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MARKET WATCH 02 AUG 2019


National

India slips to 7th largest economy in 2018: World Bank

View: Will the new direct tax code act as a stimulus in lifting the economy

A major crisis may be brewing for Indian banks

GST collection over Rs 1 trillion in July despite subdued CGST and SGST

 

International

 

Iconic Swimwear Brand Vilebrequin Chooses Gerber Technology

Home Furnishings Manufacturing Solutions Expo Draws Record Attendance At New Hickory Home

Trump hits China with more tariffs, says Xi moving too slow on trade

 

 

National

 

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.


 

“The first casualty will be consumption loans,” says Romesh Sobti, MD, IndusInd Bank. “There is a worry over job losses but salary increases have been above inflation fortunately. A couple of years ago, there were job losses in the IT sector but it didn’t play out. This time around what is different is that if you default, your credit score takes a hit and you just cannot borrow again.”

The retail edifice, built on credit information bureau data and faith that individuals behave better than corporates when it comes to honouring their repayment commitments, is under test.

While the gross retail loan portfolio has gone up by 1.37% since March 2019, the portfolio at risk, or the borrowing that could get delinquent in 91 to 180 days rose by 8 bps to 0.91% since March, shows data from CRIF High Mark, a credit information bureau. A basis point is 0.01 percentage point. For auto loans, the portfolio at risk has risen 20 bps in the 30 to 90 day period in the last two months.

“If you go into retail because other loan demand is not there, then that risk will build up,” says Aditya Puri, CEO, HDFC Bank. “You have to see how much he has borrowed…. where is his income from, what is the risk of the income going away, whether it is priced well enough.”

Banks, which have been pushing retail credit for more than five years because of a surge in defaults in corporate loans, have built up risks in that segment due to slack underwriting standards. There is an uptick in defaults by individuals as their incomes are stagnating and some are losing jobs due to companies shrinking their sizes due to poor profitability and bankruptcies.

THE BELT TIGHTENING
Bajaj Finance, the gold standard in retail lending, is losing some of its sheen. And it has warned that more stress may be ahead.

From being liberal in chasing individual borrowers, banks and NBFCs are turning them away fearing a rise in delinquency where it would be a lot more difficult to recover than from a corporate because of the quick erosion in the value of assets.

“Both salaried and unsalaried segments are moving in a secular manner,” said Rajeev Jain, MD and CEO, Bajaj Finance. “In digital products, younger customers have higher propensity to default. So, for example, we will not lend to customers below 25 years of age.”

The Pune-based company that earned its stripes in retail lending has tightened underwriting standards after provisions rose 69% in the June quarter to ?551 crore. Gross bad loans rose to 1.6% from 1.54%. New disbursements fell 12%.

“We are going through a volatile period,” says Bajaj’s Jain. “We will have to be watchful and agile.”

The early warning signs of stress build-up in the retail loans have started surfacing. HDFC Bank adopted a cautionary stance with an increase in provisioning requirement for unsecured loans, personal loans, credit cards to 120 days from 150 days and slowed down lending in these segments.

THE BUILD-UP
Equipped with consumer credit behaviour data and an aversion to corporate lending, banks piled up on retail loans as the last resort to show growth. Mortgages, auto loans, personal loans for pleasure trips abroad and loans for durables gained traction in the past five years. Some of them even doubled their portfolio of such loans and the nimble nonbanking finance companies took advantage of easy availability of funds to build the book.

The banking system exposure to unsecured loans has risen to an alltime high, RBI data shows. Credit card outstanding grew to Rs 93,600 crore at the end of May versus Rs 74,300 crore during the same period last year. Personal loans grew Rs 6.2 lakh crore versus Rs 5 lakh crore last year.

For the last few years, retail loans have been the only saving grace for most banks when corporate loans have all but dried up. Data from the Reserve Bank of India showed that while corporate credit grew at a much slower pace of 6%, loans to the retail segment grew by nearly 17% in a span of one year.

While retail has been growing, specific segments like mortgages and auto loans have seen disproportionate surge in banks’ books. Of the retail loan book, 20% comprises mortgage loans for State Bank of India. For HDFC Bank, 18% of its retail book is automobile loans. For Axis and ICICI Bank, mortgage is 38% and 50% of total retail loan book, respectively.

“The consumption economy is not doing so well, there is a clear impact on mortgages, but the discretionary part which is the personal loans, credit cards and unsecured loans where we don’t have a full understanding of the end use, that is growing at a very rapid pace,” said Pralay Mondal, head-retail, Axis Bank.

THE SUDDEN STOP
The going has been good for nearly a decade after the Lehman Brothers-induced meltdown that caused layoffs in many industries. But it is the job loss that is beginning to haunt lenders now.

One of the biggest reasons is the slowdown in automobile and real industries. With automobile sales shrinking from the previous year, companies such as Maruti Suzuki, Renault India are laying off staff, either those who are on their rolls or on contract. Hundreds of component suppliers are also shrinking.

Over ten lakh people may be laid off if the auto industry continues to slide, said Ram Venkataramani, president, Automotive Component Manufacturers Association of India. Currently, the sector employs five million people and contributes 2.3% to the country’s GDP.

Passenger vehicle sales fell 18.4% in the first quarter, and monthly passenger vehicle sales in June fell by the biggest margin in 18 years. At the end of March, NBFC credit to the auto sector fell by 69% and the gloom is also spreading to the banking sector. While another private peer Kotak Mahindra Bank recorded positive credit growth, it may be looking to pull out of the dealer financing business.

“And we have also found in the last two years in particular, some of the newer banks have been pretty reckless in how they lend to dealers without adequate security. And in some cases, we hear that wherever just because we are there, some of the other banks and financial institutions have blindly lent on that basis and there will come a time when we have actually quietly pulled out and let some of them carry the same," says Uday Kotak, chief of Kotak Mahindra Bank.

The slowing of the economy is beginning to reflect on the individual segments too. GDP grew at its slowest pace in the past five years in the last quarter of fiscal 2019.

Bank lending to NBFCs slowed to Rs 6.2 lakh crore at the end of May against Rs 6.4 lakh crore in March. Credit disbursals by non-banking finance companies plunged by a third in the year to March after they were gripped by the liquidity squeeze following the implosion of Infrastructure Leasing & Financial Services last September.

FUTURE IMPERFECT?
Whether it is corporate or retail, the choice of credit decides on how well the portfolio performs.

“If I am buying horses, all of my portfolio should be horses, there should be no donkeys in the portfolio,” says Puri. “If you treat consumer loans like biscuits, then paisa hajam khel khatam.”

The attractiveness of retail lending is that it is high yielding and relatively safer as individuals work overtime to avoid default since it is a taboo in the society. Loans against property, which is for small businesses, or investments in stock markets, are the riskiest.

Others such as personal loans, credit cards are as good as unrecoverable in case of defaults. Huge profitability of retail lending and excessive liquidity have led to crowding of the segment and dilution of standards of underwriting to capture business.

While a lot of exuberance and confidence came from the availability of credit information bureau scores, banks may have to look beyond the credit scores if they have to protect their portfolios from massive defaults. The credit bureaus appear to be as relevant as the credit rating companies when it comes to corporate loans. In a sense, they are backward looking rather than assessing the current credit position.

“Cibil score alone is not enough,” says Puri of HDFC Bank. “You have to see how much he has borrowed, where is his income from, what is the risk of the income going away, whether it is priced well enough,”

One such suggestion is that apart from looking at the credit scores, banks may begin to assess the background and credit standing of the employer itself given that many defaults happen because of the employer going bust.

“The additional vector of the employer profile should also be added, where is he working, the mobility issue also has to be factored in ... people change jobs due to salary movements. This aspect is true of the salaried base, mobility, employer profile, wage growth and job losses should be factored in,” says Sobti.

The pain on banks may be a lot less severe than what they faced with the corporate loans because these loans are less chunky. But the irony is that even a small portion could inflict severe pain.

“I always tell my team, don’t tell me that 90% of the portfolio is good, you just need the last 2-3% to go bad to be out of business,” says Mondal.
Source: The Economic Times

 

GST collection over Rs 1 trillion in July despite subdued CGST and SGST

Collection from the goods and services tax (GST) was above Rs 1 trillion in July, mainly on account of higher mop-up under the integrated GST.

However, the central and state portions remained subdued, posing a challenge for the revenue target for the financial year.

GST collection at Rs 1.02 trillion in the month was slightly more than 2 per cent higher than the Rs 99,939 crore in June and 5.8 per cent higher than the Rs 96,483 crore in July last year. However, Central GST collection was just Rs 17,912 crore in July, down from Rs 18,366 crore in June.

State GST collection too was lower at Rs 25,008 crore in the month against Rs 25,343 crore in June.

It was the IGST that rose to Rs 50,612 crore against Rs 47,772 crore in this period.

Subdued revenue collection poses challenges for Finance Minister Nirmala Sitharaman with a growth target of 16 per cent for the central GST in 2019-20, reinforcing the need for emphasis on data intelligence and policies to plug leakages.

The CGST collection target was revised downwards to Rs 5.26 trillion for the fiscal year from the Rs 6.1 trillion estimated in the Interim Budget, following a 9 per cent shortfall in collection in the previous year.

“GST collection for the month, despite being more than Rs 1 trillion, would be a matter of concern because this is lower than the Budget estimate. Collection needs to be correlated to the economic situation,” said M S Mani, senior director, Deloitte India.

The government is working on measures to stop tax evasion — including data analysis, new return formats, the e-way bill, the proposed e-invoicing system, and mandatory e-ticketing for movie theatres.

Abhishek Jain, tax partner, EY, said: “The next uptick in collection is expected with the launch of the new return formats and related restricted credit availability only on the matching of it with corresponding disclosures by suppliers, and verification of annual returns/audit reports submitted for FY17-18, etc.”

The compensation cess stood at Rs 8,551 crore, a shade higher than the Rs 8,457 crore in June.

A total of 7.579 million GSTR-3B, or summary returns, were filed in July, higher than the 7.425 million in June.

A sum of Rs 17,789 crore has been released to the states as GST compensation for April-May 2019.

The lower than expected collection weakens the case for further reduction in GST rates, especially for items taxed at 28 per cent.

In the GST Council meeting last week only a single segment — electric vehicles (EVs), EV chargers, and hiring EV buses — was considered for rate reduction. The rate for EVs was cut from 12 per cent to 5 per cent, and that for chargers from 18 per cent to 5 per cent. Hiring buses got an exemption.

Tax evasion may get tougher with the GST Network (GSTN) and the income-tax department signing a memorandum of understanding to facilitate an exchange of data.

The GST Council in its December 2018 meeting cut the GST rates for 23 goods and services, including movie tickets, TVs and monitor screens, and power banks, and exempted frozen and preserved vegetables from the levy.

The rates for consumer durables such as small-screen TVs, refrigerators, and washing machines were cut to 18 per cent from 28 per cent in July last year.

In November 2017, the rates for 178 items, including detergents, shampoos and beauty products, were reduced from 28 per cent to 18 per cent.

Source: The Business Standard

 


 

 

 

 

 

 

 

 

 

 

 

International

Iconic Swimwear Brand Vilebrequin Chooses Gerber Technology 

TOLLAND, Conn. — August 1, 2019 — Vilebrequin, the iconic swimwear brand, has selected Gerber Technology’s integrated solutions, YuniquePLM® and AccuMark® CAD, to facilitate quick product development and centralize all information, making it easily accessible to every member of the team. Gerber Technology, the world-leading flexible materials and fashion technology innovator, enables innovation by helping its customers compete and win in today’s ‘on-demand’ markets through their integrated technology and service offerings that any brand or manufacturer can easily adopt to unleash their full potential.

The pressure is on for brands to consistently offer new products, which requires brands and retailers to move faster than ever before in order to get their products to market. In order for Vilebrequin to offer their customers more novelty, they are now offering three collections each year, with several capsules in between, creating a higher workload. With Gerber Technology’s innovative digital solutions, Vilebrequin is able to easily work on several collections at the same time and deliver them to the market in a timely fashion.

“After much research, it was clear that Gerber was the best solution on the market to digitalize and streamline our process to increase efficiency while improving quality and fit,” said Christian Roche, Chief Information Officer at Vilebrequin. “The connectivity between their PLM and CAD solutions is unmatched, helping to not only reduce our time to market but also reduces costs and improves fit.”

Gerber Technology’s cloud-based PLM, YuniquePLM V8, was a key component in Vilebrequin’s decision to choose the data-driven industry leader. The cloud-based PLM offers easy access to regular updates, a renewed and easy-to-use user interface, and seamlessly integrates with an IT ecosystem, such as Adobe® Illustrator® through the Design Suite Plugin, allowing Vilebrequin to quickly import data from other systems into YuniquePLM. A major differential from the competition for Vilebrequin was Gerber’s 15 years of experience in their CEGID/Orliweb ERP integration.

“We are incredibly proud to welcome Vilebrequin into our Gerber family,” said Ketty Pillet, Vice President Marketing at Gerber Technology. “Vilebrequin has a rich history of offering the highest quality swimwear and we are excited to help them further enhance their product offerings.”

In addition to YuniquePLM, Vilebrequin will also be implementing Gerber’s industry-leading pattern design software, AccuMark 12.1, which is now available on a subscription basis in the Americas and coming soon to Europe. With the seamless connectivity between AccuMark and YuniquePLM, Vilebrequin will be able to pass data throughout the supply chain, streamlining their workflow, improving fit and quality, and ensuring repeatability.

“With developments of new territories, Vilebrequin is diversifying and increasing its offer which meant we needed to improve our communication amongst our team,” said Aurelie Tondella, Merchandising & Strategic Planning Manager at Vilebrequin. “We are confident that YuniquePLM, as well as Gerber’s deep understanding of the process, will facilitate our way into making Vilebrequin the lifestyle brand it can be with regular novelties in our stores and online.”

“We are excited to work with a company that understands the value of delivering a quality product,” said Christian Roche. “Gerber’s expert knowledge and professionalism are what truly sets them apart from the competition and we are proud to partner with them.”

Source: Textile World

Home Furnishings Manufacturing Solutions Expo Draws Record Attendance At New Hickory Home

ATLANTA — August 1, 2019 — The third edition of Home Furnishings Manufacturing Solutions Expo (HFMSE), a trade show and conference serving the furniture manufacturing industry, was held July 17-18, 2019 at the Hickory Metro Convention Center in Hickory, North Carolina. Owned and organized by Exposition Development Company, Inc. (ExpoDevCo) and Progressive Business Media (PBM), HFMSE featured exhibitors showcasing supplies, equipment, machinery and more, a much-needed platform for attendees in the furniture manufacturing industry. The move to Hickory, North Carolina fostered not only an increase in the number of furniture manufacturers attending, but also in the depth of delegations sent by individual companies. With the show in easy driving distance to a larger number of furniture manufacturers, many companies sent groups from different parts of the company on each of the expo’s two days and saw many choosing to attend both days. The show hosted more than 1,000 attendees as well as 69 exhibiting companies/brands from Italy, Romania, Switzerland, and the USA.

Manufacturing Excellence Awards:

During the Expo, Furniture Today presented the prestigious Manufacturing Excellence Awards. The awards were given in four categories each honoring manufacturers who are leaders in the furniture industry. Listed below are the categories and the winners:

Product Design & Innovation Award, Awarded To: HomeStretch

Manufacturing Innovation Awarded To: McCreary Modern

Domestic Manufacturer of the Year Awarded To: Century Furniture

Upholstery Supplier of the Year Awarded To: STI Fabrics

Educational Program

The two-day educational program featured topics such as Major Trends Disrupting the Furniture Industry, presented by Daniella Ambrogi, VP of Marketing – Lectra; Partnering with Industry to Train the Next Generation of Furniture Manufacturing Presented by Jeff Link, Dean of Career and Technical Education, Caldwell Community College and Technical Institute; and Upholstered Furniture Design presented by Lewis Mabon, ISFD, Design Engineer, Furniture Technology Center, Leggett & Platt.

Key Supporters

Key Supporters included the American Home Furnishings Alliance; Caldwell Community College and Technical Institute; Catawba Valley Community College; the Economic Development Partnership of North Carolina; the Manufacturing Solutions Center; and the North Carolina State University Wood Products Extension.

Source: Textile World

Trump hits China with more tariffs, says Xi moving too slow on trade

US President Donald Trump said he plans to impose a 10 per cent tariff on $300 billion of Chinese imports from September 1 and could raise tariffs further if China's President Xi Jinping fails to move more quickly to strike a trade deal. 

The announcement on Thursday extends Trump's trade tariffs to nearly all China's imports into the United States and marks an abrupt end to a temporary truce in a trade war that has disrupted global supply chains and roiled financial markets.

"I think President Xi ... wants to make a deal, but frankly, he's not going fast enough," Trump said. 

Trump made the announcement in a series of Twitter posts after his top trade negotiators briefed him on a lack of progress in US-China talks in Shanghai this week.

Trump later said if trade negotiations fail to progress he could raise tariffs further - even beyond the 25 per cent levy he has already imposed on $250 billion of imports from China.

Source: The Business Standard