Second Covid-19 wave may derail India's strong economic recovery: S&P

 

The second Covid wave may derail a strong recovery in the economy and credit conditions in India, according to rating agency Standard & Poor's.

The economic expansion could take a hit of 1.2 per cent under a moderate state, leading to Gross Domestic Product (GDP) growth of 9.8 per cent for fiscal year ended March 2022. Under severe conditions, hit could be 2.8 per cent, resulting in GDP growth of 8.2 per cent in Fy22. Its baseline growth estimate is 11 per cent for Fy 22.

The depth of the Indian economy's deceleration will determine the hit on its sovereign credit profile, S&P said in a statement.

The country's rate of daily new infections keeps spiraling upward, accounting for almost half of the world's cases, overwhelming the Indian health system.

S&P said the possibility the government will impose more local lockdowns may thwart what was looking like a robust rebound in corporate profits, liquidity, funding access, government revenues, and banking system profitability.

"The Indian recovery had been so vigorous across many measures, particularly in the last quarter of fiscal 2021, and yet the latest outbreak has escalated rapidly," said S&P Global Ratings credit analyst Eunice Tan.

Despite being the largest vaccine manufacturer in the world, India's vaccination rollout to the country's very large and largely rural population has proven challenging.

The central government has avoided rolling out another nationwide lockdown, given this would be unpopular and economically costly. However, authorities have already imposed local lockdowns that cover much of the country, including Mumbai, New Delhi, and Bengaluru.

The scope of lockdowns affects mobility, and is indicative of the strength of India's recovery. The agency said under severe scenario new infections may peak in late June 2021. And, under moderate scenario posits that infections peak in May, it added.

The initial shocks to private consumption and investment filter through to the rest of the economy. For example, lower consumption will mean less hiring, lower wages, and a second hit to consumption.

Govt should have acted like a driver to pull the economy out of the mess

The government’s stimulus measures have been a mixed bag, with possibly more disappointments than meeting expectations, especially where people had expected direct sops to flow into the business accounts, interest waivers, etc.
Among notable announcements on Sunday – the fifth and final tranche – was to hike the borrowing limit for the states from 3 per cent to 5 per cent, which thankfully comes with performance riders. MNREGA scheme has been allocated an additional Rs 40,000 crore to facilitate migrants who have returned to their home states to secure livelihood. Though it’s beneficial to the migrants, most of whom would have been reduced to penury in their efforts of reverse migration, it will also delay their return resulting in labour shortage at various industrial hubs and construction sites.
The stimulus package which was meant to cushion the economy from Covid-19 hit would not be complete without a specific package for the root problem – which is the state of the health facilities. The Finance Minister announced that health sector reforms will be taken up and investments at the grass-root level will be ramped up through clinics and wellness centres, which would be prepared for future epidemics. All the districts will have infectious diseases block in their hospitals. However, since the quantum of allocation was not announced, we assume it’s more intent than an executable plan. The central government currently spends 1.3 per cent of gross domestic product (GDP) on health, which is among the lowest globally. The earlier plan was to increase this to 2.5 per cent by 2025, but now it seems that the target should be steeply increased and the time-lines be crashed.

The decriminalisation of Companies Act and ease of doing business are the small mercies bestowed on Corporate India. Seven compoundable offences to be dropped and five to be dealt with under an alternative framework is in line with The Companies (Amendment) Bill, 2020, so there is nothing new. However, the suspension of fresh insolvency proceedings up to one year would be beneficial for many businesses that would have otherwise fallen into that category due to Covid-19 related slowdown.

ADB paints gloomy picture; cuts India FY20 GDP growth forecast to 6.5%

International News

The Asian Development Bank on Wednesday sharply cut India's growth forecast to 6.5 per cent for the current financial year, weighed down by the GDP growth rate dipping to a six-year low in the first quarter.
"India's growth forecast for financial year 2019 (FY20) is lowered to 6.5 per cent after growth slowed markedly to 5 per cent in the first quarter, April–June," said the Asian Development Outlook (ADO) 2019 Update.
In its supplement to the ADO in July, the Manila-headquartered multi-lateral funding agency cut the country's GDP growth estimate to 7 per cent for 2019-20 on the back of fiscal shortfall concerns.
Abrupt declines in manufacturing and investment reflect uncertainty ahead of general elections, subdued lending by banks and other financial institutions, stress in the rural economy, and a weakening external outlook, it said.
"India is expected to rebound to 7.2 per cent growth in the financial year 2020 (FY21) and join most other subregional countries in performing at or near their ADO 2019 growth forecasts for next year," the ADB Outlook said.
As per the latest ADO, South Asia's growth momentum has softened.

 For the region, the growth forecasts are lowered to 6.2 per cent for 2019 and 6.7 per cent for 2020, it said.

Indian economy to grow at slowest pace in 5 years in June quarter: Poll

Current Affairs

The Indian economy likely expanded at its slowest pace in more than five years in the April-June quarter, driven by weak investment growth and sluggish demand, according to economists polled by Reuters.
That would reinforce concerns seen in the minutes from the central bank's August meeting, which showed policymakers were worried about weak growth and indicated further rate cuts in the next few months to boost the slowing economy.
The poll median showed the economy was expected to have grown at a year-on-year pace of 5.7 per cent in the June quarter, a touch slower than 5.8 per cent in the preceding three months. But a large minority - about 40 per cent of nearly 65 economists - expect an expansion of 5.6 per cent or lower.
The GDP data is due to be released at 12:00 GMT on Friday.
If the forecast is realised, it would be the weakest start in the first three months of a fiscal year in seven years.
"The deceleration in growth that commenced in the second quarter of the fiscal year ending March 2019 is likely to have continued," said Rini Sen, India economist at ANZ.
"A host of high frequency indicators - consumption and investment - have continued to weaken. The most prominent ones include auto sales, output of consumer durables, cement and steel production."

 Domestic passenger vehicle sales in July dived at the steepest pace in nearly two decades and declined for the ninth straight month in July, largely due to a liquidity crunch causing huge job cuts in the sector...Read More

India only Asian economy that's growing its export share amid trade war

International News

The only major Asian economy that’s grown its export share since the start of the tariff wars in 2018 is the one with the fewest trade links to China.
India’s share of world exports rose to 1.71 per cent in the first quarter of 2019 from 1.58 per cent in the fourth quarter of 2017, data compiled by Bloomberg show. The share of every other economy among Asia’s 10 biggest exporting nations fell in the same period.
Part of the reason for India’s outperformance is that it’s not as integrated into global manufacturing supply chains as peers, which means exporters are cushioned from rising trade tensions in the region. It’s a sentiment that was flagged by central bank Governor Shaktikanta Das in a recent interview.
“India is not part of the global value chain,” he said. “So, US-China trade tension does not impact India as much as several other economies.”
China is the biggest buyer of goods from South Korea and Japan, whose share of world exports have fallen the most in Asia. For India, China is the third-largest market, after the US and the UAE.
“Our biggest advantage is that our product basket and market basket are both quite diversified,” said Rakesh Mohan Joshi, a professor at the Indian Institute of Foreign Trade in Delhi.

 Trade tensions between the US and China have given India an opportunity to ramp up exports to both countries, according to Ajay Sahai, director general and chief executive officer of the Federation of Indian Export Organisations. India’s exports to the US grew at the fastest pace in six years in the year ended March 2018, while exports to China surged 31 per cent, the second highest annual pace of growth in more than a decade, data from India’s Ministry of Commerce show....Read More