Connect with us

Negative impact of demonetisation on economy transitory: Rating agencies

Published

on

Demonetisation

By Venkatachari Jagannathan 

Chennai, Nov 1 : The adverse impact of demonetisation on the Indian economy would be transitory, according to global and domestic credit rating agencies.

However, the current slowdown could partially be attributed to implementation of the Goods and Services Tax (GST) introduced in July, they say.

“While the aim of demonetisation to curb the use of black money was in line with the government’s broader reform agenda, the cash crunch it caused contributed to significantly lower real GDP (gross domestic product) growth in the March quarter,” Thomas Rookmaaker, Director, Sovereigns and Supranationals Group at Fitch Ratings, told IANS.

“This negative impact on growth seems transitory, just like the effect on growth, because of GST implementation in the July quarter,” he added.

According to analysts at the rating agencies, economic growth in India would accelerate again in the second half of the year.

“Demonetisation was a major structural change that the Indian economy underwent, which led to disruption on the demand and supply side and thereby the overall economy,” Kavita Chacko, Senior Economist, CARE Ratings, told IANS.

Chacko said economic performance, as seen from the quarterly GDP growth, saw a sharp deterioration since the third quarter (October-December) in 2016-17.

“GDP growth (year-on-year) fell from seven per cent in Q3FY17 to 6.1 per cent in Q4FY17 and further declined to 5.7 per cent in Q1FY18, the slowest pace of growth in five years,” she said.

This slowdown in the economy could partly be attributed to the disruptions caused by demonetisation. GST implementations too had contributed to the economic weakness, Chacko added.

Asked whether demonetisation has achieved its objective of curbing black money, Rookmaaker answered in the negative.

“The fact that 99 per cent of the bank notes have found their way back to the RBI (Reserve Bank of India) seems to suggest that demonetisation was not very effective in rooting out black money and reducing the informal sector,” Rookmaaker said.

“Implementation of the GST may actually be more effective in formalising informal business, as it seems to help draw small firms into the tax net,” he added.

According to Rookmaaker, the bounce back is likely to happen in the second half of the year. “It is still uncertain how long the drag on growth from demonetisation and GST implementation will persist. But our baseline scenario is that growth will accelerate again in the second half of the year. This seems to be supported by a sharp and fairly broad-based recovery in industrial production in August,” Rookmaaker said.

India’s sovereign credit profile would benefit from an improvement in government finances, which currently stand out as a major weakness compared with its peers, Rookmaaker said.

Read more…Diwali was dim for fashion industry reeling under demonetisation, GST

Other rating agencies say that except for two sectors, there would be no long-term impact of demonetisation. “We believe there is no lasting impact in most sectors, barring real estate and the gems and jewellery sector,” Abhishek Dangra, Director in the Corporate Ratings Group, Standard & Poor’s (S&P) Global Ratings, told IANS.

He said the companies in these two sectors, which traditionally relied significantly on cash transactions, had been forced now to make structural changes owing to policy level changes that limit high value cash transactions.

“Companies in the automobiles and consumer durable sectors have a high — and an increasing degree of — financing penetration, muting the impact of demonetisation, despite initial disruption. We expect demand/supply and the commodity price environment to have a greater impact on most sectors,” Dangra added.

Saswata Guha, Director, Financial Institutions, at Fitch, said that the increase in liquidity with the banks had not been fully taken advantage of.

“I think the benefit to the banking sector in terms of heightened liquidity post-demonetisation was pretty clear. While funds are gradually finding way into the broader financial system (like asset management, insurance), the impact is still quite benign on banks from a liquidity perspective since credit growth remains pretty weak,” Guha told IANS.

IANS

Analysis

Saab is interested in Indian fighter jet deal: Swedish official

The Saab Gripen will be contesting with the likes of the Russian MiG 35, Dassault Rafale, Eurofighter Typhoon, Boeing F/A 18 and Lockheed Martin F-16 for the upcoming deal.

Published

on

Rafale deal scam

Amid the raging controversy over the Defence Ministry’s procurement of the Rafale fighter aircraft from French firm Dassault Aviation, a senior Swedish official has said that his country’s firm Saab, in its Gripen aircraft, has the requisite experience to contest for the upcoming Indian deal for manufacturing 110 new fighter jets under the Make in India programme.

“I know that Saab is interested, they want to be a part of this procurement,” Teppo Tauriainen, Director General for Trade in the Swedish Foreign Ministry, told IANS in an interview here.

“They think they have something good to offer that will be of interest to India,” Tauriainen said.

“They, of course, know what the expectations of the government is in terms of local production and cooperation with a local partner.”

India is expected to select by the end of this year one fighter aircraft that will be manufactured by the private sector under the Make in India programme for supply to the Indian Air Force.

The Saab Gripen will be contesting with the likes of the Russian MiG 35, Dassault Rafale, Eurofighter Typhoon, Boeing F/A 18 and Lockheed Martin F-16 for the upcoming deal.

While MiG has already said that it will have state-owned Hindustan Aeronautic Limited (HAL) as its local partner, Indian companies like Tata, Reliance Defence, Mahindra and Adani are in the fray for local partners in the project that is expected to be worth over $20 billion (Rs 1.44 lakh crore).

Tauriainen said that for Saab, contesting for the deal will be nothing new as it has signed a similar deal for Gripen with the Brazilian government with Embraer as its local partner.

“I have myself visited the Brazilian partner, Embraer, and seen there are a lot of spin-offs locally in the Brazilian economy from this fighter jet deal,” he said.

“So, I think for Saab, as a company, it won’t be unusual to do it the way the Indian government wants it to happen.”

During his visit to Sweden in April this year, Prime Minister Narendra Modi had said that defence and security have emerged as an important pillar of the India-Sweden bilateral partnership.

“Sweden has been a partner of India in the defence sector for a long time. I am confident new opportunities for cooperation in this sector will arise in the future, especially in defence production,” Modi said.

During that visit, an India-Sweden Partnership was also announced with a fund of 50 million Swedish kronor (around $5.6 million) for innovation cooperation in the fields of smart cities and sustainability.

Asked what steps have been taken in this connection, Tauriainen said that the dialogue for these projects has started though none of these projects have started operating.

“But we have come quite far to identify areas where we think there is a potential to do cooperation,” he said.

He said that sustainable technology is a broad area and is very much related to how cities are built in terms of transport, energy, waste and waste water.

“There we have some interesting experiences and I hope that is of relevance to India,” Tauriainen said.

“Some technologies we have already tested in Sweden. Other technologies will have to be adapted to Indian conditions,” he added.

In Sweden, waste is actually used to generate power and only one per cent of the waste goes to the landfill.

Asked about the presence of around 180 Swedish companies in India and their role in the Indian economy, Tauriainen said these are doing good business despite “some limitations”.

“They wouldn’t mind if those limitations are taken away. But they are interested in the Indian market and most of them are interested in expanding,” he said.

(Aroonim Bhuyan can be contacted at [email protected])

Continue Reading

Politics

Now Congress calls Arun Jaitley ‘court jester’

Published

on

Randdeep Surjewala

New Delhi, Sep 20: Hitting back at Arun Jaitley, the Congress on Thursday dubbed the Finance Minister a “court jester” who is “desperate to stay relevant”.

Amid the relentless trading of charges between the Congress and Bharatiya Janata Party (BJP) over the Rafale deal, Jaitley on the day took to social media to accuse Gandhi of “concocting lies” on the deal for the France made fighter jets and the bad loans of banks.

He said the Congress leader was “polluting” public discourse.

Hitting back, Congress spokesperson Randeep Singh Surjewala, in a tweet, called the BJP leader a “court jester” and demanded answers on the Rs 41,000 crore Rafale “scam”.

“And yes ‘Jait-LIE’ ji (sic), the desperate quest to stay relevant of a ‘court jester’ by wasteful blogs continues.

“Please reply: Why hide behind abuse when trapped in Rafale maze? Why supersede HAL for Rs 30,000 crore contract? Why no answer on Rs 41,000 crore loss in Rafale Scam,” said Surjewala in his response to Jaitley’s tweets.

The Congress has been gunning for the Narendra Modi-led government over the Rafale deal. Besides approaching Comptroller and Auditor General of India (CAG) Rajiv Mehrishi for a special and forensic audit and demanding a Joint Parliamentary Committee (JPC) probe into the deal, the party has also sought the resignation of Defence Minister Nirmala Sitharaman over the issue.

The Modi-led government and the BJP have been dismissive of all the charges by the Congress.

IANS

Continue Reading

Politics

Rahul Gandhi concocting lies on Rafale, NPAs: Arun Jaitley

Published

on

Arun Jaitley

New Delhi, Sep 20: Calling him a “clown prince”, Finance Minister Arun Jaitley on Thursday accused Congress President Rahul Gandhi of “concocting lies” on the Rafale fighter jets deal and the bad loans of banks. The Congress leader was “polluting” public discourse, Jaitley said.

In a Facebook post, he said Gandhi first “lied” on the Rafale deal and was now lying on the non-performing assets (NPAs) claiming that the BJP government had waived loans of 15 industrialists amounting to Rs 2.5 lakh crore. Not a single rupee of any debtor had been waived, he said.

“His (Gandhi’s) strategy is simple, concoct a lie and repeat it as many times” as possible, Jaitley said and wondered whether a person with a “temperament to concoct facts” deserved to be a part of the public discourse.

“The world’s largest democracy must seriously introspect whether public discourse should be allowed to be polluted by the falsehood of a ‘clown prince’,” he added.

Referring to Gandhi winking at his party men after hugging Prime Minister Narendra Modi in the parliament, the BJP leader said the public discourse was a serious activity, not a laughter challenge, and that it could not be reduced to a “hug, a wink or repetition of falsehood”.

“In mature democracies those who rely on falsehood are considered unfit for public life. Many have been banished from political activity because they were caught lying. But this rule obviously can’t apply to a dynastic organisation like Congress party,” he said.

“If the Rafale concoctions were the first big lie, the second one stated repeatedly is that Modi waived of Rs 2.5 lakh crore of 15 industrialists. Every word of that sentence repeatedly uttered by Rahul Gandhi is false,” he added.

Jaitley said the amount being referred to by Gandhi were lent by the banks prior to 2014 when the UPA government was in power, which then “kept rolling over the loans to conceal them (as) loans despite the default”.

“The truth, Mr. Rahul Gandhi, is that your government allowed the banks to be looted. The loans were inadequately securitized. Your government was in complicity… By repeating a lie on several occasions, you can’t change that reality,” he said.

The Finance Minister said while the UPA leaders claimed that when they went out of power, the NPAs were only Rs 2.5 lakh crore. The truth was that NPAs were actually Rs 8.96 lakh crore and were hidden under the carpet as revealed by an asset quality review conducted by the Reserve Bank of India.

He said no effective steps were taken by the UPA to recover or reduce the NPAs and post 2014-15, they increased not because more money was lent but because interest was mounting on the overdue amounts.

“The only effective move which has taken place in this regard is the Insolvency and Bankruptcy Code (IBC). It has changed the debtor-creditor relationship in India.”

He said the Reserve Bank of India had identified the twelve major defaulters who jointly owed about Rs 3 lakh crore to various banks.

“The banks under UPA took no steps to recover these loans. They did not prosecute a single major debtor who had siphoned off money. It is the NDA government which through IBC, changed the debtor-creditor relationship and enabled the banks to effectively pursue the recovery,” Jaitley said.

IANS

Continue Reading
Advertisement

Most Popular