SOCH Synopsis of Current Headlines
13th March 2024
Synopsis of Current Headlines
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SOCH Synopsis of Current Headlines
13th March 2024
India's Current Account
Deficit (CAD) Outlook
According to a report by UBS Securities,
India's current account deficit (CAD) is
expected to narrow to less than 1% of gross
domestic product (GDP) in FY24, primarily
due to various factors such as contained
goods trade deficit, improved net services
receipts, increased remittances, and
macroeconomic stability.
FY24 Projections:
- CAD is anticipated to be less than 1% of
GDP.
- Improved net services receipts and
increased remittances contribute to the
narrowing of CAD.
- The country's ability to sustain global crude
oil prices up to $90/barrel is estimated, with
lower oil prices being more favorable for
India.
FY25 Outlook:
- CAD is projected to modestly increase to
1.3% of GDP.
- India's ability to manage CAD is closely
linked to global crude oil prices.
- Lower oil prices would be advantageous for
India's CAD situation.
CAD Explanation:
- CAD implies that the country is importing
more goods and services in value than it is
exporting. Conversely, the country can
experience a current account surplus if the
value of exports exceeds imports.
Recent Trends:
- India's CAD narrowed sequentially to $8.3
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SOCH Synopsis of Current Headlines
13th March 2024
billion, or 1% of GDP, in the quarter ended September (Q2 FY24), attributed to a
lower merchandise trade deficit and growth in services exports.
- Over recent years, CAD has remained within the sustainable range of 2.2-2.5% of
GDP, supported by higher services trade surplus and robust remittance flow.
Revised Estimates by Other Institutions:
- IDFC First Bank revised downwards the FY24 CAD estimates to 1% of GDP from
1.2% due to a stronger-than-expected services surplus.
- Elara Global Research also revised its FY24 estimated CAD to 1.1% from 1.3%,
considering emerging trends in merchandise and services trade.
- Both institutions highlighted risks to supply chains due to geopolitical crises, which
may impact merchandise exports.
GDP Forecast for FY25:
- UBS revised its India GDP forecast for FY25 to 7%, up from 6.2% in November
2023.
The reports collectively suggest a positive outlook for India's CAD in the short term,
with various factors contributing to its stabilization and potential improvement in
the future.
Assessing Poverty Rates and Methodologies:
Insights from SBI Research
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SOCH Synopsis of Current Headlines
13th March 2024
Key Points on Poverty Analysis and Methodologies
- Higher Poverty Lines:
SBI Research notes that its poverty lines are higher than those based on the
Tendulkar Committee report. Specifically, in urban areas, SBI Research's poverty
line was around ₹1,047 per person per month, compared to ₹1,000 by the
Tendulkar Committee for 2012-13.
- Factors Considered:
SBI Research incorporates various parameters such as spending on conveyance
and house rent to calculate urban poverty, which contributes to the higher poverty
line compared to the Tendulkar Committee's estimates.
- Decline in Poverty Rates:
Both SBI Research and the Tendulkar Committee's estimates show a decline in
poverty rates from 2011-12 to 2022-23. However, SBI Research's data indicates a
higher rate of decline in urban areas compared to the Tendulkar estimates.
- Government's Approach:
Neither SBI Research's estimates nor the Tendulkar Committee's figures are
currently under consideration by the government. Instead, the government has
formulated its poverty figures based on the multidimensional poverty index.
- Assessment of Poverty:
When comparing poverty assessment methodologies, SBI Research favors the
Household Consumption Expenditure Survey (HCES) over the multidimensional
poverty index, citing the lack of information and inconsistencies in the latter.
- Challenges with HCES:
Despite being preferred, the HCES faces challenges, such as discrepancies between
its consumption estimates and those of the National Accounts, highlighting the
need for improved data collection methods and coordination.
- Suggestions for Improvement:
SBI Research suggests addressing discrepancies between HCES and National
Accounts data through enhanced coordination and data reconciliation efforts
among survey administrators.
- Policy Implications:
SBI Research indicates that the revised CPI can be calculated based on the HCES
findings, aiding the Monetary Policy Committee in gauging inflationary trends and
informing policy decisions.
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- Impact on Inflation and Consumption Patterns:
Preliminary findings from the 2022-23 HCES suggest relatively stable consumption
patterns, with slight changes in the share of food items. This information can be
factored into inflation assessments by the Monetary Policy Committee.
Prime Minister Modi Launches Infrastructure
Projects Worth ₹1.06 Trillion in Gujarat
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13th March 2024
Key Points on Infrastructure Developments
- Flagging Off Railway Projects:
Prime Minister Narendra Modi inaugurated and laid foundation stones for projects
worth approximately ₹1.06 trillion in Gujarat, including railway projects worth
around ₹85,000 crore. Among these projects are 10 new Vande Bharat train
services, a key focus area for the Centre in recent years.
- Expansion of Vande Bharat Train Services:
The new Vande Bharat trains will operate on various routes, including
Ahmedabad-Mumbai Central, Secunderabad-Visakhapatnam, and Mysuru-Chennai.
Additionally, four existing Vande Bharat trains have been extended.
- Improvements in Railway Infrastructure:
Modi highlighted the significant progress in the railways, emphasizing the
alignment with the government's vision. He mentioned the discontinuation of a
separate railway budget and its merger with the Union Budget to streamline
development initiatives.
- Addressing Safety Concerns:
Despite major capacity expansions in railways, safety concerns persist. The
government has implemented measures such as the rolling block program to
enhance maintenance and repair activities and reduce the risk of accidents.
- Focus on Freight Corridors:
Modi inaugurated the operations control center of the Western Dedicated Freight
Corridor (DFC) and completed sections of the Eastern DFC. These corridors aim to
enhance freight transportation efficiency, with the Eastern DFC expected to
alleviate coal transportation challenges.
- Investments in Petrochemical Sector:
Modi laid the foundation stone for a petrochemical complex of Petronet LNG in
Dahej, valued at over ₹20,000 crore. The project aims to boost hydrogen
production and polypropylene demand, leveraging existing infrastructure for
energy efficiency.
- Integrated Tri-Service Exercise at Pokhran:
Modi highlighted the 'Bharat Shakti' exercise held at Pokhran, showcasing India's
indigenous defence capabilities. The exercise featured the prowess of various
defence equipment, including aircraft, tanks, artillery, and drones.
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- Symbolism of Pokhran:
Modi emphasized the significance of Pokhran, recalling India's nuclear tests
conducted in the past. He described Pokhran as a symbol of India's self-reliance,
belief, and pride.
These infrastructure initiatives and defence exercises reflect the government's
commitment to advancing development and strengthening national security.
India Achieves 11.60% Ethanol Blending Rate in First
Four Months of 2023-24
Key Points on Ethanol Blending:
- Blending Rate and Target:
India achieved an average ethanol blending rate of 11.60% in the first four months
of the 2023-24 supply year, which began in November. However, this falls short of
the government's target of 15% blending for the entire year.
- Future Targets:
The government aims to increase the ethanol blending rate to 20% by the 2025
supply year, emphasizing the importance of reducing reliance on fossil fuels and
promoting cleaner alternatives.
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13th March 2024
- Ethanol Supplies:
From November to February, India received supplies of 1.8 billion liters of ethanol,
sourced from both sugarcane-based molasses and grains. The government banned
the use of sugarcane juice and sugar syrup for ethanol production in the 2023-24
supply year but remains confident in meeting blending targets.
- Delivery and Contracts:
Data from private players indicates that around 57% of the contracted ethanol
supply has been delivered by sugar mills and distilleries. Out of the 8.25 billion liters
of ethanol supply tender opened by Oil Marketing Companies (OMCs), bids
equivalent to 5.62 billion liters were received in the first offer, accounting for
approximately 69% of the tendered quantity.
- Supply Composition:
Of the 5.62 billion liters, around 2.69 billion liters were to be supplied by the
sugarcane industry, while the remaining 2.92 billion liters were sourced from grains.
Sugarcane-based molasses contributed around 1.35 billion liters from sugarcane
juice, 1.30 billion liters from B-heavy molasses, and a minor quantity from C-heavy
molasses.
Despite challenges in
meeting the blending
target, India's efforts to
increase ethanol blending
demonstrate its
commitment to
sustainable energy
practices and reducing
carbon emissions in the
transportation sector.
The recent statement
from a senior government
official emphasizing the
importance of focusing on
pending economic policy
agendas to achieve
sustainable economic
growth of seven to eight
percent is a reassuring sign
amidst a backdrop of
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SOCH Synopsis of Current Headlines
13th March 2024
populist measures often prioritized by governments, especially in the lead-up to
elections. Economic reforms, while crucial for long-term growth and efficiency,
often do not translate into immediate electoral gains, making them less attractive
to policymakers.
Prime Minister Narendra Modi has directed ministries to submit their 100-day
action plans post-elections, signaling a commitment to prioritizing policy reforms
over new projects and schemes. Key areas for reform include land, labor, and
agriculture laws, which have faced resistance despite previous attempts by the
Modi government.
Efforts to reform land acquisition laws were stalled due to political opposition and
accusations of favoritism towards industry. Similarly, labor law reforms, while
simplifying regulations, have faced challenges in implementation, particularly due
to resistance from workers' unions. The Modi government's agricultural reforms,
introduced in 2020, were met with prolonged farmer protests, leading to their
eventual repeal.
Moving forward, there is a need for states to take the lead in implementing
reforms, particularly in areas such as labor and agriculture where both the central
and state governments have jurisdiction. By delegating reform efforts to states, the
central government can navigate political challenges more effectively while still
pursuing necessary changes to promote economic growth and efficiency.
NPCI Expected to Approve
TPAP License for Paytm by
March 15
Key Points:
- License Approval:
The National Payments Corporation of India
(NPCI) is anticipated to grant a Third-Party
Application Provider (TPAP) license to Paytm, also
known as One 97 Communications, by March 15.
This license will enable Paytm to continue
offering payment services through the Unified
Payment Interface (UPI) to its customers.
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13th March 2024
- Background:
Paytm Payments Bank, a subsidiary of Paytm, is set to cease operations by March
15 following regulatory action due to non-compliance issues. Despite this,
customers will still be able to utilize the Paytm app for UPI payments once the TPAP
license is approved.
- Unified Payment Interface (UPI):
UPI, managed by NPCI, is India's real-time payments system facilitating seamless
money transfers across different banks. The approval of the TPAP license for Paytm
ensures continuity of UPI-based payment services for its users.
- TPAP (Third-Party Application Provider):
A TPAP license allows third-party applications like Paytm to integrate with the UPI
infrastructure and offer UPI-based payment services to users. By obtaining this
license, Paytm can continue to operate its payment services independently of
Paytm Payments Bank, ensuring uninterrupted service for its customers.
- Completion of Checks:
According to sources, most of the necessary checks for approving the TPAP license
for Paytm have been completed. The imminent approval is expected to alleviate
concerns regarding disruption in payment services for Paytm users following the
closure of Paytm Payments Bank.
This development underscores NPCI's efforts to ensure uninterrupted digital
payment services for consumers while addressing regulatory compliance issues in
the fintech sector.
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