2017: Some relief amid gloom

HYDERABAD: A demonetisation-triggered cash crunch in the last two months is all set to see a huge cut in employment, consumption growth, hikes in power and water tariff and, gloomier still, slowdown of the economy. On the brighter side, economists predict rate cuts, dip in gold prices and a cut in school fee bringing the much-needed relief to the already burdened parents. The GST, too, they say will be a game changer though consumers will be hard-hit in the short run, as eating out, travel etc.., will be expensive while tax on consumer goods is sure to cushion the overall impact.

RATE CUTS
Demonetisation of Rs 1,000 and Rs 500 bank notes will cast a shadow over our lives for at least the next six months. While most economists say that it is bad for the economy, the government continues to defend its decision.

As there is no parallel in the world where 86 per cent of the cash in circulation was taken off the market, nobody is sure of its impact. One of the positives is that banks are flush with cash and could slash the lending rate. This could boost consumption-driven growth, which may later transform into investment-led growth.

On the flip-side, the economy may contract leading to job losses. Loss of employment will cut the consumption growth, which will force companies to postpone investments. This will further slow down the economy.

TARIFF HIKE
Power utilities are tending towards a tariff hike to fill in the revenue gaps. The tariff is  to be revised every three months, under the Centre's UDAY scheme which the state  joined last year. (Ujwal Discom Assurance Yojana is a financial turnaround package for discoms.) Provision of  nine hours of free  power during the day to the farm sector could add to the burden, as would purchase of power. The government is talking of revising property tax rates  and the market value of land. Water cess could be hiked.

GOLD PRICES
Gold is considered to be a safe haven. Unless there is a major crisis, growth in the gold price will remain subdued as investors get attracted to the strong dollar. So the gold  price is expected to come down.  

While we can’t predict the bottom of the stock market, gold price cannot go below Rs 21,000 per 10 grames, which is considered the cost of mining the precious metal.

What economists see in 2017
FUEL PRICES
There has been major hype about a possible tremor in the crude prices after the recent OPEC meet but:

• Despite a supply cut by OPEC and non-OPEC countries, crude oil may not cross $60-$65 a barrel. The party-poopers for OPEC in this case are resumption of US shale oil production, beginning of oil supplies from Libya, global slowdown and a strong dollar.
• India, the third biggest consumer of crude oil in the world, is said to be comfortable with $60 price tag. So we don’t have to worry about petrol bills going up.

LOWER SCHOOL FEES
If the steps taken by the Telangana education department are anything to go by, parents with school going children will be heaving a sigh of relief in 2017. Following Supreme Court directions, authorities are working on mechanisms to regulate fees in private schools. As part of this, district fee regulatory committees will be established along the lines of the Admission Fee Regulatory Committee that decides fees for professional colleges.

THE BIG GST STILL REMAINS A MYSTERY
Despite opposition from some states, the GST regime will come into being this year, if not in April as announced, then definitely in the latter part of 2017.

While GST is the biggest reform in India since the liberalisation of the economy in the 1990s, it is expected to be harsh on the consumer’s pockets in the short-run.

GST has four slabs: 5 per cent, 12 per cent, 18 per cent and 28 per cent. The standard rates of most goods and services will be in the 12 and 18 per cent slabs.

Most services are expected to attract 18 per cent tax as against 15 per cent service tax that we pay now. So, you will be paying three per cent more on eating out, travel agent costs, cable services, telephony, construction, etc. White goods such as air-conditioners, refrigerators, washing machines, audio equipment and speakers could become cheaper as they will attract 28 per cent tax as compared to 31 per cent presently.