recalibrate their risk and return assessment of the sector.

Q: How are the export markets performing for Bajaj Auto?

A: We are currently present in more than 70 countries, but we extensively study the pattern of demand and performance in around 50 countries. We see a mixed reaction on demand in these countries as compared to India. We believe that on an average the demand has reached 80% to 85% of the normal level. Our retail has reached 88% to 85% this July as compared to same period last year. In the case of exports, the inventory pipeline is generally higher due to transit inventory and that creates about a month’s lag between retail improvement and shipment improvement. We are hoping that its positive impact will be sensed from September at our end.

Q: What are the changing consumer trends being seen in these Covid times?

A: On the basis of June and July retails we have not observed any fundamental shifts in consumer preference and therefore in the market structure. Certainly in times of uncertainty the consumer does become more conscious of value and examines the proposition more robustly. However, if a proposition delivers substantive value, they are not shying away from paying more. It is being reflected in the market structure — in terms of the relative shares of each of the different segments of bikes — which has remained intact and there is no evidence of downtrading. Bajaj Auto offers a range of motorcycles, starting from the affordable CT 100 and Platina to the KTM 390 series, priced above Rs 3 lakh. We have not seen preference shifting towards CT100 kick-start, which is the most affordable motorcycle in the industry.

On the contrary our new introduction – the Pulsar 125 has outperformed all brands despite being the most expensive 125 cc motorcycle in the market.

Q: The rural markets seem to be outpacing the demand in the cities?

A: The rural markets were faster to recover but most urban and semi urban locations have also recovered apart from the very big cities like Delhi and Mumbai. Apart from these recovery has been quite secular and evenly spread.

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