Economy Matters – June 2013 Update

Global economies are witnessing two-speed recovery with the US economy showing firm signs of recovery, while growth in Euro Area is still languishing in sub-optimal territory.

Among the Asian economies, growth in Japan and China too continues to remain tepid. The optimism shown by the US Federal Reserve, in wake of encouraging economic indicators coming out of the US economy, has led to worries about the possible tapering of its asset purchase programme by end of the current year. The repercussions of this development have been felt globally, highlighted by sharp strengthening of the US dollar. The Indian Rupee too has felt the heat and weakened by more than 10 per cent since the start of this fiscal. 

Investments Expected to Pick up in the Current Fiscal: CII Survey

With capital formation in the economy hitting a low and its revival seen as a precursor for a turnaround in the economy, there is some good news as a significant proportion of businesses are looking at capacity expansion in the current year.

This was brought out by a CEOs’ Survey conducted  by the CII amongst 75 National Council Members where majority (44 per cent) of the respondents affirmed an increase in their domestic investment during the current fiscal. Even in the present milieu of slowing economy, 37 per cent of the respondents did not see a decline in their investment level in the current year. Not only this, the CEOs made similar projection about their investment outside India. While 50 per cent did not predict any change in their foreign investment, 37 per cent saw it increasing during the current financial year.  

Rupee Outlook not Positive: CII Survey

Majority Believe Rupee Would Remain above 59/ USD

The rupee would continue to remain volatile and might weaken further against the dollar during the next quarter if downside risks accruing from high current account deficit and dwindling of FDI flows remain unaddressed, according to the ‘Survey on Variation of the Indian Rupee’, conducted by the Confederation of Indian Industry which captures the industry expectations on the movement of the rupee against the dollar in the near term.

The survey demonstrated a subdued outlook of the rupee with most respondents (around 56 percent) expecting the rupee to trade above the Rs. 59 to a dollar mark by end- September. Another 15 percent of the respondents expect the currency to remain in the vicinity of Rs.58-59 to a dollar as weak sentiments would continue to drive down the rupee.  Around 22 percent displayed cautious optimism with the rupee rising marginally to 57-58 to a dollar while only 7 percent of respondents expect it to bounce back to Rs 56-57 to a dollar range by September end. None of the respondents expected the rupee to move up beyond the 56-57 range in the coming quarter. 

Comprehensive Tax to Subsume All Indirect Taxes

CII has made a strong push for rapid action on the Goods and Services Tax (GST) to impart impetus to economic growth. GST is one of the most awaited reform measures on the table and industry hopes that political developments would not overshadow its progress.

Based on the work of the Empowered Committee of State Finance Ministers, the Empowered Committee has met three times in recent months. There have been positive developments on issues like compensation to states for Central Sales Tax, exemption list and Dispute Settlement Authority.

CII stated that issues such as threshold limit, compounding scheme for small traders, taxation of inter-state trade and others still need to be discussed by the Empowered Committee. The final design of the GST model would depend on resolution of these pending areas.