Better news mixed with warning reminders
hope of bolder economic reforms and faster growth. The rupee strengthened to around 65.50 to a dollar and the markets brushed aside news of an interest rate increase by the US Federal Reserve.
Normally a strengthening rupee should worry exporters but the sentiment remained euphoric, as the figure for February showed 17 per cent growth over the corresponding month in the previous year. Import also rose, by 21.7 per cent, widening the trade deficit for the period AprilFebruary 2016-17 to just over $95 billion, which is 16.65 per cent less than that during AprilFebruary 2015-16.
It is easy to downplay the achievement in export growth by attributing it to only rising commodity prices and pick-up in global trade growth. No doubt, Brent crude oil prices had increased by 67.1 per cent in February over the same month of 2016; also, commodity prices were up by a sharp 19.5 per cent year-on-year, translating to a sharp increase in export. However, export growth has been in positive territory for six months, despite the disruption caused by demonetisation. The growth is across 23 sectors out of 30 major product groups. The non-petroleum, non-gems and jewellery export had increased by 21.6 per cent by February. Import has also grown, with those of oil alone growing by 60 per cent due to an increase in prices. The heartening feature is growth in non-oil import, by 13.65 per cent, signifying revival of domestic demand.
The Goods and Services Tax (GST) Council cleared five essential legislations that have to be passed by the Parliament and State assemblies. The Council also agreed to a cap on the cess to be imposed over the peak rate of 28 per cent on ‘sin’ and luxury goods such as cigarettes, luxury cars and aerated drinks. The Council approved a set of five GST Rules on payment, invoice, registration, refund and returns. The commerce ministry launched a new Trade Infrastructure for Exports Scheme, replacing the earlier Assistance to States for infrastructure Development for Exports.
All this has to be tempered with the appreciation that total export for this financial year might be less than the targeted $280 bn. The current exchange rate might actually lessen the export realisation, make import cheaper and even impact revenue by way of customs duties. In turn, this could dent industrial activity and job creation. Many issues are yet to be finalised by the GST Council, such as the rules, exemption and which goods or services will attract what rates. The problem of bad loans and reluctance of bankers to lend to long-gestation projects might delay revival of investment. Data from the Reserve Bank of India shows a decline of about 10 per cent in net services export. Inflation is inching upwards. Advance tax collection rose only six per cent in the fourth quarter. These points also need attention.