Economic Development and Policies

In the Union Budget Estimate 2018-19, most schemes have been bolstered, but some have been cut.

Pradhan Mantri Krishi Sinchai Yojna

INCREASED

Pradhan Mantri Gram Sadak Yojna

INCREASED

Aimed at providing all weather road connectivity in rural areas of India to improve livelihood opportunities.

Pradhan Mantri Awas Yojna(PMAY)

DECREASED

National Rural Drinking Water Mission

DECREASED

Goal is to provide adequate safe water for drinking, cooking and other domestic needs to rural Indians.

Swachh Bharat Mission

DECREASED

National Health Mission

DECREASED

National Education Mission

INCREASED

National Programme of Mid Day Meal in Schools

INCREASED

Provides free lunches to primary and upper primary students at government schools.

Umbrella ICDS

INCREASED

Mission for Protection and Empowerment for Women

INCREASED

National Livelihood Mission – Ajeevika

INCREASED

Jobs and Skill Development

INCREASED

Aimed at training 40 crore Indians in different skills by 2022.

Environment, Forestry and Wildlife

INCREASED

Urban Rejuvenation Mission: AMRUT and Smart Cities Mission

INCREASED

Modernisation of Police Forces

INCREASED

Infrastructure Facilities for Judiciary

INCREASED

Provides funding for construction of court buildings and residential complexes for judges.

Border Area Development Programme

DECREASED

Scheme to meet special developmental needs of people living in border areas.

Shyama Prasad Mukherjee Rurban Mission

INCREASED

Aimed at stimulating local economic development, enhancing basic services and creating well planned Rurban clusters.

Rashtriya Swasthya Bima Yojna Major Central Sector Schemes

INCREASED

Crop Insurance Scheme

INCREASED

Provides insurance cover to food crops, oilseeds and commercial crops with known yielding patters.

Interest Subsidy for Short Term Credit to Farmers

INCREASED

Crop Science

INCREASED

Agricultural Universities and Institutions

INCREASED

Regional Connectivity Scheme

INCREASED

Interest Equalisation Scheme (Department of Commerce)

INCREASED

National Industrial Corridor Development and Implementation Trust (NICDIT)

INCREASED

Green Revolution

INCREASED

Aimed at increasing agricultural productivity.

White Revolution

INCREASED

Aimed at increasing milk and dairy production in India.

Blue Revolution

INCREASED

Scheme for integrated development and management of fisheries.

Amended Technology Upgradation Fund Scheme(ATUFS)

INCREASED

Biotechnology Research and Development

INCREASED

Border Infrastructure and Management

DECREASED

Capacity Building- Panchayat Sashaktikaran Abhiyaan (PSA) / Rashtriya Gram Swaraj Abhiyan (RGSA)

INCREASED

Central Silk Board

DECREASED

Compensation to Service Providers for creation and augmentation of telecom infrastructure-Bharatnet

INCREASED

Credit Support Programme

DECREASED

Deen Dayal Upadhyaya Gram Jyoti Yojna

DECREASED

Aimed at strengthening Irural agriculture by providing increasing rural electrification among other steps.

Education of Minorities girl child

INCREASED

Employees Pension Scheme, 1995

DECREASED

Equity Capital to Micro Units Development Refinance Agency (MUDRA Bank)

NEW SCHEME

Exhibition-Cum-Convention Centre, Dwarka

INCREASED

Green Energy Corridors – Grid Interactive Renewable Power

INCREASED

Higher Education Financing Agency (HEFA)

INCREASED

Innovation, Technology Development and Deployment

INCREASED

Integrated Development of Tourist Circuits around specific themes (Swadesh Darshan) & PRASAD

INCREASED

Integrated Power Development Scheme

INCREASED

Goal is to strengthen the sub-transmission and distribution system including provisioning of solar panels and IT enablement of distribution sector.

Khelo India

INCREASED

Aimed at developing sports infrastructure in both rural and urban areas, identifying and nurturing talent.

LPG Connection to Poor Households

INCREASED

Provides LPG at subsidized rates.

Member of Parliament Local Area Development Scheme (MPLAD)

UNCHANGED

Metro Projects & MRTS

DECREASED

National River Conservation Programme

INCREASED

National Seismic Programme

INCREASED

North Eastern Industrial and Investment Promotion Policy (NEIPP)

DECREASED

Optical Fibre Cable based network for Defence Services

INCREASED

Pardhan Mantri Swasthya Suraksha Yojana

INCREASED

Phulpur Dhamra Haldia Pipeline Project

INCREASED

Police Infrastructure

INCREASED

Aimed at bolstering state police forces by building secure police stations, providing better training and equipping forces with modern weaponry.

Pradhan Mantri Kisan Sampada Yojana

NEW SCHEME

Price Stabilisation Fund

DECREASED

Seeks to support market interventions for price control of perishable agri-horticultural commodities like onion, potato etc.

Prime Minister Employment Generation Programme (PMEGP)

INCREASED

Procurement of Cotton by Cotton Corporation under Price Support Scheme

INCREASED

Promotion of Digital payment

INCREASED

Promotion of Electronics and IT HW Manufacturing (MSIPS, EDF and Manufacturing Clusters)

INCREASED

Refund of Central and Integrated GST to Industrial Units in North Eastern Region and Himalayan States

INCREASED

Remission of State Levies (ROSL)

INCREASED

Sagarmala

INCREASED

Sahaj Bijli Har Ghar Yojana (Rural)- Saubhagya

INCREASED

Science and Technology Institutional and Human Capacity Building

INCREASED

Solar Power – Grid Interactive Renewable Power

INCREASED

Solar Power – Off-Grid/Distributed and Decentralized Renewable Power

DECREASED

Strengthening of Power Systems including Power Sector Development Fund

DECREASED

Wind Power – Grid Interactive Renewable Power

UNCHANGED

Core of the Core Schemes

Mahatma Gandhi National Rural Employment Guarantee Program

UNCHANGED

National Social Assistance Program

INCREASED

Umbrella Programme for Development of Minorities

INCREASED

Umbrella Programme for Development of Other Vulnerable Groups

INCREASED

Umbrella Programme for Development of Scheduled Tribes

INCREASED

Umbrella Scheme for Development of Schedule Castes

INCREASED

National AIDS and STD Control Programme

DECREASED

Goal is to reduce STD cases and prevent both short and long term morbidity due to STDs.

National Capital Region Transport Corporation

NEW SCHEME

National Ganga Plan and Ghat Works

UNCHANGED

National Highways Authority of India including Road Works

INCREASED

National Manufacturing Competitiveness Programme (NMCP)

INCREASED

Unprecedented Crash

India’s stock markets fell from its never seen peak on February 06 as panic in global markets triggered a sell-off at Dalal Street with Sensex crashing 1,003 points and Nifty erasing as much as 371.4 points in the opening trades. A market-wide sell-off pattern was observed in the Indian equities as the US benchmark index Dow Jones Industrial Average tumbled as many as 1,175.21 points on February 05, posting its biggest intraday decline in history shedding nearly 1,600 points. BSE Sensex lost 1,003.38 points or 2.89% to open at 33,753.78 whereas NSE Nifty lost 371.4 points or 3.48% to begin at 10,295.15.

NSE Indicators crash

The global indicator of NSE Nifty, SGX Nifty Futures faced a knee-jerk reaction in the early trades on the day. The index plunged as many 394 points or 3.68% at 10,315.5 on the Singapore Stock Exchange on February 06, its lowest since 18 December 2017. This was the biggest intraday percentage drop since 9 November 2016. It all primarily happened as Wall Street’s biggest decline since 2011 took place and as investors’ faith in factors underpinning a bull run in markets began to crumble on February 05.

A massive slide was witnessed in every index be it a broader indicator such as Nifty Next 50 or a sectoral index like Nifty Bank. Among the broader market indices of National Stock Exchange, Nifty Next 50, Nifty 100, Nifty 200, Nifty 500, Nifty Midcap 50, Nifty Sml100 Free and Nifty Mid100 Free shed 2-4.2%. On the other hand, all of the sectoral indices of NSE traded down with Nifty Bank, Nifty Fin Service, Nifty Pvt Bank, Nifty Auto, Nifty Metal, Nifty PSU Bank and Nifty Realty losing the most.

BSE indicators Crash

All the shares of BSE Sensex index were trading in red with stock of Tata Motors, Yes Bank, Axis Bank, Tata Steel, ICICI Bank, State Bank of India, Adani Ports, Asian Paints, HDFC Bank, Maruti Suzuki, Hero MotoCorp, L&T, HUL, IndusInd Bank, Kotak Mahindra Bank, HDFC, Coal India, ONGC, ITC, Dr Reddy’s, NTPC, Sun Pharma, Power Grid, M&M, Reliance Industries, Bajaj Auto, Infosys, Wipro, TCS and Bharti Airtel lost 1-8%. The heavyweight shares of companies such as HDFC Bank, HDFC, ICICI Bank, ITC, Reliance Industries, L&T, Tata Motors, Infosys, Axis Bank, Maruti Suzuki, SBI, Kotak Mahindra Bank, HUL, TCS, Yes Bank, IndusInd Bank and M&M contributed heavily in the Sensex declines. Collectively these 17 shares wiped off as much as 890 points out of the index.

The US Stock Market Crash and ripple Effects on Indian Market

The Indian stock market recorded unprecedented jolt on the back of decline in US capital market indices. Although some indications appeared even yesterday, yet today the decline was deeper and wider in the Indian stock markets. Indian stock markets finished lower on January 05 with the headline indices Sensex and Nifty closing in red for the fifth straight day following the global sell-off in equity markets. BSE Sensex fell as much 309.59 points or 0.88% to end at 34,757.16 and NSE Nifty washed off 94.05 points or 0.87% to settle at 10,666.55. US stocks plunged in highly volatile trading on January 05, with both the S&P 500 and Dow Industrials indices slumping more than 4.0% as the Dow Jones notched its biggest intraday decline in history with a nearly 1,600-point drop and Wall Street erased its gains for the year, Reuters said in a report. The slumps in the benchmark S&P 500 index and the Dow Jones Industrial Average were the biggest single-day percentage drops since August 2011, a period of stock-market volatility marked by the downgrade of the United States’ credit rating and the euro-zone debt crisis.

The Dow Jones Industrial Average fell 1,175.21 points or 4.6% to 24,345.75, the S&P 500 lost 113.19 points or 4.1% to 2,648.94 and the Nasdaq Composite dropped 273.42 points or 3.78% to 6,967.53. On Monday, the S&P 500 ended 7.8% down from its record high achieved on 26 January 2018, with the Dow down 8.5% over that time. The declines come after the Dow and S&P posted their biggest weekly percentage drops since January 2016 last week, and the Nasdaq posted its biggest weekly drop since February 2016. At one point, the Dow fell 6.3 percent or 1,597 points, the biggest one-day points’ loss ever. Even with the sharp declines, stocks finished above their lows touched during the session.

Reasons for crash

1. Finance Secretary Hasmukh Adhia has pointed fingers to the global markets. “It is very unfortunate that our move came in at wrong time because of global markets also going down. There is a strong connection of all equity markets. The MSCI all country index of equity markets went down by 3.4 per cent in last week, especially on February 1, and February 02. He added, “If the entire world index has gone down by 3.4 per cent, naturally it would have ripple effect on Indian stock market also. It is not LTCG tax effect.”
2. The indications from the U.S Federal Reserve, that country’s central bank might hike the benchmark interest rates, despite keeping the rates unchanged recently at the last meeting chaired by Janet Yellen. The interest rates are the rates at which the Reserve lends money to the other banks. A jump in the interest rate means that banks may hike interest rates themselves, passing the cost on to the customers. This will make loans and credit cards costlier, affecting companies’ financial performance as they have to pay more as interest costs, while also slowing down investment and expansion.
3. Higher interest rates also affect stock markets indirectly by reducing consumer spending. The higher rates generally encourage more savings and less borrowing in the economy, which leads to a dip in consumption and lower revenues for companies. Since share prices are directly influenced by how companies perform financially, higher interest rates are generally badly received by stock markets.
4. A course correction was due both in the US and India. This sudden fall in the markets can also be due to the fact that stock prices have been steadily rising — a nine-year bull run. “The U.S. stock market has climbed to record peaks since President Donald Trump’s election, on the prospect of tax cuts, corporate deregulation and infrastructure spending, and it remains up 23.8 per cent since his victory. A course correction is usually started by a sell off. In this case, the trigger was the rise in U.S. bond yields and the rate of increase of U.S. wages, which in turn “raised an alarm about higher inflation and potentially higher interest rates. In India despite twin balance sheet problem, poor industrial growth, farmers suicide and unemployment share prices in recent times had risen to record highs.
5. Another proximate reason in case of crash of the Indian stock market is proposal of tax on Long Term Capital Gains (LTCG). In the Indian markets, the decline may also be due to last week’s budget proposal of 10 per cent long-term capital gains (LTCG) tax on equities. LTCG or long-term capital gains refer to the gains made on any class of asset held for a particular period of time. In case of equity shares, it refers to the gains made on stocks held for more than one year.
6. The inflationary expectations leading to a possible increase in the RBI repo rate to avert fears of inflation might also be one of the reasons.

The Union Cabinet chaired by Prime Minister Narendra Modi has given its approval to a number of amendments in the FDI Policy. These are intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country. In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment.  Government has put in place an investor friendly policy on FDI, under which FDI up to 100%, is permitted on the automatic route in most sectors/ activities. the Government has decided to introduce a number of amendments in the FDI Policy.

 Details:

a)      FDI in Single Brand Retail Trading – Government approval no longer required for FDI in Single Brand 

                 Retail Trading (SBRT)

• Extant FDI policy on SBRT allows 49% FDI under automatic route, and FDI beyond 49% and up to 100% through Government approval route. It has now been decided to permit 100% FDI under automatic route for SBRT.
• It has been decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning 1st April of the year of the opening of first store against the mandatory sourcing requirement of 30% of purchases from India. For this purpose, incremental sourcing will mean the increase in terms of value of such global sourcing from India for that single brand (in INR terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking single brand retail trading entity, either directly or through their group companies. After completion of this 5 year period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis.
• A non-resident entity or entities, whether owner of the brand or otherwise, is permitted to undertake ‘single brand’ product retail trading in the country for the specific brand, either directly by the brand owner or through a legally tenable agreement executed between the Indian entity undertaking single brand retail trading and the brand owner.
  b)      Civil Aviation

As per the extant policy, foreign airlines are allowed to invest under Government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. However, this provision was presently not applicable to Air India, thereby implying that foreign airlines could not invest in Air India. It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49% under approval route in Air India subject to the conditions that:

• Foreign investment(s) in Air India including that of foreign Airline(s) shall not exceed 49% either directly or indirectly
• Substantial ownership and effective control of Air India shall continue to be vested in Indian National.

  c)       Construction Development: Townships, Housing, Built-up Infrastructure and Real Estate Broking Services

It has been decided to clarify that real-estate broking service does not amount to real estate business and is therefore, eligible for 100% FDI under automatic route.

d)      Power Exchanges

Extant policy provides for 49% FDI under automatic route in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010. However, FII/FPI purchases were restricted to secondary market only. It has now been decided to do away with this provision, thereby allowing FIIs/FPIs to invest in Power Exchanges through primary market as well.

e)      Other Approval Requirements under FDI Policy:

As per the extant FDI policy, issue of equity shares against non-cash considerations like pre-incorporation expenses, import of machinery etc. is permitted under Government approval route. It has now been decided that issue of shares against non-cash considerations like pre-incorporation expenses, import of machinery etc. shall be permitted under automatic route in case of sectors under automatic route.

Foreign investment into an Indian company, engaged only in the activity of investing in the capital of other Indian company/ies/ LLP and in the Core Investing Companies is presently allowed upto 100% with prior Government approval. It has now been decided to align FDI policy on these sectors with FDI policy provisions on Other Financial Services. Thus, if the above activities are regulated by any financial sector regulator, then foreign investment upto 100% under automatic route shall be allowed; and, if they are not regulated by any Financial Sector Regulator or where only part is regulated or where there is doubt regarding the regulatory oversight, foreign investment up to 100% will be allowed under Government approval route, subject to conditions including minimum capitalization requirement, as may be decided by the Government.

f)       Competent Authority for examining FDI proposals from countries of concern

As per the existing procedures, FDI applications involving investments from Countries of Concern, requiring security clearance as per the extant FEMA 20, FDI Policy and security guidelines, amended from time to time, are to be processed by the Ministry of Home Affairs (MHA) for investments falling under automatic route sectors/activities, while cases pertaining to government approval route sectors/activities requiring security clearance are to be processed by the respective Administrative Ministries/Departments, as the case may be. It has now been decided that for investments in automatic route sectors, requiring approval only on the matter of investment being from country of concern, FDI applications would be processed by Department of Industrial Policy & Promotion (DIPP) for Government approval. Cases under the government approval route, also requiring security clearance with respect to countries of concern, will continue to be processed by concerned Administrative Department/Ministry.

g)      Pharmaceuticals:

FDI policy on Pharmaceuticals sector inter-alia provides that definition of medical device as contained in the FDI Policy would be subject to amendment in the Drugs and Cosmetics Act. As the definition as contained in the policy is complete in itself, it has been decided to drop the reference to Drugs and Cosmetics Act from FDI policy. Further, it has also been decided to amend the definition of ‘medical devices’ as contained in the FDI Policy.

h)      Prohibition of restrictive conditions regarding audit firms:

The extant FDI policy does not have any provisions in respect of specification of auditors that can be appointed by the Indian investee companies receiving foreign investments. It has been decided to provide in the FDI policy that wherever the foreign investor wishes to specify a particular auditor/audit firm having international network for the Indian investee company, then audit of such investee companies should be carried out as joint audit wherein one of the auditors should not be part of the same network.

The Reserve Bank of India in its fifth bi-monthly policy review of the fiscal year announced on December 26, 2017 that it is keeping the key interest rates unchanged at 6%. The RBI also maintained its projection for FY18 real GVA (Gross Value Added) growth at 6.7 per cent, saying the risks are evenly balanced. The central bank’s decision to keep REPO rate unchanged was in line with the consensus estimate. A total of 52 of 54 economists surveyed by a Reuters poll had expected a status quo on the policy rate. The policy rate still stands at a seven-year low. The committee had last cut the key lending rate by 25 basis points in August this year.

 The six-member Monetary Policy Committee (MPC), which is headed by RBI Governor Urjit Patel, raised the inflation forecast to 4.3-4.7% in the third and fourth quarters of the current fiscal. Mr. Patel said the MPC took into account the “upward pressure on food and fuel prices”. He noted that there has been significant resource mobilisation in the primary capital market.  He also revealed that the central bank would rationalise merchant discount rates to widen the network of merchants using point-of-sale terminals. The REPO rate is the short-term lending rate. It is notable that 5 of six MPC members voted in favour of a status quo.  MPC member Ravindra H. Dholakia had voted for a policy rate reduction of 25 basis points. The RBI’s policy stance was in line with expectations, maintaining a word of caution on the upside risks emanating from high commodity prices, global financial instability, HRA related increases, rising input costs and fiscal slippages.

Global ratings agency Moody’s Investors Service raised India’s sovereign credit rating to ‘Baa2’ from ‘Baa3’ on November 16, 2017. The credit rating agency asserted that continued progress on economic and institutional reforms will enhance the India’s high growth potential. Moody’s also changed its rating outlook from stable to positive, saying that at the ‘Baa2’ level the risks to India’s credit profile were broadly balanced. It has taken India 26 years to get a credit rating higher than Baa3 from Moody’s. This would give assurance to investors and lenders that the Indian economy is a prospectively a better investment and lending destination than before. Market actually received the news with the expected zeal and enthusiasm. The rupee jumped to 64.63 per dollar after the Moody’s upgrade, against November 16th close of 65.32. The BSE benchmark index Sensex rose more than 400 points to 33,520 while the NSE Nifty surged over 120 points in the opening trade. But any analysis of this upgrade should not be done under irrational exuberance. There are miles to go before India becomes a permanent apple of investors’ eyes.

The agency claimed the initiatives, including demonetisation and Goods and Services Tax (GST), taken up by the government would strengthen India’s credit powers, boost growth prospects and global competitiveness. The reforms would likely contribute to a gradual decline in the general government debt burden over the medium term. Among the reforms Moody’s mentions as responsible for upgrade of India’s credit rating are GST, demonetisation, the inflation-targeting monetary policy framework, the Bankruptcy Act, bank recapitalization, Aadhaar and the Direct Benefits Transfer system. Moody’s believes demonetisation has strengthened institutions by being a part of the government’s efforts to “reduce corruption, formalize economic activity and improve tax collection”. After the agency upgraded the credit ratings on November 17, it received criticism from several quarters on the basis that while India is lacking on the economic growth front and its debt-to-GDP ratio is on the rise, the report gave thumbs up to the economic initiatives taken up by the government. Moody’s explained that current the slowdown in the economic growth – India’s GDP growth slowed to 5.7% in the first quarter from 6.1% in the previous quarter – was the factor it lowered India’s growth forecast to 6.7% in 2017-18. But, Moody’s said, the structural reforms makes the country’s growth potential strong, “stronger than most peers”. “Combined with a large and diversified economy and improving global competitiveness, this boosts economic strength, our view of an economy’s shock absorption capacity, which we assess as “High (+)”, the fourth highest score on our 15-rung sovereign factor score scale.” The agency had earlier posed faith in India’s economic reforms, saying they could improve the business climate, productivity, stimulating foreign and domestic investment, and hence fostering strong and sustainable growth.