Weekly Round Up – Week 26

We are precisely in the middle of the year..! Time for everyone to take stock.. 🙂 
The weekly highlights are –

• RBI releases its Bi-annual Financial Stability report. The report paints a mixed picture where even though the number of “weak” companies has come down, the risk to banking sector has increased. (More on this, in another piece).

• Core sector index, comprising of eight core sector and accounting for nearly 40% of IIP, records growth of 2.8% in May, the lowest since Jan’16. However, the number appears more like a short-term blip mainly on account of lower figures from Oil and Gas sector. As a precursor to the monsoon, Cement has recorded lower growth whereas Fertilizer records a massive 15% increase. Fertilizers have seen a near complete revival over last two years with proactive government policies as also the decline in natural gas prices.
• Aviation ministry floats draft paper on regional connectivity coming close on the heels of the approval of Aviation policy the previous week. The proposal envisages competitive bidding for Viability Gap Funding (VGF) where the operators will have to quote how much VGF they would require to fly on a certain route within specified parameters. The efficiency of market based system is such that the proposal is certain to lead to a negative grant situation soon enough, like seen in coal mining, natural gas auctions. The draft also proposes allowing Airlines with even a single plane to run on the regional routes. More on the Aviation policy (http://indiaeconomyandbusiness.com/2016/06/15/civil-aviation-policy-a-brief/)
• The government approves the recommendation of Seventh Pay Commission to increase the pay and pension of the Central government’s existing and retired employees. The additional outgo from the government budget would be approximately Rs 85,000 crore in FY17. While the salaries of the government employees is nowhere near their private counterparts, the problem arises because of the low productivity of the workforce leading to low output per unit of wages. The government may do well to also task the next pay commission to recommend optimal level of workforce required in different departments along with salary hikes.
• The Central government approves a long pending law permitting commercial establishments such as Malls, Restaurants, shops to remain open 24 hours a day which can provide significant convenience to the consumers and also give a boost to consumption. However, the law will become operational only in those states where it is adopted.
• International – Global economy coming to terms with “Brexit”. After the sharp decline seen last Friday, the global indicators have shown varying degree of recovery. Surprisingly, FTSE 100, the index tracking the UK market, is trading above its pre-24th June level..! However, the pound remains at its level reached after the results of referendum.

(Image courtesy of ddpavumba at FreeDigitalPhotos.net)