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SERVICES PMI
The HSBC India Services PMI (Purchasing Managers' Index) is based on data compiled from
monthly replies to questionnaires sent to purchasing executives in around 350 private service
sector companies. The index tracks variables such as sales, employment, inventories and prices.
A reading above 50 indicates that the services sector is generally expanding; below 50 indicates
that it is generally declining.
Growth among Indias services firms picked up pace in January as burgeoning order books
boosted confidence, suggesting further expansion this month
The HSBC Services PMI rose to 52.4 in January from 51.1 in December. It has been above 50
level, which denotes growth, since May 2014.
The new business sub-index which measures demand climbed to 52.1 from 51.8.
The survey also showed firms confidence regarding future business grew at the fastest pace
since June last year.
The January Services PMI was marked by faster expansions in activity and new orders. Business
sentiment led by anticipated improvements in demand and new commercial initiatives, rose to a
seven-month high.
But the services PMI data showed input costs rose at a faster rate in January and that firms were
able to pass on a slightly bigger portion to customers by raising prices.

INDIAS NEW GDP MEASUREMENT SERIES

Indias national statistical agency released a new, revised set of national accounts estimates last
week.
A re-basing of gross domestic product (GDP) to 2011-12 from 2004-05 and improved coverage of
corporate and informal activities in manufacturing and services showed a changing structure of
the economy and altered growth rates that are likely to affect many as a result.
While the advance GDP estimates, due for release 9 February, will set to rest the guesswork on
the latter aspect, the numerous significances of a vastly different economic picture will take a
while to digest, absorb and evolve towards a fuller understanding of economic processes in the
two years of 2012-13 and 2013-14, for which the revised growth rates are currently made
available.
As things stand at the moment, the economy grew 5.1% in 2012-13 instead of 4.7% measured by
the older GDP series, and accelerated sharply to 6.9% next year in 2013-14. Note though that
the overall nominal GDP size is almost unchanged for 2013-14 Rs.1.13 trillion against Rs.1.14
trillion earlier.
Rather, it is the sources of growth that have shifted: from services (share lower by 8.4
percentage points vis-a-vis older series) to manufacturing (higher by 4.5 percentage points) and
agriculture (3.9 percentage points). So, it was industry size that was earlier underestimated, not
aggregate demand as might be wrongly inferred.
Notwithstanding the reservations, what according to the new series could have lifted the
economy a hefty 1.8 percentage points in 2013-14? A quick preview of the disaggregate
numbers suggest at least three drivers.
o One, private consumer spending on non-durable goods grew faster at 6.2% in 2013-14
over the previous years 3.6% even as expenditures on durable goods declined while
remaining the same for overall services.
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o Two, fixed assets creation grew 3% over a minus 0.3% contraction in 2012-13. It is worth
noting that disaggregate capital formation by industry (production or supply side) shows
that investment growth was positive in just mining, trade and social services; this makes
one wonder if the court ban upon mining in some parts was one contributing factor to
lower growth in 2012-13, for mining investment grew 28.6% in 2013-14 (or double the
rate of growth the previous year).
o Three, government consumption grew a robust 8.2% in 2013-14 over the previous years
feeble 1.7% growth; recall the sharp fiscal squeeze in the second half of 2012-13.
And if the disaggregate investment numbers on the supply side are any indication, then the
public spending mix improved as gross capital formation in public administration and defence
category grew 26.3% in 2013-14 over 1.7% growth the previous year.
The advance estimates next week will provide more answers to the plethora of questions posed
by the new GDP series. Meanwhile, the fact that growth recovered no matter in which year is a
fact to be celebrated.

STRATEGIC OIL RESERVE

Strategic reserves are built by nations to tide over crisis supply situations and boost energy
security.
Strategic reserves:- essential strategic nature for meeting the energy security needs of the
country
3 caverns being set up currently Visakhapatnam(1.03million) , Mangalore (1.5 million) and
Padur (2.5 million)
The 5.03 million tonne capacity would be sufficient to cover 13 days of demand in case of supply
disruption.
The strategic reserves would be in addition to the 65 days cover already available at crude oil
and product storage tanks at different refineries during the course of commercial operations.
India plans to create reserves to provide a cover of 90 days on net oil imports for which it would
require another five million tonne storage capacity.
Finance ministry in Jan 2015 sanctioning a mammoth budgetary support of Rs 4,948 crore that
now needs a formal ratification by the Cabinet Committee on Economic Affairs before being
included in the Budget.
Stating that present conditions are favourable to fill up reserves as crude price had dropped
significantly, a committee headed by the expenditure secretary on January 20, 2015 approved
Rs 2,500 crore to start filling up the rock cavern at Visakhapatnam which would be ready to
receive crude oil by mid-February.

RBI DECISION
RBI kept the benchmark repurchase rate at 7.75 per cent, but cut the statutory liquidity ratio
(SLR) the amount of funds that lenders must set aside by 50 basis points to 21.5 per cent of
deposits from February 7, a move that will help banks to increase lending.
Banks should use this headroom to increase their lending to productive sectors on competitive
terms so as to support investment and growth
RBI announced a slew of initiatives to develop markets, including allowing foreign institutional
investors to re-invest government bond coupons even when their investment limits are
exhausted.
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To help exports sector, which of late has been struggling following more headwinds in the global
economy, it decided to replace export credit refinance facility with the provision of system level
liquidity with effect from February 7.
The Central bank reiterated that it wanted more comfort on inflation front and high-quality
fiscal consolidation as well as signals from Finance Minister Arun Jaitleys first full year budget,
due at month end.
Rajan said inflation was likely to be around the target level of 6 per cent by January 2016 but
flagged monsoon, oil prices and the unlikely possibility of significant fiscal slippage as upside
risk

PAYMENT BANKS

The Reserve Bank of India (RBI) has received 72 applications for small finance bank licences and 41
for payment bank licences. These are two new classes of banks that the RBI proposes to set up, to
expand the reach of formal finance to hitherto underserved segments of the population. This large-
scale enthusiasm to set up these new kinds of banks, from all the major telecom companies, several
of them in joint ventures with banks and financial companies, is extremely encouraging.

To combine telecom and banking is the best way to make banking for the poor work in remote
areas, for two reasons. One, as a business model, making big money from large numbers of small
transactions has to be at the heart of viable mass banking. The only organised business that has
really mastered this art in India is telecom. Two, the conventional brick-and-mortar model of
banking cannot service rural customers, even if they do manage to open accounts for them, as in the
Jan Dhan scheme. If a customer has to leave work for a day to trudge to a distant bank branch to
make some simple transaction, that will not work. The bank or its fully empowered, equipped
representative must be within the customers reach. Just as a seller of a recharge coupon of the
mobile phone is. If a seller of recharge coupons doubles up as the banking correspondent, who
performs the jobs of taking cash in and giving cash out, for a small fee that supplements rather than
constitutes his regular income, payment banks will offer universal access.

Payment banks cannot give credit. The small finance banks can. The main thing is to get them going.
Once they prove effective at their limited functions, it is possible to think of expanding what they
can do. These new banks will be first step, a huge one, towards banking for all.

INDIAS PATH TO BECOME A ECONOMIC BEHEMOTH

Economic development is the centrepiece of this governments social contract. A clear and
ambitious plan will have to be articulated and delivered upon by policymakers in order to
achieve this implied contract with voters.

Since assuming office, policymakers have articulated the desire to lift per-capita income,
improve social development indicators and harness the benefits of the demographic dividend
by creating an environment in which businesses will thrive, invest and create jobs.

The path to sustained prosperity entails two broad sets of reforms.

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First, Centre plus states combined fiscal deficit, which has been painfully reduced
from the peak of 9.9% in 2008-09 to an estimated 6.5% of GDP in 2014-15, will need
to be further reduced to 5% of GDP.

Second, the government needs to ensure that its policies do not intervene in the
labour market to ensure that wage growth matches productivity growth. We
believe high rural wage growth of about 18% during 2009-13 was a key factor behind
the spike in inflation to 10% in that period.

Third, real interest rates need to be maintained in a positive territory to anchor

inflation expectations and also to check the rise in property prices. Finally, ensuring a
smooth functioning of the executive branch, faster implementation and increased
transparency of government policies for investment approvals is needed to revive
investment.

As the effects of the reforms that are currently being implemented begin to feed through to
the economy in terms of improved productivity and macro stability, the economy will be on
track to transition back to 6.5% GDP growth in the next 18 months. The goal of 8%
sustainable growth needs a 15-year vision of mediumterm reforms some of which are
perceived to be politically-sensitive.

The list of these measures is long, but the government should prioritise reforms in the areas
of land, labour, tax, infrastructure and overall ease of doing business. Indeed, the recent
decisions taken by policymakers suggest that they are determined to accelerate the pace of
implementation in each of these areas.
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Since the implementation of the new Land Acquisition Act early last year, the process of land
acquisition had come to a virtual standstill. To address this, in December 2014, the
government promulgated an Ordinance that exempted five key categories of projects
which includes infrastructure and public-private partnership (PPP) projects where
landownership is with the government from consent and social impact assessment
requirements. Converting this Ordinance to a law will be a critical starting point for kick-
starting the investment cycle. (See the Video on Land Acquisition Ordinance)

In the area of labour laws, the government has made a series of important changes at a faster-
than-expected pace. The most important step has been to reduce the discretionary powers of
local labour inspectors, which has been a key bugbear of manufacturing companies.
Moreover, select states have taken the lead to increase the flexibility of labour market
regulations. Going forward, the government is considering a complete overhaul of the 44
labour laws into five uniform codes, which we think can be a path breaking reform if it can
get Opposition support in Parliament (See the Video on Labour Reforms)

The goods and services tax (GST) is the single-biggest indirect tax reform that will bring
about uniformity in taxation system and improve the competitiveness of the manufacturing
sector. To this end, the government has successfully built a consensus among states and has
introduced the GST Constitutional Bill in Parliament. Parliament will likely take up this Bill
for approval in the upcoming Budget session, with full implementation expected by April 16.
(See the Video on GST)

On the infrastructure front, the government has moved to increase the FDI limit in railways,
streamlined the process of reallocation of coal mines and approved some projects under the
engineering, procurement and construction (EPC) route in the road sector. While these are
steps in the right direction, the enormous infrastructure needs suggest that the government
still needs to do a lot more. More aggressive policy reforms are needed to revive
infrastructure spending to around 8-9% necessary to reach the 8% GDP growth goal
from the current estimated level of about 6%.

Finally, India is currently poorly ranked as 142nd out of 189 in the World Banks ease-of-
doing-business index. While the recent streamlining of investment approvals has helped to
expedite the process and improve sentiment, more steps are still needed. The critical step
needed in this area is to take up a major training programme and change the incentive
structure at the central and state government-levels to bring about change in the attitude of
the field officers to welcome industrial development effort. (See the Video on Make in
India)
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Taken together, these important changes in the macro environment, when fully implemented,
should have a lasting impact on boosting economic development in India, and will go some
way in achieving the ambition of creating a $10-trillion economy by 2030.

INDO-CHINA RELATIONS: Economic cooperation helps mitigate

security competition
India has unveiled an ambitious agenda to elevate its ties with China, with External Affairs Minister,
Sushma Swaraj announcing a six-point proposal to jointly realise with Beijing, the dream of an Asian
Century.

Ms. Swaraj said that a six-point template can enrich the civilizations of India and China in the
modern era, resulting in the realisation of an Asian Century.

stressed that New Delhi-Beijing ties can reach the next level if both sides

A. enforce an action-oriented approach and

B. a broad-based bilateral engagement
C. need to achieve convergence on common regional and global interests
D. develop new areas of cooperation
E. expand strategic communication
F. fulfil the common aspiration to usher and Asian Century
on the boundary question government is committed to exploring an early settlement
On its part, China acknowledged the Sino-Indian relations had entered a new period of major-
country relations, a nuanced formulation reserved to describe Beijings ties with regional and
global heavyweights, including the United States.
Deng Xiaoping had said that only when China and India have developed will a real century of
Asia will emerge.
Silk Road Economic Belt and the 21 set century Maritime Silk RoadPresident Xis pet project to
achieve Eurasian economic integration, based on a land and sea transportation network,
complemented by a grid off energy pipelines, fiber-optic highways, industrial parks and smart
cities.
Bangladesh-China-India-Myanmar (BCIM) economic corridor:- India has so far backed the BCIM
proposal that would connect Kolkata with Kunming-the capital of Yunnan province, which is the
gateway to three ASEAN countries: Myanmar, Laos and Vietnam.
India signalled full support to Asian Investment and Infrastructure Bank - a China backed
initiative that is likely to help support President Xis Silk Road projects.
Prime Minister Narendra Modis to visit China in May.
In his approach to China, Modi has sought to walk on two legs.
In the first, he has emphasised Chinas importance as a source of foreign direct investment
in India. This dovetails neatly both with his attempt to revive investment, the central
problem with Indias economy today, and with his programme of Make in India. Further, it
helps manage the trade deficit with China by drawing capital flows.
o She assured her hosts that the government would make it easier for Chinese
companies to operate in India. This was important to ensure that the $20 billion of
investment announced during Xis visit to India
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o Swaraj also called for increased market access in China for Indian firms.
In the second leg, Modi has sought to tackle strategic problems in our ties with China.
o Said India was committed to exploring an early settlement of the boundary dispute.
This appears to be a step forward from Modis earlier emphasis on clarification of
the Line of Actual Control (LoAC) with China

The received wisdom on India-China relations is that economic cooperation helps mitigate security
competition. The opposite may, in fact, work better. By tackling tricky strategic problems, we could
broaden and deepen our economic cooperation. And no bilateral problem is more important than
the boundary dispute. To be sure, progress even settlement on the boundary will not eliminate
the competitive dimension of India-China relations.

We need to go beyond blocking sites for saving our unborn daughters

Even in the virtual world we can't escape our unique social obligations. First, the Supreme Court did
not appreciate the Central Governments helplessness and inability to find a legal framework to
control advertisements for sex-determination tests appearing on the web. Now, the apex court has
restrained the Google, Yahoo and Microsoft search engines from carrying advertisements or links
relating to sex-determination tests. Under Section 22 of the Pre-Conception & Pre-Natal Diagnostic
Technique (Prohibition of Sex Selection) Act, 1994, advertisements of pre-natal tests in any form or
medium, including the Internet, are prohibited. The court is right in showing its concern, for the
skewed sex ratio continues to remain unabated.

The fact is information published on web sites is generally meant for worldwide dissemination and
caters to the needs of many countries, where sex determination may not be banned. A few web sites
also provide rich material, useful to medical students. And most of these web sites are hosted
outside the country. The need for a legal framework to ban content on the web was so far limited to
the porn sites or the sites operated by terrorist outfits, with concerns like these getting prominence.
And the government will have to decide which way it would like to go: impose a ban or spread
greater awareness.

The issue does call for concerted efforts on the part of the departments of information technology,
health and family welfare and communications. The same technology can be used for mobilising
public opinion for saving the girl child. Blocking certain generic words can prove counter-productive;
it may end up withholding even positive messages. There is a greater need for public education and
awareness drives to favour the girl child, even without getting into the legal entangle of the web. If
bans could bring about social change, the PCPNDT Act would have sorted out the skewed gender
ratio in the last two decades.