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RBI's First Bi-monthly Monetary Policy Statement, 2019-20

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Following is the text of the Reserve Bank of India's First Bi-monthly Monetary Policy Statement, 2019-20 issued here today, based on the resolution of its Monetary Policy Committee (MPC):
 
On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today decided to:
 
reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.0 per cent from 6.25 per cent with immediate effect.
 
Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25 per cent.
 
The MPC also decided to maintain the neutral monetary policy stance.
 
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
 
The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
Global Economy
 
2. Since the last MPC meeting in February 2019, global economic activity has been losing pace. In the US, the subdued performance in the final quarter of 2018 appears to have continued into Q1:2019 as reflected in declining factory activity. The Euro area slowed down in Q4:2018 on soft domestic demand and contracting manufacturing activity. Of its constituents, the Italian economy contracted for two consecutive quarters in Q3 and Q4. In the UK, growth slowed down on Brexit uncertainty, with industrial production contracting during September-January. The Japanese economy rebounded in Q4 on increased domestic consumption expenditure and recovering investment spending. However, the latest data on manufacturing activity and business confidence suggest that growth lost momentum in Q1:2019. The monetary policy stances of the US Fed and central banks in other major advanced economies (AEs) have turned dovish.
 
3. Economic activity also slowed down in some major emerging market economies (EMEs). The Chinese economy decelerated in Q4:2018 on subdued domestic and global demand impacting industrial activity. Much of this weakness seems to have continued into 2019 as reflected in low factory output in Q1, though the purchasing managers’ index (PMI) moved into expansion zone in March after three months of contraction. In Q1, the Russian economy continued to be impacted by both domestic and external headwinds. The Brazilian economy ended 2018 on a weak note; going into 2019, available economic indicators for Q1 suggest that economic activity remained restrained by both weak domestic and external demand. The South African economy slowed down in the final quarter of 2018. Subdued industrial activity and worsening external demand point to a further loss in momentum in Q1.
 
4. Crude oil prices have risen on production cuts by OPEC and Russia as well as disruption in supplies due to US sanctions on exports from Venezuela. Gold prices weakened on expectations of positive outcomes of the China-US trade deal. Inflation continued to remain low in major AEs and many key EMEs due to slowing global growth and stable or falling commodity prices.
 
5. Financial markets continued to be driven by monetary policy stances of key central banks and movements in crude oil prices. In the US, the equity market witnessed some selling pressure in the last week of March on weak economic data. Equity markets in EMEs gained, benefitting from country-specific factors and easing of global financing conditions. Bond yields in the US softened, slipped into negative territory in Germany and dipped further into negative territory in Japan as central banks signalled softer stances. Bond yields in most EMEs have been falling in tandem with those in AEs and on the improving inflation outlook. In currency markets, the US dollar has traded with an appreciating bias in recent weeks. EME currencies have traded with a depreciating bias on country-specific factors and on fears of a weakening economic outlook in China.
 
Domestic Economy
 
6. Turning to the domestic economy, the second advance estimates for 2018-19 released by the Central Statistics Office (CSO) in February 2019 revised India’s real gross domestic product (GDP) growth downwards to 7.0 per cent from 7.2 per cent in the first advance estimates. Domestic economic activity decelerated for the third consecutive quarter in Q3:2018-19 due to a slowdown in consumption, both public and private. However, gross fixed capital formation (GFCF) growth remained in double digits for the fifth consecutive quarter in Q3, with the GFCF to GDP ratio rising to 33.1 per cent in Q3:2018-19 against 31.8 per cent in Q3:2017-18, supported primarily by the government’s thrust on the road sector and affordable housing. The drag on aggregate demand from net exports also moderated in Q3 due to a marginal acceleration in exports and a sharp deceleration in imports led by a decline in crude oil prices.
 
7. On the supply side, the second advance estimates of the CSO placed the growth of real gross value added (GVA) lower at 6.8 per cent in 2018-19 as compared with 6.9 per cent in 2017-18. GVA growth slowed down to 6.3 per cent in Q3 due to a deceleration in agriculture output from the record level achieved in the previous year. Industrial GVA growth remained unchanged in Q3, with manufacturing GVA growth slowing somewhat. Services GVA growth also remained unchanged in Q3; while growth in construction activity accelerated, there was some loss of momentum in public administration, defence and other services.
 
8. Beyond Q3, the second advance estimates of foodgrains production for 2018-19 at 281.4 million tonnes were 1.2 per cent lower than the fourth advance estimates of 2017-18, but 1.4 per cent higher than the second advance estimates of 2017-18. According to the National Oceanic and Atmospheric Administration (NOAA) of the US, El Niño conditions strengthened during February 2019, which may affect the prospects of a normal south west monsoon.
 
9. Of the high frequency indicators of industry, the manufacturing component of the index of industrial production (IIP) growth slowed down to 1.3 per cent in January 2019 due to automobiles, pharmaceuticals, and machinery and equipment. The growth of eight core industries remained sluggish in February. Credit flows to micro and small as well as medium industries remained tepid, though they improved for large industries. Capacity utilisation (CU) in the manufacturing sector, however, as measured by the Reserve Bank’s order books, inventory and capacity utilisation survey (OBICUS), improved to 75.9 per cent in Q3 from 74.8 per cent in Q2 exceeding its long-term average; the seasonally adjusted CU rose to 76.1 per cent from 75.4 per cent. The business assessment index of the industrial outlook survey (IOS) points to an improvement in overall sentiments in Q4. The manufacturing purchasing managers’ index (PMI) remained in expansion zone for 20th month in March. The key indicators of investment activity contracted, viz., production of capital goods in January and imports of capital goods in February.
 
10. High frequency indicators of the services sector suggest significant moderation in activity. Sales of commercial vehicles contracted during February. Other indicators of the transportation sector, viz., port freight traffic and international air freight traffic, also contracted. However, indicators of the construction sector, viz., consumption of steel and production of cement, continued to show healthy growth. The hotels sub-segment showed some improvement in foreign tourist arrivals in January and international air passenger traffic in February. The services PMI continued to be in expansion zone for the tenth consecutive month in March 2019.
 
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11. Retail inflation, measured by y-o-y change in the CPI, rose to 2.6 per cent in February after four months of continuous decline. The uptick in inflation was driven by an increase in prices of items excluding food and fuel and weaker momentum of deflation in the food group. However, inflation in the fuel group collapsed to its lowest print in the new all India CPI series.
 
12. Within the food group, deflation in four sub-groups – vegetables, sugar, pulses and fruits – continued in February. Egg prices moved into inflation after remaining in deflation in previous three months, while inflation ticked up in all other food sub-groups.
 
13. Inflation in the fuel and light sub-group collapsed from 4.5 per cent in December to 1.2 per cent in February. Prices of liquefied petroleum gas (LPG) declined sharply, pulled down by the lagged impact of the softening of international energy prices. The prices of firewood, with the second largest weight in the fuel group, also declined. Electricity slipped into deflation in January and February. Inflation in kerosene remained elevated, however, reflecting the impact of the calibrated increase in its administered price.
 
14. CPI inflation excluding food and fuel declined to 5.2 per cent in January, but rose to 5.4 per cent in February, driven by a broad-based pick-up in inflation in the personal care and effects, and recreation and amusement sub-groups. However, inflation in the clothing and footwear, and transport and communication sub-groups fell, the latter reflecting the reduction in petrol and diesel prices. Inflation in the health and education sub-groups remained elevated, even though it moderated markedly during January-February vis-à-vis December.
 
15. Inflation expectations, measured by the Reserve Bank’s survey of households, declined in the February round over the previous round by 40 basis points each for the three months ahead and for the one year ahead horizons. Firms participating in the Reserve Bank’s industrial outlook survey of manufacturing companies reported reduction in input price pressures, but they expected an increase in staff expenses in Q1:2019-20. Farm and industrial input costs increased at a slow pace in January-February 2019. Nominal growth in rural wages and staff costs in the organised manufacturing and services sectors remained muted in Q3:2018-19.
 
16. From a daily net average surplus of Rs. 27,928 crore (Rs. 279 billion) during February 1-6, 2019, systemic liquidity moved into deficit during February 7 - March 31, reflecting the build-up of government cash balances. Currency in circulation expanded sharply in February-March. The liquidity needs of the system were met through injection of durable liquidity amounting to Rs. 37,500 crore (Rs. 375 billion) in February and Rs. 25,000 crore (Rs. 250 billion) in March through open market purchase operations (OMOs). Consequently, total durable liquidity injected by the Reserve Bank through OMOs aggregated Rs. 2,98,500 crore (Rs. 2,985 billion) for 2018-19. Liquidity injected under the LAF, on an average daily net basis, was Rs. 95,003 crore (Rs. 950 billion) during February (February 7-28, 2019) and Rs. 57,043 crore (Rs. 570 billion) in March. The weighted average call rate (WACR) remained broadly aligned with the policy repo rate in February and March.
 
17. Anticipating the seasonal tightening of liquidity at end-March, the Reserve Bank conducted four longer term (tenor ranging between 14-day and 56-day) variable rate repo auctions during the month in addition to the regular 14-day variable rate term repo auctions. Furthermore, the Reserve Bank conducted long-term foreign exchange buy/sell swaps of US$ 5 billion for a tenor of 3 years on March 26, 2019, thereby injecting durable liquidity of Rs. 34,561 crore (Rs.  346 billion) into the system.
 
18. Export growth remained weak in January and February 2019 mainly due to exports of petroleum products decelerating in response to a fall in international crude oil prices. Among non-oil exports, engineering goods, chemicals, leather and marine products recorded either sequentially lower or negative growth. As in the case of exports, lower international crude oil prices downsized the oil import bill. Non-oil non-gold imports declined sharply, dragged down by the subdued demand for pearls and precious stones, transport equipment, project goods and vegetable oils. The trade deficit narrowed in February 2019 – both sequentially and on a year-on-year basis – to its lowest level in 17 months. This, along with the increase in services exports and lower outgo of income payments, resulted in narrowing of the current account deficit sequentially. On the financing side, net FDI inflows were strong in April-January 2018-19. Foreign portfolio investors turned net buyers in the domestic capital market in Q4:2018-19. India’s foreign exchange reserves were at US$ 412.9 billion on March 31, 2019.
 
Outlook
 
19. In the sixth bi-monthly monetary policy resolution of February 2019, CPI inflation was projected at 2.8 per cent for Q4:2018-19, 3.2-3.4 per cent for H1:2019-20 and 3.9 per cent for Q3:2019-20, with risks broadly balanced around the central trajectory. Actual inflation outcomes averaged 2.3 per cent in January-February.
 
20. The inflation path during 2019-20 is likely to be shaped by several factors. First, low food inflation during January-February will have a bearing on the near-term inflation outlook. Second, the fall in the fuel group inflation witnessed at the time of the February policy has become accentuated. Third, CPI inflation excluding food and fuel in February was lower than expected, which has imparted some downward bias to headline inflation. Fourth, international crude oil prices have increased by around 10 per cent since the last policy. Fifth, inflation expectations of households as well as input and output price expectations of producers polled in the Reserve Bank’s surveys have further moderated. Taking into consideration these factors and assuming a normal monsoon in 2019, the path of CPI inflation is revised downwards to 2.4 per cent in Q4:2018-19, 2.9-3.0 per cent in H1:2019-20 and 3.5-3.8 per cent in H2:2019-20, with risks broadly balanced.
 
21. GDP growth for 2019-20 in the February policy was projected at 7.4 per cent in the range of 7.2-7.4 per cent in H1, and 7.5 per cent in Q3 – with risks evenly balanced. Since then, there are some signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods. The moderation of growth in the global economy might impact India’s exports. On the positive side, however, higher financial flows to the commercial sector augur well for economic activity. Private consumption, which has remained resilient, is also expected to get a fillip from public spending in rural areas and an increase in disposable incomes of households due to tax benefits. Business expectations continue to be optimistic. Taking into consideration the above factors, GDP growth for 2019-20 is projected at 7.2 per cent – in the range of 6.8-7.1 per cent in H1:2019-20 and 7.3-7.4 per cent in H2 – with risks evenly balanced.
 
22. Beyond the near term, several uncertainties cloud the inflation outlook. First, with the domestic and global demand-supply balance of key food items expected to remain favourable, the short-term outlook for food inflation remains benign. However, early reports suggest some probability of El Niño effects in 2019. There is also the risk of an abrupt reversal in vegetable prices, especially during the summer months. Second, inflation in fuel group items, particularly electricity, firewood and chips saw unprecedented softening in H2:2018-19. There is, however, uncertainty about the sustainability of this softening in inflation in fuel items. Third, the outlook for oil prices continues to be hazy, both on the upside and the downside. On the one hand, continuing OPEC production cuts will reduce supplies. On the other hand, there is considerable uncertainty about demand conditions. Should there be a swift resolution of trade tensions, a pick-up in global demand is likely to push up oil prices. However, should trade tensions linger and demand conditions worsen, crude prices may fall from current levels, despite production cuts by OPEC. Fourth, inflation excluding food and fuel has remained elevated over the past twelve months with some pick up in prices in February. However, should the recent slowdown in domestic economic activity accentuate, it may have a bearing on the outlook for inflation in this category. Fifth, financial markets remain volatile reflecting in part global growth and trade uncertainty, which may have an influence on the inflation outlook. Sixth, the fiscal situation at the general government level requires careful monitoring.
 
23. The MPC notes that the output gap remains negative and the domestic economy is facing headwinds, especially on the global front. The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish.
 
24. Against this backdrop, the MPC decided to reduce the policy repo rate by 25 basis points and maintain the neutral stance of monetary policy.
 
25. Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted in favour of the decision to reduce the policy repo rate by 25 basis points. Dr. Chetan Ghate and Dr. Viral V. Acharya voted to keep the policy rate unchanged.
 
26. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Shri Shaktikanta Das voted in favour of the decision to maintain the neutral stance of monetary policy. Dr. Ravindra H. Dholakia voted to change the stance from neutral to accommodative.
 
27. The minutes of the MPC’s meeting will be published by April 18, 2019.
 
28. The next meeting of the MPC is scheduled during June 3, 4 and 6, 2019.
 
NNN

India-Saudi Arabia Joint Statement

Prime Minister Narendra Modi with Saudi Crown Prince Mohammed Bin Salman Bin Abdulaziz Al-Saud, at Hyderabad House, in New Delhi on February 20, 2019
Prime Minister Narendra Modi with Saudi Crown Prince Mohammed Bin Salman Bin Abdulaziz Al-Saud, at Hyderabad House, in New Delhi on February 20, 2019
Following is the Joint Statement issued by India and Saudi Arabia during the State Visit of Saudi Crown Prince Mohammad bin Salman bin Abdulaziz al Saud to India:
 
1. At the invitation of Hon’ble Prime Minister of the Republic of India Shri Narendra Modi, and under the guidance of the Custodian of the Two Holy Mosques, His Royal Highness Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud, Deputy Prime Minister and Minister of Defence of the Kingdom of Saudi Arabia paid his first State visit to India from 19-20 February 2019, where he was received at the airport by the Hon’ble Prime Minister. The visit follows the official visit of Prime Minister Modi to the Kingdom of Saudi Arabia in April, 2016 at the invitation of the custodian of the Two Holy Mosques His Majesty King Salman bin Abdul Aziz Al Saud.
 
2. His Royal Highness the Crown Prince was accorded a ceremonial welcome on February 20, 2019 at the Forecourt of the Rashtrapati Bhawan, New Delhi. President Kovind also hosted a banquet dinner in honour of His Royal Highness. 
 
3. Prime Minister Modi and His Royal Highness Crown Prince Mohammed bin Salman bin Abdulaziz held delegation level talks at Hyderabad House on February 20, 2019. External Affairs Minister Smt. Sushma Swaraj called on His Royal Highness.
 
4. India and Saudi Arabia enjoy cordial and friendly relations reflecting the centuries old economic and socio-cultural ties. Close geographical proximity, civilizational links, cultural affinity, natural synergies, vibrant people to people contacts. Common challenges and opportunities have added momentum to this robust engagement.
 
5. The bilateral discussions were held in the spirit of strong friendship that binds the two countries and their leaders. They expressed satisfaction at the excellent state of bilateral ties of friendship and cooperation, which are marked by trust, mutual understanding, goodwill and respect for each other’s interests. Both sides expressed satisfaction at the progress made in diverse fields including trade, energy, security and cultural spheres since the landmark visit of the Prime Minister to Riyadh in April 2016 – a visit which served to enhance our engagement and take our relations to the next level.
 
6. Prime Minister Modi welcomed the recent changes initiated by His Royal Highness Crown Prince to bring in moderation and openness in Saudi Arabia while His Royal Highness the Crown Prince conveyed his appreciation for Indian model of ethos of inclusiveness, pluralism and tolerance.
 
7. The two sides re-affirmed their deep commitment to strengthen the ‘strategic partnership’ envisaged in the ‘Riyadh Declaration’ of February 2010 and reiterated during the visit of the Custodian of the Two Holy Mosques His Majesty King Salman bin Abdulaziz Al Saud, in February 2014 and the visit of Prime Minister Shri Narendra Modi to Saudi Arabia in April 2016.
 
8. The two sides agreed to cement the existing ‘Strategic Partnership’ with ‘high level monitoring mechanism by the creation of Strategic Partnership Council led by the Honourable Prime Minister and His Royal Highness the Crown Prince, supported by ministerial representation covering the whole spectrum of strategic relationships. 
 
9. Both sides welcomed the outcomes of the Workshop between NITI Aayog and Saudi Centre for International Strategic Partnership (SCISP) organised recently in Riyadh. The Workshop has identified more than 40 opportunities of joint collaboration and investments across various sectors. 
 
10. The following MoUs were signed during the visit:-
 
(I) MoU on investing in the National Investment and Infrastructure Fund of India.
 
(II) MoU on cooperation in the field of Tourism.
 
(III) MoU on cooperation in the field of Housing.
 
(IV) Framework cooperation programme between Invest India and Saudi Arabia General Investment Authority (SAGIA).
 
(V) MoU for cooperation on Broadcasting for exchange of Audio-Visual Programmes.
 
(VI) Agreement for the Kingdom of Saudi Arabia to join the International Solar Alliance (ISA) launched by Honourable Prime Minister Modi.
 
11. Taking note of the positive trend in the bilateral trade over the recent years, the two sides acknowledged the huge untapped potential available in the merchandise trade, particularly in the non-oil trade. The two sides appreciated the positive deliberations held during the 12th session of the India-Saudi Joint Commission Meeting held in Riyadh in February 2018, for enhancing cooperation in economic, commercial, investment, cultural and technological fields. 
 
12. The two sides stressed the importance of increasing trade volume between the two countries, and eliminating export barriers. 
 
13. The two sides agreed on further deepening trade and investment cooperation between the two countries by aligning the Kingdom’sVision 2030 and its 13 Vision Realization Programs with India’s flagship initiatives of "Make in India”, "Start Up India”, "Smart Cities”, "Clean India”, and "Digital India”. The Saudi side expressed its readiness to attract Indian private/ public sector investments and expertise, in the upcoming mega projects in Saudi Arabia. The two sides acknowledged positive transformation of economies of India and Saudi Arabia.
 
14. Both sides welcomed the key initiatives taken by both Governments to improve the ease of doing business, simplify and rationalize existing rules and relax the foreign direct investment norms in key areas.
 
15. Both sides welcomed the positive change in investment climate after the signing of the Framework Cooperation Agreement between the Saudi Arabian General Investment Authority (SAGIA) and Invest India during Prime Minister Modi’s visit to Riyadh in 2016. The two sides urged the business communities to utilize the investment opportunities in both countries, especially in the fields of infrastructure, mining, energy including renewables, food security and technology transfer, and to further consolidate cooperation in the areas of skilled human resources in information technology, electronics and telecommunications.
 
16. Recognizing the availability of sophisticated infrastructure and logistical services in the Kingdom’s industrial cities and ports, His Royal Highness welcomed investments by Indian companies in the Kingdom for domestic and regional market access.
 
17. The Prime Minister welcomed the announcement of His Royal Highness to invest in the areas of energy, refining, petrochemicals, infrastructure, agriculture, minerals and mining, manufacturing, education and health potentially worth in excess of $100 billion.
 
18. The two sides expressed satisfaction at the first Joint Venture West Coast Refinery and Petrochemical Project estimated to cost US $ 44 billion and both sides agreed to expedite the implementation of the project, which will be the largest green field refinery in the world to be implemented in one phase. In addition, $10 billion through the Public Investment Fund and its technology partners, and other investments opportunities potentially worth $26 billion being explored.
 
19. The Prime Minister of India welcomed the investment from Saudi Arabia in the National Investment and Infrastructure Fund (NIIF) and other key sectors in India. In this context, both sides appreciated the signing of the MoU on investing in the National Investment and Infrastructure Fund (NIIF) as it will pave the way for expanding bilateral economic cooperation.
 
20. Prime Minister Modi welcomed the intent by Saudi side towards investments in India, especially in the areas of energy, refining, petrochemicals, infrastructure, agriculture, minerals and mining, manufacturing, education and health.
 
21. The two sides welcomed the signing of MoU for Cooperation in the field of Housing and encouraged Indian companies to participate in the housing projects in Saudi Arabia.
 
22. His Royal Highness Crown Prince welcomed Prime Minister’s initiative on Coalition on Disaster Resilient Infrastructure and hailed it as an important step towards disaster management.
 
23. Recognizing the importance of the energy security as a key pillar of the strategic partnership, the two sides expressed desire to grow bilateral trade in the energy sector, acknowledging Saudi Arabia as the world’s most reliable supplier of oil & gas and the key supplier to India. The two sides stressed on continuation of the India-Saudi Arabia Energy consultations. The two sides agreed to transform the buyer-seller relationship in the energy-sector to strategic partnership focusing on investment and joint ventures in petrochemical complexes.
 
24. His Royal Highness the Crown Prince reiterated the Kingdom’s commitment to meet India’s growing needs for crude oil and petroleum products and substitute for any shortages that may arise as a result of any disruptions from other sources. 
 
25. The Prime Minister also welcomed the Kingdom’s participation in the India’s Strategic Petroleum Reserves (SPRs).
 
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26. The Prime Minister of India welcomed the decision of the Saudi side to join the International Solar Alliance. Both sides noted the potential cooperation in the renewable energy sector not only in investment but also in Research and Development.
 
27. The two sides also agreed to cooperate in the areas of space, science and technology, including remote sensing, satellite communication and satellite-based navigation.
 
28. The two sides agreed to set up a Joint Working Group on Skill Development to identify areas of cooperation, where the two countries can benefit from each other’s core competencies in important fields such as manufacturing, information technology, communications, and programming. 
 
29. The two sides welcomed the recent developments in India-Saudi co-operation in the defence sector, particularly in the fields of exchange of expertise and training, especially after the MoU on Defence Cooperation signed during the visit of His Majesty King Salman bin Abdulaziz Al Saud to India in February 2014. In this context, they welcomed the outcomes of the recently held 4th Joint Committee on Defence Cooperation in Riyadh on 2-3 January, 2019.
 
30. The two sides agreed to hold the inaugural joint naval exercises at the earliest and agreed to further expand bilateral exercises in other domains.
 
31. Noting the potential and mutual benefit, the two sides agreed to cooperate and collaborate in joint defence production of spare parts for Naval and Land systems as well as supply chain development, in line with ‘Make in India’ and ‘Vision 2030’.
 
32. The two sides agreed to work together with other Indian Ocean Rim Countries for enhancing maritime security, vital for the security and prosperity of both countries and safe passage for international trade. 
 
33. With regards to regional connectivity projects, both sides agreed that they should be based on international law including respect for sovereignty and territorial integrity of states.
 
34. The two sides stressed the importance of regional stability and good neighbouring relations. His Royal Highness appreciated consistent efforts made by Prime Minister Modi since May 2014 including Prime Minister’s personal initiatives to have friendly relations with Pakistan. In this context, both sides agreed on the need for creation of conditions necessary for resumption of the comprehensive dialogue between India and Pakistan.
 
35. Affirming that the menace of extremism and terrorism threatens all nations and societies, the two sides rejected any attempt to link this universal phenomenon to any particular race, religion or culture. Both sides called on all states to reject the use of terrorism against other countries; dismantle terrorism infrastructures where they happen to exist and to cut off any kind of support and financing to the terrorists perpetrating terrorism from all territories against other states; and bring perpetrators of acts of terrorism to justice. The two sides also noted the need for concerted action by the international community against terrorism including through early adoption of the UN Comprehensive Convention on International Terrorism and underlined the importance of comprehensive sanctioning of terrorists and their organisations by the UN.
 
36. Both sides called up on all countries to renounce the use of terrorism as an instrument of state policy. They also called upon all states to deny access to weapons including missiles and drones to commit terrorist acts against other countries. 
 
37. The Prime Minister and His Royal Highness condemned in the strongest terms, the recent terrorist attack on Indian security forces on 14 February, 2019 in Pulwama in Jammu & Kashmir.
 
38. The two sides discussed regional and international issues of mutual interest, including the security situation in West Asia and Middle East, in the light of their common interest in the regional and global peace, security and stability. Both sides emphasized Security Council Resolution (2254) with regard to the solution in Syria, and Security Council Resolution (2216), the GCC initiative, and the outcomes of the Yemeni National Dialogue with regard to the solution in Yemen. 
 
39. The two sides expressed their hope for achieving a just, comprehensive and lasting peace in the Middle East based on the Arab Peace Initiative and the relevant UN resolutions, to guarantee the legitimate rights of the Palestinian people. 
 
40. To enhance further cooperation in the Counter-terrorism efforts and benefit mutually from real-time intelligence sharing, the two sides agreed to constitute a ‘Comprehensive Security Dialogue’ at the level of National Security Advisors and set up a Joint Working Group on Counter-Terrorism.
 
41. The Prime Minister and His Royal Highness reiterated to continue the ongoing close cooperation on a range of security issues, particularly on maritime security, law enforcement, anti-money laundering, drug trafficking, human trafficking, illegal migration, and other transnational organized crimes.
 
42. Expressing serious concerns at the misuse of cyber space as a medium to promote subversive and extremist ideologies, the two sides welcomed the signing of MoU on Technical Cooperation in Cyber Space and Combating Cyber Crime. Both sides agreed to promote cooperation including prevention of the use of Cyberspace for terror, radicalism and incitement to disturb social harmony.
 
43. The Indian side thanked the Saudi leadership for hosting a large Indian community and for ensuring their continued welfare and well-being.
 
44. Prime Minister thanked the Saudi leadership for designating India as the ‘Guest of Honour’ in the 32nd Saudi National Festival of Heritage & Culture – Janadriyah 2018. The two sides emphasized on further enhancing people to people contacts and strengthening the cultural cooperation by organizing Cultural weeks - ‘India Week in Saudi Arabia’ and ‘Saudi Arabia Week in India’ at regular intervals.
 
45. Prime Minister expressed his thanks to the Custodian of the Two Holy Mosques and to Highness the Crown Prince for increasing the quota for Hajj pilgrims from India to 200,000 to reflect the latest census.
 
46. Prime Minister expressed his thanks to the Custodian of the Two Holy Mosques and to His Royal Highness for ordering the release of 850 Indian prisoners from Saudi jails.
 
47. Both sides expressed the desire to broaden people-to-people interactions and to increase two-way tourism by addressing challenges with regard to consular and immigration related issues.
 
48. The Indian Government has agreed to increase the seats of Saudi Arabian Airlines from 80,000 Seats/Months to 112,000 Seats/Month and studies underway to increase that number substantially.
 
49. Both sides look forward to the integration of migration platforms of both the countries viz., e-Migrate and e-Tawtheeq to create a robust migration environment.
 
50. Both sides agreed to explore opportunities for cooperation in the area of payment systems including RuPAY for the benefit of Indian community in general and more particularly the Hajj/Umrah pilgrims. The Prime Minister thanked His Royal Highness Crown Prince for sorting out the issue of "Iqamah” for the Indian Labour who were stranded in Saudi Arabia for no fault of their own, and resolving this humanitarian issue.
 
51. Both sides committed themselves to promoting reformed multilateralism through enhanced cooperation at multilateral fora and in international organisations, including in UN, G-20, WTO, etc. In this context, they emphasised the need for reform in global governance architecture such as UN Security Council, WTO, international financial systems, etc.
 
52. Both sides emphasized the importance of an effective reformed multilateral system, centred on a UN reflective of contemporary realities, as a key factor in tackling global challenges. They stressed upon the urgent need to pursue UN reforms, including of the Security Council.
 
53. The two sides also reiterated their commitment to working together to address fugitive economic offenders including through international organisations and institutions.
 
54. His Royal Highness Crown Prince Mohammed bin Salman bin Abdulaziz, Deputy Prime Minister and Minister of Defence expressed his gratitude to the Government and people of India for the warm hospitality extended to him and the accompanying delegation.
 
New Delhi
February 20, 2019

(Our News Desk can be contacted at desk@netindian.in)

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RBI's Sixth Bi-monthly Monetary Policy Statement, 2018-19

RBI logo
 
Following is the text of the Reserve Bank of India's Sixth Bi-monthly Monetary Policy Statement, 2018-19 issued here today, based on the resolution of its Monetary Policy Committee (MPC):
 
On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
 
reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect.
Consequently, the reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.5 per cent.
 
The MPC also decided to change the monetary policy stance from calibrated tightening to neutral.
 
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
 
The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
2. Since the last MPC meeting in December 2018, there has been a slowdown in global economic activity. Among key advanced economies (AEs), economic activity in the US lost some steam in Q4:2018. The outlook for Q1:2019 is clouded by the partial government shutdown, though the labour market conditions remain strong. In the Euro area, economic activity lost momentum on weak industrial activity. The Japanese economy is gradually recovering and an accommodative monetary policy stance is expected to buttress domestic spending.
 
3. Economic activity also slowed in some major emerging market economies (EMEs). In China, growth decelerated in Q4:2018. Economic activity in Russia lost pace, with soft oil prices posing a downside risk to growth. The Brazilian economy appeared to have ended 2018 on a firmer note, driven by improved domestic spending and exports, though industrial activity continued to struggle to recover from the disruptions of H1:2018. In South Africa, the economic recovery in Q4:2018 remained gradual, tempered by weak industrial activity and subdued exports.
 
4. Crude oil prices recovered from their December lows in early January on production cuts, but remain below their peak levels in October. Base metals, which witnessed selling pressures in December on persisting uncertainty over US-China trade frictions, recouped losses in January on expectations of thawing of trade disputes and production disruptions. Gold prices have risen, underpinned by safe haven demand in response to geo-political uncertainty and volatility in equity markets. Inflation edged lower in major AEs and many key EMEs.
 
5. Global financial markets began the year on a calmer note after a turbulent December. Among AEs, equity markets in the US recovered from a sharp sell-off in December, triggered by monetary policy tightening by the Fed, trade tensions and an impending shutdown. EM stock markets, which declined in December on a slew of soft economic data, registered some gains recently on expectations of accommodative monetary policy stances in major economies. The 10-year yield in the US, which fell to a multi-month low in December, rose in January on the edging up of crude oil prices and positive risk sentiment, though softening of the Fed stance restricted the gains. Among other AEs, bond yields in the Euro area and Japan eased on diminishing optimism about global growth. In most EMEs, bond yields have eased as well. In currency markets, the US dollar remained under pressure, though expectations of easing trade tensions provided some support. EME currencies appreciated on the pause in the rate hiking cycle by the Fed and expectations of a positive outcome from US-China trade negotiations.
 
6. Moving on to the domestic economy, on January 7, 2019 the Central Statistics Office (CSO) released the first advance estimates (FAE) for 2018-19, placing India’s real gross domestic product (GDP) growth at 7.2 per cent – the same level as in 2017-18 (first revised estimates). The FAE for 2018-19 featured an acceleration in gross fixed capital formation (GFCF) and a slowdown in consumption expenditure (both private and government). The drag from net exports is estimated to decline in 2018-19.
 
7. Some indicators of investment demand, viz., production and imports of capital goods, contracted in November/December. Credit flows to industry remain muted. Available data suggest that while revenue expenditure of the Centre, excluding interest payments and subsidies, contracted in Q3, that of States increased sharply, thus maintaining overall growth in government spending.
 
8. On the supply side, the FAE have placed the growth of real gross value added (GVA) at 7.0 per cent in 2018-19 as compared with 6.9 per cent in 2017-18. The estimates incorporated a slowdown in agricultural GVA growth and an acceleration in industrial GVA growth. Services GVA growth is set to soften due to subdued activity in trade, hotels, transport, communication and other services. Growth in public administration and defence services is also likely to moderate.
 
9. Rabi sowing so far (up to February 1, 2019) has been lower than in the previous year, but the overall shortfall of 4.0 per cent across various crops is expected to catch up as the season comes to a close. The lower rabi sowing reflects a deficient north-east monsoon (44 per cent below the long period average); however, storage in major reservoirs – the main source of irrigation during the rabi season – at 44 per cent of the full reservoir level (as on January 31, 2019) was marginally higher than in the previous year. The extended period of cold weather in this year’s winter is likely to boost wheat yields, which would partly offset the shortfall, if any, in area sown.
 
10. After exhibiting an uptick in the festive month of October, industrial activity, measured by the index of industrial production (IIP), slowed down in November. The year-on-year (y-o-y) growth in core industries decelerated to 2.6 per cent (y-o-y) in December, pulled down by a slowdown in the production of electricity and coal; and contraction in petroleum refinery products, crude oil and fertilisers output. Capacity utilisation (CU) in the manufacturing sector, as measured by the Reserve Bank’s order books, inventory and capacity utilisation survey (OBICUS), increased to 74.8 per cent in Q2 from 73.8 per cent in Q1; seasonally adjusted CU also improved to 75.3 per cent from 74.9 per cent. While the Reserve Bank’s business assessment index of the industrial outlook survey (IOS) for Q3:2018-19 suggests a weakening of demand conditions in the manufacturing sector, the business expectations index (BEI) points to an improvement in Q4. The manufacturing purchasing managers’ index (PMI) for January remained in expansion on the back of increased output and new orders.
 
11. High-frequency indicators of the services sector suggest some moderation in the pace of activity. Sales of motorcycles and tractors imply weakening of rural demand in December. Sales of passenger cars – an indicator of urban demand – contracted, possibly reflecting volatility in fuel prices and mandated long-term insurance premium payments. Commercial vehicle sales also shrank in December 2018 from a high base of the previous year. Lead indicators for the hotels sub-segment, viz., foreign tourist arrivals and air passenger traffic, point to softening in November-December. In the communication sub-segment, the telephone subscriber base contracted in October-November, while that of broadband continued to expand in October. The services PMI continued to expand in January 2019 despite a dip from the previous month. Indicators of the construction sector, viz., consumption of steel and production of cement, continued to show healthy growth, though growth in cement production inched lower in November 2018, reflecting a base effect.
 
12. Retail inflation, measured by y-o-y change in the CPI, declined from 3.4 per cent in October 2018 to 2.2 per cent in December, the lowest print in the last eighteen months. Continuing deflation in food items, a sharp fall in fuel inflation and some edging down of inflation excluding food and fuel contributed to the decline in headline inflation.
 
13. Five constituents of the food group – vegetables, sugar, pulses, eggs and fruits, accounting for about 30 per cent of food group – were in deflation in December. Inflation in respect of other major food sub-groups – cereals, milk, and oils and fats – was subdued. Within cereals, rice prices declined for the fourth consecutive month in December. Inflation in prices of meat and fish and non-alcoholic beverages showed an uptick, while it remained sticky for prepared meals.
 
14. Inflation in the fuel and light group fell from 8.5 per cent in October to 4.5 per cent in December, pulled down by a sharp decline in the prices of liquefied petroleum gas (LPG), reflecting softening of international petroleum product prices. Kerosene inflation continued to edge up due to the calibrated increase in its administered price.
 
15. CPI inflation excluding food and fuel decelerated to 5.6 per cent in December from 6.2 per cent in October, dragged down mainly by the moderation in the prices of petrol and diesel in line with the decline in international petroleum product prices. Housing inflation continued to edge down as the impact of the house rent allowance (HRA) increase for central government employees dissipated. However, inflation in several of the sub-groups – household goods and services; health; recreation and amusement; and education – firmed up in December, offsetting much of the impact of lower inflation in petrol, diesel and housing.
 
16. Inflation expectations of households, measured by the December 2018 round of the Reserve Bank’s survey, softened by 80 basis points for the three-month ahead horizon and by 130 basis points for the twelve-month ahead horizon over the last round, reflecting the continued decline in food and fuel prices. Producers’ assessment of inflation in input prices eased in Q3 as reported by manufacturing firms polled by the Reserve Bank’s industrial outlook survey.
 
17. Inflation in the prices of farm inputs and industrial raw materials remained elevated, despite some softening. Growth in rural wages moderated in October.
 
18. The weighted average call rate (WACR) traded below the policy repo rate on 12 out of 20 days in December, all 23 days in January and 4 days in February (up to February 6). The WACR was below the repo rate on an average by 4 basis points in December and 11 basis points each in January and February. Currency in circulation expanded sharply during December and January. The liquidity needs arising out of expansion in currency were met by the Reserve Bank through injection of durable liquidity amounting to Rs. 500 billion each in December and January through purchases under open market operations (OMOs). Accordingly, total durable liquidity injected through OMOs has aggregated Rs. 2.36 trillion during 2018-19 so far. Liquidity injected under the LAF was Rs. 996 billion in December on an average daily net basis, and Rs. 329 billion in January. In February, however, the average daily liquidity position turned into surplus with an average absorption of Rs. 279 billion.
 
19. Export growth on a y-o-y basis was almost flat in November and December 2018, primarily due to a high base effect and weak global demand. While growth in exports of petroleum products remained positive, non-oil exports declined, dragged down by lower shipments of gems and jewellery, engineering goods, meat and poultry. Import growth slowed in November and turned negative in December 2018. While imports of petroleum (crude and products) rose in line with the increase in import volumes, non-oil imports such as pearls and precious stones, gold, electronic goods and transport equipment, recorded declines. The merchandise trade deficit for April-December 2018 was a shade higher than its level a year ago. Net services exports picked up in October and November 2018, which combined with low oil prices, could have a salutary impact on the current account deficit in Q3. On the financing side, net FDI flows to India during April-November 2018 were higher than a year ago. Foreign portfolio flows turned negative in January 2019, after rebounding in November and December 2018. India’s foreign exchange reserves were at US$ 400.2 billion on February 1, 2019.
 
Outlook
 
20. In the fifth bi-monthly monetary policy resolution in December 2018, CPI inflation for 2018-19 was projected in the range of 2.7-3.2 per cent in H2:2018-19 and 3.8-4.2 per cent in H1:2019-20, with risks tilted to the upside. The actual inflation outcome at 2.6 per cent in Q3:2018-19 was marginally lower than the projection. There have been downward revisions in inflation projections during the course of the year, reflecting mainly the unprecedented soft inflation recorded across food sub-groups.
 
21. Several factors will shape the inflation path, going forward. First, food inflation has continued to surprise on the downside with continuing deflation across several items and a significant moderation in inflation in cereals. Several food groups are experiencing excess supply conditions domestically as well as internationally. Hence, the short-term outlook for food inflation appears particularly benign, despite adverse base effects. Secondly, the moderation in the fuel group was larger than anticipated. Inflation in items of rural consumption such as firewood and chips, which had remained sticky and at elevated levels, has collapsed in recent months. Electricity prices also showed an unexpected moderation, providing a softer outlook for the fuel group. Thirdly, while inflation excluding food and fuel remains elevated, the recent unusual pick-up in the prices of health and education could be a one-off phenomenon. Fourthly, the crude oil price outlook remains broadly the same as in the December policy. Fifthly, the Reserve Bank’s surveys show that inflation expectations of households as well as input and output price expectations of producers have moderated significantly. Finally, the effect of the HRA increase for central government employees has dissipated completely along expected lines. Taking into consideration these developments and assuming a normal monsoon in 2019, the path of CPI inflation is revised downwards to 2.8 per cent in Q4:2018-19, 3.2-3.4 per cent in H1:2019-20 and 3.9 per cent in Q3:2019-20, with risks broadly balanced around the central trajectory.
 
22. Turning to the growth outlook, GDP growth for 2018-19 in the December policy was projected at 7.4 per cent (7.2-7.3 per cent in H2) and at 7.5 per cent for H1:2019-20, with risks somewhat to the downside. The CSO has estimated GDP growth at 7.2 per cent for 2018-19. Looking beyond the current year, the growth outlook is likely to be influenced by the following factors. First, aggregate bank credit and overall financial flows to the commercial sector continue to be strong, but are yet to be broad-based. Secondly, in spite of soft crude oil prices and the lagged impact of the recent depreciation of the Indian rupee on net exports, slowing global demand could pose headwinds. In particular, trade tensions and associated uncertainties appear to be moderating global growth. Taking into consideration the above factors, GDP growth for 2019-20 is projected at 7.4 per cent – in the range of 7.2-7.4 per cent in H1, and 7.5 per cent in Q3 – with risks evenly balanced.
 
23. Headline inflation is projected to remain soft in the near term reflecting the current low level of inflation and the benign food inflation outlook. Beyond the near term, some uncertainties warrant careful monitoring. First, vegetable prices have been volatile in the recent period; reversal in vegetable prices could impart upside risk to the food inflation trajectory. Secondly, the oil price outlook continues to be hazy. Thirdly, a further heightening of trade tensions and geo-political uncertainties could also weigh on global growth prospects, dampening global demand and softening global commodity prices, especially oil prices. Fourthly, the unusual spike in the prices of health and education needs to be closely watched. Fifthly, financial markets remain volatile. Sixthly, the monsoon outcome is assumed to be normal; any spatial or temporal variation in rainfall may alter the food inflation outlook. Finally, several proposals in the union budget for 2019-20 are likely to boost aggregate demand by raising disposable incomes, but the full effect of some of the measures is likely to materialise over a period of time.
 
24. The MPC notes that the output gap has opened up modestly as actual output has inched lower than potential. Investment activity is recovering but supported mainly by public spending on infrastructure. The need is to strengthen private investment activity and buttress private consumption.
 
25. Against this backdrop, the MPC decided to change the stance of monetary policy from calibrated tightening to neutral and to reduce the policy repo rate by 25 basis points.
 
26. The decision to change the monetary policy stance was unanimous. As regards the reduction in the policy repo rate, Dr. Ravindra H. Dholakia, Dr. Pami Dua, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted in favour of the decision. Dr. Chetan Ghate and Dr. Viral V. Acharya voted to keep the policy rate unchanged. The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis. The minutes of the MPC’s meeting will be published by February 21, 2019.
 
27. The next meeting of the MPC is scheduled from April 2 to 4, 2019.
 
NNN
 

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India-South Africa Joint Statement

Prime Minister Narendra Modi with South African President Cyril Ramaphosa, at Hyderabad House, in New Delhi on January 25, 2019.

Following is the text of the Joint Statement issued by India and South Africa here today during the state visit of South African President Cyril Ramaphosa:

  1. At the invitation of Prime Minister Shri Narendra Modi, the President of the Republic of South Africa His Excellency Mr. Matamela Cyril Ramaphosa, accompanied by first lady Dr. Tshepo Motsepe, 09 Cabinet Ministers, senior officials and a large business delegation is on a State Visit to the Republic of India on 25-26 January 2019. President Ramaphosa on his first State visit to India is also the Chief Guest at India’s 70th Republic Day Parade on 26 January 2019.
  2. President Ramaphosa was accorded a ceremonial welcome on January 25, 2019 at the forecourt of the Rashtrapati Bhawan, New Delhi. President Kovind is hosting a banquet dinner on January 25, 2019 in honour of the visiting President of South Africa. President Ramaphosa accompanied by Dr. Motsepe also paid respects to the Father of the Nation, Mahatma Gandhi at Rajghat whose 150th birth anniversary is being celebrated both nationally and internationally.
  3. President Ramaphosa and Prime Minister Modi held delegation level talks at Hyderabad House on January 25, 2019. The two leaders held discussions in the spirit of the strategic partnership, strong friendship and historical links between the two countries. Both leaders acknowledged the significance of the 100th birth anniversary celebrations of Nelson Mandela and the 150th birth anniversary celebrations of Mahatma Gandhi as an invaluable legacy of peace, non-violence and compassion.
  4. President Ramaphosa and Prime Minister Modi jointly addressed the India-South Africa Business Forum on January 25, 2019, with a focus to grow business ties between the two countries. President Ramaphosa also delivered the inaugural IBSA Gandhi-Mandela Freedom Lecture, in the presence of Prime Minister of India.
  5. During the visit, a Three-Year Strategic Programme of Cooperation (2019-2021) was signed by the two sides, aimed at further enhancing the strategic partnership between the two countries.
  6. During the visit, Prime Minister Modi and President Ramaphosa:
    • recalled the Strategic Partnership established between India and South Africa through the Red Fort Declaration of March 1997 and the Tshwane Declaration of October 2006.
    • expressed satisfaction at the deepening and widening of this comprehensive bilateral partnership.
    • emphasized the need to further deepen relations in the political, economic, defense, scientific, consular and socio-cultural spheres.
    • agreed that the 10th Session of the India-South Africa Joint Ministerial Commission will be held in 2019 in New Delhi led by the Foreign Ministers of both the countries.
    • expressed satisfaction at the steady pace of cooperation in the defence sector encompassing a wide range of engagements including defence production, joint collaboration, manufacturing, research and development, training and joint exercises.
    • recognized the importance of increased bilateral naval cooperation and closer synergy within the context of Indian Ocean Naval Symposium (IONS) which, by keeping the sea lanes secure against illegal actors, will ensure unhindered passage for trade and continued prosperity of the entire Indian Ocean Region.
    • acknowledged the increasing engagement between the two navies in recent years which inter alia has translated to increased interactions in maritime operations and training. PM Modi welcomed the participation of the South African National Defence Force in the First Multinational India-Africa Field Training Exercise (IAFTX) in March 2019 at Pune, India.
    • welcomed the holding of the inaugural meeting of the Joint Working Group on Trade and Investment (JWGTI).
    • welcomed the significant investment and presence of a large number of Indian companies and business entities in South Africa and the growing number of South African investments in India. In this regard, agreed to enhance bilateral investments between the two countries within the context of the Memorandum of Understanding between Invest SA and Invest India on enhancing bilateral investment relations.
    • agreed to cooperate, share best practices, technology and expertise on the Ease of Doing Business Reform Programme.
    • committed to expanding cooperation in the fields of trade and investments between business entities in South Africa and India
    • agreed to cooperate in the field of Small and Medium Enterprises (SMEs) which play an invaluable role in job creation and creating trade and investment opportunities.
    • acknowledging the holding of the first India-South Africa Business Summit in South Africa in April 2018 and the Invest in India Business Forum in November 2018, invited the private sectors to invest in key economic sectors of India and South Africa
    • agreed that both countries should explore solutions aimed at boosting trade and investment. In this context, President Ramaphosa agreed to simplify and reform South African business visa regime.
    • acknowledged the impressive progress achieved in cooperation in Science and Technology and innovations.
    • agreed to enhance cooperation in the field of the Oceans Economy and to cooperate in multilateral forums on the Blue Economy including in the framework of Indian Ocean Rim Association (IORA).
    • expressed satisfaction at the growing cooperation in the energy sector, and the potential to expand cooperation in the renewable energy sector as well as oil and gas.
    • agreed to strengthen cooperation in the area of mining, deep mining and mineral beneficiation.
    • acknowledged that the International Solar Alliance (ISA) is a common platform for cooperation among solar resource rich countries. India invited South Africa to join the ISA.
    • agreed to strengthen agriculture and fisheries cooperation in areas such as crop and animal production, food security, aquaculture and aquatic product processing.
    • agreed to work towards addressing skills development through the investment of resources and exchange of best practices.
    • welcomed the setting up of the "Gandhi – Mandela Centre of Specialization for Artisan Skills” in South Africa with Indian assistance.
    • Decided to further strengthen academic engagement between institutions on both sides. President Ramaphosa appreciated India’s contribution to the higher education of South African youth through the fully paid scholarships offered under the ICCR and short term training programmes under IAFS and ITEC Schemes.
    • the two sides further agreed to conclude an MoU on Cooperation in Higher Education.
    • lauded the valuable contribution of the people of Indian origin in South Africa.
    • expressed the desire to broaden people-to-people interactions and to increase two-way tourism by addressing challenges with regard to consular and immigration related issues. In this context, the two sides agreed to conclude an agreement on simplification of visa requirements.
    • expressed their intent to explore avenues to resume direct air connectivity between South Africa and India.
    • welcomed the launching of "India for Humanity” initiative by India in the context of Gandhiji’s 150th birth anniversary to provide artificial limbs by "Jaipur Foot” and welcomed India’s offer to hold a camp in South Africa.
    • underscored the need for continuing consultations and the exchange of views between South Africa and India in order to build partnerships in multilateral forums and to ensure that the agenda of the South is prioritized.
    • committed themselves to promoting reformed multilateralism through cooperation and coordination at multilateral fora and in international organisations.
    • committed to cooperate in all relevant multilateral forums through the groupings of G20, BRICS, IBSA, BASIC, NAM, WTO and the Commonwealth, as well as the strengthening of the Indian Ocean Rim Association (IORA).
    • reaffirmed their commitment to enhance the voice and representation of emerging and developing economies, including those in Africa, in the decision-making bodies of multilateral institutions.
    • Prime Minister Modi congratulated South Africa on becoming a non-permanent member of the UN Security Council for 2019-20 and assured South Africa of India’s support in the performance of its responsibilities in this role.
    • welcomed the successful holding of the BRICS Summit in Johannesburg in July 2018, agreed to further enhance cooperation and coordination within BRICS with a view to reform and enhance global political and economic governance.
    • Congratulated Brazil on taking over as Chair of BRICS for 2019 and reiterated their support for Brazilian Chairmanship.
    • welcomed the holding of 15 events by IBSA countries in the context of the 15th anniversary of IBSA partnership.
    • expressed concern at the slow pace of UN reforms and committed themselves to securing their representation in an expanded UN Security Council to achieve a more representative and equitable UN Security Council Membership.
    • underlined the need for jointly working towards reform in the global governance architecture such as WTO, international financial systems etc. in order to advance a development-centered agenda that promotes inclusive growth.
    • reiterated their commitment to working together on strengthening cooperation to address fugitive economic offenders, including through international organisations and institutions such as G20, FATF and others.
    • agreed that terrorism constitutes a serious threat to international peace, security and stability and that no country is immune to the threat that terrorism represents.
    • noted the need for concerted action by the global community against terrorism through early agreement and adoption of the UN Comprehensive Convention on International Terrorism, as well as the implementation of the United Nations Global Counter-Terrorism Strategy in a balanced and integrated manner.
    • condemned terrorism in all its forms and manifestations regardless of its motivations, whenever, wherever and by whosoever committed.
    • welcomed signing of 2 MoUs between a leading policy research institute of India, namely, Research & Information System for Developing Countries (RIS) based in Delhi with two premier South African think tanks, namely, the Institute for Global Dialogue (IGD) in Pretoria and South Africa Institute for International Affairs (SAIIA) in Johannesburg. The 3 research institutions would carry forward work under track 1.5 and, among other things, focus on areas to further promote practical cooperation with Africa identified in Delhi Declaration 2015 at the end of 3rd India Africa Forum Summit.
  7. President Ramaphosa expressed his gratitude to the Government and people of India for the warmth and generous hospitality extended to him and his delegation during the visit, and extended an invitation to Prime Minister Modi to pay an official visit to South Africa on mutually convenient dates.

NNN

 

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Fact check: Government claims over use of Technology

 
 
In an infographic put out by the government, there are certain claims made pertaining to the use of technology to boost transparency and in turn eliminating corruption. Here is a fact check of these claims.
 
Claim 1: More than 3.5 lakh crore transferred to beneficiaries through DBT
 
 
The first claim is that over Rs 3,65,996 crore have been directly transferred into the bank accounts of beneficiaries for 431 schemes in last 4 years. The Direct Benefit Transfer (DBT) website describes the DBT and its vision.
 
It mentions, "With the aim of reforming Government delivery system by re-engineering the existing process in welfare schemes for simpler and faster flow of information/funds and to ensure accurate targeting of the beneficiaries, de-duplication and reduction of fraud Direct Benefit Transfer (DBT) was started on 1st January, 2013. DBT Mission was created in the Planning Commission to act as the nodal point for the implementation of the DBT programmes. The Mission was transferred to the Department of Expenditure in July, 2013 and continued to function till 14.9.2015. To give more impetus, DBT Mission and matters related thereto has been placed in Cabinet Secretariat from September 2015."
 
In other words, the DBT initiative was started by the UPA-2 government and is being carried on and expanded by the current government.
 
The list of schemes that are covered under the direct benefit transfer scheme is given on the DBT website. This list now includes 464 schemes & services (out of a total of 1131) from 57 ministries (out of a total of 74 ministries). The list is dynamic and new schemes keep getting added or the existing ones get taken out. As of October, 2018, a cumulative amount of more than Rs 4.6 lakh crore have been transferred to the beneficiaries via DBT. Detailed reports of the transfer amounts and schemes are also available online on the website.
 
Claim: Over 3,65,996 crores rupees have been directly transferred into the bank accounts of beneficiaries for 432 schemes in last 4 years.
 
Fact: More than Rs 4.6 lakh crore have been transferred into the accounts of people availing 464 schemes and services from 57 different ministries. Hence, the claim is TRUE. But it has to be noted that the DBT initiative was started during the UPA-2 government.
 
Claim 2: Aadhaar given legislative framework
 
The second claim is that Aadhaar has been given legislative framework. The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act has been passed in 2016.
 
The Supreme Court in its verdict in September 2018, upheld the constitutional validity of Aadhaar but, struck down some of its provisions. The Supreme Court struck down section 57 of the Act meaning that only the government can use Aadhaar and that too for the specific purpose of welfare & subsidies. The court said that linking of Aadhaar to bank accounts & mobile numbers is illegal. Moreover, private entities are barred from using Aadhaar as a mode of identification. The national security exception under section 33 has also been struck down, meaning that no identity information or authentication records can be disclosed even for national security reasons. The court also held that CBSE, NEET and UGC cannot make Aadhaar mandatory. The court upheld the linking of Aadhaar with PAN and also directed the government to ensure that illegal migrants are not issued Aadhaar .
 
Claim: Aadhaar has been given legislative framework
 
Fact: The Aadhaar act has been passed in 2016 but the Supreme Court struck down some major provisions of the act in 2018. Hence, the claim is PARTIALLY TRUE.
 
Claim 3: More than 1 crore income tax payers linked their Aadhaar with PAN.
 
The third claim made is that more than 1 crore income tax payers linked their Aadhaar with PAN. According to an answer given in the Lok Sabha, more than 16.84 crore PAN numbers have been linked with Aadhaar as of March 2018. The number is higher than the claim because of the dynamic nature in which these details are collected and updated. However, it is important to note that all those people that have linked their PAN to Aadhaar need not necessarily be income tax payers. There is no other data available in the public domain to check how many income tax payers have linked their PAN to Aadhaar.
 
Claim:  More than 1 crore income tax payers linked their Aadhaar with PAN.
 
Fact: Since it has been made mandatory, more than 16.84 crore PANs have been linked to Aadhaar but how many of them are paying tax cannot be verified. Hence, the claim is UNVERIFIED.
 
Claim 4: Online Platform for Government Procurement
 
Government e-Marketplace (GEM) platform for government procurement from vendors was launched in 2017. As published in the Gazette of India, in December 2017, the government of India (allocation of business) rules, 1961 have been amended to allow for ‘development, operation and maintenance of national public procurement portal – Government e-Marketplace.’ The online platform has aggregate details of the transactions made. However, the details of the procurements of previous years for a comparative analysis are not available.
 
Claim: GEM online platform for government procurement from vendors to reduce corruption and increase transparency
 
Fact: The platform has been made operational. The contribution of the platform to reducing corruption and increasing transparency cannot be verified. Hence, the claim is UNVERIFIED.
 
 
This story is part of a larger series on the 4-years of the Modi government. This series has been made possible with the flash grant of the International Fact Checking Network (IFCN). Read the rest of the stories in this series here.
 
Published with permission from Factly.

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Fact Check: Government’s claims on Auctions & Clearances

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An infographic titled ‘cronyism out, cleanliness in’ is one of the many on the Government’s 48-month achievement portal. This one has four claims about the efforts of the government to end corruption. Here is a fact check of these claims.
 
Claim 1: Clean Auctions for Coal Blocks
 
 
The first claim in the infographic is that the government ensured clean auctions of coal blocks and telecom spectrum and set a new benchmark. While this claim is extremely subjective, it is possible to explore the possible reasons behind the claim. In respect of coal mines, the allocations were made under the provisions of the Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957. These allocations are made through auction to public and private sector companies and through allotment to public sector companies.
 
According to an answer given in Lok Sabha by the government,  19 coal blocks have been allocated through allotment route to central/state government companies. The answer further points out that in 2014, e-auctions were conducted, applications were required to be submitted online and security audits have been conducted. It is said that ‘It was one of the most transparent auctions where bids were placed on an electronic platform accessible to everyone with an internet connection.’
 
In another answer given by the government in the Lok Sabha, details about the telecom spectrum auction were provided. The government also assured that all major telecom service providers were a part of the auction process. It has to be noted that this is not the first time that the telecom spectrum is auctioned. Spectrum was auctioned even as far as back in 2001.
 
In terms on setting a bench mark, however, it is a subjective claim and hence cannot be verified.
 
Claim: The government ensured clean auctions of coal blocks and telecom spectrum and set a new benchmark.
 
Fact: It is TRUE that the coal blocks were auctioned & telecom spectrum was also auctioned, but whether it set a benchmark is something that cannot be verified. Also, the auction of telecom spectrum is not new.
 
Claim 2: Online application mandatory for all Clearances
 
The second claim is that online application is made mandatory for all clearances. Assuming that this means environmental & forest clearances, the government in an answer provided in the Rajya Sabha mentioned that proposals are now processed through online system.  In another answer provided in the Rajya Sabha, the government mentioned that all project proponents have been mandated to make online submission of applications for Terms of Reference (TOR) and Environmental Clearance (EC) from 4th July 2014.
 
Claim: Online application made mandatory for all clearances
 
Fact: It is TRUE that all project proponents have to now make online applications for environmental & forest clearance.
 
Claim 3: Abolition of interviews for Non-Gazetted Posts
 
The third claim is that the government has abolished interviews for non-gazetted posts, ensuring that meritorious candidates win. The central government has dispensed with the interview for all group C and non-gazetted posts of group B category in the central government. An office memorandum to that effect was issued in October 2015.
 
Claim: Government has abolished interviews for non-gazetted posts
 
Fact: Government has dispensed interview for all group C and non-gazetted posts of group B category in the central government. Hence, the claim is TRUE
 
Claim 4: Time taken for environmental approvals has reduced
 
 
 
The final claim in the infographic is that the time taken for environmental approvals has been brought down to 180 days from 600 days. The Ministry of Environment, Forest and Climate Change has rolled out a portal named as Online Submission and Monitoring of Environmental, Forest and Wildlife Clearances (a single window approval system) in July 2014. The government in an answer to the Lok Sabha also mentioned about  certain steps to reduce the time for issuing clearances.
 
Directions were issued by the Central Pollution Control Board (CPCB) under Section 18(1)(b) of the Water (Prevention & Control of Pollution) , Act, 1974 to all SPCBs/PCCs  to maintain uniformity in categorization of industries as red, green and orange as per list finalized by CPCB, which identified 85 types of industrial sectors as ‘Red’, 73 industrial sectors as ‘Orange’ and 86 sectors as ‘Green’. According to the final Document on Revised Classification of Industrial Sectors, 2016, this classification has been changed to 60 industrial sectors as red, 83 industrial sectors as orange and, 63 industrial sectors as green and 36 industrial sectors as white. This is a significant change because the sectors that fall under the category of white are considered to be practically nonpolluting and such industries need not obtain consent to Operate. Intimation to concerned State Pollution Control Board (SPCB) would suffice.
 
The government has  given details regarding the time taken for environmental clearances in the Lok Sabha. According to the data shared, the average time period for environmental clearances has come down from 600 days (prior to 2014) to 177 days during 2017 & 140 days in 2018. The live statistics regarding approvals can be found on the official website. It also provides details about the timeline of approvals for each of the project proposals.Government’s claims on Auctions & Clearances_Number of Days - Environmental Clearance.
 
The annual report of the Ministry of Environment mentions number of the clearances granted each year.  It is interesting to note that the number of approvals hasn’t increased significantly despite a reduction in the time taken. It could also be because of the inclusion of certain type of industries in the white category and changes to the process. Government’s claims on Auctions & Clearances_ECs granted (2017-18)
 
Claim: The time taken for environmental approvals has been brought down to 180 days from 600 days.
 
Fact: The time taken for environmental approvals was 600 days prior to 2014 and it was 177 days in 2017. Hence, the claim is TRUE. The reduction in time taken could be because of multiple reasons like changes in process etc. 
 
 
This story is part of a larger series on the 4-years of the Modi government. This series has been made possible with the flash grant of the International Fact Checking Network (IFCN). Read the rest of the stories in this series here.
 
 
Published with permission from Factly.
 
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RBI's Third Bi-monthly Monetary Policy Statement

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Following is the text of the Reserve Bank of India's Third Bi-monthly Monetary Policy Statement, 2018-19 issued here today, based on the resolution of its Monetary Policy Committee (MPC):
 
On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
 
increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5 per cent.
 
Consequently, the reverse repo rate under the LAF stands adjusted to 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75 per cent.
 
The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
2. Since the last meeting of the MPC in June 2018, global economic activity has continued to maintain steam; however, global growth has become uneven and risks to the outlook have increased with rising trade tensions. Among advanced economies (AEs), the US economy rebounded strongly in Q2, after modest growth in Q1, on the back of rising personal consumption expenditures and exports. In the Euro Area, weak growth in Q1 continued in Q2 due to subdued consumer demand, weighed down by political uncertainty and a strong currency. In Japan, recent data on retail sales, consumer confidence and business sentiment point to moderation in growth.
 
3. Economic activity in major emerging market economies (EMEs) has slowed somewhat on volatile and elevated oil prices, mounting trade tensions and tightening of financial conditions. The Chinese economy lost some pace in Q2, pulled down by efforts to contain debt. The Russian economy picked up in Q1; recent data on employment, industrial production and exports indicate that the economy has gained further momentum. South Africa’s economy contracted in Q1; though consumer sentiment has improved, high unemployment and weak exports pose challenges. In Brazil, economic activity suffered a setback in Q1 on nation-wide strikes; more recent data suggest that growth remained muted as industrial production contracted in May and the manufacturing purchasing managers’ index (PMI) declined.
 
4. Global trade lost some traction due to intensification of trade wars and uncertainty stemming from Brexit negotiations. Crude oil prices, which remained volatile and elevated in May-June on a delicate demand-supply balance, eased modestly in the second half of July on higher supply from Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC producers. Base metal prices have fallen on the general risk-off sentiment triggered by fears of an intensification of trade wars. Gold prices have softened on a stronger dollar. Inflation remained firm in the US, reflecting higher oil prices and stronger aggregate demand. Inflation has edged up also in some other major advanced and emerging economies, driven, in part, by rising energy prices and pass-through effects from currency depreciations.
 
5. Financial markets have continued to be driven mainly by monetary policy stances in major AEs and geopolitical tensions. Equity markets in AEs have declined on trade tensions and uncertainty relating to Brexit negotiations. Investors’ appetite for EME assets has waned on increases in interest rates by the US Fed. The 10-year sovereign yield in the US has moderated somewhat from its peak on May 17 on safe-haven demand, spurred by escalating trade conflicts. Yields have softened in other key AEs as well. In most EMEs, however, movements in yields have varied reflecting domestic macroeconomic fundamentals and tightening global liquidity. Capital flows to EMEs declined in anticipation of monetary policy tightening in AEs. In currency markets, the US dollar appreciated, supported by strong economic data. The euro strengthened in June on receding political uncertainty and taper talk by the central bank. However, the currency has traded soft thereafter on mixed economic data and the rising US dollar. EME currencies, in general, have depreciated against the US dollar over the last month.
 
6. On the domestic front, south-west monsoon has been recovering after a brief spell of deficiency in the second half of June. The cumulative rainfall up to July 31, 2018 was 6 per cent below the long-period average. In terms of spatial distribution, 28 of the 36 sub-divisions received normal or excess rainfall, whereas 8 sub-divisions received deficient rainfall as against three sub-divisions last year. The total sown area of kharif crops as on July 27 was 7.5 per cent lower than that a year ago. The live storage in major reservoirs as on July 26 was at 41 per cent of the full reservoir level compared with 36 per cent a year ago, which portends well for the rabi sowing season.
 
7. Industrial growth, measured by the index of industrial production (IIP), strengthened in April-May 2018 on a y-o-y basis. This was driven mainly by a significant turnaround in the production of capital goods and consumer durables. Growth in the infrastructure/construction sector accelerated sharply, reflecting the government’s thrust on national highways and rural housing, while the growth of consumer non-durables decelerated significantly. The output of eight core industries accelerated in June due to higher production in petroleum refinery products, steel, coal and cement. Capacity utilisation in the manufacturing sector remains robust. The assessment based on the Reserve Bank’s business expectations index (BEI) for Q1:2018-19 remained optimistic notwithstanding some softening in production, order books and exports. The July manufacturing PMI remained in expansion zone, although it eased from its level a month ago with slower growth in output, new orders and employment.
 
8. Several high-frequency indicators of services activity increased at a faster pace in May-June. Tractor and two-wheeler sales growth accelerated significantly, suggesting strong rural demand. Passenger vehicle sales growth, an indicator of urban demand, also strengthened. Commercial vehicle sales growth remained robust despite some deceleration. Domestic air passenger traffic – another indicator of urban demand – maintained double-digit growth. Construction activity indicators also improved with cement production sustaining double digit growth for the eighth consecutive month in June. Steel consumption also accelerated in May. The services PMI expanded to a twelve-month high in June, after a marginal contraction in May, supported by expansion in new business and employment.
 
9. Retail inflation, measured by the year-on-year change in the CPI, rose from 4.9 per cent in May to 5 per cent in June, driven by an uptick in inflation in fuel and in items other than food and fuel even as food inflation remained muted due to lower than usual seasonal uptick in prices of fruits and vegetables in summer months. Adjusting for the estimated impact of the 7th central pay commission’s house rent allowances (HRA), headline inflation increased from 4.5 per cent in May to 4.6 per cent in June. Low inflation continued in cereals, meat, milk, oil, spices and non-alcoholic beverages, and pulses and sugar prices remained in deflation.
 
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10. Fuel and light group inflation rose sharply, pulled up by liquefied petroleum gas and kerosene. Inflation in firewood and chips ticked up, while electricity inflation remained low. The pass-through of global crude oil prices impacted inflation in domestic petroleum products as well as transport services. Inflation also picked up modestly in respect of education and health.
 
11. The June round of the Reserve Bank’s survey of households reported a further uptick of 20 basis points in inflation expectations for both three-month and one-year ahead horizons as compared with the last round. Manufacturing firms polled in the Reserve Bank’s industrial outlook survey (IOS) reported higher input costs and selling prices in Q1:2018-19. The manufacturing PMI showed that input prices eased slightly in July, although they remained high. Input costs for companies polled in Services PMI in June also stayed elevated. Farm and non-farm input costs rose significantly. Notwithstanding some pick-up in February and March 2018, rural wage growth remained moderate, while wage growth in the organised sector remained firm.
 
12. Systemic liquidity remained generally in surplus mode during June-July 2018. In June, the Reserve Bank absorbed surplus liquidity of around Rs. 140 billion on a daily net average basis under the LAF even as the system migrated from net surplus to a net deficit mode in the second half of the month due to advance tax outflows. Interest rates in the overnight call money market firmed up in June reflecting the increase in the repo rate on June 6, 2018. The weighted average call rate (WACR) traded, on an average, 12 basis points below the repo rate – the same as in May. Systemic liquidity moved back into surplus mode in early July with increased government spending but turned into deficit from July 10 onwards; on a daily net average basis, the Reserve Bank injected liquidity under the LAF of Rs. 107 billion in July. The WACR in July, on an average, traded 9 basis points below the policy rate. Based on an assessment of prevailing liquidity conditions and of durable liquidity needs going forward, the Reserve Bank conducted two open market operation (OMO) purchase auctions of Rs. 100 billion each on June 21 and July 19, 2018.
 
13. Export growth picked up in May and June 2018 on a y-o-y basis, aided by engineering goods, petroleum products, drugs and pharmaceuticals, and chemicals. Import growth also accelerated largely due to an increase in crude oil prices. Among non-oil imports, gold imports declined due to lower volume, while imports of machinery, coal, electronic goods, chemicals, and iron and steel increased sharply. Double-digit import growth in May and June pushed up the trade deficit. On the financing side, net foreign direct investment (FDI) flows improved significantly in the first two months of 2018-19. With the tightening of liquidity conditions in AEs, growing geopolitical concerns and with the escalation of protectionist sentiment, net foreign portfolio investment (FPI) outflows from the domestic capital market have continued, albeit at an increasingly slower rate. India’s foreign exchange reserves were at US$ 404.2 billion on July 27, 2018.
 
Outlook
 
14. In the second bi-monthly resolution of 2018-19, CPI inflation for 2018-19 was projected at 4.8-4.9 per cent in H1 and 4.7 per cent in H2, including the HRA impact for central government employees, with risks tilted to the upside. Excluding the impact of HRA revisions, CPI inflation was projected at 4.6 per cent in H1 and 4.7 per cent in H2. Actual inflation outcomes have been slightly below the projected trajectory as the seasonal summer surge in vegetable prices has remained somewhat muted in comparison with its past behaviour and fruits prices have declined.
 
15. The inflation outlook is likely to be shaped by several factors. First, the central government has decided to fix the minimum support prices (MSPs) of at least 150 per cent of the cost of production for all kharif crops for the sowing season of 2018-19. This increase in MSPs for kharif crops, which is much larger than the average increase seen in the past few years, will have a direct impact on food inflation and second round effects on headline inflation. A part of the increase in MSPs based on historical trends was already included in the June baseline projections. As such, only the incremental increase in MSPs over the average increase in the past will impact inflation projections. However, there is a considerable uncertainty and the exact impact would depend on the nature and scale of the government’s procurement operations. Second, the overall performance of the monsoon so far augurs well for food inflation in the medium-term. Third, crude oil prices have moderated slightly, but remain at elevated levels. Fourth, the central government has reduced Goods and Services Tax (GST) rates on several goods and services. This will have some direct moderating impact on inflation, provided there is a pass-through of reduced GST rates to retail consumers. Fifth, inflation in items excluding food and fuel has been broad-based and has risen significantly in recent months, reflecting greater pass-through of rising input costs and improving demand conditions. Finally, financial markets continue to be volatile. Based on an assessment of the above-mentioned factors, inflation is projected at 4.6 per cent in Q2, 4.8 per cent in H2 of 2018-19 and 5.0 per cent in Q1:2019-20, with risks evenly balanced. Excluding the HRA impact, CPI inflation is projected at 4.4 per cent in Q2, 4.7-4.8 per cent in H2 and 5.0 per cent in Q1:2019-20.
 
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16. Turning to the growth outlook, various indicators suggest that economic activity has continued to be strong. The progress of the monsoon so far and a sharper than the usual increase in MSPs of kharif crops are expected to boost rural demand by raising farmers’ income. Robust corporate earnings, especially of fast moving consumer goods (FMCG) companies, also reflect buoyant rural demand. Investment activity remains firm even as there has been some tightening of financing conditions in the recent period. Increased FDI flows in recent months and continued buoyant domestic capital market conditions bode well for investment activity. The Reserve Bank’s IOS indicates that activity in the manufacturing sector is expected to remain robust in Q2, though there may be some moderation in pace. Rising trade tensions may, however, have an adverse impact on India’s exports. Based on an overall assessment, GDP growth projection for 2018-19 is retained, as in the June statement, at 7.4 per cent, ranging 7.5-7.6 per cent in H1 and 7.3-7.4 per cent in H2, with risks evenly balanced; GDP growth for Q1:2019-20 is projected at 7.5 per cent.
 
17. Even as inflation projections for Q2 have been revised marginally downwards vis-à-vis the June statement, projections for Q3 onwards remain broadly unchanged. Several risks persist. First, crude oil prices continue to be volatile and vulnerable to both upside and downside risks. In particular, while geopolitical tensions and supply disruptions remain an upside risk to oil prices, the fall in global demand due to further intensification of protectionist trade policies could pull down oil prices. Second, volatility in global financial markets continues to impart uncertainty to the inflation outlook. Third, households’ inflation expectations, as measured by the Reserve Bank’s survey, have risen significantly in the last two rounds, which could influence actual inflation outcomes in the months to come. Fourth, manufacturing firms polled in the Reserve Bank’s industrial outlook survey have reported hardening of input price pressures in Q2 of 2018-19. However, if the recent softening of global commodity prices persists, it could mitigate some of the upward pressure on input costs. Fifth, though the monsoon has been normal temporally so far, its regional distribution needs to be carefully monitored in the context of key CPI components such as paddy. Sixth, in case there is fiscal slippage at the centre and/or state levels, it could have adverse implications for market volatility, crowd out private investment and impact the outlook for inflation. Seventh, uncertainty around the full impact of MSP on inflation will only resolve in the next several months once the price support schemes are implemented. Finally, the staggered impact of HRA revision by state governments may push headline inflation up. While the statistical impact of HRA revisions will be looked through, there is need to watch out for any second-round impact on inflation.
 
18. Against the above backdrop, the MPC decided to increase the policy repo rate by 25 basis points. The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis.
 
19. The MPC notes that domestic economic activity has continued to sustain momentum and the output gap has virtually closed. However, uncertainty around domestic inflation needs to be carefully monitored in the coming months. In addition, recent global developments raise some concerns. Rising trade protectionism poses a grave risk to near-term and long-term global growth prospects by adversely impacting investment, disrupting global supply chains and hampering productivity. Geopolitical tensions and elevated oil prices continue to be the other sources of risk to global growth.
 
20. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the decision; Dr. Ravindra H. Dholakia voted against the decision. The minutes of the MPC’s meeting will be published by August 16, 2018.
 
21. The next meeting of the MPC is scheduled from October 3 to 5, 2018.
 
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RBI's Second Bi-monthly Monetary Policy Statement

RBI logo
 
Following is the text of the Reserve Bank of India's Second Bi-monthly Monetary Policy Statement, 2018-19 issued here today, based on the resolution of its Monetary Policy Committee (MPC):
 
On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
 
increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent.
Consequently, the reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent.
 
The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
2. Since the last meeting of the MPC in April, global economic activity has continued to expand, though there has been some easing of momentum. Among advanced economies (AEs), the US economy began the year on a weak note on soft private spending and reduced residential investment; however, there seems to be a rebound in Q2:2018 with strong retail sales and improved employment data. The Euro Area growth decelerated in Q1; recent industrial production data as well as weak consumer and business sentiment suggest a loss of pace. The Japanese economy contracted in Q1, though it is expected to turn around in Q2 as indicated by recent data prints on exports and the manufacturing purchasing managers’ index (PMI).
 
3. Economic activity in major emerging market economies (EMEs) remained largely resilient. The Chinese economy maintained a strong momentum in Q1; more recent data on industrial production and PMI suggest that growth is likely to hold steady in Q2. The Russian economy appears to have picked up in recent months after a soft end to 2017; both manufacturing and services PMI rose in April. In South Africa, growth prospects have improved with the return of political stability as reflected in consumer confidence, manufacturing PMI and retail sales. In contrast, a stream of poor data from Brazil on high unemployment and soft industrial production show that the effects of recession linger.
 
4. Global trade growth has continued to strengthen, though geo-political tensions have contributed recently to declining export orders and air freight. Crude oil prices rose sharply till May 24 on heightened geo-political tensions, but moderated thereafter on expectations of easing of supplies by the Organisation of Petroleum Exporting Countries (OPEC) and Russia. Base metal prices, especially aluminium, have risen on account of US sanctions on Russia. Gold has witnessed selling pressure on a stronger dollar, but the metal gained last week on political uncertainty in the Euro Area. Inflation pressures have emerged in some key advanced and emerging economies, driven in part by rising commodity prices.
 
5. Financial markets have been driven mainly by monetary policy expectations and geo-political developments. Equity market performance has varied across regions with modest gains in the AEs on strong Q1 earnings and abating of trade tensions, while stocks in major EMEs have faced sell offs on a rising dollar and expectations of further rate hikes by the Fed. The 10-year sovereign yield in the US crossed 3 per cent in mid-May on strong economic data as well as expectations of tighter monetary policy and fiscal expansion, but softened subsequently on safe haven demand; yields softened in other key AEs as well. In most EMEs, however, bond yields have risen on reduced foreign appetite for their debt due to growing dollar shortage in the global market and on prospects of higher interest rates in AEs. In currency markets, the US dollar touched its highest level in May since December 2017. The euro depreciated significantly against the dollar reflecting a combination of factors, including soft growth data for the Euro Area, which suggested that monetary policy normalisation by the European Central Bank could be delayed, and political uncertainty in its southern periphery. EME currencies have, by and large, depreciated against the US dollar.
 
6. On the domestic front, the Central Statistics Office (CSO) released on May 31 the quarterly estimates of national income accounts for Q4:2017-18 and provisional estimates for 2017-18. Gross domestic product (GDP) growth for 2017-18 has been estimated at 6.7 per cent, up by 0.1 percentage point from the second advance estimates released on February 28. This increase in growth has been underpinned by a significant upward revision in private final consumption expenditure (PFCE) due especially to improved rural demand on the back of a bumper harvest and the government’s thrust on rural housing and infrastructure. Quarterly data suggest that the economy grew at 7.7 per cent in Q4:2017-18 – the fastest pace in the last seven quarters. Gross fixed capital formation (GFCF) growth accelerated for three consecutive quarters up to Q4.
 
7. On the supply side, estimates of agriculture and allied activities have been revised upwards, supported by an all-time high production of foodgrains and horticulture during the year. On a quarterly basis, agriculture growth increased sharply in Q4:2017-18. On April 16, the India Meteorological Department (IMD) forecast a normal south-west monsoon rainfall, which was reaffirmed on May 30. This augurs well for the agricultural sector.
 
8. Industrial growth also strengthened, reflecting the robust performance of manufacturing, which accelerated for three consecutive quarters in Q4. Capacity utilisation by manufacturing firms increased significantly in Q4:2017-18 as revealed in the latest round of the Reserve Bank’s order books, inventories and capacity utilisation survey (OBICUS). The output of eight core industries accelerated in April on account of a sharp expansion in coal production, which reached a 42-month peak. Cement output also posted double-digit growth for the sixth consecutive month in April. However, electricity generation slowed down. As per the early results of the Reserve Bank’s April-June round of the industrial outlook survey (IOS), activity is expected to expand at a lower rate in Q1:2018-19 due to a significant rise in input prices and perceptions of softening domestic and external demand conditions. However, the manufacturing PMI remained in an expansionary mode for the tenth consecutive month in May on the back of new domestic orders and exports.
 
9. Although services sector growth was revised downwards on account of lower growth in some constituents such as trade, hotels, transport & communication, and financial services, it remained robust. Construction activity recorded the highest growth in Q4 in the new series (base 2011-12). Various high frequency indicators also suggest resilient performance of the services sector. Improving sales of tractors and two-wheelers suggest strengthening of rural demand. Commercial vehicle sales also accelerated in April. Revenue-earning freight traffic of railways picked up, driven by improved movement in coal, fertilisers, and cement. Growth in passenger vehicle sales accelerated but port traffic decelerated for the third successive month in April. Domestic air passenger traffic rose significantly in April. Two key indicators of construction activity showed improvement – cement production growth accelerated and steel consumption turned around. Services PMI moved slightly into contraction in May, reflecting decline in business activity and stagnation in new orders.
 
10. Retail inflation, measured by the year-on-year change in the CPI, rose sharply to 4.6 per cent in April, driven mainly by a significant increase in inflation excluding food and fuel. Excluding the estimated impact of an increase in house rent allowances (HRAs) for central government employees, headline inflation was at 4.2 per cent in April, up from 3.9 per cent in March. Food inflation moderated for the fourth successive month, pulled down by vegetables due to lower than the usual seasonal increase in their prices, and pulses and sugar which continued to experience deflation. However, within the food group, inflation increased in respect of cereals, fruits, prepared meals, meat and fish.
 
11. Fuel group inflation declined for the fifth month in a row in April mainly on account of a fall in the inflation of liquefied petroleum gas in line with international prices, and electricity. However, inflation in other major items of fuel such as firewood and chips, dung cake, kerosene and coal inched up. Inflation in the transport and communication sub-group accelerated due to the firming up of international crude oil prices, even though the domestic pass-through to petrol and diesel was incomplete. Inflation also picked up in clothing, household goods and services, health, recreation, education, and personal care and effects.
 
12. The May 2018 round of the Reserve Bank’s survey of households reported a significant rise in households’ inflation expectations of 90 basis points (bps) and 130 bps, respectively, for three-month and one-year ahead horizons. Manufacturing firms polled in the Reserve Bank’s IOS reported input price pressures and an increase in selling prices in Q1:2018-19. Firms polled for the manufacturing PMI in May also showed a sharp increase in input and output prices. Farm inputs and industrial raw material costs have risen sequentially. Wage pressures in the rural sector moderated; however, those in the organised sectors remained firm.
 
13. Liquidity in the system remained generally in surplus during April-May 2018. During April, the Reserve Bank absorbed surplus liquidity of ?496 billion on a daily net average basis due to increased government spending, especially in the second half of the month. Reflecting easy liquidity conditions, the weighted average call rate (WACR) softened to 5.89 per cent in April (from 5.96 per cent in March). However, surplus liquidity in the system moderated considerably in the first half of May and the system moved into deficit in the third week of May mainly due to inflows on account of the goods and services tax (GST). The Reserve Bank conducted an open market operation purchase auction on May 17, 2018 to inject liquidity of Rs. 100 billion into the system. The system again turned into surplus in the last week of May reflecting mainly the payment of food subsidies. Surplus liquidity absorbed under the LAF on a daily net average basis declined to Rs. 142 billion in May. The WACR in May at 5.88 per cent remained broadly at the April 2018 level.
 
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14. India’s exports grew in April 2018 after a marginal dip in the preceding month, supported mainly by non-oil exports, particularly engineering goods and chemicals. Import growth decelerated sequentially in April 2018; a significant decline in imports of gold as well as pearl and precious stones more than offset the impact of rising crude oil prices. Nevertheless, the trade deficit expanded in March and April from its level a year ago. External financing remained comfortable in 2017-18. While net foreign direct investment in 2017-18 was broadly comparable with the previous year, net foreign portfolio flows were stronger due to a sharp turnaround in debt inflows. However, foreign portfolio investors withdrew US$ 6.7 billion on a net basis from the domestic capital market in 2018-19 (up to June 4) reflecting volatility in global financial markets. India’s foreign exchange reserves were at US$ 412 billion on June 1, 2018.
 
Outlook
 
15. The first bi-monthly resolution of 2018-19 in April projected CPI inflation in the range of 4.7-5.1 per cent in H1:2018-19 and 4.4 per cent in H2, including the HRA impact for central government employees with risks tilted to the upside. Excluding the impact of HRA revisions, CPI inflation was projected at 4.4-4.7 per cent in H1:2018-19 and 4.4 per cent in H2. Actual inflation outcomes since the April policy have evolved broadly on the lines of the projected trajectory. However, there has been an important compositional shift. While the summer momentum in vegetable prices was weaker than the usual pattern, there was an abrupt acceleration in CPI inflation excluding food and fuel.
 
16. The headline inflation outlook is driven primarily by two countervailing effects. On the one hand, CPI inflation excluding food and fuel rose sharply in April over March by 80 basis points to reach an ex-HRA level of 5.3 per cent, suggesting a hardening of underlying inflationary pressures. Furthermore, since the MPC’s meeting in early April, the price of Indian basket of crude surged from US$ 66 a barrel to US$ 74. This, along with an increase in other global commodity prices and recent global financial market developments, has resulted in a firming up of input cost pressures, as also confirmed in the Reserve Bank’s IOS for manufacturing firms in Q2:2018-19. The resulting pick-up in the momentum of inflation excluding food, fuel and HRA has imparted persistence into higher CPI projections for 2018-19. On the other hand, food inflation has remained muted over the past few months and the usual seasonal pickup delayed, softening the projections in the short run. Taking these effects into account, projected CPI inflation for 2018-19 is revised to 4.8-4.9 per cent in H1 and 4.7 per cent in H2, including the HRA impact for central government employees, with risks tilted to the upside. Excluding the impact of HRA revisions, CPI inflation is projected at 4.6 per cent in H1 and 4.7 per cent in H2.
 
17. Turning to the growth outlook, the CSO’s provisional estimates have placed GDP growth for Q4:2017-18 at 7.7 per cent – 70 basis points higher than that in Q3 – given the sharp acceleration in investment and construction activity. With improving capacity utilisation and credit offtake, investment activity is expected to remain robust even as there has been some tightening of financing conditions in recent months. Global demand has also been buoyant, which should encourage exports and provide a further thrust to investment. The sharp rise in petroleum product prices, however, is likely to impact disposable incomes. Consumption, both rural and urban, remains healthy and is expected to strengthen further. According to the early results of the Reserve Bank’s IOS, activity in the manufacturing sector is expected to moderate marginally in Q2:2018-19 on account of deterioration in the overall business situation and order book. On the basis of an overall assessment, GDP growth for 2018-19 is retained at 7.4 per cent as in the April policy. GDP growth is projected in the range of 7.5-7.6 per cent in H1 and 7.3-7.4 per cent in H2, with risks evenly balanced.
 
18. A major upside risk to the baseline inflation path in the April resolution has materialised, viz., 12 per cent increase in the price of Indian crude basket, which was sharper, earlier than expected and seems to be durable. Crude oil prices have been volatile recently and this imparts considerable uncertainty to the inflation outlook – both on the upside and the downside. Several other risks remain. First, global financial market developments have emerged as another important source of uncertainty. Second, the significant rise in households’ inflation expectations as gathered in the May 2018 round of the Reserve Bank’s survey could feed into wages and input costs in the coming months. However, the pass-through to output prices remains muted presently. Third, the staggered impact of HRA revisions by various state governments may push headline inflation up. While the statistical impact of HRA revisions will be looked through, there is a need to watch out for any second round impact on inflation. Fourth, the impact of the revision in the MSP formula for kharif crops is not possible to assess at this stage in the absence of adequate details. Fifth, as forecast by the IMD, if the monsoon is normal and well-distributed temporally and spatially, it may help keep food inflation benign.
 
19. Against the above backdrop, the MPC decided to increase the policy repo rate by 25 basis points and keep the stance neutral. The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis.
 
20. The MPC notes that domestic economic activity has exhibited sustained revival in recent quarters and the output gap has almost closed. Investment activity, in particular, is recovering well and could receive a further boost from swift resolution of distressed sectors of the economy under the Insolvency and Bankruptcy Code. Geo-political risks, global financial market volatility and the threat of trade protectionism pose headwinds to the domestic recovery. It is important that public finances do not crowd out private sector investment activity at this crucial juncture. Adherence to budgetary targets by the Centre and the States – which appears to be the case thus far – will also ease upside risks to the inflation outlook considerably.
 
21. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the decision. The minutes of the MPC’s meeting will be published by June 20, 2018.
 
22. The next meeting of the MPC is scheduled on July 31 and August 1, 2018.
 
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Rahul to address farmers in Mandsaur on June 6

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Congress President Rahul Gandhi will address a farmers' rally in Mandsaur of Madhya Pradesh on June 6 -- the day seven farmers had died in a police firing last year.
 
Gandhi threw his weight behind the farmers' protest in several states between June 1 and June 10, to observe the anniversary of Mandsaur firing.
 
In a tweet that came a day after a 10-day farmers' protest began on Friday, he said he would address a rally in Mandsaur on June 6 to highlight the agrarian issues afflicting the country.
 
"Every day, about 35 farmers commit suicide in our country. To attract government's attention towards the agrarian crisis, farmers are forced to protest for 10 days.
 
"To stand with them in the fight for the rights of our 'Annadata' (food provider), I will address a farmer's rally in Mandsaur on June 6," he said.
 
Farmers in the agrarian states of Punjab, Haryana, Maharashtra and Rajasthan on Friday joined the 10-day protest call given by various farmer organisations in Madhya Pradesh, who strew milk and other food items on the roads. 
 
In a statement, Congress spokesperson Randeep Singh Surjewala said: "Modi government's uncaring, unfeeling, insensitive, apathetic and thick-skinned attitude to the issues raised by 62 per cent of India's population - farmers - has precipitated into a nationwide protest by our 'Annadata'."
 
"The protest by farmers is a direct affirmation of the 'Kisan Virodhi' policies of Narendra Modi," he added.
 
He said: "While Mandsaur shooting is the symbol, the farmers across India are protesting against widespread rural indebtedness, non-remunerative prices and complete apathy of the Modi government."
 
He also accused the Bharatiya Janata Party-ruled Madhya Pradesh government of trying to suppress the protests by using illegal means in sheer desperation.
 
"It (state government) is panic stricken, as it even forced the farmers to sign ‘peace bonds' before the protest. Now the MP police has especially bought 17,000 new battens to take care of the protest," he said in the statement.
 
"Farmers have announced that they will not sell their produce in Mandis in cities. They are demanding the implementation of the Swaminathan Committee Report to avail cost+50 per cent MSP as promised by Prime Minister Narendra Modi. They are also demanding a complete loan waiver," it added.
 
IANS
 
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RBI's First Bi-monthly Monetary Policy Statement, 2018-19

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Following is the text of the Reserve Bank of India's First Bi-monthly Monetary Policy Statement, 2018-19 based on the resolution of its Monetary Policy Committee (MPC):
 
On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
• keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent.
 
Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent.
 
The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
2. Since the MPC’s last meeting in February 2018, global economic activity has gathered further momentum, both in advanced and emerging market economies, though financial market volatility and potential trade wars pose a threat to the outlook. Among advanced economies (AEs), the US economy, which ended 2017 on a slightly weak note, appeared to have bounced back in Q1:2018; the unemployment rate remains low with hiring around multi-month highs. In the Euro Area, economic activity remained buoyant, although consumer spending and factory activity slowed down due to the strengthening of the euro, but a consistently falling unemployment rate and elevated consumer confidence continued to underpin the strength of the economy. The Japanese economy registered eight straight quarters of growth till Q4:2017; available data for 2018 point to a slower start to the year with weak machinery orders and an easing manufacturing Purchasing Manager’s Index (PMI) in February-March.
 
3. Economic activity remained robust in emerging market economies (EMEs) in Q1:2018. The Chinese economy started the year on a strong note; retail sales picked up pace indicating robust consumption, while industrial production also registered a strong increase in Q1:2018 on improved mining and manufacturing activity. In Brazil, economic activity is gaining momentum, driven by higher commodity prices. The Russian economy continued to recover in Q1; industrial production expanded in January-February, after two months of contraction, while exports grew at a robust pace. In South Africa, leading indicators, viz., the manufacturing PMI and business confidence, improved in Q1.
 
4. World trade volume growth is expected to have been robust in Q1, as gauged from the data on container trade throughput, air freight and export orders. Crude oil prices have become volatile in the recent period. After softening in February from multi-year highs on increased production in the US, crude prices hardened in the second half of March, driven by rebalancing of supply by OPEC and Russia, and drawdown of US inventories. Metal prices have come under selling pressure, with copper touching a three-month low in March on uncertainty stemming from global trade protectionism and US monetary policy. Gold prices, which touched a two-month low in March, have recently witnessed some uptick on fears of intensification of a trade war. Inflation remains below target in many key AEs and EMEs.
 
5. Financial markets turned volatile in February-March, triggered by uncertainty regarding the pace of normalisation of US monetary policy, and concerns surrounding global trade. Equity markets globally have shed most of the gains of the previous quarter in a heavy sell off in February-March, caused by optimistic US job reports and the US imposition of new tariffs in Chinese goods. Yields in the US traded sideways on weaker than expected inflation pressures and the anticipated rate hike by the Fed. Yields in other major AEs have fallen, while among EMEs, they have remained divergent on country-specific factors. In currency markets, the US dollar, which recovered somewhat in early March on an optimistic outlook of the economy, shed most of its gains in the latter part of the month on a less hawkish stance of the Fed and on anxieties surrounding a possible trade war. Among other major currencies, the euro continued to appreciate on an improving growth outlook for the region. Most EME currencies have retreated in the wake of the recent market volatility and the improving US economic outlook, though investors continued to discriminate on country-specific factors.
 
6. Turning to the domestic economy, the Central Statistics Office (CSO) released its second advance estimates for 2017-18 on February 28, revising India’s real gross domestic product (GDP) growth marginally upward to 6.6 per cent from 6.5 per cent in the first advance estimates released on January 5. GDP growth in 2017-18 at 6.6 per cent was lower than 7.1 per cent in 2016-17 and the deceleration was broad-based, but each component revealed intra-year turning points. Private consumption growth – whose contribution to GDP growth in 2017-18 was 68 per cent – moderated in the second half. Goods and services tax (GST) implementation had an adverse, even if transient, effect on urban consumption through loss of output and employment in the labour-intensive unorganised sector. Government expenditure provided sustained support to aggregate demand, with a pick-up in pace in the second half. Gross fixed capital formation turned around in Q2 and accelerated in the second half – markedly so in Q3 – reflecting the first signs of a sustained expansion in capital goods production and a modest revival of construction activity. Net exports dragged down aggregate demand in 2017-18 due to a surge in imports and deceleration in exports in Q3, the latter being driven in part by GSTrelated working capital disruptions.
 
7. For Q4, high frequency indicators point to a further strengthening of demand conditions. Private consumption seems to be improving on the back of strong growth in domestic air passenger traffic and foreign tourist arrivals, rising sales growth of passenger vehicles and a strong upturn in the production of consumer durables. The growth in sales of two-wheelers and tractors reflects buoyant rural consumption. Capital goods production registered a 19-month high growth in January 2018, indicative of the likely traction in investment demand. Housing loans extended by banks have increased significantly, which is a positive for residential investment. External demand remains a weak link. Merchandise import growth has slowed because of gold imports; simultaneously export growth has also weakened. 
 
8. Turning to the supply side at a disaggregated sectoral level, the kharif foodgrains production for 2017-18 has been revised upward by 2.8 per cent in the second advance estimates released in February 2018 as compared with the first advance estimates released in September 2017. Total foodgrains production for 2017-18 is estimated at 277.5 million tonnes, up by 0.9 per cent from the level of 2016-17, with the production of rice, pulses and coarse cereals estimated to reach a record high. Wheat production is estimated to be lower than last year due to a decline in acreage and low soil moisture, but imports of 1.6 million tonnes and comfortable buffer stocks should cushion potential adverse effects. Horticulture production touched a new peak of 305.4 million tonnes in 2017-18, up by 1.6 per cent from last year.
 
9. For the year 2017-18 as a whole, the CSO estimates that value added in industry decelerated in relation to the previous year; in terms of quarterly performance, however, expansion set in by Q2 and was built upon in Q3 and Q4. This was mainly driven by the rebound in manufacturing. The manufacturing PMI remained in an expansionary mode for the eighth consecutive month in March, although there was some moderation in Q4. Assessment of overall business sentiment for manufacturing also improved in Q4 as reflected in the Reserve Bank’s Industrial Outlook Survey, driven by increasing output and new orders. Growth of value added in the services sector accelerated through the year, driven by trade, hotels, transport and communication and a significant pick-up in construction activity. Other high frequency indicators of services sector activity such as domestic air passenger traffic, international freight traffic, port traffic and commercial vehicles sales also expanded at a fair pace. The services PMI moved out of contraction and stabilised in March on a renewed increase in new business and strengthening expectations.
 
10. Retail inflation, measured by the year-on-year change in the CPI, fell from a high of 5.1 per cent in January to 4.4 per cent in February due to a decline in inflation in food and fuel. Excluding the estimated impact of an increase in the house rent allowances (HRA) for central government employees under the 7th central pay commission (CPC), the headline inflation for February was at 4.1 per cent. Food inflation declined by 120 bps in February, pulled down by a sharp decline in vegetable prices, especially of onions and tomatoes, along with continuing deflation in pulses. The fall in prices was also observed in other food components such as eggs, sugar, meat and fish, oils, spices, cereals and milk.
 
11. In the fuel and light group, inflation in respect of liquefied petroleum gas declined in line with international price movements. Furthermore, the rate of increase in prices of firewood and chips, and dung cake moderated.
 
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12. CPI inflation excluding food and fuel remained unchanged at 5.2 per cent for the third consecutive month in February, after rising from its trough in June 2017. Among its constituents, housing group inflation rose significantly, reflecting the HRA increase for central government employees. Excluding the HRA impact, inflation in this group was estimated markedly lower at 4.4 per cent. Inflation in the transport and communication group increased in February on account of the rise in petroleum product prices and transportation fares. Inflation either eased or remained at a low level in February in other major sub-groups such as household goods and services, recreation and amusement, education, and personal care and effects.
 
13. Households’ inflation expectations, measured by the March 2018 round of the Reserve Bank’s survey of households, edged up for both three-month and one-year ahead horizons. Manufacturing firms covered in the Reserve Bank’s Industrial Outlook Survey reported input price pressures and an increase in selling prices in Q4:2017-18, which are expected to continue in Q1:2018-19. Manufacturing and services firms polled by PMI also showed a rise in input and output prices in Q4. 
 
14. Liquidity in the system moved between surplus and deficit during February-March 2018. From a daily net average surplus of Rs. 272 billion during February 1-11, 2018, liquidity moved into deficit during February 12-March 1, reflecting a slowdown in government spending and large tax collections. After turning into surplus during March 2-15, the system moved into deficit again during March 16-22 mainly on account of quarterly advance tax outflows. Anticipating the seasonal tightening of liquidity at the end of March, the Reserve Bank conducted four additional longer tenor (24-31 days) variable rate repo operations aggregating Rs. 1 trillion, apart from the regular repo operations. In mid-March, additional liquidity of Rs. 1 trillion got released into the system through redemption of Treasury Bills issued under the Market Stabilisation Scheme (MSS) in April and May 2017. On the whole, the Reserve Bank injected Rs. 60 billion and Rs. 213 billion on a net daily average basis in February and March, respectively. The weighted average call rate (WACR) inched closer to the policy repo rate from 12 basis points below the policy rate in January to 7 bps in February, and 5 bps in March.
 
15. Merchandise export growth decelerated in January and February 2018, pulled down by a slowdown in exports of gems and jewellery, readymade garments and engineering goods. Import growth also moderated in February due to a decline in gold imports, lower growth in non-oil non-gold imports, and contraction in imports of transport equipment, vegetable oils and pulses. As import growth continued to exceed export growth in January-February, the trade deficit widened. The current account deficit increased in Q3:2017-18, primarily on account of the higher trade deficit. Net foreign direct investment moderated in April-January 2017-18 visà-vis the level a year ago. Foreign portfolio investors made net purchases in 2017-18, despite net sales in the wake of a global sell-off in February. India’s foreign exchange reserves were at US$ 424.4 billion on March 30, 2018.
 
Outlook
 
16. The 6th bi-monthly resolution of 2017-18 in February projected CPI inflation at 5.1 per cent in Q4:2017-18; and in the range of 5.1-5.6 per cent in H1:2018-19 and 4.5-4.6 per cent in H2, including the HRA impact, with risks tilted to the upside. Actual inflation outcomes in January-February averaged 4.8 per cent, largely reflecting the sharp decline in vegetable prices and significant moderation in fuel group inflation. The available information suggests that vegetable prices continued to moderate in March as well. Accordingly, inflation in Q4:2017-18 is now projected at 4.5 per cent.
 
17. Several factors are likely to influence the inflation outlook. First, with the sharp moderation in food prices in February-March, the inflation trajectory in H1:2018-19 is expected to be lower than the projection in the February statement, despite a likely reversal in food prices in H1. Overall food inflation should remain under check on the assumption of a normal monsoon and effective supply management by the Government. Second, international crude oil prices have become volatile in the recent period, with a distinct hardening bias in the second half of March, even as the increase in shale production was more than expected. This has adversely impacted the outlook for crude oil prices. Third, on current assessment, Indian domestic demand is expected to strengthen during the course of the year. Fourth, the statistical impact of an increase in HRA for central government employees under the 7th CPC will continue till mid-2018, and gradually dissipate thereafter.
 
18. Taking these factors into consideration, projected CPI inflation for 2018-19 is revised to 4.7-5.1 per cent in H1:2018-19 and 4.4 per cent in H2, including the HRA impact for central government employees, with risks tilted to the upside. Excluding the impact of HRA revisions, CPI inflation is projected at 4.4-4.7 per cent in H1:2018-19 and 4.4 per cent in H2.
 
19. Turning to the growth outlook, several factors are expected to accelerate the pace of economic activity in 2018-19. First, there are now clearer signs of revival in investment activity as reflected in the sustained expansion in capital goods production and still rising imports, albeit at a slower pace than in January. Second, global demand has been   improving, which should encourage exports and boost fresh investment. On the whole, GDP growth is projected to strengthen from 6.6 per cent in 2017-18 to 7.4 per cent in 2018-19 – in the range of 7.3-7.4 per cent in H1 and 7.3-7.6 per cent in H2 – with risks evenly balanced.
 
20. The MPC notes that there are several uncertainties surrounding the baseline inflation path. First, the revised formula for MSP as announced in the Union Budget 2018-19 for kharif crops may have an impact on inflation, although the exact magnitude will be known only in the coming months. Second, the staggered impact of HRA revisions by various state governments may push headline inflation up. While the statistical impact of the HRA revisions will be looked through, there is a need to watch out for any second round effects. Third, in case there is any further fiscal slippage from the Union Budget estimates for 2018-19 or the medium-term path, it could adversely impact the outlook on inflation. There are also risks to inflation from fiscal slippages at the level of states on account of higher committed revenue expenditure. Fourth, should the monsoon turn deficient temporally and/or spatially, it may have a significant bearing on food inflation. Fifth, firms polled in the Reserve Bank’s Industrial Outlook Survey expect input and output prices to rise, going forward. Sixth, recent volatility in crude prices has imparted considerable uncertainty to the near-term outlook.
 
21. Against the above backdrop, the MPC decided to keep the policy repo rate on hold and continue with the neutral stance. The MPC reiterates its commitment to achieving the medium term target for headline inflation of 4 per cent on a durable basis.
 
22. The MPC notes that growth has been recovering and the output gap is closing. This is also reflected in a pick-up in credit offtake in recent months. The large mobilisation of resources from the primary capital market should support investment activity further. While the domestic cyclical recovery is underway, the long-term growth potential is also expected to be reinforced by various structural reforms introduced in the recent past. On the downside, the deterioration in public finances risks crowding out private financing and investment. Furthermore, even as global growth and trade have been strengthening, rising trade protectionism and financial market volatility could derail the ongoing global recovery. In this unsettling global environment, it is especially important that domestic macroeconomic fundamentals are strengthened, deleveraging of distressed corporates and rebuilding of bank balance sheets persisted with, and the risk-sharing markets deepened.
 
23. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the monetary policy decision. Dr. Michael Debabrata Patra voted for an increase in the policy rate of 25 basis points. The minutes of the MPC’s meeting will be published by April 19, 2018.
 
 The next meeting of the MPC is scheduled on June 5 and 6, 2018.
 
NNN
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India-France Joint Statement

Prime Minister Narendra Modi with French President Emmanuel Macron before their bilateral talks, at Hyderabad House, in New Delhi on March 10, 2018.
Prime Minister Narendra Modi with French President Emmanuel Macron before their bilateral talks, at Hyderabad House, in New Delhi on March 10, 2018.
Following is the text of the Joint Statement issued by India and France during the state visit of French President Emmanuel Macron to India here today:
 
At the invitation of Prime Minister Shri Narendra Modi, the President of the French Republic, Mr. Emmanuel Macron paid a State Visit to India from 10 to 12 March 2018.
 
The two leaders co-hosted the Founding Summit of the International Solar Alliance in New Delhi on 11 March 2018. The leaders held wide ranging and constructive discussions and underlined the growing convergence between the two countries on regional and international issues.
 
On the occasion of the 20th anniversary of the strategic partnership between India and France, the first to be established by India, the two leaders reaffirmed their commitment to furthering it and decided to take it to a new level by agreeing to hold biennialsummits between the Prime Minister of India and the President of the French Republic. Both leaders agreed to deepen and strengthen the bilateral ties based on shared principles and values of democracy, freedom, rule of law and respect for human rights.
 
Recalling the valiant sacrifices made by Indian and French soldiers during the First World War, Prime Minister Modi expressed his willingness for India to participate in the closing of the First World War Centenary celebrations, which will take place on 11 November 2018 in Paris. He also welcomed the organization of the Paris Peace Forum on this occasion. President Macron thanked Prime Minister Modi for India’s support to this initiative.
 
I. Strategic Partnership
 
The leaders welcomed the signing of the "Agreement between the Government of the Republic of India and the Government of the Republic of France regarding the Exchange and Reciprocal Protection of Classified or Protected Information” between India and France, reflecting the high level of strategic trust between the two countries. Both sides also agreed to create an annual defence dialogue at the ministerial level.
 
The leaders appreciated the deepening interactions in the maritime domain for enhanced cooperation in the Indian Ocean Region. In that context, they welcomed the "Joint Strategic Vision of India-France Cooperation in the Indian Ocean Region”, as a guiding beacon for such partnership. The leaders reiterated that this cooperation will be crucial in order to maintain the safety of international sea lanes for unimpeded commerce and communications in accordance with the international law, for countering maritime terrorism and piracy, for building maritime domain awareness, for capacity building and for greater coordination in regional/international fora in the region.
 
The two leaders welcomed the signing of the "Agreement between the Government of the Republic of India and the Government of the Republic of France for the provision of reciprocal logistics support between their Armed Forces”, which seeks to extend logistical support on reciprocal access to respective facilities for Indian and French armed forces. The agreement is symbolic of the strategic depth and maturity reached in India-France defence ties.
 
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The leaders emphasized the importance of the regular joint military exercises. They welcomed the successful conduct of the Varuna naval exercise held in France in April 2017, and the Shakti army exercise held in France in January 2018. Both sideslooked forward to the next Varuna naval in India in the coming weeks and to the next Garuda air force exercise in France in 2019. Both sides affirmed their intention to enhance the level of joint military exercises and maintain the operational quality-level of these exercises in the future.
 
The two leaders noted with satisfaction the on-schedule progress in the implementation of acquisition related agreements, including the Rafale aircraft agreement signed in 2016. They also noted the commissioning of INS Kalvari, the first Scorpene submarine made in India by Mazagon Dock Shipbuilders Ltd., in collaboration with Naval Group, the French shipbuilder.
 
They looked forward to continue their discussions to expand and deepen the ongoing defence manufacturing partnerships. They acknowledged that the Make-in-India initiative offers a valuable opportunity for Indian and French defence enterprises to enter into arrangements for co-development and co-production of defence equipment in India, including through transfer of know-how and technologies to the mutual benefit of all parties. In this context, the leaders welcomed various joint ventures between Indian and French companies and reaffirmed their commitment to facilitate the establishment of new ones.
 
The leaders noted ongoing discussions between DRDO and SAFRAN on combat aircraft engine and encouraged necessary measures and forward looking approaches to facilitate early conclusion.
 
The two leaders reiterated their strong condemnation of terrorism in all its forms and manifestations including cross-border terrorism and terror-related incidents in France and India. Both leaders also affirmed that terrorism cannot be justified on any grounds whatsoever it may be and it should not be associated with any religion, creed, nationality and ethnicity. Recalling the joint statement on terrorism adopted by the two countries in January 2016, the two leaders reaffirmed their strong determination to eliminate terrorism everywhere it is to be found. They agreed that more must be done by the international community to stem terrorism financing and welcomed the organization of an International Conference on Fighting Terrorism Financing in Paris in April 2018 by the French government.
 
They also called upon all countries to work towards rooting out terrorist safe havens and infrastructure, disrupting terrorist networks and their financing channels, and halting cross-border movement of terrorists like Al Qaeda, Daesh/ISIS, Jaish-e-Mohammed, HizbulMujahideen, Lashkar-e-Tayabba, and their affiliates as well as terrorist groups threatening peace and security in South Asia and the Sahel region.
 
The two leaders in addition to pursuing the excellent cooperation between the intervention forces (NSG-GIGN) and the investigation agencies of the two countries, agreed to enhance operational cooperation between the Indian and French counter-terrorism agencies and launch a new cooperation effort to prevent and fight radicalization, in particular online. The two leaders agreed to strengthen counter-terrorism in Multilateral Fora such as UN, GCTF, FATF and G20 etc. They called upon all UN member countries to implement the UNSC Resolution 1267 and other relevant resolutions designating terrorist entities. The leaders also agreed to work together on early adoption of the Comprehensive Convention on International Terrorism (CCIT) in the UN.
 
They welcomed the conclusion of an Agreement on Prevention of the Illicit Consumption of and Reduction of Illicit Traffic in Narcotic Drugs, Psychotropic Substances and Chemical Precursors between the two countries aimed at effective institutional interaction and curbing transnational narcotics trafficking including disruption of terrorist financing.
 
In pursuance of the 2008 Agreement on the Development of Peaceful Uses of Nuclear Energy between India and France as well as the January 2016 roadmap of cooperation, the two leaders noted with satisfaction the conclusion of the Industrial Way Forward Agreement between NPCIL and EDF for the Implementation of six nuclear power reactor units at Jaitapur, Maharashtra, India.
 
The two leaders reiterated the goal of commencing works at the Jaitapur site around the end of 2018, and encouraged NPCIL and EDF to accelerate the contractual discussions in that respect. Once installed, the Jaitapur project will be the largest nuclear power plant in the world, with a total capacity of 9.6 GW. It will contribute, in addition to renewable energy, to achieving India’s goal of 40% non-fossil energy by 2030. In this context, they emphasized the need for the project to generate cost-effective electricity; economical and competitive financing package from the French side; reliable, uninterrupted and continued access to guaranteed fuel supply for the lifetime of the Jaitapur Nuclear Power Plants; and collaboration on transfer of technology and cost-effective localization efforts of manufacturing in India. The latter includes transfer of rights on technology to be mutually agreed.
 
They welcomed the understanding shared by the two parties on the enforcement of India’s rules and regulations on Civil Liability for Nuclear Damages applicable to the Jaitapur project. The understanding is based on the Civil Liability for Nuclear Damage Act 2010, the Civil Liability for Nuclear Damage Rules 2011, and compliance of India’s rules and regulations with the Convention on Supplementary Compensation for Nuclear Damage, ratified and notified to the IAEA.
 
The leaders welcomed the regular engagement between their atomic energy organizations and their growing collaboration in mutually beneficial scientific and training activities related to the peaceful uses of nuclear energy and particularly the cooperation between CEA/INSTN and DAE/GCNEP. They also appreciated the long-standing relations and continuing interactions between their nuclear regulatory authorities – India’s Atomic Energy Regulatory Board (AERB) and France’s Autorité de sûretéNucléaire (ASN) – which have facilitated sharing of valuable experiences, best practices and developments related to nuclear safety and regulatory issues.
 
Space Cooperation
 
Building on the historical and formidable linkages in the arena of civilian space, the leaders welcomed the "India-France Joint Vision for Space Cooperation” which spells out the concrete areas of future cooperation in this field. They acknowledged, in particular, the ongoing cooperation between their space agencies to realize the third joint satellite mission – TRISHNA, meant for eco-system stress and water use monitoring and also accommodation of French instrument on India’s OCEANSAT-3 satellite.
 
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II. Economic, Educational, Science & Technology, Cultural & People to People Cooperation
 
Prime Minister Modi and President Macron noted with satisfaction the depth of the ties between the two countries, particularly in the economic, educational, scientific, cultural and tourism sectors.
 
They welcomed the signing of a bilateral partnership agreement on migration and mobility, which will facilitate student and professional mobility between France and India by simplifying the conditions for entry and long term stay in the two countries.
Prime Minister Modi and President Macron appreciated the role of continuing people-to-people exchanges between the two countries and underscored the necessity of greater youth exchange programmes for promotion of understanding of each other’s cultures.
 
They welcomed in this regard the launch of the "France-India Programme for the Future”, a French initiative aimed at fostering youth exchanges,which are vital for future growth of India-France ties.
 
Economic Exchanges
 
The leaders noted with satisfaction the involvement of French companies in several new and ongoing manufacturing partnership projects in India. They were pleased with the robust expansion of research and development conducted by these companies in India. They equally highlighted the attractiveness of France for Indian investors.
 
Both sides noted with satisfaction the growth in bilateral trade during the recent period, and expressed their desire that this momentum be sustained with the aim of raising trade in goods to 15 billion euros by 2022. They encouraged SMEs and mid-cap companies to play a growing role in the economic and commercial exchanges between the two countries. Reaffirming their commitment to facilitate a conducive environment for enhancing bilateral trade and investment, the leaders:
 
a. Underlined the importance of regular and sustained economic cooperation dialogue through the India-France Joint Committee,
 
b. Welcomed the new recommendations presented by the Co-Chairs of the CEO Forum in Delhi in March 2018.
 
The two leaders stressed the importance of holding annually a Dialogue at the ministerial level to deepen cooperation in the economic and financial sectors.
 
Educational and S&T Cooperation
 
The leaders recognized with satisfaction a vibrant educational cooperation within the Governmental framework and amongst Universities and academic institutes and encouraged them to increase the number and quality of student exchanges, with the aim of reaching 10,000 students by 2020. They welcomed in this regard the signing of an agreement for the mutual recognition of degrees, which will facilitate the pursuit of higher education by Indian students in France and French students in India and enhance their employability. They welcomed the holding of the Knowledge Summit, the first Indo-French conference on research and higher education, in New Delhi on 10th and 11th March 2018.
 
Recognizing that skill development is a key priority for the two countries, both leaders welcomed the important role played by French companies in India in training and skilling of the Indian workforce and encouraged them to engage even more actively in the sector. Both sides looked forward to further tie ups and formal arrangements between skill development institutions and agencies of the two countries.
 
The leaders recognized with satisfaction, the role played by the Indo-French Centre for Promotion of Advance Research (CEFIPRA) and congratulated it on its 30th anniversary, which was celebrated in 2017. They encouraged CEFIPRA to expand its role through interactive continuum between research, market and societal needs by linking the discoveries from fundamental research and their technological applications. In order to expand the scope and content of the bilateral cooperation in science, technology and innovation, the leaders emphasized the need to convene the Joint Committee on S&T in 2018.
 
Cultural Exchanges
 
The two leaders lauded the success of ‘Namasté France’ festival organized in 2016, which featured 83 events in 41 cities of France, in highlighting Indian cultural heritage in France and the success of the third edition of ‘Bonjour India’, which featured 300 projects in 33 cities of India. The leaders greeted the year long ‘India@70’ celebrations being organized by India in France.
 
Noting the importance of literature in the promotion of friendly relations between the two countries, the leaders welcomed the participation of India as a Guest of Honour in the 42nd edition of ‘Salon du Livre de Paris’ (French Book Fair) in the year 2020. Reciprocally, France will participate as a Guest of Honour in New Delhi World Book Fair in 2022.
 
Prime Minister Modi and President Macron noted with satisfaction the strong upsurge in tourist exchanges between the two countries (+69% growth of Indian tourists to France since 2014). The two countries set the target of one million Indian tourists in France and 335,000 French tourists in India by 2020.
 
III. Partnership for the planet
 
The two sides reaffirmed their commitment to lead the fight against climate change, based on the principles of climate justice, fostering climate resilience and low greenhouse gas emissions development. They committed to fully implement the Paris Agreement at the COP24 and further on, under the United Nations Framework Convention on Climate Change (UNFCCC) as a part of an irreversible global process at combating climate change for the benefit of all humanity. They stressed the positive contribution of the One Plant Summit in Paris on 12 December 2017 to this objective.
The French President thanked the Indian Prime Minister for India’s support to the initiative to work on a Global Pact for the Environment.
 
International Solar Alliance
 
The two leaders welcomed the entry into force of the Framework Agreement of the International Solar Alliance (ISA) and looked forward to co-hosting the ISA Founding Conference on 11th March 2018 in New Delhi. The leaders underlined their commitment to furthering and deepening concrete projects and programmes under the aegis of ISA to mobilize affordable financing for massive solar energy deployment.
 
Renewable energy
 
The two leaders reaffirmed that the strengthening of the India-French technological cooperation on renewable energy was a common priority for encouraging the emergence and dissemination of innovation in all the sectors. They stressed the importance of mobilizing public and private funds to support the development of solar energy. In this regard, they welcomed the establishment, within the International Solar Alliance, of an international committee of chambers of industry, and the willingness of MEDEF, SER, FICCI and CII among others to join it.
 
Sustainable mobility
 
The leaders noted that efficient modes of transportation with low GHG emissions are an essential condition for the sustainable development and economic growth of India and France. They recalled the strong ambitions of the two countries with regard to the development of electric mobility. In this regard, they welcomed the signing of a Statement of Intent between the French Ministry for Ecological and Inclusive Transition and NITI Aayog, which will be supported by French technical assistance provided by French Development Agency (AFD).
 
The leaders reaffirmed the commitment of both countries to strengthening their railway cooperation and noted with satisfaction the completion of feasibility study for semi-high speed upgrade of the Delhi-Chandigarh section and station development study of Ambala and Ludhiana stations. Both sides agreed that future technical discussions on upgradation of speed of the Delhi-Chandigarh sector will necessarily take into account the passenger and freight traffic load on the section and the complexities it entails. The leaders also welcomed the establishment of a permanent Indo-French Railway Forum, bringing together the French Ministry of Ecological and Inclusive Transition, and SNCF (French Railways) on the one hand, and the Indian Ministry of Railways on the other, to pave the way for industrial cooperation between the two countries.
 
Smart Cities
 
Prime Minister Modi and President Macron noted with satisfaction the excellent Indo-French cooperation on sustainable cities and Smart Cities, marked by numerous cases of innovation sharing and fruitful collaborations between French and Indian stakeholders, They welcomed the exemplary cooperation programme in the three Smart Cities of Chandigarh, Nagpur, and Puducherry, and the extension of AFD’s technical assistance programme under the framework of this Mission. They welcomed the signing of the loan agreement between the AFD and the Government of India for 100 million euros in support of the Smart Cities Mission.
 
IV. Expanding Global Strategic Convergences
 
As Strategic Partners, the two countries share converging views on key regional and global issues and continue to consult and coordinate closely with each other on matters of common interest.
 
France reaffirmed its support for India’s candidature for a permanent membership of the UN Security Council. France and India share common concerns and objectives in the field of non-proliferation of weapons of mass destruction.
 
France welcomes India’s accession to the MTCR in June 2016, to the Wassenaar Arrangement in December 2017 and to the Australia Group in January 2018. Prime Minister Modi thanked President Macron for France’s leadership that led to India’s membership of the Wassenaar Arrangement. He also thanked France for supporting India’s membership of the Australia Group. In order to further strengthen global non-proliferation France reaffirmed its strong and active support to building consensus among regimes’ members on the issue of India’s membership of the Nuclear Suppliers Group, recognizing that India’s accession will add value to the aims and objectives of these regimes.
 
The leaders agreed that DPRK’s continued pursuit of nuclear and ballistic missile programmes and its proliferation links poses a grave threat to international peace and security, and called for the complete, verifiable, irreversible denuclearization of the Korean Peninsula, which has been endorsed by DPRK. Both sides stressed the need to hold accountable those who support or have supported DPRK’s nuclear and missile programmes. They also stressed the importance of unity of the international community in addressing this challenge, ensuring that all UNSC sanctions are fully implemented by the entire international community, so as to maximize pressure towards achieving a peaceful and comprehensive solution through dialogue.
 
India and France reaffirmed their support for the continued full implementation of the Joint Comprehensive Plan of Action (JCPOA) signed between Iran and the E3+3. They recognised the confirmation by the International Atomic Energy Agency (IAEA) that Iran is complying with its nuclear-related JCPOA commitments. The two countries called for the full and effective implementation of the deal, which has been endorsed by the UN Security Council and is a crucial contribution to the non-proliferation framework and international peace, stability and security. They called on all parties to implement fully UN Security Council resolution 2231.
 
Both leaders reaffirmed the primacy of the UN-led Geneva process for acomprehensive and peaceful resolution of the Syrian conflict through all-inclusive Syrian-led political process taking into account the legitimate aspirations of the people of Syria. Protection of civilians and access to humanitarian aid are fundamental and all parties to the conflict and their supporters are expected to live up to their commitments. Both leaders affirmed that they can be no military solution to the conflict and that the territorial integrity and sovereignty of Syria should be protected. They also emphasized the importance of the OPCW and stressed that under no circumstances should there be any use of chemical weapons.
 
The leaders reaffirmed their support for the strategic partnership between the European Union and India, based on shared principles and values, as well as a commitment to a rules-based international order. They agreed that India and the EU should deepen their cooperation on multilateral and security issues, as well as on economic, trade and climate change issues and welcomed the outcome of the 14th EU-India summit held in New Delhi on 6 October 2017. They expressed support to the efforts of both sides to re-engage actively towards timely relaunching of negotiations for a comprehensive and mutually beneficial EU-India Broad Based Trade and Investment Agreement (BTIA).
India and France acknowledged the importance of connectivity in today’s globalised world. They underlined that connectivity initiatives must be based on key principles of international norms, good governance, rule of law, openness, transparency; follow social and environmental standards, principles of financial responsibility, accountable debt-financing practices; and must be pursued in a manner that respects sovereignty and territorial integrity.
 
India and France are committed to implement the G20 decisions and to work together with other G20 members to achieve strong, sustainable, balanced and inclusive growth.
The leaders reaffirmed the crucial role of the rules-based multilateral trading system, and the importance of enhancing free, fair, and open trade for achieving sustainable growth and development. They reaffirmed their commitment to work together with all members of the WTO, which would reaffirm the centrality of the rules-based multilateral trading system and its importance for open and inclusive global trade.
 
India and France are willing to work together to improve the global economic and financial governance architecture, reduce excessive global imbalances, promote inclusive and interconnected development and tackle common global challenges, including terrorism, poverty, hunger, job creation, climate change, energy security, and inequality including gender inequality, as a basis for sustainable development.
 
Indian and France share a common interest to cooperate and collaborate for the stability and prosperity of Africa, including through development oriented initiatives such as capacity building programs and joint projects. Building on their first dialogue on Africa in June 2017 in Paris, both leaders reiterated their willingness to implement common projects on the ground. The leaders also welcomed the establishment of the G5 Sahel Joint Force, which demonstrates the willingness of African nations to take charge of their own security to address the threat of terrorism, as well as the serious challenges posed by transnational organized crime in the region.
 
The leaders reiterated their support to the Indian Ocean Rim Association (IORA) and the values it promotes. They shared their commitment to proactively contribute towards the priorities of IORA.
 
With the aim of broadening the canvas of such like-minded convergences, it was agreed to initiate regular expert level official dialogues on East Asia, as well as on the Middle East. An annual Policy and Planning Dialogue was also instituted between the two Foreign Ministries.
 
President Macron thanked Prime Minister Modi and the Government of India for the warm hospitality extended to him and his delegation and looked forward to welcoming him in France.
 
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India-Canada Joint Statement

Prime Minister Narendra Modi with Canadian Prime Minister Justin Trudeau in New Delhi, on  February 23, 2018
Prime Minister Narendra Modi with Canadian Prime Minister Justin Trudeau in New Delhi, on February 23, 2018
Following is the text of the joint statement issued by India and Canada during the state visit of Canadian Prime Minister Justin Trudeau here today:
 
"Partnership for Security and Growth"
 
Prime Minister of Canada, The Right Honourable Justin Trudeau, paid a State Visit to India from 18 to 24 February 2018 at the invitation of the Prime Minister of India Shri Narendra Modi.
 
The prime ministers met in New Delhi on February 23 and reaffirmed the breadth and scope of Canada-India relations, based on the fundamental principle of respect for sovereignty, unity and territorial integrity of the two countries. They reaffirmed their commitment to the ongoing diversification and growth of the strategic partnership, based on shared values of democracy, diversity, pluralism, and rule of law. The leaders also affirmed the importance of protecting and advancing human rights at home and abroad, promoting gender equality and the importance of civil society groups as a mainstay of democratic societies. They agreed to continue deepening their close ties and to leverage the complementarity between their two countries in key areas.
 
Towards this objective, the leaders agree on the following: 
 
Investing in Mutual Growth
 
i. To continue strengthening the government-to-government framework for cooperative economic engagements, the prime ministers welcomed the conclusion of, and progress on, cooperation agreements/MoUs in areas such as civil nuclear science and technology, education, audio-visual co-production, information technology, intellectual property and sports.
 
ii. To realize the full potential of bilateral trade and investment, both sides will renew efforts to expand and diversify bilateral economic and commercial relations. They will also intensify negotiations to finalize a Comprehensive Economic Partnership Agreement and a Bilateral Foreign Investment Promotion and Protection Agreement. 
 
iii. To encourage the private sectors to further explore investment opportunities in both countries, including through India's flagship programmes such as Make in India, Start-Up India, Digital India and Smart Cities, as well as Canadian programs such as the Innovation and Skills Plan, the Canadian Technology Accelerators, the Start-Up VISA Program and the Global Skills Strategy. The leaders welcomed the signing of commercial agreements which will create new economic opportunities and jobs in both countries. They applauded the launch of the Canada-India Accelerator Program for Women Tech Entrepreneurs, as well as the decision to convene a Canada-India Track 1.5 Dialogue on Innovation, Growth and Prosperity.
 
iv. The Prime Ministers emphasized the importance of ensuring access to sufficient, safe and nutritious food for all, and noted that transparency and predictability of market access conditions, including sharing of information on production of agricultural commodities, are key in advancing the food security goals of both countries. India and Canada will work closely together to finalize an arrangement within 2018 to enable the export of Canadian pulses to India free from pests of quarantine importance, with mutually acceptable technological protocols. The Canadian Food Inspection Agency will continue to work closely with the Agricultural and Processed Food Products Export Development Authority to facilitate access for Indian organic products.
 
Working Together on Climate Change, Oceans, Space and Clean Energy
 
v. To strengthen bilateral and international cooperation to address climate change and secure a clean energy future, they committed to promoting the implementation of the Paris Agreement. The leaders welcomed the initiative to establish the International Solar Alliance to promote renewable energy for sustainable development. They urged research institutions and industry in both countries to collaborate to promote greater use of solar technology.
 
vi. The leaders underscored the importance of accelerating the global transition to affordable, reliable, sustainable and modern energy sources and acknowledged that renewable energy is a pathway to a low-carbon and more sustainable energy system. In this regard, they agreed to work together to explore opportunities to use innovative financing mechanisms. They also agreed to the importance of providing clear and predictable signals for long–term investment and innovation in clean technologies and working at the global level to ensure universal access to affordable, reliable and modern energy services consistent with the Sustainable Development Goals.
 
vii. The leaders agreed to expand the scope of the Canada-India Ministerial Energy Dialogue to additionally include electricity, energy efficiency and renewables, and agreed to hold the fourth meeting of the Ministerial Energy Dialogue in Canada in 2018.
 
viii. The leaders welcomed the continuation of uranium exports from Canada for peaceful use of civil nuclear power. The leaders agreed to expand the ongoing mutually-beneficial civil nuclear cooperation by developing collaboration in nuclear science and technology. They welcomed the signing of an Agreement between the Department of Atomic Energy and the Department of Natural Resources Canada.
 
ix. To enhance geo-spatial collaboration and to consider Indian participation in Canadian Arctic research. The prime ministers also expressed satisfaction at the expansion of India-Canada space cooperation, including the launch of Canadian satellites.
 
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Advancing Gender Equality and Empowerment of Women and Girls
 
x. The leaders highlighted the importance of empowering women and girls in order to secure a more just and prosperous future for everyone. They recognized the importance of sexual and reproductive health and rights of women and girls and welcomed the announcement of new health innovations in India through Canada and India Grand Challenges. 
 
xi. The leaders underscored the commitment to combat all forms of gender-based violence and exploitation against women, girls and children. The leaders also affirmed their joint commitment to Agenda 2030 and the Sustainable Development Goals, underscoring their shared commitment to gender equality and the realization of human rights for women and girls across all spheres of economic, social, cultural and political life.
 
Building a More Peaceful and Secure World
 
xii. Recognizing that terrorism, violent extremism and radicalization to violence present acute challenges to global peace, stability and prosperity, the leaders resolved to combat terrorism and violent extremism in all their forms and manifestations. They called for bringing terrorists to justice and holding accountable state sponsors of terrorism, including cross-border terrorism. They further emphasized that no country should allow its territory to be used for terrorist and violent extremist activities.
 
xiii. Towards this end, the leaders agreed to expand security cooperation through institutionalization of NSA-level Dialogue and regular convening of Foreign Minister-level Strategic Dialogue. They welcomed the meetings of their national security advisors and of the bilateral counter-terrorism working group, which focused on practical measures to enhance cooperation in that sphere. In this regard, the leaders welcomed the agreement on a bilateral Framework for Cooperation on Countering Terrorism and Violent Extremism.
 
xiv. The leaders expressed strong concern at the prevailing security situation in Afghanistan and noted that terrorist activities pose a grave threat to peace, security and stability of Afghanistan and the region. They called for immediate cessation of violence, renunciation of links with international terrorism and dismantling of infrastructure of support to terrorism from across borders of Afghanistan. Both sides reaffirmed their support to the Government and the people of Afghanistan in their efforts to achieve an Afghan-led, Afghan-owned and Afghan-controlled national peace and reconciliation process and build a peaceful, secure, united, democratic, prosperous and pluralistic nation.
 
xv. To reaffirm the importance of lawful commerce and the freedom of navigation and over-flight throughout the Indo-Pacific region, in accordance with international law, including the rights and jurisdiction of states under UNCLOS. The leaders supported bolstering regional connectivity through transparent development of infrastructure and use of responsible debt financing practices, while ensuring respect for sovereignty and territorial integrity, the rule of law and environment.
 
xvi. Recognizing that Democratic People’s Republic of Korea’s continued enhancement of its nuclear and ballistic missile program poses a grave threat to regional security and global peace, the leaders called on DPRK to abide strictly by its international obligations and commitments. They called on all states to implement rigorously relevant U.N. Security Council resolutions and hold accountable all those that have supported DPRK’s nuclear and missile programmes.
 
xvii. The two leaders congratulated South Korea on the successful PyeongChang Winter Games and welcomed the participation of DPRK in the Games, expressing hope that sports cooperation would lead to easing of tensions on the Korean Peninsula and improvements in inter-Korean relations. 
 
xviii. The two leaders expressed strong concern about recent developments in Maldives and their implications for a free society. As leaders of parliamentary systems, they deplored the degradation of judicial independence and authority and of democratic institutions, as well as respect for fundamental freedoms, including those of speech and assembly, constitutional rights and obligations under international law. The Government of Maldives was urged to ensure early resumption of the political process after revoking the state of emergency and to allow democratic institutions, including the judiciary, to function independently in a fair and transparent manner.
 
xix. The two leaders discussed the humanitarian and security crisis in Rakhine State of Myanmar and across the border in Bangladesh. Canada and India call for the voluntary, safe and sustainable return of the people displaced, while stressing the importance of ensuring law and order and respect for human dignity in this process. They called for restoration of humanitarian access for relevant UN and other international organisations to facilitate the return process.
 
xx. To develop bilateral defence cooperation by exploring cooperation possibilities in diverse fields including cold climate training, enhancing naval interactions, and staff exchanges.
 
xxi. The two leaders affirmed cooperation on peacekeeping to provide an effective response to global challenges. They stressed the importance of integrating gender perspectives into peace and security activities and interventions in line with the women, peace and security agenda, including prevention of conflict-related sexual violence. 
 
xxii. The leaders agreed that Canada and India would coordinate on cyber security and addressing cyber crimes at bilateral and multilateral forums going forward.
 
xxiii. Prime Minister Modi thanked Prime Minister Trudeau for Canada’s support towards India’s accession to the MTCR, Wassenaar Arrangement and the Australia Group. Prime Minister Trudeau reaffirmed Canada’s strong support for India’s membership of the Nuclear Suppliers Group. 
 
Enhancing People-to-People Contacts
 
xxiv. Recognizing the dynamic role of people-to-people ties in the India-Canada partnership, the leaders reaffirmed their commitment to address consular issues of mutual concern through discussion between the concerned officials. They welcomed the expansion of direct air connectivity between Indian and Canadian cities. 
 
xxv. Noting the significant increase in number of Indian students in Canada, the leaders expressed satisfaction at the renewal of the MOU on higher education. They recognized the 50th Anniversary of the Shastri Indo-Canadian Institute in promoting understanding between India and Canada through academic activities and exchanges, with the support of both governments to the institute. The leaders also agreed on the benefits of supporting the arts, sports and cultural activities in each other’s country, and agreed to encourage collaboration between academia and think tanks. 
 
xxvi. The prime ministers also resolved to facilitate the movement of highly skilled persons from India to Canada under the Global Skills Strategy, to fully harness the complementarity between their technological capabilities and human resources.
Prime Minister Trudeau invited Prime Minister Modi to return to Canada at an early date. Prime Minister Modi accepted the invitation.
 
New Delhi
February 23, 2018
 
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Full Text: RBI's Sixth Bi-monthly Monetary Policy Statement, 2017-18

RBI logo
 
Following is the text of the Sixth Bi-monthly Monetary Policy Statement, 2017-18 and Resolution of the Monetary Policy Committee (MPC) issued by the Reserve Bank of India (RBI) here today: 
 
On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent.
 
Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent.
 
The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
2. Since the MPC’s last meeting in December 2017, global economic activity has gained further pace with growth impulses becoming more synchronised across regions. Among advanced economies (AEs), the Euro area expanded at a robust pace, supported by consumption and investment. Economic optimism alongside falling unemployment and low interest rates are supporting the recovery. The US economy lost some momentum with growth slowing down in Q4 of 2017 even as manufacturing activity touched a multi-month high in December. The Japanese economy continued to grow as manufacturing activity gathered pace in January on strong external demand, providing fillip to the already bullish business confidence.
 
3. Economic activity accelerated in emerging market economies (EMEs) in the final quarter of 2017. The Chinese economy grew above the official target, driven by strong domestic consumption and robust exports. However, some downside risks to growth remain, especially from easing fixed asset investment and surging debt levels. In Russia, strong private consumption, rising oil prices and high exports are supporting economic activity, although weak investment and economic sanctions are weighing on its growth prospects. In Brazil, data on household spending and unemployment were positive in Q4. However, recovery remains vulnerable to political uncertainty, which has dampened consumer confidence. South Africa continues to face challenges on both domestic and external fronts, including high unemployment and declining factory activity.
 
4. Global trade continued to expand, underpinned by strong investment and robust manufacturing activity. Crude oil prices touched a three-year high as production cuts by the OPEC coupled with falling inventories weighed on the global demand-supply balance. Bullion prices touched a multi-month high on a weak US dollar. Inflation remained contained in most AEs, barring the UK, on subdued wage pressures. Inflation was divergent in key EMEs due to country-specific factors.
 
5. Financial markets have become volatile in recent days due to uncertainty over the pace of normalisation of the US Fed monetary policy in view of January payrolls data showing rapidly accelerating wage growth and better than expected employment. The volatility index (VIX) has climbed to its highest level since Brexit. Equity markets have witnessed a sharp correction, both in AEs and EMEs. Bond yields in the US have hardened sharply, adding to the upward pressures seen during January, with concomitant rise in bond yields in other AEs and EMEs. Forex markets have become volatile as well. Until this episode of recent volatility, global financial markets were buoyed by investor appetite for risk, corporate tax cuts by the US, and stable economic conditions. Equity markets had gained significantly in January, driven by robust Chinese growth, uptick in commodity prices, and positive corporate sentiment in general. In currency markets, the US dollar had touched a multi-month low on February 1 on fiscal risks and improving growth prospects in other AEs.
 
6. On the domestic front, the real gross value added (GVA) growth as per the first advance estimates (FAE) released by the Central Statistics Office (CSO) is estimated to decelerate to 6.1 per cent in 2017-18 from 7.1 per cent in 2016-17 due mainly to slowdown in agriculture and allied activities, mining and quarrying, manufacturing, and public administration and defence (PADO) services.
 
7. Information available after the release of FAE by the CSO has, however, been generally positive. Manufacturing output boosted the growth of index of industrial production (IIP) in November. After a period of prolonged weakness, cement production registered robust growth in November-December, which along with continuing healthy growth in steel production led to acceleration of infrastructure goods production in November. The manufacturing purchasing managers’ index (PMI) expanded for the sixth consecutive month in January led by new orders. Assessment of overall business sentiment in the Indian manufacturing sector improved in Q3 as reflected in the Reserve Bank’s Industrial Outlook Survey (IOS). However, core sector growth decelerated in December due to contraction/deceleration in production of coal, crude oil, steel and electricity. Acreage in the case of wheat, oilseeds and coarse cereals was lower than last year. As a result, the shortfall in area sown for rabi crops increased to (-)1.5 per cent as on February 2 as compared with (-)1.0 per cent on December 29, 2017.
 
8. In the services sector, some of the high frequency indicators improved. Commercial vehicle sales growth touched an eight-year high in December. Cargo carried by sea, rail and air also registered higher growth in November, but showed mixed performance in December. Other indicators such as domestic and international air passenger traffic and foreign tourist arrivals grew at a fast pace in November-December. The services PMI expanded sequentially in December and January on the back of higher business activity.
 
9. Retail inflation, measured by the year-on-year change in the consumer price index (CPI), increased for the sixth consecutive month in December on account of a strong unfavourable base effect. After rising abruptly in November, food prices reversed partly in December, reflecting mainly the seasonal moderation, albeit muted, in prices of vegetables along with continuing decline in prices of pulses. Cereals inflation moderated with prices remaining steady in December. However, inflation in some components of food – eggs; meat and fish; oils and fats; and milk – increased. Fuel and light group inflation, which showed a sharp increase in November, softened somewhat in December, driven by moderation in electricity, LPG and kerosene inflation.
 
10. CPI inflation excluding food and fuel increased further in November and December, largely on account of increase in housing inflation following the implementation of higher house rent allowances (HRA) for government employees under the 7th central pay commission (CPC) award. Inflation also picked up in health and personal care and effects. Reflecting incomplete pass-through to domestic petroleum product prices, inflation in transport and communication remained muted in December. Inflation also slowed down in clothing and footwear, household goods and services, recreation, and education.
 
11. Households’ inflation expectations, measured by the Reserve Bank’s survey of households, remained elevated for both three-month ahead and one-year ahead horizons even as inflation expectation for one-year ahead horizon moderated marginally. Firms responding to the Reserve Bank’s Industrial Outlook Survey (IOS) continued to report input price pressures and increase in selling prices in Q3. This is also confirmed by manufacturing and services firms polled by PMI. Organised sector wage growth remained firm, while the rural wage growth decelerated.
 
12. The liquidity in the system continues to be in surplus mode, but it is moving steadily towards neutrality. The weighted average call rate (WACR) traded 12 basis points (bps) below the repo rate during December-January as against 15 bps below the repo rate in November. On some days in December and January, the system turned into deficit due to slow down in government spending and large tax collections, which necessitated injection of liquidity by the Reserve Bank. During the two weeks beginning December 16, 2017, the Reserve Bank injected average daily net liquidity of Rs. 388 billion into the system. For December as a whole, however, the Reserve Bank absorbed Rs. 316 billion (on a net daily average basis). As the system turned into deficit again in the fourth week of January, the Reserve Bank injected average net liquidity of Rs. 145 billion. For January, on the whole, the Reserve Bank absorbed Rs. 353 billion (on a net daily average basis).
 
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13. Merchandise exports bounced back in November and December. While petroleum products, engineering goods and chemicals accounted for three-fourths of this growth, exports of readymade garments contracted. During the same period, merchandise import growth accelerated sequentially with over one-third of the growth emanating from petroleum (crude and products) due largely to high international prices. Gold imports increased – both in value and volume terms – in December, after declining in the preceding three months. Pearls and precious stones, electronic goods and coal were major contributors to non-oil non-gold import growth. With import growth exceeding export growth, the trade deficit for December was US$ 14.9 billion.
 
14. Even though the current account deficit narrowed sharply in Q2 of 2017-18 on a sequential basis, it was higher than its level a year ago, mainly due to widening of the trade deficit. While net foreign direct investment (FDI) inflows moderated in April-October 2017 from their level a year ago, net foreign portfolio investment (FPI) inflows were buoyant in 2017-18 (up to February 1). India’s foreign exchange reserves were at US$ 421.9 billion on February 2, 2018.
 
Outlook
 
15. The December bi-monthly resolution projected inflation in the range of 4.3-4.7 per cent in the second half of 2017-18, including the impact of increase in HRA. In terms of actual outcomes, headline inflation averaged 4.6 per cent in Q3, driven primarily by an unusual pick-up in food prices in November. Though prices eased in December, the winter seasonal food price moderation was less than usual. Domestic pump prices of petrol and diesel rose sharply in January, reflecting lagged pass-through of the past increases in international crude oil prices. Considering these factors, inflation is now estimated at 5.1 per cent in Q4, including the HRA impact.
 
16. The inflation outlook beyond the current year is likely to be shaped by several factors. First, international crude oil prices have firmed up sharply since August 2017, driven by both demand and supply side factors. Second, non-oil industrial raw material prices have also witnessed a global uptick. Firms polled in the Reserve Bank’s IOS expect input prices to harden in Q4. In a scenario of improving economic activity, rising input costs are likely to be passed on to consumers. Third, the inflation outlook will depend on the monsoon, which is assumed to be normal. Taking these factors into consideration, CPI inflation for 2018-19 is estimated in the range of 5.1-5.6 per cent in H1, including diminishing statistical HRA impact of central government employees, and 4.5-4.6 per cent in H2, with risks tilted to the upside. The projected moderation in inflation in the second half is on account of strong favourable base effects, including unwinding of the 7th CPC’s HRA impact, and a softer food inflation forecast, given the assumption of normal monsoon and effective supply management by the Government.
 
17. Turning to the growth outlook, GVA growth for 2017-18 is projected at 6.6 per cent. Beyond the current year, the growth outlook will be influenced by several factors. First, GST implementation is stabilising, which augurs well for economic activity. Second, there are early signs of revival in investment activity as reflected in improving credit offtake, large resource mobilisation from the primary capital market, and improving capital goods production and imports. Third, the process of recapitalisation of public sector banks has got underway. Large distressed borrowers are being referenced for resolution under the Insolvency and Bankruptcy Code (IBC). This should improve credit flows further and create demand for fresh investment. Fourth, although export growth is expected to improve further on account of improving global demand, elevated commodity prices, especially of oil, may act as a drag on aggregate demand. Taking into consideration the above factors, GVA growth for 2018-19 is projected at 7.2 per cent overall – in the range of 7.3-7.4 per cent in H1 and 7.1-7.2 per cent in H2 – with risks evenly balanced.
 
18. The MPC notes that the inflation outlook is clouded by several uncertainties on the upside. First, the staggered impact of HRA increases by various state governments may push up headline inflation further over the baseline in 2018-19, and potentially induce second-round effects. Second, a pick-up in global growth may exert further pressure on crude oil and commodity prices with implications for domestic inflation. Third, the Union Budget 2018-19 has proposed revised guidelines for arriving at the minimum support prices (MSPs) for kharif crops, although the exact magnitude of its impact on inflation cannot be fully assessed at this stage. Fourth, the Union Budget has also proposed an increase in customs duty on a number of items. Fifth, fiscal slippage as indicated in the Union Budget could impinge on the inflation outlook. Apart from the direct impact on inflation, fiscal slippage has broader macro-financial implications, notably on economy-wide costs of borrowing which have already started to rise. This may feed into inflation. Sixth, the confluence of domestic fiscal developments and normalisation of monetary policy by major advanced economies could further adversely impact financing conditions and undermine the confidence of external investors. There is, therefore, need for vigilance around the evolving inflation scenario in the coming months.
 
19. There are also mitigating factors. First, capacity utilisation remains subdued. Second, oil prices have moved both ways in the recent period and can potentially soften from current levels based on production response. Third, rural real wage growth is moderate.
 
20. Accordingly, the MPC decided to keep the policy repo rate on hold and continue with the neutral stance. The MPC reiterates its commitment to keep headline inflation close to 4 per cent on a durable basis.
 
21. The MPC notes that the economy is on a recovery path, including early signs of a revival of investment activity. Global demand is improving, which should help strengthen domestic investment activity. The focus of the Union Budget on the rural and infrastructure sectors is also a welcome development as it would support rural incomes and investment, and in turn provide a further push to aggregate demand and economic activity. On the downside, the deterioration in public finances risks crowding out of private financing and investment. The Committee is of the view that the nascent recovery needs to be carefully nurtured and growth put on a sustainably higher path through conducive and stable macro-financial management.
 
22. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the monetary policy decision. Dr. Michael Debabrata Patra voted for an increase in the policy rate of 25 basis points. The minutes of the MPC’s meeting will be published by February 21, 2018.
 
23. The next meeting of the MPC is scheduled on April 4 and 5, 2018.
 
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India-Israel Joint Statement

Prime Minister Narendra Modi and his Israeli counterpart at a joint media interaction after their bilateral talks in New Delhi on January 15, 2018.
Prime Minister Narendra Modi and his Israeli counterpart at a joint media interaction after their bilateral talks in New Delhi on January 15, 2018.
The following is the text of the Joint Statement issued here today by India and Israel during the visit of Israeli Prime Minister Benjamin Netanyahu to India:
 
Prime Minister Benjamin Netanyahu’s visit to India from 14 to 19 January 2018 closes a momentous twenty fifth anniversary year of India-Israel relationship and its growing partnership. The summit level meetings between the Republic of India and the State of Israel that commenced with Prime Minister Narendra Modi’s historic visit to Israel from 4 to 6 July 2017, have further strengthened the bonds between the two governments and peoples and have consolidated the foundation for their Strategic Partnership.
 
The two Prime Ministers share a common vision for the relationship. They believe that in the next twenty-five years the two respective countries should strive to raise bilateral cooperation in diverse sectors to a qualitatively new level in consonance with our Strategic Partnership.
 
Both sides are working together on a Five Year Joint Work Plan for strategic cooperation in Agriculture and Water. Both sides also agreed to deepen cooperation in innovation, business and trade, space, homeland security and cyber, higher education and research, science and technology, tourism and culture. The two prime ministers noted with satisfaction the commencement and implementation of India-Israel development cooperation - three-year work programme in Agriculture (2018-2020) under the stewardship of the Israeli Ministry of Foreign Affairs (MASHAV) and the Ministry of Agriculture of India aimed at increasing farmers’ productivity and optimization of water use efficiency. The two Prime Ministers were apprised of state of progress on the twenty-eight Centres of Excellence that are being jointly established in different States of India, and noted with satisfaction that seven more Centres of Excellence have become operational in the last six months since the visit of the Prime Minister of India to Israel. The two Prime Ministers will be visiting Centre of Excellence in Vadrad, Gujarat and will inaugurate the Centre of Excellence in Bhuj, Gujarat, during this visit.
 
The Prime Ministers welcomed the completion of all formalities for the launch of the India-Israel Industrial R&D and Technological Innovation Fund (I4F) that was announced during Prime Minister Modi’s visit to Israel. During this visit, both the Prime Ministers will launch the first Call for Proposals under the fund to encourage enterprises from both countries to utilize this significant platform for undertaking joint R&D projects in innovative and futuristic technologies and products for the benefit of the two peoples. They underscored the role of youth in enhancing future collaboration in innovation, and have decided to commence an annual exchange of visits of one hundred youth from the science streams.
 
The two Prime Ministers commended the decision of the respective Ministries of Science and Technology to commence nine joint R&D projects in the areas of big data analytics in health care and security in cyber space, in pursuance of their decision in July 2017 to upgrade scientific and technological collaboration. Further, in order to build a strong network between the next generation of the best women scientists and technologists of the two countries, an India-Israel Women in STEM (Science, Technology, Engineering and Mathematics) Symposium will be organized in October, 2018 in India. The two Prime Ministers also noted with satisfaction that the Heads of the Indian Space Research Organization and the Israel Space Agency have met in November 2017 to discuss the implementation of the two MoUs and one Plan of Cooperation signed between the two space agencies.
 
The two Prime Ministers welcomed the initiation of cooperation between India and Israel in the energy sector with the signing of an MoU on Cooperation in the Oil and Gas sector that will promote, inter alia, collaboration in the upstream sectors, research and development in future technologies and start-ups in oil and gas. They also noted the intention of Indian public sector companies and Israeli companies to begin collaboration in the areas of metal air batteries for stationary energy storage systems and in solar thermal technologies, and urge industry on both sides to explore business collaboration in new energy technologies. Welcoming the initiative taken by India to establish the International Solar Alliance to promote renewable energy for sustainable development in the context of climate change, Israel declared its willingness to become a Partner Country. The two Prime Ministers urge research institutions and industry to collaborate, including in third countries, to promote greater use of solar technologies through the International Solar Alliance.
 
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The two Prime Ministers agreed that renewed efforts are required to realize the full potential for bilateral trade and investment, and took note of the next round of discussions between the two sides to be held in February 2018 in Israel. Underlining the role of the private sector in trade and investment, both Prime Ministers urged the private sector to actively explore investment opportunities in both countries, including through the India's flagship programmes such as Make in India, Start-Up India and Digital India. They also expressed their satisfaction that the India-Israel CEO Forum, established in July 2017 during Prime Minister Modi's visit to Israel, held its second meeting in India during this visit. In this context both Prime Ministers also recalled the importance of facilitating the movement of business persons through simplification of visa regulations, fast-tracking of visa applications, issuing of multiple entry visa, especially for the information technology and new technology sectors.
 
Recognizing the important contribution made by Indian caregivers in Israel, the two Prime Ministers agreed to embark upon negotiations in 2018 in order to move forward as speedily as possible and to the satisfaction of both sides towards an early bilateral agreement. In this respect, a delegation from India will be invited to Israel in the first half of 2018.
 
Noting that doing trade and business also requires better connectivity, the two Prime Ministers have decided to expedite the conclusion of an Agreement on Maritime Transport that will encourage greater business between the shipping organizations of India and Israel, and create new opportunities in maritime services and training. They hope that this Agreement will also encourage wider cooperation in development of maritime business and Israel’s participation in the Sagarmala Project.
 
The two Prime Ministers are convinced that enhanced people-to-people contacts will forge the strongest bonds of friendship between India and Israel in the future. They deemed it essential to enhance connectivity between the two countries through the signing of a Protocol Amending Air Transport Agreement to expand the scope of cooperation in the civil aviation sector.
 
An Indian Cultural Centre will open in Israel in 2018 in pursuance of the Prime Minister of India’s desire to promote greater cultural understanding. Both sides have signed an MoU in Film Co-Production in recognition of the role that films play in promoting people-to-people contact.
 
Both Prime Ministers agreed to holding Festivals of India and Israel in their respective countries in the Year 2019 as a further step to solidify friendship between the peoples of both countries.
 
Both Prime Ministers noted the readiness of Israeli companies to enter into joint ventures with Indian companies in the defence sector under the Make in India initiative. They consider it important to set the direction for developing more business models and partnerships for the joint ventures and joint manufacturing, including transfer of technology as well as joint research and development in defence and security fields. They call on the Defence Ministries to hold discussions in 2018 with active involvement of the public and private sectors, in order to create the basis for viable, sustainable and long term cooperation in the defence industry.
 
Recognizing the grave threat that terrorism poses to peace and security including from non-state actors, both Prime Ministers reiterated that there can be no justification for acts of terror on any grounds whatsoever and advocated strong measures against terrorists, terror organizations, those who sponsor, encourage or finance terrorism or provide sanctuary to terrorists and terror groups. They also noted with satisfaction that the next meeting of the Joint Working Groups on Homeland and Public Security will be held in February 2018. They reiterated the importance of building comprehensive cooperation in counter-terrorism, including cyber-space, and welcome the signing of the MoU on Cooperation in Cyber Security between India and Israel.
 
The two Prime Ministers understand the significance of sharing their respective development experiences with other countries. They agreed to explore ways to develop joint programmes of assistance for third countries in the areas of training, capacity building, and the development of small projects in the agriculture, water, health-care and education sectors. They asked their respective Foreign Ministries to commence discussions in this regard in 2018.
 
The two Prime Ministers discussed the developments pertaining to the Israeli-Palestinian Peace Process. They reaffirmed their support for an early resumption of peace talks between Israelis and Palestinians for arriving at a comprehensive negotiated solution on all outstanding issues, based on mutual recognition and effective security arrangements, for establishing a just and durable peace in the region.
 
The two Prime Ministers believe that durable and multifaceted cooperation is beneficial for the welfare of the people of both countries, and consider the next twenty five years as an opportune time to strengthen bonds between the peoples of India and Israel through activities that enhance understanding and create opportunities for mutual progress. They agree to continue high level exchanges and to maintain dialogue in all areas, and to work in practical ways for the benefit of their peoples.
 
Prime Minister Netanyahu thanked Prime Minister Modi, the people of India and Government of India for their gracious welcome and hospitality.
 
New Delhi                                                                                                         
January 15, 2018
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Full text: Letter written by four senior SC judges to CJI

Four senior Supreme Court judges -- Justice Jasti Chelameswar, Justice Ranjan Gogoi, Justice Madan Lokur and Justice Kurien Joseph -- addressing a press conference in New Delhi on January 12, 2018.
Four senior Supreme Court judges -- Justice Jasti Chelameswar, Justice Ranjan Gogoi, Justice Madan Lokur and Justice Kurien Joseph -- addressing a press conference in New Delhi on January 12, 2018.
The following is the text of the letter written by four senior Supreme Court judges -- Justices Jasti Chelameswar, Ranjan Gogoi, Madan Lokur and Kurian Joseph -- to the Chief Justice of India, Mr. Justice Dipak Misra and released by them to the media here today:
 
Dear Chief Justice,
 
It is with great anguish and concern that we have thought it proper to address this letter to you so as to highlight certain judicial orders passed by this Court which has adversely affected the overall functioning of the justice delivery system and the independence of the High Courts besides impacting the administrative functioning of the Office of the Hon’ble the Chief Justice of India.
 
From the date of establishment of three chartered High Courts of Calcutta, Bombay and Madras, certain traditions and conventions in the judicial administration have been well established. The traditions were embraced by this Court which came into existence almost a century after the above mentioned chartered High Courts. These traditions have their roots in the anglo saxon jurisprudence and practice.
 
One of the well settled principles is that the chief justice is the master of the roster with the privilege to determine the roster, necessity in multi-numbered courts for an orderly transaction of business and appropriate arrangements with respect to matters with which member/bench of this court (as the case may be) is required to deal with which case or class of cases is to be made. The convention of recognising the privilege of the chief justice to form the roster and assign cases to different members/benches of the court is a convention designed for a disciplined and efficient transaction of business of the court but not a recognition of any superior authority, legal or factual, of the chief justice over his colleagues. It is too well settled in the jurisprudence of this country that the chief justice is only the first amongst equals — nothing more or nothing less. In the matter of the determination of the roster there are well-settled and time-honoured conventions guiding the chief justice, be the conventions dealing with the strength of the bench which is required to deal with a particular case or the composition thereof.
 
A necessary corollary to the above mentioned principle is that any multi numbered judicial body including this Court will not arrogate to themselves the authority to deal with and pronounce upon matters which ought to be heard by appropriate benches, both composition wise and strength wise with due regard to the roster fixed.
 
Any departure from the above two rules would not only lead to unpleasant and undesirable consequences of creating doubt in the body politic about the integrity of the institution. Not to talk about the chaos that would result from such departure.
 
We are sorry to say that off late the twin rules mentioned above have not been adhered to. There have been instances where case having far reaching consequences for the Nation and the institution had been assigned by the chief justices of the court selectively to the benches “of their preference” without any rationale basis for such assignment. This must be guarded against at all costs.
 
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We are not mentioning details only to avoid embarrassing the institution but note that such departures have already damaged the image of this institution to some extent.
 
In the above context we deem it proper to address you presently with regard to the Order dated 27th October, 2017 in R.P. Luthra vs. Union of India to the effect that there should be no further delay in finalizing the Memorandum of Procedure in the larger public interest. When the Memorandum of Procedure was the subject matter of a decision of a Constitution Bench of this Court in Supreme Court Advocates-on-Record Association and Anr. vs. Union of India [ (2016) 5 SCC 1] it is difficult to understand as to how any other Bench could have dealt with the matter.
 
The above apart, subsequent to the decision of the Constitution Bench, detailed discussions were held by the Collegium of five judges (including yourself) and the Memorandum of Procedure was finalized and sent by the then Hon’ble the Chief justice of India to the government of India in March 2017. The Government of India has not responded to the communication and in view of this silence, it must be taken that the Memorandum of Procedure as finalized by the Collegium has been accepted by the Government of India on the basis of the order of this Court in Supreme Court Advocates-on-Record-Association (Supra). There was, therefore, no occasion for the Bench to make any observation with regard to the finalization of the Memorandum of Procedure or that that issue cannot linger on for an indefinite period.
 
On 4th July, 2017, a Bench of seven Judges of this Court decided InRe, Hon’ble Shre Justice C.S. Karnan (2017) 1SCC 1]. In that decision (refer to in R.P.Luthra), two of us observed that there is a need to revisit the process of appointment of judges and to set up a mechanism for corrective measures other than impeachment. No observation was made by any of the seven learned judges with regard to the Memorandum of Procedure.
 
Any issue with regard to the Memorandum of Procedure should be discussed in the Chief Justices’ Conference and by the Full Court. Such a matter of grave importance, if a all required t be taken on the judicial side, should be dealt with by none other than a Constitution Bench.
 
The above development must be viewed with serious concern. The Hon’ble Chief Justice of India is duty bound to rectify the situation and take appropriate remedial measures after a full discussion with the other members of the Collegium and at a later state, if required, with other Hon’ble Judges of this Court.
 
Once the issue arising from the order dated 27th October, 2017 in R.P.Luthra vs. Union of India, mentioned above, is adequately addressed by you and if it becomes so necessary, we will apprise you specifically of the other judicial orders passed by this Court which would require to be similarly dealt with.
 
With kind regards
 
J.Chellameshwar
Ranjan Gogoi
Madan B. Lokur
Kurian Joseph
 
NNN
 
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Full Text: RBI's Fifth Bi-monthly Monetary Policy Statement, 2017-18

RBI logo
 
Following is the text of the Fifth Bi-monthly Monetary Policy Statement, 2017-18 and Resolution of the Monetary Policy Committee (MPC) issued by the Reserve Bank of India (RBI) here today: 
 
On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent.
 
Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent.
 
The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
2. Since the last meeting of the MPC in October 2017, global economic activity has been gaining momentum through the final quarter of the year, driven mainly by advanced economies (AEs). US growth remained largely resilient to hurricanes and grew at the highest pace in the past three years in Q3 of 2017, with positive contributions from private consumption, investment activity and net exports. The unemployment rate fell to 4.1 per cent in October, the lowest in the last 17 years. In the Euro area, economic activity expanded, underpinned by accommodative monetary policy and strong job gains. The Japanese economy also continued to grow in Q3, largely supported by external demand, which helped compensate for the slowing of domestic consumption.
 
3. Among major emerging market economies (EMEs), the services sector remained the main driver of growth in China in Q3. However, weakness in real estate and construction activity remained a drag on growth. In Brazil, incoming data suggest that the recovery gained further momentum in Q3, with unemployment touching an intra-year low in September. Business and consumer confidence rose in October. Economic activity in Russia moderated in Q3 due to weakness in industrial production. The South African economy continued to face headwinds from weak manufacturing activity, elevated levels of unemployment and political instability.
 
4. The latest assessment by the World Trade Organisation (WTO) for Q4 indicates a loss of momentum in global trade due to declining export orders. Crude oil prices touched a two-and-a-half-year high in early November on account of the Organisation of the Petroleum Exporting Countries’ (OPEC) efforts to rebalance the market. Bullion prices have been under some selling pressure on account of the rising US dollar. Weak non-oil commodity prices and subdued wage dynamics have kept inflation contained in many AEs, while the inflation scenario remains diverse in major EMEs.
 
5. Global financial markets have remained buoyant, reflecting the improving economic outlook and the gradual normalisation of monetary policy by the US Fed. Equity markets have gained on improved corporate earnings and anticipation of large tax cuts in the US. Although equity markets have made gains in EMEs in general, they faced risk aversion in some economies. While bond yields in most AEs have moved sideways in the absence of inflation pressures, they have risen across most EMEs on country-specific factors. In currency markets, the US dollar has gained, while the surge in the euro on positive economic data lost some momentum in November due to political uncertainty. Several emerging market currencies weakened due to domestic factors. Capital inflows to EMEs have been differentiating among countries, based on investor perceptions of risk-return trade-offs.
 
6. On the domestic front, the growth of real gross value added (GVA) accelerated sequentially in Q2 of 2017-18, after five consecutive quarters of deceleration. It was powered by a sharp acceleration in industrial activity. All the three sub-sectors of industry registered higher growth. GVA growth in the manufacturing sector – the key component of industry – accelerated sharply on improved demand and re-stocking post goods and services tax (GST) implementation. The mining sector expanded in Q2 due to higher coal and natural gas production. GVA growth in the electricity, gas, water supply and other utility services sector also strengthened on higher demand. In contrast, growth in agriculture and allied activities slackened, reflecting the lower than expected kharif harvest. Activity in the services sector decelerated, mainly on account of slowdown in financial, insurance, real estate and professional services, and in public administration, defence and other services (PADO) following the large front-loading of government expenditure in Q1. Despite some improvement, construction sector growth remained tepid due to transitory effects of the RERA and GST implementation. Growth in the trade, hotels, transport and communication sub-group remained resilient, in spite of some slowdown in growth in Q2 as compared with the previous quarter. On the expenditure side, the growth of gross fixed capital formation improved for the second successive quarter. However, growth in private final consumption expenditure – the mainstay of aggregate demand – slowed to an eight-quarter low in Q2.
 
7. Looking beyond Q2, rabi sowing in Q3 has so far been marginally lagging behind the acreage sown during the comparable period of the previous year. Precipitation since October has remained at around 13 per cent below the long period average (LPA). Major reservoirs, the main source of irrigation during the rabi season, were at 64 per cent of the full reservoir level vis-a-vis 67 per cent in the previous year. On the positive side, pulses sowing increased significantly as compared with a year ago, partly reflecting the impact of lifting of the export ban for all varieties of pulses.
 
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8. Available high-frequency indicators suggest a mixed picture of industrial activity for Q3. Core industries’ growth was flat in October as all constituents barring steel and fertilisers slowed down sequentially. Coal mining, which revived strongly in Q2, slowed down too, while cement production contracted. In contrast, the Purchasing Managers’ Index (PMI) for manufacturing, which fell in October, rebounded in November, driven by output and new orders. Also, according to the Reserve Bank’s Industrial Outlook Survey (IOS), production is expected to pick up in Q3 as order books are rising.
 
9. Services sector activity has remained mixed in October. In the transportation sector, sales of commercial vehicles decelerated; those of passenger vehicles and two-wheeler turned into contraction mode. By contrast, domestic and international air passenger and freight traffic, and railway freight expanded robustly. The Reserve Bank’s survey suggests that sentiments on service sector activity for Q3 are upbeat and auto sales have rebounded in November. On the other hand, PMI for services moved into contraction zone in November.
 
10. Retail inflation measured by year-on-year change in the consumer price index (CPI) recorded a seven-month high in October, driven by a sharp uptick in momentum, tempered partly by some favourable base effects. Food inflation was volatile in the last two months – declining sharply in September and bouncing back in October – due mainly to vegetables and fruits. Milk and eggs inflation has shown an uptick, while pulses inflation remained negative for the eleventh successive month in October. Cereal inflation remained stable. Fuel group inflation, which has been on an upward trajectory since July, accelerated further due to a sharp pick-up in inflation in liquefied petroleum gas (LPG), kerosene, coke and electricity.
 
11. CPI inflation excluding food and fuel, which increased from July to September, remained steady in October. This reflected the softening of petroleum product prices on account of the reversal of taxes on petroleum products by the central and state governments. However, there was a hardening of housing inflation following the implementation of higher house rent allowances for central government employees under the 7th central pay commission award.
 
12. The Reserve Bank’s survey of households showed inflation expectations firming up in the latest round for both three months ahead and one year ahead horizons. Farm and industrial raw material costs rose in October. Firms responding to the Reserve Bank’s Industrial Outlook Survey expect to pass on the increase in input prices to their output prices. Turning to other costs, wage growth in the organised sector edged up, while rural wage growth weakened, particularly in agriculture.
 
13. Surplus liquidity in the system has continued to decline during October and November. Currency in circulation increased by Rs. 736 billion in Q3 (up to December 1, 2017) over end-September on festival demand. The Reserve Bank managed surplus liquidity through the conduct of regular variable rate reverse repo auctions of various tenors, ranging from overnight to 28 days. Net average daily absorption of liquidity under the LAF declined from Rs. 2,229 billion in September to Rs. 1,400 billion in October 2017 and further to Rs. 718 billion in November. The Reserve Bank conducted open market sales of Rs. 300 billion in October-November, taking the total absorption of durable liquidity during the financial year so far to Rs. 1.9 trillion, comprising Rs. 900 billion in the form of open market sales and Rs. 1 trillion of long-term treasury bills under the market stabilisation scheme. The weighted average call rate (WACR) traded 12 bps and 15 bps below the repo rate during October and November, respectively, as against 13 bps in September.
 
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14. Merchandise exports declined by 1.1 per cent in October 2017 after showing positive growth for 14 consecutive months. A sustained increase in exports of engineering goods, petroleum products and chemicals during the month was outweighed by a sharp fall in shipments of gems and jewellery, ready-made garments, and drugs and pharmaceuticals. Imports continued to expand, though at a modest pace. Although gold imports rose sequentially in October, they moderated from their level a year ago. Consequently, the trade deficit widened again in October. Despite moderation in September, net foreign direct investment in H1 of 2017-18 was at the same level as a year ago. With the announcement of the recapitalisation plan for public sector banks, foreign portfolio inflows into equities resumed sharply in October, after recording outflows in the preceding month. India’s foreign exchange reserves were at US$ 401.94 billion on November 30, 2017.
 
Outlook
 
15. The October bi-monthly statement projected inflation to rise and range between 4.2-4.6 per cent in the second half of this year, including the impact of increase in house rent allowance (HRA) by the Centre. The headline inflation outcomes have evolved broadly in line with projections. Going forward, the inflation path will be influenced by several factors. First, moderation in inflation excluding food and fuel observed in Q1 of 2017-18 has, by and large, reversed. There is a risk that this upward trajectory may continue in the near-term. Second, the impact of HRA by the Central Government is expected to peak in December. The staggered impact of HRA increases by various state governments may push up housing inflation further in 2018, with attendant second order effects. Third, the recent rise in international crude oil prices may sustain, especially on account of the OPEC’s decision to maintain production cuts through next year. In such a scenario, any adverse supply shock due to geo-political developments could push up prices even further. Despite recent increase in prices of vegetables, some seasonal moderation is expected in near months as winter arrivals kick in. Prices of pulses have continued to show a downward bias. The GST Council in its last meeting has brought several retail goods and services to lower tax brackets, which should translate into lower retail prices, going forward. On the whole, inflation is estimated in the range 4.3-4.7 per cent in Q3 and Q4 of this year, including the HRA effect of up to 35 basis points, with risks evenly balanced.
 
16. Turning to GVA projections, Q2 growth was lower than that projected in the October resolution. The recent increase in oil prices may have a negative impact on margins of firms and GVA growth. Shortfalls in kharif production and rabi sowing pose downside risks to the outlook for agriculture. On the positive side, there has been some pick up in credit growth in recent months. Recapitalisation of public sector banks may help improve credit flows further. While there has been weakness in some components of the services sector such as real estate, the Reserve Bank’s survey indicates that the services and infrastructure sectors are expecting an improvement in demand, financial conditions and the overall business situation in Q4. Taking into account the above factors, the projection of real GVA growth for 2017-18 of the October resolution at 6.7 per cent has been retained, with risks evenly balanced.
 
17. The MPC notes that the evolving trajectory needs to be carefully monitored. First, two of the key factors determining the cost of living conditions and inflation expectations, i.e., food and fuel inflation, edged up in November. Inflation expectations of households surveyed by the Reserve Bank have already firmed up and any increase in food and fuel prices may further harden these expectations. Second, rising input cost conditions as reflected in various surveys point towards higher risk of pass-through to retail prices in the near term. Third, implementation of farm loan waivers by select states, partial roll back of excise duty and VAT in the case of petroleum products, and decrease in revenue on account of reduction in GST rates for several goods and services may result in fiscal slippage with attendant implications for inflation. Fourth, global financial instability on account of the pace of/uncertainty over monetary policy normalisation in AEs and fiscal expansion in the US carry risks for inflation. The expected seasonal moderation in prices of vegetables, and fruits and the recent lowering of tax rates by the GST Council could mitigate upside pressures. Accordingly, the MPC decided to keep the policy repo rate on hold. However, keeping in mind the output gap dynamics, the MPC decided to continue with the neutral stance and watch the incoming data carefully. The MPC remains committed to keeping headline inflation close to 4 per cent on a durable basis.
 
18. In the MPC’s assessment, there have been several significant developments in the recent period which augur well for growth prospects, going forward. First, capital raised from the primary capital market has increased significantly after several years of sluggish activity. As the capital raised is deployed to set up new projects, it will add to demand in the short run and boost the growth potential of the economy over the medium-term. Second, the improvement in the ease of doing business ranking should help sustain foreign direct investment in the economy. Third, large distressed borrowers are being referenced to the insolvency and bankruptcy code (IBC) and public sector banks are being recapitalised, which should enhance allocative efficiency. However, the MPC notes that the impact of these factors can be buttressed by reducing the cost of domestic borrowings through improved transmission by banks of past monetary policy changes on outstanding loans.
 
19. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel were in favour of the monetary policy decision, while Dr. Ravindra H. Dholakia voted for a policy rate reduction of 25 basis points. The minutes of the MPC’s meeting will be published by December 20, 2017.
 
20. The next meeting of the MPC is scheduled on February 6 and 7, 2018.
 
NNN
 
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Highlights of Finance Ministry Presentation

Union Minister for Finance Arun Jaitley addressing a press conference, in New Delhi on October 24, 2017.
Union Minister for Finance Arun Jaitley addressing a press conference, in New Delhi on October 24, 2017.
The following are the highlights of the presentation made by Ministry of Finance Secretaries at a press conference held here today:
 
Strong Macro-Economic Fundamentals And Reforms for Sustained Growth 
 
I. INDIA A HAVEN OF MACROECONOMIC STABILITY
 
Strong economic growth
 
·            India grew at a very strong pace of 7.5% p.a. in the three years of 2014-17 with growth exceeding 8% in 2015-16.  There was a temporary slippage in growth in the last two quarters thanks to transitional effect of Demonetisation and GST.  That effect is now over, with all indicators – IIP, Core Sector, Index, automobile, consumer spending etc. pointing out a strong growth pick up, there is expectation of very good growth from second quarter of current year itself.
 
·            The current global economic outlook is marked by relatively stronger activity in both advanced economies and emerging market & developing economies. Global economic activity is on the course of gradual improvement and the world GDP is projected to grow at the rate of 3.6 per cent and 3.7 per cent in 2017 and 2018 respectively, after remaining subdued in 2016, when it was 3.2 per cent. Significant improvement in investment, trade, and industrial production, coupled with strengthening business and consumer confidence, are supporting the recovery.  This would also help in growth of exports which is reflected in strong export growth of 25.6% in September 2017 with April-September growth averaging nearly 12%.
 
Inflation has been brought under control
 
·            The decisive steps taken by the Government along with decline in crude prices from its high levels in 2013-14 and benign global prices of tradables helped the economy to get out from inflationary spiral to relatively stable prices. Inflation declined from nearly double digits in 2012-13 and 2013-14 to an average of less than 5 per cent since then. Between July 2016 and July 2017, the inflation rate was close to 2 per cent. Inflation based on CPI is currently within the target of 4 per cent and is expected to be close to 3.5 per cent for the financial year 2017-18. Inflation is currently well within the target of 4 per cent. However, the RBI has projecting it to increase to 4.2-4.6 per cent in the second half of the current financial year, a little higher than 4 per cent target, but within the range of 4+/-2 per cent.  
 
·            Headline inflation based on Consumer Price Index (Combined) averaged 4.9 per cent in 2015-16 as compared to 5.9 per cent in 2014-15. CPI inflation for 2016-17 averaged 4.5 per cent. The year-on-year inflation in April-September 2017 was 2.6 per cent as compared to 5.4 per cent in the corresponding period of the previous year.
 
External sector indicators have improved significantly despite global sluggishness
 
·         Along with lower inflation, lower level of current account deficit has brought about much of macro-economic stability in the last 3-4 years. Current account deficit was at dangerously high level of over 4 per cent in 2011-12 and 2012-13, leading to a significant instability in the exchange rate of the rupee. With significant improvement in the current account balance as reflected by lower levels of current account deficit, the volatility in the exchange rate also declined considerably.
 
·         World trade volume (goods and services) growth continued to decelerate in 2016 to 2.2 per cent from 2.8 per cent in 2015 (IMF’s WEO, October 2017). It is projected to pick up with growth of 4.2 per cent in 2017 and 4.0 per cent in 2018.
 
India’s merchandise trade
 
·         Exports declined in 2015-16 primarily on account of the sluggish global demand and imports declined due to steep decline in international crude oil prices as well as the decline in the prices of other commodities. During 2016-17, exports grew by 5.2 per cent while imports increased by 0.9 per cent, helping in narrowing the trade deficit. Merchandise exports and imports grew by 11.5 per cent and 25.1 per cent respectively in dollar terms during April-September 2017, resulting in widening of trade deficit from US$ 43.4 billion in April-September 2016 to US$ 73.1 billion in April-September 2017.
 
·         The current account deficit (CAD) for 2015-16 was 1.1 per cent of GDP as compared to 1.3 per cent of GDP in 2014-15. The CAD further narrowed to 0.7 per cent of GDP in 2016-17 on the back of the contraction in the trade deficit that narrowed to US$ 112.4 billion in 2016-17 from US$ 130.1 billion in 2015-16. However, current account deficit widened to US$ 14.3 billion (2.4 per cent of GDP) during Q1 2017-18 from US$ 0.4 billion (0.1 per cent of GDP) during Q1 2016-17, mainly on account of higher trade deficit in this period.
 
Robust foreign direct investment
 
The gross FDI flows to India in 2016-17 amounted to US$ 60.2 billion, as compared to US$ 55.6 billion in 2015-16 and US$ 45.1 billion in 2014-15, indicating the improved global confidence on the Indian economy. During April-August 2017, the gross FDI inflow in the economy was US$ 30.4 billion, higher as compared to the inflow of US$ 23.3 billion in the corresponding period of the previous year.
 
Foreign exchange reserves
 
Foreign exchange reserves stood at US$ 370 billion at the end of March 2017 as compared to 360.2 billion as at end March, 2016. As on 13th October 2017 the foreign exchange reserves exceeded US$ 400 billion. With increase in reserves in the last couple of years, most reserve-based external sector vulnerability indicators have improved.
 
Steady improvement in fiscal situation and fiscal consolidation is on track
 
There has been a steady consolidation of fiscal deficit in the last few years. Fiscal deficit of the central government had reached alarmingly high level of close to 6 per cent 2011-12 and averaged over 5 per cent between 2011-12 and 2013-14. The government is committed to fiscal consolidation path and has shown a steely resolve to reduce the fiscal deficit to 3.5 per cent of GDP in 2016-17 and further to 3.2 per cent as per the Budget estimates in 2017-18.
 
Fiscal deficit of the Government of India as a ratio of GDP was 3.9 per cent in 2015-16 and 3.5 per cent for 2016-17 [Revised Estimate] and is budgeted to be 3.2 per cent in 2017-18. Focus on expenditure rationalization with plugging loopholes in public expenditure and innovative revenue raising efforts have helped to achieve this.
 
From the angle of internal and external public debt stock, India does not face serious fiscal solvency related issues. Government of India’s total outstanding liabilities-to-GDP ratio is budgeted to decline from 46.7 per cent by year-end 2016-17(RE) to 44.7 per cent by year-end 2017-18.
 
Tax revenue (net to Centre) is increased by 16.8 per cent in 2016-17 (Provisional Actual) and it is budgeted to grow by 11.3 per cent in 2017-18.
 
Fiscal deficit during April-August is 96 per cent of the full-year budgeted fiscal deficit on account of front loading of expenditure, but we are reasonably confident that full year budgeted ratio of fiscal deficit of 3.2 per cent of GDP will not be breached.
 
II. TRANSFORMATIONAL REFORMS
 
Landmark Reform in the form of GST
 
Subsuming a large number of Central and state indirect taxes, the GST has been a landmark reform that has been implemented with effect from 1st July 2017. The launch of the GST represents an historic economic and political achievement, unprecedented in Indian tax and economic reforms, which has rekindled optimism on structural reforms. This has resulted in unified tax across the country and has helped in removing transport restrictions on the movement of goods resulting in their faster movement and help in creating common market, reduction in corruption and leakage and further help in Make in India programme. It is expected to provide boost to revenues, investment, and medium-term economic growth. Despite the teething troubles that the government and the GST Council are addressing, initial results in the form of revenue raised seem encouraging.
 
Insolvency and Bankruptcy Code
 
Another game changing reform has been The Insolvency and Bankruptcy Code, 2016 (Code) that was enacted on May 28, 2016, with an aim to consolidate the laws relating to insolvency of companies and limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals, presently contained in a number of legislations, into a single legislation. The Code provides a comprehensive, modern and robust insolvency and bankruptcy regime, at par with global standards and even better in some aspects.
 
The Government moved at a quick pace to implement the Code. About 2050 applications have been filed before NCLT so far, of which, 112 applications have been admitted and another 146 have been rejected or withdrawn. The default underlying admitted applications range from a few lakh of rupees to a few thousands of crores. The announcement of 12 large defaulters by the RBI will expand this sharply.
 
Crusade against Black Money including demonetization
 
The initiatives like: (a) Special Investigation Team on Black Money, constituted in May, 2014 for monitoring investigations and reviewing the framework for curbing black money; (b) Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, enacted w.e.f. 1st July 2015; (c) the Income Declaration Scheme, 2016; and (d) enactment of the comprehensive Benami Transactions (Prohibition) Amendment Act, 2016, w.e.f. 1st November, 2016 had made varying degrees of success in the fight against black money generation and holding. The follow-up to these measures in terms of demonetization of the high denomination notes w.e.f. the expiry of 8th November, 2016 effected a body blow on black money.
 
Housing Development
 
Government has announced various measures in the Budget 2017-18 to promote growth of the economy which, inter alia, include push to infrastructure development by giving infrastructure status to affordable housing, higher allocation to highway construction, focus on coastal connectivity. The other growth promotion measures include: lower income tax for companies with annual turnover up to Rs 50 crore; allowing carry-forward of MAT credit up to a period of 15 years instead of 10 years at present; further measures to improve the ease of doing business; and, major push to digital economy. The Budget also targeted to provide higher agricultural credit and to increase employment significantly.
 
Institutional reforms
 
Institutional reforms including expenditure rationalization and progressive elimination of leakages in public delivery through stress on targeting and direct benefit transfer; instituting a profoundly impactful financial inclusion programme; measures to improve policy transparency in governance and decision-making; Ujwal DISCOM Assurance Yojana (UDAY) programme for DISCOMs; liberalization of FDI norms in various sectors; and approval of National Intellectual Property Rights Policy for laying down the future roadmap for intellectual property in India.
 
Improved ease of doing business
 
The complementarities built around the flagship Make-in-India programme, including comprehensive measures for improving the ease of doing business, encouragement to budding entrepreneurial talent under the Start-up India and Stand-up India Initiatives and advertisement and global campaign, have evidently improved India’s global ranking as a business destination. India has launched eBiz platform for creating a business and investor friendly ecosystem by making all business and investment related clearances and compliances available on a 24x7 single portal, with an integrated payment gateway.
 
Radical changes in FDI policy regime; most sectors on automatic route for FDI
 
The Government radically liberalized the FDI regime on 20thJune 2016, with the objective of providing major impetus to employment and job creation.  This is the second major reform after the major changes announced in November 2015. Now most of the sectors would be under automatic approval route, except a small negative list. Changes introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionalities for foreign investment. With these changes, India is now one of the most open economies in the world for FDI.
 
Ambitious Disinvenstment Programme
 
Progressively higher revenues have been raised from disinvestment in public sector undertakings in the last three years and the government has a very ambitious target of raising much higher revenues in the current financial year.
 
 
Reaching Welfare Programme for poorest families in North-East Corners
 
In order to help the poorest of the poor, and to improve their living conditions, particularly that of women, the government has provided over 3 crore LPG connections between May 2016 and June 2017 which will replace the dirtier traditional fuels that are health hazard. Similarly in order to secure poor people from shocks of man-made and natural disasters, total enrolment under Pradhan Mantri Jeewan Jyoti Bima Yojana and Pradhan Mantri Swasthya  Bima Yojana was14 crore persons by September 2017.
 
 
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III. INFRASTRUCTURE PUSH
 
Government has consistently increased Public Expenditure on Infrastructure in order to boost employment and provide renewed impetus to economic growth. Government of India’s total expenditure this year has crossed Rs 11.47 lakhs crores (upto Sept ‘17), out of the budgeted expenditure Rs 21.46 lakhs cr. (an increase of Rs. 1.2 lakhs cr. over last year).
 
Special thrust of this drive is on key development sectors including Rural Roads, Housing, Railways, Power, Highways and Digital Infrastructure. The Capex target of Government of India for 2017-18 is Rs. 3.09 lakhs crores, which is 31.28% higher than last year, out of which Rs. 1.46 lakhs crores has been spent on capital works till September 2017. In addition, Government of India had fixed a Capital expenditure target for CPSEs for 2017-18 at Rs 3.85 lakhs crores, out which capex spending of Rs 1.37 lakhs crores has been achieved by CPSEs till Sept’17.
 
Railways
 
·         A target of Rs.1,31,000 crore has been made for Capital Expenditure for the Railways. Against the target, an expenditure of Rs.50,762 crore has been achieved. The main thrust is on upgrading the infrastructure to improve safety, laying of new lines and providing passenger amenities.
 
·         The following are the key among the capital works completed : New Lines (Construction) (Rs.4531.93 cr), Gauge Conversion (Rs.1842.24 cr), EBR-Partnerships (Rs.11504.29 cr), Track Doubling (Rs.4069.60 cr), Traffic Facilities (Rs.517.05 cr), Rolling Stock (Rs.8214.11 cr), Leased Assets-Principal Component (Rs.7781.97 cr), Road Over/Under Bridges (Rs.1068.09 cr), Track Renewals (Rs.2837.72 cr), Electrification Projects (Rs.1119.17 cr), Passenger Amenities (Rs.539.73 cr), Investment in JV/SPVs (Rs.1263.52 cr), Metropolitan Transport Projects (Rs.446.16 cr), etc.
 
Saubhagya (Pradhan Mantri Sahaj Bijli Har Ghar Yojana)
 
·         Under this program, Universal Electrification is being taken up to provide last mile connectivity and electricity connections to all remaining un-electrified households in the country by Mar ’19. This is an addition to the ongoing Scheme of Rural Electrification (Deen Dayal Upadhay Gram Jyoti Yojana).
 
·         Outlay proposed is Rs.16,320 crores, involving GoI support of Rs.12319.50 crores
 
Rural roads – PM Gram Sadak Yojana (PMGSY)
 
·         In order to complete Phase-I and II of PMGSY, Government of India, along with States, proposes to spend Rs. 88,185 crores over 3 years starting 2017-18. This will result in construction of 1,09,302 km of rural roads covering 36,434 habitations.
 
·         In addition, roads worth Rs 11,725 crores, involving 5411 km of upgradation of existing roads and construction of new roads in 44 LWE districts, will be completed by 2019-20.
 
PM Awas Yojana (PMAY) – Urban & Gramin
 
·         Universal Affordable Housing for All is being implemented and accelerated to give a big boost to the construction sector. Under PMAY (Urban), 1.2 crore units will be built with an outlay of 1,85,069 crores over next 3 years. Under PMAY (Gramin), 1.02 crore units will be built (51 lakhs units this year) with an outlay of Rs. 126,795 crores by Centre and States by March ’19.
 
Bharatmala Pariyojana
 
·         Taking forward it’s commitment to providing more efficient transportation, Government has debottlenecked the Roads sector and significantly stepped up the Highway development and road building program. In order to further optimise the efficiency of movement of goods and people across the country, Government is launching a new Umbrella program. This Road Building Program, for 83,677 km of roads involving capex of Rs.6.92 lakhs crores over next 5 years.
 
·         Out of this, Bharatmala Pariyojana to be implemented with an outlay of Rs.5,35,000 crores will 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 completion in 5 years by 2021-22 through NHAI, NHIDCL, MoRTH and State PWDs.
 
·         Substantial delegation of powers has been provided to NHAI, NHIDCL and Ministry of Road Transport & Highways to enable speedy implementation.
 
·         Funding for BMP: Rs.2.09 lakhs crores will be raised as debt from the market, Rs.1.06 lakhs crores of private 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 Monetisation proceeds and Toll collections of NHAI.
 
·         In addition to 34,800 km under Bharatmala, balance works of 48,877 km of works under other current schemes will be implemented in parallel by NHAI/MoRTH with an outlay of Rs.1.57 lakhs crores. This will be financed by providing Rs. 0.97 lakhs crores from CRF and Rs. 0.59 lakhs crores as Gross Budgetary support.
 
·         ToT Monetisation: For the first time ever, monetisation 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 cr. The 1st bundle of 9 NH stretches of 680.64 Km has been put out to tender by NHAI with potential monetization value of Rs. 6258 cr.
 
Given the strong macroeconomic fundamentals of the economy and the continued public spending at substantially enhanced levels in comparison to previous years, Government has taken several steps to improve the investment climate in the country. The comprehensive economic reforms undertaken by the government have resulted in unprecedented levels of foreign direct investment in the last 3 years. However, the domestic investment of the private sector continued to be affected by the growing contamination of loans advanced in the past, which have now become unsustainable.
 
Besides affecting the general investment climate these non-performing loans have also necessitated an unprecedented levels of provisioning, particularly in the public sector Banks. This in turn has affected their lending capabilities that has particularly affected the Medium and the Small scale sector. It may be seen that while many corporates have accessed the bond market in the recent past, it is the MSMEs that have been deprived of capital due to the inability of the Banks that are weighed down by the excessive burden of very demanding provisioning norms. This called for effective steps for creating a conducive environment in which PSBs could provide loans to the private sector, especially the Medium & Small Scale industries.
 
IV. RECAPITALIZATION OF PUBLIC SECTOR BANKS
 
·         Government Commits to Unprecedented Strengthening of Public Sector Banks
·         Rs. 2,11,000 Crore Front-loaded Bank Recapitalisation to Clean Up Legacy of NPAs
·         Credit Growth to Take-off through Recapitalised Banks
·         Banks to Give Big Push to MSMEs for Jobs and Growth
 
Government has decided to take a massive step to capitalise PSBs in a front-loaded manner, with a view to support credit growth and job creation. This entails mobilization of capital, with maximum 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 capitalisation of PSBs. Definite steps will be taken alongside capitalisation to enable them to play a major role in the financial system. PSBs having 70% 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’ campaign 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 companies will be roped in to cut down the appraisal process and generate quality loan applications. MSMEs will be handheld by extending support through:
 
ü  Compulsory TReDS (Trade Receivables electronic Discount System) registration by major PSUs within next 90 days, for shortening the cash cycle
ü  Sector-specific Mudra financial products, such as Mudra Leather, Mudra Textiles, etc.
ü  100 bank-approved MSME project templates for speedier credit
ü  Revamped udyamimitra.in portal, so that banks compete for financing MSME projects
ü  Drive for registering MSMEs on the GeM (Government electronic Marketplace) portal and e-commerce platforms
 
It may be recalled that aggressive loaning to sectors with excess capacity and poor due diligence created large stressed assets, which grew to 11.9% by March 2014.
 
Asset Quality Review (AQR) carried out in 2015 for clean and fully provisioned bank balance-sheets revealed high incidence of NPAs. Expected losses on stressed loans, not provided for earlier under flexibility given to restructured loans, were reclassified as NPAs and provided for. PSBs initiated cleaning up by recognising NPAs and provided for expected losses.
 
Gross NPAs in PSBs rose rapidly from 2015, from 5.43% (Rs. 2,78,466 crore) in March 2015 to 13.69% (Rs. 7,33,137 crore) as of June 2017. Provisioning for expected losses grew substantially. From 2014-15  to  2017-18 Q1, Rs. 3,79,080 crore provisioning was made, whereas during the preceding ten years total provisioning was Rs. 1,96,937 crore only. This was the right approach to dealing with expected losses on account of stressed loans.
 
Government recapitalised and initiated other reforms alongside the cleaning-up exercise, to make PSBs transparent and more efficient. Bank Board Bureau was set up, and steps were taken to appoint non-Executive Chairmen in PSBs.
 
Indradhanush Plan for recapitalising and revamping PSBs was announced by the Government on 14.8.2015. Government envisaged capital need of Rs. 1,80,000 crore till 2018-19. Accordingly, Government made provision   of  Rs.  70,000   crore   and projected market-raising of capital by banks to the tune of Rs. 1,10,000 crore. So far, Government has infused capital of Rs. 51,858 crore in PSBs.  PSBs, under stress due to AQR and NPA recognition, have so far been able to raise Rs. 21,261 crore from the market. The launch of Indradhanush before the sharing of AQR findings by RBI with PSBs in December 2015 enabled PSBs to successfully remain Basel III compliant despite high NPA and consequential provisioning requirement identified through AQR. The present decision further builds upon Indradhanush.
 
Government also undertook several legislative changes to facilitate recovery and resolution of stressed assets. The Insolvency and Bankruptcy Code, 2016 was enacted as a unified framework for resolving insolvency and bankruptcy matters. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (which governs Debt Recovery Tribunals) were amended in 2016 to facilitate faster recovery. Further, the Banking Regulation Act, 1949 was amended this year to enable Government to authorize RBI to direct banks to initiate the insolvency resolution process under the Insolvency and Bankruptcy Code.
 
These bold steps taken over the last three years not only addressed legacy issues but gave a strong impetus to reforms aimed at rebuilding the strength of PSBs. The process of building stronger, bigger banks has begun with the consolidation of State Bank of India and the announced recapitalisation will give it greater impetus. A differentiated approach will be followed for this, based on the strengths of each PSB.
 
The unprecedented recapitalisation and the initiatives announced today are expected to have a noticeable impact in the near-term, contributing to accelerated economic activity, employment and growth of the economy.
 
V. STRONGER ECONOMIC GROWTH AHEAD
 
The real growth of the economy as measured by the GDP growth showed a steady improvement when it averaged 7.5 per cent between 2014-15 and 2016-17 vis-à-vis 5.9 per cent in the previous two years. Although there has been some reduction in the growth in the last few quarters, one expects it to be a temporary blip and going by the available indicators the downslide seems to have bottomed out and can expect the GDP growth to start rising again.
 
As per the 4thAdvance Estimates of production of food-grains released by Department of Agriculture, Cooperation and Farmers Welfare for 2016-17, the production of total food-grains is expected to be 275.7 million tonnes, 9.6 per cent higher as compared to last year’s total food-grains production of 251.6 million tonnes. As per the 1st Advance Estimates for 2017-18, the foodgrains output for Kharif season is likely to be 134.67 million tonnes as against 138.52 million tonnes as per the 4thAdvance Estimates of 2016-17.
 
Despite subdued global economic condition and resulting lower levels of demand for India’s exports demand, the Index of Industrial Production (IIP) grew by 4.6 per cent during 2016-17 as compared to a growth of 3.3 per cent in 2015-16 (as per the revised IIP series. During April-August 2017 the general IIP growth was 2.2 per cent as compared to a growth of 5.9 per cent in the same period of previous year. During August 2017, the IIP registered a growth of 4.3 per cent, significantly higher than the growth of (-) 0.2 per cent in June and 0.9 per cent in July 2017. The sales of passenger vehicles registered a growth of 11.3 per cent for September 2017 and 9.2 per cent for April-September. Similarly, the sales of commercial vehicles increased by 25.3 per cent in September 2017 and 6 per cent for April-September 2017.
 
As per IMF’s assessment in October 2017, India’s growth is expected to be at 6.7 per cent in 2017 and 7.4 per cent in 2018. IMF has also projected that India’s growth would increase to 8.2 per cent by 2022. China’s growth in 2016 was 6.7 per cent and is expected to be at 6.8 per cent and 6.5 per cent in 2017 and 2018 respectively.  We expect strong growth rebound in the quarters and years ahead – may be better than even IMF’s projections.
 
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Full text: RBI's Fourth Bi-monthly Monetary Policy Statement, 2017-18

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Following is the text of the Fourth Bi-monthly Monetary Policy Statement, 2017-18 and Resolution of the Monetary Policy Committee (MPC) issued by the Reserve Bank of India (RBI) here today: 
 
On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
• keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent.
 
Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent.
 
The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
2. Since the MPC’s meeting in August 2017, global economic activity has strengthened further and become broad-based. Among advanced economies (AEs), the US has continued to expand with revised Q2 GDP growing at its strongest pace in more than two years, supported by robust consumer spending and business fixed investment. Recent hurricanes could, however, weigh on economic activity in the near-term. In the Euro area, the economic recovery gained further traction and spread, underpinned by domestic demand. While private consumption benefited from employment gains, investment rose on the back of favourable financing conditions. The Euro area purchasing managers’ index (PMI) for manufacturing soared to its highest reading in more than six years. The Japanese economy continued on a path of healthy expansion despite a downward revision in growth since March 2017 on weaker than expected capital expenditure.
 
3. Among the major emerging market economies (EMEs), strong growth in Q2 in China was powered by retail sales, and imports grew at a rapid pace, suggesting robust domestic demand; investment activity, however, slowed down. The Brazilian economy expanded for two consecutive quarters in Q2 on improving terms of trade, even as the impact of recession persists on the labour market. Economic activity in Russia recovered further, supported by strengthening global demand, firming up of oil prices and accommodative monetary policy. Although South Africa has emerged out of recession in Q2, the economy faces economic and political challenges. 
 
4. The latest assessment by the World Trade Organisation (WTO) indicates a significant improvement in global trade in 2017 over the lacklustre growth in 2016, backed by a resurgence of Asian trade flows and rising imports by North America. Crude oil prices hit a two-year high in September on account of the combined effect of a pick-up in demand, tightening supplies due to production cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and declining crude oil inventories in the US. Metal prices have eased since mid-September on weaker than expected Chinese industrial production data. Bullion prices touched a year’s high in early September on account of safe-haven demand due to geo-political tensions, before weakening somewhat in the second half. Weak non-oil commodity prices and low wage growth kept inflation pressures low in most AEs and subdued in several EMEs, largely reflecting country-specific factors.
 
5. Global financial markets have been driven mainly by the changing course of monetary policy in AEs, generally improving economic prospects and oscillating geo-political factors. Equity markets in most AEs have continued to rise. In EMEs, equities generally gained on improved global risk appetite, supported by upbeat economic data and expectations of a slower pace of monetary tightening in major AEs. While bond yields in major AEs moved sideways, they showed wider variation in EMEs. In currency markets, the US dollar weakened further and fell to a multi-month low in September on weak inflation, though it recovered some lost ground in the last week of September on a hawkish US Fed stance and tensions around North Korea. The euro surged to a two and a half year high against the US dollar towards end-August on positive economic data, whereas the Japanese yen experienced sporadic bouts of volatility triggered by geo-political risks. Emerging market currencies showed divergent movements and remained highly sensitive to monetary policies of key AEs. Capital flows to EMEs have continued, but appear increasingly vulnerable to the normalisation of monetary policy by the US Fed.
 
6. On the domestic front, real gross value added (GVA) growth slowed significantly in Q1 of 2017-18, cushioned partly by the extensive front-loading of expenditure by the central government. GVA growth in agriculture and allied activities slackened quarter-on-quarter in the usual first quarter moderation, partly reflecting deceleration in the growth of livestock products, forestry and fisheries. Industrial sector GVA growth fell sequentially as well as on a y-o-y basis. The manufacturing sector – the dominant component of industrial GVA – grew by 1.2 per cent, the lowest in the last 20 quarters. The mining sector, which showed signs of improvement in the second half of 2016-17, entered into contraction mode again in Q1 of 2017-18, on account of a decline in coal production and subdued crude oil production. Services sector performance, however, improved markedly, supported mainly by trade, hotels, transport and communication, which bounced back after a persistent slowdown throughout 2016-17. Construction picked up pace after contracting in Q4 of 2016-17. Financial, real estate and professional services turned around from their lacklustre performance in the second half of 2016-17. Of the constituents of aggregate demand, growth in private consumption expenditure was at a six-quarter low in Q1 of 2017-18. Gross fixed capital formation exhibited a modest recovery in Q1 in contrast to a contraction in the preceding quarter.
 
7. Turning to Q2, the south-west monsoon, which arrived early and progressed well till the first week of July, lost momentum from mid-July to August – the crucial period for kharif sowing. By end-September, the cumulative rainfall was deficient by around 5 per cent relative to the long period average, with 17 per cent of the geographical area of the country receiving deficient rainfall. The live storage in reservoirs fell to 66 per cent of the full capacity as compared with 74 per cent a year ago. The uneven spatial distribution of the monsoon was reflected in the first advance estimates of kharif production by the Ministry of Agriculture, which were below the level of the previous year due to lower area sown under major crops including rice, coarse cereals, pulses, oilseeds, jute and mesta.
 
8. The index of industrial production (IIP) recovered marginally in July 2017 from the contraction in June on the back of a recovery in mining, quarrying and electricity generation. However, manufacturing remained weak. In terms of the use-based classification, contraction in capital goods, intermediate goods and consumer durables pulled down overall IIP growth. In August, however, the output of core industries posted robust growth on the back of an uptick in coal production and electricity generation. The manufacturing PMI moved into expansion zone in August and September 2017 on the strength of new orders. 
 
9. On the services side, the picture remained mixed. Many indicators pointed to improved performance even as the services PMI continued in the contraction zone in August due to low new orders. In the construction segment, steel consumption was robust. In the transportation sector, sales of commercial and passenger vehicles as well as two and three-wheelers, railway freight traffic and international air passenger traffic showed significant  upticks. However, cement production, cargo handled at major ports, domestic air freight and passenger traffic showed weak performance.
 
10. Retail inflation measured by year-on-year change in the consumer price index (CPI) edged up sequentially in July and August to reach a five month high, due entirely to a sharp pick up in momentum as the favourable base effect tapered off in July and disappeared in August. After a decline in prices in June, food inflation rebounded in the following two months, driven mainly by a sharp rise in vegetable prices, along with the rise in inflation in prepared meals and fruits. Cereals inflation remained benign, while deflation in pulses continued for the ninth successive month. Fuel group inflation remained broadly unchanged in August even as inflation in liquefied petroleum gas (LPG), kerosene, firewood and chips rose. Petroleum product prices tracked the hardening of international crude oil prices.
 
11. CPI inflation excluding food and fuel also increased sharply in July and further in August, reversing from its trough in June 2017. The increase was broad-based in both goods and services. Housing inflation hardened further in August on account of higher house rent allowances for central government employees under the 7th central pay commission award. Inflation in household goods and services in health, recreation and clothing & footwear subgroups increased. Quantitative inflation expectations of households eased in the September 2017 round of the Reserve Bank’s survey. However, in terms of qualitative responses, the proportion of respondents expecting the general price level to increase by more than the current rate rose markedly for the three-month as well as one-year ahead horizons. Farm and industry input costs picked up in August. Real wages in the rural and organised sectors continued to edge up. The Reserve Bank’s industrial outlook survey showed that corporate pricing power for the manufacturing sector remained weak. In contrast, firms polled for the services sector PMI reported a sharp rise in prices charged.
 
12. Surplus liquidity in the system persisted through Q2 even as the build-up in government cash balances since mid-September 2017 due to advance tax outflows reduced the size of the surplus liquidity significantly in the second half of the month. Currency in circulation increased at a moderate pace during Q2, by Rs. 569 billion as against Rs. 1,964 billion during Q1, reflecting the usual seasonality. Consistent with the guidance given in April 2017 on liquidity, the Reserve Bank conducted open market sales operations on six occasions during Q2 to absorb Rs. 600 billion of surplus liquidity on a durable basis, in addition to the issuances of treasury bills (of tenors ranging from 312 days to 329 days) under the market stabilisation scheme (MSS) during April and May of Rs. 1 trillion. As a result, net average absorption of liquidity under the LAF declined from Rs. 3 trillion in July to Rs. 1.6 trillion in the second half of September. The weighted average call rate (WACR), which on an average, traded below the repo rate by 18 basis points (bps) during July, firmed up by 5 bps in September on account of higher demand for liquidity around mid-September in response to advance tax outflows.
 
13. Reflecting improving global demand, merchandise export growth picked up in August 2017 after decelerating in the preceding three months. Engineering goods, petroleum products and chemicals were the major contributors to export growth in August 2017; growth in exports of readymade garments and drugs & pharmaceuticals too returned to positive territory. However, India’s export growth continued to be lower than that of other emerging economies such as Brazil, Indonesia, South Korea, Turkey and Vietnam, some of which have benefited from the global commodity price rebound. Import growth remained in double-digits for the eighth successive month in August and was fairly broad-based. While the surge in imports of crude oil and coal largely reflected a rise in international prices, imports of machinery, machine tools, iron and steel also picked up. Gold import volume has declined sequentially since June 2017, though the level in August was more than twice that of a year ago. The sharper increase in imports relative to exports resulted in a widening of the current account deficit in Q1 of 2017-18, even as net services exports and remittances picked up. Net foreign direct investment at US$ 10.6 billion in April-July 2017 was 24 per cent higher than during the same period of last year. While the debt segment of the domestic capital market attracted foreign portfolio investment of US$ 14.4 billion, there were significant outflows in the equity segment in August-September on account of geo-political uncertainties and expected  normalisation of Fed asset purchases. India’s foreign exchange reserves were at US$ 399.7 billion on September 29, 2017.
 
Outlook
 
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14. In August, headline inflation was projected at 3 per cent in Q2 and 4.0-4.5 per cent in the second half of 2017-18. Actual inflation outcomes so far have been broadly in line with projections, though the extent of the rise in inflation excluding food and fuel has been somewhat higher than expected. The inflation path for the rest of 2017-18 is expected to be shaped by several factors. First, the assessment of food prices going forward is largely favourable, though the first advance estimates of kharif production pose some uncertainty. Early indicators show that prices of pulses which had declined significantly to undershoot trend levels in recent months, have now begun to stabilise. Second, some price revisions pending the goods and services tax (GST) implementation have been taking place. Third, there has been a broad-based increase in CPI inflation excluding food and fuel. Finally, international crude prices, which had started rising from early July, have firmed up further in September. Taking into account these factors, inflation is expected to rise from its current level and range between 4.2-4.6 per cent in the second half of this year, including the house rent allowance by the Centre. 
 
15. As noted in the August policy, there are factors that continue to impart upside risks to this baseline inflation trajectory: (a) implementation of farm loan waivers by States may result in possible fiscal slippages and undermine the quality of public spending, thereby exerting pressure on prices; and (b) States’ implementation of the salary and allowances award is not yet considered in the baseline projection; an increase by States similar to that by the Centre could push up headline inflation by about 100 basis points above the baseline over 18-24 months, a statistical effect that could have potential second round effects. However, adequate food stocks and effective supply management by the Government may keep food inflation more benign than assumed in the baseline.
 
16. Turning to growth projections, the loss of momentum in Q1 of 2017-18 and the first advance estimates of kharif foodgrains production are early setbacks that impart a downside to the outlook. The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short term. This may further delay the revival of investment activity, which is already hampered by stressed balance sheets of banks and corporates. Consumer confidence and overall business assessment of the manufacturing and services sectors surveyed by the Reserve Bank weakened in Q2 of 2017-18; on the positive side, firms expect a significant improvement in business sentiment in Q3. Taking into account the above factors, the projection of real GVA growth for 2017-18 has been revised down to 6.7 per cent from the August 2017 projection of 7.3 per cent, with risks evenly balanced.
 
17. Imparting an upside to this baseline, household consumption demand may get a boost from upward salary and allowances revisions by states. Teething problems linked to the GST and bandwidth constraints may get resolved relatively soon, allowing growth to accelerate in H2. On the downside, a faster than expected rise in input costs and lack of pricing power may put further pressure on corporate margins, affecting value added by industry. Moreover, consumer confidence of households polled in the Reserve Bank’s survey has weakened in terms of the outlook on employment, income, prices faced and spending incurred. 
 
18. The MPC observed that CPI inflation has risen by around two percentage points since its last meeting. These price pressures have coincided with an escalation of global geopolitical uncertainty and heightened volatility in financial markets due to the US Fed’s plans of balance sheet unwinding and the risk of normalisation by the European Central Bank. Such juxtaposition of risks to inflation needs to be carefully managed. Although the domestic food price outlook remains largely stable, generalised momentum is building in prices of items excluding food, especially emanating from crude oil. The possibility of fiscal slippages may add to this momentum in the future. The MPC also acknowledged the likelihood of the output gap widening, but requires more data to better ascertain the transient versus sustained headwinds in the recent growth prints. Accordingly, the MPC decided to keep the policy rate unchanged. The MPC also decided to keep the policy stance neutral and monitor incoming data closely. The MPC remains committed to keeping headline inflation close to 4 per cent on a durable basis.
 
19. The MPC was of the view that various structural reforms introduced in the recent period will likely be growth augmenting over the medium- to long-term by improving the business environment, enhancing transparency and increasing formalisation of the economy. The Reserve Bank continues to work towards the resolution of stressed corporate exposures in bank balance sheets which should start yielding dividends for the economy over the medium term.
 
20. The MPC reiterated that it is imperative to reinvigorate investment activity which, in turn, would revive the demand for bank credit by industry as existing capacities get utilised and the requirements of new capacity open up to be financed. Recapitalising public sector banks adequately will ensure that credit flows to the productive sectors are not impeded and growth impulses not restrained. In addition, the following measures could be undertaken to support growth and achieve a faster closure of the output gap: a concerted drive to close the severe infrastructure gap; restarting stalled investment projects, particularly in the public sector; enhancing ease of doing business, including by further simplification of the GST; and ensuring faster rollout of the affordable housing program with time-bound single-window clearances and rationalisation of excessively high stamp duties by states.
 
21. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel were in favour of the monetary policy decision, while Dr. Ravindra H. Dholakia voted for a policy rate reduction of at least 25 basis points. The minutes of the MPC’s meeting will be published by October 18, 2017.
 
22. The next meeting of the MPC is scheduled on December 5 and 6, 2017.
 
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India-Japan Joint Statement

Prime Minister Narendra Modi with Japanese Prime Minister Shinzo Abe, at Mahatma Mandir, in Gandhinagar, Gujarat for the 12th  India-Japan Annual Summit, on September 14, 2017.
Prime Minister Narendra Modi with Japanese Prime Minister Shinzo Abe, at Mahatma Mandir, in Gandhinagar, Gujarat for the 12th India-Japan Annual Summit, on September 14, 2017.
Following is the text of the Joint Statement issued by India and Japan during visit of Prime Minister Shinzo Abe of Japan to India on September 14, 2017:
 
Toward a Free, Open and Prosperous Indo-Pacific
 
H.E. Shinzo Abe, Prime Minister of Japan is paying an official visit to India from 13 September to 14 September, 2017 at the invitation of H.E. Narendra Modi, Prime Minister of India. On 14 September, the two Prime Ministers held strategic discussions on a wide range of issues under the Special Strategic and Global Partnership between the two countries.
 
1. The two Prime Ministers welcomed significant deepening of bilateral relations in the past three years and the growing convergence in the political, economic and strategic interests, based on the firm foundation of common values and traditions, as well as on an emerging consensus on contemporary issues of peace, security and development. They decided to work together to elevate their partnership to the next level to advance common strategic objectives at a time when the global community is faced with new challenges.
 
2. The two Prime Ministers affirmed strong commitment to their values-based partnership in achieving a free, open and prosperous Indo-Pacific region where sovereignty and international law are respected, and differences are resolved through dialogue, and where all countries, large or small, enjoy freedom of navigation and overflight, sustainable development, and a free, fair, and open trade and investment system.
 
3.  The two Prime Ministers underlined that India and Japan could play a central role in safeguarding and strengthening such a rules-based order. To this end, they pledged to reinforce their efforts to:
 
- align Japan’s Free and Open Indo-Pacific Strategy with India’s Act East Policy, including through enhancing maritime security cooperation, improving connectivity in the wider Indo-Pacific region, strengthening cooperation with ASEAN, and promoting discussions between strategists and experts of the two countries;
- enhance defence and security cooperation and dialogues, including the MALABAR and other joint exercises, defence equipment and technology cooperation in such areas as surveillance and unmanned system technologies, and defence industry cooperation.
- ensure partnerships for prosperity through the India-Japan Investment Promotion Partnership, speedy implementation of key infrastructure projects including the Mumbai Ahmedabad High Speed Railway (MAHSR), and advancing cooperation in the fields of energy, smart cities, information and communication technology, space, science and technology, bio-technology, pharmaceuticals and health.
- strengthen people-to-people and cultural ties through enhanced Japanese language teaching in India and collaboration in the fields of tourism, civil aviation, higher education, women’s education, skills development and sports;
- work together on global challenges such as proliferation of Weapons of Mass Destruction (WMDs), terrorism, space and cyber security, United Nations Security Council (UNSC) reform, climate change and environment;
- strengthen trilateral cooperation frameworks with the United States, Australia and other countries.
 
Reinforcing Defence and Security Cooperation
 
4. The two Prime Ministers emphasised the significance of defence and security cooperation in enhancing the strategic partnership between the two countries. In this context, they welcomed the regular and institutionalised engagement through the annual Defence Ministerial Dialogue, the National Security Advisers' dialogue, the "2+2” Dialogue, the Defence Policy Dialogue and Service-to-Service staff talks.
 
5. The two Prime Ministers commended the significant progress achieved in maritime security cooperation evidenced by the expansion in scale and complexity of the MALABAR Exercise in the Bay of Bengal in July 2017 (MALABAR-17). They noted the ongoing close cooperation between the Indian Navy and Japan Maritime Self-Defence Force (JMSDF) in various specialised areas of mutual interest, including anti-submarine aspects. They also acknowledged the importance of bilateral cooperation in maritime security by strengthening and enhancing exchanges in expanding maritime domain awareness (MDA) in the Indo-Pacific region.
 
6. The two Prime Ministers shared the intention to expand joint exercises and cooperation in such areas as humanitarian assistance and disaster relief (HA/DR), peacekeeping operations(PKOs), counter-terrorism including the possibility of joint field exercises between Indian Army and Japan’s Ground Self-Defence Force (JGSDF) in 2018, and reciprocal visits by air assets to each other’s country. They welcomed significant development in the long-standing partnership between the two Coast Guards, including the 16th High Level Meeting and the joint exercise in Yokohama in January 2017 between the two coast guards.
 
7. The two Prime Ministers noted recent progress in bilateral cooperation on defence equipment and technology, including the commencement of the technical discussion for the future research collaboration in the area of Unmanned Ground Vehicles and Robotics. Japan’s readiness to provide its state-of-the-art US-2 amphibian aircraft was appreciated as symbolising the high degree of trust between the two countries. The two governments decided to continue their discussions in this regard.
 
8. The two Prime Ministers welcomed the recently held annual Defence Ministerial Dialogue and the first Defence Industry Forum in Tokyo on 5 September, which was addressed by the two Defence Ministers as well as the discussions covering other promising initiatives in defence industry cooperation. They recognised the importance of enhancing interactions between governments and defence industries of the two countries in order to encourage equipment collaboration including defence and dual-use technologies.
 
9. The two Prime Ministers welcomed the holding of the Second India-Japan Cyber Dialogue in New Delhi on 17 August this year and reaffirmed their commitment to an open, free, secure, stable, peaceful and accessible cyberspace, enabling economic growth and innovation as well as mutual cooperation in this regard. 
 
Working Together for a Better Connected World
 
10. The two Prime Ministers expressed their strong commitment to work together to enhance connectivity in India and with other countries in the Indo-Pacific region including Africa. They welcomed the deepening of their connectivity dialogue aimed at achieving concrete progress, and decided to further accelerate such an initiative.
 
11. The two Prime Ministers also underlined the importance of all countries ensuring the development and use of connectivity infrastructure in an open, transparent and non-exclusive manner based on international standards and responsible debt financing practices, while ensuring respect for sovereignty and territorial integrity, the rule of law, and the environment. They also reaffirmed the importance of "quality infrastructure” which, among others ensures alignment with local economic and development strategies, safety, resilience, social and environmental impacts, and job creation as well as capacity building for the local communities.
 
12. The two Prime Ministers welcomed the efforts to explore the development of industrial corridors and industrial network for the growth of Asia and Africa, which will benefit various stakeholders in the Indo-Pacific region including Africa. They shared the desire to further promote cooperation and collaboration in Africa in line with the priority measures identified through the India-Japan dialogue on Africa and the processes of the India Africa Forum Summit (IAFS) and Tokyo International Conference on African Development (TICAD).
 
13. The two Prime Ministers welcomed the India-Japan cooperation on development of India’s North Eastern Region (NER) as a concrete symbol of developing synergies between India’s Act East policy and Japan’s Free and Open Indo Pacific Strategy. In this context, they noted with satisfaction the setting up of the India-Japan Act East Forum. They appreciated the cooperation between Japan and North Eastern Region of India, ranging from key infrastructure such as road connectivity, electricity, water supply and sewage, to social and environmental sustainability such as afforestation and community empowerment, as well as people-to-people exchanges including the "IRIS Program” inviting youth from the NER to Japan.
 
14. The two Prime Ministers also stressed the importance of the development of the smart islands to enhance regional connectivity and decided to further accelerate consultations to identify technologies, infrastructure and development strategies for the purpose.
 
Partnership for prosperity
 
15. The two Prime Ministers welcomed the commencement of the project on the ground at the Sabarmati Station for the Mumbai-Ahmedabad High Speed Rail (MAHSR), which will be an important symbol of a new era marked by the 75th Anniversary of India’s Independence. Expressing satisfaction at the steady progress, they directed their teams to multiply their efforts for achieving the target schedule.
 
16. The two Prime Ministers welcomed the exchange of notes for 100 billion yen as the first ODA loan for the MAHSR project. They also witnessed commencement of the construction of the HSR training institute in Vadodara. They appreciated the commencement of the JICA technical cooperation program for the capacity development of the National High Speed Rail Corporation.
 
17. The two Prime Ministers committed to advancing "Make in India” and transfer of technology in HSR projects, and expressed optimism in this direction. They welcomed the series of business matching efforts to establish India-Japan cooperation, such as the prospective technology collaboration between Kawasaki and BHEL. Both sides will explore further strengthening of partnership in high speed railways. They also recognised that there is potential for further collaboration between India and Japan in the modernisation and expansion of the conventional railway system and the construction of metro rails in India. They also highlighted the importance of the safety of conventional railways, and appreciated the commencement of the JICA technical cooperation program by the dispatch of railways safety experts of Japan in August 2017,followed by a railway safety seminar and other programs.
 
18. Prime Minister Modi updated Prime Minister Abe about his Government’s efforts for the country’s economic and social development. Prime Minister Abe reiterated Japan’s strong support for the initiatives such as "Make in India”, "Digital India”, "Skill India”, "Smart City”, "Clean India,” and "Start-Up India”. Prime Minister Abe highly appreciated Prime Minister Modi’s economic reforms, especially the historic introduction of the Goods and Services Tax (GST), which facilitates ease of doing business and promotes market integration in India by realising a simple, efficient and nation-wide indirect tax system.
 
19. The two Prime Ministers welcomed the expansion of Japan’s Foreign Direct Investment in India under the "India-Japan Investment Promotion Partnership”, committed to by both sides in 2014. They shared the view that the India-Japan Roadmap for Investment Promotion will provide greater impetus to "Make in India” through investment promotion activities, expanding the scope of professional services and assistance provided by JETRO to Japanese Small and Medium-sized Enterprises (SMEs) operating in India, Review Mechanisms for Issue Resolution and Approvals, Single Window Clearance Procedures, Japan Industrial Townships and infrastructure development. Prime Minister Abe expressed appreciation for the facilitation provided by "Japan Plus”, and the coordination by the Core Group. They also welcomed the progress in the projects of the Western Dedicated Freight Corridor (DFC), through JICA, the Delhi-Mumbai Industrial Corridor (DMIC) including the DMIC Logistic Data Bank Project and expressed expectations of promoting industrial investment in DMIC cities. They welcomed the signing of "the Joint Statement on the Development of the New Capital City and Industrial Cooperation in Andhra Pradesh”. They also welcomed Japanese cooperation for smart city projects in Ahmedabad, Chennai as well as Varanasi.
 
20. The two Prime Ministers welcomed the signing of the Memorandum of Cooperation on the joint development of the "Japan and India Special Program for Make in India” in Mandal-Becharaj-Khoraj, Gujarat, as a regional development project driven by manufacturing cluster, and the plan to establish a JETRO’s Business Support Centre in its Ahmedabad office to promote Japanese SMEs investment in Gujarat.
 
21.  The two Prime Ministers welcomed the start of the first four Japan-India Institutes for Manufacturing (JIMs) in the States of Gujarat, Karnataka, Rajasthan and Tamil Nadu in 2017,under the Manufacturing Skill Transfer Promotion Program, and looked forward to more JIMs. They also welcomed the commencement of the first Japanese Endowed Courses (JEC) in Andhra Pradesh from September 2017. They strongly hoped that this program will introduce Japanese manufacturing practices and accelerate training of future shop floor leaders and engineers.
 
22. The two Prime Ministers expressed the confidence that synergy between Japan’s advanced technology and India’s rich human resources can transform both countries into new centres of production in the global industrial network. They underscored the potential to further cooperate in human resources development and exchanges, including through utilising such frameworks as Japan’s "Innovative Asia” initiative and the Technical Intern Training Program(TITP).
 
23. The two Prime Ministers noted with satisfaction the significant contribution of Japan’s ODA to the socio-economic development of India, especially the historically highest ever amount of ODA loan provided through JICA in the last two consecutive years. Prime Minister Abe expressed Japan’s intention to continue to support India’s efforts for social and industrial development including building key infrastructure projects.
 
24.  Prime Minister Modi appreciated the provision of ODA loan to the following projects, in addition to the Mumbai-Ahmedabad High Speed Railway (MAHSR) Project and its related training institute:
 
- Project for Upgradation of Environmental Management for Ship Recycling in Alang and Sosiya in Gujarat
 
- North East Road Network Connectivity Improvement Project (Phase 2)
 
- Kolkata East-West Metro Project (III)
 
- Gujarat Investment Promotion Program
 
In this regard, the two Prime Ministers welcomed progress in the ODA projects in urban transportation sector such as the Delhi, Chennai, Mumbai, Bangalore, Kolkata and Ahmedabad Metro, the Mumbai Trans-Harbour Link Project, and the introduction of the Intelligence Transport System along with the Eastern Peripheral Highway in Delhi.
 
25. The two Prime Ministers expressed satisfaction at the entry into force of the Agreement between the Government of the Republic of India and the Government of Japan for Cooperation in the Peaceful Uses of Nuclear Energy. They looked forward to a working group to strengthen bilateral cooperation in this field and reiterated their shared view that the Agreement reflects a new level of mutual confidence and strategic partnership in the cause of clean energy, economic development and a peaceful and secure world.
 
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26. The two Prime Ministers recognised that access to reliable, clean and affordable energy is critical for the economic growth of both countries. In this regard, they decided to strengthen bilateral energy cooperation and welcomed the India-Japan Energy Partnership Initiative as well as early convening of 9th Energy dialogue. They appreciated Japan’s proposal for India-Japan Clean Energy and Energy Efficiency Cooperation Plan. They also welcomed the efforts to promote renewable energy, including the establishment of the International Solar Alliance (ISA), and the progress of New Energy and Industrial Technology Development Organization (NEDO)’s demonstration project such as a micro grid system using solar power in Neemrana. They looked forward to further acceleration of cooperation in areas of energy saving, energy efficiency and energy storage as well as manufacturing of eco-friendly vehicles including hybrid and electric vehicles.
 
27. In this regard, the two Prime Ministers welcomed the opening of the first lithium-ion battery factory in India by a joint venture of three Japanese companies – Suzuki, Toshiba and Denso as well as a new automotive factory this year. They decided to further promote public and private sector collaboration to make environmentally friendly and energy efficient technologies accessible and affordable to the general public, recognising that such investments facilitate India’s National Electric Mobility Mission Plan 2020 (NEMMP) and Faster Adoption of Manufacturing of Hybrid and Electric Vehicles (FAME) vision, and underlined the importance of support measures to promote eco-friendly vehicles including in terms of "Make in India” and transfer of technology.
 
28. The two Prime Ministers also stressed that sustainable ship industry is one of the key areas for sustainable growth of India, and reaffirmed their intention to achieve an early conclusion of the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009.
 
29. The two Prime Ministers recognised the important role of science and technology in dealing with both developmental and societal challenges, and underlined the importance of enhanced bilateral cooperation in such fields as IoT, ICT, marine science, biomedical sciences, genetics, stem cell technology, and heavy ion radiotherapy. In this regard, they welcomed the successful holding of the 9th India-Japan Joint Committee on Science and Technology Cooperation in January 2017 in Delhi.
 
30. The two Prime Ministers welcomed the progress made in the bilateral IT and IoT cooperation through the bilateral Joint Working Group on IT and Electronics, in particular by the signing of the Memorandum of Understanding (MoU) between the National Association of Software and Services Companies (NASSCOM) of India and IoT Acceleration Consortium (ITAC) of Japan.
 
31. The two Prime Ministers directed their respective sides to work closely to establish an India Japan Startup Hub, which will serve as a platform for promotion of information exchange, business collaboration and investments between the vibrant and innovative Startup ecosystems of two countries.
 
32. The two Prime Ministers acknowledged that outer space is an ever-expanding frontier of human endeavour and welcomed the deepening of cooperation between the space agencies of the two countries in the field of earth observation, satellite based navigation, space sciences and lunar exploration. They welcomed establishment of the ISRO-JAXA Joint Working Group under the space cooperation MoU signed in November 2016. They also welcomed co-hosting by India and Japan of the 24th Session of the Asia-Pacific Regional Space Agency Forum (APRSAF-24) in November 2017 in India. They stressed the importance of enhancing comprehensive space cooperation.
 
33. The two Prime Ministers noted with satisfaction the progress in the health sector and the joint efforts by their medical experts on medical device development. They also noted the opportunities for collaboration between Indian and Japanese pharmaceutical companies in light of the target regarding the quantitative share of generic medicines in Japan.
 
34. The two Prime Ministers shared the importance of strengthening cooperation in the fields of agricultural and food related sectors. They welcomed Japan’s participation in World Food India 2017 as a partner country.
 
35. The two Prime Ministers welcomed the efforts to develop cooperation in disaster prevention, response, recovery and reconstruction as envisaged in the Memorandum of Cooperation on disaster risk reduction between the Ministry of Home Affairs of the Government of India and the Cabinet Office of the Government of Japan . They underlined the importance of identifying and disseminating best practices to "build better” and thus reducing losses arising from infrastructure damage during natural disasters, as aimed by the international coalition proposed by Prime Minister Modi at the Asia Ministerial Conference on Disaster Risk Reduction(AMCDRR)-2016.
 
36. The two Prime Ministers recognised the importance of the empowerment of women to maximise their national potential, and decided to strengthen cooperation in this area, including through conferences such as the World Assembly for Women (WAW!). They welcomed the convening of the "Indo-Japan Consultation on ‘Women at Work and Changing Social Norms’” in Delhi in July 2017.
 
Expanding vistas of People-to-People Cooperation
 
37. The two Prime Ministers renewed their commitment to strengthening human and cultural ties commensurate with their Special Strategic and Global Partnership.In this context, the two Prime Ministers welcomed a series of cultural events successfully held through the Year of India-Japan Friendly Exchanges in 2017.
 
38. The two Prime Ministers recognised the importance of expanding Japanese language education in India, for achieving wider and closer industrial cooperation. In this regard, they decided to endeavour towards establishing Japanese language certificate courses at 100 higher educational institutions in India as well as training1,000 Japanese language teachers, over the next five years.
 
39. The two Prime Ministers welcomed the exchange of notes for the construction of a state-of-art Convention Centre in Varanasi as a symbol of friendship between India and Japan and expressed their hope for its early completion.
 
40. The two Prime Ministers expressed satisfaction at the increased interaction at all levels of the government, between Members of Parliament, and between prefectures and states. They welcomed the strengthening of parliamentary exchanges through mutual visits of parliamentarians from both sides.
 
41.With a view to achieving greater policy coordination and deepening intellectual exchanges between the two countries, the two Prime Ministers encouraged interactions among senior officials, strategists and experts in leading think tanks and universities on wide-ranging issues in the Indo-Pacific region.
 
42. Prime Minister Modi welcomed the growing interest in celebrating the International Day of Yoga in Japan and, in particular, welcomed the first-ever Parliamentary League for Promotion of Yoga set up in the Japanese Diet in April 2017.
 
43. The two Prime Ministers underscored the importance of promoting tourism exchange between the two countries and hoped that the opening of the Japan National Tourism Organisation (JNTO) office in Delhi in March 2017 and further relaxation of visa requirements will facilitate business and tourism links between the two countries.
 
44. The two Prime Ministers welcomed the expansion of civil aviation connectivity between India and Japan, utilising the recently updated open sky policies between the two countries.
 
45. The two Prime Ministers noted the steady increase in the number of Indian students in Japan. They welcomed the SAKURA Science Plan (Japan-Asia Youth Exchange Programme in Science) and the Japan East Asia Network of Exchange for Students and Youths (JENESYS) which contributed to increase in numbers of young Indian students and researchers in science and technology visiting Japan and hoped for further strengthening of collaboration in these fields.
 
46. Aiming to enhance the positive influence of traditions of non-violence, tolerance and democracy in Asia, the two Prime Ministers welcomed the SAMVAD II conference held in Yangon, Myanmar, in August 2017 and looked forward to the next conference in 2018.
47. Prime Minister Abe welcomed the support offered by Prime Minister Modi for Japan’s efforts towards the successful organisation of the Tokyo 2020 Olympic and Paralympic Games. The two Prime Ministers noted with satisfaction the institutional linkages set up between India and Japan. They also acknowledged that the Olympic and Paralympic Games offer a unique opportunity for the two countries to further deepen their cooperation.
 
Working with Partners on Regional and Global Challenges
 
48. Welcoming the 50th anniversary of the establishment of ASEAN, the two Prime Ministers renewed their commitment to strengthening political, economic, and security cooperation with ASEAN countries, with a view to supporting the ASEAN’s unity and its centrality to regional architecture. They welcomed deepening bilateral policy coordination, including the launch of the India-Japan Dialogue on ASEAN in March 2017, and determined to work together to shape and strengthen the evolving regional architecture through ASEAN-led fora such as the ASEAN Regional Forum (ARF), ASEAN Defence Ministers’ Meeting Plus, the Expanded ASEAN Maritime Forum.
 
49. The two Prime Ministers reaffirmed that regular convening of the East Asia Summit (EAS) Ambassadors Meeting in Jakarta and the establishment of EAS Unit within the ASEAN Secretariat have contributed to ensuring that the EAS process, as the premier leaders-led forum to discuss broad strategic, security and economic issues of common concern, continues to retain its dynamic proactiveness in responding to emerging issues of global importance. They decided to work in unison to enhance physical and digital connectivity within the EAS framework while striving to ensure greater economic benefits to all in an equitable and balanced manner. They also decided to continue to enhance their cooperation in the maritime domain bilaterally as well as in multilateral fora.
 
50. The two Prime Ministers reaffirmed the importance of freedom of navigation, overflight and unimpeded lawful commerce in accordance with international laws. They also highlighted the importance of peaceful resolution of disputes, including through full respect for legal and diplomatic processes, without resorting to the threat or use of force, and in accordance with the universally recognised principles of international law, notably the United Nations Convention on the Law of the Sea (UNCLOS). The two Prime Ministers also reiterated their desire and determination to work together to maintain and promote peace, stability, and development in the Indo-Pacific region.
 
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51. The two Prime Ministers reaffirmed the importance of securing the maritime domain and combating piracy, armed robbery at sea and other transnational organised crimes through regional and international mechanisms such as the ARF, the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP), the Contact Group on Piracy off the Coast of Somalia (CGPCS) and Shared Awareness and Deconfliction (SHADE) Mechanism, and expressed their commitment to pursue regional and international cooperation to combat these activities.
 
52. The two Prime Ministers welcomed the renewed momentum for trilateral cooperation with the US and Australia. They stressed on the strategic importance of these cooperative frameworks and shared willingness to expand concrete cooperation. They resolved to work with other countries and regional partners to ensure a rule-based order in the Indo-Pacific Region.
 
53. The two Prime Ministers condemned in the strongest terms North Korea’s continued development of its nuclear weapons and ballistic missile programs, including the latest nuclear test conducted by North Korea on 3 September as well as its uranium enrichment activities. Recognising that North Korea’s continued pursuit of nuclear and ballistic missile programmes and its proliferation links, including the launch of a ballistic missile flying over Japanese territory on 29 August 2017, pose grave and real threat to international peace and stability and the international non-proliferation efforts, the two Prime Ministers strongly urged North Korea to abandon its nuclear and ballistic missile programmes and not to take any further provocative actions, and to fully comply with its international obligations under relevant UNSC resolutions including the newly and unanimously adopted resolution 2375, and other international commitments. They pledged to work together to deal with the current serious situation and called on the international community to rigorously and fully implement relevant UNSC resolutions to maximise pressure on North Korea. They stressed the importance of holding accountable all parties that have supported North Korea’s nuclear and missile programmes. They also urged North Korea to address at the earliest the abductions issue.
 
54. The two Prime Ministers also condemned in the strongest terms the growing menace of terrorism and violent extremism. They shared the view that terrorism in all its forms and manifestations is a global scourge that must be forcefully combatted through concerted global action in the spirit of "zero tolerance”. Accordingly, the two Prime Ministers called upon all UN member countries to implement the UNSC Resolution 1267 and other relevant resolutions designating terrorist entities. They also called upon all countries to work towards rooting out terrorist safe havens and infrastructure, disrupting terrorist networks and financing channels and halting cross-border movement of terrorists. They underlined the need for all countries to ensure that their territory is not used to launch terrorist attacks on other countries. They emphasised the need for stronger international partnership in countering terrorism and violent extremism, including through increased sharing of information and intelligence. They called for enhanced bilateral cooperation in this regard. The two Prime Ministers also called for Pakistan to bring to justice the perpetrators of terrorist attacks including those of the November 2008 terrorist attack in Mumbai and the 2016 terrorist attack in Pathankot. They looked forward to the convening of the fifth India-Japan Consultation on Terrorism and to strengthening cooperation against terrorist threats from groups including Al-Qaida, ISIS, Jaish-e-Mohammad, Lakshar-e-Tayyiba, and their affiliates.
 
55. The two Prime Ministers reaffirmed their shared commitment to expedite the reform process of the United Nations, in particular the UN Security Council, in order to make it more legitimate, effective and representative, given the contemporary realities of the 21st century, and emphasized the importance of building upon the recent developments in the Intergovernmental Negotiations (IGN) aimed at launching text-based negotiations during the 72nd session of the General Assembly. In this regard, they also called for collaboration among reform-oriented countries through the "Group of Friends” on UNSC reform. They reiterated their support for each other’s candidature, based on the firmly shared recognition that India and Japan are legitimate candidates for permanent membership in an expanded UNSC.
 
56. The two Prime Ministers reaffirmed their shared commitment to the total elimination of nuclear weapons. Prime Minister Abe stressed the importance of early entry into force of the Comprehensive Nuclear-Test-Ban Treaty (CTBT). They called for an immediate commencement and early conclusion of negotiations on a non-discriminatory, multilateral and internationally and effectively verifiable Fissile Material Cut-off Treaty (FMCT) on the basis of Shannon Mandate. They expressed their resolve towards strengthening international cooperation to address the challenges of nuclear proliferation and nuclear terrorism.
 
57. Prime Minister Abe welcomed India's accession to the Missile Technology Control Regime (MTCR) and the Hague Code of Conduct against Ballistic Missile Proliferation (HCOC) and its intensified engagement with the export control regimes. The two Prime Ministers reaffirmed their commitment to work together for India to become a full member in the remaining three international export control regimes: Nuclear Suppliers Group, Wassenaar Arrangement and Australia Group, with the aim to strengthen the international non-proliferation efforts.
 
58. The two Prime Ministers emphasised the need for concerted global action to combat climate change reflecting the principle of common but differentiated responsibilities and respective capabilities, in the light of different national circumstances and to preserve the environment for future generations. They reiterated their commitment to work together to finalise the work programme for implementation of the Paris Agreement adopted under the UN Framework Convention for Climate Change by 2018. They also decided to accelerate further consultations on the Joint Crediting Mechanism (JCM). Prime Minister Modi welcomed Japan’s cooperation on Clean India, including the Clean Ganga project.
 
59. The two Prime Ministers underlined the crucial role of the rules-based multilateral trading system, and enhancing free, fair, and open trade, for achieving sustainable growth and development. They committed to resist protectionism including unfair trade practices and underlined the need to remove trade-distorting measures. They reaffirmed their commitment to work together to implement the Bali and Nairobi Ministerial decisions and make the eleventh WTO Ministerial Conference a success. They also decided to steadily implement WTO’s Trade Facilitation Agreement.
 
60.  Recognising India as the largest democracy and a fast growing large economy in the Asia-Pacific region, and acknowledging India’s robust macro-economic stability and its efforts at financial reforms, Japan reaffirmed its support to India’s membership in the APEC. The two Prime Ministers decided to work towards liberalisation and facilitation of trade and investment in the Asia-Pacific region. They reaffirmed to cooperate towards conclusion of a modern, comprehensive, high quality and mutually beneficial Regional Comprehensive Economic Partnership (RCEP) Agreement, in order to achieve a balanced outcome. They reaffirmed their commitment to further strengthening cooperation and to working with partners to tackle excess capacity in steel. In this regard, they called for the removal of market-distorting subsidies and other types of support by governments and related entities. They also reaffirmed their commitment to developing concrete policy solutions at the Global Forum on Steel Excess Capacity by November 2017.
 
Conclusion
 
Prime Minister Abe thanked the Government and the people of India for their warm hospitality and extended a cordial invitation to Prime Minister Modi to visit Japan at a mutually convenient time for the next annual summit meeting. Prime Minister Modi accepted the invitation with appreciation. 
 
Prime Minister of the Republic of India             ----               Prime Minister of Japan 
Signed at Gandhinagar, Gujarat on 14 September 2017.
 
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Union Council of Ministers

President Ram Nath Kovind, Vice-President M. Venkaiah Naidu and Prime Minister Narendra Modi with the newly inducted Ministers after a swearing-in ceremony, at Rashtrapati Bhavan, in New Delhi on September 3, 2017.
President Ram Nath Kovind, Vice-President M. Venkaiah Naidu and Prime Minister Narendra Modi with the newly inducted Ministers after a swearing-in ceremony, at Rashtrapati Bhavan, in New Delhi on September 3, 2017.
The following is the composition of the Union Council of Ministers as on September 3, 2017 after Prime Minister Narendra Modi carried out a major expansion and reshuffle of his Ministry:
 
Narendra Modi: Prime Minister and also in-charge of: Ministry of Personnel, Public Grievances and Pensions; Department of Atomic Energy; Department of Space; and
All important policy issues; and all other portfolios not allocated to any Minister.
 
CABINET MINISTERS
 
1.   Raj Nath Singh: Minister of Home                                                                                                                  Affairs.
2.   Sushma Swaraj: Minister of External Affairs.
3.   Arun Jaitley: Minister of Finance; and Minister of Corporate Affairs.
4.   Nitin Jairam Gadkari: Minister of Road Transport and Highways; Minister of                                                        Shipping; and Minister of Water Resources, River                                                              Development and Ganga Rejuvenation.
5.   Suresh Prabhu: Minister of Commerce and Industry.
6.   D.V. Sadananda Gowda: Minister of Statistics and Programme Implementation.
7.   Uma Bharati: Minister of Drinking Water and Sanitation.
8.   Ramvilas Paswan: Minister of Consumer Affairs, Food and Public Distribution.
9.   Maneka Sanjay Gandhi: Minister of Women and Child Development.
10. Ananthkumar: Minister of Chemicals and Fertilizers; and Minister of Parliamentary                                   Affairs.
11.  Ravi Shankar Prasad: Minister of Law and Justice; and Minister of Electronics and                                              Information Technology.
12. Jagat Prakash Nadda: Minister of Health and Family Welfare.
13.  Ashok Gajapathi Raju Pusapati: Minister of Civil Aviation.
14.  Anant Geete: Minister of Heavy Industries and Public Enterprises.
15.  Harsimrat Kaur Badal: Minister of Food Processing Industries.
16.  Narendra Singh Tomar: Minister of Rural Development; Minister of Panchayati Raj;                                                and Minister of Mines.
17.  Chaudhary Birender Singh: Minister of Steel.
18.  Jual Oram: Minister of Tribal Affairs.
19.  Radha Mohan Singh: Minister of Agriculture and Farmers Welfare.
20.  Thaawar Chand Gehlot: Minister of Social Justice and Empowerment.
21.  Smriti Zubin Irani: Minister of Textiles; and Minister of Information and Broadcasting.
22.  Harsh Vardhan: Minister of Science and Technology; Minister of Earth Sciences;                                        and Minister of Environment, Forest and Climate Change.
23.  Prakash Javadekar: Minister of Human Resource Development.
24.  Dharmendra Pradhan: Minister of Petroleum and Natural Gas; and Minister of Skill                                               Development and Entrepreneurship.
25.  Piyush Goyal: Minister of Railways; and Minister of Coal.
26.  Nirmala Sitharaman: Minister of Defence.
27.  Mukhtar Abbas Naqvi: Minister of Minority Affairs.
 
MINISTERS OF STATE (INDEPENDENT CHARGE)
 
1.   Rao Inderjit Singh: Minister of State (Independent Charge) of the Ministry of                                                    Planning; and Minister of State in the Ministry of Chemicals and                                        Fertilizers.
2.   Santosh Kumar Gangwar: Minister of State (Independent Charge) of the Ministry of                                                    Labour and Employment.
3.   Shripad Yesso Naik: Minister of State (Independent Charge) of the Ministry of                                                     Ayurveda, Yoga and Naturopathy, Unani, Siddha and                                                         Homoeopathy (AYUSH).
4.  Jitendra Singh: Minister of State (Independent Charge) of the Ministry of                                                   Development of North Eastern Region; Minister of State in the Prime                               Minister’s Office; Minister of State in the Ministry of Personnel, Public                               Grievances and Pensions; Minister of State in the Department of                                        Atomic Energy; and Minister of State in the Department of Space.
5.  Mahesh Sharma: Minister of State (Independent Charge) of the Ministry of Culture;                                       and Minister of State in the Ministry of Environment, Forest and                                         Climate Change.
6. Giriraj Singh: Minister of State (Independent Charge) of the Ministry of Micro, Small                               and Medium Enterprises.
7. Manoj Sinha: Minister of State (Independent Charge) of the Ministry of                                                   Communications; and Minister of State in the Ministry of Railways.
8. Col. Rajyavardhan Singh Rathore: Minister of State (Independent Charge) of the                                                                     Ministry of Youth Affairs and Sports; and Minister                                                               of State in the Ministry of Information and                                                                           Broadcasting.
9. Raj Kumar Singh: Minister of State (Independent Charge) of the Ministry of Power;                                      and Minister of State (Independent Charge) of the Ministry of New                                    and Renewable Energy.
10. Hardeep Singh Puri: Minister of State (Independent Charge) of the Ministry of                                                   Housing and Urban Affairs.
11.  Alphons Kannanthanam: Minister of State (Independent Charge) of the Ministry of                                                    Tourism; and Minister of State in the Ministry of Electronics                                                and Information Technology.
 
MINISTERS OF STATE
 
1. Vijay Goel: Minister of State in the Ministry of Parliamentary Affairs; and Minister of                           State in the Ministry of Statistics and Programme Implementation.
2.  Radhakrishnan P.: Minister of State in the Ministry of Finance; and Minister of State                                       in the Ministry of Shipping.
3.  S.S. Ahluwalia: Minister of State in the Ministry of Drinking Water and Sanitation.
4.  Ramesh Chandappa Jigajinagi: Minister of State in the Ministry of Drinking Water and                                                         Sanitation.
5.  Ramdas Athawale: Minister of State in the Ministry of Social Justice and                                                          Empowerment.
6. Vishnu Deo Sai: Minister of State in the Ministry of Steel.
7.  Ram Kripal Yadav: Minister of State in the Ministry of Rural Development.
8.  Hansraj Gangaram Ahir: Minister of State in the Ministry of Home Affairs.
9.  Haribhai Parthibhai Chaudhary: Minister of State in the Ministry of Mines; and
                                                        Minister of State in the Ministry of Coal.
10. Rajen Gohain: Minister of State in the Ministry of Railways.
11. General (Retd.) V. K. Singh: Minister of State in the Ministry of External Affairs.
12. Parshottam Rupala: Minister of State in the Ministry of Agriculture and Farmers                                                Welfare; and Minister of State in the Ministry of Panchayati Raj.
13. Krishan Pal: Minister of State in the Ministry of Social Justice and Empowerment.
14.  Jaswantsinh Sumanbhai Bhabhor: Minister of State in the Ministry of Tribal Affairs.
15. Shiv Pratap Shukla: Minister of State in the Ministry of Finance.
16.  Ashwini Kumar Choubey: Minister of State in the Ministry of Health and Family                                                         Welfare.
17.  Sudarshan Bhagat: Minister of State in the Ministry of Tribal Affairs.
18.  Upendra Kushwaha: Minister of State in the Ministry of Human Resource                                                           Development.
19.  Kiren Rijiju: Minister of State in the Ministry of Home Affairs.
 20. Virendra Kumar: Minister of State in the Ministry of Women and Child Development;                                   and Minister of State in the Ministry of Minority Affairs.
21.  Anantkumar Hegde: Minister of State in the Ministry of Skill Development and                                                   Entrepreneurship.
22.  M. J. Akbar: Minister of State in the Ministry of External Affairs.
23.  Sadhvi Niranjan Jyoti: Minister of State in the Ministry of Food Processing                                                            Industries.
24.  Y. S. Chowdary: Minister of State in the Ministry of Science and Technology; and
                                 Minister of State in the Ministry of Earth Sciences.
25.  Jayant Sinha: Minister of State in the Ministry of Civil Aviation.
26.  Babul Supriyo: Minister of State in the Ministry of Heavy Industries and Public                                          Enterprises.
27.  Vijay Sampla: Minister of State in the Ministry of Social Justice and Empowerment.
28.  Arjun Ram Meghwal: Minister of State in the Ministry of Parliamentary Affairs; and
                                         Minister of State in the Ministry of Water Resources, River
                                         Development and Ganga Rejuvenation.
29.  Ajay Tamta: Minister of State in the Ministry of Textiles.
30.  Krishna Raj: Minister of State in the Ministry of Agriculture and Farmers Welfare.
31.  Mansukh  L. Mandaviya: Minister of State in the Ministry of Road Transport and                                                      Highways; Minister of State in the Ministry of Shipping; and
                                               Minister of State in the Ministry of Chemicals and                                                              Fertilizers.
32. Anupriya Patel: Minister of State in the Ministry of Health and Family Welfare.
33. C.R. Chaudhary: Minister of State in the Ministry of Consumer Affairs, Food and Public Distribution; and Minister of State in the Ministry of Commerce and Industry.
34.  P.P. Chaudhary: Minister of State in the Ministry of Law and Justice; and Minister of                                  State in the Ministry of Corporate Affairs.
35.  Subhash Ramrao Bhamre: Minister of State in the Ministry of Defence.
36.  Gajendra Singh Shekhawat: Minister of State in the Ministry of Agriculture and                                                              Farmers Welfare.
37.   Satya Pal Singh: Minister of State in the Ministry of Human Resource                                                           Development; and Minister of State in the Ministry of Water                                               Resources, River Development and Ganga Rejuvenation.
 
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President’s Address on the eve of Independence Day, 2017

President Ram Nath Kovind addressing the nation on the eve of Independence Day 2017, in New Delhi on August 14, 2017.
President Ram Nath Kovind addressing the nation on the eve of Independence Day 2017, in New Delhi on August 14, 2017.
The following is the text of President Ram Nath Kovind's address to the nation today on the eve of India’s 71st Independence Day, 2017:
 
Dear Fellow Citizens engaged in the task of nation building
 
My greetings to you as we complete 70 years of our Independence
 
Our country will be celebrating its 71st Independence Day tomorrow. On the eve of this anniversary I extend my good wishes to all of you.
 
On August 15, 1947, we became a free nation. Sovereignty and the responsibility for our destiny moved from the British crown to the people of India. Some have called this process a “transfer of power”.
 
It was much more than that. It was the culmination of a dream for our country – a dream seen by our forefathers and freedom fighters. We were free to imagine and build our nation anew.
 
It is crucial to understand that this dream for a free India was rooted in our ordinary villages, in the well-being of our poor and underprivileged, and in the all-round development of our country.
 
For this we owe so much to the countless freedom fighters who made great sacrifices to bring us here.
 
Chennamma, the Rani of Kittur. Lakshmibai of Jhansi. Matangini Hazra, the heroine and martyr of the Quit India Movement. There are so many examples.
 
Matangini Hazra was an elderly woman, into her 70s. She was shot by the colonial police in Tamluk, in Bengal, while leading a peaceful protest march. She died with “Vande Mataram” on her lips and with the hope of a free India in her heart.
 
Freedom fighters like Sardar Bhagat Singh, Chandrashekhar Azad, Ram Prasad Bismil, Ashfaqullah Khan, Birsa Munda and thousands of others gave their lives for us. We can never forget them.
 
From the earliest days of our freedom struggle, we were blessed with a galaxy of revolutionary leaders who guided our country.
 
They spoke of not just political freedom. Mahatma Gandhi emphasised the moral character of India and of Indian society. The principles that Gandhiji spoke about are relevant even today.
 
Gandhiji was not alone in this nationwide struggle for freedom and reform. Netaji Subhas Chandra Bose exhorted our people, saying: “Give me blood and I will give you freedom”. At his word, millions of Indians joined the freedom movement under his leadership and gave their all.
 
Nehruji emphasised that India’s age-old heritage and traditions – so dear to us – could co-exist with technology and a quest to modernise our society.
 
Sardar Patel instilled in us the importance of national unity and integrity. And of a disciplined national character.
 
Babasaheb Bhim Rao Ambedkar urged upon us the virtues of constitutional governance, of the rule of law – and of the vital need for education.
 
I have given only a few examples of illustrious leaders. I could give you many more. The generation that brought us to freedom was diverse. They were men and women who represented all parts of our country and a variety of political and social thought.
 
We need to draw inspiration from such brave freedom fighters, many of whom sacrificed even their lives for the country. We need to invoke the same spirit today in the task of nation building.
 
The stress on the moral basis of policy and action, belief in unity and discipline, faith in a synthesis of heritage and science, and promotion of the rule of law and of education – all of it was located in a partnership between citizen and government.
 
That is how our nation has been built – by a partnership between citizen and government, between individual and society, between a family and the wider community.
 
Fellow Citizens
 
A tradition I remember from my childhood was that when there was a wedding in any one family, the entire village shared the responsibility and contributed. Regardless of the caste or community, the bride became the daughter of not just a single family but of the entire village.
 
Neighbours and others living in the village looked after guests, and took charge of different arrangements. Contributions came from many families. One family would send food-grains for the wedding, another would send vegetables, a third would arrive with some other item.
 
There was a sense of caring and of sharing, and of interdependence. If you helped your neighbours in their times of need, they instinctively helped you in turn.
 
Today, in big cities we may not even know our neighbours. Whether in cities or villages, it is important to renew that sense of caring and sharing. This will make us a gentler and happier society and help us understand each other with greater empathy.
 
Fellow Citizens
 
This spirit of empathy and of social service and volunteerism is very much alive in India. There are so many people and organisations that work quietly and diligently for the poor and the disadvantaged.
 
They could be running schools for street children, caring for stray animals and birds, and providing water to hard-to-reach tribal communities in remote areas. Or cleaning rivers and public places. They are nation builders in action, and we need to draw inspiration from them.
 
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We should also work with unity and purpose to ensure that the benefits of government policies reach all sections of society. For this, the partnership between citizens and government remains essential:
 
·         The government has started the Swachchh Bharat campaign – but it is for each of us to ensure a Swachchh Bharat
 
·         The government is building toilets or helping build toilets – but it is for each of us to use those toilets and make India open-defecation free
 
·         The government is enabling communication infrastructure – but it is for each of us to use the Internet for the right purposes: to bridge knowledge gaps, create opportunities, and enhance educational and information access
 
·         The government is promoting the idea of Beti Bachao–Beti Padhao – but it is for each of us to ensure that our daughters are not discriminated against and get the best education
 
·         The government can frame laws and strengthen law enforcement – but it is for each of us to be a law-abiding citizen. And to build a law-abiding society
 
·         The government is pushing transparency and eliminating corruption in public recruitment and procurement – but it is for each of us to answer to our inner conscience in everyday life
 
·         The government is implementing GST to eliminate multiple taxes and simplify transactions – but it is for each of us to make this an essential part of our everyday transactions and business culture
 
I am happy that the transition to the GST system has been smooth. It should be a matter of pride for all of us that the taxes we pay are used for nation building – to help the poor and the marginalised, to build rural and urban infrastructure, and to strengthen our border defences.
 
Fellow Citizens
 
In the year 2022, our country will complete 75 years of Independence. It is our national resolve to attain certain desired milestones for a New India by then.
 
When we speak of a New India, what do we mean? There are some obvious parameters – like a house for every family, power on demand, better roads and telecom, a modern railway network, rapid and sustained growth.
 
And yet there is more. New India must include that integral humanist component that is in our DNA, and which has defined our country and our civilisation. New India must be a society rushing towards the future, but also a compassionate society.
 
·         A compassionate society where the traditionally disadvantaged, whether SCs, STs or OBCs, are part of our national developmental process
 
·         A compassionate society where populations in our frontier areas and states, who may sometimes feel a sense of alienation, are embraced as our brothers and sisters
 
·         A compassionate society where the deprived child, the aged and the ailing senior citizen, and the poor and the under-privileged are always in our thought – not an afterthought. And where we take special care to ensure that our divyang brothers and sisters get equal opportunities in all walks of life
 
·         A compassionate and egalitarian society that does not discriminate on gender or religious background
 
·         A compassionate society that enriches our human capital and equips our young people by promoting accessible, affordable and world-class educational institutions. And where quality health-care and nutrition are not a challenge
 
It is only with all this that we will build the New India we can cherish – where every Indian is equipped to fulfil his or her potential and do so in a manner that leaves each one of us content and happy. And helps each of us contribute to society and our country.
 
I am confident that a strong partnership between citizens and the government will allow us to meet the goals of New India.
 
Your immense patience and understanding in the days following demonetisation – and your whole-hearted support in the battle against corruption and black money – reflected a responsible and enlightened society.
 
Demonetisation has boosted our efforts to build an honest society. We must sustain this spirit and this momentum.
 
Fellow Citizens
 
There is also need to adopt technology. We must use technology to empower our people and achieve the goal of poverty elimination in a single generation. Poverty and New India are simply not compatible.
 
Today, the world is looking at India with admiration. Our country is seen as a responsible global citizen, a growing economy, and a solution provider to various international challenges – such as climate change, disasters, conflicts, humanitarian crises, radicalism and terrorism.
 
The Tokyo Olympics of 2020 offer another opportunity for us to raise our standing in the world’s eyes. Over the coming three years, we should absorb ourselves in this national mission. Government agencies, sports bodies and business enterprises need to join hands to identify and support our talented sportspersons and provide them world-class training facilities – so that they can be even more successful in Tokyo.
 
As citizens and children of India – whether we live at home or abroad – we must ask ourselves how we can add to our country’s pride.
 
Fellow Citizens
 
It is natural for us to think of our families, but we must also think of society. We must heed the call for that extra degree of selflessness, that extra something beyond just duty. A mother who nurtures and brings up her child is not just doing a duty. She is displaying a unique selflessness.
 
·         Our soldiers who guard our borders, on a hot day in the desert or high up on a cold mountain, are not just doing their duty. They are displaying an extra degree of selflessness
 
·         Our police and paramilitary forces that brave death to combat terrorism or crime and keep us safe are not just doing their duty. They are displaying an extra degree of selflessness
 
·         Our farmers who labour under extremely tough conditions to grow food to feed fellow Indians whom they have never met, and who live in the other corner of the country, are not just doing a job. They are displaying an extra degree of selflessness
 
·         After natural disasters, so many motivated people, civil society groups and public agencies work day-and-night in rescue and relief operations. They display an extra degree of selflessness
 
Can each of us not imbibe this spirit of selflessness?
 
We can and we have.
 
On an appeal from the Prime Minister, more than one crore families voluntarily gave up their LPG fuel subsidy – so that a gas cylinder could reach the kitchen of a poorer family of fellow Indians. And so that members of that family, particularly women, were saved from smoke from chulhas that damaged their eyes and lungs.
 
I salute those families that gave up their subsidy. No law or government order made them do what they did. Their response came from within.
 
We should draw inspiration from these families. Each of us must find a way to give back to society. Each of us must choose one thing we can do to help another, less-fortunate Indian.
 
The single most critical factor for building our nation is to equip our coming generation. We need to ensure that not one child is left behind. As such I would urge you, as fellow nation builders, to help educate less-privileged children in our society. Help teach a child other than your own. Enrol and pay the school fees or buy the books of at least one child other than your own. Just one!
 
Our India is at the door of great achievements. In a few years, we will become a fully literate society. We must set the bar higher, and aim to become a fully educated society.
 
We are all stake-holders in this mission. If we achieve it, our country will change before our eyes. And we will become agents of this defining change.
 
Two thousand five hundred years ago Gautam Buddha said, “Be a lamp unto yourself.” If we follow his teachings, acting together, with the passion of our freedom movement, we can collectively be the 125 crore lamps that light up the path to a New India.
 
Once more, I wish all of you the very best on the eve of our 71st Independence Day.
 
Jai Hind
 
Vande Matram
 
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Full Text: RBI's Third Bi-monthly Monetary Policy Statement, 2017-18

RBI logo
 
Following is the text of the Third Bi-monthly Monetary Policy Statement, 2017-18 and Resolution of the Monetary Policy Committee (MPC) issued by the Reserve Bank of India (RBI) here today: 
 
Resolution of the Monetary Policy Committee (MPC), Reserve Bank of India
 
On the basis of an assessment of the current and evolving macroeconomic situation at
its meeting today, the Monetary Policy Committee (MPC) decided to:
 
• reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis
points from 6.25 per cent to 6.0 per cent with immediate effect.
 
Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25 per cent.
 
The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
2. Since the June 2017 meeting of the MPC, impulses of growth have spread across the
global economy albeit still lacking the strength of a self-sustaining recovery. Among the
advanced economies (AEs), the US has expanded at a faster pace in Q2 after a weak Q1, supported by steadily improving labour market conditions, increasing consumer spending, upbeat consumer confidence helped by softer than expected inflation, and improving industrial production. Policy and political risks, however, continue to cloud the outlook. In the Euro area, the recovery has broadened across constituent economies on the back of falling unemployment and a pickup in private consumption; political uncertainty has receded substantially. In Japan, a modest but steady expansion has been taking hold, underpinned by strengthening exports, accelerating industrial production and wage reflation.
 
3. Among emerging market economies (EMEs), growth has regained some lost ground in China in Q2, with retail sales and industrial production rising at a steady pace. Nonetheless, tightening financial conditions on account of deleveraging financial institutions and slowdown in real estate could weigh negatively. The Russian economy has emerged out of two years of recession, aided by falling unemployment, rising retail sales and strong industrial production. In Brazil, a fragile recovery remains vulnerable to political uncertainty and a still depressed labour market. Economic activity in South Africa continues to be beset by structural and institutional bottlenecks and is in a technical recession.
 
4. The modest firming up of global demand and stable commodity prices have supported
global trade volumes, reflected in rising exports and imports in key economies. In the second half of July, crude prices have risen modestly out of bearish territory on account of inventory drawdown in the US, but the supply overhang persists. Chinese demand has fuelled a recent rally in metal prices, particularly copper. Bullion prices fell to multi-month lows on improved risk appetite but remain vulnerable to shifts in the geopolitical environment. Notwithstanding these developments, inflation is well below target in most AEs and is subdued across most EMEs.
 
5. International financial markets have been resilient to political uncertainties and
volatility has declined, except for sporadic reactions to hints of balance sheet adjustments by systemic central banks. Equity markets in most AEs have registered gains, with indices crossing previous highs in the US, but European markets were weighed down by Brexit talks and the strengthening euro. In EMEs, equities have gained on surging global risk appetite underpinned by improving macroeconomic fundamentals that have been pulling in capital inflows. Bond yields in major AEs have hardened on expectations of monetary policy normalisation, with German bunds reaching an intra-year high. In EMEs, the situation has remained diverse, driven by domestic factors, and fixed-income markets have been generally insulated from the bond sell-off in AEs. In the currency markets, the US dollar weakened further and fell to a multi-month low in July on weak inflation and uncertainty around the policies of the US administration. The euro, which has remained bullish, rallied further on upbeat economic data. The Japanese yen has generally eased, interspersed by bouts of appreciation on safe haven demand. EME currencies largely remained stable and have traded
with an appreciating bias.
 
6. On the domestic front, a normal and well-distributed south-west monsoon for the
second consecutive year has brightened the prospects of agricultural and allied activities and rural demand. By August 1, rainfall was 1 per cent above the long period average (LPA) and 84 per cent of the country’s geographical area received excess to normal precipitation. Kharif sowing has progressed at a pace higher than last year’s, with full-season sowing nearly complete for sugarcane, jute and soyabean. The initial uncertainty surrounding sowing of pulses barring tur and rice in some regions has also largely dissipated. Sowing of cotton and coarse cereals has exceeded last year’s levels but for oilseeds, it is lagging. Overall, these developments should help achieve the crop production targets for 2017-18 set by the Ministry of Agriculture at a higher level than the peak attained in the previous year. Meanwhile, procurement operations in respect of rice and wheat during the rabi marketing season have been stepped up to record levels – 36.1 million tonnes in April-June 2017 – and stocks have risen to 1.5 times the buffer norm for the quarter ending September.
 
7. Industrial performance has weakened in April-May 2017. This mainly reflected a
broad-based loss of speed in manufacturing. Excess inventories of coal and near stagnant output of crude oil and refinery products combined to slow down mining activity. For electricity generation, deficiency of demand seems to remain a binding constraint. In terms of uses, the output of consumer non-durables accelerated and underlined the resilience of rural demand. It was overwhelmed, however, by contraction in consumer durables – indicative of still sluggish urban demand – and in capital goods, which points to continuing retrenchment of capital formation in the economy. The weakness in the capex cycle was also evident in the number of new investment announcements falling to a 12-year low in Q1, the lack of traction in the implementation of stalled projects, deceleration in the output of infrastructure goods, and the ongoing deleveraging in the corporate sector. The output of core industries was also
dragged down by contraction in electricity, coal and fertiliser production in June, owing to
excess inventory and tepid demand. On the positive side, natural gas recorded an uptick in production after a prolonged decline and steel output remained strong. The 78th round of the Reserve Bank’s industrial outlook survey (IOS) revealed a waning of optimism in Q2 about demand conditions across parameters, and especially on capacity utilisation, profit margins and employment. The manufacturing purchasing managers’ index (PMI) moderated sequentially to a four-month low in June and the future output index also eased marginally. In July, the PMI declined into the contraction zone with a decrease in new orders and a deterioration in business conditions, reflecting inter alia the roll out of the GST; however, both new export orders and the future output index rose, reflecting optimism in the outlook. 
 
8. In contrast to manufacturing, high frequency real indicators of services sector activity
point to a mixed picture in Q1. In the transportation sub-sector, freight carriage by air
registered a strong performance sequentially and on an annual basis. Commercial vehicle sales rose after two successive months of contraction in response to the Bharat Standard (BS)-IV emission compliance switchover. Sales of passenger cars and two-wheelers suffered temporary dislocation in June even as motorcycle sales continued to grow for the third consecutive month, reflecting the firmness of rural demand. Activity in the communication sub-sector accelerated in May on strong and sustained growth in the subscriber base of voice and data services. The hospitality sub-sector was supported by vigorous growth of foreign tourist arrivals and air passenger traffic. The acceleration in steel consumption in April-May may be a precursor to a pickup in construction activity in Q1, but cement production remains in contraction mode. The PMI for the services sector continued to remain in expansion mode in May-June on expectations of improvement in market conditions.
 
9. In June, retail inflation measured by year-on-year changes in the CPI plunged to its
lowest reading in the series based to 2011-12. This was mainly the outcome of large
favourable base effects which are slated to dissipate and reverse from August. Although
month-on-month increases in the price level have been picking up since April, they were
weak in relation to the typical food-price driven summer uptick. The delay in indirect tax
revisions and anecdotal evidence of clearance sales across commodities could have dampened the momentum.
 
10. Prices of food and beverages, which went into deflation in May 2017 for the first time
in the new CPI series, sank further in June as prices of pulses, vegetables, spices and eggs recorded year-on-year declines and inflation moderated across most other sub-groups. There are now visible signs, however, of the usual seasonal price spikes, even if with a delay and especially in respect of tomatoes, onions and milk.
 
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11. Fuel inflation declined for the second month in succession as international prices of liquefied petroleum gas (LPG) fell and price increases moderated in the case of coke, and firewood and chips. Administered prices of LPG and kerosene are set to rise with the calibrated reduction in subsidy. Households appear to have discounted the recent low inflation prints; their three month ahead and one year ahead inflation expectations polled in the June 2017 round of the Reserve Bank’s survey have somewhat hardened.
 
12. Excluding food and fuel, CPI inflation moderated for the third month in succession in June, falling to 4 per cent as price momentum moderated inter alia in respect of education due to delay in fee revision cycles, and also in respect of health, clothing and footwear. Inflation in transport and communication services was depressed by the pricing war in the telecommunication space. Input costs relating to both industry and farms remain benign tracking international prices. Pricing power polled in the Reserve Bank’s industrial outlook survey and in manufacturing and services PMIs is still subdued.
 
13. Surplus liquidity conditions persisted in the system, exacerbated by front-loading of
budgetary spending by the Government. There was also some moderation in the pace of increase in currency in circulation (CiC) which is typical at this time of the year – as against the increase of Rs. 1.5 trillion in CiC during the first two months of 2017-18, it was Rs. 436 billion and Rs. 95 billon during June and July, respectively. Normally, currency returns to the banking system in these months and is reflected in a decline in CiC; consequently, the increase in CiC recorded this year reflects the sustained pace of remonetisation and the associated absorption of liquidity from the system. Surplus liquidity of Rs. 1 trillion was absorbed through issuance of treasury bills (TBs) under the market stabilisation scheme (MSS) and Rs. 1.3 trillion through cash management bills (CMBs) on a cumulative basis so far this financial year. Enduring surplus conditions warranted outright open market sales of Rs. 100 billion each on two occasions in June and July. Another auction of an equivalent amount has been announced and will be conducted on August 10, 2017. Apart from these operations, net average absorption of liquidity under the LAF was at Rs. 3.1 trillion in June and Rs. 3.0 trillion in July. Reflecting this active liquidity management, the weighted average call rate (WACR)
firmed up and traded about 17 bps below the repo rate on average during June and July – down from 29-32 basis points (bps) in March-April and 21 bps in May – within the LAF
corridor.
 
14. Turning to the external sector, merchandise export growth weakened in May and June from the April peak as the value of shipments across commodity groups either slowed or declined. By contrast, import growth remained in double digits, primarily due to a surge in oil imports and stockpiling of gold imports ahead of the implementation of the GST. Imports of coal, electronic goods, pearls and precious stones, vegetable oils and machinery also accelerated. As import growth continued to outpace export growth, the trade deficit at US$ 40.1 billion in Q1 was more than double its level a year ago. Net foreign direct investment doubled in April-May 2017 over its level a year ago, flowing mainly into manufacturing, retail and wholesale trade and business services. Foreign portfolio investors made net purchases of US$ 15.2 billion in domestic debt and equity markets so far (up to July 31), remaining bullish on the outlook for the Indian economy. The level of foreign exchange reserves was US$ 392.9 billion as on July 28, 2017.
 
Outlook
 
15. The second bi-monthly statement projected quarterly average headline inflation in the range of 2.0-3.5 per cent in the first half of the year and 3.5-4.5 per cent in the second half. The actual outcome for Q1 has tracked projections. Looking ahead, as base effects fade, the evolving momentum of inflation would be determined by (a) the impact on the CPI of the implementation of house rent allowances (HRA) under the 7th central pay commission (CPC); (b) the impact of the price revisions withheld ahead of the GST; and (c) the disentangling of the structural and transitory factors shaping food inflation. The inflation trajectory has been updated taking into account all these factors and incorporates the first round impact of the implementation of the HRA award by the Centre.
 
16. There are several factors contributing to uncertainty around this baseline inflation
trajectory. Implementation of farm loan waivers by States may result in possible fiscal
slippages and undermine the quality of public spending, entailing inflationary spillovers.
Moreover, the timing of the States’ implementation of the salary and allowances award is
critical – it is not factored into the baseline projection in view of lack of information on their plans. If States choose to implement salary and allowance increases similar to the Centre in the current financial year, headline inflation could rise by an additional estimated 100 basis points above the baseline over 18-24 months. Also, high frequency indicators suggest that price pressures are building up in vegetables and animal proteins in the near months. There are, however, some moderating forces at work. First, the second successive normal monsoon coupled with effective supply management measures may keep food inflation under check. Second, if the general moderation of price increases in CPI excluding food and fuel continues, it will contain upside pressures on headline inflation. Third, the international commodity price outlook is fairly stable at the current juncture.
 
17. Business sentiment polled in the manufacturing sector reflects expectations of
moderation of activity in Q2 of 2017-18 from the preceding quarter. Moreover, high levels of stress in twin balance sheets – banks and corporations – are likely to deter new investment. With the real estate sector coming under the regulatory umbrella, new project launches may involve extended gestations and, along with the anticipated consolidation in the sector, may restrain growth, with spillovers to construction and ancillary activities. Also, given the limits on raising market borrowings and taxes by States, farm loan waivers are likely to compel a cutback on capital expenditure, with adverse implications for the already damped capex cycle. At the same time, upsides to the baseline projections emanate from the rising probability of another good kharif harvest, the boost to rural demand from the higher budgetary allocation to
housing in rural areas, the significant step-up in the budgetary allocation for roads and 
bridges, and the growth-enhancing effects of the GST, viz., the shifting of trade from
unorganised to organised segments; the reduction of tax cascades; cost, efficiency and
competitiveness gains; and synergies in domestic supply chains. In turn, these virtuous forces may spur investment. External demand conditions are gradually improving and should support the domestic economy, although global political risks remain significant. Keeping in view these factors, the projection of real GVA growth for 2017-18 has been retained at the June 2017 projection of 7.3 per cent, with risks evenly balanced. 
 
18. The MPC observed that while inflation has fallen to a historic low, a conclusive
segregation of transitory and structural factors driving the disinflation is still elusive. In
respect of inflation-sensitive vegetables, prices are recording spikes. Excess supply conditions continue to push down prices of pulses and keep those of cereals in check. The MPC will continue monitoring movements in inflation to ascertain if recent soft readings are transient or if a more durable disinflation is underway. In its assessment of real activity, the MPC noted that while the outlook for agriculture appears robust, underlying growth impulses in industry and services are weakening, given corporate deleveraging and the retrenchment of investment demand.
 
19. The MPC noted that some of the upside risks to inflation have either reduced or not
materialised - (i) the baseline path of headline inflation excluding the HRA impact has fallen below the projection made in June to a little above 4 per cent by Q4; (ii) inflation excluding food and fuel has fallen significantly over the past three months; and, (iii) the roll-out of the GST has been smooth and the monsoon normal. Consequently, some space has opened up for monetary policy accommodation, given the dynamics of the output gap. Accordingly, the MPC decided to reduce the policy repo rate by 25 basis points. Noting, however, that the trajectory of inflation in the baseline projection is expected to rise from current lows, the MPC decided to keep the policy stance neutral and to watch incoming data. The MPC remains focused on its commitment to keeping headline inflation close to 4 per cent on a durable basis.
 
20. On the state of the economy, the MPC is of the view that there is an urgent need to
reinvigorate private investment, remove infrastructure bottlenecks and provide a major thrust to the Pradhan Mantri Awas Yojana for housing needs of all. This hinges on speedier clearance of projects by the States. On their part, the Government and the Reserve Bank are working in close coordination to resolve large stressed corporate borrowers and recapitalise public sector banks within the fiscal deficit target. These efforts should help restart credit flows to the productive sectors as demand revives. 
 
21. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Viral V. Acharya and Dr. Urjit R. Patel were in
favour of the monetary policy decision, while Dr. Ravindra H. Dholakia voted for a policy
rate reduction of 50 basis points and Dr. Michael Debabrata Patra voted for status quo. The minutes of the MPC’s meeting will be published by August 16, 2017.
 
22. The next meeting of the MPC is scheduled on October 3 and 4, 2017.
 
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India-Israel Joint Statement

Prime Minister Narendra Modi meeting Israeli Prime Minister Benjamin Netanyahu, in Jerusalem, Israel on July 5, 2017.
Prime Minister Narendra Modi meeting Israeli Prime Minister Benjamin Netanyahu, in Jerusalem, Israel on July 5, 2017.
Following is the text of the Joint Statement issued by India and Israel here today during the visit of Prime Minister Narendra Modi to Israel:
 
Marking the 25th anniversary of the establishment of diplomatic relations between the two countries, Prime Minister Narendra Modi of India visited Israel from 4-6 July 2017 at the invitation of Prime Minister Benjamin Netanyahu of Israel. This historic first-ever visit by an Indian Prime Minister to Israel solidified the enduring friendship between their peoples and raised the bilateral relationship to that of a strategic partnership.
 
Noting that they represent two cradles of civilizations that have nurtured their respective heritages over the centuries, the two leaders affirmed their intention to build a broad-based relationship that will realise the full potential of their association. In doing so, they recognized that throughout history, the Jewish Communities have always had a home in India and have been treated with warmth and respect.
 
Reviewing the development of the relationship after a quarter century of diplomatic ties, the two leaders agreed on initiatives and policies that would reflect the goals and aspirations of both nations and widen their collaborative endeavours in a broad range of areas. They visualized that the two countries will become close partners in development, technology, innovation, entrepreneurship, defence and security.
 
Recognizing its centrality for development, India and Israel agreed to establish a "Strategic Partnership in Water and Agriculture”. This will focus on water conservation, waste-water treatment and its reuse for agriculture, desalination, water utility reforms, and the cleaning of the Ganges and other rivers using advanced water technologies. It will also include the reinforcement and expansion of the existing Centres of Excellence (COE) under the stewardship of the Israeli Ministry of Foreign Affairs (MASHAV) and the Ministry of Agriculture of India to promote commercially viable business models involving Farmer Producer Organizations (FPOs); the provision of quality planting material; and the transfer of post-harvest technical know-how and market linkages involving the private sector through PPP, B2B & other models. The two leaders also agreed on the establishment of a Joint Working Group to steer this Partnership.
 
The two Prime Ministers noted the importance of realizing the full potential of bilateral trade and investment. They tasked the India-Israel CEO Forum to come up with early recommendations in this regard. Both leaders underlined the need to boost bilateral cooperation in innovation and entrepreneurship and called for greater collaboration in the field of start-ups.
 
Recognizing the importance of facilitating movement of businessmen and women, India and Israel underlined their expectation that the granting of multiple entry visas to business people for up to five years will encourage greater economic and commercial exchanges.
 
The two Prime Ministers agreed that negotiations would be conducted on an agreement for the Protection of Investments in order to encourage bilateral investments from both sides.
 
The two Prime Ministers welcomed the conclusion of the Memorandum of Understanding for establishing the India-Israel Industrial R&D and Innovation Fund (I4F) by the Department of Science and Technology, India and the National Authority for Technological Innovation, Israel with a contribution of US$ 20 million from each side. This MoU will play a seminal role in enabling Indian and Israeli enterprises to undertake joint R&D projects leading to development of innovative technologies and products that have potential for commercial application.
 
Recognising the importance of fostering wide ranging knowledge-business partnership for industries, R&D institutions and government agencies from both countries, Israel warmly welcomed India’s offer to be the "Partner Country” for the annual Technology Summit to be held in India in 2018.
 
Both leaders welcomed the ongoing cooperation between the Israel Space Agency (ISA) and the Indian Space Research Organisation (ISRO). They expressed satisfaction over the signing of three MoUs and Plan of Cooperation in the areas of Cooperation in Atomic Clocks; GEO-LEO Optical Link; Academic collaboration and Electric propulsion for small satellites which would further enhance cooperation between the two countries. They also encouraged the two Space Agencies to further enhance the growing relationship for mutual benefit. The two leaders acknowledged that the recent launching by ISRO of an Israeli nano satellite is an important milestone in this arena.
 
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The Prime Ministers noted with satisfaction that both sides have agreed to upgrade their scientific and technological collaboration by supporting joint research and development projects in the cutting edge areas, including ‘Big Data Analytics in Health Care’. They directed the India-Israel Joint Committee on Science and Technology to explore the possibility of further advancement of scientific collaboration including setting up of Networked Centres of Research Excellence in the cutting edge areas of mutual strength and interest.
 
Reaffirming the importance of bilateral defence cooperation over the years, it was agreed that future developments in this sphere should focus on joint development of defence products, including transfer of technology from Israel, with a special emphasis on the 'Make in India' initiative.
 
India and Israel are committed to promote security and stability in cyberspace on both the governmental and private levels. The Prime Ministers emphasized the importance of enhanced dialogue between their national cyber authorities and expressed their commitment to expand and accelerate their cooperation in this sphere including laying a mutual roadmap for its implementation. Both sides also recognise the value of enhancing and further institutionalising their broad-based cooperation on cyber issues through a Framework for cooperation in the area of cyber security.
 
Recognizing that terrorism poses a grave threat to global peace and stability, the two Prime Ministers reiterated their strong commitment to combat it in all its forms and manifestations. They stressed that there can be no justification for acts of terror on any grounds whatsoever. The leaders asserted that strong measures should be taken against terrorists, terror organizations, their networks and all those who encourage, support and finance terrorism, or provide sanctuary to terrorists and terror groups. They also underscored the need to ensure that terrorist organizations do not get access to any WMD or technologies. Both leaders also committed to cooperate for the early adoption of the Comprehensive Convention on International Terrorism (CCIT).
 
Both leaders reaffirmed their commitments as envisaged in the agreement on cooperation on Homeland and Public Security and encouraged the various Working Groups to implement the agreement in an efficient and effective manner.
 
The two Prime Ministers underlined the importance of enhanced collaboration in the field of Higher Education and Research and agreed to promote this through relevant agreements and the Joint Research Grant Programme.
 
Noting the importance of growing people to people contacts between India and Israel, the two leaders agreed to facilitate the promotion of travel & tourism in both directions, including through the further enhancement of air links between India and Israel.
 
Appreciating the contribution of the Jewish community in India and Jews of Indian origin in Israel in bringing the two societies closer, Prime Minister Modi announced the opening of an Indian Cultural Centre in Israel. This was warmly welcomed by Prime Minister Netanyahu who expressed his deep respect for Indian culture and recalled Israel's strong support and sponsorship of PM Modi's initiative to promote the practice of Yoga by designating June 21 as International Yoga Day.
 
The two Prime Ministers recognized the contribution of Indian care-givers in Israel and expressed their intention to reach a mutually agreed-upon arrangement which will provide for their continued arrival in a regulated manner.
 
The two Prime Ministers discussed the developments pertaining to the Israeli-Palestinian Peace Process. They underlined the need for the establishment of a just and durable peace in the region. They reaffirmed their support for an early negotiated solution between the sides based on mutual recognition and security arrangements.
 
During the visit, the following Agreements were signed:
 
i. MoU between the Department of Science & Technology, India and National Technological Innovation Authority, Israel for setting up of India-Israel Industrial R&D and Technological Innovation Fund (I4F).
 
ii. MoU between the Ministry of Drinking Water and Sanitation of the Republic of India and the Ministry of National Infrastructure, Energy and Water Resources of the State of Israel on National Campaign for Water Conservation in India
 
iii MoU between U.P. Jal Nigam, Government of Uttar Pradesh, of the Republic of India and the Ministry of National Infrastructure, Energy and Water Resources of the State of Israel on State Water Utility Reform in India
 
iv India-Israel Development Cooperation - Three Year Work Program in Agriculture 2018-2020
 
v Plan of Cooperation Between the Indian Space Research Organisation (ISRO) and the Israel Space Agency (ISA) regarding cooperation in Atomic Clocks
 
vi MoU between the Indian Space Research Organisation (ISRO) and the Israel Space Agency (ISA)regarding cooperation in GEO-LEO Optical Link
 
vii MoU between the Indian Space Research Organisation (ISRO) and the Israel Space Agency (ISA) regarding cooperation in Electric Propulsion for Small Satellites
 
Prime Minister Modi thanked the people and Government of Israel for their gracious hospitality and extended a warm invitation to Prime Minister Netanyahu to visit India at a mutually convenient time. Prime Minister Netanyahu accepted the invitation.
 
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India-United States Joint Statement

Prime Minister Narendra Modi meeting US President Donald Trump, at White House, in Washington DC, on June 26, 2017.
Prime Minister Narendra Modi meeting US President Donald Trump, at White House, in Washington DC, on June 26, 2017.
Following is the text of the Joint Statement -- "United States and India: Prosperity Through Partnership" -- issued by the United States and India during Prime Minister Narendra Modi's visit to Washington on June 24-26:
 
President Donald J. Trump hosted Prime Minister Narendra Modi of India at the White House on June 26 for an official visit to Washington, D.C. 
 
In marking 70 years of diplomatic relations between India and the United States, the leaders resolved to expand and deepen the strategic partnership between the countries and advance common objectives. Above all, these objectives include combatting terrorist threats, promoting stability across the Indo-Pacific region, increasing free and fair trade, and strengthening energy linkages. President Trump and Prime Minister Modi expressed confidence that, together, the United States and India will provide strong leadership to address global challenges and build prosperity for their citizens in the decades to come. 
 
Democratic Stalwarts in the Indo-Pacific Region
 
As responsible stewards in the Indo-Pacific region, President Trump and Prime Minister Modi agreed that a close partnership between the United States and India is central to peace and stability in the region. Recognizing the significant progress achieved in these endeavors, the leaders agreed to take further measures to strengthen their partnership. In accordance with the tenets outlined in the U.N. Charter, they committed to a set of common principles for the region, according to which sovereignty and international law are respected and every country can prosper. To this end, the leaders: 
 
reiterate the importance of respecting freedom of navigation, overflight, and commerce throughout the region;
 
call upon all nations to resolve territorial and maritime disputes peacefully and in accordance with international law;
 
support bolstering regional economic connectivity through the transparent development of infrastructure and the use of responsible debt financing practices, while ensuring respect for sovereignty and territorial integrity, the rule of law, and the environment; and
 
call on other nations in the region to adhere to these principles. 
 
President Trump welcomed further Indian contributions to promote Afghanistan’s democracy, stability, prosperity, and security. Recognizing the importance of their respective strategic partnerships with Afghanistan, the leaders committed to continue close consultations and cooperation in support of Afghanistan’s future.
 
In accord with India’s Think West policy, President Trump and Prime Minister Modi resolved to increase cooperation, enhance diplomatic consultations, and increase tangible collaboration with partners in the Middle East. 
 
The leaders strongly condemned continued provocations by the Democratic People’s Republic of Korea (DPRK), emphasizing that its destabilizing pursuit of nuclear and ballistic missile programs poses a grave threat to regional security and global peace. The leaders called on DPRK to strictly abide by its international obligations and commitments. The leaders pledged to work together to counter the DPRK’s weapons of mass destruction programs, including by holding accountable all parties that support these programs. 
 
Shoulder-to-Shoulder Against Terrorism 
 
The Leaders stressed that terrorism is a global scourge that must be fought and terrorist safe havens rooted out in every part of the world. They resolved that India and the United States will fight together against this grave challenge to humanity. They committed to strengthen cooperation against terrorist threats from groups including Al-Qa’ida, ISIS, Jaish-e-Mohammad, Lashkar-e-Tayyiba, D-Company, and their affiliates. India appreciated the United States designation of the Hizb-ul-Mujahideen leader as a Specially Designated Global Terrorist as evidence of the commitment of the United States to end terror in all its forms. In this spirit, the leaders welcomed a new consultation mechanism on domestic and international terrorist designations listing proposals. 
 
The leaders called on Pakistan to ensure that its territory is not used to launch terrorist attacks on other countries. They further called on Pakistan to expeditiously bring to justice the perpetrators of the 26/11 Mumbai, Pathankot, and other cross-border terrorist attacks perpetrated by Pakistan-based groups. 
 
The leaders announced increased cooperation to prevent terrorist travel and to disrupt global recruitment efforts by expanding intelligence-sharing and operational-level counterterrorism cooperation. They welcomed commencement of the exchange of information on known and suspected terrorists for travel screening. They further resolved to strengthen information exchange on plans, movements and linkages of terrorist groups and their leaders, as well as on raising and moving of funds by terrorist groups. 
 
The leaders also affirmed their support for a U.N. Comprehensive Convention on International Terrorism that will advance and strengthen the framework for global cooperation and reinforce the message that no cause or grievance justifies terrorism. They also pledged to work together to prevent proliferation of weapons of mass destruction and their delivery systems and to deny access to such weapons by terrorists and non-state actors.
 
Growing Strategic Convergence
 
President Trump and Prime Minister Modi pledged to deepen defense and security cooperation, building on the United States’ recognition of India as a Major Defense Partner. The United States and India look forward to working together on advanced defense equipment and technology at a level commensurate with that of the closest allies and partners of the United States. Reflecting the partnership, the United States has offered for India’s consideration the sale of Sea Guardian Unmanned Aerial Systems, which would enhance India’s capabilities and promote shared security interests. 
 
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Resolving to expand their maritime security cooperation, the leaders announced their intention to build on the implementation of their "White Shipping” data sharing arrangement, which enhances collaboration on maritime domain awareness. President Trump welcomed Prime Minister Modi’s strong support for the United States to join as an Observer in the Indian Ocean Naval Symposium. Noting the importance of the upcoming MALABAR naval exercise, the leaders determined to expand their engagements on shared maritime objectives and to explore new exercises. 
 
As global nonproliferation partners, the United States expressed strong support for India’s early membership in the Nuclear Suppliers Group, the Wassenaar Arrangement, and the Australia Group. President Trump reaffirmed the support of the United States for India’s permanent membership on a reformed U.N. Security Council. 
 
Increasing Free and Fair Trade
 
The leaders committed that the United States and India -- leading engines of growth in the global economy -- should intensify their economic cooperation to make their nations stronger and their citizens more prosperous. Noting that extensive economic and tax reforms launched in their respective countries will unlock immense economic opportunities for both countries, the leaders committed to further expanding and balancing the trade relationship and to removing obstacles to growth and jobs creation. They also resolved to pursue increased commercial engagement in a manner that advances the principles of free and fair trade. To this end, the United States and India plan to undertake a comprehensive review of trade relations with the goal of expediting regulatory processes; ensuring that technology and innovation are appropriately fostered, valued, and protected; and increasing market access in areas such as agriculture, information technology, and manufactured goods and services. President Trump and Prime Minister Modi further committed to strengthening cooperation to address excess capacity in industrial sectors. They called on their teams to find creative ways to improve bilateral trade. 
 
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Surveying United States-India energy ties and the two countries’ respective energy strategies, the leaders affirmed the continued importance of their Strategic Energy Partnership and of leveraging new opportunities to elevate cooperation to enhance global energy security. The leaders called for a rational approach that balances environment and climate policy, global economic development, and energy security needs. 
 
President Trump affirmed that the United States continues to remove barriers to energy development and investment in the United States and to U.S. energy exports so that more natural gas, clean coal, and renewable resources and technologies are available to fuel India’s economic growth and inclusive development. Prime Minister Modi and President Trump looked forward to conclusion of contractual agreements between Westinghouse Electric Company and the Nuclear Power Corporation of India for six nuclear reactors in India and also related project financing. Both leaders welcomed upcoming visits between India and the United States that will expand energy and innovation linkages across the energy sector and deepen cooperation, including on more efficient fossil fuel technologies, smart grids, and energy storage. They supported financing of energy projects, including clean coal projects, by Multilateral Development Banks to promote universal access to affordable and reliable energy.
 
Recognizing that we are in an increasingly digital world, the leaders agreed to intensify the mutually beneficial partnership to fully harness their innovation capabilities to solve global developmental challenges. As global partners, the United States and India resolved to further strengthen their collaboration in health, space, oceans, and other areas of science and technology. The leaders also agreed to strengthen their cooperation to address the growing threats and challenges from malicious cyber activity and committed to work together to promote an open, interoperable, secure, and reliable cyberspace environment that supports innovation, economic growth, and commerce.
 
Applauding the entrepreneurship and innovation of Indians and Indian-Americans that have directly benefitted both nations, President Trump welcomed India’s formal entry into the International Expedited Traveler Initiative (Global Entry program) in order to facilitate closer business and educational ties between the citizens of India and the United States. 
 
President Trump gladly accepted Prime Minister Modi’s invitation to visit India. They look forward to working together in a spirit of friendship in the years to come.
 
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Full Text: RBI's Second Bi-monthly Monetary Policy Statement, 2017-18

RBI logo
 
Following is the text of the Second Bi-monthly Monetary Policy Statement, 2016-17 and Resolution of the Monetary Policy Committee (MPC) issued by the Reserve Bank of India (RBI) issued here today: 
 
Resolution of the Monetary Policy Committee (MPC), Reserve Bank of India
 
On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
 
keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25 per cent.
 
Consequently, the reverse repo rate under the LAF remains at 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.50 per cent.
 
The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.
 
Assessment
 
2. Since the April 2017 meeting of the MPC, global economic activity has expanded at a modest pace, supported by firming growth in major advanced economies (AEs) and in some emerging market economies (EMEs) as well. In the US, a tightening labour market is generating wage gains. Alongside, industrial production has steadily improved in recent months and retail sales remain robust, although home sales ebbed in April. Political risks remain high, however. In the Euro area, the recovery has been underpinned by consistently falling unemployment, rising retail sales and a brighter outlook for manufacturing reflected in purchasing managers’ and business surveys. In Japan, exports supported by a depreciated yen and industrial activity are driving an acceleration in growth. Wages and inflation, however, are depressed and holding back domestic demand. Among EMEs, the Chinese economy is stabilising, especially in manufacturing, but financial risks in the form of the credit-fuelled debt overhang could impinge on the outlook. Brazil appears to be emerging out of recession, although growth dynamics remain fragile due to worsening labour market conditions and political turmoil. In Russia, the strengthening global environment is supporting the recovery with improving macro fundamentals. South Africa is grappling with structural constraints which are depressing economic activity.
 
3. The pick-up in global merchandise trade volume since the start of the year has been sustained in Q2 of 2017, buoyed by strengthening global demand as reflected in rising international air freight and container throughput. Crude prices fell to a five-month low in early May on higher output from Canada and the US, and remain soft, undermining the OPEC’s recent efforts to tighten the market by trimming supply. Among non-fuel commodity prices, metal prices have been retreating on expectations of weak demand from China. Bullion prices remain range-bound, while food prices eased in April but rose in May. These developments suggest that the inflation outlook is still relatively benign for AEs and EMEs alike.
 
4. International financial markets have been lifted by improving global growth prospects, broadly accommodative monetary policy stances of systemic central banks and generally positive incoming data. Increasingly, financial markets have shown resilience to geo-political events and have swiftly priced them in. This has been reflected in the reinvigoration of the reach for returns. Country-specific factors have modulated investor sentiment. Equity markets in most AEs have gained in Q2, surpassing past peaks in the US; boosted by corporate profits in Japan; and supported by easing political tensions and upbeat data in the case of the Euro area. In EMEs, equities have turned in a mixed performance, with high valuations across Asia, but weaker in Latin America on softer commodity prices. Bond yields in major AEs have been largely range-bound. In EMEs, yields have hardened in the few countries facing inflation pressures and political uncertainties, but for commodity exporters, there has been some recent decline. In the currency markets, the US dollar has weakened in May after dovish guidance by the Fed and unexpected political events. Since mid-May, the yen has shed its depreciating bias and appears to have gained safe haven appeal. EME currencies, which had depreciated on the strength of the US dollar, have steadied more recently on renewal of capital flows and risk-on investor appetite.
 
5. On May 31, 2017 India’s Central Statistics Office (CSO) released quarterly estimates of national income accounts for Q4 of 2016-17, provisional estimates for 2016-17 and revisions for the preceding five years. The growth of real gross value added (GVA) for 2016-17 has been pegged at 6.6 per cent, 0.1 percentage point lower than the second advance estimates released in February 2017. Underlying the revision is a downward adjustment in services sector growth in Q4 for the constituents of construction, financial and professional services, and real estate. Estimates of agriculture and allied activities have been upgraded to incorporate the all-time high production of foodgrains and horticulture in the year. GVA in industry has also been placed higher in the provisional estimates relative to the earlier reading to reflect the impact of new indices of industrial production (IIP) and wholesale prices (WPI) rebased to 2011-12. The new data reveal that a slowdown in activity in both industry and services set in as early as Q1 of 2016-17 and became pronounced in Q4. Moreover, the deceleration of activity coursing through the year has had underlying drivers that have been in operation since Q2. Components of aggregate demand reflect a contraction in gross fixed investment in Q4, reversing the turnaround evident in the second half of the year in the advance estimates. This is also reflected in the contraction in the production of capital goods in the new IIP. However, private final consumption expenditure recorded robust year-on-year growth.
 
6. On May 9, the Ministry of Agriculture (MoA) released its third advance estimates of foodgrains production, which confirmed the record level of output achieved in 2016-17 and, in fact, revised it upwards to 273 million tonnes. The MoA also set out its second advance estimates of fruits and vegetables on May 30, which was also a historical record. Benefiting from the bumper harvest, rabi procurement during Q1 of 2017-18 so far has been significantly higher than a year ago, replenishing food stocks and taking them to 61.9 million tonnes in May 2017, three times the buffer norm. On June 6, the India Meteorological Department (IMD) re-affirmed its forecast of a normal and well-distributed south-west (June-September) monsoon, which augurs well for the agricultural outlook.
 
7. The new series on the IIP released by the CSO on May 12 improves the coverage of industrial activity, realigns weights and reclassifies sub-sectors to better capture the underlying structural dynamics of the sector, and smoothens the impact of lumpy items on the index. As a result, industrial production expanded by 5.0 per cent during 2016-17 based on the new series (as against 0.7 per cent in the old series). Turning to the current financial year, the output of eight core industries decelerated sharply in April on account of contraction in coal, crude oil and cement due to structural constraints and low demand. Furthermore, electricity generation decelerated due to depressed demand pricing out relatively expensive thermal output. By contrast, the production of steel and fertiliser picked up, the former driven up by exports and the latter by expectations of a normal monsoon.
 
8. The business expectations index generated by the Reserve Bank’s April round of the Industrial Outlook Survey reflects optimism in the manufacturing sector in Q2 of 2017-18, driven by expectations of rising rural demand, exports and profit margins. On the other hand, the manufacturing purchasing managers’ index (PMI) moderated sequentially in May as employment contracted and new orders, both domestic and exports, slowed down. The index, however, remained in the expansion zone and the future output index accelerated for the third month in succession.
 
9. High frequency real indicators of activity in the services sector point to a mixed performance in April. In the transportation sub-sector, freight carriage by air and rail gathered momentum, and passenger car sales accelerated on the back of sustained strength of urban demand. Sales of commercial vehicles and three-wheelers contracted, however, reflecting in part the effects of new emission norms and technology changes. Two-wheeler sales remained depressed, indicative of still subdued rural demand. In the communication sub-sector, there was a strong growth in the subscriber base of voice and data services. The sustained growth of foreign tourist arrivals and air passenger traffic, both domestic and international, supported activity in the hotels, restaurants and the hospitality sub-sector. Both steel consumption and cement production were, however, sluggish, pointing to continuing weakness in construction activity. The services PMI for May rose to its highest reading since November 2016, with an expansion in new business reflecting improving underlying demand conditions, alongside optimism on employment.
 
10. Retail inflation measured by year-on-year changes in the consumer price index (CPI) plunged to a historic low in April, pulled down by a large favourable base effect which overwhelmed a momentum that was feeble relative to the historical record for the month. Underlying this surprising softness was a sharp fall in food inflation brought about by a deflation in the prices of pulses and vegetables. In addition, moderation in the prices of cereals, eggs, oils and fats and spices contributed to the loss of momentum. In the case of pulses, the large-scale augmentation of supply on account of expansion in acreage, procurement, buffer stocking and imports caused a sharp decline in prices starting in August 2016. Propelled by significantly higher arrivals in mandis relative to the seasonal pattern, prices of vegetables also fell markedly from July and bottomed out in January 2017, with fire sales during the demonetisation period accentuating the fall. The seasonal uptick that typically occurs in the pre-monsoon months has been muted so far. In the fuel group by contrast, inflation surged across the board. Prices of liquefied petroleum gas (LPG) and kerosene rose in sympathy with international prices even as the subsidy was set on a path of calibrated reduction. Fuel used by rural households rose for the third month in succession, narrowing the wedge between fuel inflation facing rural and urban households. In response to these developments, inflation expectations three months ahead and a year ahead surveyed in the Reserve Bank’s inflation expectations survey of households have ticked down marginally.
 
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11. Excluding food and fuel, inflation dipped 60 basis points from a month ago to 4.4 per cent. The delayed and cumulative downward adjustment of domestic petrol and diesel prices in April to the softening of international crude prices in preceding months was among the factors at work. Inflation in respect of services embedded in transport and communication, education, recreation and health also moderated. The industrial outlook survey and the PMIs for manufacturing and services indicate that pricing power remains weak.
 
12. Even as surplus liquidity in the banking system post-demonetisation was drained by the ramping up of new currency in circulation by Rs. 1.5 trillion in April and May, massive spending by the Government re-injected liquidity into the system, raising the daily average overall surplus liquidity in the banking system to Rs. 4.2 trillion in April and Rs. 3.5 trillion in May. Unwinding of the excess reserves that banks used to dress up balance sheets for end-March also resulted in an accretion of Rs. 0.8 trillion to the surplus liquidity. Absorption operations undertaken by the Reserve Bank in the context of these developments and the consequent downward pressure on money market rates consisted of Rs. 1 trillion impounded through issuance of treasury bills (TBs) of tenors ranging from 312 days to 329 days under the market stabilisation scheme (MSS), auctions of cash management bills (CMBs) of Rs. 0.7 trillion triggered by the decline in cash balances of the Government, and variable rate reverse repo auctions of different tenors which took in the remaining surplus liquidity averaging Rs. 3.8 trillion in April and Rs. 3.4 trillion in May. With the narrowing of the the LAF corridor from +/- 50 bps to +/- 25 bps in April 2017, these operations ensured that the weighted average call money rate (WACR) – the operating target of monetary policy– broadly traded within the corridor. The spread between the WACR and the policy repo rate narrowed from 29-32 basis points (bps) in March-April to 21 bps in May.
 
13. Merchandise exports posted double digit growth in March and April 2017 in an environment of slowly improving global trade, with 80 per cent of this expansion contributed by engineering goods, petroleum products, gems and jewellery, readymade garments and chemicals. Merchandise imports also increased sharply, propelled by domestic demand, with the jump of 47.2 per cent in US dollar terms not recorded since 2011. Imports of petroleum and products rose strongly on price effects as international crude prices firmed up in the wake of OPEC’s productions cut. Gold imports also surged in volume terms, initially driven by seasonal and festival demand but subsequently by stockpiling in anticipation of the roll out of the goods and services tax (GST). Non-oil non-gold imports contributed about half of the total import growth in March and April, reflecting higher recourse to electronic goods, pearls and precious stones, coal, machinery and machine tools from overseas markets. With import growth significantly outpacing export growth, the trade deficit increased sizably. The current account deficit (CAD) for the year 2016-17 is likely to remain within 1 per cent of GDP. Unlike in the immediately preceding quarter, capital flows in April-May 2017 were dominated by foreign portfolio investment (FPI), pushed out by risk-on investor sentiment as global growth prospects improved. Also, clarity emerged on taxation issues in the Union Budget and the expectations of faster structural reforms were fuelled by the decisive outcome of State elections. The level of foreign exchange reserves as on June 2, 2017 was US$ 381.2 billion.
 
Outlook
 
14. The abrupt and significant retreat of inflation in April from the firming trajectory that was developing in February and March has raised several issues that have to be factored into the inflation projections. First, it needs to be assessed as to whether or not the unusually low momentum in the reading for April will endure. Second, the prices of pulses are clearly reeling under the impact of a supply glut caused by record output and imports. Policy interventions, including access to open trade, may be envisaged to arrest the slump in prices. Third, the accumulated downward adjustment in the prices of petrol and diesel effected in April has been largely reversed on June 1. Fourth, the easing of inflation excluding food and fuel may be transient in view of its underlying stickiness in a situation of rising rural wage growth and strong consumption demand. Thus, the April reading has imparted considerable uncertainty to the evolving inflation trajectory, especially for the near months. If the configurations evident in April are sustained, then absent policy interventions, headline inflation is projected in the range of 2.0-3.5 per cent in the first half of the year and 3.5-4.5 per cent in the second half (Chart 1). Risks are evenly balanced, although the spatial and temporal distribution of the monsoon and the government staying the course in effective food management will play a critical role in the evolution of risks. The risk of fiscal slippages, which, by and large, can entail inflationary spillovers, has risen with the announcements of large farm loan waivers. At the current juncture, global political and financial risks materialising into imported inflation and the disbursement of allowances under the 7th central pay commission’s award are upside risks. The date of implementation of the latter is still not announced and as such, it is not factored into the baseline projections. The implementation of the GST is not expected to have a material impact on overall inflation.
 
15. With the CSO’s provisional estimates for 2016-17, the projection of real GVA growth for 2017-18 has accordingly been revised 10 bps downwards from the April 2017 projection to 7.3 per cent, with risks evenly balanced (Chart 2). The continuing remonetisation should enable a pick-up in discretionary consumer spending, especially in cash-intensive segments of the economy. Furthermore, the reductions in banks’ lending rates post-demonetisation should support both consumption and investment demand of households and stress-free corporates. Moreover, Government spending continues to be robust, cushioning the impact of a slowdown in other constituents. The implementation of proposals in the Union Budget should crowd in private investment as the business environment improves with structural reforms, including the GST, the Insolvency and Bankruptcy Code, and the abolition of the Foreign Investment Promotion Board. Strengthening external demand will likely play a more decisive role in supporting the domestic economy. In addition, the new IIP broadens the recognition of industrial activity. On the downside, global political risks remain elevated and could materialise. Second, rising input costs and wage pressures may prove a drag on the profitability of firms, pulling down overall GVA growth. Third, the twin balance sheet problem - over-leveraged corporate sector and stressed banking sector - may delay the revival in private investment demand.
 
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16. The MPC noted that incoming data suggest that the transitory effects of demonetisation have lingered on in price formations relating to salient food items, entangled with excess supply conditions with respect to fruits and vegetables, pulses and cereals. At the same time, however, the CSO’s latest releases on national income accounts and industrial production attest to the effects of demonetisation on the broader economy being sector specific and transient, as well as to the noteworthy resilience of private consumption. At this stage, it is difficult to isolate these factors or to judge the strength of their persistence. As the year progresses, underlying inflation pressures, especially input costs, wages and imported inflation, will have to be closely and continuously monitored.
 
17. Noting that inflation has fallen below 4 per cent only since November 2016, the MPC remains focused on its commitment to keeping headline inflation close to 4 per cent on a durable basis keeping in mind the output gap. The current state of the economy underscores the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks. Monetary policy can play a more effective role only when these factors are in place. Premature action at this stage risks disruptive policy reversals later and the loss of credibility. Accordingly, the MPC decided to keep the policy rate unchanged with a neutral stance and remain watchful of incoming data.
 
18. The Reserve Bank will continue to work in partnership with the government to address the stress in banks’ balance sheets. Better alignment of administered interest rates on small savings with market rates and stepped-up recapitalisation of banks to facilitate adequate flow of credit to productive sectors are important steps to follow through.
 
19. Five members were in favour of the monetary policy decision, while Dr. Ravindra H. Dholakia was not in favour. The minutes of the MPC’s meeting will be published by June 21, 2017.
 
20. The next meeting of the MPC is scheduled on August 1 and 2, 2017.
 
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