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Budget 2017: A Detailed Overview of Economy

Budget 2017: A Detailed Overview of Economy

The big day is about to arrive, finally. And this time, it will be intriguing to learn how a government that takes pride in being strict with control of fiscal deficit provides for in the budget anticipated to be full of sops for the common man in order to mitigate the adverse consequences of demonetisation. So, the budget will be litmus test for the Modi government and hence hold high level of significance. The economy under Modi's leadership has seen a major improvement in the past ten months on several fronts; however, certain hiccups are still there which will take time to sort out. Since this article will try to construct a basic overview of the upcoming union budget. Here is a detailed overview of the Indian economy:

GDP growth

India's economy witnessed a marginal acceleration, growing at 7.3% in the second quarter of 2016-17. Gross Domestic Product (GDP) expanded by 7.1% in the first quarter of 2016-17 and at 7.6% in the corresponding quarter last year.

However, expectations are that growth will suffer a setback in the second half of the year on account of the impact of demonetisation. This will make the government's target of surpassing last year's 7.6% growth this year difficult. India's economy witnessed a marginal acceleration, growing at 7.3% in the second quarter of 2016-17. Gross Domestic Product (GDP) expanded by 7.1% in the first quarter of 2016-17 and at 7.6% in the corresponding quarter last year. However, expectations are that growth will suffer a setback in the second half of the year on account of the impact of demonetisation. This will make the government's target of surpassing last year's 7.6% growth this year difficult.

The growth in GDP during 2016-17 is estimated at 7.1 per cent as compared to the growth rate of 7.6 per cent in 2015- 16, as per CSO estimates.

Industrial growth

Industrial production in November grew by 5.7% compared to a contraction of 3.4% in the same month a year ago.

Factory output measured in terms of Index of Industrial Production (IIP) got a push in November 2016 due to better performance of manufacturing, mining and electricity sectors coupled with larger off take of capital goods, considered a barometer of investment. Cumulative growth for April-November this fiscal at 0.4 per cent is even lower than 3.8 per cent recorded for the same period last fiscal.

Fiscal deficit

The Centre's fiscal deficit in the first eight months of the current financial year (April-November 2016) touched 85.8 per cent of the Budget Estimates for 2016-17, compared to 87 per cent at this point of time in the corresponding year-ago period. The improvement recorded this year is thanks to better tax receipts.

The government did not squeeze capital expenditure in November to compress fiscal deficit, which was the case a few months ago. Capital expenditure needs to be stepped up further as the economy came under the pressure of demonetisation. In absolute terms, fiscal deficit touched the Rs 4.58 lakh crore mark during April-November 2016 against the Budget Estimate of Rs 5.34 lakh crore.

Current account deficit (CAD)

Current Account Deficit (CAD) narrowed down to US$ 22.2 billion (1.1 per cent of GDP) in 2015-16 as compared to US$ 26.9 billion in 2014-15. CAD narrowed down to US$ 0.3 billion (0.1 per cent of GDP) in 2016-17 (April-June) from US$ 6.1 billion (1.2 per cent of GDP) in corresponding period of the previous year.

Foreign Exchange Reserves

In the current fiscal 2016-17, foreign exchange reserves culminated to US$ 372.0 billion at end September 2016 which reduced to US$ 366.2 billion at end October 2016. Foreign exchange reserves stood at US$ 365.3 billion on 25th November 2016, showing an increase of US$ 5.1 billion over the level of US$ 360.2 billion at end-March 2016. Country's foreign exchange reserves are at a comfortable position to buffer any external shocks. In the current fiscal 2016-17 (April-November), the average monthly exchange rate of rupee (RBI's reference rate) was in the range of Rs. 66 - 67 per US dollar (Rs. 66.47 per US dollar in April 2016 and Rs. 67.80 per US dollar in November 2016).

Trade deficit

India's merchandise exports (customs basis) declined by 15.5 per cent to $262.3 billion in 2015-16. In 2016-17 (April-October), growth of exports declined by 0.2 per cent ($154.9 billion vis-a-vis $155.2 billion in the corresponding period of previous year). Imports declined by 15 per cent to $381.0 billion in 2015-16. Imports for 2016-17 (April-October) were at $208.1 billion which is lower by 10.9 per cent as compared to $233.4 billion in the corresponding period of previous year. During 2016-17 (April-October), trade deficit decreased to $53.2 billion as against $78.2 billion in the corresponding period of previous year. There has been significant market diversification in India's trade from Europe and America to Asia and Africa in recent years –a process that has helped in coping up with the sluggish global demand.

Tax collection

The central government's direct tax collections increased 15.1 per cent in April-November 2016 compared with the same period a year earlier, while indirect tax collections rose 26.2 per cent in the same eight-month period.

Net direct tax collections amounted to Rs.4.12 lakh crore as of November 2016, which is 48.7 per cent of the Budget Estimates of direct taxes for the entire financial year.

Net indirect tax collections aggregated to Rs.5.52 lakh crore as of November 2016, which is 71.1 per cent of the Budget Estimates for the year.

However, total indirect tax receipts during November 2016 were 13.9 per cent lower than the collections seen in October 2016.

Within direct taxes, net corporate income tax collections grew 8.75 per cent during April-November 2016 while net personal income tax collections grew 23.9 per cent over the same period of the previous year.
Refunds amounting to Rs.1,05,561 crore have been issued during April-November 2016, which is 17.35 per cent higher than the refunds issued during the corresponding period last year.

Indirect tax collections grew 26.2 per cent in April-November 2016 when taking into account the additional revenue measures (ARM) taken by the government, such as the increase in excise duty on petrol, diesel and tobacco.

Stripping out the receipts from those measures, indirect tax collections grew at a lower rate of 8 per cent in the period.

Within indirect taxes, net central excise collections stood at Rs.2.43 lakh crore in the period between April and November 2016 as compared with Rs.1.69 lakh crore during the corresponding period in the previous financial year, a growth of 43.5 per cent.

Net service tax collections during the April-November period, at Rs.1.60 lakh crore, grew by 25.7 per cent. Net customs duty collections grew 5.6 per cent in the April-November period.

Foreign direct investment (FDI)

Foreign Direct Investment in the country rose 27% during April-October 2016-17 to $27.82 billion over corresponding period last year. According to government statistics FDI inflows in the country during April-October 2015-16 stood at $21.87 billion. Total FDI in the country in the last financial year was $55.6 billion, up by 23% over previous year.

FII inflows

FPIs have been net sellers of Rs 24,429 crore in equities from October till December 21, as per data available with National Securities Depository Limited (NSDL). In July-September 2015 quarter, FPIs had made net outflow of Rs 17,316 crore.

Inflation

The December CPI data stood at 3.4% over 3.63% MoM. CPI food inflation was at 1.37% in December as compared with 2.03% in November due to seasonal factors and the demonetisation drive unleashed by Prime Minister Modi. Wholesale inflation broke the 3-month declining trend and rose to 3.39 per cent in December 2016, mainly due to rise in prices of manufactured items, even as food articles turned cheaper. The Wholesale Price Index-based inflation, reflecting the annual rate of price rise, in November stood at 3.15 per cent.In December 2015, the print was (-)1.06 percent.

Source : http://zeenews.india.com/

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