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Business News/ Politics / Policy/  Policy in 2017: The known unknowns
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Policy in 2017: The known unknowns

The Indian economy will be entering 2017 with many uncertainties on the horizon

India-Pakistan relations have deteriorated from the high of a surprise visit by Prime Minister Narendra Modi to Lahore on 25 December 2015. Pradeep Gaur/MintPremium
India-Pakistan relations have deteriorated from the high of a surprise visit by Prime Minister Narendra Modi to Lahore on 25 December 2015. Pradeep Gaur/Mint

The Indian economy will be entering 2017 with many uncertainties on the horizon. While the surprise demonetisation of high-value banknotes has disrupted the economy, especially the informal sector, in the near term, opinions vary on the intensity and extent of impact. US president-elect Donald Trump, with his hardline stands on keeping jobs in America, immigration, world trade and globalization, has also injected uncertainty over Indian export growth prospects. Clearly, Indian policymakers have to navigate 2017 cautiously.

TRENDS TO TRACK

Economic growth

While the government says that economic growth will not be significantly hurt as a result of demonetisation of high-value currencies, most economists and the Reserve Bank of India (RBI) have pared down growth projections for 2016-17. The third quarter (October-December) national accounts data that will be released in February will be keenly watched as it will capture the initial impact of demonetisation.

Inflation and oil prices

Worries over inflation made the RBI hold key rates in its December policy review in the face of widespread expectation of a rate cut. Rising crude oil prices and a surge in financial market turbulence have put the fourth quarter (January-March) inflation target at some risk, RBI said. The central bank is targeting keeping retail inflation under 5% in the fourth quarter and at 4%, with a band of 2% on either side, in the medium term. Low retail inflation will give the RBI room to cut interest rates.

Investment

Despite several rounds of interest rate cuts by the RBI since the National Democratic Alliance (NDA) government took charge in May 2014, private investment is yet to pick up, mainly due to overcapacity, lack of domestic and global demand and the debt-burdened corporate sector. How the investment scenario changes after re-monetisation will be keenly watched.

India-Pakistan ties

India-Pakistan relations have deteriorated from the high of a surprise visit by Prime Minister Narendra Modi to Lahore on 25 December 2015. In late September, the Indian army conducted surgical strikes across the Line of Control (LoC) against terrorist camps operating inside Pakistan-occupied Kashmir (PoK), within days of an attack on the Indian army garrison in Uri which caused the death of 18 soldiers. Prime Minister Modi sending birthday wishes to his counterpart Nawaz Sharif and the subsequent release of 220 fishermen by Pakistan are seen as positive signs in a complex relationship.

Privacy threats

As India aggressively pushes the digital economy—e-payments and cashless dealings—privacy threats may emerge as an increasing concern in 2017. The government will have to put in place a concrete data protection regime to combat the risk of privacy being compromised.

PEOPLE/INSTITUTIONS TO TRACK

Finance minister Arun Jaitley. Photo: Pradeep Gaur/Mint
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Finance minister Arun Jaitley. Photo: Pradeep Gaur/Mint

Arun Jaitley

Finance minister Arun Jaitley will present his fourth and perhaps most crucial budget on 1 February. The middle class and the poor would expect some announcements to ameliorate the hardships they confronted following the 8 November demonetisation of Rs500 and Rs1,000 banknotes. Through the budget, Jaitley could well set the agenda for the next general election in 2019 as well.

The GST council, the key decision-making body on GST, has emerged as one of India’s most powerful federal bodies. Photo:pradeep gaur/min
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The GST council, the key decision-making body on GST, has emerged as one of India’s most powerful federal bodies. Photo:pradeep gaur/min

GST council

The goods and services tax (GST) council, the key decision-making body on GST, has emerged as one of India’s most powerful federal bodies. In 2017, it will need to resolve the contentious issue of dual control of assesses and oversee the rollout of the most ambitious indirect tax reform since independence which, when it is in place, will unify India into a common market, dismantling inter-state barriers.

M.S. Sahoo, chairman of Insolvency and Bankruptcy Board. Photo: Aniruddha Chowdhury/Mint
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M.S. Sahoo, chairman of Insolvency and Bankruptcy Board. Photo: Aniruddha Chowdhury/Mint

Bankruptcy board

The new Insolvency and Bankruptcy Board of India, chaired by M.S. Sahoo, is the apex regulator for insolvency resolution of companies and individuals. As large corporate insolvencies begin to be addressed by agencies and professionals, the board will play a significant role in overseeing, researching and auditing these arms of the insolvency infrastructure.

Arvind Panagariya, vice-chairman of Niti Aayog. Photo: Pradeep Gaur/Mint
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Arvind Panagariya, vice-chairman of Niti Aayog. Photo: Pradeep Gaur/Mint

Niti Aayog

Niti Aayog, which replaced the powerful Planning Commission and completed two years on 1 January, was off to a slow start as an institution. With increasing involvement in policy formulation, the institution under its vice-president Arvind Panagariya is gaining prominence. In 2017, it is expected to release a 15-year vision document for India.

In January, Isro will seek to launch 83 satellites simultaneously, 80 of them foreign.
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In January, Isro will seek to launch 83 satellites simultaneously, 80 of them foreign.

Isro (Indian Space Research Organisation)

Isro activated its own NavIC satellite navigation system and tested a reusable launch vehicle in 2016 apart from putting 20 satellites in orbit in one go. In January, Isro will seek to launch 83 satellites simultaneously, 80 of them foreign.

EVENTS TO WATCH

Presentation of the Union budget:

The 2017-18 Union budget will be significant due to multiple reasons. This year’s budget will do away with the distinction between plan and non-plan expenditure, replacing it with capital and revenue expenditure. The railway budget will also be merged with the general budget, which has been advanced to 1 February. The content of the budget, coming as it does in the wake of the demonetisation drive, will be keenly watched.

Implementation of GST

Although a few contentious issues such as dual control of assesses and cross-empowerment still remain to be resolved, India’s most ambitious indirect tax reform is set for a rollout before 16 September 2017 as mandated by the 122nd amendment to the constitution. How Indian industry adjusts to this new taxation system and its fallout will be keenly watched.

Genetically modified food crops

The Indian government is likely to take a final call whether to allow commercial cultivation of genetically modified (GM) mustard, which has been developed by Delhi University. A technical subcommittee of the GM regulator under the environment ministry has deemed it safe, but neither the regulator nor the government has given the final go-ahead amid protests by opponents of GM foods. If approved, GM mustard will be the first food crop and the second GM crop to be approved after Bt cotton.

Donald Trump’s inauguration

US president-elect Donald Trump will assume office on 20 January 2017. While Trump has made positive comments about India and Prime Minister Modi during his election campaign, if he pursues an aggressive America-first approach as promised, India’s exports and information technology companies and professionals could take a hit.

Appointment of Sebi chairman

The government will appoint a new chairman of the equity and commodity markets regulator Securities and Exchange Board of India (Sebi), with current chairman U.K. Sinha scheduled to retire on 1 March after six years in office with two extensions. While several high-profile civil servants are eyeing the post, a final decision will be taken by the government after it considers the recommendations of the Financial Sector Regulatory Appointments Search Committee (FSRASC)

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Published: 01 Jan 2017, 11:32 PM IST
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