Economy Matters October 2017

1
FOREWORD
OCTOBER 2017
A
financial system, which is fundamentally strong, functionally diverse and displays efficiency and
flexibility, is vital to our national objectives of creating a market-driven, productive and com-
petitive economy. The quantum of resources required to be mobilised, as the economy grows
in complexity and generates new demands, places the financial sector in a vital position for promoting
efficiency and momentum. However, as is the case with every sector, the financial sector is afflicted
with many problems, which threaten to undermine the sector’s efficacy. Consequently, for the efficient
functioning of the system, a slew of financial sector reforms have been introduced. Although it will take
quite a few years to see the full positive impact of these reforms, there is a general consensus that these
reforms will help to rejuvenate the financial sector which in turn will contribute towards the growth
story of the economy.
The government has imparted a huge boost to bank recapitalization with a proposed amount of Rs
2.11 lakh crore which is likely to kickstart the credit cycle and facilitate private investments. The Cabinet
decision to address a vital issue is very timely and welcome. We are especially pleased with the an-
nouncement of recapitalization bonds, which CII had recommended strongly, among other measures. A
three-pronged strategy to encourage investments is evident in the announcement of expanding public
expenditure on infrastructure, boosting private investments and addressing delayed payments to the
MSME sector. The government’s decision to enhance spending on roads and highways in a strategic
manner including port connectivity and border and cross-border roads will have a big multiplier im-
pact on economic growth. We also appreciate the government’s decision to encourage registration
of MSME in 50 clusters and promote registration of PSEs under TReDS (Trade Receivables Discounting
System). This would aid formalisation of the economy as also alleviate the issue of delayed payments.
CII hopes that the current requirement for MSMEs to register under GST in all states to participate in
e-commerce will be addressed.
The IMF in its latest forecast has lowered India’s growth estimates by 0.5 percentage points for 2017
due to the slowdown in growth because of demonetisation and implementation of GST. However, it
said that the structural reforms undertaken by the government would trigger a recovery—above 8 per
cent in the medium-term. Further, the multilateral lending agency also highlighted that India needs to
focus on simplifying and easing labour market regulations and land acquisition procedures which are
long-standing requirements for improving the business climate.
Chandrajit Banerjee
Director General, CII

EXECUTIVE SUMMARY
ECONOMY MATTERS 4
FOCUS OF THE MONTH
The financial sector has a significant role to play in build-
ing a strong and vibrant economy. Its contribution in
terms of raising incomes, augmenting tax revenue and
generating employment is immense. India has a diver-
sified financial sector which is expanding at a fast pace.
The government has taken a number of reformative
steps to make the financial sector even more robust. Al-
though it will take quite a few years to see the positive
impact of these reforms, there is a general consensus
that these reforms will help to rejuvenate the financial
sector which in turn will contribute towards the growth
story of the economy. The sector has come a long way
from being a financially repressive regime to transform
into a modern financial sector where public sector finan-
cial institutions tend to compete with financial institu-
tions from the private sector, to stay ahead. In view of
the importance of financial sector in India, this month’s
Focus of the Month will cover insights on this topic from
sectoral experts.
DOMESTIC TRENDS
Industrial output measured by index of industrial pro-
duction (IIP) quickened to a five-month high of 4.3 per
cent in August 2017 as compared to a paltry 0.9 per
cent growth experienced in the previous month as the
uncertainties surrounding the transition to GST have
diminished. Meanwhile, consumer price index (CPI)
based inflation remained unchanged at 3.28 per cent in
September 2017 as compared to a revised 3.28 per cent
in August 2017. Additionally, as per the latest data re-
leased by the Controller General of Accounts (CGA), the
fiscal deficit till April-August 2017 has reached 96.1 per
cent of the total budgeted target of the government
for FY18 on account of front loading of expenditure. On
a positive note, the year 2017 saw a reasonably good
monsoon cover, with the all-India rainfall deficiency
standing at 5.5 per cent below the long period average
(LPA) for the period 1st June to 27th
September, 2017.
POLICY FOCUS
This section covers the major policy changes announced
by government/RBI in the month of October 2017.
Amongst the prominent policy news announced dur-
ing the month, the government has decided to take a
massive step to recapitalise Public Sector Banks (PSBs)
with a view to support credit growth and job creation.
Additionally, as a boost to the infrastructure sector,
Bharatmala Pariyojana (BMP) has been announced by
the government. The government has also issued a
notification allowing 36 banks and five canalising agen-
cies, including MMTC and MSTC, to import gold without
paying a 3 per cent integrated goods and services tax
(IGST). Meanwhile, the RBI has said that banks will pro-
vide funds to women SHGs (Self Help Groups) in rural
areas at 7 per cent under the Deendayal Antyodaya Yo-
jana – National Rural Livelihoods Mission (DAY-NRLM)
in the current fiscal. The Central Board of Direct Taxes
(CBDT) has signed two more Advance Pricing Agree-
ments (APAs) with taxpayers as part of its aim to re-
duce litigation by providing certainty in transfer pricing.
Further, digital wallets have been brought almost on a
par with bank accounts in terms of interoperability and
‘know your customer’ (KYC) regulations. India has im-
posed anti-dumping duty on some cold-rolled flat prod-
ucts of stainless steel from China, the US, South Korea
and the European Union, to curb the influx of cheaper
imports and help local producers.
GLOBAL TRENDS
The Canadian economy grew at a healthy pace in the
first half of 2017, outperforming its G-7 counterparts, as
it registered an output growth of 2.3 per cent and 3.7
per cent in the first and second quarters respectively
on a year-on-year basis. Meanwhile, the International
Monetary Fund (IMF) has noted that the uptick in global
economic activity is firming up and has upped its global
growth forecast for 2017 and 2018 to 3.6 per cent and
3.7 per cent, respectively. As for India’s economic pros-
pects, the growth projection for 2017 has been revised
down by 0.5 percentage points to 6.7 per cent by the
IMF reflecting the still lingering disruptions associated
with the currency exchange initiative introduced in No-
vember 2016, as well as transition costs related to the
launch of the national Goods and Services Tax (GST) in
July 2017. Further, the multilateral agency has also low-
ered the growth projection for 2018 to 7.4 per cent from
its earlier estimate in April and June 2017 of 7.7 per cent.

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FOCUS OF THE MONTH
Financial Sector in India
OCTOBER 2017
Over the past few years, the government has taken
many reformative steps to make the financial sector
even more robust. Although it will take quite a few
years to see the full impact of these reforms, there is a
general consensus that these reforms will help to reju-
venate the financial sector which in turn will contribute
towards the growth story of the economy. Meanwhile
it is fair to say that India is also continuing its journey
towards a financially inclusive economy through innova-
tive policies involving a multi-pronged approach. It has
come a long way from a financially repressive economy
to a modern and efficient financial sector where public
sector financial institutions tend to compete with the
private sector financial institutions to stay ahead. At the
same time, equity and efficiency related issues are also
considered as the critical components of the functional
obligations of the sector. In view of the importance of
the financial sector to India’s growth story, this month’s
Focus of the Month covers the sector in detail.
I
ndiaisblessedwithadiversifiedfinancialsectorwhich
is experiencing a speedy expansion, both in terms of
robust growth of existing financial services and new
entities entering the market. The sector comprises com-
mercial banks, insurance companies, non-banking finan-
cial companies, co-operatives, pension funds, mutual
funds and other smaller financial entities. The financial
sector’s contribution towards building a strong and vi-
brant economy cannot be emphasised more. The sec-
tor’s contribution comes across even strongly when we
look at the sheer number of employment opportunities
it generates, considering that the employment gener-
ated by the banking and insurance sector every year
runs in millions. However, as is the case with every sec-
tor, the financial sector is plagued with a multitude of
problems, which threatens to undermine the sector’s
efficacy.

6
FOCUS OF THE MONTH
ECONOMY MATTERS
India’s Financial Sector: Marching Ahead
S
ince the beginning of the global financial crisis -
which to a large extent was blamed on excessive
risk taking in an era of easier regulatory oversight
- financial regulators across most countries have rolled
up their sleeves. Over the last decade, increasingly, we
have observed how regulators have put in place new
rules to contain risk, scrutinized every new financial
product with a Holmesian approach and increased the
cost of compliance to keep away marginal, non-serious
players.
Along with stricter regulation, adoption of newer tech-
nologies in the financial space have reduced costs and
opened up the ground for innovative players to take a
shot at their bigger, established peers. To stay competi-
tive, costs also had to be reduced. At the same time, to
remain relevant in the business on a continuous basis,
efficiencies had to be improved every single day.
The Indian scenario
India is known to adopt new technologies at a fast rate.
And if that new technology is for the masses, the coun-
try, with its 1.3 billion-plus population, it often becomes
the testing ground for mass adoption at a competitive
cost. The financial services sector that I am a part of has
also adopted new technologies at almost every level,
resulting into improved efficiencies at lower costs to
investors.
As we adapted ourselves to these global changes, In-
dia has shown a few distinctive traits too. Despite a
global slowdown, quarter after quarter the country re-
mained one of the fastest growing major economies in
the world. This resilience has forced some of the global
fund managers to look at India as an oasis of growth in
the world economy while several other known names
struggled to move ahead. India’s economic resilience
also forced strategists at one of the global financial
powerhouses to change their opinion who in mid-2013
had clubbed us, along with four others, as ‘the fragile
five’.
Looking at the recent developments and future growth
potential of the economy, I can confidently say that
from being termed ‘fragile’ in just about four years ago
we have moved to become a ‘fabulous’ economy at the
global stage.
With favourable tailwinds in the past few years, like low
crude oil prices, falling inflation & rate of interest and
strong domestic liquidity flow, the pace of reforms has
also picked up. Implementation of Goods and Services
Tax (GST) is the most major reform that India has seen
in dacades.
The government’s endeavor to make businesses run
more smoothly with the Ease of Doing Business ini-
tiative is another such move that should help commit
more funds into the country from domestic as well as
foreign investors.
In the coming months, given that the tailwinds favour
the economy, the pace of reforms should continue. This
in turn should prompt private capital expenditure in
anticipation of higher demand. As people start spend-
ing more, the higher consumption will in turn lead to
stronger economic growth.

7
FOCUS OF THE MONTH
OCTOBER 2017
Demonetization and GST
Data shows that in the April-June quarter of the current
fiscal, India’s GDP growth rate dipped to 5.7 per cent
from 6.1 per cent in the quarter prior to that. Some
people are indicating it’s a secular downturn in India’s
economic growth rate due to demonetization as well as
GST.
To me, demonetization is not destruction of demand
but it is only a temporary delay in demand. Once the
impact of demonetization is fully absorbed by the econ-
omy, the demand that will emerge will be backed by
clean money. GST on the other hand is in its infancy and
the government is smoothening out the rough edges.
Here also, once things are smoothened out, it will lead
to better tax compliance which in turn would lead to
higher revenues for the exchequer.
As the economy grows, in the coming few years, we
should expect to see more companies coming to list on
the bourses while existing companies would be fairly
priced. And if the stock markets also rise keeping pace
with the growth of the economy (but at a higher rate
than the GDP growth rate as has been seen historically),
investor would feel the wealth effect that every emerg-
ing market economy offers.
Here, I want to mention about another long term posi-
tive impact of demonetization. With more clean money
in the hands of investors, there is every indication that
the financialisation of household savings has started.
With less unclean money in the hands of people to
chase real estate and gold, more and more investors are
looking at financial assets. While nearly cent per cent of
investments in the mutual funds, stocks and commodi-
ties come through the banking channel, the same is not
exactly the case for some of the physical assets.
For example, the strong rise in inflows in the mutual
fund sector through the Systematic Investment Plan
(SIP) route is one such indication. Association of Mutual
Funds in India (AMFI) data show that since November
2016 till September 2017, monthly inflows through the
SIP route had jumped 42 per cent to Rs. 5,516 crore from
Rs. 3,884 crore. Also between April and September this
year, the total inflow into the fund industry through this
channel alone was up 50 per cent to nearly Rs. 44,000
crore.
The Indian MF industry
Such high double-digit growth rates are great news for
the mutual fund industry. However, at the same time,
this places a huge responsibility on each one of us in
the mutual fund industry to ensure that the investor
has a good investment experience and therefore I do
not think this is the time for the industry to cheer lead
people.
At the same time it is also important to remember that
investors should not get carried away by the euphoria in
the market. For us, in the mutual fund industry, one of
the prime responsibilities now is to help investors listen
to the most relevant sound among all the noise that is
around them.
Here, I would also like to point out the impact of the
current revolution in the mobile and fintech spaces.
With over a billion mobile connections (Monthly Tele-
com Scenario for July 2017 by Ministry of Communica-
tion, GOI), combined with low service charges, India has
emerged as a mobile-first market. Given the huge op-
portunity that the sector offers to service providers and
other stakeholders, the number of fintech companies
as well as the quality of services they are offering is truly
encouraging. I believe very soon this will help retailise
financial products by offering easier access to almost
every person in the country who has a bank account.

8
FOCUS OF THE MONTH
ECONOMY MATTERS
Regulated Markets Augmenting the Reforms in Agri-
cultural Marketing
A
gricultural production in our country is still
heavily dependent upon rains. This is quite ap-
parent with initial two of previous three years
being rain deficit years leading to production shortfalls
whereas above normal monsoon last year resulted into
record foodgrains production. Incomes from farming
depend not only on the level of production but also on
costs of cultivation as well as revenues from the pro-
duce. The record foodgrains production last year failed
to translate into a proportionate increase in farmers’
income as they were not able to fetch remunerative
prices for their produce. Recognizing the critical need
to adequately monetize farmers’ produce, the Govern-
ment of India introduced a number of marketing re-
forms with an aim to double farmer’s income by year
2022. Recent initiatives from the government such as
E-National Agriculture Market (e-NAM), proposed new
Agricultural Produce and Livestock Marketing (Promo-
tion and Facilitating) Act, the introduction of a single-
point levy of market fee across the State and a unified
single trading license etc. are remedies to outscore in-
herent challenges in the Indian agricultural landscape.
Agricultural marketing remains one of
the biggest challenge for smallholder
farmers
Owing to a small marketable surplus, marketing of agri-
cultural produce remains the biggest challenge for most
of the small holder producers who are often prone to
exploitation from middlemen. A robust and transparent
agricultural marketing system is imperative for ensuring
remunerative returns to farmers. Transparent and regu-
lated markets such as commodity exchanges are pro-
viding farmers a competitive environment where they
can not only sell their produce in online spot market or
hedge their price risk in futures market but also take a
conscious decision of sowing a particular crop by taking
a cue from futures prices.
A. Access to regulated markets
i. Farmers started using futures market to
hedge their price risk
Gone are the days when commodity futures were con-
sidered as hedging/ trading instruments to be used
only by a handful of sophisticated traders and inves-
tors. The growth of Farmer Producers Organisations
(FPOs) has opened up a new horizon for farmers, for
managing their post-harvest price risk using commod-
ity futures. While individual farmers are often not able
to participate in the regulated market, the formation of
FPO gives them a competitive edge to aggregate, sort,
grade and finally market their produce to institutional
buyers, directly or otherwise thereby managing the
price risk for their produce.
Over the years, farmers have learnt to use futures
market platform to manage their price risk through in-
formed judgment. This helps avoid serious losses when
prices fall and enable farmers to receive a guaranteed
price. Farmers are able to undertake more effective

9
FOCUS OF THE MONTH
OCTOBER 2017
planning and investment because of greater income
predictability. It reduces transaction costs for managing
risk compared with other methods.
Since April 2016, 51 FPOs across 14 states with over
51,000 farmer members have successfully used com-
modity futures to hedge their price risks. They were
able to lock in the price of their produce well in ad-
ii. Augmenting reforms in the Physical
markets
Studies show that the income earned by farmers from
agriculture is crucial to address agrarian distress. Recog-
nizing the specific need of farmers and addressing the
distinct set of barriers they face is of vital importance
to the farming economy and the most effective way to
improve their income in a sustainable way.
An efficient and transparent regulated primary market
can solve the bottlenecks of agricultural marketing and
help increase the farmers’ revenue. Karnataka govern-
ment, along with National e-Markets Limited (NeML)
has set a unique example of public-private partnership
stepping out for modernization and development of pri-
mary markets in the State. The Unified Market Platform
(UMP) model created by Rashtriya e-Market Services
Limited (ReMS) – a joint venture between Karnataka
Government and NeML, commenced in January 2014 -
has gained accolades and recognition for setting up a
benchmark and for being an inspiration for other states.
Niti Aayog has also recognized the impact of online
marketing through UMP on the income of farmers. Af-
ter the introduction of UMP, the average realization by
farmers has increased by 38 per cent in nominal terms
and 13 per cent in real terms in 2015-16 over 2013-14.
vance during the sowing stage of the crop itself. These
farmers have realised 15-25 per cent higher net price
as compared to the prevailing price at the time of har-
vest. Additionally, the direct access to regulated market
helped them save over 3 per cent in transaction costs
as compared to costs involved in selling the produce in
traditional market as well as over 3 per cent saving on
account of eliminating the malpractices in weighing.
A. Stimulating rural credit
Timely availability of credit helps farmers to appropri-
ately use other inputs which finally translate into high-
er production. Commodity exchanges are promoting
financial inclusion by linking farmers to post-harvest
credit. In fact, the commodity exchanges are actively
involved in creating accounting systems which would
help to connect warehouses, assayers, members, par-
ticipants and farmers together.
A transparent and regulated market helps farmers avail
the working capital finances against their produce kept
in approved warehouses at a much competitive rate,
around 3-6 per cent cheaper than market rates and
ward off the risk of distress selling.
B. Catalysing transformation in the agri-ware-
housing sector
Robust warehousing is a critical requirement for agricul-
tural growth and development. Enhanced storage and
logistics infrastructure reduces the need for distress
sales, enables access to distant markets, avoids wast-
age and facilitates credit and insurance products to the
farmers.
It has been observed that introduction of a commodity
futures with basis delivery location near major produc-

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FOCUS OF THE MONTH
ECONOMY MATTERS
ing centers catalyzes the creation of robust warehous-
ing infrastructure in those locations. For example, intro-
duction of rabi maize contract with Gulabbagh basis has
not only provided farmers an instrument to hedge their
price risk but also created over one lakh tonnes of ware-
house space in Bihar.
Furthermore, regulated markets such as commodity Ex-
changes have brought in a greater transparency in the
warehousing sector using modern technologies such
as mapping the warehouses with GPS coordinates to
uniquely identify each warehouse, installation of CCTV
in warehouses to monitor deposits and withdrawals
along with facilitating audits at warehouses.
C. Warehouse Repository- creating a new era of
transparency
Although India had a vibrant commodity market history
that is more than a century old, the paper-based Ware-
house Receipts (WRs) caused substantialproblems such
as bad delivery, mutilation, duplication of receipts etc.
The Warehousing Development and Regulatory Author-
ity (WDRA) on 20th October 2016 came out with guide-
lines for the creation and management of Electronic Ne-
gotiable Warehouse Receipts (e-NWRs). The enabling
provisions of the guidelines seek to establish a system
for creation and management of e-NWRs through reg-
istered repositories, paving the way for the establish-
ment of National E-Repository Ltd. (NERL) on 26th
Sep-
tember 2017. In the Repository system, e-NWRs are held
in repository accounts and any transfer of ownership is
done through simple account transfers eliminating the
risks and hassles normally associated with paperwork.
Consequently, the cost of transacting in a repository en-
vironment is considerably lower as compared to trans-
acting in physical WRs. Furthermore, it will play a pivotal
role to support farmers, traders, processors and other
value chain participants in the commodity markets to
increase the efficiency of the ecosystem along with
catalysing the organic growth in warehouse receipt fi-
nancing business by providing confidence to financing
institutions. It will also serve as the central data source
for policymakers, helping shape agri-policy decisions.
E. The road ahead
Commodity futures market have the potential to link
small-holder agriculture, commodity supply chains, pro-
cessing industry, finance and government policies in a
reliable and transparent way in order to enhance farmer
incomes. The approved warehouses from commodity
exchanges can serve as modern electronic spot markets
and a critical point of integration if considered as sub-
market yards under the proposed Agricultural Produce
and Livestock Marketing (Promotion & Facilitation) Act,
2017. Furthermore, introducing more and more com-
modities on commodity exchanges and introduction of
exchange traded forwards and farmers friendly options
could provide farmers with appropriate tools to get the
best price for their produce and manage price risk ef-
ficiently. Linking the spot markets with derivatives mar-
ket will further enable farmers with the freedom to sell
across time, grade and location for better price realiza-
tion. Appropriate policy support from the Government
in these areas would help achieve scale and deepen the
benefits for small farmers.
(Views are personal)

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FOCUS OF THE MONTH
OCTOBER 2017
Bonds, Currency, Derivatives Continuum
Background
India’s financial system is witnessing growth in market
linked financing for corporates/ infrastructure develop-
ment. An ecosystem of Bonds, Currency, Derivatives
(BCD) is needed for healthy financial market infrastruc-
ture. The components of BCD and the inter linkages be-
tween the three are important and critical for the devel-
opment of market linked financing.
For liquid and efficient markets, all three segments of
market participants are necessary: hedgers, arbitra-
geurs and speculators. Hedgers are real users and have
pre-existing market risk and want to offload it. Arbitra-
geurs trade in different market segments and bridge
the price differential across the markets. More critically
arbitragers are also required to trade between the cash
and the corresponding derivative market to ensure that
the umbilical link between the cash and derivative pric-
es is always restored to fair value. Speculators assume
the residual risk and provide liquidity in the market. If
any one or more of them are absent or not as efficient,
the functioning of the market is impacted adversely.
Bond and Credit Default Swap (CDS)
Markets
India has a well-functioning sovereign bond market with
high liquidity, low bid offers and a term structure across
maturities. However, even in the sovereign bond mar-
ket, banks which have a Statutory Liquidity Ratio (SLR)
requirement are the major participant. To develop a
truly mature market, the buying should also come from
investing in instruments such as MFs, insurance, pen-
sion and provident funds which are working to chan-
nel financial savings. This will ensure the true pricing of
these securities and a much more secure and consistent
demand. Gradual opening of Foreign Portfolio Invest-
ment (FPI) limits in G-Sec and corporate bonds are also
allowing us to diversify the investor base. A sizeable
holding of local bonds by FPIs has another advantage.
It serves to provide an early warning signal as these in-
vestors are sensitive to macroeconomic developments
which incentivizes prudent fiscal and monetary policies.
A liquid primary and secondary corporate bond market
is another requirement of the BCD continuum. Over a
period of time, the corporate bond market has devel-
oped structural robustness. Delivery versus Payment
(DVP) mechanism, flexibility in settlement cycles and
reporting of transactions has greatly enhanced the mar-
ket infrastructure. In spite of these measures, it remains
a largely siloed market. The regulatory initiatives in cor-
porate bond market so far have largely been focused on
the product and infrastructure aspects. However, the
corporate bond markets still lack depth and secondary
market trading volume remains muted.
While steps have been taken recently to improve the
liquidity in corporate bond markets through steps such
as the imposing of limit on the number of International
Securities Identification Number (ISIN), there are oth-
er measures that can be explored. Certain restrictions
in ratings for investors such as insurance companies
and pension funds may be reviewed and these enti-
ties, which provide stable long-term financing, may be
enabled to invest across a larger rating spectrum. In-
troduction of an anonymous corporate bond trading

12
FOCUS OF THE MONTH
ECONOMY MATTERS
platform will provide the much needed transparency
and anonymity leading to participation from large enti-
ties. This will boost liquidity in corporate bond markets.
A corporate bond repo platform will provide the much
needed liquidity for the corporate bond market. The
importance of an efficient repo market extends beyond
merely imparting liquidity to the cash market. The repo
market will enable a market participant to actually bor-
row and short the cash market if he were to find the fu-
tures price too cheap in respect to the cash price. After
all, arbitragers should be able to do reverse cash and
carry arbitrage as much as they can do cash and carry ar-
bitrage. So in this respect a development of a long term
repo market for government bonds is also essential and
accompanied by a higher shorting limit.
A well-functioning Credit Default Swap (CDS) market
would go a long way in developing the corporate bond
market. Credit derivatives allow for better price dis-
covery in addition to aiding re-allocation of credit risk.
Availability of credit derivatives will attract investors
who could subscribe to high-yield issuances and strip
out the credit risk in derivatives market. While there ex-
ists a framework for CDS trading, there are certain bot-
tlenecks which have resulted in negligible activity in the
market. Increasing the universe of market makers to
all institutional participants, removing requirement of
unwind with original counterparty, permitting netting
of exposures are some of the measures that could help
invigorate this market and consequently have a positive
impact on the corporate bond market too.
Interest Rate Derivatives Market
Most of the issuances of bonds (both corporate and
sovereign) in India are fixed rate bonds. Globally, some
participants who issue fixed rate bonds swap them
into a floating rate. In each currency, they have a term
money benchmark and those benchmarks have a lot of
derivative products associated to it.
On the interest rate derivatives side India has a basic
rates derivatives market. The Overnight Indexed Swap
(OIS) market, where trades are linked to the overnight
rate, is reasonably liquid. Other Interest Rate Swap
(IRS) markets linked to MIFOR (a synthetic 6 month
Rupee benchmark) and INBMK (linked to G-Sec rate)
are less liquid. Cash settled interest rate futures based
on the few liquid bonds also trades actively based on
the simplicity of the product, however there are limit
restrictions on various participants. Guidelines permit-
ting launch of interest rate options market have been
issued and are in the process of being operationalized.
However more products are needed in the rates deriva-
tives and a basic requirement is that there is a need for
benchmark which has meaningful linkages to the real
economy corporates.
Currently there exists no interbank term money market
benchmark similar to LIBOR/ EURIBOR. This has held
back the development of derivative markets linked to
Indian interest rate. It has also meant that there are no
currency basis markets (USD LIBOR- INR Floating rate)
in India, which has hampered the Bond Currency Deriva-
tives continuum.
A term money benchmark, where lending and bor-
rowing happens linked to the aforementioned market
benchmark would send better signals on the different
participants’ credit quality as well as provide transpar-
ent rate for end-users. Swap markets would then au-
tomatically develop to allow end-users to lock in fixed
rates, when required. Further, an option market (Caps
floors and Swaptions) would follow suit that would
help end-users enter into hedge structures through op-
tions on interest rate index. Basis Swap markets would
also develop, which would help develop the Currency
Swap markets. Such development should lead to a liq-
uid currency swap market, which should result in great-
er liquidity and better pricing for end-users.
Currency Markets
We have a fairly liquid currency market, where for-
wards, swaps and options are traded in the Over the
Counter (OTC) market and standardized futures and
options contracts are traded on exchanges. End users
have a choice in the instruments that can be used for
hedging their currency exposure. Products are avail-
able for customers for both FCY/INR (where FCY is USD,
EUR, GBP, JPY etc.) and transactions not involving INR
against production of documentation or on the basis of
probable exposure. While hedging of trade flows can be
dynamically rebalanced, capital hedging involving INR
cannot be cancelled and rebooked. In addition to OTC

13
FOCUS OF THE MONTH
OCTOBER 2017
contracts, futures and options are traded on exchanges
which are net settled in rupees at maturity and these
have very good liquidity in the near month contracts.
While the current framework offers customers tools for
hedging, certain measures such as permitting long ten-
or trade hedging using option structures and offering
USD/INR option linked deposits could make the market
more vibrant. An area of concern for end users which
needs to be evaluated is hedge treatment of derivatives
contracts; there are transactions that are economic
hedges but may not qualify as an accounting hedge
which exposes such users to earnings volatility.
An important segment that participates in the curren-
cy market in India is that of FPIs and MNC institutions.
These participants often hedge their positions in the
non-deliverable offshore markets (NDF markets). The
price discovery in the NDF markets reflects market ex-
pectations of exchange/ interest rates unfettered by
local directives that onshore participants are required
to adhere to. NDF prices can be a useful tool for mar-
ket monitoring as these prices reflect market expecta-
tions and supply and demand factors that cannot be
fully manifested in onshore currency rates. Empirical
evidence shows that onshore rupee behavior at times is
guided by the price action in the offshore market. While
there have been some measures (such as RBI permit-
ting centralized hedging of subsidiaries) in addition to
the facilities already available to such participants, some
more measures may be examined for on shoring the off-
shore trades. These include simplification and stream-
lining of documentation requirements, less stringent
cancellation & rebooking restrictions and increasing the
product suite permitted for FPI/FDI hedging such as per-
mitting currency swaps and cost reduction structures.
Summary
The infrastructure in terms of products for BCD contin-
uum are largely available in India. The regulatory struc-
ture however does not enable market participants from
participating across market segments to their full po-
tential. Market Participants should be able to enter into
transactions that form their investment / hedging plans
across the spectrum of B, C and D in a seamless manner
which ensures fair pricing of instruments and incentiv-
izes participants to close out arbitrage opportunities. If
they are unable to perform this, BCD continuum is in-
complete and hampers the markets. In order to arrive
at an optimum BCD continuum, the market framework
needs to be evaluated in total rather than in a siloed
manner for different markets and changes in frame-
works/ regulations should be carried out one shot (in a
big bang way) rather than on an incremental basis. We
should strive for example to enable participants to buy
a synthetic corporate bond or a synthetic government
bond (by using a combination of lending and derivative)
as efficiently as one can buy the same bond in the cash
market. That will be the time when we can say confi-
dently that the BCD continuum has been facilitated.
(Views are personal)

15
DOMESTIC TRENDS
Economy: Overview
OCTOBER 2017
Industrial output bounced back sharply in August 2017, after a sluggish growth in the preceding months as compa-
nies stepped up production on the back of festive demand. The sharp rise in industrial production reinforces the
hope that subsequent quarters would see a further upturn in industrial output. In an encouraging sign, after a gap of
4 months, capital goods sector growth moved into the positive territory, auguring well for the investment trends in
the economy. Core output growth too quickened in August 2017 thanks to a low base and double-digit jump in coal
production and electricity generation. Going forward, the recovery in IIP growth is likely to be predominantly led by
private consumption with some support from public capex and exports. Additionally, a favorable base will also perk
up industrial output in the next few months.
Inflationary pressures abated in the month of September 2017 mainly on the back of lower food prices. Going for-
ward, the sequential momentum in food prices could remain subdued until January with kharif output coming on
board. However, upside risks still remain in the form of implementation of farm loan waiver and introduction of 7th
Pay Commission hand-outs. In the recently announced monetary policy review (early October 2017), the opportunity
was lost as far as moderation of interest rate is concerned, however, given the moderation in both CPI and WPI
inflation, the RBI should resume the rate easing cycle in its next monetary policy announcement to give a fillip to
demand. Yield on the benchmark 10-year G-sec has remained benign so far. Non-food credit growth is slowly but
steadily recovering from the after-effects of demonetisation.
On the external front, rupee weakened in October 2017 from its previous month’s level as strengthening dollar
index weighed on the domestic currency. Dollar purchases by some PSU banks for importers also weighed on the
rupee during the month. Going forward, the rupee is expected to remain range-bound against the US dollar. Mer-
chandise exports meanwhile, grew at a healthy rate in September 2017 as all our major export items recorded a
rise in growth. In contrast, imports growth moderated during the month, albeit still staying in double-digits, due to
lower gold imports. The trade deficit narrowed in September 2017 by 0.95 per cent as the import growth rate was
outpaced by export growth.

16
DOMESTIC TRENDS
ECONOMY MATTERS
A
mongst a broad-based improvement, industrial
output measured by the index of industrial pro-
duction (IIP) quickened to a five-month high of
4.3 per cent in August 2017 as compared to a paltry 0.9
Manufacturing growth inches up
The manufacturing sector, which has the highest weight
at 77.6 per cent in overall IIP, saw its growth improving
to 3.1 per cent in August 2017 as compared to a contrac-
tion seen in the previous month. It is interesting to note
here that within the manufacturing group, digestive
per cent growth experienced in the previous month
as the uncertainties surrounding the transition to GST
have diminished. This is the best reading since Novem-
ber last year. However, despite the strong monthly
print in August 2017, the cumulative growth for the pe-
riod April-August 2017 over the corresponding period
of the previous year stands at a low of 2.2 per cent as
compared to a healthy 5.9 per cent posted in the same
period last year.
Industrial Growth Rises Sharply

17
DOMESTIC TRENDS
OCTOBER 2017
enzymes and antacids along with anti-pyretic API & for-
mulations together contributed 1.2 per cent to headline
index growth. Electricity sector grew at a robust rate
of 8.3 per cent in August 2017 as compared to 6.6 per
cent in the previous month. Mining sector growth also
accelerated during the month, primarily cushioned by
the low base of last year.
Capital goods sector output moves into the
positive territory after a gap of 4 months
According to use-based classification, after a gap of
four months, the growth of the capital goods sector
moved into the positive territory. The sector grew by
5.4 per cent in August 2017 as compared to 1.3 per cent
de-growth in the previous month. In contrast, interme-
diate goods continued to remain in the negative zone,
partially due to a high base of last year. Infrastructure
Core sector output growth continued to rise for the
second consecutive month to 5.2 per cent in Septem-
ber 2017 as compared to 4.4 per cent in the previ-
ous month mainly due to higher production of crude
oil, natural gas, refinery products and steel. How-
and construction goods—a new category of IIP, saw
its growth rate slowing down to 2.5 per cent in August
2017 as compared to 3.5 per cent posted in the previous
month, in part due to the high base of last year.
Festive demand adds to the cheer
The growth rate of the consumer durables sector im-
proved to 1.6 per cent, after recording a streak of neg-
ative growth rates for the past 8 months, driven by a
pick-up in growth rates of 2-wheelers and passenger
cars. Additionally, the rise in demand on account of the
impending festive season and ironing out of the GST im-
plementation related issues, also provided a fillip to du-
rable sector’s production during the month. Consumer
non-durables’ growth also quickened to 6.9 per cent in
August 2017 as compared to 3.6 per cent growth in the
previous month, suggesting a positive impact of normal
monsoon in most rural parts
ever, the output of cement, fertilizer, electricity and
coal moderated during the month. On a cumulative
basis, core sector growth for the first half of FY18
(April-September FY18) stood at 3.3 per cent as com-
pared to 5.4 per cent in the same period last year.

18
DOMESTIC TRENDS
ECONOMY MATTERS
Consumer price index (CPI) based inflation remained
unchanged at 3.28 per cent in September 2017 as com-
pared to a revised 3.28 per cent in August 2017. How-
ever, on a sequential basis, the headline index printed
at -0.15 per cent on a month-on-month basis, the first
contraction in 8-months. CPI food inflation decelerated
marginally to 1.25 per cent in the reporting month as
compared to 1.52 per cent in the previous month essen-
tially due to a decline in prices of vegetables, fruits and
meat & fish. Going forward, the sequential momentum
in food prices could remain subdued until January with
kharif output coming on board. However, the upside
risks to food prices have still not abated fully, with gov-
ernment’s first advance estimate showing that kharif
foodgrain production is expected to contract by 2.8
per cent in the FY18 season. CPI fuel & light inflation
came at a higher 5.56 per cent in September 2017 due
to the hardening of international crude oil prices dur-
ing the month which had a spillover on domestic fuel
prices. Going forward, a reduction in excise duty and
VAT on petrol and diesel by the central and a few state
governments could result in a reduction in fuel prices
in the coming months. CPI housing index has reached
a 38-month high of 6.1 per cent in the reporting month,
indicating the pass-through from the 7th
Pay Commis-
sion related HRA payouts. Going forward, the further
entrenchment of HRA payouts in the remaining states
would lend further momentum to the CPI housing in-
dices.
Lower food prices push down WPI based in-
flation in September 2017
Wholesale price index (WPI) based inflation slowed
down to 2.6 per cent in September 2017 as compared to
3.2 per cent in the previous month, aided by a sharp fall
in food and vegetable prices. Total food index inflation
halved to 2.0 per cent in the reporting month as com-
pared to the previous month. On a cumulative basis, av-
erage inflation during the first-half (April-September) of
FY18 stood at 2.4 per cent as compared to 0.2 per cent
inflation recorded in the same period last year.
Outlook
Industrial output bounced back sharply in August 2017, after a sluggish growth in the preceding months as compa-
nies stepped up production on the back of festive demand. The sharp rise in industrial production reinforces the
hope that subsequent quarters would see a further upturn in industrial output. Going forward, the recovery in IIP
growth is likely to be predominantly led by private consumption with some support from public capex and exports.
Additionally, a favorable base will also perk up industrial output in the next few months.
Inflationary Pressures Abate Marginally

19
DOMESTIC TRENDS
OCTOBER 2017
Primary articles inflation slows down on
lower food prices
Amongst the WPI sub-categories, inflation in primary
articles came in at a low of 0.2 per cent in September
2017 as compared to 2.7 per cent posted in the previous
month. Primary food inflation also slowed down sharply
to 2.0 per cent from 5.8 per cent in the preceding month
mainly on the back of a correction in vegetable prices
(down to 15.5 per cent from 45 per cent). To be sure,
prices of some vegetables, such as tomatoes, which
had risen sharply in July 2017, corrected in September
2017. Meanwhile, primary non-food articles continued
to record deflation for the sixth consecutive month in
September 2017. The minerals category too saw a defla-
tion to the tune of 7.1 per cent in September 2017 mainly
due to high base of last year (18.9 per cent inflation in
September 2016).
Fuel inflation expected to moderate on re-
duction of excise duty
Fuel inflation decelerated marginally to 9.0 per cent in
September 2017 as compared to 10.0 per cent recorded
in the previous month. Both petrol and diesel inflation
moderated during the month. Going forward, fuel infla-
tion is expected to slow down due to the reduction in
excise duty on petrol and diesel by the Central Govern-
ment and with some of the state governments also fol-
lowing suit by reducing Value Added tax (VAT) on auto
fuel.
Manufacturing inflation inches up marginally
Inflation in the manufactured group continued to in-
crease for the second consecutive month to 2.7 per cent
in September 2017 from 2.5 per cent posted in August
2017. Manufacturing food inflation, however, remained
unchanged from the previous month’s reading.

20
DOMESTIC TRENDS
ECONOMY MATTERS
As per the latest data released by the Controller Gen-
eral of Accounts (CGA), the fiscal deficit till April-August
2017 has reached 96.1 per cent of the total budgeted
target of the government for FY18 on account of front
loading of expenditure. Further, the government has
also overshot its revenue deficit target for the fiscal.
This is likely to limit the government’s ability to signifi-
cantly raise capital spending in order to spur economic
growth. During the same period last year, the govern-
ment had used up 76.4 per cent of the total fiscal deficit
Total expenditure surges ahead
During the April-August FY18 period, total expendi-
ture stood at 44.3 per cent of the full-year target of Rs
21,50,000 crore as against 40.5 per cent during the same
period in the previous fiscal year. It is useful to note
here that after the surge in expenditure in the early
months of the current fiscal, the pace of spending was
arrested in August 2017. A break-up shows that revenue
target for FY17. As for the revenue deficit, last year the
government reached 91.7 per cent of its target in the
first five months, whereas in the current fiscal, it is at
134 per cent. Moreover, the Reserve Bank of India (RBI)
recently announced that it would pay Rs 30,659 crore
as a dividend to the government for FY17 which is less
than half of Rs 65,876 crore transferred in FY16, owing
to a sharp rise in the central bank’s expenditure and a
decline in income in FY17. This is likely to affect the gov-
ernment’s fiscal math this financial year.
expenditure is at a higher level this year—45.8 per cent
of the full-year target till August 2017, as against 41 per
cent during the same period last year. In contrast, capi-
tal expenditure so far has fallen short at 35.5 per cent
during the April-August FY17 period as compared to 37
per cent during the same period last year. This trend
is worrisome as capex spending is crucial for bringing
back growth to the economy.
Outlook
CII welcomes the lower inflation print which has benefited from the softening of primary articles, particularly food
prices. When taken together with the CPI inflation number which has remained unchanged in September 2017, the
data would help boost sentiments. In the recently announced monetary policy review, the opportunity was lost
as far as moderation of interest rate is concerned, however, given the moderation in both CPI and WPI inflation,
the RBI should resume the rate easing cycle in its next monetary policy announcement to give a fillip to demand.
Fiscal Deficit Reaches 96 per cent of Full-Year Target in
August 2017

21
DOMESTIC TRENDS
OCTOBER 2017
While revenue receipts lag behind, albeit
only marginally
Total receipts during the April-August FY18 period stood
at 26.6 per cent of the budgeted amount for the cur-
rent fiscal as compared to 27.3 per cent during the same
period in the previous year. To be sure, the government
is likely to face a possible revenue shortfall this fiscal
due to lower non-tax revenue and uncertain goods and
services tax (GST) collections. Out of the total receipts,
revenue receipts stood at 27 per cent of the budgeted
amount of Rs 15,15771 crore in the first five months of
FY18 as compared to 28.0 per cent in the same period
last year.
However, tax receipts on an increasing trend
so far thanks to healthy income tax collec-
tions
Gross tax revenue has totaled Rs 5,83,626 crore so far
till August 2017 as compared to Rs 4,86,356 crore in the
same period last year. The jump in tax collections this
year is attributable to the healthy income tax collec-
tions so far this fiscal. Non-tax revenue receipts, whose
major component is dividends & profits, stood at 24.0
per cent of the budgeted total for FY18 as compared to
32.5 per cent in the same period last fiscal. The disinvest-
ment target was fixed at Rs 72,500 crore for FY18, out
of which only Rs 19,759 crore have been collected as of
4th
October 2017. However, all is not lost yet as the gov-
ernment has an attractive list of PSUs up for stake sale.
Hence, there are bright chances that the government
will be able to meet its disinvestment target this year.
Going forward
The government is likely to face a higher revenue deficit
this year mainly on account of lower non-tax revenue
and uncertainties linked with GST collections. In view of
this, the finance ministry has Central Public Sector En-
terprises (CPSEs) to declare “liberal dividends” to the
government and set aside an additional Rs 25,000 crore
for capital expenditure this fiscal year to revive invest-
ment demand in the economy.
SW monsoon end the year at 5.5 per cent be-
low LPA
The year 2017 saw a reasonably good monsoon cover,
with the all-India rainfall deficiency standing at 5.5 per
cent below the Long Period Average (LPA) for the pe-
riod 1st
June to 27th
September, 2017. To be sure, the In-
dian Meteorological Department (IMD) had forecasted
2 per cent deficiency (or rains at 98 per cent of the long
period average) for the southwest monsoon for the
year 2017. However, the spatial distribution of mon-
soons remained a matter of concern with excess rains
in some parts and severe shortage in others.
Not-so-Bad Rainfall Cover This Year

22
DOMESTIC TRENDS
ECONOMY MATTERS
Cotton and sugarcane records higher acre-
age so far
Kharif sowing starts with the onset of June and the
crop is harvested during September-October. Though
sowing of all foodgrains is little lower than last year,
but when compared with the normal for the period, it
has been higher and production is expected to be as
per trend. As of 29th
September, overall kharif sowing
was 0.5 per cent lower year-on-year, but about 2.3 per
cent higher than the long-term average (normal). Ex-
cept cotton and sugarcane, all major agri commodities
recorded a decline in the area sown as compared to the
previous fiscal. Cotton recorded higher acreage mainly
due to good rainfall in Gujarat, which happens to be the
key cotton growing state in the country. Similarly, the
sugarcane crop benefited from rains catching up in Ma-
harashtra and a good irrigation cover in Uttar Pradesh.
Well-irrigated northern states record maxi-
mum deficient rainfall
Among the crop-producing states, for the period 1st
June to 27th
September, 2017, the worst deficiency was
in Uttar Pradesh (28.5 per cent below normal), followed
byHaryana(25.3percentbelownormal)andPunjab(21.1
per cent below normal). However, these states have a
reasonably good irrigation cover and hence crops there
might not suffer a serious blow. The worst-affected
states with low irrigation cover included states such as
Meanwhile, both rice and pulses recorded a decline in
the area sown to the tune of 3.2 per cent and 3.7 per
cent respectively so far this year. Among pulses, arhar/
tur recorded the maximum decline in acreage. Poor
rains in parts of Karnataka and Vidarbha in Maharash-
tra which are the large producers of the crop affected
its sowing. The key rice producing states such as Uttar
Pradesh and Punjab recorded poor rainfall this year,
which affected its acreage, despite a good irrigation
cover in these states. Moreover, two consecutive years
of deficient rains could have enfeebled the efficacy of
the irrigation systems in these states.
Oilseeds acreage shows a decline of 8.9 per cent mainly
due to lower sowing of groundnut and soyabean crops.
As per the government’s first advance estimates, kharif
production in 2017 could be 2.8 per cent lower and 7.7
per cent lower for oilseeds. Hence, clearly, oilseeds are
likely to remain a key pressure point this year.
Madhya Pradesh (20 per cent below normal), Karnataka
(13.1 per cent below normal) etc. But data shows that
these regions contribute less than 10 per cent of overall
kharif production. Hence, there is unlikely to be a nota-
ble impact on the overall kharif production. In contrast,
states like Tamil Nadu, Gujarat and Rajasthan recorded
excess rains during the full monsoon season causing
floods or flood-like situations. Excess rains could have
caused some damage to crops in these regions, but
there is no data available to ascertain this so far.

23
DOMESTIC TRENDS
OCTOBER 2017
The spatial distribution of southwest monsoon this year
constitutes a key stress point. However, despite some
visible areas of stress, kharif production is expected
to be healthy (on its long-term trend). Regions that
witnessed weak rains this year either enjoy a strong ir-
rigation cover or are those that contribute less to kha-
rif production. However, owing to the bumper crops
of last year, the prices for most foodgrains have fallen
which in turn has reduced farmer’s margins. Some
states have responded to this challenging situation by
announcing farm debt waivers, which has deteriorated
their fiscal math. Hence, handing out generous doles of
loan waivers is clearly not the way out, instead urgent
steps should be taken to increase farm productivity and
step up farm investment.
Bringing in festive cheer for the policymakers, merchan-
dise exports grew at a healthy rate of 25.7 per cent in
September 2017 as compared to 10.3 per cent in the
previous month. All the top 10 commodity groups, rang-
ing from engineering items to textiles, registered an
increase in growth. This is the 13th
consecutive month
of growth for exports. Apart from engineering goods
exports, which posted a sharp increase of 44 per cent
during the month to reach US$7.32 billion, other sec-
tors that registered growth during the month included
gems & jewellery (7.1 per cent), petroleum products
(39.7 per cent), organic & inorganic chemicals (46.1
per cent), readymade garments (29.4 per cent), drugs
& pharmaceuticals (14.7 per cent), cotton yarn/fabs/
made-ups, handloom products etc. (15.2 per cent), ma-
rine products (32.7 per cent), rice (45.6 per cent) and
electronic goods (14.3 per cent).
However, sectors which recorded negative growth dur-
ing the month included handicrafts, iron ore and fruit
and vegetables. Cumulative value of exports in the first-
half (April-September) FY18 stood at US$147.2 billion
as against US$131.9 billion in the same period last year,
thus registering a positive growth rate of 11.52 per cent
during the period.
Festive Cheer for Exports Growth

24
DOMESTIC TRENDS
ECONOMY MATTERS
Imports growth moderates a bit
In contrast, growth of merchandise imports moderated
to 18.1 per cent in September 2017 as compared to 21.0
per cent in the previous month. In the first-half of the
current fiscal, imports have so far grown at an average
of 26.0 per cent as compared to -13.2 per cent in the
same period last year. Major commodity group of im-
Non-oil imports slow down on decline in
gold imports
The oil import bill increased to 18.4 per cent in Septem-
ber 2017 as compared to 14.2 per cent in the previous
month mainly reflecting the increase in global Brent
prices ($/bbl) by 19.4 per cent on year-on-year basis dur-
ing the month. On a cumulative basis, oil imports dur-
ing the first-half of FY18 were valued at US$46.9 billion
which was 18.82 per cent higher than the oil imports of
US$39.5 billion in the corresponding period last year.
In contrast, non-oil import growth slowed down to 17.98
per cent in September 2017 as compared to 23.07 per
cent posted in the previous month. Gold imports came
ports which registered high growth in September 2017
over the corresponding month of last year included pe-
troleum, crude & products (18.5 per cent), electronic
goods (40.9 per cent), pearls, precious & semi-precious
stones (56.9 per cent), machinery electrical & non-elec-
trical (16.4 per cent) and coal, coke & briquettes (48.0
per cent).
in at US$1.7 billion during the reporting month, record-
ing a decline of 5 per cent. Non-oil imports during the
April-September FY18 period were valued at US$172.3
billion which is 26.9 per cent higher than US$135.8 bil-
lion posted in the same period last year.
Trade deficit narrows in September 2017
The trade deficit narrowed in September 2017 by 0.95
per cent to US$8.98 billion, as the import growth rate
was slightly lower than export growth. On a cumula-
tive basis, trade deficit in April-September FY18 stood at
US$72.1 billion as compared to US$43.3 billion posted in
the same period last fiscal.
Outlook
Merchandise exports recorded a healthy increase in September 2017, though global uncertainties, rupee volatility
and protectionism are still some of the major hurdles to the growth in exports, going forward. Imports may also
rise, driven by a recovery in consumption demand, which will be pulled up by the implementation of 7th
pay com-
mission handouts.

26
POLICY FOCUS
POLICY FOCUS
ECONOMY MATTERS
1). Government announces measures for
recapitalitsation of Public Sector Banks
(PSBs) and other measures
Government has decided to take a massive step to re-
capitalise Public Sector Banks (PSBs) in a front-loaded
manner, with a view to support credit growth and job
creation. This entails mobilisation of capital with maxi-
mum allocation in the current year, to the tune of about
Rs 2,11,000 crore over the next two years, through
budgetary provisions of Rs 18,139 crore, recapitalisation
bonds to the tune of Rs 1,35,000 crore and the balance
through raising of capital by banks from the market
while diluting government equity (estimated potential
Rs 58,000 crore).
Government actions are not limited to addressing capi-
talisation of PSBs. Definite steps will be taken alongside
capitalisation to enable them to play a major role in the
financial system. PSBs having 70 per cent market share
in the banking space will be geared for greater growth
and to contribute through enhanced credit off-take.
The stage has been set with a ‘MUDRA Protsahan’ cam-
paign across the country.
There will be a strong push on enabling growth of
MSMEs through enhanced access to financing and
markets, and a drive to finance MSMEs in 50 clusters.
While Ministries concerned will spearhead and provide
momentum, banks will undertake speedy processing of
loan applications in a hassle-free manner. Fintech com-
panies will be roped in to cut down the appraisal pro-
cess and generate quality loan applications. MSMEs will
be handheld by extending support through:
- Compulsory TReDS (Trade Receivables electronic
Discount System) registration by major PSUs within
next 90 days, for shortening the cash cycle.
- Sector-specific Mudra financial products, such as
Mudra Leather, Mudra Textiles, etc.
- 100 bank-approved MSME project templates for
speedier credit.
- Revamped udyamimitra.in portal, so that banks
compete for financing MSME projects.
- Drive for registering MSMEs on the GeM (Govern-
ment electronic Marketplace) portal and e-com-
The important policy announcements made by the Government/RBI in the month of October 2017 are covered in this
month’s Policy Focus. Our endeavour through this section is to keep our readers abreast of the latest happenings on the
policy front so that they can take an informed decision accordingly.

27
POLICY FOCUS
OCTOBER 2017
merce platforms.
2). Boost to infrastructure sector: Bharat-
mala Pariyojana (BMP) announced by the
government
Taking forward its commitment to providing more ef-
ficient transportation, government has debottlenecked
the roads sector and significantly stepped up the high-
way development and road building program. In or-
der to further optimise the efficiency of movement of
goods and people across the country, government has
launched a new Umbrella program. This Road Building
Program, for 83,677 km of roads involves capex spend-
ing of Rs 6.92 lakhs crores over next 5 years.
- Out of this, Bharatmala Pariyojana to be imple-
mented with an outlay of Rs 5,35,000 crores and
it is expected to generate 14.2 crores mandays of
jobs.
- The following categories of roads (34,800 km) have
been proposed under BMP:
• Economic Corridors (9000 km)
• Inter Corridor and Feeder Route (6000 km)
• National Corridors Efficiency Improvement
(5000 km)
• Border Roads and International Connectivity
(2000 km)
• Coastal Roads and Port Connectivity (2000 km)
• Green field Expressways (800 km)
• Balance NHDP works (10,000 km)
- Bharatmala works have been proposed for comple-
tion in 5 years by 2021-22 through NHAI, NHIDCL,
MoRTH and State PWDs.
- Funding for BMP: Rs 2.09 lakhs crores will be raised
as debt from the market, Rs 1.06 lakhs crores of pri-
vate investments would be mobilized through PPP
and Rs 2.19 Lakhs crores is to be provided out of
accruals to the Central Road Fund (CRF), ToT Mon-
etisation proceeds and Toll collections of NHAI.
- ToT Monetisation: For the first time ever, moneti-
sation of 82 operating highways under a low risk
Toll – Operate- Maintain-Transfer (ToT) Model has
been initiated with a private investment potential
of Rs 34,000 crore. The 1st
bundle of 9 NH stretches
of 680.64 kms has been put out to tender by Na-
tional Highway Authority of India (NHAI) with po-
tential monetization value of Rs 6258 crore.
3). Government amends Arms Rules to spur
Make in India
In a bid to boost the ‘Make in India’ initiative, the Union
home ministry has liberalised the Arms Rules to encour-
age investment in the manufacturing of arms, ammuni-
tion and weapon systems in the country. The new rules,
which came into effect on 27th
October 2017, are expect-
ed to encourage manufacturing activity and facilitate
availability of world-class weapons to meet the require-
ment of armed forces and police forces in sync with
the country’s defence indigenisation programme. The
rules cover licences granted by the Department of In-
CII’s Reaction: “The government has imparted a huge boost to bank recapitalization with a proposed
amount of Rs 2.11 lakh crore which is likely to kickstart the credit cycle and facilitate private investments. The
Cabinet decision to address a vital issue is very timely and welcome. We are especially pleased with the an-
nouncement of recapitalization bonds, which CII had recommended strongly, among other measures”.
“A three-pronged strategy to encourage investments is evident in the announcement of expanding public ex-
penditure on infrastructure, boosting private investments and addressing delayed payments to the MSME
sector. The government’s decision to enhance spending on roads and highways in a strategic manner includ-
ing port connectivity and border and cross-border roads will have a big multiplier impact on economic growth”.
“We also appreciate the government’s decision to encourage registration of MSME in 50 clusters and
promote registration of PSEs under TReDS (Trade Receivables Discounting System). This would aid for-
malisation of the economy as also alleviate the issue of delayed payments. CII hopes that the current re-
quirement for MSMEs to register under GST in all states to participate in e-commerce will be addressed”.

ECONOMY MATTERS 28
POLICY FOCUS
dustrial Policy and Promotion (DIPP) for building tanks
and other armoured fighting vehicles, defence aircraft,
spacecraft, all warships, arms and ammunition and al-
lied items of defence equipment other than small arms.
Manufacturing licences, which had to be renewed every
year so far, will now be permanently valid. The licence
fee has been cut as well. While the licence fee so far was
fixed at Rs 500 per firearm, it has now been changed
to Rs 5,000 for one to 1,000 units; Rs 15,000 for 1,000-
10,000 units and Rs 50,000 for more. Moreover, single
manufacturing licence will be allowed for a multi-unit fa-
cility within the same state or in different states within
the country, as per the Ministry’s statement.
4). Banks to provide funds at 7 per cent to
women self-help groups under DAY-NR-
LM
The RBI has said that banks will provide funds to wom-
en SHGs (Self Help Groups) in rural areas at 7 per cent
under the Deendayal Antyodaya Yojana – National Rural
Livelihoods Mission (DAY-NRLM) in the current fiscal.
The central bank issued the revised guidelines on inter-
est subvention scheme under DAY-NRLM, as received
from the Ministry of Rural Development for implemen-
tation by 21 public sector banks and 19 private banks.
All women SHGs will be eligible for interest subvention
on credit upto Rs 3 lakh at 7 per cent per annum. Banks
will be subvented to the extent of difference between
the weighted average interest charged and 7 per cent
subject to the maximum limit of 5.5 per cent for the year
2017-18. This subvention will be available to banks on
the condition that they make SHG credit available at 7
per cent per annum. The Ministry of Rural Development
in consultation with state governments will harmonise
state specific interest subvention schemes, if any, in line
with the central scheme.
5). Govt frames rules for valuation of unlist-
ed firms, method yet to be decided
The Ministry of Corporate Affairs has issued Notification
for commencement of Section 247 of the Companies
Act, 2013 [Valuation by Registered Valuers] with effect
from 18th
October, 2017.
The rules provide for Registration of Valuers for con-
duct of valuation under the Companies Act, 2013. The
valuers, who may be individuals or partnership enti-
ties or companies, would be required to be registered
with the authority specified by the central government.
The rules provide for registration of different category
of valuers and lay down the requirements on their eli-
gibility, qualifications and experience. The Registered
Valuers are also required to be members of the Regis-
tered Valuers Organisations (RVOs), recognised by the
authority under the rules. The rules also lay down the
mechanism to prescribe valuation standards and sylla-
bus for conduct of valuation education courses as well
as specify the requirements with regard to the contents
of the valuation report. The rules provide for a transi-
tion period upto 31st
March, 2018 for registration of
valuers with the authority keeping in view the period
which would be required by the valuers’ organisations
and the valuers to fulfill the requirements under the
law. During this transition period any person who may
be rendering valuation services under the Companies
Act, 2013 may continue to render such services without
getting registered under the rules.
6). Government frames rules for valuation of
unlisted firms, method yet to be decided
The Ministry of Corporate Affairs has issued a notifica-
tion for commencement of Section 247 of the Compa-
nies Act, 2013 [Valuation by Registered Valuers] with
effect from 18th
October, 2017.
The rules provide for Registration of Valuers for con-
duct of valuation under the Companies Act, 2013. The
valuers, who may be individuals or partnership enti-
ties or companies, would be required to be registered
with the authority specified by the central government.
The rules provide for registration of different category
of valuers and lay down the requirements on their eli-
gibility, qualifications and experience. The Registered
Valuers are also required to be members of the Regis-
tered Valuers Organisations (RVOs), recognised by the
authority under the rules. The rules also lay down the
mechanism to prescribe valuation standards and sylla-
bus for conduct of valuation education courses as well
as specify the requirements with regard to the contents
of the valuation report. The rules provide for a transi-
tion period upto 31st
March, 2018 for registration of valu-

29
POLICY FOCUS
OCTOBER 2017
ers with the authority keeping in view the period which
would be required by the valuers’ organisations and the
valuers to fulfill the requirements under the law. During
this transition period any person who may be rendering
valuation services under the Companies Act, 2013 may
continue to render such services without getting regis-
tered under the rules.
7). Government exempts IGST on gold im-
ports
The government has issued a notification allowing 36
banks and five canalising agencies, including MMTC
and MSTC, to import gold without paying a 3 per cent
integrated goods and services tax (IGST). This is seen
as a big relief for financial institutions importing gold,
as the 3 per cent tax was an additional burden on them.
Till now, importers’ working capital used to get blocked
until they got the refund on GST paid. However, the
new notification removes that hurdle and smoothens
the process of import. So far, most import was happen-
ing as gold metal loans usually by banks. The latest no-
tification doesn’t change anything for traders who will
have to pay 10 per cent import duty and 3 per cent IGST
and claim back the IGST as input credit. Gold refineries
that import unrefined gold will have to pay the IGST and
hence they will be at a disadvantage compared to the
refined gold importers.
8). Refund to eligible units in J&K, Himachal
Pradesh, Uttrakhand and North East
In order to overcome the challenges faced by trade and
industry due to withdrawal of excise duty exemption/re-
fund schemes under the Goods and Services Tax (GST)
regime, the Ministry of Commerce and Industry has is-
sued a notification dated 5th
October 2017 introducing
a Budgetary support scheme (Scheme) retrospectively
w.e.f. 1st
July 2017. It extends to the states of Jammu
& Kashmir, Uttarakhand, Himachal Pradesh and North
Eastern states including Sikkim. The Scheme will apply
to units that were eligible before 1st
July 2017 to avail the
benefit of ab-initio exemption or exemption by way of
refund in respect of central excise duty under notifica-
tions issued in this regard, subject to the condition that
such units were availing the exemption immediately be-
fore 1st
July 2017. The amount of budgetary support shall
be the total of 58 per cent of Central GST and 29 per
cent of Integrated GST paid through the cash ledger.
9). CBDT signs two more APAs with
taxpayers
The Central Board of Direct Taxes (CBDT) has signed
two more Advance Pricing Agreements (APAs) with tax-
payers as part of its aim to reduce litigation by providing
certainty in transfer pricing. The two APAs were signed
during the month of September 2017. They relate to
automobile and healthcare consulting sectors. With
the signing of these two agreements, the total number
of APAs has reached 177. These include 164 unilateral
APAs and 13 bilateral APAs. In fiscal 2017-18, 25 APAs
(two bilateral and 23 unilateral) have been signed till
date. International transactions covered in these two
APAs include provision of IT enabled services, provi-
sion of software development services and provision of
engineering design services. The APA scheme endeav-
ours to provide certainty to taxpayers in the domain of
transfer pricing by specifying the methods of pricing
and determining the arm’s length price of international
transactions in advance for a maximum period of five
future years.
10).E-walletsgetbiggerplatform,stiffnorms
Digital wallets have been brought almost on a par with
bank accounts in terms of interoperability and ‘know
your customer’ (KYC) regulations. The Reserve Bank of
India (RBI) has allowed KYC-compliant wallet accounts
to send money to other wallets and bank accounts us-
ing the Unified Payment Interface (UPI). The flip side
is that non-KYC wallets can now no longer be used for
peer-to-peer transfers. The RBI has barred issuers of
prepaid instruments (PPIs) from creating new accounts
each time to facilitate cash-based remittances to other
PPIs/bank accounts. For subsequent remittances, issu-
ers will have to use the same account each time. The
move comes on the back of complaints that fraudsters
are using wallets to siphon off funds from stolen debit
and credit cards. Under the new norms, KYC-compliant
wallets can load up to Rs 1 lakh in cash. However, cash
loading has been capped at Rs 50,000 per month. The
norms have implications for widening the acceptance
of digital payments in the country.

ECONOMY MATTERS 30
POLICY FOCUS
11). CBEC prescribes guidelines for claiming
refund of IGST paid on export of goods
Addressing the challenges faced by exporters in rela-
tion to refund of Integrated GST (IGST) on export of
goods, the Central Board of Excise and Customs (CBEC)
has issued an internal Instruction dated 9th
October 2017
to facilitate smooth processing of refund claims. It deals
with the refund claims made on account of IGST paid
on export of goods. The refund process for goods ex-
ported in the month of July 2017 will start by 10th
Octo-
ber 2017. Shipping bill/bill of export will be treated as a
refund claim. Filing of Form GSTR-3 or Form GSTR-3B is
essential for initiating the refund process. Refund will
be credited in the exporter’s bank account registered
with customs. Steps such as these taken by the govern-
ment will provide a much needed relief to the exporters
who had paid IGST at the time of export of goods but
could not claim refund due to system issues.
12). RBI issues directions to govern P2P plat-
forms
The Reserve Bank of India (RBI) has recently classified
peer to peer (P2P) lending platforms as Non-Banking
Financial Companies (NBFC-P2P). Following this, it has
issued detailed master directions on 4th
October, 2017
governing the operation of such platforms. As a regis-
tered NBFC-P2P, the firm can only provide a technology
platform, through an online marketplace, to connect
the lenders and borrowers, and related services such
as loan documentation, loan recovery, etc. They are
not entitled to conduct the business of lending and bor-
rowing themselves. In addition, they can provide credit
assessment and risk profiling of borrowers, which is
disclosed to potential lenders to make an informed de-
cision.
13). India levies anti-dumping duty on steel
from China, EU, US
India has imposed anti-dumping duty on some cold-
rolled flat products of stainless steel from China, the
US, South Korea and the European Union, to curb the
influx of cheaper imports and help local producers. The
duty, which will be in effect until 10th December 2020,
exempts certain grades of stainless steel. The govern-
ment has allowed import of the product as long as the
end use of the import is in the same form. Earlier this
month, the government imposed an anti-dumping duty
on the import of some flat steel products from China
and the European Union for five years. Last month,
the government imposed an additional 18.9 per cent
countervailing duty on some hot-rolled and cold-rolled
stainless steel flat products, a first such levy on a steel
product.
14). Pension Fund Regulatory and Develop-
ment Authority tweaks deferment norms
In order to provide more clarity and better understand-
ing of various provisions of deferment and continuation
of National Pension System (NPS) Tier II accounts, the
Pension Fund Regulatory and Development Author-
ity (PFRDA) has issued some operational guidelines.
In Tier II account, a subscriber can withdraw money
whenever he wants without any limit. The investment
will earn market-linked returns—combination of eq-
uity, government securities and corporate debt. Unlike
Tier I account, there is no tax deduction benefit under
Section 80C of the Income Tax Act for Tier II account
and the returns from this account are added to one’s
income and taxed as per slab. The current circular also
clarifies that subscriber cannot defer lump sum in the
case of pre-mature exit from the system. As per the
exit and withdrawal system, the Central Record keep-
ing Agency (CRA) intimates the subscriber six months
before the date of superannuation or age of 60 years.
The minimum 40 per cent of the accumulated pension
wealth available in the Permanent Retirement Account
as on the date of final exit after 60 years of age includ-
ing contributions and investment income will be utilised
to purchase annuity and the remaining amount will be
paid as lump sum to the subscriber.
15). About 8 lakh teachers of central, state
univs to get 7th
Pay Commission benefits
The Union cabinet chaired by Prime Minister Narendra
Modi has approved a pay hike, which will result in a 22-
28 per cent in their salaries. The pay revision is based
on the recommendations of the 7th
Pay Commission.
The approved pay scales would be applicable from 1st
January, 2016. The annual central financial liability on ac-
count of this measure would be about Rs 9,800 crore.

31
GLOBAL TRENDS
Canadian Economy Poised to Grow at a
Healthy Rate in 2017
OCTOBER 2017
T
he Canadian economy grew at a healthy pace in
the first half of 2017, outperforming its G-7 coun-
terparts, as it registered an output growth of 2.3
per cent and 3.7 per cent in the first and second quar-
ters respectively on a year-on-year basis. With this, the
first-half 2017 GDP growth averages a healthy 3.0 per
cent on y-o-y basis as compared to 1.8 per cent in the
second-half of 2016, largely due to rising consumption
expenditure, housing activity and recovery of invest-
ment in the energy sector. To be sure, the jump in H1
GDP growth was much higher than the expected annual
growth forecast of 2.8 per cent for 2017. The improve-
ment in economic growth is a welcome relief from the
sluggish growth which Canada has experienced over
the last two years owing to falling commodity prices
and a resulting pullback in business investment.

32
GLOBAL TRENDS
ECONOMY MATTERS
To be sure, exports, particularly in the form of energy
products, gave a major lift to real GDP in the first-half of
the year (growing at an annualised rate of 9.6 per cent).
However, it is useful to mention here that some of the
improvement noted in the energy sector was due to last
year’s comparably weak numbers, pulled down after oil
However, the economy is expected to cool-off after the
robust first-half as the economy has started showing
signs of stalling, with the monthly GDP growth (Canada
issues monthly GDP numbers) slipping sharply from 4.4
per cent in June 2017 to 3.8 per cent in July 2017. This
slowdown has been primarily led by automobile manu-
facturing and a slump in oil production, thus ending a
remarkable eight-month streak of economic expansion.
Also weighing on the stalled monthly print has been
a slowdown in the housing market, which has been
the target this year of provincial legislators seeking to
calm the market. However, the growth momentum ap-
peared to have stalled in July 2017.
Growth expected to slowdown from the cur-
rent high levels
Going forward, economic growth in Canada is expected
to slow down from the current high levels, due to the
following downside risks which are still looming over
the horizon:
1). Export growth could suffer if trade barriers in key
trading partners increase, for example through
renegotiation of the North American Free Trade
Agreement (NAFTA) or further increases in specific
barriers such as anti-subsidy duties recently im-
posed by the United States on Canadian softwood
lumber.
facilities shut down because of Alberta wildfires. Ad-
ditionally, the labor market also saw its best numbers
since the financial crisis in 2008, as the unemployment
level fell to its lowest in nine years at close to 6.3 per
cent in July 2017, posting its eighth-straight month of
job gains.
2). The robust domestic demand which boosted
growth came at the expense of rising household
debt levels, which as a percentage of disposable
income is among the highest in developed nations.
The Bank of Canada (BoC) Governor has cautioned
that the high debt levels could expose the economy
to inflating housing prices and an uptick in unem-
ployment.
3). Disorderly housing market correction notably in
the Vancouver and Toronto markets, threaten to
reduce residential investment, household wealth
and consumption.
CPI inflation in check, below Bank of Cana-
da’s target
On the inflation front, both headline and core inflation
has remained largely with the Bank of Canada’s target
of 2 per cent on account of lower consumer energy and
automobile price inflation in the recent months. CPI
inflation increased marginally to 1.4 per cent in 3Q17
from 1.3 per cent in the previous quarter. Nevertheless,
the reading still remained below the Bank of Canada’s
target of 2 per cent. Going forward, CPI inflation is ex-
pected to remain largely below the Central Bank’s tar-
get levels.

33
GLOBAL TRENDS
OCTOBER 2017
Bank of Canada raises interest rate for the
first time in 7 years
Citing the strengthening economy, Bank of Canada
(BoC) raised its interest rate in July 2017 for the first
time in seven years by 25 bps to 0.75 per cent from 0.5
per cent. In a statement accompanying the rate deci-
sion, the central bank said the Canadian economy has
been robust, fuelled by household spending. “As a re-
sult, a significant amount of economic slack has been
absorbed,” the bank said, adding that the remaining
slack is expected to be gone around the end of this
year, which is earlier than the bank anticipated in its
April Monetary Policy Report. Raising interest rates is
expected to reduce overheating in housing markets,
which poses economic and financial stability risks and
has made housing increasingly unaffordable, especially
in Toronto and Vancouver. Any future changes to the
central bank’s key interest rate will depend on econom-
ic data in the months ahead.
IMF lowers India’s growth forecast to 6.7 per cent in 2017
In its latest edition of the World Economic Outlook
(October 2017), the International Monetary Fund (IMF)
has noted that the uptick in global economic activity is
firming up and has upped its global growth forecast for
2017 and 2018 to 3.6 per cent and 3.7 per cent, respec-
tively, which is 0.1 percentage point higher in both years
than in the April and July 2017 forecasts. But the recov-
ery is not yet complete as while the baseline outlook
is strengthening, growth remains weak in many coun-
tries, and inflation is below target in most advanced
economies.
The welcome cyclical pickup in global economic activ-
ity after disappointing growth over the past few years
provides an ideal window of opportunity to undertake
key reforms designed to boost potential output and
ensure that its benefits are broadly shared and to build
resilience against downside risks. In this regard the im-
portant areas of strategic focus should include the fol-
lowing:
1). Raising potential output
2). Securing the recovery and building resilience
3). Strengthening international cooperation
Strong rebound is expected in advanced
economies in 2017, except US & UK
As per the IMF latest forecasts, in line with stronger-
than-expected momentum in the first half of 2017, a
stronger rebound is expected in the advanced econo-
mies in 2017 (to 2.2 per cent versus 2.0 per cent foreseen
in April 2017), driven by stronger growth in the Euro
area, Japan and Canada. In contrast, compared with
the April 2017 WEO forecast, growth has been marked
down for 2017 in the United Kingdom and for both 2017

34
GLOBAL TRENDS
ECONOMY MATTERS
and 2018 in the United States, implying a 0.1 percent-
age-point aggregate growth downgrade for advanced
economies in 2018
Bright prospects for emerging & developing
economies
Growth prospects for emerging and developing econo-
mies are marked up by 0.1 percentage point for both
2017 and 2018 relative to April 2017 forecast, primarily
owing to a stronger growth projection for China. The
country’s 2017 forecast (6.8 per cent, against 6.6 per
cent in April 2017) reflects stronger growth outturns
in the first half of 2017 as well as more buoyant exter-
nal demand. Growth forecasts have also been marked
up for emerging Europe for 2017, reflecting stronger
growth in Turkey and other countries in the region, such
as Russia for 2017 and 2018, and Brazil in 2017.
India’s growth forecast scaled down for
both 2017 & 2018
US non-farm payrolls (NFP) declined by 33,000 in Sep-
tember 2017. The decline was largely due to the Hurri-
canes Harvey and Irma which hit the US in the month of
September 2017. This is the first negative reading since
September 2010. The decline in the non-farm payroll
this month was already discounted in the markets due
to the high uncertainty prevailing post the hurricanes.
However, the impact of the hurricanes is expected to
be transitory and the job growth is expected to be back
to the earlier trend.
As for India’s economic prospects, the growth projec-
tion for 2017 has been revised down by 0.5 percentage
points to 6.7 per cent reflecting still lingering disrup-
tions associated with the currency exchange initiative
introduced in November 2016, as well as transition
costs related to the launch of the national Goods and
Services Tax (GST) in July 2017. Earlier, in April 2017, the
IMF had pegged India’s GDP growth at 7.2 per cent for
2017. Further, the multilateral agency has also lowered
the growth projection for 2018 to 7.4 per cent from its
earlier estimate in April and June 2017 of 7.7 per cent.
However, the IMF was more optimistic about medium-
term growth prospects for India through gains from
the new indirect tax levy. “GST promises the unification
of India’s vast domestic market and is among several
key structural reforms under implementation that are
expected to help push growth above 8 per cent in the
medium-term,” IMF noted.
In September 2017, a steep decline in employment was
noted in sectors such as food services and below-trend
growth was seen in several other industries. In contrast,
employment rose in health care and in transportation &
warehousing industries during the month. At the same
time, employment in other major industries, including
mining, construction, wholesale trade, retail trade, in-
formation and government showed little change over
the month.
Hurricanes Wreck the Employment Situation in US

35
GLOBAL TRENDS
OCTOBER 2017
Unemployment falls to historic lows
Despite the fall in non-farm payroll during the month,
the unemployment rate fell to 4.2 per cent compared
to 4.4 per cent in the previous month. The Labour
Force Participation Rate (LFPR) increased marginally
to 63.1 per cent compared to 62.9 per cent in the previ-
ous month. Further, the change in total non-farm pay-
roll employment for July 2017 was revised down from
+189,000 to +138,000, and the change for August 2017
was revised up from +156,000 to +169,000. With these
revisions, employment gains in July and August 2017
combined were 38,000 less than previously reported.
Fed is likely to stick to its rate hike path
The string of positive data from the US in the recent
past is likely to give a push to the Federal Reserve to
stick to its rate hike path as outlined earlier. Weaker
than expected job addition in the month of September
2017 was difficult to evaluate due to the hurricanes and
the Fed has already mentioned in its September 2017
meeting that the impact will be smoothened over the
medium-term.

ECONOMY MONITOR
36ECONOMY MATTERS

37
ECONOMY MONITOR
OCTOBER 2017

Economy Matters October 2017

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