Forex intervention by RBI to touch $93 billion by March, says report

The Reserve Bank of India (RBI) is likely to spend at least USD 20 billion more to support the rupee and increase the forex kitty through the reminder of the financial year, taking its overall forex intervention to USD 93 billion, according to a report.

The report by the Wall Street brokerage Bank of America Securities also expects the central bank to raise banks’ HTM (held-to-maturity) limits of excess government securities by 2 per cent of their books to fund the fiscal deficit if high forex intervention limits its open market operations (OMOs).

So far this fiscal, the central bank’s forex intervention has touched USD 73.7 billion, according to the assessment by Bank of America Securities India economists Indranil Sen Gupta and Aastha Gudwani.

They also feel the RBI to intervene with USD 45 billion in 2021-22 if the current account deficit (CAD) remains 0.5 per cent of gross domestic product (GDP).

After eight years, the RBI under the current Governor Shaktikanta Das has been building up the foreign exchange (forex) reserves, which as of January 15 stood at USD 586.1 billion, a lifetime high.

While delivering the Nani Palkhivala lecture last Saturday, Das repeated his resolve to not let the 2008 or 2013 run on the rupee to be repeated again.

“Our BoP (balance of payment) forecasts place RBI forex intervention at USD 93 billion (USD 73.7 billion so far) in 2020-21 and USD 45 billion in 2021-22 if the the CAD remains at 0.5 per cent of GDP, which is dependent on the crude oil averaging at USD50 a barrel,” the report said.

It, however, added that since high forex intervention is limiting OMOs, the RBI is expected to raise banks’ HTM limits by 2 per cent of their books to fund the fiscal deficit.

The report further said they are more confident now that the RBI will continue to buy forex when the dollar is weakening and let the rupee depreciate when it strengthens.

On Saturday, Das had said, “To mitigate global spillovers, EMs (emerging markets) like India have no recourse but to build their own forex reserve buffers, even though at the cost of being included in the currency manipulators list.”

This aspect needs greater understanding on both sides so that EMs can actively use policy tools to overcome capital flow related challenges, he had said.

Das further said a weak external sector can pose a threat to domestic financial stability in the face of swift changes in the global economic environment as was the case during the 2008 crisis or the taper-tantrum period in 2013.

According to these economists, this public statement marks a signal departure from the over 15 years of RBI stance of intervening in the forex market only to contain rupee volatility.

“Das has achieved a silent rupee revolution by returning the RBI to adequacy of forex reserves after eight years. This will ensure the rupee stability putting large depreciations in global crises years of 2011, 2013 and 2018 behind us,” the economists added. They also see the rupee at 70.5 to a dollar by December, assuming dollar trading at 1.25 to a euro.

Source: The Financial Express

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Home textile players to increase their market share!

India Ratings and Research (IRDA) believes that Indian home textile players will increase their market share in terry towels and bed linens, led by supply chain diversification away from China.

It is pertinent to mention here that the home textiles players continued to witness a steady recovery over October-December 2020, led by consumers’ willingness to pay for health and wellness across the US and EU territories.

The companies producing bed sheets, towels and advanced textiles have announced capital expenditure to increase their operating capacity.

Further, depreciation of rupee against the dollar by 6 per cent year-on-year (Y-o-Y) during the 9 months of 2020-21 contributed positively for exporters, it stated.

The agency continues to expect a healthy and sustained demand improvement for players in their export markets, led by the restoration of retail store inventories, it added.

On the other hand, it has claimed that the apparel prices are likely to remain soft in the second half of 2020-21 even as the segment is in a recovery mode.

The apparel segment’s Wholesale Price Index recovered to pre-COVID-19 levels in November 2020, led by the festive and marriage season demand.

The research agency expects the apparel prices to remain benign in the second half of 2020-21, leading to inventory liquidation.

The demand for blended fabrics recovered in November 2020 and was 20 per cent higher from the same period of the previous year, all owing to festive and marriage season demand.

Cotton knitted fabrics’ production increased for the fifth month in a row in November 2020, led by a surge in demand from the opening of retail stores and malls.

Further, it stated that demand for cotton woven fabrics increased sequentially in November 2020 but it was 40 per cent lower Y-o-Y on the back of a lower demand for formals and school clothing.

It also added that the fabric companies would likely to remain weak for the second half of 2020-21, due to social distancing and the fear of a second wave of the pandemic and emergence of a new coronavirus strain.

Source: Apparel Online

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Union Budget 2021: Need higher focus on demand revival, boost in growth engines to spur Covid-battered economy

Indian Union Budget 2021-22: As the countdown for the Union Budget 2021 has begun, all eyes are now set on how the Hon’ble Finance Minister’s attempts to walk the tightrope to strike a balance and play the role of a catalyst in the unprecedented time of the pandemic crisis.

Finance Minister Sitharaman last week said the forthcoming Budget 2021 will be like no other in the past and will help India emerge as the engine for global growth. Amid the current situation, there is a pressing need to strengthen the engines of growth and promote the economy by enhancing consumer spending, revive demand and boost the ease of doing business in India to seize the space being vacated by some other consumption led economies.

With this backdrop to bring the Covid- battered economy back on track, we have encapsulated below few expectations of the common man and Industry at large from the Union Budget 2021:

Recommendations/ Expectations to stimulate household consumption and saving:

In order to augment private consumption and increase disposable income in the hands of people to revive demand, the Government may consider revising upwards the direct income tax slabs for Individuals and reduction in non-corporate income-tax rates. Further, the overall investment limits under Section 80C of the Income-tax Act, 1961 (Act) should be enhanced to keep in pace with inflation. Considering the current health situation in the ongoing pandemic, an enhanced deduction from the present limit of INR 5,000 for health checkup deduction for medical test and treatment is the need of the hour.

Work-from-home being the new normal these days, introduction of standard deduction for additional expenditure incurred by salaried class to meet communication and infrastructure requirements would be much appreciated by the salaried middle class. Further, the pandemic has also accelerated demand for own homes and with work from home being a viable option today, many future homebuyers may like to shift to the bigger house to accommodate working space. Keeping this in mind and to mobilize demand in the real estate sector, the Government should consider increasing the limit of interest deduction paid on home loan from two lakh to three lakh.

Incentivize Employment:

Creation of jobs are of paramount importance to revive the growth engine of India. Currently, taxpayers can claim a prescribed deduction of 30% of the amount of additional employee cost for three assessment years under section 80JJAA of the Act. However, the deduction is restricted to employee whose total emoluments are not more than INR 25,000 per month. Accordingly, it is suggested to increase the cap on emoluments from INR 25,000 to 50,000 to give spur to skilled job creation.

Additionally, businesses remained inoperative for a considerable period of the year due to nationwide lockdown; however, most of them continued to pay the salary to their employee during the lockdown. Accordingly, the Government may consider providing additional deduction i.e. 150% to 200% of the salaries paid during the nationwide lockdown as an incentive for enduring employment.

Ease of Doing Business:

To emerge as a viable option for foreign firms exiting China, in addition to building and strengthening India’s supply chain capacity, Indian government needs to simplify legislations supported by liberal tax compliance regime. In this regard, the Government may, inter-alia, consider curtailing the scope of transactions covered under TDS and TCS compliances, abolish applicability of Income Computation and Disclosure Standards, relaxations to non-resident taxpayers in return filing compliances where taxes have been appropriately withheld and provide clarifications on certain vexed issues particularly on the new charge of Equalisation levy and TDS/TCS provisions on e-commerce. These measures will go a long way in boosting investor’s confidence, improve the ease of doing business in India and reinvigorate confidence in the Indian economy.

Source: The Financial Express

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Focus on eastern Uttar Pradesh! Flatted factories will help develop the region as cluster

Uttar Pradesh Government is focused on developing Agra, Varanasi and Meerut as garment manufacturing hubs.

The State’s Chief Minister Yogi Adityanath has said that it will give an impetus to apparel manufacturing industries in eastern Uttar Pradesh.

He met a delegation under the Chamber of Industries and discussed the progress report in this regard.

Keeping this in view, the Gorakhpur Industrial Development Authority (GIDA) will be providing four-acre land on which a flatted factory will be built, which will be made available for entrepreneurs.

It is pertinent to mention here that to ensure easy availability of land for industries, Uttar Pradesh has come up with flatted factory model. For such factories, a minimum structure of four storeys, including ground floor, will be permitted.

Navneet Sehgal, Additional Chief Secretary, MSME also urged the local garment manufacturers to visit Noida and see the method of working there, and also decide the expansion plan and know how many machines, and how much space is required.

He assured the garment manufacturers that everything will be provided accordingly to the flatted factory.

Source: Apparel Online

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Tax transfer to states down a fifth

Though Budget FY21 assumed a growth of 21% in the Centre’s tax devolution to states, the transfers actually fell by the same rate in April-November and could plunge further in the remainder of the year as the Centre seeks to offset the extra transfers made in the initial months. The fall in devolution was much sharper than in the Centre’s net (post-devolution) tax receipts (down 8% in April-November), which is attributable largely to the pandemic-induced overall decline in tax buoyancy.

The Centre’s aggressive use of the cess route to bolster its own tax revenue has in recent years decelerated the growth of the divisible tax pool, thereby adversely impacting the states’ tax revenue. Though trend was there throughout the 14th Finance Commission award period (FY16-FY20), it was most visible in FY20, with tax transfers declining, unconventionally. In FY20, tax transfers to states were down 15% on year.

In FY20, the tax devolution to states was a little over Rs 1 lakh crore less than in the previous year at Rs 6.5 lakh crore. According to Icra, the shareable tax pool may turn out to be Rs 13.4 lakh crore in FY21, 30% lower than the budgeted amount of Rs 19.1 lakh crore. The agency also projected the central tax devolution to the state governments at about Rs 5 lakh crore (after adjusting for Centre’s extra transfers of Rs 48,400 crore in FY20) in FY21, against Rs 7.8 lakh crore budgeted.

Tax devolution to states stood at Rs 3.34 lakh crore in April-November this fiscal compared with Rs 4.22 lakh crore in the year-ago period. The Centre’s net tax revenue (after devolution to states) stood at Rs 6.9 lakh crore during the period in April-November this fiscal.

The change in fuel duties/surcharge has played a big role in boosting non-shareable kitty of the Centre. The Centre’s tax on diesel (basic excise, special additional excise and road/infra cess) is currently Rs 31.83/litre, compared with just Rs 15.83/litre in early October 2019. Corresponding figures for petrol are Rs 32.98 and Rs 19.98. The divisible portion of the tax pool, however, remained the same at Rs 4.83 (diesel) and Rs 2.98 (petrol).

The Centre hiked special additional excise/cess levied on petrol and diesel sharply in October 2019, March 2020 and then in May. These taxes are not part of divisible pool, only the basic excise is. That explains the jump in gross excise duty collections by 48% on year to Rs 1.96 lakh crore in April-November of this fiscal even though the Centre’s gross tax receipts declined 13% on year during the period against 21% growth budgeted.

As such, the 14th Finance Commission period (FY16-FY20) hadn’t proved to be as gainful to states as expected. Despite the commission awarding an unprecedented spike of 10 percentage points (32% to 42%) to states in their share of the divisible pool, the total transfers during the commission’s award period increased at slightly lower than the rate during the 12th Finance Commission period when the devolution was increased by just 1 pps. Of course, the overall decline in tax revenue growth had impacted the devolution.

As a percentage of Centre’s gross tax receipts, tax transfers to states had jumped from 28% in FY13 to 35% in FY16, but has since fallen to 32.4% in FY20. The share for states could fall further in FY21.

Source: The Financial Express

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Budget: Textile sector wants uniform GST structure, removal of dumping duty on inputs

Industry hopeful that Finance Ministry will listen to demands to push domestic manufacturing further.

The Textile Ministry has taken up the industry demand for implementing a uniform GST (Goods & Services Tax) structure for apparels and textiles to address the problem of higher duties on inputs and abolishing anti-dumping duties on viscose staple fibre (VSF) with the Finance Ministry for redressal in the forthcoming Budget.

“The inverted GST structure in the textile industry and the anti-dumping duty on viscose staple fibre are two major irritants for textiles and garments manufacturers. The Textile Ministry has been holding discussions on the two issues with relevant bodies and the Finance Ministry. Hopefully the matter will be resolved in the fortcoming Budget,” an official told Business Line.

Finance Minister Nirmala Sitharaman will present the Budget for 2021-22 on February 1 and her stress is expected to be on giving a further push to domestic manufacturing and the ‘Atmanirbhar Bharat’ drive.

In the last Budget, the Finance Ministry had removed anti-dumping duties on purified terephthalic acid (PTA), which is an important input in the manufacture of textile fibres and yarns. The move hit domestic manufacturers of PTA such as Reliance Industries, JBF and Indian Oil but benefited thousands of fibre, yarn and garments producers who could source the input much cheaper.

In November 2020, the government withdrew anti-dumping duty on acrylic fibre to enable sweater and shawl manufacturers get the raw material at competitive prices.

Duties on VSF

“There is now a big demand from textile bodies for removal of anti-dumping duties on VSF to benefit the entire value chain given the growing demand for VSF and its blended textiles,” the official said.

Textile associations such as the Southern Indian Mills Association, Indian Texpreneurs Federation and Northern India Textile Mills’ Association have given representations to the Centre seeking removal of anti-dumping duties on VSF to prevent stoppage of production across the value chain and save jobs from getting lost.

“Till the Budget is announced we will not know whether the demand of the textile sector will be met but the government has already demonstrated that it understands the need to do away with anti-dumping duties on critical inputs. If around two decades of protection has not made the domestic producers of the inputs competent, then there is no point of continuing to shield them,” the official said.

On the demand for implementation of a uniform GST structure for textiles, the official said the present rates were creating an inverted duty structure, where taxes on inputs are higher than that on output, and blocking working capital. “The Textile Ministry had earlier taken up the matter with the GST Council and there is an expectation that it might be addressed in this year’s Budget,” the official said.

At present man made fibre is taxed at 18 per cent, spun yarn and filament yarn at 12 per cent and final output, including garments, at 5 per cent. “As far as refunds are concerned, there is no certainty when that would happen,” the official said.

Indian textiles and apparel industry account for about 2.3 per cent to the GDP, 13 per cent of industrial production and 12 per cent of export earnings, as per government figures. There are an estimated 4.5 crore people engaged directly in the textile industry and another six crore in allied sectors.

Source: The Hindu Business Line

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Union budget: Development Finance Institution likely to be announced

The creation of a mega Development Finance Institution (DFI) is likely to be announced in the Union Budget. The institution is expected to be created by merging some existing financial institutions to meet the long-term financing needs of new, stalled, and work-in-progress infrastructure projects worth over Rs100 lakh crore, people aware of the matter said.

A large DFI is necessary for rapid infrastructure development and is likely to be one of the key focus areas of Budget 2021-22.

Infrastructure development will put India on a higher growth trajectory and impact every sector of the economy, the people cited above added, requesting anonymity.

Union finance minister Nirmala Sitharaman will on February 1 present the Budget, which is expected to be focussed on reviving the economy hit hard by the Covid-19 pandemic and the 68-day-long nationwide lockdown imposed from March 25 to check its spread.

The Indian economy contracted by 23.9% in the quarter that ended on June 30. It recovered to contract by 7.5% in the three months that ended on September 30. According to the first advanced estimate by the National Statistical Office, GDP is expected to contract by 7.7% in fiscal 2020-21.

There is a need for a mega DFI as commercial banks are not suited for long-term financing of infrastructure projects with long gestation periods, the people cited above said. They added that apart from funding new projects, such an institution could also help revive stalled projects worth at least Rs10 lakh crores. “Most of these projects are languishing because of fund crunch,” one of the persons said.

The proposed mega DFI may include an existing financial institution and some existing funds. “It will meet the long-term financing need of these projects,” the person said. “The government has already announced its ambitious Rs111 lakh crore National Infrastructure Pipeline, which will require debt financing of at least Rs60-70 lakh crore in the next four-five years.”

A second person said although the government has created several funds to finance infrastructure and revive stressed projects, the idea of having a mega DFI is to create a competitive financing option.

The Cabinet on November 25 approved a Rs6,000 crore capital infusion in National Investment and Infrastructure Fund, a government-backed entity created to provide long-term capital to the infrastructure sector.

The government also set up Rs25,000 crore Special Window for Affordable and Mid-Income Housing Fund on November 6, 2019, to help stalled projects in the real estate sector.

Niranjan Hiranandani, president of the National Real Estate Development Council, said the creation of the fund for the stressed real estate sector was appreciable, but not sufficient as the funds required to complete these projects is in access to Rs1.25 lakh crore.

Divakar Vijayasarathy, founder and managing partner at consulting firm DVS Advisors LLP, said funding is the most important aspect of infrastructure projects.

“Banks are reeling under the piled-up NPAs [non-performing assets] and in addition to this, funding of greenfield projects by commercial banks leads to asset-liability mismatch which already has left a lasting impact. The government does not have fiscal room to spend. The issues clearly indicate the necessity for a DFI for infrastructure development.”

Source: The Hindustan Times

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Economic activity tentatively returning to pre-Covid levels, says Icra

Economic activity recorded a broad-based improvement in December as against November, showing a return of demand, according to a report.

Rating agency Icra on Monday said most of the indicators have displayed a year-on-year (y-o-y) expansion in December 2020, which signals a "tentative return to pre-COVID normalcy".

It can be noted that there have been apprehensions about the sustainability of the demand after a pick-up in economic activity during the festivities. December was the first month after the busy activity season.

"Economic activity rebounded solidly in December 2020 relative to the previous month, reflecting a pick-up in demand after the temporary post-festive slack and year-end discounts," the agency's principal economist Aditi Nayar said.

The waning of the unfavourable base effect related to fewer working days in November 2020 contributed to the improvement in December 2020, she said, adding a pick-up in the generation of GST e-way bills, and the considerable expansion in rail freight traffic, offer encouraging signals of the pace of revival in economic activity".

As many as 12 of the 15 high-frequency indicators tracked by the agency recorded an improved year-on-year performance in December 2020, relative to November 2020, including electricity generation, the output of passenger vehicles (PVs), motorcycles, vehicle registrations, and fuel consumption, it said.

The year-on-year growth in the generation of GST e-way bills nearly doubled to a robust 15.9 per cent in December 2020 from 8.1 per cent in the previous month, with a distinct pick-up in the second half of the former, it pointed out, adding the robust performance of e-way bills in December 2020 suggests that the GST collections will remain healthy in January as well.

Nayar said except for scooter production, diesel consumption and domestic airlines' passenger traffic, 12 indicators showed a positive surge in activity, albeit at a varying pace.

Acknowledging that the low base may be helpful on this, she said, "it does signal a tentative return to pre-COVID normalcy, in our view".

Regardless of the monthly volatility and uneven performance across the sectors, there was a widespread recovery in volumes in the third quarter of the financial year 2021 relative to the preceding second quarter, she said.

While this augurs well for the upcoming GDP print for the third quarter of financial year 2021, rising raw material and wage costs have partly offset the positive impact of rising volumes on profitability in some non-agricultural sectors, she said, adding that for now, the agency is maintaining its 1 per cent of the third quarter GDP contraction estimate.

Source: The Business Standard

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TN urges Centre to allow states borrow up to 5% of GDP in 2021-22

The Tamil Nadu government on Monday urged the Union finance minister Nirmala Sitharaman to allow all state governments to borrow up to 5% of GDP in 2021-22 as well as to enable states to sustain expenditure on capital works and on Covid-19 prevention measures.

In a pre-Union Budget meeting, Tamil Nadu deputy chief minister O Pannerselvam, who also holds the finance portfolio, pointed out that while the early signs of economic revival are apparent, the finances of the state governments will take more time to recover. Given the situation, he requested the finance minister that no abrupt fiscal correction should be attempted during 2021-22. The transition back to fiscal targets should be a gradual glide path over two to three years.

Outlining issues related to GST, he said the expectations of revenue growth with the implementation of GST have been belied. The reasons for this tepid revenue growth have to be analysed in detail. The state governments will need to have their revenues protected, particularly in these difficult times.

He said alternatives, including continuance of the compensation mechanism and devolving further taxation powers on states, will have to be discussed in the GST Council in order to ensure that states are not put to hardship in 2022-23. “I urge Union finance minister to address this very crucial issue with the urgency that it warrants and to ensure that the interests of the states are not affected,” Pannerselvam said.

The levy of cesses and surcharges by the central government deprives the states of their legitimate share of the Centre’s tax revenue. Collections by way of cesses and surcharges have increased substantially as a proportion of the gross tax revenue of the Centre in recent years. All such cesses and surcharges should be merged into the basic rate of tax, so that the states also receive their due share from the additional revenue.

He urged the finance minister that no further conditions are imposed by the Centre for the release of grants recommended by the Finance Commission. This would ensure that the states receive their full share of the grants in a timely fashion. Tamil Nadu was yet to receive grants of `2,577.98 crore recommended by the 14th Finance Commission for rural and urban local bodies in the state. In fact, performance grants recommended by the 14th Finance Commission have not been released in the last 3 years to any state so far, which is unfair. “I request the Government of India to release the arrears pertaining to the 14 th Finance Commission grants at the earliest,” he said.

Source: The Financial Express

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States want cess/surcharges subsumed in basic tax rate-Business Journal

States today urged the Centre to merge cess and surcharges into the basic tax rate.

This was among the various suggestions given during the pre-Budget consultations Finance Minister Nirmala Sitharaman had with States and three Union Territories with legislature (Delhi, Puducherry and Jammu & Kashmir) on Monday.

A Finance Ministry statement said that Sitharaman highlighted the importance of the meeting as a sign of cooperative federalism and indicated the manner in which the Union government was strongly supporting the States/Union Territories fight the pandemic.

States’ views

Tamil Nadu Deputy Chief Minister O Paneerselvam said the levy of cesses and surcharges by the Centre deprives States of their legitimate share of the tax revenue. “All such cesses and surcharges should be merged into the basic rate of tax so that the States also receive their due share from the additional revenue,” he said.

His call for continuance of the compensation mechanism and devolving further taxation powers on States will have to be discussed at the GST Council to ensure that States are not put to hardship in 2022-23. He highlighted that dues to Tamil Nadu from the Centre totalled ₹19,591.63 crore, including pending GST compensation claims, arrears relating to 13th and 14th Finance Commission grants to local bodies, and pending grants for various programmes.

Karnataka Home Minister Basavaraj Bommai (representing Chief Minister BS Yediyurappa, who holds the finance portfolio) suggested that the devolution formula recommended by the 15th Finance Commission for the next four years be shared with the States at the earliest so that they can accordingly initiate the budget exercise, especially in capital expenditure.

Delhi Deputy Chief Minister and Finance Minister Manish Sisodia urged Sitharaman to treat Delhi at par with the Union Territory of Jammu and Kashmir in providing a share from the Central taxes and Central Assistance to Union Territories, and the Disaster Response Fund. He pointed out that the share in capital taxes for Delhi has stagnated at ₹325 crore since 2001-02.

With inputs from our Chennai, Bengaluru bureaus

Source: The Business Journal

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ESG, elections, fiscal support: 6 macro factors to watch as India plans to vaccinate 30 crore people

If the year 2020 was truly a head-spinning year, a year like no other, 2021 will be an exhilarating albeit bumpy one. In 2021, the sheer scale and efficacy of inoculating 7 billion people with billions of doses of vaccine will be truly unprecedented. Why India alone plans to vaccinate 30 crore people by mid- 2021. We have ushered in the new year with hope, piggybacking vaccines and mass vaccination drives but must be aware of key macro monitorables:

The Growth YoY: The sheer pace of growth will surprise in certain quarters amplified by the base effect and YoY comparisons. And yet, recovery will be uneven, incomplete and occur in fits and starts. In fact, the level of output in FY22 may still be just about equal to or lower than in FY20. Importantly, the V-shaped recovery in the headline GDP number will hide more than it reveals as it is just an average – sectors such as aviation, hotels, CVs, real estate and capital goods would see sharp fall in GDP in FY21. The extent of the recovery in these sectors in FY22 as compared to FY20 levels is likely to lag the recovery. Policy measures must ensure targeted support to these sectors in order to prevent the loss of productive capacity and avoid labour market shocks and debt overhangs.

Greener’ Growth: The globetrotting coronavirus has demonstrated how vulnerable we all are to ecological shocks. Thus, mitigating climate risks will come to the fore for governments, companies and individuals. This may manifest in changes in public spending where there is some alignment of the need to invest and stimulus programmes with environmental objectives

Adoption of ESG framework will get fresh legs as it is being driven by changes in consumer preferences & entrepreneurs. So far, investors focused more on ‘’G’’ ie Governance but going forward due to the pandemic “E” and S will start to matter more.

The fiscal impulse to growth in FY22: Can or will the government support growth by higher fiscal impulse? With higher nominal growth rate of 13-15% YoY, the fiscal deficit as a percentage of GDP and govt. spending to GDP ratio is likely to shrink. This implies prima facie that the fiscal support to growth is expected to diminish in FY22 vs FY21 levels unless it is made up for by higher non tax revenue generation. The govt. must make up for this by announcing growth supporting policy measures and improving the quality of spending in their FY22 budgets.

Credit recovery and the finance constraint to growth: India cannot grow at 6-7% growth rate on a sustained basis with credit growth in low single-digits. While bank credit growth has eased to ~6%, NBFC credit growth has also fallen to single digits. The private sector banks and NBFCs (which have accounted for 75-80% of incremental credit in the last three years) are extremely cautious to grow their books, given the possibility of a spike in bad loans. The policymakers and the RBI will have to address resolution of bad assets with targeted measures that involve a quick clean-up so revive the credit cycle.

Asset price inflation & the unwinding of policy excesses: Asset markets awash in liquidity and in anticipation of V-shaped recoveries have zoomed. Commodity prices have moved up sharply too and will likely manifest in higher input costs but will they hurt margins? We believe, productivity gains and return of pricing power should keep companies in good stead and help neutralise some of the commodity cost pressures. However, for India’s economy this may manifest in added pressures through the twin deficits.

Note, the sharp recovery has been supported by swift and unprecedented fiscal, monetary and regulatory responses by policymakers. The IMF estimates the size of the fiscal response by authorities across the globe at US$12trillion – equivalent to nearly 10% of global GDP. Besides, total assets of the Fed, ECB, BOJ and PBOC have risen by over 35% or US$7trillion in 2020 as they pumped in liquidity to shore up economic activity.

However, policymakers will have to start evaluating exit strategies from these policy excesses and regulatory easing as confidence in the economic recovery builds up in the post vaccination world (likely in H2 2021). This could cause some accidents via the currencies and asset markets, particularly in those EMs which are susceptible to capital withdrawals. Effective communication and signals of a gradual orderly unwinding from policymakers would thus be key to prevent stress in the financial markets.

Shadow of State and local body elections: Four states and one Union Territory – West Bengal, Tamil Nadu, Kerala, Assam and Puducherry – would be going in for elections in May 2021, the results of these could pave the way for electoral shenanigans for UP elections to be held in early 2022. The West Bengal elections, in particular, would be watched closely with opinion polls predicting a very close contest between the TMC and BJP. Apart from the state elections, local body elections are also increasingly becoming important in India as underscored by the recent elections in Hyderabad, Kerala and J&K. Local body polls in Punjab and Madhya Pradesh are due to be held in February and would be closely watched.

Source: The Financial Express

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States urge FM Nirmala Sitharaman to raise fiscal limit in Budget

In the pre-Budget consultation meeting with Finance Minister Nirmala Sitharaman on Monday, states urged the government to increase their fiscal limit, help with goods and services tax compensation, as well as provide support for Covid-19 vaccinations.

States highlighted their weak fiscal position in the over two-hour long meeting.

“There were a lot of agreements on several issues across political parties amid terrible shape of state finances. Several suggestions were made with regard to state finances, which was the focus of the pre-Budget consultation meeting,” said a state finance minister.

Another state finance minister said it was made clear that the Union Budget must announce something major with regards to state finances.

A few states highlighted the gap in compensation between what the Centre is supposed to provide and what it is actually giving.

“The Centre needs to support states in these times. This was the general mood of the meeting,” said another state minister.

As part of the series of stakeholder consultation during the Budget-making exercise, Sitharaman met finance ministers of all states and Union territories through video conferencing.

It was attended by Finance Secretary Ajay Bhushan Pandey, Expenditure Secretary T V Somanathan, Department of Economic Affairs Secretary Tarun Bajaj, and Chief Economic Adviser K V Subramanian, besides other senior officials from the finance ministry.

Ratings agency ICRA had said in a recent note that the pandemic could deal a huge blow to state finances with the aggregate debt of 12 major states estimated to worsen to 28.9 per cent of gross state domestic product in 2020-21 from 22.3 in the previous fiscal and 21.9 per cent in FY19.

It has estimated that the 12 states – Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh and West Bengal – may have to undertake an aggregate cut of Rs 2.5-2.7 trillion in their budgeted capital spending in FY21 on account of a “sharp revenue shock”. This will also mean a contraction of 1-2 per cent in the fourth quarter of the current fiscal in the country’s overall gross domestic product, it noted.

A finance ministry statement said Sitharaman highlighted the importance of the meeting as a sign of co-operative federalism and indicated the manner in which the Union government was strongly supportive of states and Union territories' fight against the pandemic.

The Centre had decided to raise states’ borrowing limit to 5 per cent from 3 per cent of GSDP for FY21 on meeting certain conditions linked to the universalisation of “one nation, one ration card”, ease of doing business, power distribution reforms, and urban local body reforms. Of the additional 2 percentage points increase, only 0.5 percentage points additional borrowing is unconditional.

The guidance on the transfer of funds from the Centre to states would also be provided by the 15th finance commission report, which would also be tabled in Parliament in the upcoming session.

Source: The Business Standard

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Pre-budget meet with FM: Karnataka seeks more funds to support Bengaluru’s infrastructure

Karnataka has sought more funds from the Centre for investments in Bengaluru’s infrastructure projects such as metro rail, sub-urban rail, road transport etc.

Bengaluru is one of the largest contributors to India's economy. The city requires huge investments, home minister Basavaraj Bommai said at a pre-budget interaction with finance minister Nirmala Sitharaman. The home minister represents Karnataka in the GST Council.

Bommai acknowledged the Centre was already supporting these projects and requested for more allocation in the areas of mobility, solid-waste management and in other areas of critical infrastructure. He also urged Sitharaman to bear 90% cost of Yettinahole drinking water project by treating it as a national project as it would provide drinking water to drought-prone districts of Kolar, Chikkaballapur, Ramanagara, Bengaluru rural and Tumakuru.

Karnataka, he said, was one of the first states to agree for a cost-sharing model for implementing big-ticket railway projects. The funding for the same, however, has not been commensurate with Karnataka’s needs, he said, calling for more funds for the ongoing projects.

The 15th Finance Commission, Bommai said, has recommended a special grant of Rs 5495 crore to Karnataka in its report for 2020-21. He urged Sitharaman to accept the recommendation and award the grant in recognition of Karnataka among the best tax- governed states. He also urged the finance minister not to revise states’ allocation estimates downwards as it would badly hurt their expenditure commitments.

Source: The Economic Times

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COS’ current wardrobe staples for spring

COS is treading into 2021 with a brand new Spring/Summer 2021 collection. Penetrating to its modern aesthetic, the range includes styles that arrive in minimal and timeless designs.

Enthused by the blurred lines between leisure and formal attire, the creatively styled and repurposed clothes are made out of lavish fabrics.

For example, the women’s knitwear pieces are crafted from zero-waste, seamless cashmere material arriving in a warm orange hue. Elsewhere, the men’s elasticated trousers feature an effortless silhouette, while the label’s classic trench coat has been reworked for the warmer days ahead.

In addition to the attire, the lookbook above highlights jewelry produced from recycled yogurt pots. Dual functionality is offered in bags such as the classic tote and the crossbody. Lastly, footwear styles come in the form of pointed kitten heels for women and high-top sneakers for men.

Source: Textile Today

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GST officers arrest one for operating 46 fake firms, passing on ITC worth Rs 82.23 cr

GST officers have arrested one person for operating 46 fake firms and passing on fake input tax credit (ITC) worth Rs 82.23 crore, the Finance Ministry said on Monday.

The officers of Central Goods and Services Tax (CGST) Commissionerate, Delhi East unearthed a multi-layered network of fictitious firms being used to generate and pass on fake ITC.

The network of fake firms was operated by Arvind Kumar, who used to pass fake ITC for a commission of 4 to 4.5 per cent of the invoice amount.

The investigation conducted so far has revealed 46 firms to be fictitious, which were being controlled by Kumar and his associates.

These firms had no business activity and had been created solely for the purpose of passing on fake ITC, the ministry said in a statement.

“The total fake ITC quantified so far is Rs 82.23 crore generated out of the fake billing of Rs 541.13 crore which is expected to increase as the investigation progresses,” it added.

Through the use of extensive data analytics, officers identified and searched 21 premises between January 15-17, leading to the unravelling of a network of fake firms that were operating since 2017 to pass on fake ITC.

Kumar was arrested by GST officers and has been remanded to 14 days judicial custody till January 31, the statement said.

Source: The Financial Express

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TN to Centre: Do not restrict externally-aided projects

The Tamil Nadu government has urged the Centre that projects that are at an advanced stage of consideration be approved for implementation by the Ministry of Finance without any restrictions and limitations.

The State has a long track record of efficient implementation of externally-aided projects. Several multilateral aid agencies have worked with different departments and agencies to design projects in multiple sectors.

“However, we learn that the Ministry of Finance now intends to approve only one externally aided project per agency per State in a year. Such an abrupt change in policy greatly disrupts the development plans of Tamil Nadu, which has already gone ahead based on the Department of Economic Affairs Screening Committee approval with project preparation and with securing readiness,” O Paneerselvam, Tamil Nadu Finance Minister, said at a pre-budget meeting with Union Finance Minister Nirmala Sitharaman.

Water projects

Tamil Nadu is a water deficient State. To overcome the water deficit, the State has sought implementation of several critical projects, including Peninsular River Link project to transfer water from the Godavari and subsequently the Mahanadhi to the Cauvery. The State has also commenced the implementation of the Cauvery-Gundar Link project costing ₹14,400 crore. Central Government funding is sought under the National Perspective Plan, said Paneerselvam, who is also the Deputy Chief Minister.

Infrastructure projects

Paneerselvam also sought the Centre’s approval for implementation of Phase-II of the Chennai Metro Rail Project costing ₹61,843 crore with equal equity shares of at least 15 per cent each of the Central and State Governments as was done for Phase-I.

For the Tamil Nadu Defence Industrial Corridor, financial assistance of ₹5,000 crore may be provided by the Centre to develop the critical infrastructure and common facilities required for defence/aerospace industries in the 5 nodes of the TNDIC- Chennai, Salem, Hosur, Coimbatore and Tiruchi.

International automobile companies have made substantial investments in India and specifically in Tamil Nadu. They have requested an extension of the period under the tax loss carry forward (TLCF) scheme. At present, under the Income Tax Act, losses can be carried forward up to eight years and adjusted against future profits. Internationally, this period is 20 years or even longer. An extension of at least five years, especially in the light of the Covid-19 pandemic, would definitely enhance India's competitiveness in attracting and retaining foreign investments, he said.

GST on property deals

The GST rate on property transactions was changed from 12 per cent with Input Tax Credit (ITC) to 5 per cent without ITC from April 1, 2019. For affordable housing, the corresponding reduction was from 8 per cent to 1 per cent. While the new tax rate without ITC applied to all new projects, builders were given a one-time option to pick between the old and the new rates for projects which were incomplete as on March 31, 2019.

Many builders have been repeatedly representing that the option of levy of GST at 12 per cent with ITC should be retained as it captures value addition at multiple stages and does not over burden the builders and home buyers. Since the construction industry is a prime mover with considerable employment potential, the option of levy of GST at 5 per cent without ITC and at 12 per cent with ITC may be provided to builders, said Paneerselvam.

Source: The Hindu Business Line

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Why easing taxpayers' load in Budget 2021 is a good idea

British Prime Minister Margaret Thatcher famously said that there is no such thing as public money, only taxpayers’ money. Every Union budget is important not because it presents GoI’s accounts, an otherwise boring exercise, but because it is a statement of how the government is managing our — the taxpayers’ — money.

Often, it is said that only a very small minority of Indians pays tax. That is only true for income-tax (I-T). Almost everyone pays indirect tax when they spend on consumption. In India, two-thirds of total tax collection comes from the indirect side. Every Indian must, therefore, care about the budget, the upcoming one being particularly important.

It is the first budget in independent India that follows such a sharp contraction in growth. The last time India registered negative annual growth was in 1979, when the economy was a fraction of the size it is today and the decline not as sharp. In the circumstances, conventional Keynesian economic wisdom would demand a fiscal expansion. But while the economy has recovered well from the shock of the first two quarters, growth will only be marginally positive in the last two quarters. India needs to grow fast, at over 8% in 2021-22, just to return to the place it was before Covid-19 struck.

Economic growth runs on four engines: consumption, investment, government expenditure and exports.

Despite the larger-than-life role of government, the share of its spending in GDP at around 13% makes it the least weighty of the four. (Consumption is by far the largest at over 55% of GDP.) Can the smallest, and arguably least efficient, engine be the prime driver of speedy growth?

In the first two quarters, when the lockdown was in force in varying degrees, and confidence at rock bottom in the face of an unknown virus, the answer would have been an unambiguous yes. In the circumstances that prevailed at that time, the other three engines of growth were unlikely to fire.

A physical lockdown depressed private consumption, the global nature of the coronavirus pandemic and cross-border controls squeezed exports, and complete uncertainty took a toll on private investment with firms and people tightening belts for difficult times. Only GoI could loosen its belt and spend more to prevent a total collapse.

In India, the government gave a greater emphasis to liquidity support to struggling firms and individuals than to spending, unlike in many other countries. If GoI did not splurge then, what is the probability it would do so now? The difference is that at that time, government revenues had also dried up, which dissuaded additional spending.

But they have now recovered since the rebound in the economy. The temptation to do a fiscal stimulus by spending more is higher this time. However, there are two ways to do a fiscal stimulus. Either GoI spends more, or it earns/spends less leaving more money to households and firms to spend/invest. The budget must focus on the latter. This is not the time for GoI to increase its spending by taking a bigger share from taxpayers.

On the contrary, it should cut taxes on individuals and firms and allow them to play a bigger part in the revival story. Confidence is back. An effective stimulus could address over-the-top taxation, such as cesses, which can be removed. It could also involve cash transfers to the poorer sections of the population, which will spend immediately.

These will immediately boost investment and consumption, thereby stimulating a supply response creating a virtuous cycle for growth. To the extent that GoI wishes to spend more, on infrastructure, for example, it should avoid additional taxation. Because of India’s legacy of a State-led economy, GoI has its own sources of wealth and revenue — public sector undertakings (PSUs) and land assets. One option it has is to direct PSUs to undertake investment expenditure.

But given the fragile state of finances of most PSUs and the inefficiencies in their operations (like government, they too are bound by lengthy processes), the superior option is to divest PSUs. The demand for assets driven by plentiful cheap liquidity, as evidenced by the booming stock markets, is very high. This applies to assets other than PSUs as well, like airports, ports and highways, as well as tracts of unused land owned by the Indian Railways, defence services and other agencies. Revenue from the monetisation of these assets may be used to finance additional government investment expenditure, without burdening taxpayers.

The finance minister has promised the best budget in 100 years. If GoI can engineer a stimulus while reducing the taxpayers’ burden, indeed it will be.

Source: The Economic Times

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Trident Limited gets patent for ‘Fabric and Method of Manufacturing Fabric’

The company has received patent for ‘Fabric and Method of Manufacturing Fabric’ by European Patent office.

Trident Limited is a vertically integrated textile company offering yarn and home furnishing products to top level clients across the globe.It is also known for its variety of CSR initiatives.

In a BSE filing, the Ludhiana-based company said that pursuant to the Regulation 30 and other applicable provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, we are pleased to inform you that Trident Limited has been granted a patent for ‘Fabric and Method of Manufacturing Fabric’ by European Patent Office.

It is worth mentioning here that the present invention comprises a method of producing a fabric by subjecting the fabric to a special treatment, thereby obtaining increased air space in the resultant fabric.

This will help the company to deliver its special soft towels without usage of any chemical based fibres enabling it to save environment and at the same time deliver its soft luxury towels in European Market.

The grant of this patent provides further recognition of the quality of the innovation being carried out by Trident.

Source: Apparel Online

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FinMin releases weekly instalment of Rs 6,000 cr to states to meet GST compensation shortfall

The Finance Ministry on Monday released the 12th instalment of Rs 6,000 crore to states to meet the GST compensation shortfall, taking the total amount released so far under this window to Rs 72,000 crore.

The Centre had set up a special borrowing window in October 2020 to meet the estimated shortfall of Rs 1.10 lakh crore in revenue arising on account of implementation of Goods and Services Tax (GST).

The ministry in a statement said it has released the 12th weekly instalment of Rs 6,000 crore to the states to meet the GST compensation shortfall.

Out of this, an amount of Rs 5,516.60 crore has been released to 23 states and Rs 483.40 crore has been released to the 3 Union Territories (UT) with Legislative Assembly (Delhi, Jammu & Kashmir & Puducherry), who are members of the GST Council.

The amount has been borrowed this week at an interest rate of 4.43 per cent.

“Till now, 65 per cent of the total estimated GST compensation shortfall has been released to the States & UT with Legislative Assembly. Out of this, an amount of Rs 65,582.96 crore has been released to the States and an amount of Rs 6,417.04 crore has been released to the 3 UTs with Legislative Assembly,” the ministry said.

Thus, the total amount released so far in 12 instalments is Rs 72,000 crore at an average interest rate of 4.70 per cent.

The remaining five states — Arunachal Pradesh, Manipur, Mizoram, Nagaland and Sikkim — do not have a gap in revenue on account of GST implementation, the statement said.

In addition to providing funds through the special borrowing window to meet the shortfall in revenue on account of GST implementation, the Centre has also granted additional borrowing permission equivalent to 0.50 per cent of Gross States Domestic Product (GSDP) to the states to help them in mobilising additional financial resources.

Permission for borrowing the entire additional amount of Rs 1,06,830 lakh crore (0.50 per cent of GSDP) has been granted to 28 states under this provision, the statement said.

Source: The Financial Express

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Karl Mayer introduced new 4D-KNIT warp knitted textiles

Karl Mayer has launched the 4D-KNIT generation of warp knitted fabrics. The new type of fabrics opens up previously unknown possibilities in design and product development. Karl Mayer is a textile machinery company that offers solutions for the fields of warp knitting and flat knitting, technical textiles, warp preparation for weaving and digitalisation.

The fabrics’ striking features are distinctive relief-like surface designs; the machine is based on using the double bar Raschel technique. An RDPJ 6/2 EL with a clever guide bar arrangement and technical configuration is used to produce these eye-catching articles.

The double needle bar Raschel machine does not produce a classic spacer textile with monofilaments for spacing, but the space between the cover surfaces is filled with a bulked yarn. In addition, differently shrinking yarns are processed in intelligent combinations on the front and rear side of the warp knitted textiles and different lapping techniques are used, according to Karl Mayer.

During the finishing process, this leads to high-low effects with differentiated markedness. Voluminous fabrics with small and flat reliefs or deep and bulky shapes with various motifs are created.

Strict geometric arrangements with high-low effects are just as possible as expansive plastic wavy arrangements, sparkling fruit looks or complex imaginative designs with different height profiles.

Even hole patterns can be seamlessly and freely placed incorporated into the textiles. Functional clothing and shoes in particular provide breathability and a stylish look with the mesh parts. Additional colour and shape effects can be achieved when using suitable yarns.

Designers and product developers in the clothing sector can enter completely new territory, thanks to these articles with their futuristic looks and voluminous structure. The athleisure jacket on this page shows the initial opportunities.

The stylish outfit which combines different pattern parts seamlessly in one piece on the rear side, is comfortable to wear and keeps us cuddly warm as the seasons change. The excellent insulating effect is achieved by filling the plastic structure with air and yarn material.

The filament yarns are enclosed by the dense fabric on the surfaces. This should result in few micro-particles being released during washing.

Initial comparative tests with nonwovens at the FH Niederrhein have already delivered promising results. The investigations carried out to date on the first machine wash are currently being complemented by follow-up washings, Karl Mayer said.

Source: Textile Today

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East Delhi Municipal Corporation panel rejects new taxes proposed in budget

The Standing Committee of the cash-strapped East Delhi Municipal Corporation on Monday rejected the three new taxes, including a professional tax and a betterment tax, proposed in its annual budget to augment its revenue.

Additional Commissioner Alka R Sharma had presented the budget in December in which an education cess of five per cent of property tax had also been proposed.

The Standing Committee of the EDMC in a special meeting held on Monday rejected all hikes in taxes and levying of new taxes, the civic body said in a statement.

The EDMC always works for the welfare of people, it said.

The EDMC had earlier said a "professional tax at Rs 100 per month for those earning more than Rs 5 lakh a year; and Rs 200 per month for those earning more than Rs 10 lakh per month," had been proposed in the budget.

A betterment tax (for enhancement of property value due to public infrastructure development) at 15 per cent of property tax had also been proposed.

A total revenue of Rs 50 crore was expected from these new taxes, it had said.

Source: The Business Standard

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India Subcontracting Expo 2021 to highlight trade opportunities in India for US businesses

India offers tremendous business opportunities to the US in various sectors such as manufacturing and the COVID-19 pandemic has presented a "unique" opportunity to the country to work with America to build resilient and reliable supply chains that will have the ability to weather future shocks, eminent speakers told a virtual forum ahead of the India Subcontracting Expo.

The India Subcontracting Expo 2021 focusing on the North American region is scheduled to be held February 16-19 virtually.

The expo will bring together exhibitors from India and buyers from Canada, Mexico and the US.

Ahead of the expo, Indian government officials, diplomats and industry leaders highlighted business opportunities that the expo will present for both the US and India in areas of trade and investment and help boost economic ties during a curtain raiser event organised Monday by the Engineering Export Promotion Council (EEPC) of India.

Joint Secretary (EP-Engg.) in the Ministry of Commerce and Industry Srikar K Reddy said at the curtain raiser event that the global economy remained virtually stalled due to economic lockdowns imposed across nations to combat the pandemic and as nations begin the process of re-opening their economies, restoration to pre-COVID stage is likely to take some more time.

He said India has emerged as one of the most promising economies for developed regions, especially in terms of trade and investment.

He said initiatives introduced by the Narendra Modi government under the 'Aatmanirbhar Bharat Abhiyaan' are attracting attention of nations for trade and investment opportunities in India. He added that India offers tremendous business opportunities in various sectors, especially in manufacturing to North America.

Reddy said a trade show with North America in the "strategically important" segment of subcontracting is very timely and will further promote Indian engineering businesses amid the pandemic.

"I strongly believe that this expo will surely be mutually beneficial for both India and North America, and will be helpful for Indian engineering, especially the MSMEs to find new and sustainable businesses," he said, according to a statement.

Manoj Mohapatra, Minister (Commerce) at the Embassy of India in Washington DC said trade, investment and economic cooperation forms an important pillar of the India-US partnership.

He added that New Delhi and Washington are extensively engaging with each other to conclude a trade package, which will create growth opportunities for Indian and US businesses.

Mohapatra said at the virtual curtain raiser that COVID-19 has presented India with a rare and unique opportunity to work with the US to build resilient, reliable, and trustworthy supply chains, which will have the ability to weather future shocks.

He highlighted that US was India's largest engineering goods export market in 2019 with 6.4 billion dollars of exports.

The goods include products such as iron and steel articles, auto components and electrical machinery.

Stressing that Indian exports have remained resilient despite the pandemic, he said that Indian exports in electrical machinery and parts thereof as well as automobiles and auto components have particularly shown strong growth in 2020.

Mohapatra added that this highlights that while there was a commensurate decline in USglobal imports, India is outperforming the competition.

Indian exports registering a significant increase in this product group despite the pandemic indicates that India is finding its place in the global supply chains, particularly supply chains for advanced manufacturing.

It is also indicative of the increased competitiveness of Indian exporters/products in these lines, he said.

Mohapatra outlined advice to exporters including that they should diversify product base to cover products which have shown resiliency during the pandemic.

"This will reduce fluctuation in demand and ensure consistent income streams," he said.

He added that American businesses appreciate transparency, and clear and timely communication. Indian exporters can tap the US market by keeping lines of communications always open for queries and follow-ups, he said.

EEPC India Chairman Mahesh Desai said that North America is the largest destination for India's merchandise as well as engineering exports and the pandemic has brought new opportunities across several segments of manufacturing to strengthen bilateral trade and investment relations with this region.

"Subcontracting, as a major part of the manufacturing sector, is likely to be one of the major beneficiaries.

Continuous support from the embassies will be instrumental to ensure efficient exchange of resources so that the underlying potential can be exploited to themaximum possible extent," Desai said.

"Make in India 2.0 has been launched as an integral part of Atmanirbhar Bharat with a view to accelerate the process of converting India into a 'Global Manufacturing Hub'... Inviting leading global manufacturers to set up their production base in India will not only upgrade Indian manufacturing, but will also increase Indian overseas shipments," he said adding that the expo next month will further strengthen socio-economic ties between India and North America, especially in the areas of trade and investments.

Source: Financial Express

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China economy ends pandemic-hit 2020 with growth beating forecasts

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

Gross domestic product grew 2.3 per cent in 2020, official data showed on Monday, 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 GDP set to expand at the fastest pace in a decade at 8.4 per cent, according to a Reuters poll.

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 US-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.

GDP expanded 6.5 per cent year-on-year in the fourth quarter, data from the National Bureau of Statistics showed, quicker than the 6.1 per cent forecast by economists in a Reuters poll, and followed the third quarter's solid 4.9 per cent growth.

"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 per cent 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 per cent in October-December, the bureau said, compared with expectations for a 3.2 per cent rise and an upwardly revised 3.0 per cent gain in the previous quarter.

Highlighting the weakness in consumption, retail sales fell 3.9 per cent 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 per cent from November's 5.0 per cent, 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 per cent last month from a year ago, hitting the highest since March 2019.


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 US administration led by President-elect Joe Biden. As well, rising labour costs, the ageing 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 per cent.

While this year's predicted growth rate of over 8.0 per cent 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 US does not remove some measures."

Source: The Financial Express Bangladesh

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Recycled polyester endangered by China left-over ban

A bar on all the import of all resources classified by the Chinese Ministry of Ecology and Environment as ‘solid waste’ – including recovered fibre – came into effect on 1 January 2021. Industry advisors dread this may end imports of high-end recycled polyethylene terephthalate (PET) flakes, which are mainly valuable to make functional fabrics and footwear, as well as stuffed toys, pillows and cushions.

A fractional import ban on solid waste was implemented in January 2018 and has previously congested large volumes of recycled PET flake imports – though high-grade recycled PET flakes were allowed back in in May the same year. The looming ban of all solid waste imports may opposite this regulative easing.

Usage of recycled fibres in garments and footwear is seen as one of the key ways to realize sustainability in the apparel industry, given that waste PET bottles create serious disposal difficulties as they are not biodegradable.

Firms are progressively fluctuating from virgin fibre to recycled fibre to improve their environmental impact statuses. Adidas, for its part, has been pointing to have more than half of the polyester it uses to be recycled in 2020, reaching up to 100% by 2024.

“This time, it is still unclear whether the A, B and C class of clean PET flakes will be comprised in the solid waste. It is predictable that importers will suspend imports in the short term, to wait for a clear direction,” Hangzhou-based fibre consultancy Zhejiang Huarui Information Consulting said in a recent client note.

These recycled PET flakes are those that have been melted and cut into renewed chips before being exported to China, giving them the same HS code as virgin chips.

Foreign investment

UK-based industrial upstream consultancy Wood Mackenzie pointed out that the high cost of producing such clean regenerated chips has spurred Chinese investment abroad to produce recycled staple for export to China.

This has involved directly procurement and processing bottle flakes in countries such as Thailand, Vietnam, Indonesia, Bangladesh, Nigeria and South Africa. At the same time the Chinese government has also been forceful the textile industry to use materials sourced by recycling PET bottles castoff in China to fill the void that has been fashioned due to offshoring the processing of old PET bottles.

Quality issues

Though, at the recent plastic recycling trade show China Replas, Zheng Kai, President of the China Synthetic Resin Supply and Sales Association, flagged that high production costs and unstable product quality are among the main factors limiting Chinese companies from incoming the high-end recycled PET industry to meet the demand by international apparel brands.

Other Chinese industry insiders were quoted by local media as pointing out that China’s domestic supply of PET bottles is of inferior quality than imported input, owing to Chinese consumers typically not cleaning and drying the plastic bottles and not separating the caps and labels.

According to Wang Zhongming, director of Jiangsu Zhonglu Technology Development, a manufacturer of fibres made of recycled PET, this results in poor quality of the spun fibre and affects the quality of the subsequent textile. In addition, spinning with recycled PET chips significantly reduces production equipment lifespan, according to Wang.

“Each process of spinning recycled chips is more complicated and more demanding, resulting in processing losses that are more than double the cost of raw chips,” Wang said.

State of turmoil

Benjamin Cavender, Managing Director of Shanghai-based China Market Research Group (CMR), noted that the PET flake market in China has been in a state of upheaval for the last four years.

This is because China has continued to evolve its policies regarding imports of recycled materials, its own domestic recycling policies, as well as policies around the use of recycled materials in new products. According to Cavender, it remains to be seen how the looming import ban will affect pricing dynamics.

Source: Textile Today

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Buyers bargain with garment makers, BGMEA with govt for Covid concession

The apex body of the apparel makers has once again sought extension of repayment periods of loan packages in view of uncertainties caused by the 'second wave' of the pandemic.

Industry people have said garment buyers’ new approach to managing their supply chain amid the second wave of Covid-19 has put the local apparel exporters in an awkward situation, especially with their management capacity.

The buyers are now deferring order placements and divide them into smaller ones with shorter lead time, though cancellation of the order is not that rampant this time around, the exporters have pointed out.

Recent communication between the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Ministry of Finance does contain the worries that the buyers' approach has given rise to.

The level of impact of first and second waves on the local industry is different, the BGMEA said in the letter to finance minister on January 12.

The mild shock coming from the second wave is proving to be unbearable as the industry is ‘already enough injured’ after the first wave that was, according to the letter, more severe.

"With the detection of a new variant of the virus and that being more contagious than the first one, we are missing the biggest sales season this year, the Christmas," reads the letter signed by BGMEA President Rubana Huq.

Amidst a fresh surge of Covid-19 cases in Europe, the USA and Canada, different restrictions imposed on the movement of people and economic activities have started making an adverse impact on retail businesses in these countries.

"The second wave of Covid-19 has already started disrupting the retail market and global clothing trade including exports from Bangladesh," the letter adds.

Following the surge in new cases in major importing countries, the buyers are now deferring order placements and splitting those into batches on the shorter lead time, instead of cancelling orders, the BGMEA chief said in the letter.

"This has an adverse impact on our industry, since factories are not being able to make a forecast and plan their capacity," Ms Huq said.

More than 1,100 BGMEA member factories reportedly faced cancellation of work orders worth US$ 3.18 billion during last March-April due to the pandemic, according to the trade body.

Most of those were reinstated at heavily bargained prices, inclusive of deferred payment and discounts.

Against this backdrop of multipronged crisis, it was becoming increasingly difficult for the factories to stay on course without additional financial support by the government, she argued.

Since the factories were already struggling to meet regular expenses and cash flow with exports falling, prices dropped by 5.0 per cent in recent months.

The repayment of wage loan incentive, which was availed during April-July 2020, at equal instalments in 18 months would mean an estimated 20 per cent additional wage burden on the factories, the letter mentioned.

"This, in view of the current situation, is absolutely difficult," the BGMEA leader noted, reiterating her demand for extension of the repayment tenure.

The repayment of the loan was scheduled to start on January 17 (Sunday).

In the letter, the BGMEA president urged the finance minister to extend the repayment term of the wage assistance loan package to 36 months from the existing 24 months.

She also sought extension of the moratorium on the salary stimulus package by six more months.

Source: The Financial Express Bangladesh

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Apparel exporters should be repaying the stimulus funds now. But they are pleading for more time

'We are facing an acute liquidity crisis to bear the current expenses as it is'

He has 2,500 workers to support and scores of operational expenses to bear but no revenue coming in.

But from Sunday, the apparel exporter, who is based in Chittagong, has to begin servicing for the loan he took from the government’s stimulus fund for the export-oriented industries.

“Definitely, the stimulus package brought us relief, but it is now a burden for us as we do not have sufficient work orders, which is the prime source of our income,” said the beleaguered apparel exporter who shied away from going on record for fear of reprisal.

On March 25, just as the coronavirus was going full steam ahead on its devastating rampage across the globe, the government announced a Tk 5,000-crore special package to pay the wages and allowances of export-oriented industries' workers for three months starting from April.

As the fund was later found to be inadequate, the government released another Tk 2,500 crore from the bailout package rolled out for the large industries affected by the pandemic.

Banks disbursed the amount directly to the workers' bank accounts or mobile financial service accounts.

The interest-free loan carried a 2 per cent service charge and had to be paid in 18 equal monthly instalments after a six-month grace period.

Then in July, the government made Tk 3,000 crore available to the export-oriented industries to help them provide wages and salaries for the month.

But this time, the borrowers will have to pay 4.5 per cent interest rate to avail the fund while banks will get 9 per cent interest as the government will give the rest as subsidy.

“When I took on the loan from the stimulus package, I thought I would be able to realise the $1 million in arrears from my global buyers,” says the anxious exporter.

That has not been the case as economic recovery stalled in much of the Western world in the face of the second wave of coronavirus cases.

Like him, there are hundreds of others in the same boat, all praying for an extension of the grace period to repay the stimulus funds.

“Right now, I am in the red,” said Irfanul Hoque, director of Fatullah Fabrics.

His consignment was stranded for over a month at an American port and he had to pay a hefty discount of $150,000 to get his buyer to take delivery of the goods.

At the same time, he had to pay the wages of his workers in full from August onwards along with the bills for raw materials.

“The stimulus fund from the government enabled me to stay afloat. But as a small entrepreneur, I am in dire straits as there are not enough work orders.”

And the few that he has received are being held up amid the second wave of the pandemic.

“We are facing an acute liquidity crisis to bear the current expenses as it is,” Hoque added.

There is simply a cash flow crisis among the apparel exporters at present, said Shahidul Islam, managing director of Eurotex Group.

If the government extends the grace period, it would save the apparel exporters avert the economic fallout from the second wave of coronavirus cases in the Western world, said Fazlee Shamim Ehsan, a director of the Bangladesh Knitwear Manufacturers and Exporters Association.

The Bangladesh Garment Manufacturers and Exporters Association has applied to the finance minister for amendment of the repayment term from 24 months to 36 months, with a year’s grace period instead of six months.

The repayment would mean 20 per cent in additional wage burden on the factories, said Rubana Huq, president of the BGMEA.

“Given the current scenario, this is difficult.”

Garment shipments brought home about $27.4 billion last year, which is the lowest since 2016, according to data from the Export Promotion Bureau.

The first and second waves of the pandemic impacted the local apparel industry in different magnitudes.

Instead of cancelling orders, buyers are now deferring order placements and splitting those into batches with shorter lead time, according to Huq, also the MD of Mohammadi Group.

“This has an adverse impact on our industry since factories are not being able to have a forecast and plan their capacity.”

In this backdrop of multi-pronged crisis, it is getting increasingly difficult for the factories to stay on course without additional fiscal support by the government, Huq added.

Source: Dhaka Tribune

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President calls for unity for continuation of democracy

Terming Jatiya Sangsad as the centrepiece of people's hope and aspirations, President Abdul Hamid called for making united efforts to create unity among all irrespective of political affiliations, classes and professions for the continuation of democracy, the rule of law and socio-economic development.

The head of the state made the call while addressing the opening day of its maiden session in 2021 of the 11th parliament, reports UNB.

Hamid said the opposition parties alongside the ruling party would have to play a constructive role in strengthening transparency, accountability, tolerance, human rights and the rule of law.

He called upon the ruling party and the opposition to play their due role in the great National Assembly.

In spite of hundreds of adversities to accelerate the progress of the country and the nation, the government continues to make unremitting efforts to ensure good governance, democracy and people's participation in development programs, he also said.

Hamid said all will have to ensure more combined efforts to eradicate corruption, drugs, terrorism and militancy from the country by keeping the spirit of the liberation war unhurt in order to build the 'Golden Bengal' of Bangabandhu's dream.

"Let us forget the differences of party-like-path and pay the blood debt of millions of martyrs by establishing a society free from exploitation irrespective of religion-caste-tribe," he also said.

The president highlighted the government's achievements in different sectors, including economy, trade and commerce, agriculture, power, foreign relations, tourism, education, health, women and children development, rural development, expatriates welfare, science and technology, ICT and public administration.

He said "Today we are on the cusp of the golden jubilee of independence. We have to move forward on the path of peace, democracy, development and prosperity.This year, as a middle-income country, we will celebrate the 'Golden Jubilee of Independence'. However, our goal is to become a developed and prosperous country in 2041."

He expressed his firm belief that under the leadership of Prime Minister Sheikh Hasina, the government will be able to build a welfare, developed and prosperous Bangladesh with the full participation of the people."

Mentioning the introduction of a dope test for government employees, he said that the government's “zero tolerance” policy against drug abuse, militancy and extremism has been praised worldwide.

The government has extended the duration of Mujib Year celebrations from 16 March 2020 to 16 December 2021 as the programs taken to celebrate Mujib Year could not be completed on time due to Covid-19 global epidemic.

"Through the implementation of all the programs adopted in the year of Mujib, the effort will play a positive role for learning about the life and work of Bangabandhu for the present and future generations," he said.

Prime Minister Sheikh Hasina was present during the president's speech at the House, with Speaker Shirin Sharmin Chaudhury in the chair.

Source: The Financial Express Bangladesh

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