India slips to 7th largest economy in 2018: World Bank
India has been pushed to the seventh place in the global GDP rankings in 2018 with the UK and France forging ahead to the fifth and sixth spots, data compiled by the World Bank showed. In 2017, India had emerged as the sixth largest economy, while France was pushed to the seventh place in the global GDP league table.
The US remains the top economy with a GDP of $20.5 trillion in 2018. China was the second largest economy with $13.6 trillion, while Japan took the third place with $5 trillion. India’s GDP was at $2.7 trillion in 2018, while UK and France were at $2.8 trillion.
In 2017, India was at $2.65 trillion, UK at $2.64 trillion and France at $2.5 trillion, helping the third-largest economy in Asia to emerge as the fifth largest economy at that time. Economists said India taking the seventh largest global economy tag in 2018 was largely due to the currency fluctuations and slowdown in growth.
“In 2017, the rupee appreciated against the dollar, and in 2018 it depreciated against the dollar. So, it is largely due to currency fluctuation and the growth slowdown,” said Devendra Pant, chief economist at India Ratings and research. He added that the ranking could change if growth picks up.
India still remains the fastest-growing major economy in the world, although growth is estimated to slow to 7% in the current fiscal year that ends in March. China is expected to face a sharper slowdown due to the ongoing tariff war with the US. Last month, research firm IHS Markit had said that India will overtake the UK as the fifth largest economy in the world in 2019 and is likely to shoot past Japan to emerge as the third-largest economy by 2025.
The government has unveiled a plan to emerge as a $5 trillion economy by 2024-25 and the Economic survey for 2018-19 has said that the country needs to sustain a real GDP growth rate of 8% to achieve the goal. While growth is expected to be in the 7% range in the current fiscal year, most economists and multilateral agencies expect it to gather momentum and push past over the 7% mark next year as the impact of the measures unveiled by the government takes hold.
Source: The Economic Times
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View: Will the new direct tax code act as a stimulus in lifting the economy
GoI has given another fortnight to the task force drafting the new direct tax code (DTC) to allow Chief Economic Adviser Krishnamurthy Subramanian offer his insights. That’s fine as policymaking needs time, but it must be consultative, rather than left to a group of domain professionals.
DTC would be the foundation of India’s new direct tax law that will replace the nearly 60-year-old law that has seen 2,500-odd amendments. Earlier attempts to adopt a new tax code failed for various reasons.
Many recommendations — including those reportedly made last year by former chairman of this task force, Arbind Modi — will be useful to build a template on.
GoI is expected to bring in a clean and simple law, and settle for low tax rates on the broadest possible base for corporates and individuals, even as it increasingly raises more resources.
Lowering tax rates, scrapping exemptions, ending distortions in the tax treatment of savings, removing ambiguities in law and reforming the tax administration will raise efficiency, foster equity and minimise disputes. The growing digital economy poses new challenges on tax policy. So, the larger goal should bring domestic law in sync with global rules, tailor tax policies to keep pace with global business and to support enterprise.
In the near term, the economy direly needs a stimulus as investment —both government and private — is slowing down. This is reflected by a slump in core sector growth that has fallen in June to the lowest in more than four years. Discretionary consumption, too, is showing signs of a decline, and that could hurt growth.
Estimates computed using tax data from 2010-11to 2016-17 show investments by corporates fell by 21% in 2011-12 compared to 2010-11. It grew by 3.5% in 2015-16 compared to 2014-15, but fell in the subsequent year. Remedial action is warranted.
Reducing the corporate tax rate will raise profitability, helping drive private investment. Promoters will also be incentivised to bring in equity, rather than leverage on high levels of debt that heightens the problem of bad loans. Spreading the corporate tax burden more evenly across companies and enhancing the efficiency of corporate tax rates will shore up revenues.
An effective tax rate for large companies — that includes the dividend distribution tax — at about 48% is way too high. It’s 25% in China, 21% in the US and 17% in Singapore.
Asteep cut in corporate tax to 15% — reportedly recommended by Arbind Modi — accompanied by the removal of tax-planning opportunities would be more equitable vis-à-vis small- and medium-sized companies, and make industry more competitive.
Prudently, many corporate tax exemptions have already been grandfathered, paving the way to broaden the tax base.
Often, the clamour to raise the initial threshold for paying income tax forces governments to do some incremental tinkering. The effort must be to lower the rates, widen the income bands for each rate, and do away with surcharges that are supposed to be temporary levies.
Tax incentives for savings need review. Here again, governments prefer to adopt the populist option of the exempt-exempt-exempt (EEE) method of taxing these savings — by which the savings instrument is exempt from tax at the time of contribution, accumulation and withdrawal — instead of a rational and efficient exempt-exempt-tax (EET) treatment. Of course, the downside is that retirement savings would be taxed, which isn’t the case now. That would seem harsh. But exceptions can be built in while drawing up a roadmap to move to the EET model.
A related issue is the tax treatment of capital gains, debated extensively while drafting the original DTC. It had proposed removing the distinction between long-term and short-term capital gains, abolishing the securities transaction tax, and including only that portion of capital gains not used in any other capital asset, as part of taxable income.
Let the task force assess the soundness of this proposal to spare the saving asset from tax, and charge a tax only on the income from the asset.
The direct tax base will certainly widen from GST that creates multiple audit trails in the income and production chain. Rigorously mining GST data will be handy to track down the income that escapes tax, and help raise the share of revenues from direct taxes to GDP, now close to 6%.
This year’s Economic Survey underscored the need for an optimal tax policy design that should aim at raising revenues efficiently and fairly, while encouraging bona fide taxpayers and punishing mala fide ones.
But it also acknowledged that achieving this not an easy task.
The new tax code should get the balance right to foster investment. That calls for bold, not incremental, reform.
Source: The Economic Times
A major crisis may be brewing for Indian banks
Defaults in this segment may be the next worry though the magnitude of damage may be contained.
Many banks believed lending to individuals is risk-free given they are better placed with credit scores. But the recent slowdown and vanishing jobs are upending the belief. Defaults in this segment may be the next worry though the magnitude of damage may be contained.
Deepak Chopra has been regular in payments of loans all these years. Now he’s running from pillar to post to meet the obligations – be it school fees for his son or the home loan instalment. In fact, he is behind schedule on his credit card payment that his bank has been bullying him for a month now to pay up by hook or crook. The former Jet Air employee is helpless.
Chopra is not an over leveraged individual who splurged on luxury beyond his means, but he’s among the thousands of unfortunate people who took job security for granted and are left with unmanageable liabilities. Millions are joining the ranks of Chopra as the wheels of economy move slowly now.
After blindly chasing individuals comforted by their regular income, the spectre of joblessness looms as companies such as Jet, RCom and Alok Industries undergo bankruptcy and the last bastion of banking – retail lending – is facing its worst crisis in a decade.