India’s Consumer Price Inflation remains record low.

As expected the Consumer Price Index for the month of January 2017 touched a new low. The CPI for January 2017 was 132.4 down 0.4 points from that of December 2016. Rate of CPI inflation in January was 3.17% much less than 5.69% seen in January 2016.
According to Deepak Talwar of DTA Consulting the primary reason for the fall in CPI has been sharp fall in food prices.”
Consumer Food Price Index (CPFI) rose just be 0.56% in January 2017 compared to 6.85% rise in January 2016.
“The effect of demonetisation”, said Deepak Talwar, “resulted in fall in perishable food items. Evidently deprived of liquidity middle men could not store food products which led to distress sale by farmers.”
But non-food non-fuel core inflation was up. In addition crude oil prices increased due to production cut by producing nations.
Quoting analysis by DTA Consulting its principal Deepak Talwar said, “In view of the hardening core inflation and upward pressure on oil prices Reserve Bank of India decided to leave policy rates unchanged.”
Evidently the commercial banks, flush with deposits, post demonetisation, will have to cut loan rates in order to attract borrowers. “Even RBI Governor is asking banks to pass on the benefits of earlier policy rate cuts to borrowers”, said Deepak Talwar.

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REASONS TO CHEER THE NEW RAILWAY BUDGET

The first combined Budget of Independent India, spelt out a brand new template for Indian Railways. Transport integration and making the railways a competitive mode of commuting really headlined the announcements.
The budget has allocated Rs. 1,31,000 crores to Indian railways for this year with a focus on four major areas; passenger safety, capital and development works, cleanliness and finance and accounting reforms.

A ‘Rashtriya Rail Sanraksha Kosh’ for passenger safety, will be created with a corpus of Rs.1 lakh crores over a period of 5 years, to be funded by seed capital from the Government, Railways’ own revenues and other sources. Expert international assistance will be harnessed to improve safety preparedness and maintenance practices.

Talking about the proposed steps for modernization and upgradation of identified corridors, the Finance Minister said that Railway lines of 3,500 kms would be commissioned in 2017-18. and steps would be taken to launch dedicated trains for tourism and pilgrimage. In the next 3 years, the throughput is proposed to be enhanced by 10%. Further, the Minister added that Railways have set-up joint ventures with 9 State Governments and 70 projects have been identified for construction and development.
According to DTA Consulting principal Deepak Talwar “The move to make Indian Railways both competitive with other modes of transport and integrating it into the larger federal scheme is a very bold move as it will herald a new era in connectivity across the length and breadth of India for both goods and people”
At least 25 stations are expected to be awarded during 2017-18 for redevelopment and 500 stations will be made differently abled friendly by providing lifts and escalators. It is also proposed to feed about 7,000 stations with solar power in the medium term, of which, a beginning has already been made in 300 stations. Works will be taken-up for 2,000 railway stations as part of 1000 MW solar mission.

By 2019, all coaches of Indian Railways will be fitted with bio toilets. Pilot plants for environment friendly disposal of solid waste and conversion of biodegradable waste to energy are being set-up at New Delhi and Jaipur Railway Stations and five more such Solid waste management plants are now being taken-up.

Some other steps to be introduced include:
• End to end integrated transport solutions for select commodities through partnership with logistics players, who would provide both front and back end connectivity. Rolling stocks and practices will be customized to transport perishable goods, especially agricultural products.
• Competitive ticket booking facility to the public at large. Service charge on e-tickets booked through IRCTC has been withdrawn.
• As part of accounting reforms, accrual based financial statements will be rolled-out by March 2019. The aim is to improve the Operating Ratio of the Railways. Tariffs of Railways would be fixed, taking into consideration costs, quality of service, social obligations and competition from other forms of transport.
• A new Metro Rail Policy will be announced with focus on innovative models of implementation and financing, as well as standardization and indigenization of hardware and software. This will open-up new job opportunities for our youth. A new Metro Rail Act will be enacted by rationalizing the existing laws. This will facilitate greater private participation and investment in construction and operation.

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UNION BUDGET: DISINVESTMENT TARGET AT RS 72,500 CRORE, BANKS GET A BOOST

The Budget has provided Rs 10,000 crore for recapitalisation of banks in 2017-18. But what is reassuring is the FM’s statement that need based additional allocation would also be considered, emphasising focus on the resolution of stressed legacy accounts.

The Government also announced several Public Sector Undertaking (PSU) reforms, like revised mechanisms and procedures to ensure time bound listing of identified Central Public Sector Enterprises or CPSEs on the stock exchanges. This will foster greater public accountability and unlock the true value of these companies.
Additionally, CPSEs will be integrated across sectors through consolidation, mergers and acquisitions. This will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders. DTA Consulting principal Deepak Talwar hailed this decision, “This is a much delayed and much needed step.”
Sectors such as oil and gas, the Finance Minister indicated is a focus area. Here, the Government proposes to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.
The budget also announced that 3 Rail Public Sector Enterprises (PSEs) like IRCTC, IRFC and IRCON would be listed in the stock markets. The Finance Minister said that the Exchange Trade Fund (ETF), comprising shares of ten CPSEs, has received overwhelming response in the recent Further Fund Offering (FFO). The Government will continue to use ETF as a vehicle for further disinvestment of shares. Accordingly, a new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18.
Dealing with the markets, high net worth NBFCs can also now participate in IPOs just like the banks and insurance companies. Systemically important NBFCs regulated by RBI and above a certain net worth would be categorised as Qualified Institutional Buyers (QIBs) by SEBI at par with the banks and insurance companies, making them eligible for participation in IPOs with specifically earmarked allocations. This will strengthen the IPO market and channelize more investments.

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BUDGET PUSHES FOR EASE OF DOING BUSINESS

Giving an impetuous to the Prime Minister’s primary focus to make India an attractive investment destination, the Union budget made a case for removing bureaucratic bottlenecks that held back foreign entities from setting up here.
The one major announcement being that the Foreign Investment Promotion Board (FIPB) will be phased-out in the next fiscal. Stating that the Government has already undertaken substantive reforms in FDI policy in the last two years and more than 90% of the total FDI inflows are now through the automatic route, the Finance Minister in his budget speech said that the FIPB has successfully implemented e-filing and online processing of FDI applications and has now reached a stage where it can be phased out. Therefore, FIPB will be abolished in 2017-18.
According to policy analyst Deepak Talwar from DTA Consulting, “The ‘Ease of Doing Business’ in any country is not merely about regulations/laws, but also a factor of the bureaucratic dispensation, and with the FIPB being phased out, this will have far reaching consequences for creating a business-friendly environment to meet consumer demand.”
Several other measures were proposed to carry on the Government focus on easing business conditions in the country.
1. The threshold limit for audit of business entities that opt for presumptive income scheme has been raised from Rs. 1 crore to Rs. 2 crore.
2. Similarly, the threshold for the maintenance of books for individuals and HUF is now increased from turnover of Rs. 10 lakhs to Rs. 25 lakhs or income from Rs. 1.2 lakhs to Rs. 2.5 lakhs.
3. Foreign Portfolio Investor (FPI) Category I & II will be exempt from indirect transfer provision under the IT Act. Besides, indirect transfer provision shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India. This will remove apprehensions over taxation upon transfer of stake of investors of India-based funds located abroad but investing in India-based companies.
4. Professionals with receipt up to Rs. 50 lakhs p.a. can pay advance tax towards presumptive taxation in one instalment instead of four.
5. In effort to improve the ease of doing business, the Finance Minister said the process of registration of financial market intermediaries like mutual funds, brokers, portfolio managers, etc. will be made fully online by SEBI. Steps will be taken for linking of individual demat accounts with Aadhar.

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BUDGET 2017 TACKLES CORRUPTION AND REWARDS HONEST TAX PAYERS

Taking a cue from the aftermath of demonetisation, the Finance Minister while presenting the Union budget admitted, that the present tax burden on honest tax payers and salaried employees is unfair.
A crack down on the dishonest and the corrupt and rewarding the honest tax payers, therefore became a centrepiece of the Budget which proposed a slew of measures. For example:
1) If an accountant or merchant banker or registered valuer, furnished incorrect information in a report or certificate, he or she shall be liable to a penalty of Rs 10000 for every such default.
2) A grant of interest in case of refund of excess payment of TDS. At the same time, to ensure timely filing of returns of income, a fee will be levied in case of delay in filing the return.
3) The Government is trying to also broaden the personal income tax next and in this direction reduced the Income Tax rate from 10 to 5 per cent for small taxpayers. At the same time, it imposed a 10% surcharge on taxable income of Rs 5 million.
4) Another proposal is that no person shall receive payment or aggregate of payments of an amount of Rs 3 lakh or more from a person in a day, or in respect of a single transaction, or in respect of transactions relating to one event or occasion except by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. Contravention of this provision will invite penalty.
Says DTA Consulting principal Deepak Talwar “The push towards greater transparency and tax compliance if implemented well, will ultimately result in improving the economic infrastructure of the country.”
Pointing out that there is an urgent need to protect the poor and gullible investors from dubious deposit schemes, operated by unscrupulous entities, the Finance Minister said that a draft bill to curtail the menace of illicit deposit schemes has been placed in the public domain and will be introduced in parliament shortly after its finalisation.
This Act will be amended in consultation with various stakeholders, as part of our ‘Clean India’ agenda, he added.

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THE POSITIVE IMPACT OF THE UNION BUDGET

The much-awaited Union Budget for 2017-18 turned out to be less exciting and more pragmatic. As expected the budget deferred any major changes on indirect taxes to a later date, when GST will be introduced, instead making only cosmetic changes to direct tax rates.
The overall focus continued to be on the ease of doing business and an increase in the GDP growth rate.
The two headline grabbing steps announced in the budget are: (a) Reform of electoral funding of political parties and (b)Disbanding of FIPB, the body clearing foreign investment proposals, with the latter impacting potential foreign investors.

The budget was placed in the back drop of sudden cancellation of two high value currency notes in November last year and the resultant adverse impact on GDP growth rate in the short term. However, the remonetisation of currency that were withdrawn from circulation has now nearly complete. The adverse effect, as per the budget, will not affect the economy in the financial year 2017-18.
Policy analyst Deepak Talwar from DTA Consulting stated that the “Overall the budget had a positive impact on the capital markets and seemed to lend credence to the Government’s fiscal objectives, as well as its desire to keep GDP growth rate highest among the large global economies.”
In addition, the agreement reached on the contentious issues over introduction of GST will help the economy during the year.

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