Best of BS Opinion: Putting politics before economics, Budget 2020 and more

After declining for three straight months, the index of industrial production went up by 1.8 per cent on a year-on-year basis in November. Although the industrial production has expanded after three months of decline, more data would be required to gauge if the worst is over for the Indian economy.
However, the evolving political situation will only make economic management more difficult.
Here’s a collection of Business Standard Opinion pieces for the day.
There are many ways to make the government’s money go further — if the government were to bring to the task the same determination it has shown in persisting with the amended citizenship law, writes T N Ninan
Judging by the spillover of students’ protests nationwide in expressions of solidarity for the JNU violence, infiltrating campuses and tampering with aspirations of a restive youth population, desperate for degrees and hungry for jobs, can have unforeseen consequences, writes Sunil Sethi
The economy is in a free fall. And it’s been declining for so long, so consistently, that the promise of growth and better days now looks a fantasy, writes Shekhar Gupta

Slowdown blues: India's core sector output contracts 1.5% in November

The output of eight core sectors of the economy fell for a third straight month in November, contracting by 1.5 per cent as key sectors like refinery products and electricity continued to see slow growth or contraction.
Output had crashed by a record 5.8 per cent and 5.2 per cent over the preceding two months as a broad-based decline gripped most sectors. As a result, the core sectors saw nil cumulative growth till November in the current fiscal year (FY20), down from 5.1 per cent in the previous year.
Economists warned that the latest figures indicated that the industrial slowdown would take time to recede. The above 5 per cent contractions had been unprecedented in the index's history, on either the FY12 or FY05 bases of calculating the data. “This is first instance of eight core infrastructure industries production contracting in three consecutive months in FY12 base. Most disappointing has been the contraction of electricity output in four consecutive months, which is a reflection of state of the economy,” said Devendra Pant, chief economist at India Ratings.
The data released by the commerce and industry ministry on Tuesday showed electricity generation shrank by 5.7 per cent in November, with the decline in generation widening from just 0.9 per cent in August to 12.2 per cent in October. Sluggishness in manufacturing is understood to have led to a steep fall in the power demand. According to the data from the Index of Industrial Production (IIP), the contraction in the manufacturing sector has continued unabated, standing at 2.1 per cent in October.
By extension, in November, coal production remained negative for a fifth straight month. But the rate of fall has sharply dropped from 20.5 per cent to 2.5 per cent in the latest month. Contraction in the sector continued to become entrenched since July, when a 24-month growth period ended.
In the energy space, crude oil production continued its downward spiral, having completed a continuous chain of contraction for the past 14 months.
Production reduced by 6 per cent, more than the 5.1 per cent contraction in October. Natural gas extraction continued to fall for an eighth straight month, reducing by a higher margin of 6.4 per cent in November.
Slowdown blues: India's core sector output contracts 1.5% in November
The latest data continued to cast uncertainty over infrastructure growth in the country as steel output reduced by 3.7 per cent in its third consecutive month of fall. It had reduced by 1.6 per cent in October, attributed to low performance of large steel consuming industries like auto and capital goods.
On the other hand, cement output returned to the growth charts in November after three months. Cement production rose 4.1 per cent following October’s 7.7 per cent fall, as construction projects picked up after the monsoon season.
This indicates signs of a return to growth, some experts say. “Though disappointing, the November figure has a silver lining in so far as there are certain sectors like cement and refinery products that have registered positive growth. There is, hence, a mixed picture when it comes to non-energy based industries which have performed relatively better,” said Madan Sabnavis, chief economist at CARE Ratings.
Refinery products rose by 3.1 per cent in November, picking up on October's marginal 0.4 per cent growth. While the sector has remained volatile in FY20, senior officials continue to claim that a solid recovery in production is underway as key refining units, which were closed earlier, have gone live.
The engulfing industrial slowdown continued to bypass fertilizer production which rose by 13.6 per cent in November, constituting the highest margin in over a year. This reflects both demand for rabi sowing as well as build up of inventory for the next season, Sabnavis said.
Slowdown blues: India's core sector output contracts 1.5% in November

Experts predicted hope for industrial production ahead. “With an improvement in the performance of a number of lead indicators, including the core sector industries, auto production and non-oil merchandise exports, we expect the IIP to report a modest growth in November 2019 after having contracted since September 2019,” Aditi Nayar, principal economist at ICRA, said.

India's core sector growth contracts 1.5% in November: Govt data

Contracting for the fourth consecutive month, the output of eight core infrastructure industries shrank by 1.5 per cent in November2019 as five of the eight sectors witnessed negative growth, according to official data released on Tuesday.
The eight core sectors had expanded by 3.3 per cent in November 2018.

Production of coal, crude oil, natural gas, steel, and electricity contracted in the month under review.
The growth rate of cement production dropped to 4.1 per cent from 8.8 per cent in November 2018.
The output of refinery products and fertilizers increased by 3.1 per cent and 13.6 per cent respectively in November 2019 over the year-ago month.
During the April-November period, core industries recorded flat growth (zero per cent) against 5.1 per cent in the year-ago period.
Since August the eight core sectors are recording negative growth.

Trade deficit narrows to $12.12 bn in 2019 as exports contract marginally

India's exports contracted for the fourth month in a row in November, dipping 0.34 per cent to $25.98 billion, mainly on account of poor shipments of petroleum, gems & jewellery and leather products.
Imports too declined by 12.71 per cent to $38.11 billion in November, narrowing the trade deficit to $12.12 billion, according to government data released on Friday.

Gold imports increased by 6.59 per cent to $2.94 billion in the month.
The trade deficit stood at $17.58 billion in November 2018.
Out of the 30 key sectors, as many as 17 segments showed contraction in exports during the month under review.
Shipments of petroleum products, gems and jewellery, fruits and vegetables, leather and leather products and ready-made garments of all textiles contracted by 13.12 per cent, 8.14 per cent, 15.10 per cent, 5.29 per cent and 6.52 per cent respectively.
In November, oil imports declined by 18.17 per cent to $11.06 billion, while non-oil imports contracted 10.26 per cent to $27.04 billion.
Cumulatively, during April-November 2019, exports were down 1.99 per cent to $211.93 billion while imports contracted by 8.91 per cent to $318.78 billion.
Trade deficit during the period narrowed to $54.06 billion as against $82.47 billion in April-November 2018-19.
Commenting on the data, EEPC India Chairman Ravi Sehgal said though engineering exports have put up a reasonably good show with 6.32 per cent growth in November 2019, the overall external trade environment remains challenging and subdued.
"We are working with the government to improve our competitiveness and hope that the issues raised by exporters, like the higher cost of basic raw material of steel, are addressed,'' Sehgal said.

Retail inflation soars to 3-yr high of 5.54% in Nov on costlier food items

Retail inflation spiked to a more than three-year high of 5.54 per cent in Novemberdue to costlier food products like vegetables, pulses and protein-rich items.
The previous high was in July 2016, when the consumer price index-based inflation stood at 6.07 per cent. Retail inflation was 4.62 per cent in October, and 2.33 per cent in November 2018.

According to the data released by the National Statistical Office (NSO), inflation in the food basket jumped to 10.01 per cent. This compares with 7.89 per cent October and (-) 2.61 per cent in the year ago-month.
During the month, inflation in vegetables shot up to 35.99 per cent, as against 26.10 per cent in October.
Likewise, the prices of cereals and eggs grew at a faster pace of 3.71 per cent. Prices of meat and fish rose by 9.38 per cent annually and of eggs by 6.2 per cent in November.
Prices of pulses and related products jumped 13.94 per cent during the month.
In the fuel and light category, prices dropped by 1.93 per cent.
The Reserve Bank of India has been mandated by the government to contain inflation in the range of 4 per cent, with a margin of 2 per cent on either side.
ICRA Principal Economist Aditi Nayar said that moderation in vegetable prices should douse food inflation to a large extent in early 2020, and healthy groundwater and reservoir levels bode well for rabi output and yields of various cereals.
However, the year-on-year decline in the area sown under rabi pulses and oilseeds poses a concern, given the high inflation being recorded by some of these items.
"ICRA expects the CPI inflation to spike further to 5.8-6 per cent in December 2019, close to the upper threshold of the MPC's medium-term target, driven by the recent revision in telecom tariffs. As a result, we expect the MPC (monetary policy committee of RBI) to remain on hold in its February 2020 policy review," she said.
India's November inflation has surged to 40-month high mainly due to an increase in food prices, said Rahul Gupta, Head of Research - Currency, Emkay Global Financial Services
"At this month's policy, RBI refrained from cutting rates due to uptick in CPI despite a slow growth. If inflation continues to rise further then RBI may continue to maintain a pause at the February policy," he said.

Retail inflation soars to 3-yr high of 5.54% in Nov on costlier food items

Retail inflation spiked to a more than three-year high of 5.54 per cent in Novemberdue to costlier food products like vegetables, pulses and protein-rich items.
The previous high was in July 2016, when the consumer price index-based inflation stood at 6.07 per cent. Retail inflation was 4.62 per cent in October, and 2.33 per cent in November 2018.

According to the data released by the National Statistical Office (NSO), inflation in the food basket jumped to 10.01 per cent. This compares with 7.89 per cent October and (-) 2.61 per cent in the year ago-month.
During the month, inflation in vegetables shot up to 35.99 per cent, as against 26.10 per cent in October.
Likewise, the prices of cereals and eggs grew at a faster pace of 3.71 per cent. Prices of meat and fish rose by 9.38 per cent annually and of eggs by 6.2 per cent in November.
Prices of pulses and related products jumped 13.94 per cent during the month.
In the fuel and light category, prices dropped by 1.93 per cent.
The Reserve Bank of India has been mandated by the government to contain inflation in the range of 4 per cent, with a margin of 2 per cent on either side.
ICRA Principal Economist Aditi Nayar said that moderation in vegetable prices should douse food inflation to a large extent in early 2020, and healthy groundwater and reservoir levels bode well for rabi output and yields of various cereals.
However, the year-on-year decline in the area sown under rabi pulses and oilseeds poses a concern, given the high inflation being recorded by some of these items.
"ICRA expects the CPI inflation to spike further to 5.8-6 per cent in December 2019, close to the upper threshold of the MPC's medium-term target, driven by the recent revision in telecom tariffs. As a result, we expect the MPC (monetary policy committee of RBI) to remain on hold in its February 2020 policy review," she said.
India's November inflation has surged to 40-month high mainly due to an increase in food prices, said Rahul Gupta, Head of Research - Currency, Emkay Global Financial Services
"At this month's policy, RBI refrained from cutting rates due to uptick in CPI despite a slow growth. If inflation continues to rise further then RBI may continue to maintain a pause at the February policy," he said.

Odd-even may not cut Delhi air pollution. An expert from IIT explains why

Delhi declared a health emergency on November 2, 2019, due to severe air pollution.
On November 3, levels of PM 2.5--polluting particles 30 times finer than one human hair, that can enter the bloodstream and sicken or kill people--in Delhi’s air were recorded at a 24-hour average of 625 microgram per cubic metre (µg/m3) of air, the season’s worst. This is 24 times higher than the World Health Organization (WHO)-prescribed safe levels of 25 µg/m3 (24-hour average) and nine times higher than the laxer Indian standard of 60 µg/m3 (24-hour average).
The Delhi government launched the ‘odd-even’ scheme, on November 4, 2019, to reduce vehicular pollution--odd- or even-numbered private cars would be allowed to run on alternate days. Will this scheme reduce pollution? No, says Sagnik Dey, who studied this exercise when it was implemented for the first time in January 2016. (It was implemented again in April 2016). Dey is an associate professor at the Centre for Atmospheric Sciences and coordinator of the Centre of Excellence for Research on Clean Air at the Indian Institute of Technology, Delhi.

Transportation is the largest source of air pollution in Delhi, contributing 18-39 per cent to the city’s pollution, according to an April 2019 analysis by the Council on Energy, Environment and Water (CEEW), a Delhi-based think-tank. But without including two wheelers, which form the largest chunk of transport emissions, the ‘odd-even’ scheme may not succeed, Dey said.
Road dust is the second largest source of air pollution in Delhi (18-38 per cent), followed by industries (2-29 per cent). Power plants, which are going to miss their second extended deadline for curbing air pollution in December 2019, having missed the first in December 2017--contribute about 3-11 per cent of Delhi’s pollution. The fifth largest source is construction (8 per cent).
Air pollution is not only a winter problem. “Year-round, the level (of air pollution) remains three times higher than the national standard. Unless we bring down the annual concentration significantly, health burden will not reduce,” Dey told IndiaSpend. To fight air pollution, governments need not only emergency measures when pollution spikes, but year-round air pollution reduction drives across sectors.
Edited excerpts from his interview:
Looking at the news reports, it seems like air pollution is only a winter problem. Is that true?
This is why the problem is not resolved. In Delhi, we have two major episodes (of air pollution)--the first from mid-October to mid-November and the second from end-December to mid-January. But year-round, the level (of PM 2.5) remains three times higher than the national standard. Unless we bring down the annual concentration significantly, health burden will not reduce.
During the first five days of November 2019, when the focus was on Delhi’s severe level of pollution, it was not the worst-polluted among the nearly 100 cities across India that the Central Pollution Control Board (CPCB) monitors daily. On three (November 2, 4 and 5) out of five days, Delhi did not even make it to the list. Yet, media attention was narrowly focused on Delhi. The government has a National Clean Air Programme (NCAP) with a target of reducing pollution by 20-30 per cent across India by 2024. Your thoughts?
The entire Indo-Gangetic Plain has pollution levels at an annual scale more than double the Indian standard. Today, more than 76 per cent of the population lives in places that do not meet Indian air quality standards. Unless we form an intersectoral plan, it will not work.
We think that rural areas are not polluted, but studies have shown that emission from household activities (cooking and heating with solid biomass and kerosene lighting) has the highest contribution at the national scale, higher than contributions from transport, power plants and industry. NCAP is a good start.
We have Ujjwala programme running and its successful implementation would ensure a large reduction in the regional pollution level. Eventually programmes such as NCAP, Ujjwala, Smart City Missions need to be linked.

Note: AQI, a composite number for many pollutants, is used by governments to communicate to the public how polluted the air is. AQI of 100 is considered satisfactory in India. This graph only includes cities that had an AQI above 400 on that day.
What do you think about India’s air pollution standards? The WHO has said that no amount of PM 2.5 is healthy exposure, and India’s standards are three times higher than WHO-prescribed safe levels.
Indian standard is surely very high, but that is the first target. This needs to be kept in mind. This is why AQI gives a false sense of security. As per the current AQI, good is anything below 50, which is actually not good as per WHO and numerous studies. This is why, when pollution levels drop to moderate (100-200), people think it's better, but it's not. We need more awareness, and that too outside Delhi.
Coming back to Delhi and north India, how big a problem are crop burning and fire-crackers? How much do they contribute to Delhi-NCR’s pollution load?
On a given day, crop burning contribution can be very high, but keep in mind that crop burning is only for a couple of weeks. What about the rest of the year? No doubt that we need to control crop burning but we should not blame crop burning alone. There are some studies which have shown large influence of firecrackers on those days (pollution spikes during Diwali). Again these are periodic sources.
There are efforts to bring down crop burning which should be effective in a few years. But at the same time, we need to work on reducing emissions from other sources in the National Capital Region and the entire Indo-Gangetic Plain. This will not happen overnight and needs inter-sectoral approaches. Several recommendations are available. They need to be implemented properly.
(For the spike in pollution, Delhi’s chief minister Arvind Kejriwal blamed stubble burning in the adjacent states of Haryana and Punjab, where hundreds of thousands of farmers burn crop residue after paddy cultivation to quickly clear their fields to sow winter crops.
However, contribution of stubble burning in Delhi’s air pollution was never more than 50 per cent this season, until November 5, 2019, as per data from the System of Air Quality and Weather Forecasting And Research (SAFAR), an arm of the Ministry of Earth Science. The maximum contribution by stubble burning was recorded on October 31, 2019, at 44 per cent.)
Why does pollution spike during winters?
In October, as temperatures start dropping, the height of the mixing layer (the layer adjacent to the ground over which an emitted particle rests) reduces, trapping the pollutants closer to the ground. Even if your emissions remain constant, pollution levels will increase. Therefore, there is no other way than reducing emissions, and this can happen if you target all the sources. That does not happen overnight, you need to plan year-round.
Will the ‘odd-even’ scheme work? What were the findings of your study assessing this exercise in January 2016?
Previously, we found that it did not work except at three local places--where pollution reduced by up to 10 per cent only. This was because too many exemptions were added in the scheme and the meteorology was unfavourable.
The study concluded that traffic restrictions between January 1 and January 15, 2016, reduced PM 2.5 by 4-6 per cent on average, and by a maximum of 10 per cent at three locations. The failure of the scheme was attributed to stable meteorological conditions, which meant that winds were not strong enough to disperse PM 2.5 away, or impact the PM 2.5 outside the periphery of the city, where the scheme was not implemented. Restricting traffic volume alone cannot control the PM 2.5 concentration over Delhi, which has multiple sources.
There were three other studies on the ‘odd-even’ scheme with different results. For example, a study by the Energy Policy Institute at the University of Chicago (EPIC) showed larger reductions, while the CPCB study was not sure about the impacts. Another study by the Indian Institute of Tropical Meteorology (IITM) and India Meteorological Department (IMD) said that pollution increased on those days. Can a common thread be found among all of these studies?
The CPCB study you mentioned also did not find large-scale reduction. It could not find any clear trend in the concentration level of PM 2.5. “Overall, it can be stated that while some reduction in air pollution is likely to happen due to odd-even scheme, a single factor or action cannot substantially reduce air pollution levels in Delhi,” it said.
Other studies have found different results due to different methodologies and analysis designs. The divergent results across studies require careful deliberation and reconciliation. Therefore government officials and media commentators should not rush to declare the scheme as a success or failure prematurely.
The June 2016 study by EPIC, which evaluated both phases of the ‘odd-even’ scheme in 2016 (January and April), found that relative to surrounding satellite cities, PM 2.5 concentrations in Delhi’s air were lower by 14-16 per cent during the January pilot. In contrast, the programme did not affect Delhi’s air quality during the warmer month of April.
The 2018 study, jointly conducted by IITM, Pune, IMD, New Delhi and the Ministry of Earth Sciences, said that pollution increased during this period as vehicular emissions did not reduce. “...Many four-wheeler users chose to commute earlier, to beat the 8 a.m. to 8 p.m. restrictions, and/or there was an increase in the number of exempted public transport vehicles,” it said.
Two-wheelers emit about 32 per cent, diesel trucks 28 per cent, four-wheeled private cars 22 per cent, CNG buses 7 per cent and auto-rickshaws 4 per cent, of the total transport pollution in Delhi, as per data from the Centre for Science and Environment. Given that the ‘odd-even’ scheme exempts two-wheelers, can it succeed?
Without two wheelers it may not succeed. Also one needs to be careful about interpreting outcomes (of the scheme). Day-to-day variability in air pollution is influenced by weather.
How do you assess Delhi’s Graded Response Action Plan (GRAP), which requires 48 hours of above-300 PM 2.5 concentration to come into action? GRAP includes emergency measures to cut pollution--ban on garbage burning, entry of trucks into the city and the closure of power plants, brick kilns and stone crushers.
GRAP is a good initiative but it is for an emergency situation. Do you like to treat a patient with medicine before he goes into a coma or do you act after when very few choices are left?

Core sector growth hits 16-month low at 3.5% in Nov due to oil, fertilisers

Eight core industries grew at their slowest pace in 16 months at 3.5 per cent in November due to a fall in the output of crude oil and fertilisers, official data showed on Monday.
The previous lowest expansion in output growth of these key industries was recorded at 2.9 per cent in July 2017.

The growth rate of eight infrastructure sectors -- coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity -- was 6.9 per cent in November last year.
Crude oil and fertiliser production recorded negative growth of 3.5 per cent and 8.1 per cent, respectively, as per the government data released on Monday.
The growth rate in the production of natural gas, refinery products, steel, and cement sectors slowed to 0.5 per cent, 2.3 per cent, six per cent, and 8.8 per cent, respectively, in November.
Slow growth in key sectors would also have implications on the Index of Industrial Production (IIP) number as these segments account for about 41 per cent to the total factory output.
However, growth in coal and electricity output grew by 3.7 per cent and 5.4 per cent, respectively, in November as against 0.7 per cent and 3.9 per cent, respectively, in the same period last year.
During April-November this financial year, the eight core sectors grew by 5.1 per cent as against 3.9 per cent during the same period last financial year.

April-Nov fiscal deficit touches nearly 115% of FY19 target at Rs 7.17 trn

The country's fiscal deficit touched 114.8 per cent of the full-year target of Rs 6.24 trillion at the end of November on account of lower revenue collections, showed government data Thursday.
The fiscal deficit, or gap between expenditure and revenue, stood at Rs 7.16 trillion during April-November of the current financial year, reflecting deterioration in public finances.

At the end of November 2017, the deficit was 112 per cent of the Budget Estimate (BE).
The government has budgeted to cut the fiscal deficit to 3.3 per cent of GDP in 2018-19, from 3.53 per cent in the previous financial year.
According to the data released by the Controller General of Accounts (CGA), the total revenue receipts of the government totalled Rs 8.7 trillion or 50.4 per cent of BE in 2018-19 till November, compared with 53.1 per cent during the same period last year.
The government has budgeted to mop up Rs 17.25 trillion revenue during the current fiscal.
Tax revenue was 49.4 per cent of BE, compared with 57 per cent in the comparable period of the previous year.
According to the CGA data, the total expenditure of the government at November-end was Rs 16.13 trillion or 66.1 per cent of BE. The expenditure in terms of percentage of BE was higher in the year-ago period.