Why an inflation dip may not be good news for India's bond traders

Traders in India’s battered bond market would do well to take any potential easing in inflation with more than a pinch of salt.
A report Wednesday may show price pressures in August eased below 4 per cent for the first time in 10 months. While that sounds like good news, a currency that’s been slipping to a new record almost every day is ensuring that the optimism doesn’t last too long. The benchmark bond yield climbed to its highest level since 2014 this month.

“The worst is still to come” for bonds, with risks to inflation rising because of the rupee and leading to expectations of a steeper increase in interest rates, said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership Ltd. in Mumbai. “A lower CPI reading is not going to make a meaningful impact on bonds.”
Losses in the rupee -- Asia’s worst performer in 2018 -- have accelerated amid fears of an emerging-market contagion. The currency has slipped almost 5 per cent since end-July, a decline that has the potential to add 15-20 basis points to retail inflation, according to estimates from Edelweiss Securities Pvt.
The brokerage also reckons that every $10/barrel rise in crude oil boosts CPI by 30-35 basis points.
India’s benchmark 10-year sovereign bonds have slumped in six of the last eight months, hurt also by fears of an increase in government borrowings before the 2019 national elections and an emerging-market rout that’s seen foreign funds dump local debt.
The 10-year yield may climb to as high as 8.25 per cent by end-September if the government -- which is seeing revenue collections falling behind -- decides to add back the 500 billion rupees ($7 billion) of borrowing that it had slashed earlier this year, according to Singh.
“It’s highly likely,” he said.
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The Reserve Bank of India in June raised interest rates for the first time since 2014 and tightened again in August. Commerzbank AG is already flagging the possibility of two more increases this year, which would only add to the misery of bond traders.
Below are the key Asian economic data and events due next week:
Monday, Sept 10: Japan 2Q GDP and July trade balance; China CPI and PPI
Tuesday, Sept 11: Australia ANZ Roy Morgan consumer confidence index and NAB business conditions for Aug.; Philippines July trade balance
Wednesday, Sept 12: India Aug. CPI and July industrial production; Australia Westpac consumer confidence; Singapore retail sales; South Korea unemployment
Thursday, Sept 13: Japan Aug. PPI; New Zealand Aug. food prices; Australia jobs
Friday, Sept 14: Business NZ manufacturing PMI; China retail sales and industrial production; Japan industrial production; India wholesale prices

More traders paying taxes on GSTN: Sushil Kumar Modi

The proportion of tax-paying traders has increased to 70 per cent of those registered on the Goods and Services Tax Network (GSTN) as the technology backbone built by Infosys has begun to stabilise and make it easier for them to file returns on the platform.The proportion of tax-paying traders has increased to 70 per cent of those registered on the Goods and Services Tax Network (GSTN) as the technology backbone built by Infosys has begun to stabilise and make it easier for them to file returns on the platform.
In July, when the GST regime came into force, thousands of traders faced glitches in the IT platform, making it difficult for them to file returns. As a result, around 42 per cent of the 5.3 million members registered on the GSTN filed returns with zero tax liability.
The outrage over glitches and concerns of state governments about revenue losses compelled the Centre to form an empowered group of ministers (GoM) to look into the technology issues. The group identified 47 glitches, which Infosys had to iron out within a timeframe.
After five reviews, these glitches have been rectified and the process has been made simpler for traders.
“In July 42 per cent of tax filings had zero tax liability, in August it was 32 per cent, and in October it was 30 per cent,” said Bihar Deputy Chief Minister Sushil Kumar Modi, who leads the group, on Saturday.
A majority of traders had an annual turnover of less than Rs 1.5 crore and contributed around 5.5 per cent of tax revenue, while 70 per cent came from those who had a turnover of Rs 100 crore, he said.
In 2015 Infosys had won the seven-year Rs 1,380 crore contract of building, maintaining, and operating the network, which forms the backbone of the GST. The data is captured on a centralised IT system, which will help the government plug leakages and gather better insights into goods consumption in the country.
Modi said the rise in exports in November owed itself partly to the stabilisation of the GSTN, adding that the matter of exporters not being able to get refunds had been sorted out. Refunds for exporters were being processed, he said.
In November, the GoM had pointed that there was a revenue shortfall of Rs 8,000-9,000 crore owing to the challenges in the system. However, after a review with state tax officials, it was identified the losses were also due to leakages on account of traders not declaring shipments between states as the check posts became redundant in the new regime.
This was the primary reason that the introduction of the e-way Bill was being advanced, Modi said.
The National Informatics Centre (NIC), the government-run IT body, will implement the e-way Bill solution and offer it on trial on January 15. The NIC has implemented the e-way Bill system in Karnataka, which had pioneered it five years ago to track vehicles that transported goods.
A pilot for the e-way Bill was done in the state before the national roll-out, Modi said.