ECONOMICS DOSSIER

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NOTICE TO THE READER
The objective of this dossier is to assist students in their summer internship and
placement preparation. This document endeavours to provide direction and reading
references only and thus it not exhaustive by itself. It is a compilation of select
articles and article references meant for internal academic purpose and thus we do
not encourage circulation of the same to any outsider for any purpose. In case you
do not belong to the above audience group and find yourself referring to this
document we suggest you to stop at this very moment as it is not designed to
address any other purpose except for the one mentioned above.

Instructions to use the document

This document covers the major economic topics which we feel would be relevant
from summers point of view, however we recommend you’ll to not restrict your
preparation to these topics only. This document is to be used as a starting point for
your summers preparation, you’ll need to take cues from this document and prepare
accordingly. At the end of the day it is your research and understanding that will
matter in an interview and thus we strongly recommend our readers to deep dive
into the subjects and differentiate themselves by gaining further insights.
Structure of the document
Each topic begins with an overview article from the web, this is meant to give you’ll
a brief understanding of the topic.
The above article will be followed by list of article references which you’ll can
further explore.
The idea is to make you’ll read about these topics and not influence your opinion.
After having read extensively you’ll need to form an opinion of your own based
on sound logical principles and reliable data.
The reason for not giving extensive write ups on these topics are as follows:
1) We do not want to spoon feed you’ll
2) We do not wish to colour your opinions as that is what will help you’ll to stand
out during group discussions and Interviews
3) We genuinely want to bring out the best in you
The most important part of this dossier is to form your own opinion after carefully
studying your topics, it is your thought through opinions that will make all the
difference in that interview room, needless to say it has to be based on facts,
numbers and sound logic so kindly be diligent in doing so.

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INDEX

Sr.no Particulars Page.no.

1. NPA in Indian Banking Sector 4
2. India’s Population and Demographic Dividend 8
3. Aftermath of Demonetization Scheme 11
4. Revised Methods for Computing GDP and Inflation 16
5. Poverty and Rural Income 18
6. USA After Trump’s Election 20
7. Falling Interest Rates on Deposits & Loans and Banks’ 26
Profitability
8. Manufacturing Sectors Slowdown and Make in India 28
9. Europe After Brexit 31
10. China’s current economic position 34
11. Government Policies and Equity Market 37
12. Impact of GST on the Economy 40
13. Seventh Pay Commission Implementation 43

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 1. NPA in Indian Banking Sector

Though globally India’s position is unsatisfactory, time-bound resolution of NPAs

under IBC should ease banks’ burden
The non-performing asset (NPA) issue facing banks has dominated headlines for
several months now and the fact that we are still unsure of whether or not all have
been recognised does cause some discomfort. In this context it is compelling to see
how the Indian banking system stands on a global yardstick.

This is important because NPAs have resulted due to several judgment calls made in
the past, which in hindsight were incorrect. Lending operations in the banking system
are linked with expectations of how the economy will behave. If the economy is
growing at a fast pace, it is assumed that the same will prevail in future. The problem
hence, is that there always seem to be progressive expectations when the economy
does well. This is where judgement gets blurred and errors get into the system as
credit evaluation goes awry.

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Business cycles

When business cycles are buoyant and interest rates low, companies go in for big
investments and banks are gung-ho as everything looks plausible. Growth in bank
credit averaged 19 per cent per annum between FY08 and FY12 when the repo rate
was first lowered from 7.75 per cent to 5 per cent before being increased to 8.5 per
cent by FY12.

During these phases, the interest cost also ceases to matter as it is assumed that it is a
small component of the cost and can be absorbed with the top line growing rapidly.
Corporate sales growth in those years averaged 15-20 per cent on a recurring basis.

It is not surprising that bank credit during this period grew rapidly, by an average
annual rate of 19 per cent. It was then the economy was impacted by various
controversies in the natural resources sectors which, in particular, thwarted
investments and led to an increase in stalled projects as bureaucrats were not willing
to take decisions. Bank credit growth subsequently slowed and the average growth
rate came down to 11 per cent between FY13 and FY17.

This surrealism was hence shattered as the economy moved from a canter to a trot
(GDP growth also slid by around 1 per cent per annum for these two periods with
different base years), leaving banks holding the rotten eggs. This does provoke a
debate on whether or not we have brought about high growth by inflating investment
through erroneous lending.

In several countries that saw rapid growth — starting with the East Asian Tiger
economies in the 1980s and 1990s as well as China when it posted growth of over
10 per cent on a sustained basis on the back of an investment-driven model — there
was reason to believe that financial decisions were fogged by a misleading futuristic
windshield.

At 10 per cent, India is in the more ‘unsatisfactory’ league of nations with high NPAs.

The ones which are more problematic are Greece, Italy, Portugal, Ireland and
Russia. Quite interestingly, the top four were part of the PIIGS group which
epitomised the euro crisis of 2010. Spain has moved away with a ratio of 4.5 per
cent, while the rest still struggle to rein them.

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One thing that stands out is that some of the Latin American nations like Brazil and
Argentina are doing much better on this front while even Turkey, which has other
challenges in terms of currency and growth, has a low ratio of less than 3 per cent.
India’s NPAs were also around 3 per cent when there were various camouflages
available under corporate debt restructuring.

However, ever since the RBI brought about the concept of asset quality recognition
in 2016, banks progressively revealed the same which has, in turn, stressed the
system. The very developed nations with large economies like the US, the UK,
Japan and Germany have sound banking systems with NPA ratios of less than 2 per
cent, while China scores well at 1.7 per cent.

The NPA issue does not just end with an adverse portfolio. As provisions have been
made on an accelerated recognition of the same, the profitability of banks has been
affected.

The return on assets at 0.33 per cent for Indian banks is comparable to those of the
very developed countries. However, this could lead to a misleading conclusion that
Indian banking system is on par with them.

Western banks operate on smaller interest rate spreads on much larger balance
sheets which lowers their return on assets. Similarly, a larger volume of capital
lowers the return on net worth. This means that if the interest rate spreads were
lowered by Indian banks then profitability at the present levels would not be
maintained. Therefore, in a way both deposit-holders as well as borrowers are
confronting unfavourable interest rate schedules.

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The positive side

The good part of the story is that hopefully all the NPAs have been placed on the
table. And, the IBC (Insolvency and Bankruptcy Code) has seen the first big
resolution and there would be more to follow. This is critical because the recovery
rates in India have been very low at 15-20 per cent while the system needs to move
towards 50-75 per cent over a period of time.

Given the time-bound manner of resolution of the NPAs, there is hope that there
would the proverbial light at the end of a tunnel which has a fixed length. The system
may have to struggle for another year or so, but the 2019-20 fiscal could be brighter.

Link:https://www.thehindubusinessline.com/opinion/indias-npas-and-
the-global-scenario/article24145872.ece
References
1. https://economictimes.indiatimes.com/industry/banking/finance/view-
intractability-of-the-npa-issue-a-major-hurdle-for-its-faster-
resolution/articleshow/63294356.cms
2. http://www.ey.com/Publication/vwLUAssets/ey-unmasking-indias-npa-
issues-can-the-banking-sector-overcome-this-phase/%24FILE/ey-
unmasking-indias-npa-issues-can-the-banking-sector-overcome-this-
phase.pdf
3. http://www.timesnownews.com/business-economy/markets/video/why-
aswath-damodaran-sees-more-pain-for-indian-banking-sector/204806
4. https://economictimes.indiatimes.com/markets/expert-view/we-want-to-
make-sbi-a-new-age-bank-for-new-age-india-rajnish-
kumar/articleshow/61097435.cms
5. https://www.brookings.edu/blog/up-front/2018/03/01/how-to-solve-issue-
of-rising-non-performing-assets-in-indian-public-sector-banks/
6. https://www.financialexpress.com/opinion/bond-markets-and-npa-
resolution-all-you-need-to-know/1067935/
7. https://www.moneycontrol.com/news/business/economy/npa-issue-is-
indias-no-1-macroeconomic-challenge-arvind-subramanian-
2248985.html
8. http://www.iasscore.in/special-details-34.html
9. https://www.clearias.com/non-performing-assets-npa/
10. https://indianexpress.com/article/business/banking-and-finance/sbi-
chairman-rajnish-kumar-interview-days-of-over-leveraging-thin-equity-
are-behind-us-npas-will-also-start-to-come-down-soon-5208760/

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 2. India’s Population and Demographic Dividend

The third edition of the Voice of Asia series titled ‘Demographics fuelling Asia's shifting
balance of power’ was released today. The report aims to highlight the fast-changing
demographic trends in Asia, with most of the countries in the region grappling with an
ageing population, and an imminent workforce shortage. However, India is among a
handful of South Asian countries that sits on a demographic gold mine. India has a
median population age of 27.3 years compared to that of 35 years for China and around
47 years for Japan. It is estimated that India has around 390 million millennials and
about 440 million in the Gen-Z cohort. About 12 million people are added to the working
age population every year. Demographic growth is significant as it is intrinsically linked
to economic growth and therefore, cannot be ignored.

Anis Chakravarty, Lead Economist, Deloitte India, explained that, "India will
account for more than half of the increase in Asia’s workforce in the coming decade,
but this isn’t just a story of more workers: these new workers will be much better
trained and educated than the existing Indian workforce, and there will be rising
economic potential coming alongside that, thanks to an increased share of women in
the workforce, as well as an increased ability and interest in working for longer. The
consequences for businesses are huge."

However, in order for India to reap the dividends of its demographic potential, it has to
first equip its workforce with the necessary skills to contribute to the national economy.
Anis Chakravarty further adds, sounding a note of caution, “With the invasion of
machines and improvement in robotics, India needs to pay special attention to skilling
and reskilling its workforce with a focus on the changing nature of today’s jobs. In recent
years, India has taken proactive steps to deal with the disruptions in the job market with
the ‘Skill India’ initiative being one of them. That said, it needs to be a continuing
process of upgrading skills in a rapidly changing environment.”

Much like India, Indonesia and the Philippines have also witnessed a steady growth
in their working age population. With more and more young men and women joining
the workforce every year, a new economic order backed by positive demographic
growth has come into play.

While India and some Southeast Asian economies are seeing an increase in their
working age population, most of Asia's nations are ageing, and while this creates
emerging challenges, ageing populations will also generate a growth cluster of new
business opportunities.

Ageing to create a growth cluster of industry winners

Three big accelerators drive the industry opportunities in an ageing Asia, with each
building on the other are as follows:

• Asia is ageing fast, with a billion people in the region to be aged 65 and over by
the middle of this century.

• And the money being spent by and on ageing populations will grow even faster
than Asia ages, because the impact of new technologies and the on-going

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 management of increasing chronic conditions means health care costs will rise
faster than most other costs

• There will be a steady growth in old-age homes and retirement homes. This will
lead to infrastructure and fresh capital infusion, resulting in more employment
opportunities and better wages

” As is already increasingly evident in Japan, the surge in ageing-related

opportunities will be evident well beyond health care. Rapid ageing in the Japanese
population has changed the needs of people and the way businesses satisfy them.
There has been increasing demand in sectors such as nursing, consumer goods for
the elderly, age-appropriate housing and social infrastructure, as well as asset
management and insurance,” notes Tsuyoshi Oyama, Deloitte Japan Economist.

Similar to Japan, much of China’s economic growth can be attributed to the abundant
human capital they once had. As their workforce ages, China has acknowledged the
need to increase their workforce, thus abolishing its one-child policy. Both China and
Japan, sensing an impending crisis, are offering incentives to young mothers to have
more than one child. However, this cannot resolve the issue alone.

To manage ageing populations, the report recommends the following measures to

deal with rising shortages in workforce and pre-empt the adverse effects:

• Increasing the retirement age: Fewer jobs are labour-intensive these days,
while rising life expectancies are encouraging longer working lives, and today’s
higher incomes are also encouraging people to work for longer. Fostering these
trends can help the economic growth of those nations at the forefront of ageing
impacts – as is especially true of Hong Kong, Taiwan, Singapore, Korea and
China.

• Incentivising the participation of female workforce: Asia has far fewer

women than men in its paid workforce. Accessing that untapped people power is
a direct lever with which ageing nations can boost their growth potential.

• Welcoming migrants: 2017 is a year in which the politics of migration remains

contentious, but the economics of migration remain excellent. Those nations at
risk of a demographic-driven growth slowdown should open further to
immigration. Accepting young, high-skilled migrants can help ward off ageing
impacts on growth, but the critical issue is whether policy—and property
prices—will allow this immigration to happen at sufficient scale.

• Increasing productivity and skill development: Productivity is just as much a

contributor to economic outcomes as demographics. Governments can focus on
education and re-skilling the workforce as a way to bolster the growth
opportunities offered by new technologies.

India, with its abundant human resources, increasing foreign investments and rising
disposable incomes, is on its way to becoming a global economic power. However,
India needs to take a proactive approach to prepare its workforce for the changing
needs of the market, thereby creating a new highly skilled workforce for the ageing
world.

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For more analysis and details on the Voice of Asia, please visit Deloitte University
Press.

Link: https://www2.deloitte.com/in/en/pages/about-deloitte/articles/india-
to-make-massive-gains-from-its-demographic-dividend-press-
release.html

References

1. https://www.economist.com/briefing/2018/01/11/indias-missing-
middle-class
2. https://www.livemint.com/Opinion/Eo1PgYgUyKl9xgWLrLPwJP/Demo
graphic-dividend-growth-and-jobs.html
3. https://www.firstpost.com/india/india-wont-benefit-from-rising-
population-mass-unemployment-unrest-looms-ahead-2980040.html
4. https://qz.com/1173792/as-gdp-growth-slows-indias-demographic-
dividend-could-turn-into-disaster/
5. https://scroll.in/article/866105/reality-check-indias-so-called-
demographic-dividend-can-easily-end-up-becoming-a-nightmare
6. https://blogs.timesofindia.indiatimes.com/Swaminomics/north-
india-deserves-credit-for-the-demographic-dividend/
7. https://qrius.com/indias-demographic-dividend-double-edged-sword/
8. https://www.brinknews.com/asia/is-india-overplaying-
its-demographic-dividend/
9. https://www.dailyo.in/variety/indias-demographic-dividend-young-
india-skill-development-birth-rate-fertility-rise-in-
population/story/1/22027.html
10. http://www.dailypioneer.com/sunday-
edition/agenda/backbone/demographic-dividend-seize-before-its-too-
late.html

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 3. Aftermath of Demonetization Scheme

ON NOVEMBER 8TH last year, Prime Minister Narendra Modi made a dramatic
announcement. In one go, he outlawed notes of Rs 500 and Rs 1,000 that
constituted 86 per cent of the country’s currency in circulation. It was perhaps India’s
boldest policy experiment in over a quarter century.

A year later, a paradox of sorts has emerged: while intellectuals and analysts in India
have slammed the step, Indians at large have reacted positively to it. The usual
explanation is that the economics and politics of demonetisation bear no connection,
with the idea finding favour with citizens by virtue of the populist appeal of its moral
logic. Lost in the noise are the modernising features of a larger process that began
with creating no-frill bank accounts for the underprivileged and has culminated—for
the time being—in a major tax reform, the Goods and Services Tax (GST).

In the weeks and months after November 8th, 2016, Indians cutting across all lines—
rich and poor, urban and rural—formed serpentine queues to deposit money and get
hold of some precious but rationed cash for much-needed daily use. In a country
whose economy was dominated by cash transactions, demonetisation was a drastic
attempt to change the behaviour of Indians, moving them away from the use of
currency notes towards electronic modes of transferring money. It was also an
attempt to check black money by imposing what economists called a ‘one-time
shock’ that would neutralise it.

The initial days after the announcement were chaotic, as expected. This was no
surprise since currency worth an estimated Rs 15.4 lakh crore had been expunged
as legal tender and remonetisation would take time. The opposition smelt an instant
opportunity in the disruption caused by the event and began to forecast doom and
gloom for the country. Critics said that Indian voters would exact vengeance from the
ruling Bharatiya Janata Party (BJP) for this act of large-scale ‘destruction’ visited
upon them. That claim continues to be made even today, though the political effect
on the opposition of their protests has been less than salutary.

Twelve months past, those queues are mostly a faded memory, the country has
been remonetised adequately, and other policy measures such as the GST have
been implemented by the Modi Government. But a few voices against the move
remain as loud as ever. Some criticisms have been pertinent, others merely petulant.
The one with the strongest force was of the badly handled remonetisation of the
economy. This argument could be made with a simple illustration. Suppose a country
uses 70 per cent of its currency for transactions—buying and selling goods—and
uses the rest as a store of value. Surely, it is important to smoothly replace old stock
with new? Even if one assumes a further 20 percentage point reduction in the use of
notes—say, people shift habits and start doing online transactions—that still leaves a
50 per cent requirement for new currency almost at the word go. This need took
painfully long to be met.

THE TRANSITORY ECONOMIC consequences of it were felt in the slowing of growth in

the two quarters right after demonetisation. In the last quarter of fiscal year 2016-17, the
rate of GDP growth fell to 6.1 per cent, compared with a figure of 7.9 per cent

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in the same quarter of 2015-16. An even worse number awaited the country for the
first quarter of fiscal 2017-18, when growth fell to 5.7 per cent compared to 7.1 per
cent in the same quarter of the previous year.

Once those figures of decline were placed alongside a drop in the prices of agricultural
commodities earlier this year, critics dashed off to declare demonetisation dead in the
water. In Uttar Pradesh, potato prices fell to just over half of what prevailed in 2016.
Something similar happened with farm-gate prices of tomatoes and onions. This led to
farmer unrest across states such as Madhya Pradesh, Rajasthan and Maharashtra.
Soon this turned into generalised agrarian distress over mounting debts, and the lines
between what demonetisation had done and what was due to long-running factors got
blurred. Finally, trouble had to be staved off by political handouts, with several states
announcing farm-loan waiver packages, a remedy not quite in consistence with the
alleged initial ailment. In any case, most of these troubles were over by September this
year. Of all the criticisms levelled against the November 8th decision, those that focused
on an economic slowdown and the poorly executed process of remonetisation had the
greatest weight.

The queues are now mostly a faded memory, the country has been remonetised
adequately, and other policy measures such as the GST have been implemented by
the Modi Government

What has much less credence is the charge that demonetisation has failed to ‘fix’ the
country’s problem of black money. This is an exaggerated point that is not really as
stark as it has been made out to be. Originally, the hope indeed was that a
substantial fraction of the unaccounted-for stock of money would be ‘extinguished’ as
people would be hesitant to deposit their ill-gotten funds in bank accounts. The initial
idea of withdrawing Rs 500 and Rs 1,000 notes was to prevent the use of these as a
store of illicit wealth. Soon after the move was announced, however, economists led
by Jagdish Bhagwati pointed out that this may not pan out.

It did not. On February 1st this year, Union Finance Minister Arun Jaitley gave
Parliament a set of figures for ‘high value’ deposits made within the period that banks
were accepting old cash. The sums are staggering. Deposits exceeding Rs 80 lakh
were made in 148,000 accounts with an average deposit size of just above Rs 3.3
crore. Similarly, smaller deposits, ranging from Rs 2 lakh to Rs 80 lakh were made in
about 10.9 million accounts with an average deposit of just above Rs 5 lakh.
Bhagwati and his colleagues estimated these deposits as accounting for over Rs 10
lakh crore in all, about two-thirds of the currency stock demonetised. If any doubt
were left about how much cash came to light, the Reserve Bank of India’s Annual
Report, released on August 30th, put an end to it. Of the Rs 15.4 lakh crore worth of
high-value notes in circulation before the move, almost Rs 15.3 lakh crore had been
returned to the RBI by June 30th, amounting to roughly 99 per cent of it.

Critics were quick off the gun and said this was the ‘last nail’ in the coffin of
demonetisation.

At the very minimum, that is misleading. To begin with, the withdrawal of large-
denomination notes was supposed to be a one- time strike on black money. That
exercise is not yet over. A clear path to the goal would have been the instant

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extinguishing of cash that did not return to the banking system. But that path having
closed does not mean there are no alternatives. As mentioned by the Finance
Minister, the number of suspect deposits is very large. A combination of scrutiny by
tax officials and the use of data-mining methods to spot irregularities is an option that
is still open, one that the Government is unlikely to close. Of course, not only is it
cumbersome, it also presents tough choices: hard-headed scrutiny is likely to result
in complaints of harassment and victimisation at the hands of tax authorities. How
the Government balances the twin objectives of unearthing black money and
safeguarding innocents from mistreatment is something to watch out for.

The trouble with the ‘last nail’ critique is that it looks at demonetisation in isolation. In
reality, for the Modi Government it was only one in a series of steps meant to
modernise the Indian economy and reduce the corruption that has moved wheels in
India for too long.

This has been acknowledged even by friends turned critics of demonetisation. One
prominent example is Kenneth Rogoff, professor of public policy at Harvard
University. Initially, he along with some other economists overseas had welcomed
the move. Later, on witnessing the scale of what was planned and the logistical
problems of remonetisation, Rogoff’s stance turned a little critical. More recently, in
an afterword to the new edition of his book, The Curse of Cash, which appeared
after demonetisation and just before the GST became operational, he writes: ‘Will
India’s demonetisation yield long-term benefits? The answer, of course, depends on
the implementation of other government policies to fight black money and corruption
and how well it succeeds in accelerating progress towards financial inclusion. For
example, India’s new gross sales tax (Goods and Services Tax) may make tax
enforcement somewhat easier, and the government has been engaging in financial
information treaties with other countries to make offshore laundering more difficult.’

The early benefits of enhanced transparency were already at hand in August this
year when the government shuttered 163,000 companies across the country on the
basis of data mined after demonetisation

Somehow that larger picture eludes most critics. It is one thing to examine
demonetisation and correctly point out problems in its wake, and something entirely
different to look at the series of steps that began with the creation of Jan Dhan no-frill
accounts all the way up till the GST. If one casts an extended gaze on this sequence,
a coherent pattern comes into view. Two specific shifts are clearly visible. One
lasting legacy of demonetisation is the great speeding up of digital transactions.
Even if there has been some return to cash once the scarcity period was over, the
changed landscape is broadly here to stay. Payments via Real Time Gross
Settlement (RTGS) and National Electronic Funds Transfer (NEFT) mechanisms are
up by 6 or 20 per cent (depending on whether they are measured by the number or
value of transactions) compared to 2016-17. The use of Prepaid Instruments or PPIs
has gone up even more sharply. Much of this was, to use the language of critics,
‘enforced’ by demonetisation. But the semantics of it—whether you call it ‘enforced’
or a ‘nudge’— makes little difference. The point is that these transactions leave an
electronic trail and are subject to scrutiny by the tax authorities if they so choose. Not
only do transaction costs come down when payments are made online, they can be
called up onto an official screen to be examined.

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The early benefits of enhanced transparency were already at hand in August this
year when the Government shuttered 163,000 companies across the country on the
basis of data mined after demonetisation. Of these, nearly 38,000 were found to be
shell companies—firms in existence not for business but financial deception.

Linked to all this is the second big problem that is now on its way to being solved. Since
the advent of taxation in Independent India, vast numbers of self-employed individuals—
businessmen, petty shopkeepers and traders among others—have managed to evade
both direct and indirect taxes to a large extent. A cash-based economy made the
expansion of the taxpayer base hard, if not impossible, in the absence of coercive
methods being adopted. Some tough approaches were tried for a while in the 1970s but
ended up being counterproductive. The overall result has been a low tax-to-GDP ratio
that left little money for the Government to invest after meeting its expenditures. Now a
combination of online transactions and the GST network has helped expand the
taxpayer base. After the GST was implemented, taxes collected under it in September
alone amounted to around Rs 92,000 crore (while input credit was also claimed for a
large sum). For anyone who has observed the trend of indirect tax collections in the
country, this is a positive shock. Barely ten years ago, in 2007-08, the total indirect tax
collections in the country stood at Rs 2.76 lakh crore. If implemented well—and with the
ironing out of its glitches—the GST promises to deliver what India needs: sufficient
money in the hands of the Government to deliver the basic services that the vast
majority of citizens have been deprived of.

PERHAPS ALL THIS explains the divergent reactions to these developments. At the
level of political parties and their intellectual supporters, there is plenty of anger at what
is happening. As mentioned earlier, one of the criticisms of demonetisation by analysts is
plain wrong: the lingering effects of draining out cash have worn-off. If these had
persisted, they would have shown up in the political domain, for no government can
escape public wrath at a policy miscalculation on such a scale. In Uttar Pradesh,
Assembly elections were held over a period of one month about a quarter after
demonetisation. The BJP won hands down. Similarly, local body polls in Maharashtra a
bit later saw the BJP take a leading position. In case the effects of the drain-out and
travails of remonetisation were as acute as portrayed by critics back then, surely there
would have been political reversals for the ruling party. There has been none so far.

Here again, Rogoff is perceptive. ‘Perhaps surprisingly, India’s demonetization, no

matter how much criticized by economists, has been broadly popular in a country
where people are deeply frustrated by endemic corruption, and appreciate the
government’s broad efforts to fight it… Certainly demonetization has greatly
accelerated financial inclusion, with hundreds of millions of Indians now taking
advantage of heavily subsidized basic debit accounts, a program that until now, had
been developing relatively slowly. There is little doubt that multitudes of papers will
be written on India’s demonetization, but it could take years to untangle its full
effects, which have as much to do with psychology as economics.’

Such analyses are best left to scholars, but even a cursory observation of the scenario
one year after the event suggests that something is at work that has been left
unexplored, or even ignored, in the plethora of commentary since then. Analysts and
political parties have been quick to point out the suffering of people in India’s huge
spread of villages, towns and small cities. The opposition even saw in it a chance of

14
recovering political traction after the drubbing it suffered in the General Election of
2014. But nothing seems to have come of it at the electoral level, though there are
admittedly many other factors at work in that arena. Still, the opposition appears out
of sync with mass sentiment. So too are analysts who fail to appreciate the
popularity of Modi’s agenda. While they were impatient and annoyed, most Indians
displayed remarkable patience with the efforts of a government seen to be cracking
down on corruption. Again, the answer may not be fully known unless deeper studies
are carried out.

Source: http://www.openthemagazine.com/article/cover-story/demonetisation-
one-year-after

References

1. https://economictimes.indiatimes.com/tdmc/your-money/businesses-
today-need-to-invest-more-in-women-workforce-says-yes-banks-namita-
vikas/tomorrowmakersshow/64285670.cms
2. https://www.brinknews.com/asia/after-demonetization-whats-next-
for-indian-banks/
3. https://www.huffingtonpost.in/2017/11/07/a-year-later-it-s-safe-to-
say-this-if-only-modi-had-listened-to-the-economist-he-had-at-his-
disposal_a_23268888/
4. https://www.livemint.com/Politics/UJGpXbPMaulpnoRo5jFx3N/A-
year-after-demonetisation-Indias-black-money-market-is-t.html
5. https://www.forbes.com/sites/wadeshepard/2017/07/29/how-india-
is-surviving-post-demonetization/#5bd1c26b1164
6. http://www.indianjpsychiatry.org/article.asp?issn=0019-
5545;year=2018;volume=60;issue=1;spage=6;epage=9;aulast=Enara
7. https://hbr.org/2017/11/one-year-after-india-killed-off-cash-heres-what-
other-countries-should-learn-from-it
8. https://www.entrepreneur.com/article/304372
9. http://finclusion.org/uploads/file/Effects%20of%20Demonetization%20on
%20Financial%20Inclusion%20in%20India.pdf
10. https://carnegieindia.org/2017/09/25/india-s-post-demonetization-
policy-agenda-pub-73213

15
 4. Revised Methods for Computing GDP and Inflation

There's a little bit of confusion over India's GDP growth statistics at present. The
country recently changed the way that it calculates this number and while there are,
obviously, the usual teething problems with changing the method by which such a
complex number is arrived at the basic change seems most sensible. For the real
difference in what they're doing is that they're now calculating the value that
consumers get to enjoy and not the value that producers are consuming. Given that
we want to know is how well off are the people this seems like a move in the right
direction.

This is causing confusion though:

Ashish Kumar, the head of country's statistics office, has faced two months of
questioning about how a new way of measuring GDP created the world's fastest-
growing major economy overnight.

It's unlikely to end any time soon.

Until early February, when Kumar's office changed the way it measures economic
activity, the Indian economy was enduring its weakest run of growth since the mid-
1980s. Now it is outpacing China, having grown an annual 7.5 per cent in the fourth
quarter of last year.

Well, obviously, there's going to be a few eyebrows raised when a change is rolled
out that just proves that all is hunky dory. A little like the revelation by both Ghana
and Nigeria recently that their economies were in fact very much larger than
everyone thought as a result of similar types of changes in the calculation methods.
However, in those African cases the changes were entirely justified: they'd been
working on very old estimates of what the structure of the economy was and they
really did need to update them.

We can go back a couple of months and have a look at what the Indian statistical
office has done:

The Indian statistics ministry said that after updating the base year used for marking
trends in the economy and switching to a market-price calculation of gross domestic
product, the economy grew by 6.9% in the year that ended last March. Using the
previous methodology, GDP expansion that year was 4.7%. China’s economy grew
by 7.4% in the 2014 calendar year.

Since January 2010, the base year for India’s statisticians had been the 12 months
that ended in March 2005. From now on, it will be the year that ended March 2012.
The revised calculation also incorporates more-comprehensive data on corporate
activity and newer surveys of spending by households and informal businesses.

There's that good news again. And changing the reference year has a few people
confused: it shouldn't make any difference but it does, and how much it does isn't
entirely clear as there's no historical series been created as yet that uses this new

16
method. So, we can compare either the old numbers under the old method, or the
new under the new, but not the old under the new method which is something we'd
really like to be able to do. That historical series is expected around year end. So,
there's a blip or two in the implementation here. However, this part of the change
seems eminently sensible:

India now measures GDP by market prices instead of factor costs, to take into
account gross value addition in goods and services as well as indirect taxes. The
base year has been shifted to 2011/12 from 2004/05 earlier.

The government's statistics department says the new method is more in line with
global practices and gives a better picture of economic activity.

Yes, this is more in line with global practices and there's a very good reason for that
being the way that everyone else does it. This is a bit of speculation, but the older
method might well come from the way in which Nehru and others, the builders of
independent India, were so fascinated by Fabian socialism and even aspects of the
Russian version. In the sense that it was production of stuff and things that was what
they thought should be measured (of course, the Soviets went entirely overboard
with this idea but then that's the Soviets for you. They measured the value of output
by the tonnage of it. Rather than by the obvious method of measuring the value of it
although they did have at least one excuse, which is that in a non-market economy
there's no simple way of calculating value).

However, it came about measuring at factor prices means measuring the resources
used to produce things. And yes, this ought to have some relationship to the value
that consumers place upon their ability to consume but it's not a direct one to one
relationship. And given that our aim with having an economy in the first place is to
enable the citizenry, the people, to live the best life possible we really do want to be
measuring their consumption opportunities, not the resources consumed in providing
them.

Thus, this basic change looks entirely sensible. India is now measuring GDP as what
Indians can consume. Yes, despite it providing a lovely boost to the numbers at just
the right time, it's still a sensible change.

Source: https://www.forbes.com/sites/timworstall/2015/04/18/indias-change-in-
gdp-calculation-method-seems-highly-sensible/#1c6f15aa47e2

References

1. https://www.thehindubusinessline.com/opinion/columns/all-you-wanted-
to-know-about-calculating-gdp/article22508569.ece
2. https://in.reuters.com/article/india-economy-
gdp-idINKBN0LD1AI20150209
3. https://www.businesstoday.in/current/economy-politics/all-about-gdp-
methodology-and-why-raghuram-rajan-questioned-it/story/228659.html
4. https://www.indiainfoline.com/article/news-top-story/economics-
for-everyone-gauging-the-new-gdp-116021800124_1.html

17
 5. Poverty and Rural Income

India has an overall population of 1.3 million, with 900 million people living in rural
areas of the country. While the poverty rate has been significantly reduced due to
governmental support, factors such as natural disasters, heavy dependence on
agriculture and high birth rates have contributed to the continued India that affects
around 300 million people.

Farming in India relies heavily on monsoons that bring rainfall and irrigate the land.
This means that erratic weather, cyclones, water shortages and droughts all have a
huge impact on agriculture and can cause damage to crops.

Environmental factors are not the only causes of poverty in rural India; societal
factors play a large role as well. Many people living in rural areas lack the physical
ability to work. Individuals may also face problems such as drug addiction or
alcoholism. Other factors that increase the poverty rate include a poor educational
system, limited access to medical care, poor or non-existent sex education and a
lack of available birth control methods.
One main social issue related to poverty in rural India is the custom of child
marriage. The legal age of marriage in India since 1978 has been 21 for men and 18
for women. Despite this, about one-third of global child marriages occur in India, and
more than 230 million Indian girls marry before they reach 18 years of age.
In rural India, one-fifth of Indian girls are married before age 16 and give birth to their
first child before age 18. Child marriages greatly affect Indian women’s physical and
psychological health and result in fewer educational opportunities for younger
women. It also increases the demands on food and energy as a result of a growing
population.

Solutions to this problem include stricter law enforcement against child marriage and
proper education regarding family planning for those living in poor socioeconomic
conditions in rural India.

While the “green revolution” emphasized the ownership of private land and tried to
fairly distribute this land to all individuals, much of the land in remote areas of India is
still held by a small group of upper-status people. Large portions of cultivated land
belong to a minority upper social class, which includes rich farmers and landlords,
and results in a severely uneven distribution of land. In other words, the majority of
people own very little land and as such may have to maintain a feudal relationship
with rich landlords. Those not in feudal relationships struggle with a low annual
income and often with debt since the harvests from their lands seldom bring a profit.
Other issues such as crop patterns, neglect of crop rotation and poor-quality
materials and technology also influence poverty in rural India.
Due to the high poverty rate, many rural areas in India now have to loans with
relatively high annual interest rates. While this seems like a good solution to the
poverty crisis and reduces the immediate pressure of economic needs, in the long
run, it will negatively affect these rural areas. Such loans lead to future debts and
increase the need for funds to pay back the loans.

Better solutions should be adopted to help relieve financial stresses in rural India,
such as a compulsory education allowance and poverty subsidies from the local
government.

18
To sum up, poverty in rural India is caused by many factors. Possible solutions to
reduce the poverty rate include stronger surveillance of land, stricter enforcement of
the legal marriage age, widespread awareness of birth control, better access to
medical resources and increased support for low-income families. The more
solutions for poverty, the better the prospects for rural India.

Source: https://borgenproject.org/poverty-in-rural-india-causes-and-measures/

References
1. https://www.financialexpress.com/economy/indias-270000000-poor-
where-they-come-from-where-they-spend-where-they-live-know-all-in-5-
charts/1201112/
2. https://www.financialexpress.com/economy/how-can-india-reduce-
poverty-this-one-factor-can-play-important-role-says-world-
bank/1196896/
3. https://www.indiatoday.in/pti-feed/story/china-lifted-68-million-out-of-
poverty-in-last-five-years-report-1249458-2018-06-03
4. https://www.mitpressjournals.org/doi/pdf/10.1162/ADEV_a_00021
5. http://www.indiatogether.org/poverty-in-rural-india-poverty
6. https://www.indiatoday.in/india/story/india-rural-household-650-millions-
live-on-rs-33-per-day-282195-2015-07-13
7. https://www.weforum.org/agenda/2017/10/india-fourth-
industrial-revolution-farming/
8. http://www.worldbank.org/en/news/infographic/2016/05/27/india-
s-poverty-profile
9. https://indianexpress.com/article/explained/world-bank-poverty-world-
bank-india-poverty-report-low-income-2838251/
10. http://www.economicsdiscussion.net/poverty/problem-poverty/the-
problem-of-poverty-in-india-an-overview/12842

19
 6. USA After Trump’s Election

With Donald Trump in the White House, the US's relationship with the rest of the
world has changed in some important ways. Here are seven of them.

Heightened nuclear tensions in Asia

Donald Trump still has to decide how to handle this man - Kim Jong-un
A Donald Trump presidency has raised major security questions in Asia.
Not only did he shock China with comments on Taiwan before his inauguration, but
his Secretary of State Rex Tillerson has spoken of blocking China's access to
artificial islands it has been building in the South China Sea, prompting warnings of a
"military clash" from a state-run newspaper.
Japan and South Korea have both been singled out by Mr Trump for relying too
much on the US. He has even said they would benefit from having their own nuclear
arsenals.
Then there is the region's renegade state, North Korea, which is currently developing
its own nuclear weapons.
Mr Trump faces the task of curbing those ambitions, something that has eluded
successive US leaders.
Under President Obama, the policy was called "strategic patience" - squeeze North
Korea with sanctions, persuade others to do the same, particularly China, and wait it
out.
But Mr Trump's Vice-President Mike Pence has now said the "era of strategic
patience is over".
The administration says "all options are on the table" and Mr Trump's announcement
that he was sending an "armada" of US warships towards the Korean peninsula
raised the spectre of military action.
The move was met with defiance from North Korea's regime, which threatened
"weekly" missile tests and warned of "all-out war".
But there was increased confusion just 10 days later when it emerged that the US
Navy strike group, which Mr Trump said had been deployed towards the Korean
peninsula, instead travelled in the opposition direction.
While the White House clarified the whereabouts of the ships and insisted they were
on their way, Mr Trump returned his focus to pressuring China to take action.
"China is very much the economic lifeline to North Korea so, while nothing is easy, if
they want to solve the North Korean problem, they will," he tweeted.

20
His next step is unknown, but the early attempts of this unpredictable president in
tackling the world's most unpredictable state have already exposed a flashpoint that
is likely to return in years to come.
Relationship with Russia even more complicated
Russian President Vladimir Putin has praised the incoming US president and the
feeling is mutual
During the US election campaign, Mr Trump praised Russian President Vladimir
Putin as a strong leader, with whom he would love to have a good relationship.
That was before US intelligence agencies determined Russia was responsible for
hacking Democratic Party emails during the campaign - a conclusion that Mr Trump
eventually conceded he agreed with.
The explosive publication of an unverified dossier alleging that Russia holds
compromising material on Mr Trump has also raised prickly questions for him. He
has batted them away, dismissing the allegations as "fake news".
But concerns over his administration's ties with Russia continue to dog his
presidency, with his national security adviser Michael Flynn abruptly resigning over
conversations with Russia's ambassador in the weeks before inauguration.
Mr Trump said he wanted to start off trusting President Putin but warned "it might not
last long at all".
And it seems it didn't. The relationship appeared to take a sharp downward turn
following a chemical attack in Syria, which was blamed on the Syrian government,
and Russia's continued support for President Bashar al-Assad.
President Trump went on to say the US "may be at an all-time low in terms with our
relationship with Russia". He said it would be a "fantastic thing" if the nations
improved ties but warned "it might be just the opposite".
Greater focus on Nato
Media caption The US president has reversed his condemnation of the defence
alliance NATO
Mr Trump has previously been hugely critical of NATO (the North Atlantic Treaty
Organization), a cornerstone of American foreign policy for more than 60 years.
He attacked the organisation as "obsolete" and characterised its members as
ungrateful allies who benefit from US largesse.
Defence Secretary James Mattis warned NATO members in February that
Washington would "moderate its commitment" if members did not meet his boss's
demand that they raise their defence spending to 2% of their GDP.
Mr Trump claimed his tough talk was causing the "money to pour in", although
analysts point out that countries were already increasing their contributions under a
2014 agreement.

21
But during a joint press conference in April, NATO chief Jens Stoltenberg thanked
the US president for his attention to the issue. "We are all seeing the effects of your
strong focus on burden sharing in the alliance," he told him.
Meanwhile, Mr Trump had a change of heart and said NATO was "no longer obsolete".

He said the threat of terrorism had underlined the alliance's importance and called
on members to do more to help Iraqi and Afghan "partners".
Use of force
President Obama was elected to end America's wars in Iraq and Afghanistan and
was extremely reluctant to get involved in another conflict in the Middle East.
Even when the scale of atrocities in Syria became brutally clear, he remained
convinced military intervention would be a costly failure.
Instead the Obama administration focused on providing humanitarian aid, giving
some funding to moderate Syrian rebels and promoting a ceasefire and political
negotiations aimed at President Assad's departure.
Donald Trump was also previously opposed to US military action in Syria, calling for
greater focus on domestic policies. "Forget Syria and make America great again!" he
tweeted in 2013.
So, it was quite a turnaround when the president ordered US missile strikes on a
Syrian government airbase in April.
He said the chemical attack blamed by the Syrian government had changed his
attitude. "That attack on children had a big impact on me," he said.
The missile strike was the first time the US had directly targeted the Syrian regime
since the conflict began and viewed as a breath-taking policy shift for a previously
isolationist leader.
But it was just days until the Trump administration flexed its military muscles once
again, this time hitting Islamic State militants in Afghanistan with a weapon known as
the "mother of all bombs", or MOAB, that had never been used by the US in combat
before.
And with greater US defence spending on the table, the US appears - at least for
now - to be taking a more forceful role in foreign conflicts.
Future of free trade uncertain
There has been strong public opposition to free trade deals
With his trade policies, Donald Trump has embarked on bringing about the biggest
change to the way the US does business with the rest of the world for decades.
He has threatened to scrap a number of existing free trade agreements, including
the North American Free Trade Agreement between the US, Canada and Mexico,
which he blames for job losses. He has even suggested withdrawing the US from the
World Trade Organization.

22
Since winning the election, he has focused on threatening companies, particularly
automobile makers, that he will slap a tariff of 35% on goods manufactured in Mexico.

But on his first day in office, Mr Trump abandoned the Trans-Pacific Partnership
(TPP), a 12-nation trade deal brokered by President Obama and representing 40%
of the world's economic output.
The deal had yet to be ratified by a divided Congress, but Mr Trump's executive
order withdrew US participation altogether.
The thrust behind his trade policy is to create jobs in the US, close the trade deficit,
and get "good deals" for Americans.
Already he has targeted the country's foreign worker visa programme and ordered a
review of waivers in free-trade agreements to see whether they allow foreign firms to
undermine American companies in the global government procurement market.
However, he has rowed back on a campaign promise to label China a currency
manipulator - a move that experts warned could have provoked a trade war.
Climate change rethink
Mr Trump has promised a renewed push to use coal across the US
Mr Trump had said that he would "cancel" the Paris Climate Agreement within 100
days of taking office. This has not happened and his senior advisers are now
reportedly divided -on whether it should.
He has, however, made large strides in his pledge to reverse climate change
regulations introduced by President Obama.
He signed an executive order in March that reversed the Clean Power Plan, which
had required states to regulate power plants, but had been on hold while being
challenged in court.
The president said the order was necessary to ensure US energy independence and
jobs. But environmental groups warned that undoing the regulations would have
serious consequences at home and abroad.
Mr Trump has repeatedly denied the science of human-caused climate change,
describing it as "fictional'.
Like many issues, however, he has expressed conflicting views, telling the New York
Times in November that he acknowledged there was "some connectivity" between
human activity and climate change and saying he would "take a look at" the Paris
agreement, rather than having already decided to pull the US out of it.

Even if he wanted to do that though, the US remains legally bound to the Paris plan
for four years.
There are also "legal and procedural roadblocks" which would inhibit Mr Trump from
a complete overhaul of US climate policy, The New York Times says.

23
But critics say his stance could cause other reluctant governments sceptical about
the issue to reduce their efforts to cut planet-warming emissions.
Iran nuclear accord in doubt
The Iranian nuclear accord was the "worst deal I think I've ever seen negotiated",
said Mr Trump
For President Obama, the deal that saw sanctions against Iran lifted in exchange for
guarantees it would not pursue nuclear weapons was a "historic understanding".
But for Donald Trump, echoing Republican concerns, it was "the worst deal I think
I've ever seen negotiated".
He had said dismantling it would be his "number one priority" but had not specified
what he wanted to do.
Now his administration has announced a review of the whole US policy towards Iran.
This would take in not only Tehran's compliance with the nuclear deal but also its
actions in the Middle East where it is a key player in the Syrian conflict and a rival of
Saudi Arabia and Israel.
Already Iran's Foreign Minister Javad Zarif has urged Trump to stay committed to the
nuclear deal. He previously suggested the US would have to respect the accord
given that it was thrashed out with several world powers.
Iranian Supreme Leader Ayatollah Ali Khamenei has been more blunt. "If they tear it
up, we will burn it," The Associated Press quoted him as saying.
Relations to the countries did not get off to a good start after the Trump presidency
began - the US placed new sanctions on Iran after it conducted a ballistic missile test.
Source: https://www.bbc.com/news/election-us-2016-37918242
References
1. https://www.independent.co.uk/news/business/analysis-and-
features/donald-trump-us-economy-achievements-performance-12-
months-on-presidency-election-america-gdp-jobs-a8043751.html
2. https://www.channel4.com/news/factcheck/a-year-since-trumps-election-
hows-the-us-economy-doing
3. http://carnegieendowment.org/2017/11/28/toward-post-american-europe-
transatlantic-relations-one-year-after-trump-s-election-event-5750
4. https://news.gallup.com/poll/221546/year-election-fewer-
satisfied-state.aspx
5. http://nymag.com/daily/intelligencer/2017/11/frank-rich-trumpism-after-
trump.html
6. https://www.washingtonpost.com/national/after-trumps-election-there-
are-two-americas-now/2016/11/21/12fa26c8-acec-11e6-8b45-
f8e493f06fcd_story.html?noredirect=on&utm_term=.baaf6fdb7d22
7. https://www.irishtimes.com/news/world/us/donald-trump-timeline-
key-dates-since-election-night-1.3276531

24
8. https://www.nbcnews.com/business/travel/tourism-u-s-down-
trump-took-office-costing-4-6-n840326
9. https://www.bloomberg.com/news/articles/2017-11-08/a-year-after-
trump-s-election-coal-s-still-losing-to-renewables
10. http://thehill.com/policy/finance/362526-number-of-jobs-lost-to-foreign-
trade-since-trumps-election-on-par-with
11. https://www.theepochtimes.com/stock-market-added-5-2-trillion-
in-value-since-the-election_2335780.html

25
7. Falling Interest Rates on Deposits & Loans and Banks’ Profitability
As much as Rs 5 lakh crore of bank loans deteriorated into non-performing
assets (NPAs) in fiscal 2018, taking the total slippages in the past three
fiscals to a whopping Rs 13.6 lakh crore.
About a fifth of the slippages during last fiscal was due to withdrawal of
various structuring schemes by the Reserve Bank of India (RBI) in February
2018, after the Insolvency and Bankruptcy Code (IBC) process came into
force, estimates by ratings agency Crisil showed.

As a result, gross NPAs increased to around Rs 10.3 lakh crore, or nearly

11.2% of advances, as on March 31, 2018, compared with Rs 8 lakh crore,
or around 9.5% of advances, as on March 31, 2017.

Crisil expects gross NPAs in the banking system to peak at around 11.5% this
fiscal and then start reducing.
Last fiscal, the banking system reported a net loss of about Rs 40,000 crore
because of the sharp rise in NPAs and the resulting increase in provisioning
costs. PSBs (public sector banks) bore the brunt of this with their provisioning
costs nearly twice pre-provisioning operating profits, which resulted in a net
loss of nearly Rs 85,000 crore.

Higher provisioning and the resultant losses have materially eroded the Rs 1.2
lakh crore of capital raised by PSBs last fiscal, of which Rs 90,000 crore was
from the government.

PSBs remain highly dependent on the government for capital to meet Basel III
norms.

“Given the higher-than-expected losses last fiscal, probable loss in the current
fiscal, and recall of the Additional Tier 1 instruments by a few PSBs, the Rs
2.1 lakh crore recapitalisation program announced in October 2017 may be
insufficient to meet the capital requirements of PSBs by the end of this fiscal,”
Crisil said.

The agency, however, said that the tide is slowly turning. “Further, prospects
of recovery from stressed accounts referred to the National Company Law
Tribunal (NCLT) are improving,” said Krishnan Sitaraman, senior director,
CRISIL Ratings.

“More than a quarter of the Rs 3.3 lakh crore worth of cases referred to NCLT
for resolution are from the steel sector which has seen heightened bidding
interest due to improving prospects for the sector,” he said.

Crisil expects moderation in slippages, better recoveries from NPAs and

improved provision coverage to bode well for banks. “For example, SMA-2 (or
special mention account cases, where exposures are overdue by 60-90 days),
have more than halved to about 0.8% of advances as of last fiscal-end,

26
 compared with around 2% a year before, indicating considerable reduction in
stressed loans that can potentially regress into NPAs,” it said.

Source:https://timesofindia.indiatimes.com/business/india-business/fresh-
npas-of-rs-5-lakh-crore-mar-banks-profitability-in-
fy18/articleshow/64462745.cms
References
1. https://www.financialexpress.com/industry/banking-
finance/public-sector-banks-lose-nearly-rs-60000-crore-only-two-
earn-profits-in-q4/1186146/
2. https://economictimes.indiatimes.com/wealth/invest/is-the-worst-finally-
over-for-psu-bank-stocks/articleshow/64611462.cms
3. https://www.financialexpress.com/market/some-indian-banks-offer-
best-returns-to-investors-but-there-are-dark-spots-too-no-prize-for-
guessing/1180602/
4. https://tradingeconomics.com/india/interest-rate
5. http://www.forbesindia.com/article/spjimr/profitability-of-indian-banks-
emerging-concerns/49423/1
6. https://timesofindia.indiatimes.com/business/india-business/psbs-
wipe-out-pvt-banks-profits/articleshow/62892618.cms
7. http://www.newindianexpress.com/business/2018/may/03/rbi-clean-
up-push-to-hit-banks-profitability-in-near-term-moodys-1809442.html
8. https://www.indiainfoline.com/article/news-top-story/indian-banks-
final-push-for-npl-recognition-will-hurt-profitability-in-the-coming-
quarters-118050200036_1.html

27
 8. Manufacturing Sectors Slowdown and Make in India

One of the major puzzles about recent trends in the Indian economy is with respect
to what is happening to manufacturing output. Since domestic investment rates were
declining even before Indian manufacturing was hit by headwinds from the global
economy, some deceleration in the expansion of production in this sector was to be
expected. And then there was the drastic demonetisation move of November 2016,
which created the widespread presumption that manufacturing activity would be
substantially hit because of the collapse in domestic demand induced by the cash
crunch.
But the recent data at first sight appear to bely such expectations. Aggregate
manufacturing value added has decelerated from 10.8 per cent in 2015-16 to 7.9 per
cent in 2016-17, but this is much less of a decline than was expected. And the Index
of Industrial Production (IIP) appears to have accelerated in this same period, from 3
per cent growth in 2015-16 to 4.8 per cent in 2016-17. Wrong number?

It is true that the IIP was revised recently, with a new base year of 2011-12, and this
has led to dramatically different estimates of growth than the series with the previous
base year of 2004-05. Chart 1 shows that both the extent and the direction of change
of the IIP are completely different in the two series, with the earlier base year series
showing a sharp deceleration in the past three years, to the point of no growth at all
in 2016-17. By contrast, the new series shows higher rates of growth in general and
an acceleration in the latest year.
As is usually the case, much of the variation between series results not only from the
deletion/addition of different sub-sectors, but also the change in weights across
these sub-sectors. As Table 1 shows, the earlier Basic Goods category has been
divided into Primary Goods and Infrastructure/Construction Goods, but there is only
a marginal increase in share.
The big change is the decline in the weight of consumer non-durable goods. One
reason is the reclassification of textiles from non-durables to durables, but this
accounts for only around 3 percentage points of the change. So, the reduced
importance of all other consumer non-durables is one major reason for the difference
between the two series.
Only the big picture
This already suggests one reason why the IIP may not be capturing changes in the
aggregate manufacturing sectors in the recent past and therefore any slowdown
resulting from the hit to the informal sector. Unfortunately, the IIP only covers the
organised manufacturing sector, and within that, the larger units.
So, it cannot provide us with an understanding of how unorganised manufacturing
activity has fared over this period. In addition, within the non-durable consumer
goods sector, the drugs and pharmaceutical sector has become very significant, to
the point where its weight is roughly similar to that of food products. Since the
estimation of production of pharma is heavily dependent upon prices, even the IIP
data on this sector may not be a useful guide to actual production.
But if the demonetisation did have an impact on demand as was widely noticed by
observers at the time, it is likely to have impacted on other sectors of non-durable

28
production even in organised manufacturing, that are standard elements of
consumption among those working in the informal economy.
Therefore Chart 2 provides data on quarterly IIP for the sectors that are most likely to
show the impact of such a squeeze on demand: food products, beverages, tobacco
products and wearing apparel. In the case of food and tobacco products, there were
declines (therefore negative growth) in the IIP from or after Oct-Dec 2016, the period
when the demonetisation occurred.
The IIP for beverages had already been on a declining trend from the middle of 2016
and deteriorated further in Oct-Dec 2016; even the mild recovery since has left it well
below that peak. The only sub-sector for which the output been roughly stagnant is
wearing apparel, which could also be affected by global trends of garment export.
What they reveal
An examination of the monthly IIP data for these sectors and for the additional sector
of cement provides further insights. Chart 3 provides year-on-year percentage
changes in IIP by month from July 2015 to June 2017, and the results are striking.
Food products had been showing an absolute decline from August 2016, but the
decline worsened sharply from December 2016, and continued till the most recent
month, June 2017.
In the case of beverages, a similar tendency is evident. Tobacco products have been
more volatile, but even these declined significantly in November-December 2016 and
again in February-March 2017. Wearing apparel has been on a definitively declining
trajectory since March 2017.
But the most telling indicator of the impact on demand may be what is happening to
cement production. As Chart 3 shows, the IIP for cement started showing negative
growth from December 2016, and since then has continued falling – with the year-
on-year decline for February 2017 as much as 16 per cent.
This is significant, since cement output essentially reflects construction activity,
which happens to be the largest (and in the recent past the most dynamic) non-
agricultural employer. The collapse of cement production in the organised sector
may therefore be an indication not only of depressed informal sector demand but
also depressed employment conditions in the economy.

Source:https://www.thehindubusinessline.com/opinion/columns/c-
p-chandrasekhar/what-is-really-happening-in-indian-
manufacturing/article9818148.ece

References:
1. https://www.careerride.com/view/a-cause-for-concern-slowdown-in-
the-indian-manufacturing-sector-13223.aspx
2. https://www.counterview.net/2018/05/indias-investment-failed-to-pick-
up.html
3. https://www.livemint.com/Politics/qqRX6oWL7rFRfQfiHQm88H/Is-a-
strong-import-surge-behind-Indias-economic-slowdown.html
4. https://www.forbes.com/sites/suparnadutt/2018/05/03/why-india-
needs-to-take-heed-of-paul-krugmans-warning-on-its-growth-story/

29
5. https://yourstory.com/2018/05/indian-manufacturing-startups-
looking-closely-thailand/
6. https://www.equitymaster.com/5minWrapUp/charts/index.asp?date=11/0
7/2017&story=1&title=Slowdown-in-Manufacturing-Activity-Post-GST
7. http://www.xinhuanet.com/english/2017-09/11/c_136601232.htm
8. https://newsclick.in/indias-industrial-sector-myth-and-reality

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 9. Europe After Brexit

On March 29th Prime Minister of the United Kingdom (UK) Therese May triggered
article 50 of the Treaty on the European Union (TEU) in order to withdraw the United
Kingdom from the European Union (EU). The Prime Minister May called for a snap
UK election on June 8th 2017 in order to give the people of the United Kingdom a
say in whether or not May’s government is acting in the right way in the Brexit
negotiations. Via this election Prime Minister May hopes to effectuate her (very)
favourable polling numbers and consequently, enhance her Parliamentary support
for her taken approach on Brexit.
Withdrawal letter
In article 50 TEU sub 1 & 2 it is stated that any member state may decide to
withdraw from the Union in accordance with its own constitutional requirements and
that a leaving member state formally needs to notify the European Council of its
intention to withdraw. In the light of the guidelines provided by the European Council,
the Union shall negotiate and conclude an agreement with that State, setting out the
arrangements for its withdrawal, taking account of the framework for its future
relationship with the Union. That agreement shall be negotiated in accordance with
Article 218 (3) of the Treaty on the Functioning of the European Union. It shall be
concluded on behalf of the Union by the Council, acting by a qualified majority, after
obtaining the consent of the European Parliament.
In her notification to President of the European Council Donald Tusk Prime Minister
Theresa May explained that:
‘Earlier this month, the United Kingdom Parliament confirmed the result of the
referendum by voting with clear and convincing majorities in both of its Houses for
the European Union (Notification of Withdrawal) Bill. The Bill was passed by
Parliament on 13 March and it received Royal Assent from Her Majesty The Queen
and became an Act of Parliament on 16 March. Today, therefore, I am writing to give
effect to the democratic decision of the people of the United Kingdom. I hereby notify
the European Council in accordance with Article 50 (2) of the Treaty on European
Union of the United Kingdom's intention to withdraw from the European Union.’
Herewith, Prime Minister Theresa May officially triggered the withdrawal procedure
which needs to be concluded no later than two years after the formal notification, id
est March 2019 (and just before the elections for the European Parliament in May
2019). This in accordance with article 50 sub 3 TEU.
Scenarios
To prepare for a European Union without the United Kingdom President of the
European Commission Jean-Claude Juncker presented a White Paper in the
beginning of March 2017 to outline five possible post-Brexit scenarios for the
European Union in 2025. Later this year the European Council will use these
scenarios to determine what the approach regarding the Brexit is going to be.
The five scenarios of the European Union in 2025 are called ‘carrying on,’ ‘nothing but
the single market,’ ‘those who want more do more,’ ‘doing less more efficiently,’ and

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‘doing much more together’. The starting point of all the scenarios is that the
remaining 27-member states move forward together as a Union.

1.‘Carrying on’
The European Union focuses on delivering its positive reform agenda. The 27
remaining member states continue to focus on jobs, growth and investment by
strengthening the Single Market and by stepping up investment in digital, transport
and energy infrastructure.
2.‘Nothing but the Single Market’
The European Union is gradually re-centred on the Single Market. The functioning of
the Single Market becomes the main “raison d’être” of the 27 remaining member
states. Further progress depends on the capacity to agree related policies and
standards. This proves easier for the free movement of capital and of goods, which
continues tariff-free, than it does in other areas.
3.‘Those who want more do more’
The European Union allows willing member states to do more together in specific
areas. A group of Member States decides to cooperate much closer on defence
matters, making use of the existing legal possibilities. This includes a strong common
research and industrial base, joint procurement, more integrated capabilities and
enhanced military readiness for joint missions abroad.
4.‘Doing less more efficiently’
The European Union focuses on delivering more and faster in selected policy areas,
while doing less elsewhere. The 27 remaining member states step up their work in
fields such as innovation, trade, security, migration, the management of borders and
defence. They develop new rules and enforcement tools to deepen the Single Market
in key new areas. The 27 remaining member states focus on excellence in R&D and
invest in new EU-wide projects to support decarbonisation and digitization.
5.‘Doing much more together’
The European Union decides to do much more together across all policy areas. On the
international scene, Europe speaks and acts as one in trade and is represented by one
seat in most international fora. The European Parliament has the final say on
international trade agreements. Défense and security are prioritized. In full
complementarity with the North Atlantic Treaty Organization (NATO), a European
Défense Union is created. Cooperation in security matters is routine. The 27 remaining
member states continue to lead the global fight against climate change and strengthen
their role as the world’s largest humanitarian and development aid donor.

Source:https://www.peacepalacelibrary.nl/2017/05/future-of-
europeanunion-after-brexit/

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References
1. https://carnegieeurope.eu/2018/03/23/there-is-life-for-eu-after-brexit-pub-
75876
2. https://www.ceps.eu/system/files/IEForum52016_1.pdf
3. https://www.ft.com/content/dec6968c-f6ca-11e7-8715-e94187b3017e
4. https://www.bbc.com/news/uk-politics-32810887
5. https://www.coronation.com/personal/articles/2016/july/brexit-
the-economic-and-political-impact/
6. https://www.fairobserver.com/region/europe/brexit-european-union-
britain-united-kingdom-theresa-may-uk-election-result-latest-europe-
news-today-97421/
7. https://wiiw.ac.at/brexit-small-economic-impact-but-huge-political-
risks-ahead-n-203.html

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 10. China’s current economic position
China’s economy begins 2018 facing what its own leaders call three years of “critical
battles.” These fights to tackle domestic debt, poverty and pollution pose a hat-trick
of risks to the world’s No. 2 economy even before higher interest rates and trade war
threats from the U.S. are taken into account.
While the nation is starting from a position of strength, with full-year growth in 2017
poised for its first acceleration since 2010, the expansion is seen slowing in 2018.
As a result, the government of Xi Jinping is signalling that it’s sanguine about more
modest economic performance if progress on the top risk financial fragility can be
made.
"Significant economic imbalances continue to create downside risk to the outlook for
2018," said Rajiv Biswas, chief Asia-Pacific economist at IHS Markit in Singapore.
"Risks to the Chinese economy will remain among the key risks to the global growth
outlook in 2018, with the Asia Pacific region particularly vulnerable to the shock
waves from a slowdown."
Those waves haven’t materialized, and in fact economic activity is holding up. The
official manufacturing purchasing managers index was at 51.6 in December,
signalling improving conditions. New export manufacturing orders also climbed to a
six-month high, according to a sub-index.
However, figures "likely are overstating momentum, particularly in construction,"
according to a report by Freya Beamish, chief Asia economist at Pantheon
Macroeconomics Ltd in Newcastle, U.K. "The profit story appears to be deteriorating,
as input price rises continue to slow."

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Forecasters see expansion slowing to 6.5 percent -- the slowest pace since 1990 --
this year, the following are among areas they flag as having the potential to trip up
economic growth or spur market turbulence.
Financial Risks
The Communist Party recently renewed its pledge to prevent and control financial
risk, calling it a pivotal challenge for the next three years. As the financial system
opens further to foreign firms, a debt-to-GDP ratio that’s heading toward more than
320 percent by 2022 stands as the main danger.
"Even its own propaganda machine admits that this is such a serious problem that
Beijing doesn’t expect there to be any solution in anything less than three years,"
said Pauline Loong, managing director at research firm Asia-Analytica in Hong Kong.
"Financial instability is the core problem. Solve that and you ease pressure on capital
outflows, complications from deleveraging, weaknesses in smaller banks."
Construction Slowdown
The tightening of financial and environmental regulations to help curb debt may
cause tremors in 2018 that slow housing and infrastructure construction, according
to Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc
in Hong Kong.
"A sharper-than-expected slowdown in construction could thus weigh on broader
activity with emerging sectors not yet vigorous enough to provide a sufficient
cushion," said Neumann. "The biggest fault line running through the Chinese
economy is the construction sector."
Trade Brawl
U.S. President Donald Trump’s recent national security strategy speech was a "tee
up" for a turn toward protectionism, says David Loevinger, a former China specialist
at the U.S. Treasury Department.
"On the menu for 2018: lots of red meat for the base, and that means bashing imports,"
said Loevinger, now an analyst at TCW Group Inc. in Los Angeles. "Since nationalistic
populism is as irresistible in China, Chinese politicians will feel compelled to retaliate."
Fed, Tax
If the U.S. Federal Reserve raises interest rates more than markets expect and tax cuts
build on underlying 3.2 percent growth, the dollar may get a second wind that puts the
yuan and capital outflows under pressure again, according to George Magnus, an
associate at Oxford University’s China Centre and former adviser at UBS Group AG.

"If the Fed starts hiking and the dollar goes on a bull run, that would cause big
problems," says Christopher Balding, an associate professor at the HSBC School of
Business at Peking University in Shenzhen.
North Korea

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Should tension between the U.S. and North Korea escalate into a more significant
confrontation, there will be profound and far-reaching consequences not just for
China’s economy but that of the entire Asia-Pacific region, says Zhu Ning, deputy
director of the National Institute of Financial Research at Tsinghua University in
Beijing.
Source: https://www.bloomberg.com/news/articles/2018-01-01/china-warms-
up-for-2018-critical-battles-with-cooling-economy
References:
1. http://china-trade-research.hktdc.com/business-news/article/Facts-and-
Figures/Economic-and-Trade-Information-on-
China/ff/en/1/1X000000/1X09PHBA.htm
2. https://www.imf.org/en/News/Articles/2017/08/09/NA081517-China-
Economic-Outlook-in-Six-Charts
3. https://www.nytimes.com/2018/01/18/business/china-gdp-economy-
growth.html
4. https://www.focus-economics.com/countries/china
5. https://www.thebalance.com/china-economy-facts-effect-on-
us-economy-3306345
6. https://www.bbc.com/news/business-42727781
7. http://theconversation.com/what-we-can-expect-from-chinas-economy-
in-2018-89911

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 11. Government Policies and Equity Market
A country’s government shapes the business environment in which companies
operate. Government policies such as changes to regulations, taxation, interest rates
and spending programmes therefore have a huge influence on individual companies’
performance and their stock price.
• Regulatory change
Governments are responsible for regulating certain industries such as banking,
insurance and telecommunications.
Governments sometimes change the legislation that will make it easier or more
difficult for a particular sector to perform well. For example, banks in most countries
are required to hold a minimum amount of customer deposits in cash reserves.
Increasing this reserve requirement can mean a bank has less money to lend out to
businesses.
Being able to lend less means that a bank earns less interest. This can therefore
have a negative impact on bank share prices.
Because of the interconnectedness of the economy, changes to the rules governing
one sector can also impact on the health of companies in another sector, and their
share prices.
Raising banks' reserve requirements for example has an impact on individual
companies, which often rely on bank finance to fund their own growth. Reducing
companies' ability to borrow from banks can therefore pull down their share price as
well.
However, the opposite can be true. If a government lowers the reserve requirement,
then this can have a positive effect on the share price of banks and companies that
are exposed to borrowing costs.
It is prudent, therefore, to keep an eye on legislation that could affect the share price
of the companies that you consider.

• Taxation
Every company is subject to various forms of taxation, either directly or indirectly,
and changes in taxation will affect their performance and share price.
A change to the corporate tax a company must pay is probably the most obvious to
look out for as this will directly impact how much profit it makes.
An increase in corporate tax can even force a company to relocate in order to find a
more favourable tax regime in which to operate.
Taxes on specific goods or resources can also impact on the profitability – and
therefore share price – of related industries.

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For example, if the government raises fuel tax, companies like airlines or couriers
that use a lot of fuel can see their profit margin eroded.
These companies may then choose to pass on their higher fuel costs as higher
prices for customers. This could hit demand for their products or services, and
therefore reduce their revenue.
Therefore, when you are looking at a company and considering whether to buy or sell its
shares, you should be aware of not only any specific tax changes that may affect its
profitability, but also any tax changes on the resources that the company uses.

• Monetary Policy
Monetary policy refers to the control of money supply in the economy and
governments use it to either stimulate or cool an economy that they think is growing
too slowly or is suffering from high inflation.
One way of stimulating an economy is for the central bank to lower interest rates.
This reduces businesses' and consumers' borrowing costs, which frees up cash for
spending and investment.
Lower interest rates will therefore tend to boost share prices as a company has lower
costs and can invest more in its future growth while consumers have more money to
spend on its goods or services.
In contrast, raising interest rates tends to increase a company's costs at the very
time that consumers have less money to spend on its goods and services. Raising
interest rates can therefore push down corporate share prices.
Governments can also buy government bonds to flood the economy with money.
This is also referred to as printing money.
Quantitative easing is slightly different to this and involves the government buying
financial assets from commercial banks and other institutions to inject money into the
economy.
Increasing the money supply tends to lift consumer spending, so can have a
particularly positive effect on the share prices of companies in the retail sector, for
instance, which tend to see their revenue rise at these times.

• Fiscal Policy
Fiscal policy is where the government undertakes spending programmes to stimulate
the economy, for example through big infrastructure projects.
Different sectors will feel the benefit depending on where government spending is
focused.

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If a government invests more in areas such as affordable housing, for example, the
share price of construction companies can be the first to benefit as they win new
business building homes and roads.
You should therefore consider how any government announcements of increasing or
decreasing spending could affect the profitability of the company you watching.
Source:https://learn.tradimo.com/advanced-stock-trading/impact-of-
policy-politics-on-share-prices
Reference:
1. https://akme.co.in/government-reforms-impact-stock-markets-trends/
2. https://www.forbes.com/2009/03/25/government-influence-
solutions-opinions-contributors-problems.html#790eadaf209e
3. https://www.financialsense.com/contributors/frank-
holmes/how-government-policies-affect-markets
4. https://www.ft.com/content/266ae58c-c39b-11e7-a1d2-6786f39ef675
5. https://www.fortuneindia.com/macro/beware-of-booming-
equity-market/101502
6. http://smallbusiness.chron.com/government-regulations-stock-
market-3381.html
7. https://www.economicshelp.org/blog/221/stock-market/how-does-the-
stock-market-effect-the-economy-2/

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 12. Impact of GST on the Economy
After the implementation of the GST, we can see both its positive and negative
effects on different industries. Many sectors like manufacturing, electronics, telecom,
FMCG, education, banking, jewellery, tourism, logistics, IT etc. are the important part
of the Indian economy. The positive impact of the GST on such sectors is seen in the
form of economic development of the country.
Import and Export Sector
After the implementation of the GST, we can see both its positive and negative
effects on Exports of goods/services will be treated as zero-rated supply under GST
law. ITC (Input Tax credit) and a refund will be allowed.
Imports of goods/services will be treated as interstate supplies and are liable for
IGST and BCD (Basic Customs Duty). ITC of IGST will be allowed, but ITC of BCD is
not allowed under GST. Read more…
Real Estate and Property
We can see the positive impact of GST on property buyers. 12% GST charges of
property value are liable on all under construction properties, excluding the
registration charges and Stamp duty. Earlier provision is applicable on the ready
property. Input tax credits will increase profit margins for developers or builders,
which further transfers benefits to the Homebuyers.
18% GST rate is levied on iron, steel and bricks. Cement industry comes under 28%
GST slab. Read more…
Entertainment Industry
The GST rate for entertainment services varies from 18% to 28%. These tax rates
are different in different states which depend on the type of entertainment service or
product. The states where the entertainment service tax was higher than 28%, GST
will decrease the overall cost of entertainment. Read more…
Hotel and Tourism
Tourism and hotel industry play an import part to grow India’s GDP.
GST rates for hotels are different according to their tariffs
• Less than Rs. 1000 = 0% (GST free)
• Rs. 1000 to 2500 = 12%
• Rs. 2500 to 7500 = 18%
• Above Rs. 7500 = 28%
It is expected that the cost of tour packages may come down due to the relief to tour
operators under GST regime. 5% tax is liable on tour operators currently.

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Logistics Industry
The logistics industry is the backbone of Indian economy and it is estimated to be worth
about $200 up to 2020. After the GST, the time taking clearance process has become
easy i.e. less transit time. Corruption activities are reduced in logistic services. GST
reduces the overall cost of logistics services and increases business revenue.
Banking Sector

18% GST rates levied on banking services like insurance policies, ATM transactions
etc. The earlier tax rate was 15%. Banking and financial services become costly.
GST has reduced indirect taxes, i.e. Ease of doing business in the banking and
financial sector Which leads to increase in business. It will increase demand for
funds and digital transactions in the banking industry. Read in detail…
Gold Industry
18% GST rates levied on banking services like insurance policies, ATM transactions
etc. The gold industry is the biggest market in the world. GST on the gold industry
hits to consumers. 3% GST rate that is applicable to 10% import duty and 5%,
making charges which lead to rising the jewellery prices in India. The demand for
Gold may fall 50 to 70 percent. But there is more transparency in the gold industry
due to the GST implementation. It will definitely turn in a positive impact on a long
term. Read in detail…
Textile/Readymade Garment Sector
Textile industry will be benefitted through GST implementation in India.
The advantages are following:
• Break in input credit chain supply
• Reduction in manufacturing price
• Input credit allowed on the capital goods
Ready-made garments up to Rs. 1000 is exempted from GST and branded garments
above Rs. 1000 will be taxed at 12%.
IT industry
All IT services and software products, as well as freelancers, are levied 18% GST
rate. Overall positive impact on IT industry of GST. Cascading effect is removed
through GST implementation. IT will make changes in the process of business
process. ITC under GST will Bring down the operating costs and increase the
profitability of the IT industry. Continue…
FMCG industry (Fast Moving Consumer Goods)
FMCG sector is one of the biggest economic platforms in India. After the GST
implementation, Mostly FMCG products and services are taxed under 18 to 20

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percent. Lower GST rates, give Benefits to the business holder, manufacturers and
consumers directly.
Source:https://www.gsthelplineindia.com/blog/2018/02/26/impact-of-gst-on-
various-sectors
References:
1. https://www.bankbazaar.com/tax/gst.html?ck=Y%2BziX71XnZjIM9ZwEfls
yDYlRL7gaN4W0xhuJSr9Iq7aMYwRm2IPACTQB2XBBtGG&rc=1
2. https://cleartax.in/s/gst-analysis-and-opinions
3. https://www.business-standard.com/article/economy-
policy/demonetisation-gst-effects-gdp-growth-to-fall-to-6-5-for-fy18-
118010501096_1.html
4. https://blog.saginfotech.com/impact-gst-bill-different-sectors-india
5. https://www.financialexpress.com/budget/economic-survey-2017-
2018-gst-goods-services-tax-impact-revenue-gst-council/1034137/lite/
6. https://qrius.com/how-has-gst-impacted-indias-economy/amp/

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 13. Seventh Pay Commission Implementation

Justice A K Mathur headed the 7th Pay Commission that recommended 23.55 per
cent pay and allowances hike. The recommendations under this were implemented
from January 1, 2016. Under this programme:

• Commission fixed minimum pay at Rs 18000 per month and maximum at Rs 2.25
lakh.
• Pension hike will be 24 per cent.
• The rate of annual increment retained at 3 per cent.
• One rank one pension for civilian government employees are proposed on line of
OROP for armed forces.
• Ceiling of gratuity enhanced from Rs 10 lakh to Rs 20 lakh and the cabinet
secretary will get Rs 2.5 lakh as against Rs 90,000 per month pay band currently.
• Financial impact of 7th Pay Commission will be Rs 1.02 lakh crore out of which Rs
73.650 crore to be borne by Central Budget and Rs 28,450 crore by Railway Budget.
• Military Service Pay (MSP) for service officers more than doubled to Rs 15000 per
month from Rs 6000 currently paid.
• Nursing officers in defence services will get Rs 10,800 from Rs 4,200 at present.
• For JCO/ORS it will be Rs 5,200 from Rs 2000 and for non-combatants increase
will be Rs 3,600 from Rs 1000.
• Pay Commission also recommended exit liberty to short serve commissioned
officers between 7 to 10 years of service.
• Recommendations will impact 47 lakhs serving govt employees, 52 lakh
pensioners, including defence service personnel.
• The Union Cabinet also gave its approval for revision of pay scales for about 8 lakh
teaching and other equivalent academic staff in higher educational institutions under
the University Grants Commission (UGC) and also in the technical institutions that
are funded by the centre. The revised pay package will also cover teachers of 119
centrally funded technical institutions like IITs, IISc, IIMs, IISERs, IIITs, NITIE. etc.

The government notified the recommendations of the 7th Pay Commission on

allowances with 34 modifications, including reduction in HRA rates. It reduced the
HRA rates to 24 per cent for X, 16 per cent for Y and 8 per cent for Z category cities
which was earlier 30 per cent for X, 20 per cent for Y and 10 per cent for Z category.
Source:https://www.financialexpress.com/money/7th-pay-commission-latest-
news-today-check-recent-developments-about-7th-cpc-
implementation/1165326/

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