The price of oil has increased 23% this year while the Indian currency, the rupee, has lost 14%. The combined effect has hit the economy hard. India’s monthly goods and service tax (GST) collections have been a bit below the budgeted expectations and have left little room for the Central government to deal with the twin shocks. When oil hit the $85/barrel mark, the government was forced to break its policy on fuel price de-regulation, forcing the state-run oil marketing companies to absorb a part of the losses. The trend seen earlier this year continued during the quarter where foreign investors have been net sellers at nearly $4bn thus far in 2018 while the domestic investors continue to save money and invest in the stock market.  Net inflows of $11bn from the domestic side is good news and domestic investors bought even more in September when the market sold off.  Foreigners have been fearful of emerging markets this year and look at the glass half empty while people in India are optimistic and the glass is half full.  This is seen from the strong confidence private individuals and corporations have been showing, strong economic and corporate growth, benign inflation and, as one local investment manager commented, “The Indian cricket team is winning!”. The latter part is important and brings a good feeling to the entire population.

Some remarkable improvements under the strong leadership of Prime minister Modi are:

  1. A positive effect from the late 2016 removal of the 500 and 1000 value bank notes, that has seen increased tax compliance;
  2. a national VAT tax was introduced in 2017;
  3. electronic payments increasing, thereby reducing tax evasion.

Unified payments interface, aka UPI, is an instant real-time payment system between two banks on a mobile platform, developed by the national payment corporation and regulated by the central bank in India has taken total transactions up from 1% to about 30% in less than two years. Amazing digital transformation for a country with nearly 1.4 billion people.

Domicile: Malta Source: Unifi Capital Pvt. Ltd, ICF, Bloomberg

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