MARKET WATCH 18 JAN 2021

NATIONAL

INTERNATIONAL

‘Indian economy may contract 25 pc in current fiscal’

The Indian economy is not recovering as fast as the government claims and the country’s economy may contract 25 per cent in the current financial year, noted economist Arun Kumar said on Sunday. Kumar further said that due to a big decline in the GDP during the current financial year, the budget estimates have gone completely out of gear and, therefore, there is a need to correct the Budget.

“India’s economic growth is not recovering as fast as the government is showing because the unorganised sector has not started recovering and some major components of the services sector have not recovered. “My analysis shows that the rate of growth will be (-)25 per centin the current financial year because during lockdown (during April-May), only essential production was taking place and even in agriculture, there was no growth,” he told PTI in an interview.

The Reserve Bank of India (RBI) has projected the Indian economy to contract 7.5 per cent in the current financial year, while the National Statistical Office (NSO) estimates a contraction of 7.7 per cent. Also, according to the NSO, the Indian economy contracted by 23.9 per cent during the April-June 2020 quarter and recovered faster than expected in the July-September 2020 quarter as a pick-up in manufacturing helped GDP clock a lower contraction of 7.5 per cent.

Kumar, a former professor of economics at JNU, said the government’s own document that provided April-June and July-September quarters GDP (gross domestic product) figures said there will be a revision in the data later on. He predicted that India’s fiscal deficit will be higher than it was last year and the state’s fiscal deficit will also be much higher. “Disinvestment revenue will also be short. Tax and non-tax revenues will be short,” Kumar said. He said India’s economic recovery will depend on several factors including how quickly vaccination can be done, how quickly people can go back to their work. “We are not going back to the 2019 level of output in 2021. Maybe in 2022, after the vaccination is done, we will recover back to the 2019 level of output in 2022,” Kumar said.

He added that the growth rate in the coming?years will be good because of low base effect, but the output will be less than 2019.

Asked whether the government should relax the fiscal deficit target in the upcoming Budget, Kumar said, “It has been argued since July that the government should allow the fiscal deficit to rise and spend more and give money to the unorganised sector and in rural areas.”

On India recently imposing fresh restrictions on foreign direct investment (FDI) from countries that share land border with India, he said, “It is a knee-jerk reaction”. If you look at the past three-four years, all the start-ups had big investments from China, Kumar added.

Stressing that like China, India should also invest more on research and development, Kumar said, “We are now in a bad situation where we have to do knee-jerk reactions like raising tariffs, withdrawing from the RCEP (Regional Comprehensive Economic Partnership), and having new FDI rules, to stop investment from China.”

He pointed out that when investments in India are lacking, restricting investments from outside is going to put us in further trouble.

Source: The Financial Express

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Economy likely to contract up to 7.5% this fiscal, may see 9-11% growth in FY22: Virmani

The Indian economy is likely to contract in the range of 5-7.5 per cent this fiscal but will see a growth of 9 to 11 per cent in FY 2021-22, former chief economic adviser Arvind Virmani said on Friday.

Addressing a virtual event organised by industry body PHDCCI, Virmani said in the upcoming Budget, the government should come up with policies to accelerate India's economic growth.

"In the post pandemic Budget, policy reforms (are) needed for accelerating India's economic growth...," he said adding that the economy is likely to contract to 5 per cent to 7.5 per cent in FY2020-21 and grow 9-11 per cent in the next fiscal," he said.

The Union Budget for FY2021-22, the eighth of the Narendra Modi-led government, is scheduled to be presented in Parliament on February 1, 2021.

Finance Minister Nirmala Sitharaman will be presenting her third Budget.

The Reserve Bank of India (RBI) has projected the Indian economy to contract 7.5 per cent in the current fiscal while the National Statistical Office (NSO) estimates the contraction at 7.7 per cent.

Virmani further said that India can't become 'Aatmanirbhar' with the 20th century Direct Tax Code (DTC).

"There is a need to simplify direct taxes and indirect taxes for MSMEs. We can't have 21st century Aatmanirbhar with 20th century DTC... We need 21st century Direct Tax Code," he said.

The eminent economist also emphasised that there is a need of 15 per cent uniform GST rate for 75 per cent of goods and services.

Noting that production-linked incentive (PLI) was actually a very good scheme, Virmani said the government should promote employment generating exports.

Virmani also pointed out that free trade agreements (FTAs) with the US, European Union (EU) and the UK are much important than with the Regional Comprehensive Economic Partnership (RCEP) because most MNCs are located in the US, EU and the UK. He also suggested that the government should spend more on infrastructure projects, modernise sewage system to deal with the future pandemic and invest on R&D on contagious diseases.

Source: The Business Standard

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Budget 2020 International bullion exchange to be set up at IFSC, says FM

The government on Saturday proposed to set up an international bullion exchange at IFSC in GIFT City, which will lead to better price discovery of gold, create more jobs and enhance India’s position in such market.

“With the approval of the regulator, GIFT City would set up an International Bullion Exchange(s) in GIFT-IFSC as an additional option for trade by global market participants,” Finance Minister Nirmala Sitharaman said while presenting the Budget for 2020-21.

This will enable India to enhance its position worldwide, create jobs and lead to better price discovery of gold, she added.

The country’s only International Financial Services Centre (IFSC) is in GIFT City near Ahmedabad in Gujarat.

IFSC has the potential to become a centre of international finance and high-end data processing, the Minister added.

IFSC has 19 insurance entities and 40 banking entities.

“We welcome the announcement in today’s Union Budget on setting up of an International Bullion Exchange at GIFT IFSC,” said Tapan Ray, MD and Group CEO at GIFT City.

“The Finance Minister has re-emphasised the importance of GIFT IFSC as an emerging global financial services hub. The policy pronouncement regarding GIFT IFSC gives a tremendous boost to investor confidence both in India and abroad,” he added.

Source: The Hindu E-Paper

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N Brown sees its revenue fall by 8.8% during the Christmas quarter

N Brown, the British fashion e-tailer, has seen a significant fall in its group revenue during the Christmas quarter.

The online fashion retailer saw its group revenue slump by 8.8 per cent for the 18 weeks that ended 2 January 2021.

Meanwhile, the product sales fell by 8.9 per cent during the period, compared to a slump of 28.8 per cent in Q1. Notably, revenues dropped at a slower rate of 8.3 per cent.

Talking of brands, the retailer’s notable fashion labels such as Simply Be, JD Williams, Jacamo, Home Essentials and Ambrose Wilson too saw their sales decline by 1.4 per cent during the period.

In the first quarter, however, the sales of the aforementioned N Brown brands had fallen by a huge 25.1 per cent.

The retailer said that the quarterly performance was much in line with its expectations, and it has now predicted an adjusted EBITDA between £84 million and £86 million for its fiscal year.

The Group has also warned that the ongoing COVID-19 restrictions all over the UK would present opportunities as well as challenges.

It is worth noting that last month, N Brown had completed its equity funding of £100 million, and thus moved from London Stock Exchange to its junior AIM market.

Source: Apparel Online

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Excise duty collection jump 48 pc this fiscal on record hike in taxes on petrol, diesel

While the pandemic pummelled tax collection across the board, excise duty mop-up jumped 48 per cent in the current fiscal on the back of a record increase in taxes on petrol and diesel, that more than made up for the below normal fuel sales.

Excise duty collection during April-November 2020, was at Rs 1,96,342 crore, up from Rs 1,32,899 crore mop-up during the same period in 2019, according to data from the Controller General of Accounts (CGA). This despite the fact that over 10 million tonnes less diesel – the most used fuel in the country – was sold during the eight months period.

Diesel sales during April-November 2020, stood at 44.9 million tonnes as compared to 55.4 million tonnes a year back, according to data from the oil ministry’s Petroleum Planning and Analysis Cell (PPAC).

Petrol consumption too was lower at 17.4 million tonnes, compared to 20.4 million tonnes during April-November 2019. While Goods and Services Tax (GST) apply on most products since its introduction in 2017, oil products and natural gas has been kept out of its preview. Excise duty, which accrues to the centre, and VAT that goes to the state government, are levied on their sale.

Industry sources said the jump in excise duty was primarily because of a record increase in taxes on petrol and diesel during March and May last year.

The government had raised excise duty on petrol by Rs 13 per litre and that on diesel by Rs 16 a litre in two tranches to mop up gains arising from international crude oil prices falling to a two-decade low. With this, the total incidence of excise duty on petrol rose to Rs 32.98 per litre and that on diesel to Rs 31.83 a litre. Petrol costs Rs 84.70 a litre in Delhi and a litre of diesel comes for Rs 74.88.

In full 2019-20 fiscal (April 2019 to March 2020), excise collection totalled Rs 2,39,599 crore, according to CGA. Central excise duty makes up for 39 per cent of petrol and 42.5 per cent of diesel. After considering local sales tax or VAT, the total tax incidence in the price is about two-third of the retail rate.

The excise tax on petrol was Rs 9.48 per litre when the Modi government took office in 2014, and that on diesel was Rs 3.56 a litre. The government had between November 2014 and January 2016, raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices.

In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped government’s excise mop up more than double to Rs 2,42,000 crore in 2016-17, from Rs 99,000 crore in 2014-15.

The government had cut excise duty by Rs 2 in October 2017, and by Rs 1.50 a year later. But it raised excise duty by Rs 2 per litre in July 2019. It again raised excise duty on March 2020, by Rs 3 per litre each. In May that year, the government hiked excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre. While basic excise duty on crude is not so significant, it is ad valorem (a certain percentage of value) on ATF at 11 per cent and on natural gas-compressed 14 per cent. In case of an ad valorem system, earnings happen only if the product price goes up.

According to CGA, over tax revenue of the government is down 45.5 per cent at Rs 688,430 crore during April-November. For the full 2020-21 fiscal (April 2020 to March 2021), the government had budgeted Rs 16.35 lakh crore tax revenue.

Corporation tax mop-up is down 35 per cent at Rs 185,699 crore and income tax collection is 12 per cent lower at Rs 235,038 crore, the CGA data showed.

Source: The Financial Express

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Indian economy may contract 25 per cent in current fiscal: Economist Arun Kumar

The Indian economy is not recovering as fast as the government claims and the country's economy may contract 25 per cent in the current financial year, noted economist Arun Kumar said on Sunday.

Kumar further said that due to a big decline in the GDP during the current financial year, the budget estimates have gone completely out of gear and, therefore, there is a need to correct the Budget.

"India's economic growth is not recovering as fast as the government is showing because the unorganised sector has not started recovering and some major components of the services sector have not recovered.

"My analysis shows that the rate of growth will be (-)25 per cent in the current financial year because during lockdown (during April-May), only essential production was taking place and even in agriculture, there was no growth," he told PTI in an interview.

The Reserve Bank of India (RBI) has projected the Indian economy to contract 7.5 per cent in the current financial year, while the National Statistical Office (NSO) estimates a contraction of 7.7 per cent.

Also, according to the NSO, the Indian economy contracted by 23.9 per cent during the April-June 2020 quarter and recovered faster than expected in the July-September 2020 quarter as a pick-up in manufacturing helped GDP clock a lower contraction of 7.5 per cent.

Kumar, a former professor of economics at JNU, said the government's own document that provided April-June and July-September quarters GDP (gross domestic product) figures said there will be a revision in the data later on.

He predicted that India's fiscal deficit will be higher than it was last year and the state's fiscal deficit will also be much higher. "Disinvestment revenue will also be short. Tax and non-tax revenues will be short," Kumar said.

He said India's economic recovery will depend on several factors including how quickly vaccination can be done, how quickly people can go back to their work.

"We are not going back to the 2019 level of output in 2021. Maybe in 2022, after the vaccination is done, we will recover back to the 2019 level of output in 2022," Kumar said.

He added that the growth rate in the coming years will be good because of low base effect, but the output will be less than 2019.

Asked whether the government should relax the fiscal deficit target in the upcoming Budget, Kumar said, "It has been argued since July that the government should allow the fiscal deficit to rise and spend more and give money to the unorganised sector and in rural areas."

On India recently imposing fresh restrictions on foreign direct investment (FDI) from countries that share land border with India, he said, "It is a knee-jerk reaction". If you look at the past three-four years, all the start-ups had big investments from China, Kumar added.

Stressing that like China, India should also invest more on research and development, Kumar said, "We are now in a bad situation where we have to do knee-jerk reactions like raising tariffs, withdrawing from the RCEP (Regional Comprehensive Economic Partnership), and having new FDI rules, to stop investment from China."

He pointed out that when investments in India are lacking, restricting investments from outside is going  to put us in further trouble.

Source: The Economic Times

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Govt to overhaul fiscal roadmap, may aim budget deficit at 4% of GDP by FY26

The COVID-19 pandemic is set to change the central government’s medium term-fiscal roadmap. From an expected fiscal deficit of 7-8 per cent of gross domestic product in 2020-21, the Centre may follow a glide path which will bring down the budget deficit to 4 per cent of GDP by 2025-26, Moneycontrol has learnt.

This means that the long-standing medium-term fiscal deficit target of 3 per cent of GDP, as mandated by the Fiscal Responsibility and Budget Management Act, no longer holds. The above-mentioned changes will require amendments to the FRBM Act through the Finance Bill, 2021.

Though the FRBM Act came into being in 2003, the medium target has never been met.

Fiscal deficit or budget deficit is the difference between a government’s expenditure and revenues. When revenue is higher, the budget is seen as fiscal surplus. Fiscal deficit is measured as a percentage of real GDP and is the most important measure of the health of a government’s balance sheet. It is tracked keenly by investment banks, economists markets, rating agencies and sovereign bond investors.

“Aiming for a 3 per cent medium-term target is not possible now. This year the deficit can go up to 8 per cent. In the next five years, even if we achieve somewhere around 4 per cent, that will be good enough. We have to spend again in 2021-22, a lot of spending commitments, to revive the economy,” a top government official told Moneycontrol.

It is understood that a relaxed fiscal roadmap for the Centre in light of the pandemic has been suggested by the Fifteenth Finance Commission. The Commission, whose report for 2021-22 to 2025-26 will be tabled in Parliament along with the budget, is learnt to have given the Centre breathing space till 2025-26, and may have recommended a fiscal deficit target range for each year of its award period, till 2025-26, instead of a single number.

For the current year, the pandemic and the slowdown in the Indian economy, especially in the first half of the year, have led to a drop in tax and non-tax revenue for the government, compared to what was expected. Even an encouraging recovery in the second half may not be able to bridge that shortfall.

On the expenditure front, the Centre’s own additional outlay on the Rs 29 lakh crore worth of COVID announcement (Gareeb Kalyan plus three sets of Aatmanirbhar Bharat announcements) is said to be as high as Rs 4 lakh crore. All this means that the budgeted fiscal deficit target of 3.5 percent for 2020-21 will not be met.

For 2021-22, Finance Minister Nirmala Sitharaman has said that the budget will see a massive public sector investment and expenditure push, including on infrastructure projects and the health sector. She has also said that fiscal considerations will be kept aside. This means that a disciplined approach is unlikely next year.

The markets have factored in a fiscal slippage this year and next financial year, with an expectation that the finance minister, in her budget, will spell out a new fiscal roadmap for the medium term.

Source: Money Control

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Big jump in CPSE capex, Q3 matches H1

Large central public-sector entities – companies and undertakings – achieved about 30% of their capital expenditure target for FY21 in the third quarter of the financial year, by spending Rs 1.4 lakh crore, almost matching their investments in the first two quarters, according to official sources. The jump in CPSE capex comes after constant prodding by the finance minister Nirmala Sitharaman.

State governments have slowed down investments significantly in the current fiscal year and the Centre’s Budget capex also looks constrained, due to the pandemic-induced revenue shortfalls.

 

The jump in CPSE capex in Q3 could give leg-up to gross fixed capital formation (GFCF) in the quarter; a sharp narrowing of contraction in GFCF was already seen in Q2 (down 7.3% on year) from a record decline (47.1%) in Q1.

Three dozen CPSEs, with capex plan of at least Rs 500 crore, invested Rs 2.9 lakh crore or about 60% of their annual capex target of Rs 4.95 lakh crore in April-December of FY21.

This is a creditable achievement, as it reflects that these companies have managed to hold on to the capex pace shown in recent years, despite the Covid-19 shock. Among the government agencies, the railways was the largest investor in the first nine months of FY21 with Rs 95,000 crore, which was about 60% of its capex plan for the full year.

The National Highways Authority of India (NHAI) invested Rs 75,000 crore or 68% of its FY21 target in April-December 2020. During the period, Oil and Natural Gas Corporation reported capex of about Rs 17,000 crore or about 52% of its full year capex targe. ONGC was followed by fuel retailer-cum-refiner Indian Oil Corporation with Rs 15,000 crore (60% of full-year target) and power producer NTPC at Rs 15,000 crore (71%).

In the last few years, CPSE capex has remained robust; the ratio of capex deployment between the first and second halves of a financial year has been 3:7.

Of course, the Centre is putting extra pressure on these entities to augment capital investments in the current year as it hopes that the slippages on the part of other public-sector investors, including the state governments will be offset to an extent by the CPSEs.

Even though the Union finance ministry and prime minister’s office have already told many CPSEs that they must strive to achieve 50% more than their annual capex target in FY21, this is going to be a daunting task for these entities. Officials expect the capex achievement by CPSEs will be within targeted Rs 4.95 lakh crore for this fiscal.

The combined capital expenditure by the CPSEs turned out to be Rs 4.41 lakh crore or 90% of the target in FY20. More than 80% of the capex by these CPSEs and departmental units usually comes from their own surpluses and loans while the balance funds are provided from the Union Budget.

As against a 30% year-on-year jump projected for FY21, budgetary capital expenditure by state governments might have dropped by a quarter in April-November, going by an FE review of data from twelve states. Among them, these twelve states — Uttar Pradesh, Tamil Nadu, Madhya Pradesh, Andhra Pradesh, Karnataka, Rajasthan, Odisha, Telangana, Kerala, Chhattisgarh, Haryana and Jharkhand — reported combined capital expenditure of Rs 1,09,860 crore in April-November FY21, compared with Rs 1,48,571 crore in the year-ago period, down 26%. The annual capex target for all states as per their budgets is Rs 6.5 lakh crore.

Compared to this, the Centre has managed to spend Rs 2.41 lakh crore as Budget capex during April-November, up 12.8% on year, even though the FY21 target is Rs 4.12 lakh crore (up 22.4% on year).

In FY20, public capex was roughly in the 5:3.6:3.4 ratio among the states (budget), CPSEs (own funds) and the Centre (Budget). However, this ratio will likely change to 3:4:4.5 in FY21 as the share of states in public capex has fallen.

Source: The Financial Express

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Ease fiscal deficit, look at higher spend for future: Assocham President

New Assocham President Vineet Aggarwal has batted for fiscal expansion in the form of higher expenditure in the upcoming Budget.

“Fiscal relaxation is critical, and the focus should be on spending when the world comes out of this once-in-a-hundred-years kind of crisis," Aggarwal told Business Standard.

As spending on infrastructure has three times the desired impact, the government’s Rs 111 trillion National Infrastructure Pipeline should be accelerated, Aggarwal said.

The government should also focus on projects that promote multimodal logistics as currently about 60 per cent of freight is moved through roads and costs can be reduced by moving freight through rail and water, he said. Expenditure for infrastructure related ministries like the roads, highways, and rural development should also be increased, Aggarwal said.

The government must increase allocation on schemes such as PM Gram Sadak Yojana that will not only create employment and source for income generation, but also help in building better infrastructure for agri supply chain.

Public and private spending on healthcare should be increased to 6 per cent of GDP from 3.6 per cent currently, he said. He added that India needs more hospitals, specialty care centres, and expenditure on research and development, so that the country is ready for pandemics of this scale in the future.

To fund infrastructure projects, a sovereign backed development finance institution is needed. That’ll help in getting more private investors and multilateral agencies on board to fund India-specific infrastructure projects, he said.

Rationalise Tax Rates, Speed Up Privatisation

Aggarwal said the government should not consider imposing a new Covid Cess or a new super rich tax in the Budget at a time when India needs to increase consumption demand. The government should look at reducing taxes than imposing new ones, he said.

He added that income tax should be exempt for those earning up to Rs 7.5 lakh from Rs 5 lakh currently.

To make for the revenues that the government will have to spend on the Covid-19 vaccine and other expenditure to lift the economy, Aggarwal said that the government should accelerate its divestment and privatisation drive.

Managing Surge in IBC Cases

Aggarwal said lifting of suspension in initiating insolvency and bankruptcy proceedings against companies may lead to a surge in resolution of cases.

This can be managed by ramping up capacity of NCLT benches so that resolution is not delayed after the suspension is lifted. The government has suspended fresh initiation of insolvency proceedings until March 25, 2021 to provide relief to companies reeling under the impact of the Covid-19 pandemic. However, even before the pandemic, limited number of National Company Law Tribunal benches has led to resolution cases getting delayed.

“The (IBC) resolution was typically happening around 330 days on average. So I'm hopeful that perhaps in a year or so we will catch up to that level, and come back to normalcy,” Aggarwal said.

Source: The Business Standard

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Budget may bring comfort to Covid-battered middle-class

With less than a fortnight to go for Budget 2021-22, indications are that Finance Minister Nirmala Sitharaman and her team may cast a benign eye on the middle income group.

Health will, of course, be a major focus this Budget which may also see the rates of personal income-tax and corporate tax held stable with some tweaking in exemption mechanism. However, additional revenue measures by targeting high-income groups are likely.

Government officials feel stability in tax rates will give some comfort to the middle class. There is increasing pressure to tweak slabs by raising the minimum income bracket to even ₹3.5 lakh — or at least ₹3 lakh — per annum. Though there is no I-T on annual income of up to ₹5 lakh, raising the minimum slab with lower tax outgo for people having annual income over ₹5 lakh will leave some additional money with households.

In fact, the BJP has made a pitch for a focus on the neo middle and middle class. “The middle class needs much more support. There is a need to incentivise consumption, increase the savings limits, and address standard deductions exemption, among other things,” said Gopal Krishna Agarwal, the party’s National Spokesperson (Economic Affairs).

A senior government official said providing an additional exemption limit — say through higher tax benefit on home loans — will be helpful. “The interest rate on home loans is very low, people have some savings and real estate prices are going southwards. Housing has a multiplier effect. Construction supports hundreds of economic activities directly or indirectly. So, encouraging people to buy houses will be good for the entire economy,” he said.

A home loan contains two tax components: principal and interest. At present, for a self-occupied house, one can avail a tax break on the principal amount as well as the interest repaid on the home loan. Under Section 80C of the Income Tax Act, you get a deduction for the principal repaid up to ₹1.5 lakh annually while the interest paid is deductible up to ₹2 lakh annually under Section 24 (which will go up ₹3.5 lakh under Section 80 EE/80EEA).

But there is an issue here. Since Budget 2020-21 introduced an alternative low I-T rate structure sans exemptions, any new exemption may create a hiccup. However, the official said that a one-time benefit will not distort the intent of ultimately reaching an exemption-free I-T system.

Revenue via privatisation

With tax revenues not being buoyant, Sitharaman is expected to unveil a new privatisation policy with a higher disinvestment target, according to multiple sources.

The disinvestment target is expected to be raised from FY21’s ₹2.1-lakh crore, with plans to privatise more companies. The Centre also expects to complete the sell-off of BPCL, Air India and Shipping Corporation next fiscal.

Agarwal said: “We have suggested that an approach be developed with a target for what the government needs to do with regards to disinvestment. In spite of the capital market peaking, why are PSUs not getting good valuations?”

On May 17, as a part of AtmaNirbhar Bharat, Sitharaman had talked about the need for a coherent policy where all sectors are open to the private sector while public sector enterprises (PSEs) will play an important role in defined areas. Now, a new policy listing such strategic sectors requiring the presence of PSEs may be notified. In these, at least one PSE will operate, but the private sector will also be allowed. In other sectors, PSEs will be privatised.

Source: The Business Journal

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RBI remains steadfast to take any further measures to support growth: Shaktikanta Das

Reserve Bank of India (RBI) Governor Shaktikanta Das on Saturday said the central bank remains steadfast to take any further measures as may be required to support growth without compromising on financial stability. Delivering the 39th Palkhivala Memorial Lecture, the governor said the principal objective during the pandemic period was to support economic activity; and looking back, it is evident that policies of the RBI have helped in easing the severity of the economic impact of the pandemic.

“I would like to unambiguously reiterate that the Reserve Bank remains steadfast to take any further measures, as may be necessary, while at the same time remaining fully committed to maintaining financial stability,” he said. In a bid to maintain financial stability, Das emphasized the need for banks to raise resources in advance as a buffer.

Going ahead, he said, financial institutions in India have to walk a tightrope in nurturing the economic recovery within the overarching objective of preserving long-term stability of the financial system. The current COVID-19 pandemic related shock will place greater pressure on the balance sheets of banks in terms of non-performing assets, leading to erosion of capital, he said, adding building buffers and raising capital by banks “both in the public and private sector “will be crucial not only to ensure credit flow but also to build resilience in the financial system.

“We have advised all banks, large non-deposit taking NBFCs and all deposit-taking NBFCs to assess the impact of COVID-19 on their balance sheet, asset quality, liquidity, capital adequacy, and work out possible mitigation measures, including capital planning, capital raising, and contingency liquidity planning, among others,” he said.

Prudently, a few large public sector banks (PSBs) and major private sector banks (PVBs) have already raised capital, and some have plans to raise further resources taking advantage of benign financial conditions. “This process needs to be put on the fast track,” he added.

The governor said recent experience across countries during the pandemic suggest that banks, non-banks, financial markets and payment systems remain at the core of financial stability issues, there was a need to work much closer at the system in its entirety. “In this sense, the overall objective of financial stability policies should be closely intertwined with the health of the real economy,” he noted.

The financial stability needs to be seen in a broader perspective and must include not just the stability of the financial system and price stability but also ‘fiscal sustainability and external sector viability’, Das said. Noting that good governance will have to be supported by effective risk management functions and assurance mechanisms, he said banks and non-banking finance institutions need to identify risks early, monitor them closely and manage them effectively.

“The risk management function in banks and NBFCs should evolve with changing times as technology becomes all-pervasive and should be in sync with international best practices. In this context, instilling an appropriate risk culture in the organisation is important,” he said.

A robust assurance mechanism by way of internal audit function was another important component of sound corporate governance and risk management, Das said, adding it provides independent evaluation and assurance to the Board that the “operations were performed in accordance with set policies and procedures”.

He said the central bank has already taken a number of measures and would continue to do so.

“Recent efforts in this direction were geared towards enhancing the role and stature of compliance and internal audit functions in banks by clarifying supervisor expectations and aligning the guidelines with best practices. “Some more measures on improving governance in banks and NBFCs are in the pipeline,” he said.

Source: The Financial Express

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Bank credit grows 3.2 pc in first nine months of FY21

Bank credit grew 3.2 per cent to Rs 107.05 lakh crore in the first nine months of the current financial year, against a growth of 2.7 per cent registered in the corresponding period of 2019-20.

In the fortnight ended March 27, 2020, bank advances stood at Rs 103.72 lakh crore.

Bank deposits rose 8.5 per cent to Rs 147.27 lakh crore in the April-December 2020 period as against an increase of 5.1 per cent a year ago, according to the recent data released by the Reserve Bank of India.

The sharp accretion in deposits during the year was due to the safe haven appeal of banks.

In the fortnight ended January 1, 2021, the year-on-year growth in bank credit was  6.7 per cent and 11.5 per cent in deposits, the data showed.

CARE Ratings NSE -1.18 % in its recent report had said the bank credit growth has returned to the levels observed in early months of the pandemic -- average bank credit growth in March and April 2020 was around 6.5 per cent.

The bank credit growth in the fortnight ended January 1, 2021, increased compared to last fortnight (December 18, 2020) which can be ascribed to an increase in retail loans.

However, the credit growth remained marginally lower compared with the year-ago period (7.5 per cent as of January 3, 2020) reflecting subdued demand and risk aversion in the banking system.

Lenders are being selective with their credit portfolios due to asset quality concerns, the rating agency said.

According to the recent Financial Stability Report, under a baseline stress scenario, gross non-performing assets of all banks may rise to 13.5 per cent by September 2021, which would be the highest in over 22 years, from 7.5 per cent in September 2020.

 Source: The Economic Times

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Union Minister Nitin Gadkari pitches for more research to identify import substitute products

Union MSME Minister Nitin Gadkari has pitched for more research to identify products that can be indigenously manufactured as cost-effective import substitutes.

The industries and industrial associations should do more research to identify these substitutes to curb imports, he added.

Instead of importing spare part, the industry should help their vendors to find an indigenous replacement, Gadkari said in a virtual meeting on Friday.

He was speaking at the inauguration ceremony of Atmanirbhar Innovation Challenge organised by Marathwada Accelerator for Growth and Incubation Council (MAGIC).

It is a branch of industrial association Chamber of Marathwada Industries and Agriculture (CMIA).

While identifying crucial products being imported into the country, the focus should be on how they can be manufactured here, he said.

The industry should help and support their vendors to create all types of parts in India, Gadkari added.

Initially, there could be 10-20 per cent rise in prices for the substitute, but when it will start production in large volumes, the industry can get those parts at a reasonable price, he said.

Now, it is the time to make import substitutes that will be indigenous, cost-effective and pollution-free, the minister noted.

While talking about Aurangabad, Gadkari said one of the national projects that have been planned is Damanganga-Pinjar project to collect water and bring it to the Godavari river valley.

From there, it will be supplied to those projects where there is a shortage.

“I have resolved issues related to many projects in various states of the country. There were problems with this project, to be implemented between Maharashtra and Gujarat, that still remain unsolved,” the minister said.

The industry should mount pressure on the Maharashtra government for this, he added.

The association has launched Atmanirbhar Innovation Challenge 20-21 to promote startup ideas and bring them into reality, MAGIC director Ritesh Mishra said.

This year, the challenge has received around 210 idea entries from 17 states.

CMIA president Kamlesh Dhoot, Secretary Shivprasad Jaju, MAGIC director Prasad Kokil, and Ashish Garde were also present on this occasion.

Source: The Financial Express

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Budget may offer new direct tax dispute resolution framework

The upcoming budget could unveil a new and continuous framework for faster resolution of disputes over direct taxes.

The government is considering options such as mediation or a permanent dispute resolution system with pre-specified benchmarks on the lines of the ‘Vivad Se Vishwas’ scheme have been discussed, a person familiar to the pre-budget discussions said.

“Various options have been discussed… A final view should be taken shortly,” the person told ET. The idea is to prevent disputes and reduce litigation. According to the FY21 budget, more than Rs 8 lakh crore is locked up in direct tax disputes. It is being felt that along with the already introduced faceless assessment, an alternate settlement mechanism can be very effective at keeping disputes contained and would also be appreciated by the global investors.

Settlement mechanism is one option available at present, but it provides only a one-time opportunity to resolve disputes. There is also a limitation on the kind of cases that can be taken up for resolution under this mechanism. A taxpayer can file an application only if his case is pending before the assessing officer and the assessment has not become time-barred. Moreover, there is usually a considerable delay in disposal of settlement applications. Alternate dispute mechanism that is being considered seeks to resolve disputes at a very early stage.

“This is especially topical in today’s times when many potential international tax disputes are likely to revolve around facts and apportionment of global income in the light of legislative changes and principles inspired by OECD’s (Organisation for Economic Cooperation and Development) Base Erosion and Profit Shift (BEPS) project,” said Sudhir Kapadia, national tax leader at EY India.

Source: The Economic Times

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Shoppers Stop incurs loss of Rs. 25.11 crore in Q3

Leading apparel retailer Shoppers Stop’s net loss widened during the third quarter (October to December) of the current fiscal and reached Rs. 25.11 crore. A year ago during the same period, the company incurred a loss of Rs. 6,521 crore.

As per the regulatory filing by the company, its total income of the company declined by 27.2 per cent to Rs. 746.45 crore during the period under review as against Rs. 1,025.53 crore in the corresponding quarter of the previous fiscal.

At the same time, its total expenses were down by 19.2 per cent as the expenses in Q3 of the current financial year were Rs. 778.78 crore compared to Rs. 963.90 crore during the same period of last fiscal.

“Business recovery during the festival period has been encouraging. The festive period helped footfall into stores and also generated higher digital sales,” Venu Nair, MD and CEO of the company commented.

He further added that the digital initiatives by the company such as white-glove services (video assisted initiative), yellow messenger services (chat enabled) and appointment services (through website and app) have engaged customers to a new level and contributed to the growth during Q3.

Owned by K. Raheja Corp., Shoppers Stop is one of the largest chains of department stores in India, and it has spread across 85 department stores in 47 cities.

Source: Apparel Online

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Reserve Bank of India likely to propose stricter rules for shadow banks: Sources

India's central bank is likely to propose tightening rules on " shadow banks" in a bid to strengthen solvency and sustainability of a sector that has been showing signs of  stress in recent years, two sources said.

The Reserve Bank of India has been trying to tighten regulatory norms on the sector since Infrastructure Leasing & Financial Services, the largest nonbank financial company, went bankrupt in 2018, and Dewan Housing Finance Corp and Altico Capital defaulted on payments in 2019.

The RBI is expected to set out proposals in a discussion paper next week, recommending that bigger shadow banks maintain a statutory liquidity ratio, the sources said.

The officials asked not to be named as the discussions on the proposals are not public.

India's banks must maintain at least 18% worth of deposits that they must hold in cash, gold or government securities.

The RBI could also suggest large nonbanks be required to maintain a cash reserve ratio. For banks this ratio is 3%, reduced from 4% in a measure the central bank imposed that is to be reversed after March 31.

The move could be a huge cash drain for the sector which is currently free from maintaining these reserve ratios, allowing them to lend to subprime lenders as well.

The proposal is expected to recommend a phased implementation of the reserve ratios, giving nonbanks time to comply, one official said.

"Cost of compliance to rules and regulations should be perceived as an investment, as any inadequacy in this regard will prove to be detrimental," RBI Governor Shaktikanta Das said in a speech on Saturday, referring to increased regulation in recent years for banks and shadow banks.

One official said that move is to avoid failures of big shadow banks that could pose systemic risks and is expected to encourage some of the larger ones to move towards becoming full-time banks.

But shadow banks believe the new norms will hurt their operations.

Shadow banks enjoy "certain flexibilities which allow them to do last-mile financing which banks can't do," said an executive at a nonbank. "Blurring the lines" between banks and nonbanks would "be detrimental for India, where financial inclusion is still low."

At its last monetary policy meeting last month Das said regulations of shadow banks need review and that a discussion paper would be issued by mid-January.

There are nearly 10,000 shadow banks in India but just over two dozen are thought to be large enough to pose systemic risks, sources said.

Raising liquidity ratios "or other liquidity buffers could pose a drag on their earnings" said A.M. Karthik, head of financial sector ratings at ICRA. Lenders will also have to manage their treasuries more effectively, which would entail additional operating costs, he said.

The RBI will also recommend stricter checks on thousands of smaller nonbanks, one official said. The central bank may not propose norms such as statutory lending or cash-reserve ratios, but it will recommend more scrutiny of their books, the official said.

Source: The Economic Times

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Sensex, Nifty fall as shadow lenders slide on fears of tighter rules

Indian shares fell on Monday as non-banking financial companies slipped on reports that the country’s central bank could propose tighter rules for the sector, while HDFC Bank rose to a record high after strong quarterly results.

The blue-chip NSE Nifty 50 index fell 1% to 14,286 and the benchmark S&P BSE Sensex was down 0.8% at 48,635.84 by 0506 GMT.

“Markets have run up from 13,200 levels continuously. A little of consolidation is perfectly fine. Unless we see a substantial correction in global markets all these dips will be bought in,” said Samrat Dasgupta, chief executive officer at Esquire Capital Investment Advisors in Mumbai.

The Reserve Bank of India is expected to set out proposals in a discussion paper this week, recommending that bigger shadow banks hold a share of deposits in cash, gold or government securities, Reuters reported.

“If there are regulations in terms of statutory appropriations like cash reserve ratio and statutory liquidity ratio, then HDFC Ltd along with other NBFCs will get affected,” Macquarie analyst Suresh Ganapathy said in a note to clients on Monday.

“Any such strict regulations if implemented at a time when economic growth is very weak could severely constrain ability of NBFCs to lend and further jeopardise growth.”

Shares of HDFC Ltd fell 2%, while Bajaj Finance and Bajaj Finserv dropped over 3%, dragging down the Nifty 50 index.

Dewan Housing Finance Corp, however, rose 5% after the company’s creditors voted for a 372.5 billion rupees ($5.09 billion) takeover bid by the Piramal Group for the troubled “shadow” lender on Friday.

Meanwhile, HDFC Bank shares rose as much as 2.1% to hit a record high, after India's top private sector lender reported 18% jump in December quarter profit on Saturday.

Source: Reuters India

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Hardly any finished goods incur anti-dumping duties

Nearly 85% of all the anti-dumping and countervailing duties imposed by India are on intermediate products, with only a minuscule proportion of the actions on final products.

Data collated by government agencies showed that around 7% of the products that face trade remedies against cheap, subsidised imports that cause injury to the domestic industry are capital goods. In contrast, only 2% of the finished products face these levies. Several industries complain of dumping, but have been either unable to prove it or have joined the bandwagon through production facilities in other countries, which are often accused of selling cheap stuff in India.

“With intermediate products and capital goods facing these levies, the overall cost goes up for the finished products, which may not be a great thing when you are looking to be competitive,” a government source told TOI.

Studies also indicate that the levies, meant to protect Indian producers against unfair trade practices, have yielded little revenue. According to official estimates, the trade remedy measures yielded around Rs 3,000 crore by way of revenue during 2019-20, which was a small fraction of the Centres’ gross tax revenue of Rs 20 lakh crore.

India is among the biggest users of the anti-dumping tool permitted by the World Trade Organization, having initiated 972 of the 5,944 global actions up to 2019, data on the multilateral agency’s website showed. But when it comes to countervailing duty, imposed against subsidies, the US is the largest user of the weapon. For years, India has been accused by China of targeting it with action. Internationally, the biggest recipient of such action is China, which is accused of dumping commodities, from steel to chemicals, while also subsidising exports.

Source: The Economic Times

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It’s the first time in 40 years that a Budget is being presented after a recession, writes Ajit Ranade

The annual Union Budget will be presented in less than two weeks. It is a constitutional requirement, since not even a single rupee can be spent from the exchequer without the Parliament’s permission. The discussion and debate around the Budget proposals might be heated, but given the majority of the ruling party, the passage of the Budget proposals is a given. The Upper House of Parliament does not have any effective veto over the passage of the finance bill. Most of the Budget-related measures and initiatives are probably frozen by now. Even then, it is worth speculating what they might be.

The Budget is being presented under fairly unusual circumstances. It is the first time in 40 years, that a budget is being presented after a recession, i.e. when the national income has contracted. The expectation is that in real terms, the GDP for the fiscal year 2020-21 fell by around eight per cent, and in nominal terms, by around four per cent. In normal times of positive GDP growth, budgeting is done mostly as an extrapolation of the previous year. That is not to say that completely new and radical measures cannot be contemplated. But most projections and proposals on an aggregate basis are increments over the previous year. Thus, if the nominal GDP grows by around 12 per cent, then tax growth is budgeted at say, 18 to 20 per cent, and so on.

For next year’s Budget, such increments to baseline are not likely, nor are they appropriate. If anything, the Finance Minister is likely to pay little attention to the size of the fiscal deficit. Growth stimulus and employment generation are the highest priorities. Which means that the aggregate Budget size could be as high as Rs 36 trillion, or about 20 per cent higher than that of last year. In turn, the size of the deficit, which is also the size of aggregate borrowing, could be as high as Rs 12 trillion, or about six per cent of the GDP.

Two areas where the Central Government needs to put more resources in the coming fiscal year, are in infrastructure and banking. Just a few months before the lockdown of last year, the Finance Minister had unveiled the national infrastructure pipeline, a collection of over 7,000 projects aggregating Rs 111 trillion of spending over a period of five years. Of course, bulk of the spending will be from the private sector, both domestic and foreign. It will be a combination of equity and debt financing. That translates to roughly Rs 22 trillion to be spent every year. Surely, at least 10 to 15 per cent of that should come via government sources, whether financed through sovereign infrastructure bonds or as directly provided seed money. Thus, the Budget should make a provision of no less than Rs 2 to 3 trillion toward infrastructure.

Day of reckoning at hand

The second area is that of banking. The recent financial stability report published by the Reserve Bank of India, gives a very sobering picture of bank capital requirement. During the lockdown, the regulator has shown much forbearance. We have had a moratorium and a standstill on the recognition of failed loan repayments. So quite counter-intuitively, the non-performing asset ratio of banks has improved in the quarter ending in September. But the day of reckoning is not far. When the moratorium period is over, and this issue is currently stuck in the Supreme Court, then the NPA ratio might jump.

Additionally, as indicated by the K V Kamath Committee report, there are 26 sectors undergoing stress, and those loans, cumulatively worth Rs 48 trillion, need restructuring, so that they are not classified as non-performing loans. As indicated by the RBI report, if the bad loan ratio rises to 12 per cent, it would call for at least a Rs 2 trillion injection by the Central Government into public sector banks. This capital injection is necessary to support loan and credit growth to the rest of the economy. If the economy has to grow at seven or eight per cent, then bank credit must grow at 15 to 20 per cent, which means there has to be adequate banking capital to support such loan growth.

Holding super-company

The Union Budget has to provide for this banking capital. Of course, it can also be raised by privatisation. All the distributed bank ownership can be consolidated in a holding super-company, which can invite up to 75 per cent private investment. This is not as radical as it sounds, and has indeed been suggested by several committees. By privatising the holding company, the government can save some budgetary outgo. And by letting each public sector bank, which would become a subsidiary of the apex company, run by their respective boards, it will also improve the governance in those banks.

Apart from the two obvious big commitments on infra and banking, there is a plethora of asks, from various sectors, such as healthcare, startups, renewable energy, education and skilling, rural employment guarantee and so on. In particular, after the experience of the pandemic, surely India’s healthcare spending by the public sector must at least double to around Rs 6 trillion. If Covid vaccination is going to be provided free to all, as was promised before the Bihar elections, then that would mean an aggregate burden of at least Rs 2 trillion. Vaccine coverage for 500 million people in about 18 months will be a herculean task. But not only will this be a huge confidence booster for business and consumers, it will also prove to be a de facto fiscal stimulus.

Beyond these big initiatives, there are committed expenditures, such as interest payments on past debt (about Rs 6 trillion), food and fertiliser subsidies (Rs 3 trillion), military spending, including the OROP pension cost (Rs 6 trillion). That leaves very little room for game-changing ideas or radical departures from the past. Perhaps, this will be seen on the revenue side.

Source: The Free Press Journal

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INTERNATIONAL

 

China’s economy picks up speed in Q4, ends 2020 in solid shape after COVID-19 shock

China’s economy picked up speed in the fourth quarter, with growth beating expectations as it ended a rough coronavirus-striken 2020 in remarkably good shape and remained poised to expand further this year even as the global pandemic raged unabated.

The world’s second-largest economy has surprised many with the speed of its recovery from the coronavirus jolt, especially as policymakers have also had to navigate tense U.S.-China relations on trade and other fronts. Beijing’s strict virus curbs enabled it to largely contain the COVID-19 outbreak much quicker than most countries, while government-led policy stimulus and local manufacturers stepping up production to supply goods to many countries crippled by the pandemic have also helped fire up momentum.

Gross domestic product (GDP) expanded 6.5% year-on-year in the fourth quarter, data from the National Bureau of Statistics showed on Monday, quicker than the 6.1% forecast by economists in a Reuters poll, and followed the third quarter’s solid 4.9% growth.

GDP grew 2.3% in 2020, the data showed, making China the only major economy in the world to avoid a contraction last year as many nations struggled to contain the COVID-19 pandemic. And China is expected to continue to power ahead of its peers this year, with economists forecasting GDP to expand at the fastest pace in a decade at 8.4%, according to a Reuters poll.

“The higher-than-expected GDP number indicates that growth has stepped into the expansionary zone, although some sectors remain in recovery,” Xing Zhaopeng, economist at ANZ in Shanghai. “Policy exiting will pose counter-cyclical pressures on 2021 growth.”

Backed by the strict virus containment measures and policy stimulus, the economy has recovered steadily from a steep 6.8% slump in the first three months of 2020, when an outbreak of COVID-19 in the central city of Wuhan turned into a full-blown epidemic. Asia’s economic powerhouse has been fuelled by a surprisingly resilient export sector, but China’s consumption – a key driver of growth – has lagged expectations amid fears of a resurgence of COVID-19 cases.

Data last week showed Chinese exports grew by more than expected in December, as coronavirus disruptions around the world fuelled demand for Chinese goods even as a stronger yuan made exports more expensive for overseas buyers.

Yet, underscoring the massive COVID-19 impact worldwide, China’s 2020 GDP growth marked its weakest pace since 1976, the final year of the decade-long Cultural Revolution that wrecked the economy.

Overall, the slew of brightening economic data has reduced the need for more monetary easing this year, leading the central bank to scale back some policy support, sources told Reuters, but there would be no abrupt shift in policy direction, according to top policymakers. On a quarter-on-quarter basis, GDP rose 2.6% in October-December, the bureau said, compared with expectations for a 3.2% rise and a revised 3.0 gain in the previous quarter.

Highlighting the weakness in consumption, retail sales fell 3.9% last year, marking the first contraction since 1968, records from NBS showed. Growth in retail sales in December missed analyst forecasts and eased to 4.6% from November’s 5.0%, as sales of garments, cosmetics, telecoms and autos slowed.

However, China’s vast manufacturing sector continued to gain momentum, with industrial output rising at a faster-than-expected rate of 7.3% last month from a year ago, hitting the highest since March 2019.

LINGERING RISKS IN 2021

Ning Jizhe, head of China’s statistics bureau, told a briefing that there would be many favourable conditions to sustain China’s economic recovery in 2021.

This year marks the start of China’s 14th five-year plan, which policymakers see as vital for steering the economy past the so-called “middle income trap”.

China still faces many challenges, not least the tensions between Beijing and Washington and how they would play out under the new U.S. administration led by President-elect Joe Biden. As well, rising labour costs, the aging population, and a recent spike in credit defaults add to risks for an economy that is still trying to reduce a mountain of debt.

“We should be alert to the following problems in 2021: first the imbalance of economic recovery. Compared with investment and export, consumption is weak as a whole and has yet to return to normal levels,” Wang Jun, Beijing-based chief economist at Zhongyuan Bank.

“The second is the problem of excessive and rapid credit contraction.”

The central bank is poised to keep its benchmark lending rate unchanged in coming months while steering a steady slowdown in credit expansion in 2021, policy sources have said.

The Chinese Academy of Social Sciences, a government think tank, sees the macro leverage ratio jumping by about 30 percentage points in 2020 to over 270%. While this year’s predicted growth rate of over 8% would be the strongest in a decade, led by an expected double-digit expansion in the first quarter, it is rendered less impressive coming off the low base set in pandemic-stricken 2020.

Some analysts also cautioned that a recent rebound in COVID-19 cases in the northeast of the country could impact activity and consumption in the run-up to next month’s long Lunar New Year holidays.

“Control of people-flows has started, so the risk of a widespread outbreak of Covid should be small,” said Iris Pang, ING’s chief China economist. “But the risk of a technology war between China and some economies remains if the U.S. does not remove some measures.”

Source: The Financial Express

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Under Biden, the rise of Indian-Americans

With Joe Biden set to take over as the President of the United States (US) this week, a key feature of his appointments — Mr Biden has filled his key positions with capable individuals unlike Donald Trump — is that close to two dozen Indian-Americans find a place in the top echelons of the administration. According to a news report, Mr Biden has appointed at least 20 Indian-Americans, with 17 of them in White House positions — 13 of the 20 also happen to be women.

Leading the charge, is of, course Vice-President-elect Kamala Harris. But from finance and management to health, law to press relations, foreign policy to national security, those who trace their roots to India have found space. This is indeed a reflection of how well the Indian-Americans (who constitute about 1% of the population) has done in their new homeland. It is a reflection of their educational levels, political engagement, and the harmonious ties between India and the US that none of these appointments have raised any eyebrows.

But even as India takes justifiable pride in the achievements of these individuals, it is important to remember that all those who are in the new administration are American citizens. Their first loyalty is to the US Constitution and US national interests, as defined by the president who has appointed them. Yes, their presence will enhance an understanding of India in the administration and is symbolic of close ties. But these individuals have their own varied political and social influences and worldviews. India would do well to cultivate them, as it would cultivate any US official at high levels, but respect their identity beyond their Indian roots.

Source: The Hindustan Times

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Export recovery: Rivals Vietnam, China far outpace India

As India’s merchandise exports limp back to normalcy, two of its key rivals in global markets have surged ahead with greater vigour, beating the Covid-19 blues. While China has pipped India in scripting a resurgence in exports to the US and the EU (excluding the UK), New Delhi’s largest shipment destinations that account for a third of its overseas despatches, Vietnam outpaced even China in the recovery.

This suggests India’s export contraction may have been accentuated by factors other than just a Covid-induced demand slowdown, mainly in the West. Forget China, in absolute term, even Vietnam has now beaten India in exports to the EU, having already surpassed it in supplies to the US in 2018.

Between January and November 2020, while India’s shipment to the US shrank 13.3% on year to $46.3 billion, China’s dropped by only 5.8% to $393.6 billion despite a trade war and growing criticism of Beijing’s mishandling of the Coronavirus outbreak. Vietnam’s exports to the US, in fact, rose by as much as 20% to $72.7 billion, according to the US government data. India’s exports to all destinations were down by 16% until November last calendar

Similarly, India’s exports to the EU (excluding the UK) witnessed a steep 17.2% decline to 30.6 billion euros in the January-November period, showed the official data with the EU. However, China’s shipment to the 27-member block rose by 4.3% to 350 billion euros during this period and Vietnam’s fell only marginally by 0.5% to 31.9 billion euros. A recent free trade agreement between Hanoi and Brussels may further tilt the balance in favour of Vietnam in the coming years.

India’s inherent structural bottlenecks, including high logistics costs, unimpressive trade infrastructure, container shortage and inadequate flow of cheaper credit, seem to have just exacerbated the Covid-induced stress in its export sector. Its exports have risen only for a second time in 10 months in December, that, too, by just 0.1%.

As FE had reported in October, India had emerged as the worst performer among key developing economies in Asia in exports in the aftermath of the Covid-19 outbreak, trailing not just the usual stars China and South Korea but also Vietnam, Indonesia, Malaysia and even Bangladesh.

To be sure, India imposed a much more stringent lockdown (from March 25 until it was eased gradually from June) than any of these nations. A domestic demand compression battered its imports much harder than its exports. Consequently, import-sensitive export segments, too, saw a sharp drop. Also, India was among the last set of nations where the pandemic spread its tentacles, which means it should be among the last to stage a rebound. To that extent, the contraction in its exports is understandable.

However, what signals a deeper fissure in India’s export resurgence story is the loss of momentum since the 6.1% expansion in September, the first since February. Its outbound shipments faltered by 5.1% in October and 8.7% in November before recording the marginal rise last month.

Exporters have complained that a combination of a spike in shipping costs, the rupee appreciation and a huge cut in government benefits has eroded their competitiveness. The allocation under the Merchandise Exports from India Scheme (MEIS) for the first three quarters of this fiscal was reduced to less than 40% of last year’s total.

The rupee was “over-valued” by 21% vis-à-vis a basket of 36 export-sensitive currencies in November, although it was lower than 23% in October, according to the RBI’s real effective exchange rate index.

The government and the central bank have stepped in to boost liquidity for cash-strapped firms. But export credit dropped by 2.3% year-on-year as of November 20, even though overall priority sector lending rose by 8.9%.

The Centre has rolled out a scheme from January 1, 2021, to reimburse various embedded taxes on inputs consumed in exports and replace the MEIS (the latter is considered by some wings of the government to be an inefficient programme that only drains the exchequer). But the extent of benefits under the proposed RoDTEP scheme is yet to be worked out.

Source: The Financial Express

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China economy grows 2.3% in 2020

China's economy grew more than expected last year, even as the rest of the world was upended by the coronavirus pandemic.

The world's second largest economy expanded 2.3% in 2020 compared to a year earlier, according to government statistics released Monday.

It's China's slowest annual growth rate in decades — not since 1976 has the country had a worse year, when GDP shrunk 1.6% during a time of social and economic tumult.

But during a year when a crippling pandemic plunged major world economies into recession, China has clearly come out on top. The expansion also beat expectations: The International Monetary Fund, for example, predicted that China's economy would grow 1.9% in 2020. It's the only major world economy the IMF expected to grow at all.

"The performance was better than we had expected," said Ning Jizhe, a spokesman for China's National Bureau of Statistics, at a press conference in Beijing.

The country scrapped its growth target last year for the first time in decades as the pandemic dealt a historic blow to the economy. GDP shrank nearly 7% in the first quarter as large swaths of the country were placed on lockdown to contain the spread of the virus.

Since then, though, the government has attempted to spur growth through major infrastructure projects and by offering cash handouts to stimulate spending among citizens.

Those measures appear to be working: The pace of the recovery accelerated in the final quarter of the year, growing 6.5% in the October-to-December period compared to a year earlier, according to the government. That's faster than the 4.9% growth recorded in the third quarter.

Industrial production was a particularly big driver of growth, jumping 7.3% in December from a year earlier.

"In and out of lockdown ahead of everybody else, the Chinese economy powered ahead while much of the world was struggling to maintain balance," wrote Frederic Neumann, co-head of Asian economics research at HSBC, in a Monday research report.

This has "put a floor under growth" in other regional markets, he added. Surging Chinese investment in infrastructure and property, for example, has been a boon to countries like Australia, South Korea and Japan that exported supplies to China.

Trade has also been strong. China's overall surplus for the year hit a record $535 billion, up 27% from 2019, according to statistics released last Friday. Analysts pointed out that the country benefited from a lot of demand for protective gear and electronics as people around the world worked from home.

Chinese markets reversed opening losses Monday to rise following the announcement. The Shanghai Composite (SHCOMP) gained 0.7%, while the Shenzhen Component Index — a benchmark for the city's tech-heavy exchange — rose 1.3%. Hong Kong's Hang Seng Index (HSI) added 0.5%.

There are still some weak spots, though. Retail sales lost a little steam in December, rising 4.6% compared to November's 5%. For the entire year, retail sales slumped 3.9%. Ning, the National Bureau of Statistics spokesperson, blamed the waning sales on a resurgence of coronavirus in some places.

The "sporadic" cases in China "will bring uncertainty to [our] economic recovery," he added.

Even so, Ning said the country believes the pandemic is under control, and said authorities expect people to spend more money this year.

Analysts from Capital Economics, meanwhile, believe the outlook is "bright" in the near term.

"Despite the latest dip in retail sales, we see plenty of upside to consumption as households run down the excess savings they accumulated last year," wrote Julian Evans-Pritchard, senior China economist for Capital Economics, in a Monday note. "Meanwhile, the tailwinds from last year's stimulus should keep industry and construction strong for a while longer."

Source: CNN Business

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Govt approves 2 more stimulus packages worth 2,700C

The government has approved two more stimulus packages worth Tk2,700 crore to infuse dynamism into cottage, micro and medium industry to offset the Covid-19 shock, improve rural marginal people’s livelihood and expand social safety nets for extremely poor elderly people and widows.

Prime Minister Sheikh Hasina approved the two stimulus packages and implementation of the packages will start shortly, said a Finance Ministry press release on Sunday.

The release said with the addition of the two latest packages, the total number of stimulus packages now stands at 23 with an overall outlay of Tk1,24,053 crore which is also 4.44% of the GDP.

The size of the freshly approved first stimulus package is Tk1,500 crore and of this amount, Tk300 crore will be given to the SME Foundation for expanding its operations meant for the cottage and SMEs alongside facilitating female entrepreneurs.

Besides, Tk100 crore will be provided to BSCIC, Tk50 crore to Joyeeta Foundation, Tk50 crore to the NGO Foundation to undertake various programs to improve the livelihood of marginal people, Tk300 crore to Social Development Foundation, Tk300 crore to Palli Daridro Bimochon Foundation, Tk100 crore to Small Farmer Development Foundation and Tk300 crore to Bangladesh Rural Development Board.

The size of the second stimulus package is Tk1,200 crore and it will be spent for bringing poor people, widows and husband abandoned women of some 150 upazilas under the government allowances in the next fiscal year (FY22).

The Finance Division had recently organized three view-exchange meetings on the overall aspects of stimulus packages and economic recovery in the wake of Covid-19.

The meetings suggested expanding the coverage of credit through various government and semi government agencies related to cottage, SMEs, alongside the banking system to infuse more dynamism in the rural economy to deal with the Covid-19 situation.

Besides, the participants in the meeting also advocated for taking more steps for developing women entrepreneurship, improving the livelihood of the marginal people in rural areas to further alleviate poverty and thus expanding the social safety nets for the extreme poor families.

Top government officials, business leaders, representatives from banks, financial institutions, development partners and agencies, research organizations, stakeholders of various sectors and media personnel attended the meetings.

Source: Dhaka Tribune

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Italy's public debt may surge to post-war record high at 158.5pc of GDP

Italy forecasts its debt to soar to a new post-war record level of 158.5 per cent of gross domestic output (GDP) this year, surpassing the 155.6 per cent goal it set in September, a government source told Reuters on Saturday.

The new estimate reflects the impact of a stimulus package worth 32 billion euros ($39 billion) announced this week, which will drive the 2021 budget deficit to 8.8 per cent of national output, up from 7 per cent previously targeted.

The extra spending will be used to help the hard-pressed national health service, fund grants and furlough schemes to businesses forced to close due to coronavirus lockdowns, and provide cover for a postponement of tax payment deadlines.

The government is due to update its debt and deficit targets in April.

Rome’s huge public debt is the second-highest in the euro zone after that of Greece.

Despite the higher forecasts for 2021, however, the debt figure for 2020 is expected to come in lower than previously estimated, the source said, asking not to be named.

Rome is now expecting the 2020 debt-to-GDP ratio to be 156.5 per cent, below the official target set in September of 158 per cent, which previously was the highest level since World War II. The 2020 deficit is seen at between 10.5 per cent and 10.8 per cent of national output.

The final deficit and debt figures for last year will be published by national statistics bureau ISTAT in March.

Source: The Financial Express Bangladesh

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