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Budget 2019 Expectations, India GDP Growth Rate has been Overestimated and Other Top Business News of the Week

Professor of Financial Economics and Part-time Value Investor, Transfin.
Jun 16, 2019 11:04 AM 6 min read


India GDP growth rate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17, says former CEA Arvind Subramanian. India to impose retaliatory tariffs on 29 US products. Budget 2019 Expectations: Keep Budget projections realistic, reflecting state of economy, say economists. No tax relief for large companies in Budget 2019. Facebook invests in Indian social-commerce startup, Meesho. Facebook signs up Visa, Mastercard, Paypal and others to back its new cryptocurrency - Libra.


Moving on to the top Business news of the week. 



India GDP growth rate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17, says former CEA Arvind Subramanian. India to impose retaliatory tariffs on 29 US products. 

Overestimated: Former Chief Economic Adviser Arvind Subramanian in a report in The Indian Express has concluded that methodological changes have led to overestimating of the India GDP growth rate by 2.5 percentage points per year between 2011-12 and 2016-17. Actual growth is around 4.5 per cent.
Zooming In: One sector where the magnitude of mis-measurement is particularly large is manufacturing. Pre-2011, manufacturing value added in national accounts tended to be tightly correlated with the manufacturing component of the index of industrial production and manufacturing exports. But, thereafter, the relationship has broken down, notes the former CEA.
More on this here
Assured and Secured: The Modi government has re-affirmed its commitment to “ensure and secure the autonomy and independence of the statistical system to produce appropriate and reliable data by adhering to internationally-agreed professional and scientific standards”.
The move comes on back of the ongoing controversy the government had found itself, regarding the computation of economic growth. 
Defending the Existing Methodology: Defending itself the Ministry of Statistics and Programme Implementation said that India objectively measures the contribution of various sectors in the economy and the country’s gross domestic product (GDP) estimates are based on accepted procedures and methodologies.

We Won’t Keep Calm: Less than a week after Washington withdrew duty-free benefits for Indian exporters, India has decided to impose the long due retaliatory tariffs on 29 US products.


India has repeatedly postponed imposing the retaliatory tariffs on US goods worth $235m since it first announced these on 20 June last year. The current deadline expires on 16 June.


US had earlier this month terminated India’s designation as a beneficiary developing nation under the key Generalized System of Preference (GSP) trade programme with effect from June which allowed $5.6bn worth of Indian exports to enter the US duty free.



Retail inflation touches seven-month high of 3.05% in May. IIP rises 3.4% in April. WPI inflation slips to near 2-year low in May, declines to 2.45%.


Retail Inflation: As per the data released by Central Statistics Office (CSO), retail inflation touched a seven-month high of 3.05% in May 2019 vs 2.99% in April. The previous high was in October 2018, when the retail inflation was recorded at 3.38%.


This sudden rise in retail inflation which is calculated on the basis of Consumer Price Index (CPI) has been linked to the hike in price of vegetable and food items. 

Industrial Growth: Index of Industrial Production (IIP) grew by 3.4% in April 2019 vs 0.3% a month ago, primarily on back of better performance by mining and power generation segments.

14 out of the 23 industry groups in the manufacturing sector showed positive growth in comparison to the corresponding month of the previous year. The industry group 'Manufacture of Wearing Apparel' showed the highest positive growth of 33.6%.


In Other News: Wholesale price-based inflation slipped to 22-month low at 2.45% in May vs 3.07% in April and 4.78% in May 2018.

The fall in WPI was supported by fall in prices of food articles, fuel and power items.


Budget 2019 Expectations: Keep Budget projections realistic, reflecting state of economy, say economists. No tax relief for large companies in Budget 2019. Finance Minister might retain fiscal deficit target at 3.4% of GDP. 


No Corporate tax relief in sight for Large companies: Former Finance Minister Arun Jaitley had promised a cut in corporate tax rate to 25% from 30% for large companies, but things are looking bad for large companies as his successor has stepped in.


Finance Minister Nirmala Sitharaman, who is set to present the Budget 2019 on July 5th is unlikely to cut corporate tax rate. Additionally, the upcoming budget 2019 may increase long term capital gains tax.

Currently, long-term capital gains exceeding INR1 lakh are taxed at 10%.
The Finance Minister is expected to forecast a fiscal deficit target for FY20 at 3.4% of GDP, retaining the figure presented in the interim Budget earlier year.
Behind the Scenes: The Government is exploring ways to earn more tax revenue either by tapping new sources or by digging into existing ones so as to support the existing revenue shortfall and additional promises made. 

Tax relief in the forthcoming budget is likely to be limited to areas that will not pinch the government but improve the financial situation. 
Budget 2019 Keeping it Real: In a pre-Budget consultation meeting with Finance Minister Nirmala Sitharaman, economists have noted that the newly-elected government must keep the budget 2019 projections realistic, reflecting the true state of the economy. 
They also asked the government to cut corporate tax and impress upon the central bank to prune the repo rate further.
NITI Aayog has convened a meeting on June 22 ahead of the Budget where the experts will deliberate on economic growth and development throughout the day.
Strive Harder: The last few years have been contentious for India as developed countries, led by the US, have upped the ante. 
Widely used incentives given to Indian exporters have been challenged on the grounds that India has exceeded the time period within which these benefits could be given.
Since an immediate removal of export subsidies is likely to hurt the Indian economy, it must push for an eight-year phase out period under special and differential flexibilities.
Moreover, policymakers need to work on a contingency plan to replace existing export incentive schemes, with WTO-compliant, production-oriented schemes targeting R&D and modernisation. Here’s a deep dive into the entire matter.
Facebook invests in Indian social-commerce startup, Meesho. Facebook signs up Visa, Mastercard, Paypal and others to back its new cryptocurrency.
Facebook Invests in “Meri Shop”: In a first, social media platform,Facebook has invested an undisclosed amount in exchange for a minority stake in Meesho, an online marketplace that connects sellers with customers on social media platforms such as WhatsApp, in an attempt to explore new options for revenue generation.
Previously: In July 2014, Facebook had acquired Little Eye Labs, a Bengaluru-based startup that makes a software tool to analyse the performance of Android apps, for a reported $10m-$15m.
The Bengaluru-based company, Meesho has so far raised over $65m, including a $50m series C funding round just about seven months ago. Meesho was also incubated at one of US’s top startup accelerator, Y Combinator, in 2016.
Beat the Heat: Some look at this as a good branding exercise by Facebook, at a time when it is facing heat due to regulatory overreach. 
What: These companies will invest around $10m each in a consortium that will govern the digital coin, called Libra. 
This money will be used for funding the creation of the coin, which will be pegged to a basket of government-issued currencies to avoid regulatory overreach. 
Raytheon and United Technologies to merge, creating an aerospace and defense giant. Salesforce to acquire Tableau for $15.3 bn. TPG Capital, Manipal set to announce purchase of Medanta next week.

A Giant is Born: US defense contractor Raytheon and American aerospace giant United Technologies have announced their merger in an all-stock deal. 
The new aerospace and defense company, to be named Raytheon Technologiesis expected to have nearly $74bn in annual sales.
The merged entity would be second only to Boeing in the US with a revenue of $101bn.
Biggest Deal: Cloud-based software company Salesforce is set to acquire data visualisation company Tableau in a $15.3bn deal, marking the biggest acquisition in the company’s 20-year history. 
As part of the all-stock deal, Tableau shareholders will get 1.103 Salesforce shares, valuing the offer at $177.88 per share, representing a premium of 42% to Tableau's Friday closing price.
Binding Offer: In one of the largest acquisitions in the Indian healthcare industry, TPG Capital and Manipal Hospitals are set to announce the purchase of Dr. Naresh Trehan’s Medanta chain of hospitals next week, with the transaction ascribing an enterprise value of INR5,800-6,000cr to the latter.
The INR5,800cr valuation will be an earnings before interest, tax, depreciation, and amortization (EBITDA) multiple of about 24 times for Medanta which is estimated to have posted an INR240cr EBITDA for FY19.
United, We Prosper: Together, Manipal and Medanta are estimated to have a bed count of about 7000-8000 beds once their individual ongoing expansion projects are completed. This will allow the Manipal investors to make an exit as the hospital grows in scale.
Manipal, which recently lost the bid for Fortis Healthcare to Singapore's IHH Healthcare despite making multiple bids, has not made any acquisitions since 2013.
The two will also help in expanding each other’s footprint, with Medanta having a strong presence in the North and Manipal having one in the South.
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