Updates on Indian Economy

Updates on Indian economy

1. According to RBI data. India’s foreign exchange reserves touched a life time high of $555.12 billion after it surged by $3.615 billion in the week ended October 16.

2. Foreign institutional investors’ holdings in Reliance Industries (RIL) rose to a record high of 27.2% in the quarter ended September 30. Foreign portfolio investors hold165.8 crore shares, or 25.2% of the total shareholding.

3. In order to meet the GST compensation shortfalls faced by States, the Centre on Friday borrowed and transferred ₹6,000 crore to 16 States as well as the Union Territories of Delhi and J&K. The central government have planned to release ₹6,000 crore every week to the States till the approved borrowings to meet the shortfall are met. It could take about 13 weeks or about three months to complete the envisaged borrowing. Seven States — including Kerala, West Bengal and Punjab — have yet to convey their acceptance to the Centre’s proposed solution to meet the GST shortfalls.

4. China was the biggest buyer of Indian steel in the first six months of the current financial year, accounting for 29% of Indian steel exports during the period.

5. State Bank of India (SBI), the leading public sector bank had a deposit base of over ₹34 trillion with a CASA ratio of more than 45% and advances (loans) of nearly ₹24 trillion as on 30 June 2020. The number of customers using internet banking facilities is about 76 million and mobile banking users stand at a little more than 17 million.

SBI commands a nearly 34% market share in home loans and nearly 33% in the auto loans segment. The bank has the largest network of more than 22,100 branches in India with an ATM/cash deposit machinenetwork of over 58,500 and total business correspondent outlets of more than 62,200. 

6.  According to a report publish by Oxfam International’s Indian arm, the onset of the covid-19 pandemic could have worsened inequality between men and women in terms of income and time. It estimated that women and girls put in 3.26 billion hours of unpaid care work each and every day. It is equivalent to the contribution of ₹19 lakh crore (trillion) a year to the Indian economy. 

In India, women’s contribution to the GDP is one of the lowest in the world at 17%. However, when compared with the total amount of work done by women, it is much higher and contributes a lot more to the Indian economy. In China, women’s work contributes to 41% of the GDP, and the same is for Eastern Europe and Central Asia. Sub-Saharan Africa too fared better than India at 39% with the world average at 37%.

Notes:

*A foreign institutional investor (FII) is an investor or investment fund investing in a country outside of the one in which it is registered or headquartered. The term foreign institutional investor is probably most commonly used in India, where it refers to outside entities investing in the nation's financial markets.

*Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets. Reserves are held in one or more reserve currencies, nowadays mostly the United States dollar and to a lesser extent the euro. Foreign exchange reserves assets can comprise banknotes, deposits, bonds, treasury bills and other government securities of the reserve currency.

*CASA ratio stands for current and savings account ratio. CASA ratio of a bank is the ratio of deposits in current and saving accounts to total deposits. A higher CASA ratio indicates a lower cost of funds, because banks do not usually give any interests on current account deposits and the interest on saving accounts is usually very low 3-4%. If a large part of a bank's deposits comes from these funds, it means that the bank is getting those funds at a relative lower cost. 

*Oxfam International was formed in 1995 by a group of independent non-governmental organizations. They joined together as a confederation to maximize efficiency and achieve greater impact to reduce global poverty and injustice.

The name “Oxfam” comes from the Oxford Committee for Famine Relief, founded in Britain in 1942. The group campaigned for food supplies to be sent through an allied naval blockade to starving women and children in enemy-occupied Greece during the Second World War. 

Updates on Indian and Global Economy

1. According to monthly data of the Centre for Monitoring Indian Economy, at least 10 states are reporting double-digit unemployment rate. These states includes: Haryana (19.7%), Rajasthan (15.3%), Delhi (12.5%), Himachal Pradesh (12%), Uttarakhand (22.3%), Tripura (17.4%), Goa (15.4%),and Jammu & Kashmir (16.2%)
2. Besides these states, Bihar has an employment rate of 11.9%, West Bengal (9.3%) and Punjab (9.6%).
3. According to a report by RBI published on 20th Oct 2020, mutual funds in India saw their net foreign liabilities drop by 18%  to $ 9.6 bn in FY20. A major cause of this drop may have been the result of the decline in the value of investments from non-residents indians (NRIs) in March, after the covid-19 outbreak hit the markets. The foreign liabilities of mutual funds fell from $12.4 bn in March 2019 to $9.6 bn in March 2020.
4. Finance Minister of India Nirmala Sitharaman has urged the central public sector enterprises (CPSEs)to achieve 75% of their planned capital expenditure (capex) target for FY21 by December to support economic growth impacted by the covid-19.
5. Depite economic slow down due to covid-19 pandemic, India experience a surge in its FDI inflows. Total FDI inflows surged from $11.51 bn between April and June to $35.73 bn by the end of August 2020.Equity FDI has quadrupled from $6.5 bn between April and June to $27.1 billion by August.
6. China is the only major economy of the world to register economic growth in a pandemic hit year. Accrding to official Chinese data released on 20th Oct 2020, China GDP growth is expanding in the 3rd quarter at 4.9% from a year earlier in the july-Septenber period.

Nobel Prize in Economic Sciences 2020

 The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2020 has been awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats”. They are worthy recipients of the highest honour in economics.

Wilson developed a bidding model for perfect competition. He argued that in a closed auction (in which other bidders cannot see each other’s bids) the highest bid will be equal to the true value. This reveals the common value, leading to a mutually beneficial equilibrium outcome without requiring sharing of information in advance between seller and buyers (as is often the case to resolve game theory problems).

On the other hand, Milgrom theorised that auctions not only allow the revealing of a common value but also differing private values between bidders. By analysing various bidding strategies across auction formats, Milgrom concluded that revenues are higher when bidders can learn about each other’s bids.

Auctions are a sensible tool when there are multiple potential uses of a scarce resource. Actions reveal value and ensure an efficient allocation: whoever is willing to bid the highest in an action are showing they would get the most value relative to the other potential users.

*"Milgrom and Wilson show how theoretical insights in economics can deliver immense human benefit. Auctions have ancient roots, but their ideas provided new insights and applications."

 7th Oct 2020

1.      State to receive compensation for the year 2020. A compensation cess of Rs. 20,000 crore to be released to the states. The GST receipts turned positive in September at 3.9% year-on-year rise as compared to August at -12% and April at -71.7%. Rs. 95,480 crore was collected on September which was the highest in FY 20-21.

2. Six states economies namely Tamil Nadu, Maharashtra, Uttar Pradesh, Karnataka, Gujarat and West Bengal are on the verge of recovery and will help in reviving the Indian Economy. These six states make up half of India’s economic output and will matter most in economic recovery.

3. Tata Consultancy Services Ltd (TCS) became the second Indian Company to cross the 10 Trillion in market capitalisation. The first company to do so was Reliance Industries Ltd (RIL) on 28^th November 2019. The market value of RIL is now Rs. 15 Trillion. Market capitalization refers to the total market value of a company's outstanding shares of stock. Commonly referred to as "market cap," it is calculated by multiplying the total number of a company's outstanding shares by the current market price of one share.

8th Oct 2020

1. Dinesh Kumar Khara appointed as new chairman of State Bank of India (SBI)

Dinesh Kumar Khara appointed as new chairman of State Bank of India (SBI), the largest public sector bank in India with 24,000 branches and 58,559 ATMs. The Banks Board Bureau has recommended Khara as chairman. Earlier, he held the position of managing director of SBI. (Banks Board Bureau is an autonomous body of the Government of India tasked to improve the governance of Public Sector Banks, recommend selection of chiefs of government owned banks and financial institutions and to help banks in developing strategies and capital raising plans).

2. Credit-deposit (C-D) ratio has been falling despite increase in deposits

The Credit-deposit (C-D) ratio has been falling since march-end since the outbreak of covid-19 pandemic. On 27th March 2020, the C-D ratio was 76.4% and it fell down to 71.8% on 11TH September 2020. Between 27 March and 11 Sept, deposits of banks has increase by 5% or from Rs. 6.8 Trillion to Rs. 142.5 Trillion whereas the total amount of loans disbursed by banks has reduced to 1.4% to Rs. 102.3 Trillion. The increase in deposits is because people has been spending less and save more to curb the negative economic impact of covid-19 pandemic, poor performance of GDP growth and slack economic growth. The shrinking of overall loans can be explained by hesitation of both corporates and individuals to take loans due to gloomy economic performance and economic contraction caused by coid-19 pandemic. (Credit-deposit ratio is the proportion of loan-assets created by banks from the deposits received. The higher the ratio, the higher the loan-assets created from deposits and vice-versa. Each bank is required to maintain a portion of their deposits as a cash reserve ratio (CRR) with RBI and statutory liquidity ratio (SLR) by compulsorily investing a portion of their deposits in approved government securities, the remaining deposits is then allowed to lend out to general public and corporates. A C-D ratio of 71.8% tells us that out of every Rs. 100 of deposits, banks lending as much as Rs. 71.8.

3. 16 top global and domestic mobile phones and electronic component makers have been approved by Govt. of India for PLI scheme

Production Linked Incentive Scheme (PLI) scheme has launched on 2 June 2020 to boost large-scale electronics manufacturing in the country as a part of its Atmanirbhar Bharat initiative (self-reliant India' or 'self-sufficient India'). The PLI scheme, as notified on 1 April, extends an incentive of 4% to 6% on incremental sales (over base year) of goods under target segments that are manufactured in India to eligible companies, for a period of five years subsequent to the base year (FY2019-20). Sixteen top global and domestic mobile phone and electronic component makers, including Samsung, Foxconn and Bhagwati Products, the maker of Micromax phones, are eligible for India’s performance-linked incentive (PLI) scheme that was launched to boost local manufacturing, the government said on Tuesday. The other eligible international phone makers are Rising Star, Wistron and Pegatron. Except for Samsung, all the other foreign companies are contract manufacturers for Apple Inc. Samsung and Apple together account for nearly 60% of global revenue for mobile phones.

4. M Rajeshwar Rao appointed as Deputy Governor of RBI. He took charge as an executive director of RBI in 2016. He has been associated with RBI since 1984,holding various positions.

8th Oct 2020

1. Tesla Inc, a global leading manufacturer of electric cars has proposed to enter the Indian market by 2021. Tesla Inc is own by Elon Musk who is also the CEO of SpaceX. The challenges that Tesla will face when entering Indian market are high import duties, small market size and underdeveloped charging network.

2. Indian companies have distributed large dividends this fiscal year to prevent public shareholders from dumping their shares amid the economic uncertainty caused by the covid-19 pandemic and lock downs. The purpose is to keep the trust of the shareholders intact. At least 661 companies have announced dividends worth about Rs. 49,674 crore between April and September despite poor performance of the companies due to the current covid-19 pandemic.

3. Unemployment is rising among youth with vocational and technical training. According a research paper, India had 11 million technically and vocationally trained people in 2004-05, out of which only around 9.5 million (86%) were employed. In 2017-18, the number of trained people doubled by 22.5 million, however, only 9.5 million (42%) of the trained people were employed. The reason behind this is that the trainings received by these youths are of no use since firms have machines to do the work. The remedy is to update the course offered by different institutes so that the youths are train for the roles that exist.

Notes:

A shareholder, also referred to as a stockholder, is a person, company, or institution that owns at least one share of a company’s stock, which is known as equity. Because shareholders are essentially owners in a company, they reap the benefits of a business’ success. These rewards come in the form of increased stock valuations, or as financial profits distributed as dividends. Conversely, when a company loses money, the share price invariably drops, which can cause shareholders to lose money, or suffer declines in their portfolios’ values.

9th Oct 2020

1. The amount of currency (cash) with the general public has increased by 52% as compared to the time prior to demonetisation of 500 and 1000 currency notes on 8 November 2016. Prior to demonetisation, the currency with public stood at ₹ 17 trillion and as on 25 September 2020, it stood at ₹ 25.85 trillion.

2. There is also a rise in Unified Payments Interface UPI-based digital transactions in the last six months. It rose by 60% to ₹ 29 trillion.

3. According to the World Bank, India’s GDP is expected to contract by 9.6% in FY21. India’s GDP is expected to rebound in FY22 by a 5.4%.

4. The market capitalisation of all listed companies in India hit a record of ₹ 161 trillion ($2.11 trillion) on 8 Oct 2020. However, India’s share in world market cap is just 2.3% and it is in the 10 position among top 10 countries.

13th Oct 2020

 Outcome of the meeting of Monetary Policy Committee MPC), Oct 2020

1. Repo rate under the liquidity adjustment facility (LAF) has been kept unchanged at 4%.

2. The reverse repo rate under the LAF will also remains unchanged at 3.35 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.

3. RBI will introduce on-tap targeted long-term repo operations (TLTRO) for banks to borrow up to ₹1 trillion from the window and invest in corporate bonds and other debt instruments of certain sectors. 

4. The size of open market operations, under which the RBI buys and sells government securities, will be increased to ₹20,000 crore to flatten the yield curve further and keep interest rates benign.

Notes:

*A liquidity adjustment facility (LAF) is a tool used in monetary policy, primarily by the Reserve Bank of India (RBI) that allows banks to borrow money through repurchase agreements (repos) or to make loans to the RBI through reverse repo agreements. 

*The repo rate is the rate at which the RBI lends money to the banking system (or banks) for short durations. The reverse repo rate is the rate at which banks can park their money with the RBI.

13th Oct 2020

 Updates on Indian Economy

***The RBI has an affidavit in the Supreme Court of India to allow it to classify Non-performing assets (NPA) loans. It has warned of risks to banking sector if the stay on the classification of bad loans is not lifted right away.

***Digital payments have increased by 55% each year since 2016. According to the RBI, digital payments has grown by nearly 55% each year, from ₹ 593.6 crore transactions in March 2016 to ₹ 3,434.5 crore in March 2020. 

***Prime Minister Narendra Modi launched the SVAMITVA Yojana which will allow villagers to use property records to access loans from banks. Through the SVAMITVA Scheme, the people  will be distributes property cards which will entitled them especially those in villages a legal documentation of their property.

Notes:

*A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or in arrears. A loan is in arrears when principal or interest payments are late or missed. A loan is in default when the lender considers the loan agreement to be broken and the debtor is unable to meet his obligations.

18th Oct 2020

 ·         According to IMF forecasts in June 2020, by the end of 2020 world output may be about 8% lower than it would have been without the pandemic. Instead of growing by about 3% it will have shrunk by about 5%—the biggest contraction since the second world war. By comparison, in 2009 the “great recession” shrank the world economy by just 0.1%.

·         In June 2020, the IMF forecast that the overall gross public-debt-to-GDP ratio of advanced economies would rise from 105% in 2019 to 132% by 2021.

·         The IMF’s latest forecasts, released on October 13th, spell out just how long the economic harm from covid-19 will last. America’s GDP will return to its 2019 level only in 2022; Italy’s, in 2025. The fund reckons that in many places output will stay well below its pre-pandemic trend, as labour and capital are only slowly reallocated from shrinking industries towards thriving ones.

·         In last October 2019,  the IMF expected India’s economy to grow by more than 40% by 2024; now it expects half that. The GDP growth computed by IMF is for period  2019 to 2024 and is based on cumulative percentage increase.

·         According to the IMF, public debt in poor countries rose from 29% of GDP in 2012 to 43% in 2019 and is expected to jump to 49% this year.

·         On October 2020, 14th finance ministers of the G20 group of countries offered a temporary salve for 73 of the world’s neediest countries, by saying they would extend their Debt Service Suspension Initiative (DSSI) to halt debt-service payments until July 2021. The objective is to free up funds to fight the pandemic. DSSI offers a temporary suspension of "official sector" or government-to-government debt payments. The proposed extension will see it run until June next year. The payments covered are not forgiven but delayed, with a repayment period of three years and a one-year grace period.

Notes:

* The debt-to-GDP ratio is the ratio between a country's government debt (measured in units of currency) and its gross domestic product (GDP) (measured in units of currency per year). A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt

*Cumulative percentages add a percentage from one period to the percentage of another period. This calculation is important in statistics because it shows how the percentages add together over a time period.

* The public debt is how much a country owes to lenders outside of itself. These can include individuals, businesses, and even other governments.

*Debt service is the cash that is required to cover the repayment of interest and principal on a debt for a particular period.

* According to IMF, GDP measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time.

The Economy of Meghalaya − A Socio-economic and Sectoral Analysis

Introduction:

Meghalaya is one of the eight states of North East India. Meghalaya is located in the remotest part of the country and shares its international border with Bangladesh in the South. Meghalaya is predominantly inhabited by three major tribes – Khasis, Jaintias and Garos. The primary means of occupation of the people of the state is agriculture which is characterized by low productivity due to primitive methods like shifting cultivation which is commonly practiced in the hilly areas. Although Meghalaya has abundant natural resources, it is industrially backward because of poor infrastructure and financial crunches. It falls under the special Category states (SCS) along with all other North Eastern States of India which entitled it to get various financial incentives from the Central Government. Meghalaya just like any other North-East states is clubbed under the SCS because they are geographically isolated and industrially backward states. Meghalaya as a state largely depends on central transfers to run its day to day economic activities. Being labeled a special category status, Meghalaya enjoys numerous financial assistance from the central government. The state is entitled to nearly four times per capita plan assistance compared to other states. Other financial incentives include various excise exemptions and income tax holidays. However, one of the defects of special category status is that although Meghalaya has been receiving huge financial incentives, the flow of transfers is not properly accounted for and monitored which promotes corruption and hence mismanaged. This has resulted in a vicious circle of financial dependency on central government funds and transfers.  The state is characterized by low industrialization and backwardness, low standard of living, low growth rate, high cost of production, low productivity, low investment, lack of private investment and initiative, excessive loss-making PSUs, deteriorating financial position and low employment economy. The unemployment rate is quite high among the educated youth. At the national level, India has achieved a lot through the adoption and implementation of liberalization, privatization, and globalization (LPG). However, the LPG model adopted by India has little or no impact on the economy of Meghalaya.

Socio-economic Profile:

The population of Meghalaya as of 2011 Census was 2.9 million out of which 2.3 million are rural population and 0.6 million are urban population. The decadal population growth rate during 1991-2001 was 30.65% while during 2001-11 it was 29.95%. The sex ratio which indicates the number of females per 1000 males is quite satisfactory as compared to other states of India which was 989 as of 2011. The literacy rate of Meghalaya is 74.43% which is slightly higher than all India levels at 72.9%. The birth and death rates are 23.7 per thousand and 6.6 per thousand respectively as of 2016. The Infant Mortality Rate (IMR) which indicates the number of deaths per 1,000 live births under one year of age for that state was 39 in 2016 which high that the all India level of 34. The unemployment rate of the state measured by usual status where the reference period is 365 days is 4 per 1000 in rural areas and 28 per 1000 in urban areas as of 2011-12. With regard to the poverty rate, the number of persons falling under the poverty line based on the mixed recall period (MRP) as of 2011-12 was 0.36 million which is about 11.87% of the population. Under the MRP method, the information on five broad items of household expenditure with a low frequency of purchase namely clothing, footwear, education institutional medical care, and durables are collected on year-long recall basis while information on consumption expenditure on all other items is collected on the basis of a month-long recall period.

The developmental experience of Meghalaya is not a very encouraging one. The Human Development Index (HDI) is a summary indicator of the level of achievement in human well-being. It measures achievements in the basic dimensions of human development – health, education, and income. The HDI of Meghalaya as of 2005 is 0.585 which ranks 26 among other states and union territories of India. It is way behind other Northeastern states of India such as Mizoram which rank 4, Nagaland which rank 7, Manipur which rank 11 and Sikkim which rank 13. The state also has a low per capita net state domestic product (NSDP) of Rs. 72,870 which is below the national average of Rs. 1, 14,958. For a state with low per capita income, it is almost impossible to achieve a high physical quality of life indicators like high literacy, high life expectancy, and low infant mortality.

Trends in Growth of State Income:

The contribution of different sectors to the Gross State Domestic Product (GSDP) is almost stable over the years based on the trend available from 1993-94 to 2002 where the contribution of the primary sector is about 33%, secondary sector is 15% while the service sector contributes about 52%. The annual growth rate of GSDP is about 3.69% in 1994-95 which increased to 10.51% in 1995-96. It fell down to 3.71% in 1996-97 and then slowly rising up to 6.20% and 9.87% in 1997-98 and 1998-99 respectively. However, in 2000-0, it gain fell down to 3.74% before rising to 6.80% in 2001-02. The data available from Economic Survey 2018-19 for the period 2012 to 2018 shows that the growth rate of the Meghalaya Economy is quite low and unstable compared to its neighboring Northeastern states of India. The growth rate of net state domestic product (NSDP) at current prices in 2012-13 was 9% and it fell down to 3.9% in 2013-14 and further to 1.4% in 2014-15 before rising to 8.8% in 2015-16. The growth rate of NSDP as of 2017-18 was 10.7% which is slightly low than the all India NDP growth rate of 11.2%. In terms of per capita Net State Domestic Product (NSDP), again the performance of Meghalaya is very poor compared to other Northeastern states. The per capita NSDP growth rate of Meghalaya was 6.7% in 2012-13 and it fell down to 1.7% in 2013-14. In 2014-15, it recorded a negative growth rate of -0.7%. No other NE states experienced a negative growth rate during the period 2012-2018. The per capita NSDP growth rate pick up to 5.9% in 2016-17 and further to 8.4% in 2017-18 which is again below all India per capita NNI growth rate of 9.8% in the same year.

Performance of Agriculture:

Some of the major agricultural produce of Meghalaya are rice, wheat, maize, pulses, oilseeds, fruit crops such as pineapple, banana, and papaya, vegetables such as potato, spice crops such as ginger and turmeric and plantation crops such as tea and areca nut. With respect to agriculture, Meghalaya has performed poorly over the years. The data available for the period 2006-07 to 2012-13 indicates that the Compound Annual Growth rate (CAGR) of the total area under rice cultivation has increased only by 0.81% during the period. Similarly, the CAGR of the total area under food grains cultivation which includes pulses has increased only by 1.34%. It is interesting to note that the CAGR of the total area under pulses and oilseeds cultivation increased by 14.59% and 5.64% during the period 2006-07 to 2012-13 which is higher than CAGR of the total area under food grains. The CAGR of rice production which includes rice produce under different seasons such as autumn, winter and spring increased by 4.12% over the same period. The CAGR of total food grain production is 4.90%.  There a remarkable improvement with regard to the production of pulses and oilseeds both registering a CAGR of 25.94% and 13.49% respectively. Rice accounted for about 83% of the total food grains in the state. The total production of rice was 2, 31,613 metric tonnes in 2006-07 which increased to 3, 08,650 metric tonnes in 2012-13. Most agricultural commodity markets generally operate under the normal forces of demand and supply. However, with a view to protect farmers and encourage increased production, the government fixes minimum support price (MSP) for some crops like Paddy, Wheat, Jute, etc. The Government of Meghalaya has also set up two Regulated Markets – one at Mawiong in East Khasi Hills District and the second at Garobadha, West Garo Hills District. Besides, there are also 7293 Wholesale Markets and 27,294 Rural Periodic.

Industrial Sector:

Meghalaya is an industrially backward state. The geographical isolation, poor infrastructure and political instability of the state act as a deterrence to private investment both from within the state and outside. Other factors that cause industrial backwardness are a high cost of production on account of infrastructural deficiency and acute shortage of power, lack of risk-taking behavior on the part of local entrepreneurs, high cost of transportation of raw materials and finished products, lack of skilled laborers, etc. According to the State Development Report 2008-09, there are only 116 units of large and medium industries in the state. The majority of the large and medium industries in the state are cement, steel units, limestone mining and crushing plants, foods, etc. There are 17 state public sector undertakings (SPSUs), out of which one is a non-working SPSU. The working SPSUs registered an aggregate turnover of Rs. 935.69 crore as per their latest finalized accounts as of September 2016. This turnover was equal to 3.43 percent of Gross State Domestic Product (GSDP) of Rs.  27,305 crore for 2015-16. The working SPSUs incurred an overall loss of Rs. 389.50 crore as per their latest finalized accounts as of September 2016 as compared to the aggregate loss of Rs. 220.92 crore incurred by the working SPSUs as of September 2015. The increase in the aggregate loss of working SPSUs was mainly on account of net overall losses of Rs. 365.30 crore incurred by power sector companies in 2015-16. There are 22,520 units of small scale industries (SSI) in Meghalaya which is about 0.21% of the total number at all India level. The SSI provides employment to about 65,586 workers.

Banking Sector:

The number of banks and other non-financial banking institutions (NBFIs) in the state has increased over the years. However, most of the banks especially private banks are mostly concentrated in urban areas. A large number of rural areas and villages are yet to be connected by banks. The regional rural banks (RRBs) in its effort has tried to provide banking facilities in rural areas, however, most of them are again located in rural areas where there are large markets. As of 2018, there are only 343 scheduled commercial bank offices and 93 regional rural bank branches. The credit-deposit ratio which indicates how much banks lend out of its mobilized deposits is also very low for Meghalaya which around 25 to 28%. This indicates that few people take loans from banks for entrepreneurial purposes. The credit-deposit ratio for all India level is 76.7%.

Fiscal Scenario:

The fiscal scenario of Meghalaya is characterized by a growing fiscal deficit. The state depends on grants and borrowing from the central government to finance its expenditure. It has never experienced a cash surplus. The Gross Fiscal Deficit (GFD) which depicts the excess of total expenditure over revenue receipts and a measure of the amount that the state needs to borrow has been widening over the years and it was about Rs. 11.5 billion in 2018-19.  The reason for growing GFD is also triggered by the obligations of the government to undertake social sector expenditures. The social sector expenditure of the state government as of 2018-19 was Rs. 63.9 billion. The fiscal strength of the state can be understood by looking at its financial dependency and the ability to raise revenue on its own. In 2018-19, the Meghalaya State Government had a total revenue receipt of Rs. 9273.48 crore out of which the share of the revenue raised by the state was only 1816.73 crore which is only about 19.59% of the total revenue receipts. This figure itself speaks louder about the financial dependency of the state on the central government in the form of transfers and grant-in-aid. The contribution of revenue receipts by the Government of India was Rs. 7456.75 crore which is about 80.41%.

Concluding Remarks:

The analysis above indicates that the Meghalaya economy is still a poor and backward state. The state lack behind in terms of basic infrastructure, industries, sound financial and fiscal management. The state cannot achieve growth and development because of factors such as low growth in different sectors, the poor performance of the SPSUs, low level of investment, instable financial and fiscal situation, and continuous dependence on the central government. In order to achieve the required growth and development, the state must develop and implement alternative plans and strategies. The state must make a tremendous improvement in terms of agriculture and industries. The state should encourage more private investment in the industrial sector. The state must also identify its comparative advantage with respect to other states and regions of the country. The state should invest more in identifying the sectors that can help in the development of the state and provide employment to a large number of people. Although the state is quite behind the rest of the state in all spheres, however, it has a lot of potentials to develop itself as a self-reliant and prosperous state. The state has abundant natural resources that are yet to be exploited. Meghalaya is also blessed with beautiful natural landscapes, magnificent caves, mesmerizing waterfalls, rich culture, and tradition, etc. The state can convert this opportunity to augment its revenue by using tourism as a unique selling point. The state can work on attracting tourists from its neighboring South East Asian countries. The state should also capitalize on its social assets like good education system, English speaking youth, and natural beauty. Given the fact that the state government has a little financial resource, it should focus on attracting private investment from other states of the country and also foreign direct investment (FDI) from abroad in those sectors which can help in the development of the state.

References:

1. Statistical Handbook of Meghalaya (Several Years). Directorate of Economics & Statistics, Government of Meghalaya.

2. Statistical Abstract of Meghalaya (Several Years). Directorate of Economics & Statistics, Government of Meghalaya.

3. Handbook of Statistics on Indian States 2018-19. Reserve Bank of India.

4. Reports on Area, Production, and Yield of Agriculture Crops (Several Years). Directorate of Agriculture, Meghalaya.

5. Report of the Comptroller and Auditor General of India, 2018. Revenue Sector. Government of Meghalaya.

6. Annual Report 2018-19. Ministry of Micro, Small & Medium Enterprises (MSMEs). Government of India.

Updates on Indian & Global Economy

1. The Union cabinet on 21st Oct approved a plan to disburse ₹3,737 crore to central government employees before Dussehra to boost spending in the festive season. The move will benefit more than 3 million non-gazetted employees, including those in autonomous central organizations, Union minister Prakash Javadekar said after a cabinet meeting.
2. According to a report based on a study published in The Lancet, more than 1.67 million deaths were linked to air pollution in India last year, including 116,000 babies who died in their first month of life.
3. Singapore is leaving no stone unturned to build its city of the future, Tengah. Solar-powered air-conditioners, vacuum garbage collection, subterranean roads for electric vehicles, urban farms and green architecture are all part of the Southeast Asian nation’s ambitious housing project started to promote sustainability in energy, water and waste. 
4. Tekion, a cloud technology startup founded by former top Tesla Inc. executive Jay Vijayan, has raised $150 million from investors led by private equity firm Advent International, valuing the company at more than $1 billion. It has entered the unicorn club.
5. A new report from the OECD, a think-tank, shows that travel restrictions introduced in response to the pandemic caused migration to rich countries to fall by half in the first half of the year, compared with 2019. The sharpest declines occurred in East Asia and Oceania. Some countries in the region, including Japan, South Korea and New Zealand have just about stopped accepting new immigrants entirely. In America, severe restrictions were not introduced until March. Most European countries halted migrant flows around the same time as the United States. There is one country where immigration has not fallen much: Sweden. 

Notes:

*The Lancet is a weekly peer-reviewed general medical journal.

*Tengah is a planning area and future Housing & Development Board town located within the West Region of Singapore. 

*A unicorn is a term in business world to indicate a privately held startup company valued at over $1 billion. The term was coined in 2013 by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of such successful ventures.

*The Organisation for Economic Co-operation and Development (OCED) is an intergovernmental economic organisation with 37 member countries, founded in 1961 to stimulate economic progress and world trade.

Updates on Global Economy

·         According to IMF forecasts in June 2020, by the end of 2020 world output may be about 8% lower than it would have been without the pandemic. Instead of growing by about 3% it will have shrunk by about 5%—the biggest contraction since the second world war. By comparison, in 2009 the “great recession” shrank the world economy by just 0.1%.

·         In June 2020, the IMF forecast that the overall gross public-debt-to-GDP ratio of advanced economies would rise from 105% in 2019 to 132% by 2021.

·         The IMF’s latest forecasts, released on October 13th, spell out just how long the economic harm from covid-19 will last. America’s GDP will return to its 2019 level only in 2022; Italy’s, in 2025. The fund reckons that in many places output will stay well below its pre-pandemic trend, as labour and capital are only slowly reallocated from shrinking industries towards thriving ones.

·         In last October 2019,  the IMF expected India’s economy to grow by more than 40% by 2024; now it expects half that. The GDP growth computed by IMF is for period  2019 to 2024 and is based on cumulative percentage increase.

·         According to the IMF, public debt in poor countries rose from 29% of GDP in 2012 to 43% in 2019 and is expected to jump to 49% this year.

·         On October 2020, 14th finance ministers of the G20 group of countries offered a temporary salve for 73 of the world’s neediest countries, by saying they would extend their Debt Service Suspension Initiative (DSSI) to halt debt-service payments until July 2021. The objective is to free up funds to fight the pandemic. DSSI offers a temporary suspension of "official sector" or government-to-government debt payments. The proposed extension will see it run until June next year. The payments covered are not forgiven but delayed, with a repayment period of three years and a one-year grace period.

Notes:

* The debt-to-GDP ratio is the ratio between a country's government debt (measured in units of currency) and its gross domestic product (GDP) (measured in units of currency per year). A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt

*Cumulative percentages add a percentage from one period to the percentage of another period. This calculation is important in statistics because it shows how the percentages add together over a time period.

* The public debt is how much a country owes to lenders outside of itself. These can include individuals, businesses, and even other governments.

*Debt service is the cash that is required to cover the repayment of interest and principal on a debt for a particular period.

* According to IMF, GDP measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time.