Economy
Don’t Expect a Rate Cut: RBI may await for the Budget
The central bank is likely to monitor the targets and consider the rationale of any adjustments and thus would wait for the signals from the Budget, says DBS report
 
The Reserve Bank of India, which will announce its monetary policy on Tuesday, is most likely to keep the key rates on hold. "After 125 basis points (bps) worth rate cuts in 2015, the benchmark repo rate is likely to be held at 6.75% and reverse repo at 5.75%. Reserve ratios will be left unchanged, we reckon. We see room for a 25bps cut in March or April if the FY16-17 Budget satisfies the central bank on the government’s fiscal consolidation efforts," says DBS Bank Ltd in a report.
 
According to the research report, although the inflation is still within the RBI's January 2016 target, it faces risks, like the implementation of the Pay Commission's proposals. CPI inflation numbers have been inching up since third quarter of 2015. From a low of 3.9% in the September quarter, inflation rose to more than a year’s high at 5.6% by December. Core inflation, while still benign, has also tracked the uptrend. Other price indicators, for instance WPI inflation and PMI sub-indices are also off recent lows. The disinflationary impact of low crude prices was more than offset by a sharp jump in food price pressures and was not helped by adverse base effects. Service sector inflation remains sticky and indeed rose to 4% from 3.1% in the September quarter.
 
It said, "Despite the recent increase, the inflation outlook appears manageable. The RBI’s inflation target of 6% for January 2016 is unlikely to be breached. Excess capacity in the economy and slower turnaround in demand indicators suggest core inflation is likely to stabilise around 5% in the March 2016 quarter. Inflationary expectations are elevated but low oil prices are likely to temper a renewed climb in the indicators. We expect FY15-16 CPI inflation to average 5%, which will rise to 5.4% in FY16/17. The price trend thus is benign compared to historical trends, but expected to stay modestly above target the RBI’s 5% target for next year."
 
"The elephant in the room is the Pay Commission proposals," DBS said adding, "If the Panel’s recommendations are adopted at the FY16-17 Budget, there will be a temporary spike in prices when the increment kicks-in this year. Of concern particularly are the 140% increase in the housing allowance and potential second-order impact from higher public-sector wages, which we estimate could lift annual inflation by 100bps above the RBI’s 5% target for March 2017. The impact would be muted if wage increases were staggered or partly deferred to the next year."
 
According to DBS, the Budget 2016-17 would be a key factor to watch. After meeting this year’s goals, the government’s commitment to fiscal discipline will be put to test in FY16-17. Any signs of a delay in fiscal consolidation efforts would be seen as inflationary, it said.
 
Last year the RBI lowered repo rate by 25bps soon after the FY15-16 Budget, even though the deficit target had been adjusted higher. This was seen as an immediate endorsement of the government’s move to rationalise subsidies and re-channel savings towards higher capital expenditure.
 
"This time, the central bank is likely to monitor the targets and consider the rationale of any adjustments. If the additional fiscal room (higher deficit) is channelled towards higher capex spending and improvement in revenue collections, the RBI would likely take a favourable view. In the event, the RBI is likely to await the budget announcement before taking further action," DBS said.
 
According to the research note, the need of the hour for the government is to strike a balance between, fresh spending commitments, a pro-growth stance and compensation for low tax buoyancy or disinvestment proceeds. However, a deficit target higher than 3.5% of GDP target could be adopted for FY16-17, just as the windfall from low commodity prices fades, DBS added.
 

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Manufacturing sector grows in January: PMI
New Delhi : India's manufacturing activity registered acceleration in January, Nikkei's Purchasing Managers Index (PMI) data showed on Monday.
 
As per the monthly Purchasing Managers Index (PMI) survey conducted by Nikkei and market intelligence firm Markit, India's PMI rose from 49.1 in December to 51.1 in January.
 
A reading below 50 in the PMI index indicates a contraction.
 
“The opening month of 2016 saw a rebound in new business -- from both domestic and external clients -- leading manufacturers in India to scale up output following a short-lived downturn recorded in December,” Markit economist Pollyanna De Lima said in the PMI report.
 
“Whereas the trends in the growth rates are relatively weak in comparison with the long-run series averages, January’s PMI data paint a brighter picture of the Indian economy,” De Lima said.
 
Rising inflows of new business from domestic and export clients benefited manufacturers along with the resumption of output of some firms which were impacted by December floods.
 
Though PMI moved back above the 50-mark in January, the rate of expansion was just moderate but signalled the sharpest rise in the last four months.
 
Total new business and levels of production registered mild increases following contraction in December 2015.
 
In the beginning of 2016, consumer goods sub-sector remained the principal growth engine witnessing substantial expansions in new orders and output, while investment goods producers experienced decline in new orders and output.
 
In each of the past 28 months, incoming new oversees orders have risen. The trend continued in the month under review, with strengthened exports orders in January.
 
In addition, last month saw employment increase in the Indian manufacturing sector across consumer, intermediate and investment goods categories linking expanded payroll numbers to rise in production requirements.
 
“However, January’s increase in employment was insufficient to reduce the pressure on manufacturers’ capacity,” the report noted.
 
For the last three months in a row, backlogs of work at factories further accumulated to reach the highest since March 2015.
 
Indications of price pressures remained on the upside in January. Higher demand for raw materials resulted in cost escalations with both input and output charges rising in the month under review. 
 
However, input cost eased slightly and remained below the long-run survey average.
 
Reaching a 14-month high, factory gate prices increased for the fourth successive month in January. 
 
Respondents attributed the rise in charges as a way to pass on the increase in purchasing costs.
 
Due to rise in the level of input buying activity, January witnessed a modest rise in stocks of purchases and contrastingly inventories of finished goods products again fell.
 
On the central bank’s monetary policy, De Lima said: “Although the RBI (Reserve Bank of India) is likely to continue its monetary policy loosening cycle in 2016."
 
"February’s meeting will probably see the repo rate remain unchanged at 6.75 percent as the central bank will remain wary of inflationary pressures building in the country.”
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Now, HSC failures will not lose academic year in Maharashtra
Mumbai : In a major progressive policy, the Maharashtra government has decided to permit failures in HSC (Class XII) exams to reappear in July so that they don't lose a valuable academic year, Education Minister Vinod Tawde said here on Monday.
 
Until now, such students were permitted to take the exams only in October and the results were declared by December, effectively compelling them to take up further studies only after they had lost an academic year.
 
"The HSC exams are usually held in February-March every year and the re-examinations for the unsuccessful candidates are taken around September-October. However, after they clear the re-exams, they cannot get admission to any college or professional courses mid-way in the academic year," Tawde said.
 
The new policy will ensure that such students don't forfeit an academic year and if they pass the re-exam, they can continue their further studies without a break, the minister added.
 
In 2015, a similar policy was implemented for SSC (Class X) failures which has proved to be a boon for the student community, explained an official, adding that Maharashtra was the first state in the country to implement this policy.
 
The regular SSC exams were conducted in March and the re-exams for the failures were held in July-August and the results were declared within three weeks in which 57,517 students were declared successful.
 
This ensured that they could continued their junior college or other vocational and professional courses without a gap and facilitated their social inclusion and prevented a blot on their educational record.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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