Indian Union Budget 2021-22: The pandemic has thrown the global economies into disarray. In addition to serious health implications for the humankind, the unrelenting crisis has left an indelible impact on economies across the world as well. In response, governments worldwide have introduced various fiscal measures. Amidst the high expectation of a pandemic-struck country, the Indian Government is treading a tightrope with tax revenues at an all-time low and surmounting pressure to kickstart the economy. Several tax and legal reforms are expected to shape up India in 2021.
Financing the recovery
Novel methods of raising funds to meet high spurt in expenditure will be the key as there is limited fiscal space left to introduce any new taxes. The government may plan to introduce tax-free bonds with attractive returns to boost infrastructure spending and to take care of unemployment and boost demand.
To finance Government relief measures viz. vaccination distribution or grants to severely affected States and to provide a stimulus to the infrastructure sector, the government might consider issuing “Corona bonds” yielding an attractive return to be subscribed by public at large. Certain benefits such as “exemption of tax on interest on these Bonds up to some limits, say Rs 2.5 lakhs or on any gain arising from transfer of such bonds” could be considered by the government to trigger substantial subscriptions by the masses.
Further, to strengthen infrastructure, there is a need to step up investment in infrastructure. Funding for this could be facilitated by an issue of Listed-Infra Bonds. This should be a long-term bond available to the public, institutions and companies with a floating rate of 1% over the previous quarter’s treasury yield which on redemption would be taxable at a concessional rate of 5%. There could be an additional 1% interest for institutional investors.
Strengthening the business segment
Micro, small, and medium enterprises (MSMEs) have been particularly more susceptible to the pandemic’s economic impact. For encouragement of the growth of suchlike, the Government might consider providing tax exemptions on say 50% of their profits provided that such profits are deposited in a Scheduled Bank Account and reinvested in eligible Plant & Machinery within a stipulated qualifying period. For MSMEs in hospitality sector, the Government could encourage taxpayers who incur expenditure on programs such as MICE events to be eligible for tax credit.
In the spirit of Atmanirbhar Bharat, considering the lucrative benefits which would accrue from developing patents in India, the Government might consider granting deductions in respect of expenditure on in-house research and development. In addition to conventional areas of R&D, there should be a focus on agriculture, low yields and the higher food and nutritional needs of the country. India has made substantial investments in cross-border R&D through M&A over the last two decades. Several policies might be announced by the Government for cross-border M&A to facilitate consolidation of overseas businesses.
To foster investment by large businesses in rural India and enhancement of employment and infrastructure, exemptions from capital gains or book profit tax could be provided subject to stipulated conditions such as requirement of investing these gains over a definite period (e.g. 3 years) for furtherance of the rural economy. Further, the Government could consider expanding the scope of “specified business” under section 35AD that provides investment-linked tax incentives. Investment in proposed 5G technology for “telecommunication sector” to achieve significant internet penetration in rural India should also be classified as a specified business.
A new labour law regime is expected to unfold itself in the upcoming times. Consolidation of twenty-nine Central labour laws into four labour codes would bring along drastic changes. Fixed-term employments will see an important change. The employees engaged for a specified duration will also enjoy tenure-based benefits like permanent workforce. To encourage industries to embrace such model, the deduction under section 80JJAA is expected to be enhanced, resultantly boosting employment, and benefiting businesses.
Connecting India to the Global value chain
With a view to modernise port infrastructure, establish port-based connectivity, and develop coastal communities, Sagarmala project was launched. For coastal SEZs notified under this project, the Government is expected to further notify clusters that would come up in these Coastal SEZs/corridors and permit deduction under section 35AD followed by eligibility requirements to claim 15% corporate tax rate. The Government could also encourage establishment of Global In-house Centres (GICs) around these corridors by proposing 15% tax rate to create substantial employment opportunities. Further, owing to the requirement of substantial investment in land, a policy framework from the Government for leasing industrial land at a nominal rate is required.
Besides, the government should look into creating a policy framework which permits a higher percentage of used Plant & Machinery to be transferred in order to facilitate re-location of supply chains or factories outside India into India. The Government could also notify competitive set of transfer pricing markups which further aid business relocation/expansion and provide certainty to global investors on transfer pricing matters.
Source: The Financial Express
Covid-19 pandemic has hit people across the world and has led to severe loss of life and property. It has changed the entire world order and is comparable to major events of the past that reshaped the world. Events of such scale often give rise to new beliefs amongst people that can help them overcome their shortcomings and usher in a new era. It is widely expected that Budget 2021 will be aimed at bolstering belief and determination in people.
Manufacturing, being the backbone of any growth story, is one sector which needs particular attention. The world of today is looking to find an alternative to China in the manufacturing space. India needs to implement the right strategy to capitalize on this opportunity. In our view, the following, if implemented, should act as a key driver for India to emerge as a global manufacturing hub
Expansion of PLI Scheme
The Production-Linked Incentive Scheme was one of the flagship schemes which was launched in March 2020 in order to boost domestic manufacturing and cut down on import bills. The PLI Scheme aims to provide companies incentives on incremental sales of products manufactured in domestic units. It encourages both local and overseas companies to establish their manufacturing units in India and also expand existing manufacturing units. The PLI Scheme was initially rolled out for mobile and allied equipment as well as pharmaceutical ingredients and medical devices manufacturing. We believe that the time is ripe for extending the PLI Scheme to other key sectors.
Tax rate moderation
The various slabs for income tax as well as indirect taxes should be moderated. The compliance mechanism also needs simplification. The existing taxation system is extremely complex and cumbersome and is difficult to decipher for new entrants. In particular, this impacts new-age manufacturing companies (which are led by inexperienced but highly skilled founding teams who usually find it difficult to navigate through the tax maze). Recent events such as the international arbitral award in the case of Vodafone reaffirm this long-standing need for simplification in the Indian tax regime. The rates of taxation, which are amongst the highest in the world because of the combination effect of direct and indirect taxes, act as significant deterrent even for domestic players in setting up manufacturing operations in India.
Incentives
MSMEs are key to making India a manufacturing hub. The entire manufacturing industry in China has grown because of the role played by small manufacturing units. If there is one sector that should be prioritised over everything else in Budget 2021, it is the MSME sector. The coverage of the MSMEs needs to be widened to incentivize manufacturing in hitherto unincentivized areas such as agro MSMEs.
Promotion of gig economy and platforms
In the new age economy, gig workers and platforms/ aggregators play a significant role particularly in supply chains — one of the key pillars of a robust manufacturing ecosystem. As such, the participation of gig workers and platforms/aggregators in the overall economy is only going to increase. It is, therefore, imperative that special attention is paid to the regulation and development of such a gig economy. This can be done by recognising and integrating new-age business models into the existing taxation regime. For instance, permitting platforms/aggregators to register for GST e-way bill generation and related compliances.
Budget 2021 is likely to be one of the most important budgets of our times. Given the state of domestic and world economy, there is perhaps no area which does not need a shot in the arm at the moment, but we still hope that the MSMEs and startups in the manufacturing space find special attention from the Finance Minister.
Source: The Economic Times
Prime Minister Narendra Modi will address the World Economic Forum’s Davos Dialogue on Thursday and interact with global CEOs.
Over 400 industry leaders from across the globe will attend the session, wherein the Prime Minister will be speaking, through video conferencing, on the Fourth Industrial Revolution — using technology for the good of humanity. The Prime Minister’s speech and interaction with CEOs come at a time when the Indian and the world economies are going through an extraordinary period of slow down due to the Covid-19 pandemic.
Investments remain critical to India’s resurgence story, as private consumption has been badly bruised by income losses in the aftermath of the pandemic.
Beating the Covid blues, India’s gross FDI inflows between April and November, 2020, hit a record $58.37 billion, up 22% from a year before. Of these, FDI inflows into equity stood at $43.85 billion during these eight months, which was 37% higher than the same period in FY20, the commerce and industry ministry said in a separate statement.
Gross FDI includes FDI equity inflows, reinvested earnings, equity capital of unincorporated bodies and other capital.
Addressing a virtual round-table of mostly foreign investors in November, Modi had promised “whatever it takes” to make India the engine of global growth. He had invited the top executives of 20 global pension and sovereign wealth funds that together manage about $6 trillion in assets to be part of the country’s “exciting progress ahead”.
The strong FDI inflows into India in trying times were also emphasised by UNCTAD in a report earlier this week. India and China were two major “outliers” in a gloomy year for FDI , as global inflows plunged 42% on year in 2020 to $859 billion, the lowest level since the 1990s, the UNCTAD report said.
While India witnessed a 13% year-on-year rise, the highest among key nations, in FDI inflows in 2020, China’s rose 4%, said UNCTAD. Of course, in absolute term, China, being a much larger economy, remained way ahead, with an inflow of as much as $163 billion, while India’s stood at $57 billion, it added.
Source: The Financial Express
The year 2021 has started on a positive note for India. As indigenous vaccinations drive the decline in coronavirus cases, it is expected that this will drive India towards the much-anticipated state of normalcy. Now from an economic standpoint, dipping cases must boost consumer confidence. This boost could further receive a well-timed stimulus from the upcoming budget. The Union Budget 2020-2021 has turned out to be the most high-profile and highly awaited.
Government expenditure is a critical component for driving demand in the economy. The Central Government’s total spending, however, has been similar to the previous financial year and the state government finances are already overleveraged. Thus, the objective of the upcoming budget must be to step up spending through innovative means. Essentially, the theme of the next budget must revolve around public investment and massive infrastructure push. This will usher in the demand-driven recovery of the economy and help overcome the challenges in a post-Covid economy. The spillover effects would see a boost in demand, generate employment and develop the economy’s external competitiveness. Without a push to drive demand, supply-side measures and strong reforms under the ambit of Atmanirbhar Bharat will fail to create avenues of growth and prosperity.
The following are some of the suggestions from a recent study conducted by Institute for Competitiveness for the upcoming Budget.
Empowering the Manufacturing Sector
Manufacturing sector, especially low-skilled manufacturing, must be one of the focal points for dedicated investment. The sector was one of positives amidst a poor economic performance in the latter half of 2020 and has the potential to employ millions of unskilled and semi-skilled workers. As companies, being sceptical of global economic fragility, seek to move their value chains away from China to other manufacturing nations, India must step up as a prospective destination to promote low-skill manufacturing.
Indian also has a strong pool of low-skilled labour. This could play into India’s competitive advantage, and therefore, boost the productivity of industries that rely on low-skilled production such as shoes and apparel factories. The upcoming Budget must focus on transforming Indian manufacturing into a competitive exporting sector that relies on the mass production of products at economical rates. By identifying potential industries such as textiles, apparel, leather, food processing, construction, retail, etc. to achieve global competitiveness and by incentivizing them through schemes such as Production-Linked Incentive (PLI), India could attract investment in the sector and raise its overall productivity.
Boosting the domestic consumption of durables
Apart from mass employment generation, another means of ensuring demand-driven growth is to boost the purchasing power of the people. Through this Union Budget, the Central Government needs a way to spur domestic demand. After economic disasters such as the bursting of the dot com bubble and the 2008 recession, the role of the government has been to incentivize consumers to step into the market.
In the ongoing economic crisis, one such way could be to distribute vouchers that could stimulate consumption of durables such as clothing, food, etc. Under the Budget, such a scheme must target ration shops as it would cater to the demands of the most vulnerable sections and will also curb any potential leakages by linking the vouchers with the Aadhar card and the Point of Sale (PoS) devices at the stores. This would ensure that the entitled beneficiaries receive their dues. Furthermore, the vouchers can be the better alternative than cash transfers because they would not cause inflation as real demand is generated.
Refinancing via Covid Bonds
The above two measures are attributed to relief and recovery measures to create demand-driven economic growth. However, given the tight financial situation of the governing entities, it is crucial that there have to be new means to mobilize funds.
Introducing Covid Bonds is one of the innovative financing mechanism for the governing entities without generating any excess impact of the crowding-out of private investment. These bonds could be provisioned in higher denominations.
These Covid Bonds could be launched tax-free with the option of providing a one-year moratorium on payment of interest, given how stretched the government finances. Such Bonds could be subscribed by any Indian taxpayers, corporates and NRIs. This would allow diversification in the subscription base. Furthermore, it could offset the potential damage of comparatively high corporate defaults that were recorded in 2019. Another appeal of such Covid Bonds is that government-backed securities are gilt-edged and any concern attached with repayment would not bother the subscribers.
Covid Bonds, therefore, could give the Indian economy the hope to restructure its development plans via a much-needed injection of valuable funds, which the government can successfully utilize to support infrastructure investments and stimulate productive sectors.
General Remedy: Strengthening Public Investment
Besides targeting specific sectors and using innovative means to mobilize funds, a dedicated focus on strengthening public investment in healthcare would be the most effective long-term stimulating factor. Apart from filling in shortfalls of health care providers and developing healthcare infrastructure, it would ensure availability of sufficient healthcare professionals to take care of the increasing inflow of patients. It would also help the country fill in the huge gap in human resources required for the proper functioning of healthcare services.
In order to reach the target of allocating public health expenditure to 2.5 per cent of the GDP by 2025, state budgetary allocation on health care needs to increase from the current 4.7 per cent of total budget to 8 per cent. This could be done with an earmarked amount (approximately 10 per cent of total union funds allocated to the states) to be solely used for developing healthcare infrastructure, especially primary healthcare. Apart from developing infrastructure, a certain amount of state budget should also be allocated to health/biomedical research in alliance with private hospitals and industries. This could not only improve the regional health sector but also the biotechnology industry, leading to better premiums in the future gained from high-end value products.
Source: The Economic Times
India celebrated its 72nd Republic Day yesterday with full spirit as country’s highest civilian awards – Padma Awards – were also announced.
Two well-known personalities from textile industry were also conferred with Padma Shri awards.
The first recipient was the 88-year-old designer Hanjabam Radhe Devi from Manipur, who is a Potloi Setpi (traditional bridalwear designer).
Notably, the Potloi comprises a stiff cylindrical skirt, a blouse, a woven belt around the waist and a delicate muslin shawl. So far, she has created more than 1,000 dresses (bridalwear).
She also makes costumes for the Khamba-Thoibi dance, which is based on a popular Manipuri legend.
Apart from all this creative work, she has also created awareness on issues like drug addiction and women’s employment in the state.
The other recipient was the Santipur Nadia (West Bengal)-based Biren Kumar Basak, who, with an annual turnover of around Rs. 50 crore, is working with around 5,000 artisans, out of which around 2,000 are women.
Biren (66), who was forced to leave school at an early age, started working as a weaver at the age of 13 and used to earn Rs. 2.5 per day. He also used to sell sarees going door-to-door in the 1970s in Kolkata.
Today, his wide repertoire of clients includes West Bengal Chief Minister Mamata Banerjee, cricketer Sourav Ganguly, noted classical musician Ustad Amjad Ali Khan and famous singers Asha Bhosle, Lata Mangeshkar, amongst others.
Source: Apparel Online
What is it?
Off-budget financing refers to expenditure that’s not funded through the budget. For instance, the government may set up a special purpose vehicle (SPV) to borrow money for a particular task such as to construct a bridge. Since the loan is not taken directly by the govt, it does not reflect in the budget document.
So what's the fuss?
Since such off-budget financing are not mentioned in the Budget document, the numbers also do not reflect in fiscal deficit. Such financing tends to hide the actual extent of government spending, borrowings and debt and increase the interest burden.
Fiscal deficit suppression
Experts and others have repeatedly raised the issue of India’s fiscal deficit numbers being understated. The Comptroller and Auditor General (CAG) had in July said in a presentation to the Finance Commission that the central government’s key deficit figures may be considerably higher than those stated in the Union budget. The International Monetary Fund (IMF) had also pointed to fiscal deficit suppression.
Balooning fiscal deficit
India's fiscal deficit is expected to be around 7.5 per cent of the GDP for the current fiscal owing to moderation in revenue collection due to the COVID-19 crisis. This would be a 100 per cent jump from the Budget estimate of 3.5 per cent of GDP pegged for the current fiscal.
Time for clear picture
CAG had earlier suggested a policy framework for off-budget financing that should include disclosures to parliament about the amount, rationale and objective of such funding. Meanwhile, the Centre is also now planning include a host of off-budget spending and other government liabilities on its books to give a clearer picture of finances though this could raise the fiscal deficit sharply. "Top government officials have held discussions on the move amid budget preparations and there is a growing view that a full picture is needed," ET had reported earlier.
Source: The Economic Times
ET Online recently ran a survey to get an idea of the mood of the nation ahead of what will likely be the most critical budget exercise in a generation. About 5,700 ET readers took part in the week-long survey and registered their responses to 10 questions that sought to find out what some of India's best-informed business news readers thought about the state of the economy on budget eve.
A large number of survey participants (over 42 per cent) believe India's inherent fundamental strength will see the economy through the vicissitudes of the pandemic. Over a fifth (21.1 per cent) think credit should go to good leadership and policy for the Indian economy's quicker-than-expected comeback.
Just under 12 per cent of readers say the fast recovery has a lot to do with the government's well-target stimulus packages. A fourth of all respondents (over 25 per cent) ascribe India's resilience to the fact that the pandemic's economic damage here never really got out of hand.
Talking of Covid, responses by survey participants to Modi government's handling of the public health crisis are generally quite favourable. Well over 30 per cent respondents think the govt acquitted itself creditably well in dealing with Covid's economic blow. Add to this those (almost 38 per cent) who say the govt's handling of the crisis was "good for a nation of India's means'', and you get a clear picture of how ET readers view Modi's Covid policy.
False hope or real recovery?
It seems to be a divided house when it comes to the question of the resilience or robustness of the ongoing recovery. Compared to 30.5 per cent readers who say the recovery is unmistakable and green shoots are clear, an even higher 37.4 per cent believe that it is too early to celebrate the economy's great escape act.
As many as 10.4 per cent of the participants think it is just pent-up demand that is being mistaken for a recovery. More than a fifth (21.7 per cent) of the surveyed say everything is going to depend on how the Covid situation plays out from here.
The best way to put the pandemic's economic impact behind, according to 33.8 per cent of respondents, is to boost sentiment through tax cuts in the upcoming budget. An even larger number of people, however, are of the opinion that incentivising companies to create jobs will be a better way to help India emerge from Covid's shadow.
Source: The Economic Times
The scope for tax concessions in the upcoming Budget next week is very limited, and the finance minister may prefer to inject stimulus into the economy through increased expenditure, mainly in infrastructure, EY India Economist D K Srivastava said on Wednesday.
In the pre-budget session on 2021-22 Budget, EY India Chief Policy Advisor Srivastava said the fiscal space available to the finance minister is extremely limited and therefore if she has to choose the most optimal route to support growth and any possible concessions on the tax side, that would be quite limited.
“…if that (tax concession) happens possibly some of the sectors can be related to, could be the real estate sector and construction sector broadly where some of the incentive measures could yield positive benefits. But I feel the scope is very limited. On the other hand, the preferred stimulus injection may be through the expenditure route,” he said.
Srivastava said the fiscal deficit in the current fiscal is likely to be between 6.5-7 per cent.
He said in crisis years the Government could relax the fiscal deficit target, but keep a close eye on the projection of debt-GDP ratio.
The government has to raise spending, especially capital expenditure, to an “unprecedented” level, he noted.
“Therefore, in our projection, we have said that capital expenditure must grow at rates not below 20 per cent for current and next year in order to come back to the plan of National Infrastructure Pipeline.
“Unless we really expand our infrastructure, the growth story would not be sustained. Therefore, the appropriate use of scarce fiscal resources should be to get maximum multipliers. Any stimulus on the taxation side should be very limited,” he added.
The government’s fiscal deficit soared to Rs 10.75 lakh crore, or 135.1 per cent of the 2020-21 Budget Estimates (BE), at the end of November 2020, mainly on account of low revenue mop up.
The 2020-21 Budget had pegged the fiscal deficit for the current financial year at Rs 7.96 lakh crore or 3.5 per cent of the GDP. These figures, however, may have to be revised significantly in view of the economic disruptions created by the coronavirus pandemic.
Fiscal deficit had soared to a seven-year high of 4.6 per cent of the GDP in 2019-20.
Source: The Financial Express
The Cabinet Committee of Economic Affairs has cleared the public sector enterprises (PSE) policy, said sources aware of the development, on Wednesday.
The government had first mooted an overhauled PSE policy in the Aatmanirbhar Bharat Abhiyan mid last year, which aims to keep not more than four central public sector enterprises in strategic sectors and open up all other sectors for privatisation.
After several consultations with ministries, about 18 strategic sectors have been identified for disinvestment purposes including coal, crude oil, power, steel, telecom, atomic energy and defence, sources said.
Under the manufacturing sector, steel, fertiliser, atomic energy, petroleum refining and marketing, defence, ship building and power generation have been identified as critical sectors requiring large presence of PSUs. In the rest of the sectors, the government will eventually move out clearing roads for private participation.
The government had earlier proposed disinvestment in all other commercial entities except development and regulatory bodies, trusts, not for profit companies, refinancing institutions and companies formed under acts of Parliament. Similarly, railways, ports that undertake commercial operations with development mandate will also not fall under the disinvestment agenda, sources added.
Services like power transmission, gas transportation, space, telecom, information and technology, infrastructure finance companies, banking and insurance companies and development of airports, ports and highways have also been categorised as strategic sectors for PSU presence.
According to the Public Sector Enterprise Survey 2018-19, which is the latest available, there are in all 257 central PSEs (CPSEs) of which 184 were profit-making enterprises. Of these, there are 43 CPSEs in technical consultancy services, 36 in heavy and medium engineering sector, and 23 in transport and logistics, as per EY.
Department of economic affairs secretary Tarun Bajaj had said recently that the PSE policy would be more “ambitious” than anticipated and will bring about a paradigm change in the government working.
Having a robust disinvestment policy would be critical for the government at a time when it needs resources to bridge the fiscal gap and for spending on key policy initiatives to battle Covid-19 pandemic affected economy, several economists have noted.
For the financial year ending March 31, 2021, the government had set a disinvestment target of Rs 2.1 lakh crore, of which Rs 1.2 lakh crore is expected from strategic divestments.
The government is pursuing the privatisation of state-run companies such as BPCL, Container Corporation of India, Shipping Corporation of India, Air India and public listing of the largest insurer LIC of India, but it appears unlikely that the reported disinvestment in most of the above entities would be achievable within this fiscal.
“With less than three months left in this fiscal, the disinvestment inflows are unlikely to cross Rs 0.4 trillion in FY2021 in our view,” ICRA has said in a report.
Source: The Economic Times
The Income Tax Department on Wednesday said it has issued over Rs 1.81 lakh crore worth refunds to more than 1.74 crore taxpayers so far this fiscal year.
Of this, personal income tax refunds of Rs 62,231 crore have been issued to over 1.71 crore taxpayers and corporate tax refunds of Rs 1.19 lakh crore have been issued in 2.12 lakh cases.
CBDT issues refunds of over Rs. 1,81,336 crore to more than 1.74 crore taxpayers between 1st April, 2020 to 25th January, 2021, the department tweeted.
Source: The Financial Express
Ahead of India's annual budget presentation next week, IMF's Chief Economist Gita Gopinath has favoured the extension of the pandemic support measures, thrust on investment in infrastructure and expanding health sectors programmes like Ayushman Bharat, and a very credible divestment path for commercially viable companies.
The Indian government has provided a lot of schemes for small and medium enterprises, most of which is in the form of liquidity support, Gita told PTI on Tuesday.
“And you want to revisit it and see how effectively that is working and see whether additional support may need to be provided,” Gopinath said while responding to a question on her recommendations to Finance Minister Nirmala Sitharaman, ahead of her presentation of the annual Union Budget on February 1.
It would be a good time for banks and Non-Banking Financial Companies (NBFCs) to raise capital given the attractiveness of financing conditions at this point, she said.
“We have to also keep in mind that as these pandemic measures are lifted, there would very likely be an increase in non-performing loans. Even the RBI (Reserve Bank of India) has projected that,” Gopinath said.
But there might also be a need for the capital support to be provided by the government for public sector enterprises. That has been long on the table which is to improve governance of public sector banks, she said.
Observing that there is a need for more public infrastructure spending, she said that the government has expressed an intention to do that.
“There are needs to make more public investment. That would be another area that would require thrust,” she said, adding that health is another sector which needs renewed focus.
“ In this pandemic, there has been spending but if you look at the health needs of the country, health capacity has to be increased. We can also see an argument for expanding Ayushman Bharat programme for instance and also increasing the number of medical personnel,” Gopinath said.
She said that there has to be progress made on the GST (Goods and Services Tax) collections. There seems to be a gap with compliance which is an important area to fix.
GST collections surged to an all-time high of over Rs 1.15 lakh crore in December, 2020 as economic activities picked up after lifting of stringent lockdown restrictions.
At Rs 1,15,174 crore, the collections were 10 per cent more than the mop-up in the previous month -- the biggest growth in monthly revenues in the last 21 months.
Gopinath said that another area which has been long-standing is divestments.
That has been in every one of the budgets, but in terms of the actual implementation it has not happened, he said.
“To have some sort of a very credible divestment path for commercially viable companies is a very important part. Also, the insolvency procedures would require a lot of work,” Gopinath said.
On Tuesday, the IMF projected an impressive 11.5 per cent growth rate for India in 2021. While this is attributable to the stronger than expected recovery, Gopinath said India still has some distance to go.
She said that due to COVID-19, India's informal sector, like many parts of the world, has been hit hard along with unemployment in small and medium enterprises, micro small and medium enterprises.
Even if the economy is recovering, these distributional effects have also to be paid close attention to, she said.
Responding to a question on coronavirus, the IMF chief economist said that India moved quickly to put down one of the strictest lockdowns seen anywhere in the world and it stayed that way for a long time. This had an impact on the economy, including a very large contraction in the first quarter of the fiscal year.
“But, with the reopening that happened starting the second quarter of the fiscal year and going forward, we are seeing mobility return faster than we had expected and importantly, despite that increase in mobility, there hasn't been a next wave of infections which is quite different from what you see in several other parts of the world.
“I am told by some experts that this is an outcome of what looks like a kind of natural herd immunity that has come around in many big cities in India. That could be one reason for it. In terms of overall policy support, India has also overall provided a significant amount. It has tended to use more below the line measures than above the line measures. We still think that there is space for it to do some more,” Gopinath said.
India, she asserted, has done a lot in terms of making sure there is liquidity in the system providing income in kind and in cash to poor households, helping small and medium-sized enterprises through liquidity channels.
She favoured the extension of these pandemic support measures that provided to low-income households in terms of cash and kind, the expansion of MANREGA that was done last year.
“Both of those expired in 2020 and we would see a case for extending those even to 2021 until there is a much stronger recovery than we have right now,” Gopinath added.
Source: The Economic Times
Upendra Prasad Singh, (UP Singh), a 1985 batch IAS of Odisha Cadre, today took over as Secretary, Ministry of Textiles (MoT).
B. Tech in Mechanical Engineering from IIT, Kanpur, 59-year-old Upendra Prasad Singh had been deeply involved in policy, planning and management of water resources in India.
Prior to this, he held the post of Secretary in the Department of Water Resources, River Development & Ganga Rejuvenation, Ministry of Jal Shakti, w.e.f. 1 December 2017.
UP Singh held important assignments in both Central and State Governments and possesses rich and varied experience.
He joined the Ministry of Water Resources & River Development and Ganga Rejuvenation on 1 June 2016 as Additional Secretary and also held the post of Mission Director, National Water Mission (NWM).
Later he assumed the charge of DG, National Mission for Cleaning Ganga (NMCG) on 7 October 2016.
He has also worked as Additional Secretary in the Ministry of Petroleum and Natural Gas.
It is pertinent to mention here that after completing stint of 17 months on 31 December, 2020, Ravi Capoor as Secretary, MoT, AK Sharma and later Pradip Kumar Tripathi took additional charge of Secretary, Textile Ministry.
Source: Apparel Online
India is turning from man to machines to improve the quality and speed of its economic data, which has been criticized as inadequate, delayed or even confusing due to sharp and unexpected revisions.
The Ministry of Statistics is ramping up use of artificial intelligence for collecting, analyzing and reporting data to better monitor the economy. The measures include a $60 million program with World Bank help using an information portal that collates real-time data.
“Because of the changing landscape, there’s a growing need for more and more data, faster data and also more refined data products,” Statistics Secretary Kshatrapati Shivaji said in an interview. With end-to-end computerization, “this type of automation will enhance the quality, credibility and timeliness of data.”
The quality of its economic numbers is a pressing issue for India following numerous controversies over its data. While the pandemic has exposed the constraints of conventional economic data the world over, the problem is particularly acute in India, where a dependence on manual processing has sometimes led to a data vacuum.
The country of 1.3 billion people, only 20% of whom know how to use the internet, had to suspend field surveys during the lockdown, which led to gaps in reporting monthly retail inflation numbers. The missing information eventually was filled in with phone surveys, but the ministry is also establishing a system to do surveys electronically, and will use digital databases where possible.
“Apart from using such data from a policy perspective, having access to updated data can be used to suggest leads for sector-specific interventions, immediately, as and when required,” said GV Anand Bhushan, Chennai-based partner at the Shardul Amarchand Mangaldas & Co. law firm, which is advising some technology companies working with the government.
India is seeking to build its manufacturing sector by wooing companies away from China, but it can’t compare to Asia’s biggest economy in timely reporting of statistics. India’s quarterly GDP data are reported with a lag of two months, compared to less than three weeks in China.
The situation is worse for India’s jobs statistics, a burning issue in a country where about 1 million people enter the job market every month. While the U.S. and China, which has been accused of massaging its economic data to meet political goals, release monthly jobs numbers, Indian employment statistics are already a year out of date by the time they’re reported.
“This is an ongoing challenge for investors in India,” said Joevin Teo, head of Asia fixed-income at Amundi Singapore Ltd. Having higher-frequency data such as employment and retail sales, as well as third-party data that could be checked against official statistics, would “help fund managers avoid a scenario where economic data and on-the-ground reality are inconsistent.”
It doesn’t seem to be deterring international investors, however: They’ve poured about $24 billion into Indian stocks over the past 12 months, while pulling money out of other Asian economies except China’s, according to data compiled by Bloomberg.
Given concerns about the official data, economists who study India are seeking alternatives. Monthly numbers released by Mumbai-based private research firm Centre for Monitoring Indian Economy, which does its own surveys, have become the de-facto unemployment data. Many analysts, including Bloomberg Economist Abhishek Gupta, use their own tools to take the economy’s pulse.
“Advancements in information and communication technology and the rapid digitalization of society have created new opportunities for India to improve its national statistical system,” a spokesman for the World Bank said. “COVID-19 has further underscored the need for modernization as the pandemic and associated lockdowns upended traditional methods of data collection.”
India’s GDP data has been at the center of debate since 2015, when the government revised the base year to reflect changes in the economy. The intention was to capture the latest developments -- including the replacement of obsolete items such as typewriters that have made way for smart devices -- but the suddenly higher growth rate puzzled economists.
On top of other issues, India’s statistics departments face a manpower shortage: Looking at statistical officers posts in different ministries and states, 2,013 of 7,363 positions are vacant.
The Statistics Ministry’s Shivaji said artificial intelligence will be used “extensively” and can help overcome personnel constraints.
“Because of automation and technology-intensive applications, the capability and productivity of staff is getting enhanced substantially,” he said. “Wherever there is a component where we’re able to squeeze the time with the help of technology, we’re trying to do that.”
Source: The Economic Times
India’s consumption economy will be the third-largest globally by 2030, and it would scale to about $5 trillion, said Kalyan Krishnamurthy, chief executive officer at e-commerce giant Flipkart Group. He expects that 75 per cent of this consumption will be led by the middle-income segment.
“The estimated size of the retail commerce economy in India will be more than $1 trillion in the next 3-4 years,” said Krishnamurthy, at Resurgence TiEcon Delhi - NCR event.
In this context, Krishnamurthy said India's e-commerce journey has democratized shopping. In 2006, less than 3 per cent of people were shopping online. In 2019, about half of the population (about 500 million) was online and more than 10 per cent were shopping online. He said now close to 100 per cent pin codes in the country has seen the adoption of e-commerce. This includes categories like fashion, appliances and furniture. Flipkart is witnessing more than 60 per cent of transactions and orders in India are coming from small cities and towns.
“We still believe that we are scratching the surface when it comes to e-commerce penetration and adoption in India,” said Krishnamurthy, whose company competes with players such as US retail giant Amazon and Reliance’s JioMart.
He mentioned that only 3.5 per cent of Indian commerce is online as compared to more than 25 per cent e-commerce adoption in China, and other developed economies that have witnessed 10 per cent to 25 per cent adoption rates.
This growth will be driven by many technology and demographic trends. This includes India being home to a billion internet users by 2030. The prices of mobile data have fallen drastically by about 95 per cent in the last 5 years. About 75 per cent of India's population in the next five to six years will comprise of millennials and Gen Z.
“We are (also) very clear that voice and vernacular technologies will enable digital access in India, in an accelerated fashion,” said Krishnamurthy.
The coronavirus pandemic has accelerated the adoption of e-commerce in many countries across the world including the US, China and the UK He is seeing a deceleration in the traditional retail economy of China, and the acceleration of e-commerce first companies. Big brands such as Nike, Adidas and Lululemon have seen a massive surge in terms of e-commerce.
India has actually seen a very similar trend. Most of the consumers in the country are looking for value across income levels. Krishnamurthy said that Covid-induced spike in e-commerce has actually changed several categories. The meaning of essential categories has also completely changed. It includes ‘at home economy’ which is spread across different categories.
“We believe the Indian e-commerce economy has seen a permanent shift for the positive,” said Krishnamurthy. He expects that over the next few years, the Indian e-commerce economy will be bigger than modern retail today. For instance, the pre-Covid growth rates of e-commerce were roughly 26 per cent to 27 per cent but as per the post-Covid estimates, it has gone closer to 30 per cent. “We (also) do believe the Kirana ecosystem will continue to see a huge spike,” said Krishnamurthy.
Krishnamurthy mentioned that in the next 3-4 years, it was estimated that the e-commerce market size would be roughly in the range of about $50 billion to $60 billion. “Today, the same numbers are actually close to $90 billion to $100 billion.”
He said the innovations to reach the next 300 million Indians revolve around verticals such as access and affordability. For instance, voice and vernacular language enabled commerce and the use of videos and affordability are playing an important role in the growth of e-commerce in the country.
Source: The Business Standard
Foreign direct investment (FDI) into India increased by 37 per cent to USD 43.85 billion during April-November 2020, according to data by the commerce and industry ministry.
Total FDI inflows (including reinvested earnings) during the eight-month period of the current fiscal grew by 22 per cent to USD 58.37 billion, the ministry said on Wednesday.
“FDI equity inflow received during 2020-21 (April to November, 2020) is USD 43.85 billion. It is the highest ever for the first 8 months of a financial year and 37 per cent more compared to the first 8 months of 2019-20 (USD 32.11 billion),” it said.
It added that FDI is a major driver of economic growth and an important source of non-debt finance for the economic development of India.
“Measures taken by the government on the fronts of FDI policy reforms, investment facilitation and ease of doing business have resulted in increased FDI inflows into the country,” it said.
Source: The Financial Express
The government needs to ensure strong expenditure growth in the Union Budget with targeted fiscal support to address the K-shaped recovery being witnessed by the Indian economy, according to experts.
While public expenditure would boost near-term growth, a credible medium-term fiscal consolidation path would be a positive for investors and rating agencies looking at the Indian economy, felt a panel of experts at a virtual conference hosted by the National Council for Applied Economic Research on Wednesday.
“Profits are recovering faster than wages, capital is recovering faster than labour, upper-income groups have fared much better than lower-income groups, this has implications for not just income inequality but for steady state demand, this K-shaped recovery,” said Sajjid Chinoy, chief India economist at JP Morgan.
Finance minister Nirmala Sitharaman will present the Budget on February 1.
Chinoy pushed for “expansionary consolidation” which involved government expenditure increasing faster than nominal gross domestic product in fiscal 2022, to maintain growth of the expenditure-GDP ratio.
This would lead to consolidation of the deficit in the medium term through higher growth, if the spending was directed at infrastructure, health and education, thereby creating jobs to sustain high growth, the part-time member of the Prime Minister’s Economic Advisory Council said.
“Given the uneven K-shaped recovery, we don't need an across-the-board fiscal stimulus; what we need is a more targeted support,” said Sonal Varma, chief India economist at Nomura.
According to Varma, small and medium enterprises, unorganised sector workers and contact-intensive sectors like tourism and hospitality were still in need of fiscal support.
To meet these objectives, Varma suggested higher allocation to the rural employment guarantee scheme and a cost burden sharing scheme targeted at the hospitality sector.
“A government programme which brings together income support along with strong infrastructure investment is the Pradhan Mantri Gram Sadak Yojana,” said Sudipto Mundle, who was a member of the 14th Finance Commission, suggesting a way the government could target its twin objectives of income support and infrastructure spending in the upcoming Budget.
To finance the added expenditure, Mundle called for an aggressive programme to sell public sector assets. “…the stock market has been very buoyant. It is a very good time to sell and that is what the government needs to get the deficit down and the expenditure up,” Mundle added.
Source: The Economic Times
Retail and fashion company Aditya Birla Fashion and Retail Limited has announced a strategic partnership with designer brand Sabyasachi by signing a definitive agreement for acquiring 51% stake in Sabyasachi brand, the company said in a regulatory fiiling.
The cost of acquisition or the price at which the shares are acquired will be approximately ₹398 crore, subject to closing adjustments.
“Through Sabyasachi brand, ABFRL will be able to tap luxury and bridge to luxury segments across all categories such as apparel, jewellery and accessories," the company said in a regulatory statement.
“Through this investment, ABFRL will strengthen its position in the largest and amongst the fastest growing apparel segment, in line with its stated long term strategy of building a formidable play in ethnic wear segment," it further added.
The indicative time period for completion of the acquisition is 30-45 days.
Commenting on the partnership, Ashish Dikshit, Managing Director, ABFRL said: “We are proud to partner Sabyasachi in its journey to become the only global luxury brand from India. We see a ‘Made in India’ global brand like Sabyasachi occupying the pinnacle of our ethnic wear portfolio. Over the next few years, ABFRL intends to craft a portfolio that addresses the entire gamut of ethnic wear segments: value, premium and luxury."
Sabyasachi Mukherjee, CEO and Founder, Sabyasachi Brand, said: "I am honoured and excited to have found that partner in Kumar Mangalam Birla and ABFRL. Aligned in our vision, and committed to excellence, we will work together to grow a truly global luxury brand out of India.
Sabyasachi brand was incorporated in the year 1990 and it is engaged in designer apparel, jewellery and accessory for men and women. The brand has a franchise in India, US, UK and the Middle East
Source: The Mint
Back when global investors still believed Prime Minister Narendra Modi would keep his promise to end the previous regime’s “tax terror,” his newly elected government made a costly error. In March 2015, someone in India’s labyrinthine bureaucracy decided to send a revenue demand to U.K.’s Cairn Energy Plc — ruining Chief Executive Officer Simon Thomson’s birthday.
This March 10, Thomson has every reason to celebrate both his birthday and victory in a tortuous legal saga that ended right before Christmas with a $1.2 billion international arbitration award in Cairn’s favor. But there’s still one big glitch: The check that should have been in the bank by now isn’t even in the mail. That raises the unpleasant prospect of a private company having to legally seize sovereign property globally, a course of action some of its shareholders are starting to recommend.
“It would be truly unfortunate if this were the only path to resolution but in the absence of India adhering to the ruling, the company may be left with no other choice as it has a fiduciary duty to act,” says Stan Majcher, a portfolio manager at Los Angeles-based Hotchkis and Wiley Capital Management, which owns more than 2% of Cairn.
It’s been arduous and time-consuming for private firms to seek enforcement against Venezuela, Qatar, Lithuania and Tunisia. But when the sovereign in question is the world’s largest democracy and a rising economic power, things could get outright messy. For India, it will also be a PR disaster. After giving assurances that it would honor the verdict, not doing so makes New Delhi appear unpredictable and recalcitrant. “Cairn’s claim needs to be resolved, and nobody wants it resolved this way,” Majcher said in an email.
Maybe India is dragging its feet to explore some kind of an appeal, even though the arbitration panel in The Hague was unanimous, and the whole point of the exercise was to resolve the dispute with finality. Or perhaps politicians and bureaucrats are too distracted by the ongoing vaccination drive, the upcoming budget, this week’s farmers’ protests and other pressing matters.
Hubris could also be coming in the way. Last year, when most large recipients of foreign direct investment reported big declines, and China eked out a modest 4% gain, India came out ahead with a 13% jump in FDI. A large chunk came chasing the digital and retail businesses in which Mukesh Ambani, India’s richest man, raised equity. Yet the country may well be on the cusp of an influx of money that wants to flee the U.S.-China trade war by exploiting liberal “Make in India” production-linked incentives.
Perhaps the main hitch is political inertia. By not making a clean break after the 2014 polls from the Manmohan Singh government’s draconian retrospective taxation, the Modi administration missed a fleeting opportunity for a reset in what has traditionally been a testy relationship between the state and the private sector. It’s too late to get any political mileage out of making amends. So, the feeling may go, why sign the check?
Public memory is too short to care that the mess originated in Singh’s final years in power. His government, besieged by allegations of corruption in everything from the 2010 Commonwealth Games to 2G spectrum awards, decided to make an example of another U.K. investor, Vodafone Group Plc. The taxman contended that while buying the Indian wireless business of Hong Kong billionaire Li Ka-shing in 2007, the British telco should have withheld a portion of Li’s capital gains. After the Supreme Court threw out the claim because the transaction had occurred overseas, New Delhi changed the law retrospectively in 2012, giving itself the power to take a part of any windfall profit on an underlying Indian asset going back to 1962.
None of this shored up the waning credibility of Singh’s government. Modi, though, weaponized the economic mismanagement to sway public opinion and the popular vote. But the non-adversarial tax regime he promised never came. Cairn, which made India’s biggest onshore oil discovery in two decades, was unlucky enough to fall into the trap of retrospective taxation. And there it remains six years later, waiting for nothing more than a return of what has been forcibly taken from it.
The amount, plus interest and costs, is almost the same as the energy explorer and producer’s current $1.4 billion enterprise value. It suffered this damage simply because it transferred ownership of its Indian oil field in 2006 to Cairn India Ltd., to prepare for the local unit’s initial public offering. At the time, no tax was demanded. Years later, when Cairn disputed the sudden $4.3 billion levy, New Delhi expropriated its shares in Vedanta Ltd. (into which Cairn had merged its Rajasthan oil field), helped itself to the dividends and dumped the stock.
Back in 2012, India brought in retrospective taxation via the federal budget. This year’s budget is due Monday. All that Finance Minister Nirmala Sitharaman has to do is to make a provision for the Cairn payment, an insignificant footnote in her $415 billion-plus expenditure plan. India should also drop the appeal against the Vodafone arbitration, which has also gone against it. By doubling down on a bad idea, the Modi government has willy-nilly made it its own and done no favors to India’s business-unfriendly image.
Source: The Economic Times
Chinese and Bangladeshi experts during a webinar on Monday favoured using alternative dispute resolution (ADR) to strengthen open account trade for import and export between China and Bangladesh.
The event styled 'Using ADR Clause to Strengthen Open Account Trading for Imports and Exports between China and Bangladesh' was co-hosted by Bangladesh International Arbitration Centre (BIAC) and International Investment and Trade Service Window of China Yunnan Pilot Free Trade Zone (IITSW of CYPFTZ), said a press release.
Addressing the webinar, BIAC board chairman Mahbubur Rahman said the keys to selling under an open account are a high level of confidence that the buyers will pay, good understanding of external forces and proven financing techniques.
ADR can resolve issues like non-payment under open account trade, particularly where contracting parties from Bangladesh and China are involved in import and export between them, he said.
"Today's valuable deliberations will lead us to a more pragmatic ADR landscape in both China and Bangladesh to make open account trading between the two nations more beneficial to our common interests," Mr Rahman hoped.
BIAC CEO Muhammad A (Rumee) Ali in his welcome address expressed satisfaction over the ever-increasing volume of Sino-Bangla trade.
He said economic ties between the two fraternal nations have been further consolidated under the Belt and Road Initiative (BRI).
"Under the initiative," Mr Ali said, "we provide each other with goods and services of excellent quality and reasonable prices and truly bring a sense of gain to the two peoples."
All these transactions are based on contracts and an ADR clause will only strengthen the position of the parties, he maintained.
IITSW director Zhang Jingmei reiterated her organisation's commitment to working with Bangladeshi entrepreneurs to resolve disputes arising out between parties of the two nations in open account trading through ADR.
The IITSW vows to work as a bridge between Bangladesh and China to boost bilateral trade.
As the special guest, China Maritime Arbitration Commission vice-chairman Li Hu emphasised adhering to arbitration and mediation as more appropriate tools of dispute resolution in open account trade.
Standard Chartered Bank Bangladesh executive director (country operations) Munazzir Shehmat Karim moderated the webinar.
Dhaka Chamber of Commerce and Industry president Rizwan Rahman, International Chamber of Commerce-Bangladesh secretary general Ataur Rahman, Prof Ni Peng, legal adviser to Communist Party of China, Minsheng Bank, Kunming deputy general manager Geng Jiajun, Kunming-based lawyer Yaze Xiong, Jahrat Adib Chowdhury, chief legal officer of Banglalink Digital Communications Ltd, BIAC director MA Akmall Hossain Azad took part in the discussion.
The event was live streamed on BIAC's Facebook page and LinkedIn platform. Bonik Barta was the media partner of the webinar.
Source: The Financial Express, Bangladesh
It’s not just apparel manufacturers and brands, the sponsors too are developing a fondness for ASW Marketplace.
The latest sponsor to join this 24X7 technological platform is the UK-based Texon, which has been producing sustainable and high-performance material solutions for over 70 years now.
ASW Marketplace couldn’t have asked for a better industry-friendly partner than Texon, who has come with a rich plethora of products and services that are distinctive.
And that’s something, which will help the industry meet the growing needs of market.
Texon, which produces textiles that are both functional and eye pleasing, believes in the perfect blend of sustainability and fashion. Its Texon Vogue, made from 100 per cent natural fibres, is a material that can be transformed to make fashionable hats, caps and bags, amongst others.
Widely recognised as a viable alternative to leather, Texon Vogue is vegan-friendly and is available in multiple colours and finishes – not to mention, it’s easy to work with too.
Texon is also known for making functional and structural components for the footwear sector. Additionally, it is also used in printing and stitching employing different techniques.
So here’s someone who can help support business aspirations effectively and if you need to know Texon more closely, then come and visit the ASW Marketplace now.
Source: Apparel Online
The National Board of Revenue (NBR) has selected a total of 141 taxpayers to recognise the individuals and corporate entities for the highest tax payments in fiscal year 2019-20.
The income tax wing of the board under Internal Resources Division (IRD) has issued a gazette notification with the names of the tax card winners.
Of the winners, some 76 are individual taxpayers while 53 corporate taxpayers and 12 in other categories.
From the leather industry category, Apex Footwear Limited, Bata Shoe Company (Bangladesh) and Lalmai Footwear Limited won the tax cards.
Some four banks including Standard Chartered Bank, Islami Bank, HSBC and National Bank limited won the tax cards.
From the non-banking financial institutions, Infrastructure Development Company Limited, IDLC Finance, Bangladesh Infrastructure Finance Fund Ltd, and Uttara Finance and Investment Limited have been nominated as tax card winners.
Grameenphone limited will also receive tax card under the telecommunication category.
Coats Bangladesh, Sanjana Fabrics limited, Badsha Textile mills limited, Apex Textile Printing Mills Limited, Fakhruddin Textile Mills Limited, Noman Terrytowel Mills Limited and Envoy Textiles will receive tax card.
Spectra Engineers Limited, BSRM Steels, ACT Motors have been nominated as tax card winners.
From the food and beverage sector, Nestle Bangladesh, Olympic industries and Square Food and Beverage won the tax cards.
Titas Gas Company, Meghna Petroleum and Padma Oil Company limited will also receive tax cards for their contribution to the public exchequer.
In the jute category, Akij Jute Mills, IR Khan Jute Mills and Ayan Jute mills limited have been selected as tax card winners.
The winners from the pharmaceuticals and chemical sector are Unilever, Square, Incepta and Renata.
Under the print and electronic media category, Media Star Limited, East West Media Group, Trascraft limited and Media World Limited won the tax cards.
Golam Dastagir Gazi, late Latifur Rahman, Matiur Rahman, Alihussain Akberali and Dr Mustafizur Rahman have been selected as the highest taxpayers from senior citizens.
Hazi Md Kaus Mia, Syed Abul Hossain, Nazrul Islam Mazumder, Nuruzzaman Khan and Mohammad Kamal will receive the award under the business people category.
Under the journalists' category, Mahfuz Anam, Md Abdul Malek, Motiur Rahman, Shaikh Siraj and Monjurul Ahsan Bulbul won the tax cards.
Sheikh Fazle Noor Taposh, Rezaul Karim and Foyez Ullah have been selected as the highest taxpayers from lawyers, engineers and architect categories.
Masuk Ahmed from accountants, Seuli Akhter Nipa from new taxpayers, Shakib Al Hasan from athletes, Shakib Khan Rana from actors and actresses, Tahsan Rahman Khan from singers and Kazi Iqbal Harun from other categories will be awarded.
SN Corporation, Civil Aviation Authority of Bangladesh, Bangladesh Police Welfare Trust and Asha have been selected as top taxpayers from farm, local government and associations from other category respectively.
The top individual and corporate taxpayers will be honoured with tax cards, crests and certificates.
Source: The Financial Express, Bangladesh
Europe’s economy is starting to follow the familiar script of lagging its international peers when recovering from a crisis.
That was the upshot of the International Monetary Fund’s (IMF) forecasts on Tuesday, which downgraded the growth outlook for 2021 across Europe and underscored a generally poorer performance compared with China and the US
Such diverging fortunes reflect the stringency of lockdowns across the euro zone to contain the coronavirus, as well as a late and stumbling vaccination campaign -- headwinds that threaten to deepen what already looks likely to be a double-dip recession. Political unease over the future leadership of Germany and a crisis in Italy are compounding the gloom.
By contrast, China is fulfilling a V-shaped recovery, and the US is strutting more confidently with a new president overseeing an extra stimulus injection and a more aggressive vaccine effort.
“We’ve started the year on a softer footing, particularly in Europe, because much of Europe seems to have gone back into recession,” Janet Henry, chief global economist at HSBC Holdings Plc in London, told Bloomberg Television. “China is already back above pre-pandemic levels and, on our projections, the US will be by the end of 2021. For the euro zone, it’ll be the end of 2022.”
That divergence was emphasized in the IMF’s forecasts, which showed euro-area gross domestic product rising only 4.2% this year, after falling 7.2% in 2020. The US economy is seen expanding 5.1%, more than recouping last year’s 3.4% contraction.
The most immediate cause of Europe’s relative weakness is the need for stricter and longer lockdowns to combat a resurgent coronavirus outbreak, and to contain nastier strains of the disease.
As European Central Bank President Christine Lagarde put it last week, a contraction in the fourth quarter will now “travel” into the first three months of the year.
“The short-term risk is tilted to the downside,” she added somberly. “Uncertainty is in the air.”
What Bloomberg Economics Says...
“Under pessimistic assumptions about how long restrictions will last, we now estimate that the euro-area economy will experience a deep contraction in 1Q. That will mark the second technical recession in the region as a result of the pandemic.”
--Jamie Rush and David Powell.
Sluggish immunization programs also threaten to widen the disparity between Europe and the rest. The European Union’s best performers in that regard, tiny Malta and Denmark, have administered only around 4 shots per 100 people. The U.S. has managed 7 and the UK is above 10. The EU is now in a standoff with AstraZeneca Plc over delayed vaccine deliveries.
With such shortcomings likely to cement lockdowns even further, the contrast in economic destinies is looking stark, with banks including Barclays Plc pointing to an “Atlantic divide.”
“The US outlook is improving, Europe’s is deteriorating” BofA Global Research’s economics team wrote in a report. “Don’t think of both economies’ recovery prospects as equal.”
Such a trajectory evokes the frequent impression that Europe has become a natural economic laggard to the rest. That sense has persisted for much of the current century, not least after the region’s sovereign-debt crisis impaired its recovery from the global financial crash a decade ago, while the U.S. and China powered ahead, at least in relative terms.
Newfound political disarray is only serving to highlight Europe’s listlessness. Post-Brexit trade curbs with the UK are already an irksome reminder of the recent trauma of divorce disfiguring the region.
Meanwhile, the succession to Germany’s Angela Merkel is still unresolved, keeping open the question of how the bloc will galvanize itself into fighting crises in the era after she leaves. Even after a candidate to replace her as chancellor is settled, an election in September -- no doubt followed by coalition talks -- will prolong the drift.
The sudden resignation of Italian Prime Minister Giuseppe Conte, against a backdrop of burgeoning debt obligations, also shows how turmoil is never far from erupting somewhere in the region. The country has been the focus of the EU’s efforts to forge a joint recovery fund to shore up the integrity of its common currency.
Clinging to Hope
For all their potential despair, European policy makers can still cling to hopes that their economies remain sound beneath the surface.
Government support programs in the region have tended to be highly targeted toward keeping companies and jobs afloat even when output is shut down, possibly avoiding unnecessary destruction to growth potential.
“Economies are being held in an imperfect state of suspended animation, and by and large it keeps underlying economies healthy,” said Kallum Pickering, an economist at Berenberg. “My hunch actually is that there’s a bit less scarring than most people think.”
In any case, Europe’s finance chiefs are now resigning themselves to being patient for when vaccination setbacks can be cleared, and the pandemic tamed, so that their economies can finally be unleashed -- even if that happens far later than global rivals.
“We have to divide the year 2021 in two parts,” French Finance Minister Bruno Le Maire said in a Bloomberg Television interview. “We have everything that is required to have a very strong, very quick rebound as soon as the pandemic is over.”
Dutch central bank Governor Klaas Knot shares that view -- but also cautions that there will be a long road ahead to repair the damage.
“There is optimism, but then of course we will be stuck with the legacy of the corona pandemic,” he told Bloomberg Television. “Output will be below potential for some time to come.”
Source: The Hindustan Times
Global inflow of foreign direct investment (FDI) showed a steep fall of US$859 billion in 2020 from $1.5 trillion a year earlier as the fallout of Covid-19, says a UN report.
The provisional estimate came at the 38th Global Investment Trends Monitor, unveiled by the United Nations Conference on Trade and Development (UNCTAD).
The report said the drop of 42 per cent of estimated global FDI was also more than 30 per cent "below the trough after the global financial crisis in 2009 and back at a level last seen in the 1990s."
The decline was led by the developed countries, where FDI flows fell by 69 per cent to an estimated $229 billion while flows to Europe contracted to -4.0 billion, including large negative flows in several countries, according to the estimate.
A sharp decline of 49 per cent was also recorded in the United States to $134 billion.
"The decline in developing economies was relatively measured at -12 per cent to an estimated $616 billion," said the report. "The share of developing economies in global FDI reached 72 per cent - the highest share on record," it said, adding China topped the ranking of the largest FDI recipients.
The UNCTAD estimate also showed that the fall in FDI flows across the developing regions was uneven, with 37 per cent decline in Latin America and the Caribbean, 18 per cent in Africa and 4.0 per cent in developing Asia.
East Asia was the largest host region, accounting for one-third of global FDI in 2020, according to the report.
FDI to transition economies declined by 77 per cent to $13 billion.
According to the UNCTAD report, the early phase of the pandemic caused steep drops in capital expenditures in China where FDI ended the year with a small increase of 4.0 per cent.
FDI in India increased by 13 per cent, boosted by investments in the digital sector.
The full year data of FDI in Bangladesh is yet to be available.
Bangladesh Bank statistics, however, showed that the net inflow of FDI in the country declined by 19.50 per cent in the first nine months (January-September) of 2020 and stood at around $1.74 billion. The amount was $2.15 billion in the same period of 2019.
The central bank data also showed that FDI through equity or fresh capital injection declined by around 22 per cent during the first nine months of 2020. At the same time, FDI through intra-company loans recorded a big drop of 74 per cent.
Reinvested earnings of the existing multinational corporations, however, increased by 12 per cent and recorded net FDI worth $1.12 billion.
The annual net inflow of FDI in 2019 in Bangladesh was recorded at $2.87 billion, which was 20.46 per cent lower than $3.61 billion in 2018.
In its outlook, the UNCTAD report mentioned the FDI trend is expected to remain weak in 2021.
"The data on an announcement basis, an indicator of forward trends, provides a mixed picture and point at continued downward pressure," it added.
For instance, sharply lower greenfield project announcements declined by 35.0 per cent in 2020, suggesting a turnaround in the industrial sector is not yet in sight.
Similarly, some 10 per cent decline in cross-border merger and acquisition (M&A) in 2020 was "cushioned by higher values in the last part of the year."
Looking at M&A announcements, strong deal activity in technology and pharmaceutical industries is expected to push M&A-driven FDI flows higher.
According to UNCTAD, the trends in greenfield and project finance announcements are a major concern for the developing countries.
"Risks related to the latest wave of the pandemic, the pace of the roll-out of vaccination programmes and economic support packages, fragile macroeconomic situations in major emerging markets, and uncertainty about the global policy environment for investment will all continue to affect FDI in 2021," the UN body predicted.
When contacted, Dr Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), said Bangladesh is not immune to the global trend and the decline in FDI was unavoidable during the pandemic.
"As most of the companies are struggling to survive and trying to continue the current operations, no fresh investment is taking place," he told the FE. "The demand is very low as consumption has plunged."
The economist explained FDI in Bangladesh is mostly domestic market-oriented like telecommunications, energy and financial services. The export-oriented investment is also there, but that declined due to slump in global demand.
Dr Moazzem also said Covid-induced uncertainty still prevails, which will make it difficult for Bangladesh to attract FDI in near future.
"We need to prepare ourselves with better soft infrastructure like a full-fledged one-stop licensing facility," he said. "When the global economy will start rebounding, the demand for foreign investment from different countries will increase and there will be a race to draw it," he added.
Source: The Financial Express, Bangladesh
