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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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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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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