State Trading Corporation of India Ltd Management Discussions.

WORLD ECONOMIC OVERVIEW

Global growth in 2017 was the fastest at 3.8 percent since 2011. With financial conditions still supportive, global growth is expected to tick up to a 3.9 percent rate in both 2018 and

2019. Advanced economies will grow faster than potential this year and euro area economies are set to narrow excess capacity with support from accommodative monetary policy, and expansionary fiscal policy will drive the US economy above full employment. Aggregate growth in emerging market and developing economies is projected to firm further, with continued strong growth in emerging Asia and Europe and a modest upswing in commodity exporters after three years of weak performance.

Global growth is projected to soften beyond the next couple of years. Once their output gaps close, most advanced economies are poised to return to potential growth rates well below pre-crisis averages, held back by aging populations and lacklustre productivity. US growth will slow below potential as the expansionary impact of recent fiscal policy changes goes into reverse. Growth is projected to remain subpar in several emerging markets and developing economies, including in some commodity exporter countries that continue to face substantial fiscal consolidation needs.

Growth in Emerging Market and Developing Economies is expected to increase from 4.8 percent in 2017 to 4.9 percent in 2018 and 5.1 percent in 2019. In China, growth is projected to moderate from 6.9 percent in 2017 to 6.6 percent in 2018 and 6.4 percent in 2019. The economy is also assumed to maintain progress on rebalancing from industry to services. Growth elsewhere in Emerging and Developing Asia is expected to remain strong. Indias economy is projected to grow at 7.4 percent in 2018 and

7.8 percent in 2019, up from 6.7 percent in 2017. Among the ASEAN-5 economies (Indonesia, Malaysia, Philip-pines,

Thailand, Vietnam), broadly stable growth is projected for the group, at 5.3 percent in 2018 and 5.4 percent in 2019 (compared with 5.3 per-cent in 2017).

Advanced Economies are projected to grow at 2.5 percent in 2018 i.e. 0.2 percentage point higher than in 2017, and 2.2 percent in 2019. The US growth forecast has been raised from 2.3 to 2.9 percent in 2018 and from 1.9 to 2.7 percent in 2019. Growth is expected to be lower than in previous forecasts for a few years from 2022 onward, given the temporary nature of some tax provisions. The recovery in the Euro Area is expected to strengthen from 2.3 percent in 2017 to 2.4 percent in 2018, before moderating to 2.0 percent in 2019. In France, growth is expected to firm up from 1.8 percent in 2017 to 2.1 percent this year, before softening slightly to 2.0 percent in 2019. In Germany, growth is expected to remain stable at 2.5 percent and moderate to 2.0 percent in 2019. Italys economy is also set to grow at a stable rate of 1.5 percent this year, softening to 1.1 percent in 2019. For Spain, growth is projected to decline from 3.1 percent in 2017 to 2.8 percent in 2018 and 2.2 percent in 2019. United Kingdom growth is projected to slowdown from 1.8 percent in 2017 to 1.6 percent in 2018 and 1.5 percent in 2019.

Global trade, which tends to be highly correlated with global investment, recovered strongly in 2017 after two years of weakness, to an estimated real growth rate of 4.9 percent. The upsurge was more pronounced in emerging markets and developing economies (with trade growth rising from 2.2 percent in 2016 to 6.4 percent in 2017), reflecting improved investment growth rates in formerly stressed commodity exporters as well as the recovery in advanced economy investment and domestic demand, more generally. Among Advanced Economies, large exporters, such as Germany,

Japan, United Kingdom, and United States, contributed strongly to the recovery in exports while the recovery in imports was broad based, except in the United Kingdom. Among emerging markets and developing economies, the rebound in export growth was particularly strong in emerging Asia, especially China, in contrast, the rebound in imports largely reflects an import recovery among commodity exporters countries that had earlier experienced sharp investment and import contractions during the 2015-16 commodity price downturn.

OVERVIEW OF INDIAN ECONOMY

The year 2017-18 was marked with strong Macro-Economic fundamentals. However, the growth of gross domestic product

(GDP) moderated in 2017-18 vis--vis 2016-17. There was an improvement in export growth, fiscal trends remained attuned to the consolidation plans and inflation remained within the limits. The year also witnessed an increase in global confidence in Indian economy as well as improvement in ease of doing business ranking.

As per the estimates released by the Central Statistics Office, GDP is estimated to grow at 6.6 per cent in 2017-18, as compared to the growth of 7.1 per cent achieved in 2016-17. The growth in agriculture, industry and services is estimated at 2.1 per cent, 4.4 per cent and 8.3 per cent respectively in 2017-18 as opposed to 4.9 per cent, 5.6 per cent and 7.7 per cent respectively in 2016-17. Growth rate of industry sector declined in 2017-18 mainly on account of moderate growth in manufacturing sector. It was the services sector that contributed to more than half of the overall GVA growth rate of 6.1 per cent in 2017-18. From the demand side, the final consumption expenditure has been the major driver of GDP growth.

The production of food grains during 2017-18 is estimated at 277.5 million tonnes, as compared to 275.1 million tonnes in 2016-17. Procurement of Rice during Kharif Marketing Season 2017-18 was 30.1 million tonnes, whereas procurement of wheat during Rabi Marketing Season 2017-18 was 30.8 million tonnes. The production of pulses during kharif season 2017-18 is estimated at 8.7 million tonnes, sugarcane at 337.7 million tonnes, oilseeds at 20.7 million tonnes and cotton at 32.3 million bales of 170 kgs each. Agricultural credit in India has been growing consistently at above 17 percent annually during the last decade. The eight core infrastructure supportive industries, viz. coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity, that have a total weight of nearly 40 per cent in IIP, registered a cumulative growth of 4.3 per cent in 2017 as compared to 5.1 per cent in 2016. The combined Index of Eight Core Industries stands at 138.0 in March, 2018, which was 4.1 per cent higher as compared to the index of March, 2017. Its cumulative growth during April to March, 2017-18 was 4.2 per cent. Coal production increased by 2.5 per cent during 2017-18 over previous year. Crude Oil production declined by 0.9 percent during 2017-18 over the previous year. Fertilizer production increased by 0.03 percent during 2017-18 over previous year. Steel production increased by 5.6 percent during 2017-18 over previous year.

In 2017-18, value of Indias exports was US$ 303.38 billion as against US$ 275.85 billion registering a positive growth of 9.98 percent over the previous year. Non-petroleum and Non Gems & Jewellery exports during 2017-18 were valued at US$ 222.45 billion as compared to US$ 200.55 billion for the corresponding period in previous year, registering an increase of 10.92%. Imports for 2017-18 were US$ 465.58 billion as against US$ 384.35 billion, registering a positive growth of 21.13 per cent over the last year. Oil imports during 2017-18 were valued at US$ 109.11 billion, which was 26.21 per cent higher than the oil imports of US$ 86.45 billion in the corresponding previous year. Non-oil imports during 2017-18 were valued at US$ 350.56 billion, which was 17.88 per cent higher than the level of such imports valued at US$ 297.39 billion in 2016-17.

The trade deficit for 2017-18 was estimated at US$ 162.2 billion, which was about 50 percent higher than the deficit of US$ 108.5 billion in 2016-17.

According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments in India during April-

December 2017 stood at US$ 35.94 billion, indicating that governments effort to improve ease of doing business and relaxation in FDI norms is yielding results. Data for April-December 2017 indicates that the telecommunications sector attracted the highest FDI equity inflow of US$ 6.14 billion, followed by computer software and hardware US$ 5.16 billion and services US$ 4.62 billion. Most recently, the total FDI equity inflows for the month of December 2017 touched US$ 4.82 billion. During April-December 2017, India received the maximum FDI equity inflows from Mauritius (US$ 13.35 billion), followed by Singapore (US$ 9.21 billion), Netherlands (US$ 2.38 billion), USA (US$ 1.74 billion), and Japan (US$ 1.26 billion). Indian impact investments may grow 25 percent annually to US$ 40 billion from US$ 4 billion by 2025.

Foreign exchange reserves stood at US$ 424.4 billion on 30th March 2018, as compared to US$ 370.0 billion at end-March 2017.

The CPI inflation declined to 3.3% during 2017-18 with a broad-based decline in inflation across major commodity groups except housing and fuel & light. The economy has witnessed a gradual transition from a period of high and variable inflation to more stable prices in the last four years.

OPPORTUNITIES AND THREATS

Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9 percent. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. Tax Policy changes. The effect on U.S. growth is estimated to be positive through 2020, cumulating to 1.2 percent through that year, with a range of uncertainty around this central scenario. Due to the temporary nature of some of its provisions, the tax policy package is projected to lower growth for a few years from 2022 onwards. The effects of the package on output in the United States and its trading partners contribute about half of the cumulative revision to global growth over 2018-19.

The cyclical rebound could prove stronger in the near term as the pickup in activity and easier financial conditions reinforce each other. On the downside, rich asset valuations and very compressed term premiums raise the possibility of a financial market correction, which could dampen growth and confidence. A possible trigger is a faster-than-expected increase in advanced economy core inflation and interest rates as demand accelerates. If global sentiment remains strong and inflation muted, then financial conditions could remain loose into the medium term, leading to a build up of financial vulnerabilities in advanced and emerging market economies alike. Inward-looking policies, geopolitical tensions, and political uncertainty in some countries also pose downside risks.

The growth forecast for 2018 and 2019 has also been revised up for other advanced economies, reflecting in particular stronger growth in advanced Asian economies, which are especially sensitive to the outlook for global trade and investment. The growth forecast for Japan has been revised up for 2018 and 2019, reflecting upward revisions to external demand, the supplementary budget for 2018, and carryover from stronger-than-expected recent activity.

The aggregate growth forecast for the emerging markets and developing economies for 2018 and 2019 is unchanged, with marked differences in the outlook across regions.

Emerging and Developing Asia will grow at around 6.5 percent over 2018–19, broadly the same pace as in 2017. The region continues to account for over half of world growth. Growth is expected to moderate gradually in China (though with a slight upward revision to the forecast for 2018 and 2019 relative to the fall forecasts, reflecting stronger external demand), pick up in India, and remain broadly stable in the ASEAN-5 region.

The policy challenges for low-income countries are particularly complex, as they involve multiple, sometimes conflicting goals. These include supporting near-term activity; diversifying their economies and lifting potential output to maintain progress toward their Sustainable Development Goals; building buffers to enhance resilience, especially in commodity-dependent economies grappling with a subdued outlook for commodity prices; and tackling high and rising debt levels in many cases. Policy initiatives should continue to focus on broadening the tax base, mobilizing revenue, improving debt management, reducing poorly targeted subsidies, and channelling spending into areas that lift potential growth and improve the livelihoods (infrastructure, health, and education) of all.

Risks to the outlook are broadly balanced in the near term, but one notable threat to growth is a tightening of global financing terms from their current easy settings, either in the near term or later. In the near term, the global economy is likely to maintain its momentum absent a correction in financial markets which have seen a sustained run-up in asset prices and very low volatility, seemingly unperturbed by policy or political uncertainty in recent months. Such momentum could even surprise on the upside in the near term if confidence in the global outlook and easy financial conditions continue to reinforce each other.

The prospects for Indian economy for the year 2018-19 need to be assessed in the light of emerging global and domestic developments. Indications are that global economic growth is expected to pick up slightly. This can be expected to provide further boost to Indias exports, which have already shown acceleration in the current financial year. On the other hand, the increasing global prices of oil and other key commodities may exert an upward pressure on the value of imports. There are signs of revival of investment activity in the economy and the recent pick up in the growth of fixed investment can be expected to maintain momentum in the coming year. In line with the projections for strengthening of Indias growth by multi-lateral institutions, the nominal growth of the economy is expected to be 11.5 per cent in the financial year 2018-19.

STC shall endeavour to make good use of every business opportunity coming its way to contribute to the projected growth in Indias exports and overall share in world trade.

STCs PERFORMANCE

During 2017-18, the total turnover of the company reached Rs.10825 crore as against Rs.7752 crore in 2016-17. The increase in turnover was mainly contributed by higher bullion imports.

The performance of the company during the year 2017-18 vis-a-vis the previous year is summarized below:

SEGMENT-WISE PERFORMANCE & OUTLOOK Exports

During the year, the Companys exports fell from Rs.789 crore in 2016-17 to Rs.266 crore mainly due to non-renewal of contract for export of steel plates/coils to Iran. However, during the year, the Company supplied steel rails worth Rs.243 crore to

Iran against an MOU entered into with Iranian Railways. The Company undertook exports of red sanders worth Rs.15 crore out of the stocks confiscated by DRI. The Company also exported agro pesticides worth approx. Rs.7 crore to Iran during the period.

Imports

During the year 2017-18, the Company achieved an import turnover of Rs.10216 crore as against Rs.6382 crore in the year 2016-17. The increase in import turnover was mainly contributed by higher imports of bullion. Bullion continued to be the single largest item of import during 2017-18 yielding sales worth Rs.10194 crore as against Rs.4,272 crore during the previous year.

Import of urea was nil during 2017-18 as against Rs.2048 crore in 2016-17 as no authorisation for import of urea was received by STC from the GOI. During the year, the Company also imported and sold pulses worth Rs.21 crore on Govt. Account and supplied equipment/ instruments worth approx. Rs.2 crore to various State Govt. Departments/entities.

Domestic sales

The domestic sales of the company amounted to Rs.343 crore.

The major items of domestic sales were as under:

Coal

The Company continued to undertake supplies of imported coal to Bharat Oman Refineries Ltd. (BORL) and supplied coal worth Rs.12 crore during the year 2017-18 as against supplies worth Rs.46 crore made in 2016-17.

Edible Oils & Sugar

During 2017-18, the Company contracted for supply of edible oils in 1 litre pouches to Tamil Nadu State Civil Supplies Corporation Ltd. (TNSCSC) for distribution under PDS and made supplies worth approx. Rs.61 crore. The Company also supplied sugar worth approx. Rs.14 crore to TNSCSC.

Pulses & Rice

The Company contracted for supply of pulses to Tamil Nadu State Civil Supplies Corporation Ltd. for distribution under PDS and made supplies worth approx. Rs.41 crore during the year. Pulses worth approx. Rs.28 crore to other agencies and rice worth approx. Rs.5 crore to Puducherry were also supplied during the year.

Fertilizers

The Company continued to undertake distribution of fertilizers to tobacco growers/farmers in the states of Karnataka and supplied 28099 MT (Previous year –26992 MT) of fertilizers to various tobacco growers/farmers. The same yielded a turnover of Rs.73 crore (previous year –Rs.75 crore) during the year.

Cardamom Auctions

The Company also continued to conduct cardamom auctions involving collection of cardamom directly from planters and auctioning the pooled cardamom to the traders on e-auction platform at Bodinayakanur, Tamil Nadu. During the year, the Company conducted 42 auctions and sold 759 MTs of cardamom, which resulted in a turnover of Rs.74 crore as against Rs.120 crore in the previous year.

Besides above, the company also sold brass scrap ( Rs. 14 crore), spices & jaggery (Rs. 17 crore) and gold coins (Rs.2 crore) in the domestic markets.

PROFITABILITY

The Company reported a net Profit of Rs.38 crore during the year 2017-18 as against a net loss of Rs.166 crore during the year 2016-17. The profit was mainly due to provisions, write-offs & other expenses (net of write-back) of (-) Rs.29 crore as against Rs.144 crore during 2016-17.

INTERNAL CONTROLS AND PROCEDURES

STC has a sound system of internal controls which ensures compliance with statutory requirements, regulations and various policies and guidelines of the Company. Besides

Statutory Audit and Audit by the C&AG, regular and exhaustive internal audits are conducted through professional agencies in close coordination with STCs Internal Audit Division to ensure that a proper system of checks and balances is in place in the Company to take care that all the assets are safeguarded and protected against any possible loss and all the transactions are authorized, recorded and reported properly. Internal Audit is conducted as per the Accounting Standards and Rules/policies formulated by the Company from time to time. Annual Audit Programme is approved by the Audit Committee of Directors. The observations/recommendations made by the auditing agencies are reported to Management Audit Committee and the Audit Committee of Directors along with a report on compliance of directions issued in the past. The quarterly financial statements as also reports of statutory and Government audit are reviewed by the Audit Committee of Directors before these are submitted to the Board of Directors.

The Company has a well-defined Delegation of Powers (DoP) in place, which lays down the powers for different managerial levels and Committees to facilitate faster decision making. The DOP was suitably amended from time to time to make accountability with authority considering the prevailing requirements. The systems and procedures laid down by the Company ensure maximum transparency in all commercial deals. The various policies, procedures and guidelines are continuously reviewed and modified from time to time based on experience gained in the past transactions so as to improve the effectiveness of the systems of due diligence of associates and risk mitigation. A risk management framework has been put in place with the approval of Board of Directors to assess the risk involved in a trade proposal before it is approved.

The Company has a full-fledged Vigilance Division to oversee that the guidelines of the Government and the rules/procedures of the company are strictly adhered to/ implemented in all matters. The Vigilance Division conducts inspection of Branch Offices of the Company and makes suggestions for taking corrective/preventive action.

WAY FORWARD

The Company has signed an MoU with the Ministry of Commerce & Industry in terms of which an overall turnover target of Rs.11600 crore has been fixed for the year 2018-19 for ‘Excellent category.

Keeping in view a number of past transactions leading to defaults by business associates in making payment of STCs dues, the Company has, as a deliberate measure, decided to refrain from undertaking trade involving STCs funds/ banking limits. As such, the Company shall lay greater focus on developing business with central/state government departments and their entities during the year 2018-19.

Besides above, the Company shall continue to make efforts to develop business in existing areas of trade such as exports of steel products, rice, agro chemicals, red sanders, imports of bullion, fertilizers, edible oils, pulses, instruments/equipment and domestic sales of coal, fertilizers, pulses, cardamom, brass scrap, etc.

CAUTIONARY STATEMENT

Certain statements contained in this Annual Report may constitute forward-looking statements within the meaning of applicable laws and regulations. These statements are based on managements views and assumptions at the time information was prepared and involve known and unknown risks and uncertainties that could cause actual results or performance to differ materially from those expressed or implied in such statements made in this Annual Report. The

Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in the Companys expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.