📰 RBI holds interest rates, warns against fiscal laxity
Says govt. measures to spur growth risk widening deficit
•The Reserve Bank of India (RBI) on Wednesday kept interest rates unchanged citing concerns about upward risks to inflation and cautioned the government against steps to relax fiscal discipline to spur growth as such a move could potentially adversely impact the deficit and add to inflationary pressure.
•Holding the benchmark repurchase or repo rate at 6%, the RBI’s Monetary Policy Committee (MPC) trimmed its forecast for economic growth in the current fiscal year in gross value added (GVA) terms to 6.7% and also raised its projected range for CPI inflation in the second half to 4.2-4.6%.
Retail inflation edges up
•“Retail inflation measured by year-on-year change in the consumer price index (CPI) edged up sequentially in July and August to reach a five-month high, due entirely to a sharp pick-up in momentum as the favourable base effect tapered off in July and disappeared in August,” the RBI said in the policy statement.
•The MPC also observed that headline inflation rose by two percentage points since the August policy review.
•“As noted in the August policy, there are factors that continue to impart upside risks to this baseline trajectory,” the central bank said.
📰 GST network braces for biggest challenge
Matching invoices of GSTR 1 and 2 will be a Herculean task, says panel head, rules out extension of GSTR filing deadline
•The Goods and Services Tax Network (GSTN) is bracing itself for a “big challenge” set to emerge in the coming weeks as a ministerial panel Wednesday ruled out any further extension for filing GSTR 1 returns by traders.
•“There will be no extension,” said Sushil Kumar Modi, head of the five-member panel constituted to resolve the technology glitches being faced by traders on the network. “Already it has been extended three to four times and we are talking about July returns. Another big challenge that is facing us after October 10 deadline is when GTSTR 2 will be filed.”
•“GSTR 1 is outward and sales and GSTR 2 is purchase. It is auto-populated. Then there will be a matching of invoices of GSTR 1 and 2. That will be a much bigger challenge. We are all prepared for that challenge. We will discuss any new issue when it crops up. It is a big work. We have 21 days. If we succeed, 90% of the GSTR can be resolved in the coming days. As challenges come we will deal with it,” Mr. Modi said.
•The Goods and Services Tax (GST) came into effect on July 1. The indirect tax system has been plagued with technology problems, with traders and dealers struggling to file returns before the stipulated deadlines.
GSTR deadlines
•The GST Council, in its September 16 meeting, had fixed October 10 as the deadline for GSTR 1 relating to supplies made, October 31 for GSTR 2 relating to purchases, and November 10 for GSTR 3, a comprehensive one for the month of July.
•“On August 20, the summary tax return or 3B, only 15 lakh returns were filed. But in the next 24 hours, 13 lakh returns were filed,” Mr. Modi said. “The system which is developed by Infosys is so robust and is capable to handle a large number of returns. There was not a single complaint that the system had crashed or of major glitches when people were able to file 13 lakh of returns in a single day,” he said. On October 10, for GSTR 1, a detailed return in which all the outward supplies or sales are mentioned, there was a “big gap,” Mr. Modi, also the Deputy Chief Minister of Bihar, said.
•“For the month of July, 52 lakh dealers have filed the returns. But the detailed GSTR 1 has been filed by only 33 lakh, 43,000 dealers. Only six days are left and I appeal to the dealers to file the detailed returns for the month of July. Infosys has the names and numbers of the dealers and SMS will be sent to all the dealers. Local tax administrators will also contact all the dealers who have not filed their detailed returns,” he said.
•Infosys would send a team of qualified technicians to coordinate with the State tax administration to speed up and resolve technology issues, Mr. Modi said. “There are 27 States which constitute the Model 2 States. Model 1 States, like Karnataka, have developed their own backend. Model 2 States have had a problem creating the backend. Last meeting, we requested for developing a software for Model 2 States. There is a lot of progress here too,” he said. “Earlier, many of the things were done manually. Now everything is automated. So, there is a lot of difference as there will be no or minimum human intervention. So, initially, there will be some problems. People who had not earlier worked with technology are facing problems. We and Infosys are trying to solve these problems.”
•The next meeting of the GST Council, slated for October 6, will decide on the refund of taxes to exporters and issues being faced by even small traders “90% of revenue is coming only from four lakh taxpayers. In GSTN, more than 90 lakh of taxpayers are registered.”
📰 Steadying hand
By holding policy rates, the RBI shifts focusto the government to give a fillip to growth
•The Reserve Bank of India’s Monetary Policy Committee has since inception retained its unwavering focus on its primary remit: the preservation of price stability. It follows then that the central bank’s rate-setting panel opted to leave benchmark interest rates unchanged and retain a neutral stance to achieve the medium-term target of keeping Consumer Price Index inflation close to 4% on a durable basis, while supporting growth. Spelling out the rationale for the decision, the MPC felt that with global crude oil prices having “firmed up further” amid a pick-up in demand and tighter supplies in the wake of OPEC’s production cuts, the threat of upward pressure on accelerating inflation has increased appreciably. Add to this the uncertainty posed by the prospects of weaker-than-anticipated kharif crop output and the impact this may have on food prices, and the concerns agitating policymakers will be evident. There are also the not-so-small matters of farm loan waivers by States that could roil the quality of public spending and exert price pressures — as well as the question of when States may decide to implement their own salary and allowance increases in the wake of the Centre’s Seventh Pay Commission implementation.
•As the statement accompanying the rate decision points out, CPI inflation has risen by around two percentage points since the MPC’s last meeting in August: from 1.46% in June 2017, to a provisional 3.36% in August. The RBI’s September survey of household inflation expectations too has shown in qualitative responses a marked uptick in the proportion of respondents expecting the general price level to increase by more than the current rate. The welter of domestic pressure points on prices has also coincided with, in the MPC’s words, “an escalation of global geo-political uncertainty and heightened volatility in financial markets due to the U.S. Fed’s plans of balance sheet unwinding and the risk of normalisation by the European Central Bank.” In the face of such a “juxtaposition of risks” to the outlook for price stability, the overwhelming majority of the MPC’s six members saw little choice but to hold rates; there was a solitary dissent vote for a 25 basis points cut. The RBI’s policymakers simultaneously raised their inflation projection for the second half of the current fiscal to a 4.2-4.6% range and cut the estimate for real Gross Value Added growth this year to 6.7%, from the August forecast of 7.3%. Reiterating the urgent imperative to “reinvigorate investment activity” to spur growth, the MPC has laid the onus squarely on the government’s shoulders: from suggesting the recapitalisation of stressed state-owned lenders, to calling for further simplification of the GST regime and urging that stalled public sector investment projects be restarted. The baton has been passed and now it is for the Centre to do the running.
📰 Coal-fired projections
The draft energy policy fails to consider several critical issues involved in the ongoing energy transition
•The NITI Aayog’s Draft National Energy Policy (DNEP) predicts that between now and 2040, there will be a quantum leap in the uptake of renewable energy together with a drastic reduction in fossil fuel energy intensity. Because of economic and population growth, India’s annual per-capita electricity consumption is expected to triple, from 1075 kWh in 2015-16 to over 2900 kWh in 2040. The DNEP assumes 100% electrification throughout India in the near term — Prime Minister Narendra Modi recently announced that the government will invest $2.5 billion to provide electricity connections to every home in India by the end of 2018 — and steadily improving energy efficiency. But the DNEP fails to consider several critical issues involved in the ongoing energy transition.
Based on coal
•Despite the fact that existing coal plants are running at low efficiencies, the DNEP relies on coal power to sustain the nation’s base load requirement to meet rising energy demand. It proposes that coal will fuel 67% of India’s power generation in 2022.
•The first anomaly is that while India claims it will make a big push for renewables, it will continue to rely on coal for its baseload generation. While renewables grow, coal power grows too. This duality is possible because India did not commit to any actual reductions in its greenhouse gas emissions at the Paris climate meeting in 2015.
•The second anomaly is that even with this target, India will need only 741 million tonnes of coal in 2022 and 876 million tonnes in 2027. But the Ministry of Coal continues to push its ambitious targets to raise coal production to 1.5 billion tonnes by 2020, of which 500 million tonnes is expected to be produced by private coal mines and about 1 billion tonne by the public sector.
•The DNEP does not say what would be the fate of new allottees of coal mines which have bid aggressively and won rights to mine coal for captive power generation. What would they do with their coal if they can’t generate power with it? Generation of power is licence free under the Electricity Act of 2003, so private miners do not need any licence to set up generating plants. All they need is a connection to the grid. Since the grid is State-owned, the Central government has adequate leverage to defer or delay connections.
•In the past three years, with slow industrial growth, independent coal producers have been faced with reduced demand for their power. Power plants, both public and private, have been running at merely 60% plant load capacity utilisation. Coal producers await respite and look to the ministries of coal and power for support. Such support may not be forthcoming. The conventional power industry already suffers a high level of bank loan defaults, insolvency and other legal proceedings. It is not surprising that new energy investors are crowding the nascent solar space.
An electric future
•The DNEP fails to highlight the gradual substitution of internal combustion engines with electric vehicles. This transformation in the automobile sector could be accompanied by grid- and consumer-level electricity storage at homes, offices and factories. While storage and electric vehicles are cursorily mentioned, the DNEP does not focus on these crucial subjects.
•The DNEP acknowledges that India’s oil consumption has grown 63% from 2005 to 2016 whereas refining capacity has grown only 15%. Gas consumption has increased 38% while production has actually fallen since 2012. India’s energy security does require a large strategic storage of oil to take care of any vagaries in its international supply chain. India has been building up its stored reserves while international oil prices have dropped in the past couple of years. But the strategic storage of oil does not tackle the systemic causes of this high dependence on oil.
•The peaking of India’s oil demand could have been envisaged but has not been identified in the DNEP. On the one hand, the draft policy recognises that by 2040, India’s oil import dependence may reach 55% from the current level of 33%. On the other hand, it offers nothing to curtail such dependence. All that the DNEP offers is to promote use of public transportation and railways to reduce oil consumption. Unless electric transport is carefully planned, India’s dependence on imported oil is likely to continue.
•The drafting committees need to examine the paradigm shifts occurring in storage and electric vehicles to promote new technologies in renewable energy. Why has India missed the revolutions in these technologies? New institutions, organisations and funding mechanisms for promoting renewable technologies need to be created not later than this year’s end.
📰 Ganga Mission plans turtle sanctuary in Allahabad
The project is estimated to cost Rs. 1.34 crore
•The marquee National Mission for Clean Ganga (NMCG) will establish a turtle sanctuary in Allahabad, as part of efforts to protect the rich aquatic biodiversity of river Ganga from “escalating anthropogenic pressures,” according to a press statement.
•The project at an estimated cost Rs. 1.34 crore would contribute to the sustenance of more than 2,000 aquatic species, including threatened gharials, dolphins and turtles in the Ganga.
•The Ganga and Yamuna at Allahabad are home to some of the most endangered fauna like turtles ( Batagur kachuga, Batagur dhongoka, Nilssonia gangetica, Chitra indica, Hardella thurjii etc.), the National Aquatic Animal — Gangetic dolphin ( Platanista gangetica ), the Gharial ( Gavialis gangeticus ) and numerous migratory and resident birds. The government had planned such a sanctuary in Varanasi in 1989 under the Ganga Action Plan-I.
•However, its future hangs in the balance as the Uttar Pradesh government and the Union Environment Ministry are considering de-notifying it over construction activities along the bank.
📰 Bangladesh inks deal with India
Bangladesh on Wednesday signed a $4.5-billion loan deal with India for developing its infrastructure, health and education.
•The agreement was signed here in the presence of Finance Minister Arun Jaitley and his Bangladesh counterpart, A.M.A. Muhith, by Bangladeshi Economic Relations Division Secretary Kazi Shofiqul Azam and Managing Director of the Export-Import Bank of India David Rasquinha.
Projects identified
•Mr. Jaitley said 17 development projects had been identified under the deal. Of the total amount, about $500 million will be used for setting up new economic zones for Indian and other investors, said officials of the Finance Ministry and the Bangladesh Economic Zones Authority.
•Bangladesh will use the funds for 17 priority infrastructure projects, which include electricity, railways, roads, shipping and ports.
•As with previous line of credit (LoC) agreements, Bangladesh will pay an interest rate of 1% a year. It will have 20 years to pay back the loans, with a grace period of five years.
•Mr. Jaitley said Bangladesh had developed significantly on the socio-economic front in the past seven years. “We have stood by Bangladesh’s attempts to develop and we will do so in the future. This significant agreement is a continuation of that effort.”
•Mr. Muhith said Bangladesh and India have “excellent relations at the moment.” “They stood by us during our Independence struggle. We hope they will continue to do so in the future.”
📰 Awestruck: on the Nobel Prize for Physics
The Nobel Prize for Physics is a recognition of a project involving a rare kind of coordination
•The 2017 Nobel Prize for physics has been awarded to the LIGO-VIRGO collaboration for their detection of gravitational waves arising from the merger of two black holes. Gravitational waves are ripples in the fabric of spacetime caused by cataclysmic events in the universe such as colliding black holes or neutron stars. Though extremely violent, when these disturbances reach far-off regions in space and time the signals are weak and require extremely sensitive detectors to sense them. The very first detection of gravitational waves was made in September 2015, a signal of a black hole merger 1.3 billion years ago. In other words, the signals took that long to travel to Earth. Hence the observatory offers a way of looking back in time to unravel mysteries pertaining to the early days of the universe’s existence. Since then, the LIGO-VIRGO collaboration has detected such signals four times. Just as astronomy offers a way of mapping the visible objects in the universe, gravitational wave astronomy is now a science of the near future whereby black holes, neutron stars and more such objects may be mapped. Rainer Weiss, who identified sources of noise that could drown the signal, gets one-half of the prize. Barry C. Barish’s main contribution in scaling up the project and Kip Thorne’s vision in guiding the large group of researchers are no less important, and in fact are aspects that capture the marvel of coordination in the LIGO-VIRGO collaboration.
•An example was the effort made to bring some coherence into the source modelling. Even though the detector had been built and was functional, the theory had to be developed. In order to coordinate this, Dr. Thorne invited researchers from around the globe to Caltech in the United States, and over a year and a half thought about the models of the source that had to be calculated. An ensuing paper published in Physical Review Letters, titled “The Last Three Minutes”, described issues of source modelling. Several Indians, including Bala Iyer and Sanjeev Dhurandhar, were involved in this work. It was then that Dr. Thorne realised that numerical models of relativity that could be fed into the computer and solved were needed. He roped in groups from the U.S. and Germany to develop numerical gravity. In addition to two detectors of LIGO, the Advanced VIRGO came online on August 1 this year. The advantage of having three detectors is that the location of the source can be determined more accurately. With the Japanese KAGRA detector set to go online in 2019 and LIGO India set to join in 2024, the possibility of using gravitational wave astronomy to look back in time, at the very origin of the universe, becomes a real possibility. When realised, this operation would owe, in no small measure, to the time spent in organising and focussing, even directing, the efforts of the large group of researchers, numbering over a thousand.
