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Continued volatility in global trade to hurt exports & investment: MPC
By TII News Service
Oct 07, 2019 , Mumbai



IN the Monetary Policy Report (MPC) issued by the Reserve Bank of India (RBI) on October 04, 2019, the central bank expressed its belief that monetary and fiscal stimuli on a global level could help in containing the pace of slowdown and also put the global economy on the path to recovery. The report presented a rather bleak outlook, noting that global economic activity continued to lose momentum as prolonged uncertainty pertaining to geo-political developments dampened economic sentiment. With inflationary pressures remaining benign and market sentiment remaining fragile, risks to the global outlook remained on the downside, the report noted. However, it also concluded that the near-term outlook of the economy is fraught with risks.

The report also mentioned that a combination of domestic and global headwinds had depressed economic activity in terms of aggregate demand. Private consumption which all along supported economic activity, had begun to slow down owing to several factors. The report mentioned that global uncertainties had weakened investment in India and that further escalation of trade tensions could adversely impact export prospects, apart from delaying the investment upturn.

The report further mentioned that the private corporate sector had not been adding new capacities even as existing capacity utilisation has risen close to its long-term average for several quarters. The recent measures should help kickstart the capex cycle so that new capacities can come on stream and lead to the strengthening of domestic demand in the short-term while boosting the medium-term growth potential of the economy.

On a positive note nonetheless, the report mentioned that the recent measures such as the cut in corporate tax rates, stressed assets funds for the housing sector, infrastructure investment funds, implementation of GST refund system and funds for export guarantee, would be very helpful. It also noted that bank credit growth has slowed down and overall fund flows to the commercial sector have declined, partly due to risk aversion and partly due to a slowdown in demand. The recent recapitalisation of public sector banks augured well for improving credit flows, which are important for reviving private investment activity, it noted, while also articulating the Comptroller & Auditor General's suggestion to improve collection of GST.

The report stated that plugging loopholes and mitigating IT glitches such as putting in place an invoice-matching system to facilitate a system validated input tax credit, overcoming operational deficiencies of the payment module, alignment of system validations with the GST Acts and Rules along with alleviating system design deficiencies may facilitate tapping of GST potential. The report also pointed out inter-State variation in SGST collections, with some not needing the GST Compensation Cess.

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