■ Amitabh Chaudhry, managing director and chief executive officer, HDFC Standard Life Insurance
PERSONAL TAX: More people are now filing tax returns
Joshi: The government’s effort at improving tax collections through steps such as the Income Declaration Scheme and demonetisation seem to have had a positive impact, as reflected in increased direct tax compliance, largely from personal tax. Direct taxes in FY18, at 6% of GDP, touched a decadal high. There has been a significant improvement in the number of tax filers, too. It’s estimated that there were 8.6 million and 9.9 million new Income Tax Return (ITR) filers during fiscals 2017 and 2018, respectively.
Gupta: The prevailing sense from the salaried worker is that he shoulders an unfairly high proportion of the tax burden. This in an environment where effective tax rates are much higher than in advanced economies. While some direct and indirect attempts at widening the tax base and containing slippage have been made, it may be some time before a meaningful fiscal impact is felt and can be passed through to taxpayers.
INTEREST RATE: Bond yields, real interest rates move up
Joshi: RBI lowered the repo rate by 200 basis points in the last four years, but with rising oil prices, fiscal slippage and inflation expected to pick up, repo rates have now been kept on hold. Bond yields have inched up and some banks have raised lending rate, implying change in interest rate cycle.
Rao: While nominal interest rates declined over the last four years, real interest rates moved up in the last four years. The real weighted average deposit rate turned positive and has averaged at 2.9% in the same period. The real lending rate also increased and averaged at 6.5% and 5.7% for outstanding and fresh loans, respectively.
Gupta:Interest rates have been in a downward trend, despite recent tightening due to global monetary policy changes, rising oil prices and NPAs. Efforts to address bad loans have been underway for some time now, but it is only more recently that real reform has taken place.
GDP: Growth bounced back in second half of FY18
Joshi: India’s GDP growth at 7.3% per year in the past four years is lower than the trend rate of 7.6% in the preceding decade. The slowdown was more marked in the first half of FY18 when GDP growth fell to 6.1% due to demonetisation and GST implementation. But by the second half of FY18, growth bounced back to 7.1%.
Rao: In the last four years (FY15-FY18), the overall growth rate in the economy has shown a modest uptick to 7.3% vis-à-vis the average growth of 7.2% in FY11-FY14. However, the underlying drivers have undergone some change. There is an increase in the share (in GDP) of private and government consumption.
Gupta: The progress in the past four years should be viewed in the backdrop of the government’s many structural reforms. GDP and employment may show a mixed record in the short term, but reforms point to better long-term outlook.
Chaudhry: Structural reforms and bank NPAs slowed down GDP growth for a period, but these have recovered and are expected to improve further.
CURRENCY: Days of structural depreciation may be over
Joshi: A significant improvement in India’s macros lent resilience to the rupee. As foreign capital inflows were more than sufficient to finance current account deficit, the rupee’s rate of depreciation eased to 1.7% on average year-on-year in the past four years compared with 5.8% in the preceding five years. However, the currency has started weakening since the past two months as dollar strengthened, oil prices surged and current account deficit touched 2% of GDP.
Rao: Over the last four years, the rupee moved from Rs60 against dollar at the end of FY14 to Rs65 at FY18-end, implying a moderate depreciation of around 2%. This is in line with movements in global foreign exchange markets in the same period.
Gupta: Despite its recent decline, driven mostly by crude prices and global monetary policy events, the rupee has been stable and is trading within a relatively narrow range over the past several quarters. This is partly the result of rise in India’s economic profile. We believe the days of structural depreciation may be over for the rupee now.
We have moved from high to moderate inflation
Joshi: Low consumer inflation has been one of the highlights. On the back of low crude prices and a sharp fall in food inflation, consumer price index (CPI) inflation declined to 3.6% in FY18 from 9.5% in FY14. A prudent fiscal policy and restraint in raising the minimum support price (MSP) for crops contributed to lower food inflation.
Rao: Over the last four years (FY15-FY18), headline CPI inflation averaged at 4.8% compared to the FY11-FY14 average of 9.6%. Also, retail inflation declined every successive year in the last four years, from 6% in FY15 to 3.6% in FY18. The migration from a high inflation economy to a moderate inflation economy has been due to effective policy synchronization. On the monetary policy front, the government accepted (executed by RBI) flexible inflation targeting framework along with creation of a Monetary Policy Committee, boosting credibility.
Gupta: Headline inflation has been kept at manageable levels. The days of painful spikes in onions and tomatoes, and rampant double-digit food inflation appear a distant memory. While there have been episodes of spikes in certain commodities, the government has managed these within acceptable time frames. Further, despite the rise in crude prices recently, inflation is at an acceptable range.
Chaudhry: The government has creditably controlled inflation around 5% by deftly managing food prices even during periods of patchy weather conditions.