The Indian economy is expected to rebound strongly in 2021-22 owing to the reform measures undertaken by the government, the Union Budget document said on Monday. It further said that the real Gross Domestic Product (GDP) growth is projected to contract by 7.7 per cent in 2020-21 as compared to a growth of 4.2 per cent in 2019-20.
“GDP growth, however, is expected to rebound strongly in 2021-22 owing to the reform measures undertaken by the government,” the budget document said.
It pointed out that the government announced under the Aatma nirbhar Bharat mission a special economic and comprehensive package of Rs 20 lakh crore – equivalent to 10 per cent of India’s GDP – to fight the COVID-19 pandemic in India.
“Several structural reforms announced as part of the package, inter alia, include deregulation of the agricultural sector, change in definition of MSMEs, new PSU policy, commercialization of coal mining, higher FDI limits in defense and space sector,” it said.
According to the document, the Indian economy was negatively impacted by an unprecedented health crisis in 2020-21 with the highly contagious coronavirus spreading across the country.
It also noted that monetary policy remained accommodative during 2020.
The document said that merchandise exports (customs basis) during 2020-21 (April-December) were at USD 200.8 billion, which declined by 15.7 per cent over the level of USD 238.3 billion in the corresponding period of the previous year.
Bank credit growth was 6.1 per cent as on December 18, 2020 as compared to 7.1 per cent in the corresponding period of the previous year, it said.
Source: The Financial Express
The Uttar Pradesh Government has claimed that four companies have announced of having invested Rs. 6,320 crore in the state in last 3.5 years. Overall, the state has received investment of over Rs. 1,88,000 crore during this period.
Alok Tandon, Infrastructure and Industrial Development Commissioner, Uttar Pradesh said, “Due to these investments, Kanpur has emerged as a big textile hub. The proposal to make Gorakhpur a textile hub has also got the green signal.”
He further added that textile sector bore good results due to policy changes.
As per media reports, Noida Apparel Export Promotion Cluster will invest Rs. 5,000 crore in apparel park.
Kanpur Plastipack Limited (KPL) is investing Rs. 200 crore. The company is known as a leading manufacturer and exporter of flexible intermediate bulk container (FIBC)/bulk bag/jumbo bag, PP multifilament yarn, PP woven sacks and wide variety of fabrics like sulzer fabric, ventilated fabric, circular fabric, etc.
RP Poly Packs is also investing Rs. 150 crore in the state. The company is known for the manufacturing of HDPE tarpaulin sheets known as PP fabric and HDPE fabric used in packaging material, water proofing and temporary shelters.
Another major investment is announced by a yarn manufacturing company that is planning to invest Rs. 950 crore in Balrampur.
It is pertinent to mention here that the State Government has announced schemes like One District-One Product and few other schemes to attract investment in the state across various industries.
Source: Apparel Online
Finance Minister Nirmala Sitharaman on Monday said the government estimates fiscal deficit of 6.8 per cent of the gross domestic product (GDP) in the next financial year beginning April 1.
However, the fiscal deficit in 2020-21 is estimated to soar up to 9.5 per cent due to rise in expenditure on account of the outbreak of COVID-19 and moderation in revenue during this fiscal year.
The lockdown to check the spread of virus adversely impacted the economic activities resulting in contraction in the economy by an estimated 7.7 per cent.
For the current fiscal year, the government had earlier pegged the fiscal deficit of 3.5 per cent.
While unveiling the Budget 2021-22 in the Lok Sabha, the Finance Minister said, the government proposes to bring down the fiscal deficit below 4.5 per cent of GDP by 2025-26. Fiscal deficit is an indication of the government’s borrowing to meet the shortfall between expenditure and receipts from taxes and other sources.
The deficit had soared to a high of 4.6 per cent of the GDP in 2019-20, mainly due to poor revenue realisation.
The Finance Minister said the government plans to borrow Rs 80,000 crore during the residual two months of the current fiscal year.
Source: The Financial Express
Finance Minister Nirmala Sitharaman on Monday said the government has come out with open and transparent Budget and has not made any attempt to hide anything under the carpet.
She said that the focus of the Budget 2021-22 has been on spending big on infrastructure and attending to the needs of healthcare sector for reviving Indian economy which is expected to contract by 7.7 per cent in the current fiscal ending March hit by the COVID-19 crisis.
Briefing media after the presentation of Budget in Parliament, Sitharaman said the government has not lost opportunity to clean up its own book.
"I had started in July 2019 continued it in February 2020 and even now we have made accounts more transparent. Nothing is pushed under the carpet. We are showing clearly where money is going. Money given to FCI is also brought on board. So accounting of government expenditure and revenue statements are now lot more transparent and open," she said.
The Budget has also given glide path for deficit management and bringing it down below 4.5 per cent of Gross Domestic Product (GDP) by 2025-26.
The government has increased capital expenditure for the current fiscal and for the coming financial year to push demand in the economy hit by COVID-19 pandemic, she said.
"As a result, the borrowing increased and our fiscal deficit which started at 3.5 per cent during February 2020 has gone to 9.5 per cent of GDP. So, we have spent ... otherwise the fiscal deficit would not have reached this number," she said.
She further said that the spending on infrastructure has gone up from Rs 4.12 lakh crore to Rs 5.54 lakh crore while on the health sector rose to Rs 2.23 lakh crore from Rs 94,000 crore in the Budget estimate for 2020-21.
"The Budget comes at a time when all of us have decided to give a greater impetus to economy. That impetus would be qualitatively spent and create a necessary demand push if we choose to spend big on infrastructure. That is why if there are two important feature of this Budget it is that we chose to spend big on infrastructure and attending to the needs of health sector," she said.
Even for the health sector the government has decided to build up capacity in terms establishment of testing labs, and critical care centres, she added.
On the GDP growth, Economic Affairs Secretary Tarun Bajaj said Real GDP growth would be 10-10.5 per cent in the next fiscal.
"Our revenue figure is under-stated not overstated. We have taken nominal GDP at 14.4 per cent and revenue growth at 16.7 per cent. So the buoyancy is only 1.16. We are hopeful we will get more than this. We will definitely within 6.8 per cent and could be lower also," he said.
On the rationale for Rs 12 lakh crore borrowing for the next financial year, Bajaj said the government will spent the money borrowed on infrastructure development which has multiplier effect.
"But I presume it (Rs 12 lakh crore borrowing) will not have that inflationary impact. So we have taken that into account," he said.
"RBI dividend would come. We have said non-tax revenue would be Rs 2.43 lakh crore. It was last time Rs 2.10 lakh crore. So it is not something that we have inflated the number that we are going to get from them.
"We will definitely achieve this Rs 2.43 lakh crore of non-tax revenue. We are in touch with RBI, we know how much they are going to give us, hopefully by the end of March when the year ends, but its not something to be disclosed at the moment," he said.
Source: The Economic Times
Late president Kalam in his vision document, India 2020, envisioned India as a developed nation of 1.2 billion. Whenever history is written, FM Sitharaman has ensured, February 1 will get a star-studded recognition. Indeed, the economy required a massive course correction, and the fiscal deficit perspective was to be viewed liberally. The FM has made full use of the opportunity.
It is remarkable for the FM to set enough legroom for boosting growth without increasing the tax incidence. Another recognised mode of boosting government revenue is monetisation of non-core assets, owned by the government and PSEs that majorly consist of surplus land, either by way of direct sale or concession or by similar means. This shall largely help resource mobilisation.
Late president Kalam in his vision document, India 2020, envisioned India as a developed nation of 1.2 billion. Whenever history is written, FM Sitharaman has ensured, February 1 will get a star-studded recognition. Indeed, the economy required a massive course correction, and the fiscal deficit perspective was to be viewed liberally. The FM has made full use of the opportunity.
It is remarkable for the FM to set enough legroom for boosting growth without increasing the tax incidence. Another recognised mode of boosting government revenue is monetisation of non-core assets, owned by the government and PSEs that majorly consist of surplus land, either by way of direct sale or concession or by similar means. This shall largely help resource mobilisation.
The focus on thrusting employment generation was conspicuous concerning key emerging sectors like Mega Investment Textiles Parks (MITRA), augmentation of public bus transport services through the PPP model, etc.
One of the criticisms of past Budgets, is not only that outlays for agriculture have remained conservative but, more importantly, the expenditure has gone to unproductive avenues–interests and subsidies rather than capital investment. Under Pillar 3 which covered ‘Inclusive Development for Aspirational India’, a host of measures and enhanced government expenditure announced include increasing agricultural credit to farmers; enhanced allocation to Rural Infrastructure Development Fund and doubling the Micro Irrigation Fund.
Further, the scope of ‘Operation Green Scheme’, presently applicable to tomatoes, onions, and potatoes, has been enlarged to include 22 perishable products. The customs duty on cotton has been raised from nil to 10% and on raw silk and silk yarn from 10% to 15%. Also, a new ‘agriculture infrastructure & development cess’ on certain items, earmarked cess for improving agricultural infrastructure, has been announced. Being sensitive in nature, the agricultural reforms shall hopefully provide some relief to the famers’ current concerns. On health and well-being, the FM rightly recognised that there is room for public investment to establish a first-rate primary health care system. There is a stupendous outlay of `2,23,846 crores, a historic increase of 137%. Such expenses shall cover already initiatives—Swachh Bharat Abhiyan, National Digital Health, Ayushman Bharat and Mission COVID Suraksha.
The adverse situation of migrants and the unorganised sectors caused by the pandemic will be addressed by nationwide implementation of One Nation One Ration Card. Moreover, a portal is being launched that will collect relevant information on gig, building, and construction workers, among others.
Measures towards upgrading infrastructure and technology for efficiency and lowering financial losses has come as a relief to power discoms that have been suffering from revenue loss due to theft, poor transmission infrastructure, etc. The need for promoting competition to enable a greater choice to consumers to eliminate the monopoly of discoms is on the horizon. Continuing with the promise of Aspirational India, the budget has allocated a generous amount for National Research Foundation and support for space research and missions. A Deep Ocean mission shall ensure that India rubs shoulders with western counterparts.
A new customs duty framework for addressing Atmanirbhar Bharat has been announced (effective from October 1) after reviewing exemption notifications. Rationalisation of tariffs was announced on several products—mobile phone parts, gold and silver, etc. A roadmap for review of 400 odd exemptions this year through extensive consultation has also been announced.
While the dream 1991 budget was growth-oriented, it was widely criticised for not addressing the basic problems, especially in employment, agriculture, and health sectors. Expectations for meeting the checklist for a historic budget have been adequately met by balancing macro-economic reforms and equally important public policy areas of agriculture and healthcare.
Source: The Financial Express
India, the world’s biggest cotton grower, imposed a 10% duty on imports of the fiber to help farmers, Finance Minister Nirmala Sitharaman said in her budget speech in parliament on Monday.
The tax comprises a basic customs duty of 5% and an additional 5% levy to finance the development of agricultural infrastructure in the country, according to the budget documents.
A levy on overseas purchases will potentially support local prices amid higher domestic production and prevent distress sales by the growers. There was no duty on cotton imports until now.
The government also raised the levy on raw silk and silk yarn to 15% from 10%, according to the minister.
India’s cotton output may climb to 37.12 million bales of 170 kilograms each in 2020-21, from 35.49 million bales a year earlier, according to the farm ministry. Imports are expected to fall to 1.4 million bales this year from 1.55 million bales in 2019-20, according to the Cotton Association of India.
The state-run Cotton Corp. of India will increase purchases from farmers to 12.5 million bales in 2020-21 from 10.5 million bales a year earlier, according to the textile ministry. The government plans to spend 350 billion rupees ($4.8 billion) to buy cotton, compared with 285 billion rupees a year ago.
Source: The Mint
The expectations from the Budget were many. Fiscal 2020-21 is the worst year India has seen on economic performance since Independence. CSO had estimated that the economy would shrink by 7.7%. Other forecasts are even more grim. The Budget was expected to address two problems: To provide a strong stimulus to growth and to cast itself in a framework both credible and acceptable. On both these counts, it has performed reasonably well.
On the revenue side, the Budget has not levied any new tax, direct or indirect which itself has given great relief to taxpayers. There are however certain other tax changes which have been welcomed. Centre’s tax revenue for 2021-22 is budgeted to increase by 14.9%. The implied tax buoyancy is a little over 1 because GDP is expected to increase by 14.4%. The key question is, will GDP increase by this percentage? Earlier, it was put out by the government that real GDP will grow by 11%. These projections appear optimistic. This has a direct bearing on fiscal deficit.
The Budget has made a sincere attempt to pull up the economy. The emphasis on capital expenditures is well taken. There is a substantial increase as a proportion of GDP. The shift is more in the composition than the total of expenditures. It’s unlikely that the fiscal deficit will hold. We shouldn’t be surprised if it exceeds.
The strength of the Budget depends on several initiatives announced by the finance minister. Setting up a long term lending financial institution to promote investment is a good move. It in fact revives an earlier practice. Setting up an institution to provide liquidity in the bond market is again an extremely good idea. In fact, in the late 1980s when it was decided to promote initially the Treasury Bill market and later government bond market, two institutions were set up.
There are many other welcome ideas, such as increase in the foreign holding in private insurance companies and setting up asset reconstruction companies to take care of bad debts of public sector banks. Privatisation of one or two public sector banks is also a good decision. All of these may improve investment climate.
This year’s Budget incorporates the recommendations of the 15th Finance Commission (FC). Normally, in the year in which FC recommendations are incorporated, there’s a jump in the allocation of funds for states out of gross tax revenue. That hasn’t happened this year as FC has retained the share of states of 41% as the previous FC had raised the share sharply.
However, distribution among states may change because of the change in the horizontal formula of distribution. Fiscal effort has come back as a criterion. FC was fully conscious of the impact of Covid-19 on the economy as they were putting together the recommendations. It has suggested a new road map for fiscal consolidation to be prepared by an Inter-ministerial Group. Even though the NK Singh Committee earlier fixed the target to be achieved in terms of debt/ GDP ratio, the operating variable which was to be monitored was only fiscal deficit.
The argument that the path of fiscal deficit must be counter cyclical is well taken. But if we look at the behaviour of fiscal deficit in the past, even in the very good years when growth rate had exceeded 9%, the deficit was not below the mandated level. Fiscal federalism is passing through a critical phase. Fixing tax devolution at 41% is a good move. But this shouldn’t be defeated by increasing the cesses which aren’t shared with states. The cesses are also not temporary but permanent. Centre, in a true spirit of cooperative federalism, must desist from levying cesses. Even some legal cap can be brought in.
FC has recommended sectoral grants for health, school and higher education and agriculturalreforms. Sectoral grants should be distributed in such a way as to result in additionality. FC hasn’t rocked the boat and maintained a reasonable balance between the needs of Centre and states.
In a difficult year like the current one, fiscal deficit consideration recedes back. The fiscal deficit of 9.5% of GDP in 2020-21 is truly high. The main reason is fall in revenue. As compared to budgeted estimates, revised estimates of tax revenue show a decline by 23.04%. For all we know, the fiscal deficit of 2021-22 will also exceed the budgeted level for several reasons.
First of all, tax revenue is perhaps overestimated for reasons already mentioned. Second, non-tax revenues are overestimated. For example in 2020-21, disinvestment receipts were put at Rs 2,10,000 crore in the Budget and the actual according to revised estimates was Rs 32,000 crore. The time has come to redraw the road map for fiscal consolidation. It’s difficult to see how the government could achieve a fiscal deficit of 4.5% of GDP by 2025-26. In fact even a level of 4.5% is high. We need to spell out when we can reach 3% of GDP.
To sum up, Nirmala Sitharaman has done her best in a difficult situation to revive the economy. The most significant change on the expenditure side is the rise in capital expenditures. The total however remains the same. Fiscal deficit is likely to be exceeded. Once Covid problems are out of the way, a new road map must be drawn up to take the deficit to the previously mandated level.
Source: The Financial Express
This is a very good budget—it will likely be remembered for a while. Its strength lies, in many ways, in its brevity (under two-hour speech)—decisive in messaging, bold in policy turn—on a fiscal-expansionary approach. It is also efficient about its work on the plumbing of the ecosystems and is stark in what it does not do—burden the consumer, the business or the banker with taxes. It also a budget that takes more risks than the preceding ones; borrowing and debt will go up, inflation risks could derail the path, and the currency could be exposed to hiccups.
This budget, after many, does not take a middle path or seek to balance interests or interest groups; that is its biggest strength. The markets will cheer it—though, as with markets, the proof of the pudding lies in its economic and growth impact—and that will only be long-term coming. A strong capital market and a buoyant budget feed on each other: this mix should only better the chances of the budget having its desired impact on underlying economic growth.
The most compelling swing is the shift to an expansionary fiscal approach from a typically cautious, and often, contractionary approach. This is now in sync with most developed economies—better late than never, and the need of the hour. The fiscal path is spelt out for five years and is undemanding at every stage (50bps contraction every year). This makes it a policy switch, rather than a budget exercise for FY22. It is also in sync with RBI’s monetary approach, and this complementarity should bolster its effectiveness.
The second shift lies in the relative simplicity of the exercise, often a reflection of clearheadedness and a sense of purpose. The budget speech, a break from the recent past, was low on rhetoric and high on economic objectives, and more centred on spend sizes than programmes. There is greater transparency in the accounting—off-balance sheet lending (FCI) and direct capex, rather than the PSU’s, asset offloading and monetisation. The more realistic approach to non-revenue receipts, albeit with a still high dependence on the LIC IPO, only lends greater credence to estimates, and the expectations built around it. The approach is also a shift from the past, and gains, direct and perceived, could well be more immediate and confidence-inspiring.
This budget also focuses on the ecosystem’s plumbing—a now sustained effort in ease of doing business, particularly with the tax authorities. This is complemented by a further effort at clearing up the asset challenges—bad bank, regulatory recovery law tightening, credit buying entity and the lending system—capitalisation, DFI creation and the ambitious attempt at divesting a few large banks. These are all in the right direction and complement each other. These call for institution creation and building, which takes time; suggesting the gains could be more structural and cannot be achieved in the budget year.
On this day of accolades, the risk lies in the fact that the current government has been so far reluctant to take chances—even at the height of the Corona pandemic. These vest in the threat of inflation—already there, with a visible global commodity spike, decent demand, and sloshing liquidity—while deficit funding is expected to rise substantially. They also lie in global policy and liquidity. India has been a second-order beneficiary of the global fiscal and monetary pump-priming, and reversals or breaks could well unwind the easy liquidity, comfortable currency and strong market (and the mood) cushion; a backdrop of the budgets growth turn, and its positive early reception. The budget, interestingly, hurts almost no constituency; this please all could well be a risk!
On their part, the equity markets have celebrated quite unambiguously, the interest rate and currency markets understandably less so. We do see the equity markets buoyant reaction as fair. It is a turn in the approach that they have been asking for, is likely appropriate, and could well herald a new growth paradigm, precipitated by the pandemic, policy and the government’s clearer sense of economic purpose. That said, in our view, it is going to be a year of reconciliation, of a market that is all charged up and well valued, and an economy that has got the policy push it needs but still needs to catch up. That might well make FY22 a better year for the economy, than the market.
Source: The Financial Express
Finance Minister Nirmala Sitharaman read out the Union Budget speech in the Lok Sabha from a tablet on Monday instead of a conventional paper document.
Presenting the Budget for 2021-22, Sitharaman stood in the second row of the Treasury Benches. This time, the Budget will be a paperless document and it would be available to parliamentarians and the public online.
As the finance minister was presenting the Union Budget, Harsimrat Kaur Badal of the Shiromani Akali Dal, Bhagwant Mann of the Aam Aadmi Party and Hanuman Beniwal of the Rashtriya Loktantrik Party registered their protest inside the House on the three new farm legislations by holding placards demanding that the Centre take back the "black" laws.
The protesting members were standing in the aisles of the House.
Source: The Hindu Business Line
Disappointment was writ large on the face of the common man on the street after the Union Budget was presented by Union finance minister Nirmala Sitharaman with many saying that it had nothing much for the middle class.
Rakesh Sharma, a 61-year-old senior accounts manager with a private firm in the capital, said: “The Budget might be good for small shopkeepers, but it didn’t meet my expectations. I was hoping to get a subsidy on LPG and lower taxes on petrol. The agriculture cess might increase the prices of lentils and the end consumer will have to bear the brunt of it.”
Though tax exemption has been given to senior citizens aged 75 and above earning pension and interest, Sharma said the age limit should have been decreased.
“The Budget is very good when it comes to reforms in infrastructure, agriculture and healthcare, but there is nothing much for the middle class. I had been waiting for the Union Budget for quite some time and hoping that there would be something for me and people like me. However, there is nothing that will benefit me directly,” Meghna Singh, a banker.
Another banker, Pritika Mathur, had the same concerns as Singh and said there was nothing exceptional about this year’s Budget. “I sat through the entire Budget presentation hoping for some provision for us. However, just like the budgets of the past few years, even this one turned out to be a disappointment. A lot is being done for agriculture and infrastructure, but nothing that affects us directly,” the banker added.
Vikram Nagar, a Delhi-based businessman, said, “The vehicle scrapping policy is one of the highlights of the Union Budget. It will get old vehicles off the road and boost the automobile industry. But unlike other budgets, this one did not have groundbreaking policies.”
Tapan Dey (62), a retired executive, said his family’s expenses would only increase and no relief would come his way. “An agri cess of 10%-50% will be levied on kabuli chana, lentils and peas. Even Customs duty has been increased for automobile parts. This will certainly affect our Budget. The central government has not changed the tax slabs for the past three years. We were expecting some relief in this regard.”
Source: The Economic Times
While on the face of it, the pandemic made this year’s budget appear more challenging, in reality, it made it much easier by eliminating any meaningful policy trade-offs.
In the last two quarters, the economy has been recovering sharply and faster than suggested by official growth numbers, which remain based on antiquated year-on-year comparisons. According to the official year-ago growth numbers, the economy contracted 23.9% in Q2 and 7.5% in Q3. Year-ago comparisons have a serious problem in that they depend on what happened four quarters earlier and tell us very little about growth momentum. JP Morgan estimates suggest that, on a quarterly basis, India’s GDP plunged 25% in Q2-2020 and grew 21.5% in Q3-2020—a narrative markedly different from that portrayed by the official numbers. Indeed, the economy is likely to have grown another 10.5% in Q4-2020 and is expected to deliver a growth rate of -6.5% for the full fiscal year and then rise 13.5% in FY22.
These full-year growth numbers are higher than the forecasts of both the government and market consensus. The basis of optimism is twofold. First, by accident or design, India has managed to break the link between infection and mobility. The exact reasons are contested, but if the vaccination rollout proceeds as anticipated, then mobility should normalise by mid-year without threatening a new wave of infection.
The second is the recent shift in the government’s fiscal stance. After delaying for nearly six months, the government began to speed up spending in September. It is unfortunate that the government waited until tax revenue began to recover to ease its purse strings. While the adage “live within one’s means” is good advice for individuals and governments alike, it is intended mostly as a medium-term principle. Instead, a key objective of macroeconomic policy is to provide countercyclical support to an economy to dampen volatility in the short-run. Increasing spending when revenue is rising (presumably because an economy is also growing) accentuates, rather than dampens, economic volatility. Be that as it may, the boost from government spending was expected to be a key support to strengthen the recovery in FY22.
Thus, economics had simplified the budgetary choices. With the economy recovering and the equity market surging, taxes and privatisation would reasonably be expected to rise. The revenue increase could be used to reduce the deficit while keeping spending broadly at its current share of GDP. This would allow spending to grow 17-18%, in line with nominal GDP. The choice really boiled down to where to spend. Prudence dictated mostly on income support and infrastructure, particularly on public health.
In the event, the budget broadly met these ends, with one notable exception. For this year, the budget pegged the deficit at 9.5% of GDP, much higher than market estimates of around 7% and a five percentage point (ppt) rise over the previous year. But this is largely optical. Instead of funding food procurement through off-balance-sheet borrowing by FCI, as has been the case in the last few years, this year’s budget has rightly brought some of that spending back on its accounts. Excluding subsidies and interest payments, the increase in deficit is just 2 ppt of GDP.
For FY22, the budget targets a deficit of 6.8% of GDP. Much of the heavy lifting in the 2.7 ppt of GDP reduction is done by lower subsidies and higher privatisation. Excluding subsidies and interest payments, the budget targets a reduction of 0.5 ppt of GDP in overall spending, with capital expenditure rising only 0.2 ppt of GDP.
In the details, while there is a welcome emphasis on public health, improving the financing of infrastructure projects, and privatising banks and insurance companies, the glaring omission is the continued lack of income support. Why is this important? Underlying the strong headline recovery in growth, imbalances in the economy have widened significantly. The scarring in the labour market is extensive (private surveys point to a staggering 18 million job losses), and the likely damage to household and SME balance sheets substantial (the profits of listed companies rose 30% in Q3-2020, according to RBI, which implies a disproportionately large decline in household and SME income if overall GDP fell 7.5% that quarter). While a debt moratorium and other regulatory forbearance have concealed the extent of the damage, these measures simply postpone the eventual reckoning. A key risk is that not only is medium-term growth impaired because of the scarring, but also that banks turn risk-averse and do not extend credit exactly when the recovery is expected to gather strength once mobility fully normalises
Source: The Financial Express
India Ratings on Monday said the Budget numbers are more credible and achievable than in the past many years, and the government may even exceed the revenue targets if the current tax buoyancy level is maintained. The fiscal arithmetic in Budget 2021-22 is more convincing than earlier years. At the core of the Budget is the nominal GDP growth of 14.4 per cent which looks plausible with 10 per cent real GDP growth, India Ratings Chief Economist Devendra Pant and Principal Economist Sunil Kumar Sinha said in a note.
But, they quickly underlined that the success of fiscal arithmetic hinges on the success in achieving the Rs 1.75 lakh crore (Rs 75,000 crore from disinvestment and Rs 1 lakh crore from selling government stake in public sector banks and financial institutions) disinvestment targets.
Meanwhile, fiscal deficit more than doubled to Rs 18.48 lakh crore in 2020-21 (revised estimate) from Rs 9.34 lakh crore in 2019-20.
The contribution of lower receipt to this increased fiscal deficit was 16.5 per cent and higher expenditure was 83.5 per cent and that any improvement in fiscal deficit of FY22 should come mainly from receipts side.
In 2020-21, Rs 54,522 crore of fiscal deficit was externally funded, mainly from multilateral agencies, and this is budgeted to decline to Rs 1,514 crore in FY22.
Net market borrowing is budgeted to slip to Rs 96,771 crore in 2021-22, from Rs 12.74 lakh crore in 2020-21.
We feel that while higher growth will lead to higher savings, the same could fund increased government expenditure. As a result, interest rates are unlikely to be significantly different from where they are presently, they said.
On the whole, the budget presses the right buttons. Also, by not putting additional tax/cess burden on the people and funding the deficit through borrowings, we expect the budget to support the incipient economic recovery through a judicious mix of spending.
But, the size of the overall expenditure is capped at Rs 34.83 lakh crore, which is only marginally higher than in 2020-21 at Rs 30.42 lakh crore.
Net-tax revenue to GDP is budgeted to increase to 6.93 per cent in 2021-22 from 6.90 per cent in 2020-21, which also appears quite achievable. Gross and net tax revenues are budgeted to grow at 16.4 per cent and 15.6 per cent, respectively, which appears plausible as well, they said.
If the trend of higher GST collections witnessed in the third quarter of FY21 continues along with a growth recovery in 2021-22, it may help the government achieve or even surpassing FY22 GST collection target. The net tax collection of the central government has grown more than 50 per cent on year in Q3 of FY21, they said.
Noting that many expenditure announcements in the Budget should not be taken as proposed expenditure in FY22, the agency pointed out that non-interest revenue expenditure is budgeted to decline 8.6 per cent from 22 per cent in 2020-21, as due to the high growth in 2019-20 and 2020-21, a contraction appears a realistic.
This means the government may be withdrawing a part of stimulus when the economy starts stabilising.
Source: The Economic Times
The textile sector has much to cheer about following the announcements made in the Union Budget for 2021-22, presented by finance minister Nirmala Sitharaman on Monday.
Seven mega textile parks will be launched in three years, to enable the textile industry to attract large investments, boost employment generation, and become globally competitive. This scheme will be in addition to existing production-linked incentive schemes. This will create world class infrastructure, with plug-and-play facilities to enable and create global champions in exports, Sitharaman said. India's manufacturing companies need to become an integral part of global supply chains, possess core competence and cutting-edge technology, she added.
The move comes as a significant boost for India’s textiles sector that employs millions. Amid concerns on origination of the coronavirus from China, several international buyers are looking at diversifying their sourcing base across countries, ICRA said in a September 2020 report. As a result, large international buyers are already looking at increasing their sourcing from India. The formation of textile parks helps India gather a bigger share of the apparel and textile export trade.
China is the world’s largest apparel manufacturer and exporter. India has been losing out to neighbouring countries when it comes to textile exports to large Western apparel and home goods retailer. Over the last few years, Vietnam and Bangladesh have been the key beneficiaries for a shift away from China due to low labour costs and benefits arising out of trade agreements. India trails China, Bangladesh and Vietnam when it comes to textile and apparel exports. India's textile and apparel industry is the among the top employers in the country providing direct employment to 45 million people and 60 million people in allied industries. The US and the European Union together account for 64% of India’s readymade garment exports.
Source: The Mint
Amid the COVID-19 pandemic a Bangladeshi readymade garment (RMG) manufacturers — battered by the pandemic and the unethical business practices of Western clothing giants—have safeguarded an exceptional victory against one of the biggest monopoly players in the apparel supply chain: Sears, reports Forbes.
The decaying apparel retailer left its manufacturers with tons of its clothing and due bills last spring and has stiffed them numerous times before as it scrambled through horrible bankruptcy proceedings.
The COVID-19 pandemic exposed in fresh detail the frightening inner workings of the apparel industry and the power that giant apparel companies exercise over their RMG manufacturing partners, many of whom are frightened to speak out against brands in case they be barred from future orders.
According to attorney Joseph E. Sarachek, whose firm represented the 21 Bangladeshi factories in a $40 million lawsuit filed against Sears last June, his clients have gotten ‘the bulk’ of their money back in a defrayal with Transformco, the privately-held company set up by American billionaire Edward Lampert’s ESL Investments hedge fund to acquire Sears and Kmart out of bankruptcy last year.
Joseph E. Sarachek says, “The suppliers were thrilled that we got them a significant return.”
Sears is far from alone in shortchanging RMG suppliers during the COVID-19 pandemic. Last spring, when the COVID-19 struck, scores of key brands and retailers, including Forever 21, Ross Dress for Less, The Children’s Place, Kohl’s KSS -3.6%, Global Brands Group and Arcadia (owners of Topshop), declined payment to RMG factories on US$40 billion worth of completed goods, leaving factories facing down bankruptcy and pushing RMG workers out onto the street without pay in some cases.
According to lawyers representing factory owners, the terminations have “contributed to an evolving humanitarian disaster in Bangladesh and elsewhere in Asia.”
Nonetheless, Sears pushed apparel suppliers to a breaking point after the brand went through bankruptcy and factories were left without payment on completed inventory multiple times.
Sarachek says, “They lost money before the bankruptcy. They lost money in the bankruptcy, and then they were charged by the bankruptcy estate.”
The Bangladeshi apparel suppliers who filed suit over the void orders, some owed as much as $6 million each for garments they’d already made and shipped for Sears last spring, received primary payments from the settlement last September and are continuing to receive payouts, aiding them to evade certain financial tragedy.
Sarachek highlighted that all suppliers have managed to stay in business despite the dreadful conditions.
Rakibul Alam Chowdhury, Managing Director of Combined Apparels, one of the suppliers to Sears said, “As per the court order, we have received $5million as an advance on condition of approving to release goods from US ports without payment.”
Sears owes 19 Bangladeshi suppliers about $50 million in arrears, Rakibul also added.
Sears will pay the rest of the amount by selling apparel goods, while advance payment will be adjusted from the first lot sales. Then the rest of the sales sum will be divided equally to brand and suppliers, explained Rakibul.
Rakibul added further that the US brand informed its Bangladeshi RMG suppliers the first lot sales amounted to US$8.6million, hoping to receive the rest of the amount this week.
However, exporters have to pay 13% of realized payments as the US lawyer’s commission, payment of which might create complexity as per Bangladesh’s law, said Rakibul.
Combined Apparels’ unsettled bills with Sears stands at $1.7 million.
Sources at the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said among the Bangladeshi RMG suppliers, Sears has the highest unsettled bill of $13.48 million to NASA Group.
Sears and its concerns also owe companies owned by incumbent BGMEA President Rubana Huq and former President Abdus Salam Murshedy about $0.5 million and $1.5 million respectively.
Windy Apparels Ltd.’s unpaid bills are over $0.7 million.
On October 15, 2018, Sears filed for Chapter 11 bankruptcy and was running its business with consent from the court.
On February 11 last year Transform Holdco LLC formed and registered as a private company to acquire some of the properties of Sears.
Sarachek states he is still working through complaints from over 100 factory owners who are owed tens of millions of dollars by other large fashion retailers, including Forever 21 and Global Brands Group, a subsidiary of Hong-Kong based Li & Fung and makers of brands like Sean Jean, Katy Perry, and Jones New York.
Li & Fung, the world’s largest apparel sourcing agent, similarly appears to have acted as a middleman to produce some of the inventory for Sears.
While other large brands, including H&M, PVH, VF Corporation, Zara, and C&A, restored and paid for orders after international pressure last year, a staggering $20 billion worth of apparel manufactured before the COVID-19 pandemic have not yet been paid.
The crisis also revealed the contract terms between brands and factories that underpin this unfair system. Contracts are written by Arcadia (Topshop) and Kohl’s, for example, grant the retailers the right to cancel orders for almost any reason, even though these terms violate international norms such as the UN Guiding Principles on Business and Human Rights (UNGPs).
That’s according to “Farce Majeure,” a policy paper released last year by the European Center for Constitutional and Human Rights, the International Lawyers Assisting Workers Network, and the Worker Rights Consortium. Sarachek says that since the pandemic, at least one large apparel retailer has rewritten its purchase order contracts to include these unethical blanket provisions to cancel whenever they please. What’s more, contracts often stipulate that bankruptcy and other legal proceedings must take place in the brands’ home country and at the suppliers’ expense, in the event they lose. This puts manufacturers at a further disadvantage.
Jeffrey Vogt, the Legal Director of the Solidarity Center and co-author on the ‘Farce Majeure’ report says that the contracts are one-sided by design.
Jeffrey Vogt said, “None of this is accidental. The system was built exactly to push most of the risk on manufacturers and workers, and most of the rewards to the brands.”
Garment suppliers and labor rights groups are organizing to fix the root causes of unfair business practices and lopsided contracts that benefit brands and put manufacturers and their workers at risk. The hope is to put suppliers and garment makers on a more even footing with these corporate giants. It won’t be easy.
STAR Network group has organized factory owners in six countries, including China, Bangladesh, Vietnam, Myanmar, Pakistan, and Cambodia, to fight for better purchasing practices in the textile and garment industry.
A recent Sourcing Journal article said changes will include building apparel supplier power to negotiate an end to unfair order cancellations and long delays in payments by brands.
Similarly, the ‘Farce Majeure’ report lays out a multi-step offer for reform that its authors are working towards, including establishing mandatory human rights due to diligence legislation in countries where brands are headquartered and expanding the European Union’s Unfair Trading Practices Directive, which currently covers food products, to also cover textiles and garments.
“Until the system is fundamentally reformed, most brands will have no incentive to change,” says Vogt.
In the meantime, Sarachek says there’s a more immediate solution: Suppliers need to band together and speak up when brands take advantage of them.
Sarachek says, “They have to be proactive.” And he hopes to hear from more factory owners who have been slighted.
When contract terms are flouted and ignored, Sarachek says it creates a Broken Windows effect where ethical business norms crumble and brands are emboldened to commit more violations against their factories.
“Once you let these guys step on your neck, they will always step on your neck,” Sarachek adds.
Source: Textile Today
British lifestyle retailer Joules is hard pressed in the COVID-19 pandemic-induced crisis.
Joules Group revenue slump by 15.3 percent to touch £94.5 million in the 26 weeks that ended 29 November 2020.
Though the fall was probable considering the number of stores that were closed during the period.
The 26-week period also witnessed the retailer’s profits before tax fall from £8.4 million (in the previous year) to a low £3.7 million.
As it’s been the case with most of the fashion retailers, the online revenue for Joules saw a swell of 45% in the first half of the said period.
Healthy e-commerce performance in the 7 weeks to 3 January 2021 counterbalance the impact of store closures during the holiday season.
Nick Jones, CEO, Joules, shared that this performance – reinforced by very strong sales growth through e-commerce – was reached despite all store closures and prolonged COVID-19 lockdowns across the UK.
Source: Textile Today
The use of man-made fibre (MMF) import and the investment are increasing expressively in Bangladesh. Thanks to the growing acceptance of clothes made of artificial fibres amongst the end consumers internationally, which now observing more and more readymade garment (RMG) manufacturers in the country is turning to MMF to rise profitability and market share.
According to data from the Bangladesh Textile Mills Association (BTMA), in 2020, spinners in Bangladesh imported 99,345 tons of polyester staple fibre (PSF), up 3.4% from 96,077 tons a year ago even as import of viscose staple fibre (VSF) also rose expressively as local spinners brought from abroad 72,504 tons of VSF last year, an increase of 36% year-on-year.
In addition, in terms of investment, around 30% out of US$8 billion investment in the primary textile sector in the country (Bangladesh) took place in the MMF segment, up from 20% 3 years ago, reports claimed.
As per industry people, as MMF-based apparels are durable, recyclable and re-useable, more and more people are buying the same even as MMF compared to cotton-based fibre also meets the criteria for sustainable clothing, which is said to be another reason for its rising popularity, to add to which is the changes in lifestyle, because of which consumers are looking for products that are easier to care for.
Md. Khorshed Alam, Chairman, Little Star Spinning said, people are choosing the fabric as a substitute to cotton fibre.
Source: Textile Today
India on Monday set aside over Rs 7,100 crore in its budget for 2021-22 as development assistance for countries in its neighborhood as well as in Africa and Latin America, with Bhutan getting the maximum allocation of Rs 3,004 crore while Rs 100 crore will be given to Chabahar port project in Iran.
Finance Minister Nirmala Sitharaman allocated Rs 18,154 crore to the Ministry of External Affairs (MEA) in the union budget, out of which Rs 7,148 crore has been earmarked as aid to countries.
As per the revised estimates, India's development assistance in 2020-21 was Rs 5,369 crore.
The allocation of Rs 18,154 crore is the highest for the ministry till date and the overall development portfolio including the assistance to the countries accounted for 42 percent of the total outlay.
A significant share of the aid portfolio in the budget is to cater to India's sustained COVID assistance to friendly countries including the supply of coronavirus vaccines as grants under the 'Vaccine Maitri' initiative, said an official.
According to the budget documents, Bhutan will get a total of Rs 3,004 crore compared to the revised estimate of Rs 2,261 crore in 2020-21.
The development assistance to Nepal has been increased to Rs 992 crore from last year's Rs 880 crore while the amount for Afghanistan has been pegged at Rs 350 crore and Myanmar at Rs 400 crore.
Both Bangladesh and Sri Lanka will get Rs 200 crore each, while an amount of Rs 250 crore has been set aside for the Maldives, Rs 900 crore for Mauritius and Rs 160 crore for Seychelles.
An amount of Rs 300 crore has been allocated for African countries, Rs 100 crore for Eurasian countries and an outlay of Rs 40 crore was marked for Latin American nations.
Separately, Rs 130 crore has been allocated for assistance to other developing countries.
In the budget, Sitharaman also made an allocation of Rs 100 crore for the development of the Chabahar port. The amount is the same as was allocated in 2020-21.
Located in the Sistan-Balochistan province on the energy-rich Iran's southern coast, the Chabahar port is being developed by India, Iran and Afghanistan to boost trade ties.
India on Sunday formally handed over two 140-tonne mobile harbour cranes to the authorities of the Chabahar port in Iran and both sides reviewed their overall cooperation in developing the transit hub.
According to the budget documents, additionally, an amount of Rs 476 crore has been set aside for 'support to international training/programmes'.
An enhanced allocation has also been made for initiatives related to the United Nations and other International Organisations as compared to earlier years.
The official said enhanced allocation has been made commensurate with India's expanding diplomatic footprint, with the opening of new missions in several countries.
The total allocation of Rs 18,154 crore to MEA is roughly five percent higher than the budget estimate of Rs 17,346 crore and 21 percent higher than revised estimate of Rs 15,000 crore in 2020-21.
Source: The Economic Times
India on Monday asked all sides to abide by the existing understandings and commitment of a trilateral agreement involving Sri Lanka and Japan to develop the strategic Colombo Port's Eastern Container Terminal (ECT).
The state-owned Sri Lanka Ports Authority (SLPA) signed a memorandum of cooperation in May 2019 with India and Japan to develop the ECT during the previous Sirisena government. However, the Sri Lankan government said on Monday that the ECT will be operated 100 per cent by the SLPA.
"I would like to reiterate the expectation of Government of India for expeditious implementation of the trilateral Memorandum of Cooperation (MOC) signed in May 2019 among the Governments of India, Japan and Sri Lanka for the development of ECT with participation from these three countries," a spokesperson at the Indian High Commission in Colombo said.
"The commitment of the Government of Sri Lanka in this regard has been conveyed several times in the recent past, including at the leadership level. Sri Lanka's Cabinet also took a decision three months ago to implement the project with foreign investors. All sides should continue to abide by the existing understandings and commitment," the spokesman added.
Earlier on Monday, Prime Minister Mahinda Rajapaksa's office said that the Sri Lankan government has decided to run the ECT as a fully-owned operation of the state-run ports authority, succumbing to pressure from the trade unions who opposed the joint venture to develop the strategic cargo terminal.
The Colombo port trade unions had opposed the proposal of investors from India and Japan buying 49 per cent stake in the ETC. They had demanded the ECT to remain 100 per cent owned by the SLPA as opposed to the 51 per cent.
Some 23 trade unions had joined hands to oppose the port deal.
The unions took the stand that the proposed deal with India's Adani Group was a sell out of the ECT. They launched industrial action urging to scrap the deal and the government to run the ECT operation as a 100 per cent government entity.
The unions mostly affiliated to the ruling Sri Lanka People's Party (SLPP) forced the government not to go ahead with the deal. They claimed it was a sell out of the Colombo port's key cargo terminal to India.
President Gotabaya Rajapaksa recently said that stopping the deal would endanger the 66 per cent of Indian transshipment cargo handled by the ECT. Therefore, in order to remain competitive the deal was needed.
However in recent weeks, the trade unions were able to mount public opinion against the deal and even got support from government's own politicians against it.
Source: The Business Standard
The US economy will grow 4.6 per cent in 2021 after contracting 3.5 per cent in 2020, the Congressional Budget Office said on Monday in a rosier forecast that could strengthen Republican resistance to President Joe Biden’s proposed $1.9 trillion Covid-19 aid plan.
The new forecasts, based on US laws and policies enacted law through Jan 12 -- about a week before Biden took office -- predict that growth will taper off after 2021 to below 2.0 per cent by 2031.
But they are significantly stronger than the CBO’s previous economic forecasts issued in July, which predicted a 4.0 per cent real GDP growth rebound in 2021 after a 5.8 per cent contraction in 2020.
“CBO currently projects a stronger economy than it did in July 2020, in large part because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected,” CBO said.
The latest forecasts include the effects of a $900 billion coronavirus stimulus package passed at the end of 2020 and a faster resumption of business activity. It said the 2020 stimulus plan would increase the US budget deficit by $774 billion in fiscal 2021, which ends Sept 30, and by $98 billion in fiscal 2022.
The economic forecasts will be used in an update of CBO budget projections for 2021-2031, which will be released later in February and set a baseline for measuring the fiscal costs of Biden’s spending proposals.
Biden was due to meet with 10 moderate Republican senators later on Monday to discuss their desire for a smaller stimulus, even as Democrats prepare to move forward without Republican support.
CBO said it expected the average US unemployment rate to fall to 5.7 per cent in 2021 from 8.1 per cent in 2020 -- a major improvement from July forecasts of 8.4 per cent in 2021 and 10.6 per cent in 2020. But it said the number of people employed would not recover to pre-pandemic levels until 2024.
“Over the course of the coming year, vaccination is expected to greatly reduce the number of new cases of COVID-19, the disease caused by the coronavirus. As a result, the extent of social distancing is expected to decline,” CBO said in its economic forecast report.
After this year, CBO said it expected US real gross domestic product growth to slow to 2.9 per cent in 2022 and 2.2 per cent in 2023 -- a pace similar to the relatively strong growth years of 2018 and 2019, respectively.
Real GDP will average 2.3 per cent for 2024 and 2025 and 1.7 per cent for the 2026-2031 period, according to the CBO forecasts.
But it said inflation as measured by the Consumer Price Index excluding food and energy costs will rise from 1.6 per cent in 2021 to 2.1 per cent in 2022, and average 2.4 per cent for the years 2024-2031, well above the Federal Reserve’s nominal 2.0 per cent inflation target.
This could raise concerns that a further massive stimulus, along with Biden’s plans for major infrastructure investments could run the economy too “hot” and stoke inflation.
Source: The Financial Express Bangladesh
Winners and losers: Who got what in India's pandemic budget
This was probably the toughest budget yet for Prime Minister Narendra Modi, as his government navigates the twin challenges of steering the $2.7-trillion Indian economy out of an unprecedented recession while ensuring more resources to fight the century’s worst pandemic.
Although his personal popularity remains intact, angry farmers on the streets and soaring rates of joblessness had raised budget expectations in the nation that has been the second-worst hit by Covid-19. Finance Minister Nirmala Sitharaman had promised an unprecedented budget aimed at buoying the economy.
WINNERS
Hospitals
The Covid-19 pandemic prompted Sitharaman to boost healthcare spending by 137% this year, an improvement over the less than 2% of gross domestic product that India has traditionally spent on health annually. The announcement extended shares of hospital operators including Apollo Hospitals Enterprise Ltd., Max Healthcare Institute Ltd. and Narayana Hrudayalaya Ltd. Other companies likely to benefit may include Dr Lal Pathlabs Ltd., Metropolis Healthcare Ltd. and Thyrocare Technologies Ltd.
Real Estate & Construction
Real estate developers are set to benefit from plans for a new development finance institution to meet funding requirements for infrastructure projects. Godrej Properties Ltd., Oberoi Realty Ltd., and DLF Ltd. and Prestige Estates Projects Ltd. are among those likely to gain.
Key infrastructure players like Larsen & Toubro Ltd. and KNR Constructions Ltd. and IRB Infrastructure Developers Ltd. also look set to benefit.
Metal Makers
The announcement of an additional 11,000-km of highways and metros, along with rapid rail transport projects for 27 cities ,and a long-awaited vehicle scrappage policy boosted stocks of metal companies that will cater to added demand for steel and aluminum. These include Jindal Steel & Power Ltd., JSW Steel Ltd., Tata Steel Ltd., Hindalco Industries Ltd., Vedanta Ltd., Hindustan Zinc Ltd. and Hindustan Copper Ltd.
State-Run Banks
The government announced it was forming an asset management company to take over stressed assets of banks in an effort to clean up one of the world’s worst pile of bad loans. Banks, insurers rose on plans for setting up a bad-debt manager. State Bank of India Ltd., Bank of Baroda, Canara Bank, Union Bank of India, Bank of India and Punjab National Bank could be among the beneficiaries.
Textiles
Sitharaman’s announcement of the establishment of seven mega textile parks to be launched in three years could boost the sector, benefiting companies including Century Textiles Ltd., Raymond Ltd., Trident Ltd. and Arvind Ltd. among others.
LOSERS
Bonds
A higher-than-expected $164-billion borrowing plan for the new fiscal year hit India’s sovereign bonds, which slid after the announcement. The government also plans to raise an another 800 billion rupees by this fiscal year, on top of its projection of record 13.1 trillion rupees of debt sales.
Exporters
India raised import tariffs on solar and mobile-phone equipment and auto parts, among others. Announced with a view to boosting local manufacturing in line with the government’s focus on self-reliance, the move may raise further concerns about India’s trade policies that are increasingly seen as protectionist.
Farmers/Rural India
The farm sector received attention but there were no major announcements that could help address the ongoing unrest on New Delhi’s borders, where thousands are protesting for the repeal of new agriculture laws. There were also no significant announcements on boosting consumption in the rural economy. The budget estimate for expenditure on the rural jobs scheme was 730 billion rupees for the financial year 2022, compared to the 1.1 trillion expenditure in the revised estimate for FY21.
IT Firms
India’s biggest services export contributors received little attention in the budget. There were no sops to boost the future of information technology from Sitharaman this year for companies including TCS Ltd., Infosys Ltd., Wipro, HCL Technologies, Tech Mahindra, along with mid-sized firms like LTI, Mindtree, Persistent and Hexaware.
