Finance Minister Nirmala Sitharaman on Thursday said clear signs of broad-based revival of the economy was visible and reiterated that the upcoming budget would accelerate public investments in infrastructure.
“Even as we are going towards the making of the next budget after an extraordinary year with challenges… I would like to assure that public expenditure will continue and with better pace. Capital expenditure from the public sector undertakings particularly for infrastructure will be (accelerated),” Sitharaman said addressing a virtual session by Indian Chamber of Commerce (ICC).
Efforts to disinvest some of the big central public sector enterprises (CPSEs) are on track, she said, adding that India’s strong macro-economic fundamentals are attracting record foreign direct investment (FDI) even during the pandemic.
Sitharaman said: “We are seeing clear signs of revival across the board. But for it to sustain, I need to understand from you, the industry leaders as to what exactly you’re looking at (from the upcoming budget).”
After a record slide of 23.9% in the June quarter, the year-on-year contraction in real GDP narrowed to 7.5% in the second quarter of this fiscal. This represented a quarter-on-quarter surge in GDP growth of 23% and raised hopes that the worst was behind us.
After lagging behind in the first and second quarter of FY21 due to Covid-19 disruptions, the CPSEs’ capex has covered a lot of lost ground in the third quarter. The National Investment and Infrastructure Fund (NIIF) is taking steps to mobilise funds from abroad including from sovereign wealth funds. “(There is a) pipeline of more than 6,000 greenfield and brownfield projects…. several sovereign funds and pension funds are interested in coming into India,” she said.
The Centre, states and central PSEs among them will likely spend Rs 7.5 lakh crore on capital investments in the second half of this year, up 80% over such expenditure in the first half, according to an FE analysis, based on official projections and information gathered from different sources.
The expected surge in public capex in H2 would mean that a recovery in fixed investment rate that was visible in Q2 will gain further steam in the second half of the fiscal year, giving a strong support to gross capital formation.
On disinvestment, the minister said: “Even during the pandemic, our efforts to disinvest some of the big companies are going on fine.”
Recently, the government received expression of interest from potential buyers for its 52.98% stake in BPCL and 100% in Air India.
SOURCE: The Financial Express
Finance Minister Nirmala Sitharaman said on Tuesday that the economy was showing signs of coming out of a deep slowdown and that “green shoots” were visible in some sectors.
In replies to the Budget discussion in the Lok Sabha and the Rajya Sabha, Sitharaman also said the Modi government would not repeat the “mistakes” of the Manmohan Singh regime in the aftermath of the 2008-09 slowdown.
“There are seven important indicators which show that there are green shoots in the economy,” she said in the Lok Sabha. In both the Houses, first in the Lok Sabha and then in the Rajya Sabha, she listed these indicators.
She said foreign direct investment (FDI) stood at $24.4 billion at the end of November 2019, as against $21.1 billion the year before. Foreign portfolio investment inflows stood at $12.6 billion for April-November 2019-20, compared with an outflow of $8.7 billion for the same period of the previous fiscal year, she said. The minister said Rs 22,000 crore had already been allocated to the National Investment and Infrastructure Fund for investing in projects identified under the Rs 1.3 trillion National Infrastructure Pipeline. She said that the index of industrial production, purchasing managers indices on manufacturing and services, forex reserves, and tax collections had all indicated an economic recovery.
“Gross goods and service tax revenue collections in January was Rs 1.10 trillion. Gross GST revenue has surpassed the Rs 1 trillion mark more than six times in FY20,” Sitharaman said. She said the government's focus was on four engines of growth which included private investment, exports, private, and public consumption.
On exports, Sitharaman said the government had taken several steps to boost the sector, including a tax refund scheme and enhanced credit to exporters.
She said the Remission of Duties or Taxes on Export Product (RoDTEP) scheme would replace the existing Merchandise from India Scheme (MEIS), which is considered as non-compliant to global trade rules.
"In effect, RoDTEP will more than adequately incentivise exporters than the existing schemes all put together," Sitharaman said in the Lok Sabha. "I am making it plain that RoDTEP, which is now coming in, will more than adequately compensate and incentivise exporters than all the existing schemes put together," she added.
The finance minister also said that in order to boost credit to export sectors, the RBI had enhanced the sanctioned limit to the eligible under priority lending norms. "The limit has been raised from Rs 25 crore to Rs 40 crore per borrower. Furthermore, the existing criterion of units having a turnover of up to Rs 100 crore has been totally removed. So, it is applicable to anybody who wants to approach and take this priority sector lending," she said.
She informed that the government had also amended SEZ law under which trusts were allowed to set up units in special economic zones. The country's exports contracted for a fifth month in a row by 1.8 per cent in December 2019 to $27.36 billion. During April-December 2019-20, exports slipped 1.96 per cent to $239.29 billion, imports declined 8.9 per cent to $357.39 billion, leaving a trade deficit of $118.10 billion.
Responding to criticism on the Budget by the Opposition benches, the finance minister said: “We are not predisposed to repeating the UPA’s mistakes from 2008-09 slowdown.”
In both the Houses, she directly addressed a statement by former Finance Minister P Chidambaram who had said that "the economy was perilously close to collapse and was being attended by incompetent doctors.”
She said the twin balance sheet problem, high level of toxic assets, unsustainable fiscal deficit levels and double-digit inflation were all legacy of the UPA, when ‘it was managed by competent doctors,’ she remarked sarcastically.
SOURCE: The Business Standard
Finance Minister Nirmala Sitharaman said on Thursday that the government has taken several of measures to support the economy but no amount of intervention will be adequate to deal with the crisis triggered by the COVID-19 pandemic.
Addressing the annual general meeting of the Indian Chamber of Commerce (ICC), Sitharaman said that while in early 2020 green shoots and revival signs of the economy were visible, it was upset with the pandemic setting in.
The government has taken steps for interventions by consulting several chambers of commerce, and Prime Minister Narendra Modi also took feedback from the industry, she said.
For instance, the Garib Kalyan Yojana, free cooking gas and direct benefit transfer schemes were announced by the government, Sitharaman said.
Three different sets of announcements were made regarding ‘Atmanirbhar Bharat’, and together with RBI, certain tailormade schemes were unveiled for various sectors on a demand-driven basis, she said.
“We did not restrict the opportunities to any particular sector. This was needed to keep the industry floating,” Sitharaman said.
“But no amount of intervention by the government will be adequate,” she added.
Sitharaman said that while the reforms of 1991 were a big step, but that had a balance of payments crisis.
“Had the government of that time had done something more, the economy now would have been in a better shape,” she said.
The government has brought about reforms in the agriculture sector, ushered in new labour codes for flexibility, and made imports expensive for goods that can be produced in the country, the finance minister said.
On the next Budget, she said that public expenditure, including on capital and infrastructure, will be kept up.
Sitharaman said several sovereign and pension funds are willing to come to India with long-term commitments, which is leading to the higher inward flow of FDI than comparable economies.
The disinvestment agenda, which got Cabinet clearance, will go on and banks will be run by professionals with risk officers brought in from outside and not appointed from within, she said.
“DIPAM will be more active. What we see more is dynamism,” the minister said.
Exuding hope, Sitharaman said, “We are seeing clear signs of revival. But that has to sustain. We need inputs from the industry at this extraordinary time during Budget-making.”
SOURCE: The Financial Express
The government will press ahead with the sale of public sector companies that have been approved by the Cabinet, Finance Minister Nirmala Sitharaman said on Thursday.
Highlighting that FDI flow into India is much higher compared to other emerging economies, she said India's strong macroeconomic fundamentals, ability to do reforms and a stable government help attract long-term foreign funds into Indian businesses.
"Even during the pandemic, our efforts to disinvest some of those big companies are going on fine. The EoIs have come in, the next stage is going on and even within this financial year. I expect DIPAM to be able to prove that they are even more actively engaging in those disinvestments for which cabinet has already given approval," Sitharaman said while addressing the AGM of the Indian Chamber of Commerce and Industry (ICC).
The government has set an ambitious Rs 2.01 lakh crore disinvestment target in the current fiscal. However, COVID pandemic has derailed the stake sale plans and so far over Rs 11,006 crore has been mopped up from minority stake sale in various CPSEs.
The Cabinet has approved strategic sale, along with transfer of management control, in over 25 public sector companies, including Air India , BPCL, Pawan Hans, Scooters India, Bharat Earth Movers Ltd (BEML), Shipping Corporation, Cement Corporation and some steel plants of SAIL.
The process of sale of BPCL and Air India is ongoing and the government has received "multiple expressions of interest" in these two companies.
Sitharaman mentioned that the government has taken several measures to support the economy but no amount of intervention will be adequate to deal with the crisis triggered by the COVID-19 pandemic.
The finance minister said public expenditure will continue particularly for infrastructure and with the tax concessions that the government has doled out several sovereign funds and pension funds are keen to invest in infrastructure projects outlined in the National Infrastructure Pipeline (NIP).
"Today we are able to see with all the tax concessions that we have given, several sovereign funds and pension funds from abroad are keen to come to India, and that kind of an investment readiness explains why there is an inward FDI flow into India. Inward FDI flow into India is much, much higher in proportion than compared comparable economies, emerging economies...
"So they (foreign funds) are committed to be here. They are coming in because our macroeconomic fundamentals are strong, even as there are challenges, but more importantly there is an elected stable government.
"A government which is looking at progressive reforms, a government which does not shy away from taking very strong decisions. And a government which has made very clear that the disinvestment agenda, for which the cabinet has given clearance, will go on," she said.
Foreign Direct Investment (FDI) during April-September 2020, increased 13 per cent to about USD 40 billion.
With regard to Aatmanirbhar Bharat, the minister said the government does not want to support import of those goods or services which the domestic industry is producing and providing.
"We are conscious that raw material support, intermediary goods support will have to carry on, we will continue with that," she said.
The minister said post lockdown every department of the government is functioning with a greater element of "wanting to be nimble" and asked the industry to give their suggestions.
"...We are seeing clear signs of revival across the board, but for it to sustain I need to understand from you, the industry leaders, as to what exactly you are looking at..." "Even as we are going towards the making of the next Budget after an extraordinary year, challenges have been very different.
" Public expenditure will continue and at a better pace. Public expenditure meaning capital expenditure from the public sector undertakings, particularly for infrastructure will be kept up. Government's expenditure and for infrastructure is something which we are very much into...," Sitharaman added.
SOURCE: The Free Press Journal
Concerned over China’s unreliability as a supplier in the aftermath of the Covid-19 outbreak and frustrated with its perennial reluctance to grant India greater market access, the commerce ministry intends to diversify the country’s import base for as many as 1,068 products, including 168 important ones, to curb excessive reliance on Beijing.
The key products include auto parts, consumer electronics, electrical machinery, select steel and aluminium products, a source told FE.
The commerce ministry has identified alternative source of imports and shared its analysis with India’s overseas missions to “explore sourcing and export opportunities in their respective countries”.
The decision is also in sync with the recent collaborative effort of Japan, India and Australia to forge and expand a supply chain partnership, a move seen as countering the dominance of China in global trade.
At the same time, India is incentivising domestic manufacturing of key products through production-linked incentives (PLIs). A total of 13 PLI schemes — from auto and telecoms to food processing – have been announced this fiscal, involving incentives worth about `2 lakh crore over five years.
In a note for the Parliamentary Standing Committee on commerce, the ministry has conceded that despite heightened efforts in recent years to resolve market access issues by signing several protocols, Indian exports to China haven’t grown meaningfully.
Of the bilateral goods trade of almost $82 billion in FY20, India’s exports stood at only about $17 billion. Although India’s trade deficit with China seems to have fallen sharply from a record $63 billion in FY18 to less than $49 billion last fiscal, its trade balance with Hong Kong, considered a proxy for Beijing, exacerbated dramatically during this period.
Consequently, India’s effective trade deficit with China (after including Hong Kong) dropped only by about $4 billion – from $59 billion in FY18 to close to $55 billion in FY20, according to official data.
The massive trade balance in favour of China was an important topic of discussions even between Prime Minister Narendra Modi and Chinese President Xi Jinping, when they met in Wuhan, Qingdao, and an informal summit in Chennai in October 2019.
India mostly imports manufactured products and components in critical segments like consumer electronics, capital goods, computer hardware, active pharmaceutical ingredients, fertilisers, project goods, electrical machinery, etc. However, its exports to China are characterised by low-value primary goods, raw material and intermediate products mainly iron ore, copper, minerals, cotton, fisheries, spices, etc.
The ministry’s note for the House panel highlights that over the past two years, China and India signed various protocols to facilitate exports of Indian rice, fish meal, fish oil, tobacco leaves and Chilli meal, without much success. Several other protocols are under negotiation to catalyse supplies of Indian soyameal, soyabean, pomegranate and Okra to China.
However, as FE had recently reported, China’s recent import spree of farm commodities to take advantage of relatively stable global prices hasn’t benefitted India, thanks to Beijing’s restricted market access, through either tariff or non-tariff barriers. Between March and October, China’s imports of wheat shot up by almost 232%, year-on-year, while those of pork surged by 135%, corn by 102% and sugar by 23%. However, it barely imported these commodities from India.
SOURCE: The Financial Express
In what is set to impact several exporters the government on Thursday reduced the period in which certain benefits have to be accrued to them
The government said that the duty drawback claims have to be processed within a timeframe. The time frame was reduced from 7 days to three days. Duty drawbacks are essentially refunds that can also be set off against future liabilities.
Tax experts say that this move is set to improve the cash flow situation of exporters.
“The governments instruction to further reduce the timeline for crediting at least 90% of the duty drawback claims to the exporters from 7 days to 3 days, will definitely help to improve the cash flow position of various industry players involved in exporting goods out of India, especially in these COVID times when a large number of businesses are still facing liquidity crunch,” said Abhishek Jain, Tax Partner, EY India.
Many exporters have been complaining on how their cash flows have been impacted in the Covid pandemic. This also comes at a time when India’s exporters too have been under stress.
The government also wants to reduce the pendency of these claims. In most situations claiming the benefits of duty drawback tends to take time. The decision to reduce the window to process these claims would also put pressure on the officials to process it under the timeframe.
SOURCE: The Economic Times
A collapse in imports during the coronavirus lockdown has left India awash with dollars. Now a further influx of greenbacks is expected as an embryonic economic recovery draws investors back. To banks, this means one thing: The local currency is a sitting duck for appreciation against a weakening dollar.
Policy makers won’t want a stronger rupee to become a one-way bet, but the market doesn’t believe them to have many other options. What the authorities have done so far — scoop up the dollars by giving banks rupees — has left the financial system swimming in money and threatens to fuel inflation that’s already above the central bank’s target. It’s a mirror image of China, where a spate of corporate defaults has squeezed interbank liquidity.
While China’s recovery from the pandemic has made it the first major economy to consider exiting emergency economic measures, in India, monetary stimulus is still very much the only game in town. If the Reserve Bank doubles down on its generosity in 2021, the country’s red-hot equity markets could get dangerously overvalued.
Conversely, if the RBI pulls back on liquidity — before the complicated task of distributing vaccines to 1.3 billion people is meaningfully under way — confidence could be undermined by falling stock prices.
What will the central bank do? My hunch is, it won’t want to be seen as anti-growth at such a critical juncture. That won’t be politically acceptable, which is why there’s talk of giving the RBI a more flexible inflation target — so it doesn’t have an excuse to prematurely hit the brakes.
The authorities are in a bind. They have flooded banks with rupees in exchange for surplus dollars, hoping easy liquidity will not only stem the deterioration in corporate solvency but also restore missing animal spirits in the broader economy.
Thanks to $58 billion of RBI dollar purchases in the first nine months, the rupee is the worst-performing Asian currency this year. While inflation last month was a slower-than-expected 6.9%, it has exceeded the central bank’s 2% to 6% range for eight straight months. A stronger rupee might help the central bank tame inflation; a liquidity glut will make it worse.
Or at least that’s the reasoning behind the near-consensus bet on the Indian currency. Traders are putting their money on the rupee being Asia’s best performer in 2021.
Everyone’s looking at the record $20 billion current account surplus in the June quarter — when domestic demand cratered because of the Covid-19 lockdown — and calculating that a rupee-crushing trade deficit is still a ways off. In the meantime, foreign money will keep coming, into a $65 billion pipeline of mergers and acquisitions and government privatization deals, according to Nomura Holdings Inc., as well as into stocks, bonds and real estate.
By creating a rupee glut, the central bank has delivered the equivalent of an additional 1.25 percentage points in rate cuts — by stealth. That extends a 2.5-percentage-point reduction since February 2019, with 1.15 points coming after the pandemic hit. The Reserve Bank had to do this heavy lifting because the Indian government didn’t want its rickety finances to take too much of the strain. Bolder fiscal easing was possible only with the monetary authority directly buying the government’s bonds, something the RBI was hesitant to do lest monetization of deficits become a habit with politicians.
Hence, the central bank opened the liquidity spigots instead by buying dollars. An odd result of this strategy is that “while the government has limited its support to the domestic economy, it has, via the RBI, invested almost 3% of GDP in foreign assets” between April and September, according to JPMorgan Chase & Co. economist Jahangir Aziz.
What will the RBI do in 2021? If demand revives, it can slowly turn off the taps. Corporate earnings, once they’re rising because of sales growth rather than layoffs and wage reductions, can attract investors even without the prop of artificially cheap money. But dislocations in India’s real economy — especially in smaller firms and the labor market — have been way too deep. Chances are politicians won’t want the central bank chief to remove the punch bowl in a hurry.
Governor Shaktikanta Das’s strategy may be to mop up some of the excess liquidity created by dollar purchases by issuing special bonds to banks. That would have a cost, but overall this approach would keep the rupee competitive for Indian exporters and prevent an inflation spiral. It would also keep the stock market buoyant and the finance ministry happy.
After the mid-2013 “taper tantrum,” Das’s predecessors perhaps kept interest rates too high for too long. They also kept liquidity tight. Growth began to slow sharply long before Covid. Hence, there’s pressure on the governor to accept a more flexible inflation target: Politicians will want their V-shaped recovery at any cost. How Das manages their demands against threats to financial stability from cheap money may be a more important story for India investors in 2021 than the standard growth versus inflation trade-off.
SOURCE: The Financial Express
Union Minister of Road Transport & Highways Nitin Gadkari on Thursday said the use of GPS-based (Global Positioning System) toll collection will ensure India becomes “toll plaza free” in the next two years. He also said this would help the exchequer earn Rs 1.34 trillion in the next five years.
The central government has finalised GPS-based toll collection to ensure seamless movement of vehicles across the country. At an industry event, the minister said the toll amount will be deducted directly from the bank account based on the movement of vehicles.
As of today, all commercial vehicles come with vehicle tracking systems. He said the government will come up with a plan to install GPS technology in old vehicles.
The toll collection may reach Rs 34,000 crore by March 2021 and by using GPS for toll collection, the income in next five years will be Rs 1.34 trillion, he said.
The use of technology will mean that there won’t be leakages in collection of the levy and the money transfer can happen in a transparent manner.
To enable seamless toll collection at the plazas, the government introduced RFID (radio frequency identification) tags.
According to an official statement by the National Highways Authority of India (NHAI), RFID-enabled FASTags contribute nearly three-fourth of the total toll collection (till November).
The daily collection stood at Rs 92 crore compared to Rs 70 crore a year ago.
The government rolled out FASTag-based electronic toll collection mechanism from December 15, 2019, across all toll plazas of the NHAI.
SOURCE: The Business Standard
INTERNATIONAL
The dollar languished near 2 1/2-year lows on Wednesday as progress toward a massive US government spending bill and COVID-19 relief measures whetted risk appetite, sapping demand for the safest assets.
Also supporting sentiment, the US expanded its roll-out of a vaccine from Pfizer Inc and German partner BioNTech SE , while another developed by Moderna Inc appeared set for approval this week.
The British pound held on to more than 1 per cent of gains made on Tuesday following a report that an elusive Brexit trade deal may now be close, even as British Prime Minister Boris Johnson repeated that the most likely outcome of talks was no deal.
The dollar changed hands at $1.21540 per euro, near the 2 1/2-year low of $1.2177 touched on Monday. It traded at 103.64 yen, after declining 0.4 per cent against the Japanese currency on Tuesday.
The pound was last at $1.3444, following a 0.9 per cent jump in the previous session. It reached $1.3540 earlier this month, a level not seen since mid-2018.
“Because of all the positives that have hit the market, from vaccines to stimulus, we’re seeing dollar weakness across the board,” said Bart Wakabayashi, Tokyo branch manager of State Street Bank in Tokyo.
“There’s a feel good momentum in the market.”
Top US congressional leaders began a second meeting on Tuesday to finalise $1.4 trillion in spending and end a standoff on coronavirus relief, after signalling optimism following their first gathering.
Investors are also keeping an eye on the outcome of a two-day Federal Reserve policy meeting on Wednesday. Policymakers are expected to keep the key overnight interest rate pinned near zero and signal it will stay there for years to come, a decision that analysts say will further boost investors’ risk sentiment.
Many analysts also expect new guidance on how long the Fed will keep up its massive bond-buying program.
The dollar index, which measures the greenback against a basket of currencies, was last at 90.477, after sinking as low as 90.419 on Monday, a level not seen since April 2018.
The Australian dollar was little changed at 75.525 US cents, near the 2 1/2-year high of 75.780 it recorded Monday.
The New Zealand dollar traded at 70.86 US cents after reaching 71.20 on Monday for the first time since April 2018.
SOURCE: The Khaleej Times
The government is likely to decide on borrowing funds for different projects from foreign exchange reserves before the next national budget.
Finance Minister AHM Mustafa Kamal revealed the planned time for finalising the decision at a virtual briefing after a meeting of the Cabinet Committee on Government Purchase on Thursday, reports bdnews24.com.
The government expected the reserves to cross $42 billion this month. “We were able to do that even earlier. This is an achievement for the nation,” Kamal said.
Prime Minister Sheikh Hasina had in July ordered officials to explore ways to channel funds from the reserves in the form of credit to finance the development projects.
“We always borrow funds in dollars from foreign sources. Our reserves are now $36 billion so can we not borrow from it? Bangladesh Bank reserves this money in the public interest. Therefore, we can take loans from it for our projects," Planning Minister MA Mannan had quoted her as saying at an ECNEC meeting.
“Even if the government has to pay interests on the planned loans from the reserves at higher rates than foreign loans, using Bangladesh’s own money will mean that its benefits will remain in the country,” according to Hasina.
“I feel that the prime minister was right,” Kamal said on Thursday. "We don’t get more than 2 per cent [interest] on our investments abroad. We believe that the fund flow will be intact and our income will increase manifold if we invest in a government institution.”
“The prime minister has thought this through and studied how much funds would be required in the future, specially to clear payments of megaprojects. She will make a decision taking everything into account. She could make the decision before the budget,” he added.
“Besides these, we also need to clear the payments for the megaprojects. We have paid up about $100 million since July, which is coming from the reserves. Even after the payments, we have a net fund of $42 billion.”
The reserves crossed the $42 billion milestone on Dec 15 despite the struggle against the coronavirus pandemic situation.
The achievement was possible mainly due to the remittances sent by Bangladeshis working abroad. Growth in exports and foreign loans also contributed to the rise of the reserves.
The minister said that the government is committed to raising the foreign exchange reserves to $50 billion by 2030. “Our calculations say we are on course to the target,” he added.
Bangladesh’s reserves have surged by $11 billion in the July-November period this year, or 60 percent of the annual target in the first five months of the fiscal year, he pointed out. “The reserves will continue increasing if we can maintain the flow.”
The chief source of the reserves is remittance, and it comes through banks. When the remittances exceed a bank’s demand, it sells the foreign currencies in the market. When Bangladesh Bank purchases the foreign exchanges, the reserves increase, Kamal said.
Bangladeshi migrant workers have shattered records by sending $20.5 billion with three weeks of the year 2020 remaining. The amount is 12 per cent higher than the total remittances received by the country in 2019.
Source: The Financial Express Bangladesh
The US has asked India to allow the exchange rate to move to reflect economic fundamentals and limit foreign exchange intervention.
US Treasury Department added India to the monitoring list countries which are branded as currency manipulators while Switzerland and Vietnam were named as currency manipulators.
"Over the four quarters through June 2020, four major US trading partners -- Vietnam, Switzerland, India, and Singapore -- intervened in the foreign exchange market in a sustained, asymmetric manner," the US Treasury Department said.
Treasury found that ten economies warrant placement on Treasury's "Monitoring List" of major trading partners that merit close attention to their currency practices: China, Japan, Korea, Germany, Italy, Singapore, Malaysia, Taiwan, Thailand, and India, the last three being added in this Report.
The US Treasury in its report on trading partners said India met two of the three criteria in this Report, having a material current account surplus and engaging in persistent, one-sided intervention over the reporting period. Treasury will closely monitor and assess the economic trends and foreign exchange policies of each of these economies.
The US treasury said on India, "The authorities should allow the exchange rate to move to reflect economic fundamentals and limit foreign exchange intervention to circumstances of disorderly market conditions. India can also leverage the recovery period to pursue structural reforms that will open its market further to foreign investment and trade, including foreign portfolio investment in Indian sovereign and sub-sovereign bonds, thereby fostering stronger long-term growth."
The report noted that the rupee has diverged somewhat from peer currencies, however, amid RBI intervention. While many emerging market currencies started to rebound from their March lows in May and June, the rupee remained relatively rangebound as the RBI resumed large foreign exchange purchases. The rupee has appreciated somewhat since late August, but it has still not recovered as much lost ground as its emerging market peers have, US Treasury said.
In its August 2020 External Sector Report covering 2019, the IMF assessed the real effective exchange rate to be in line with economic fundamentals.
India's goods trade surplus with the United States was $22 billion for the four quarters through June 2020, broadly in line with its average level over the preceding five years. India also ran a $5 billion services trade surplus with the United States in 2019. India's exports to the United States are concentrated in sectors that reflect India's global specialization (notably diamonds, pharmaceuticals, and IT services), while U.S. exports to India reflect India's domestic needs (fuels, aircraft, higher education, and software).
"India has been exemplary in publishing its foreign exchange market intervention, publishing monthly spot purchases and sales and net forward activity with a two-month lag. The RBI states that the value of the rupee is broadly market-determined, with intervention used only to curb undue volatility in the exchange rate", US treasury said.
It said the RBI purchased foreign exchange on net in 10 of the 12 months through June 2020, with net intervention (both spot and forward intervention) reaching $64 billion, or 2.4% of GDP. While purchases slowed during the onset of the pandemic, and the RBI engaged in net sales in March 2020, the RBI's net purchases again accelerated in mid-2020 as portfolio inflows resumed and foreign direct investment remained strong. Rupee volatility did not appear to have been particularly elevated in the four quarters through June 2020, however.
These purchases have led to a rapid rise in total reserves that are now well in excess of standard reserve adequacy benchmarks. As of June 2020, foreign currency reserves stood at $466 billion, equal to 4.4 times gross short-term external debt. Reserves have continued to grow in recent months, reaching $502 billion in September 2020 as purchases accelerated further in July and August. By comparison, at end-2018, foreign currency reserves were valued at $370 billion, equal to 3.6 times gross short-term external debt. India also maintains ample reserves (163% of ARA metric in 2019) according to IMF metrics for reserve adequacy, particularly given that India maintains some capital controls.
The US Department of the Treasury delivered to Congress the semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In this Report, Treasury reviewed and assessed the policies of 20 major US trading partners during the four quarters ending June 2020.
The Report concluded that both Vietnam and Switzerland met all three criteria under the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act) during the period under review.
SOURCE: Free Press Journal
Japan’s government raised its economic growth forecast for the next fiscal year thanks to its latest stimulus package aimed at speeding up the recovery following the damage wrought by the coronavirus pandemic.
The economy is expected to grow 4.0% in price-adjusted real terms in the next fiscal year starting April 2021, the latest estimate by the Cabinet Office showed on Friday.
The new estimate compared with its previous forecast of 3.4% growth projected in July.
The upgrade was underpinned by the government’s third supplementary budget, which was approved earlier this week, to fund the $708 billion stimulus package to help the economy recover from its COVID-induced slump in the second quarter.
The forecast 4.0% growth for next fiscal year would be the fastest annual expansion on record, if realized, since comparable data became available in 1995, the Cabinet Office said.
The government, which expects the economy will return to pre-COVID-19 levels by January-March 2022 helped by its broad policy support, also cautioned about risks.
Policymakers need to keep a close watch “on downside risks to the economy in Japan and overseas from the pandemic and impacts from moves in financial capital markets,” an official at the Cabinet Office said.
The government will use the forecasts to finalize the state budget for the next fiscal year.
For the current fiscal year that ends in March 2021, the government cut its gross domestic product forecast to a 5.2% contraction, which would be the biggest annual slump on record.
Consumer prices remain subdued due to weak domestic demand and the government’ discount travel campaign to support the tourism industry.
Overall consumer prices are forecast to fall 0.6% for this fiscal year, from a 0.3% decline expected previously.
In fiscal 2021, overall prices will grow 0.4%, the government said, revised down slightly from the previous forecast of a 0.5% increase.
SOURCE: Reuters India
