April 2012 Economic Affairs

The International Monetary Fund (IMF) on 27 April 2012 lowered India’s growth projection to 6.9 per cent for 2012. The multilateral agency in January projected Indian economy to grow to by 7 per cent for 2012. The slashed growth projection is broadly attributed to the country’s poor performance on the front of economic reforms and slowing investment.

Standard & Poor's downgraded credit rating outlook for India to negative from stable on 25 April 2012. The cut in credit rating is the reflection of India's widening fiscal and current account deficits. India’s fiscal deficit widened to 5.9% of gross domestic product in the fiscal year 2011-12, which is higher than the government's target of 4.6%. The country is performing equally bad on the front of foreign institutional investment as it witnessed a sharp decline in the FII over the past few months. India has drawn nearly 171.8 million dollar FII so far in April 2012 against more than 5 billion dollar in February 2012.The credit rating downgrading indicates that the government will now have to contemplate seriously over the long-pending economic reforms and push them through as soon as possible.

Reserve Bank of India, the apex Indian Bank, on 17 April 2012, cut the key policy rates for the first time in the past three years. While the repo rate was cut down by 50 basis points from 8.50 per cent to 8.00 per cent, the reverse repo rate was reduced to 7.0 per cent. The marginal standing facility rate, which has a spread of 100 basis points above the repo rate, now stands at 9.0 per cent. The move injected 80000 crore rupees into the system. The RBI also brought in about 1.3 lakh crore rupees into the system through open market operations. The RBI’s move to cut down key policy rates came in the wake of slumping growth which was reduced to 6.1 per cent in the third quarter of fiscal year 2011-12.

The International Monetary Fund (IMF) in its World Economic Outlook (WEO), released ahead of the IMF-World Bank Spring Meetings, marginally lowered India’s economic growth forecast to 6.9% in 2012, from 7% projected earlier. The IMF projected world economic growth rate to slump to 3.5% in 2012 from 3.9% in 2011. It pegged India’s growth during the 2013 calendar year at 7.3%. According to the estimates of India’s Central Statistical Organisation (CSO), the growth rate during the financial year 2011-12 slipped to a 3-year low of 6.9%. The Union government projected a growth rate of 7.6% for 2012-13 fiscal year. The Reserve Bank of India however expects it to be 7.3%.

The Union government on 12 April 2012 approved Rs 30000 crore bailout for Air India. In this regard, Rs 6750 crore would be infused immediately to meet the airline's working capital requirement. The Rs 30000 crore-bailout package was approved in addition to the equity infusion of Rs 3200 crore already in place.

The Union Cabinet on 12 April 2012 approved a proposal to set up a Special Purpose Vehicle (SPV) for Goods and Services Tax Network (GSTN) to help facilitate the smooth introduction of the new indirect tax regime. GSTN SPV is to be incorporated as Section 25 not-for-profit private limited company in which strategic control would be held by the Centre. It will provide IT infrastructure and services to various stakeholders including the Centre and states.

The Union Cabinet on 12 April 2012 approved the extension of funding support for implementing the Swavalamban Scheme under the New Pension System (NPS) from three years to five years for all subscribers enrolled during 2010-11, 2011-12 and 2012-13. The decision will benefit 70 lakh workers in the unorganised sector. The Cabinet decided to provide an additional funding support of Rs 2065 crore to the scheme until 2016-17.

input from sakshi