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India’s GDP may grow faster than estimated but growth may falter

New Delhi: There is both good news and bad news on the economic front for India that is looking to come out from the second and deadlier wave of Covid pandemic.

The good news is that the country’s GDP is expected at a faster pace than expected in January-March quarter of 2021 as a pick up in economic activity during the period of fading pandemic surge has resulted in higher than expected output from various sectors.

But the bad news is that Covid 2.0 and continuing lockdowns in various parts of the country may push all hopes of faster economic recovery in FY22 downwards with GDP only managing to grow in single digit this year rather than high double digit growth projected earlier.

As per an Ecowrap report prepared by a research team from SBI headed by banks group chief economic adviser Soumya Kanti Ghosh, GDP growth for Q4 (FY21) would be around 1.3% (with downward bias) as against NSO projection of a negative -1%.

With this, the report has projected that GDP decline for the full year would now be around 7.3% (compared to the earlier prediction of -7.4%).

“However, due to renewed lockdowns in almost all states since April, 21 owing to a rise in infections, we believe that real GDP growth for FY22 would be in single digits as against our earlier forecast of 10.4%,” the SBI Ecowrap report said.

The report’s assertion on higher Q4 growth has also been based on corporate performance during the period. It said that corporate results so far also reinforce the fact that Q4 growth would be much better than the Q3 growth. The corporate GVA of 625 companies has expanded by 62.04% in Q4 as compared to 12.98% growth in Q3 (of 4164 companies ).

“However the entire projection for Q4 FY21 is dependent on how much the past data will be revised by NSO. Past experience on data revision indicates that apart from providing data for Q4 NSO also revises quarterly data for present/previous fiscal year and annual GDP estimate,” Ecowrap report said.

Though the country-wise real GDP data indicates that the situation has improved over one year (after battling from second/third wave of Covid-19), most of the countries are still in recession and their Q1 2021 (or Q4 FY21) real GDP growth was in contraction mode. The decline of average real GDP for 24 countries has improved from 2.9% in Q4 2020 to a decline of 0.3% in Q1 2021. Very few countries exited recession in Q1 2021 with contraction ranging from (-)6.1% (UK) to 18.3% (China).

 
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India’s economy to grow 7.5% in 2021 but situation ‘fragile’: UN

United Nations: The UN forecasts India’s economy to grow by 7.5 per cent this calendar year and rebound to 10.5 per cent next year with the caveat that the outlook is “highly fragile” because of the brutal Covid-19 second wave.

The mid-year World Economic Situation and Prospects report said that for a global recovery universal access to Covid-19 vaccine is critical but in India “access to vaccines is unequal and insufficient to meet the massive demand”.

“Given the fluid situation, India’s growth outlook in 2021 is highly fragile,” it warned.

It noted that while “India has been particularly affected by a brutal second wave, which is overwhelming the public health system in large parts of the country”, the country also “has expanded vaccine eligibility and is ramping up supply in every possible manner”.

The mid-year forecasts are 0.2 per cent higher than that made in January for this year and it has been revised up by 4.2 per cent higher for next year.

The report forecast investment growth to plunge by a negative 10.2 per cent this year.

The UN projection for India is far lower than the International Monetary Fund’s (IMF) upbeat 12.5 per cent forecast last month just as the Covid-19 surge was beginning. But there is also a difference in the time periods two organisations use — UN follows the calendar year, while the IMF uses the fiscal year under which the growth forecast would take into account the growth in the first months of 2021.

The UN report said it expects the global economy to expand by 5.4 per cent in 2021 buoyed by the recovery in the world’s two largest economies, China and US, due to the “rapid vaccinations and continued fiscal and monetary support measures”.

This year China’s economy is projected to grow by 8.2 percent and the US by 6.2 per cent — the highest it has seen since 1984.

Introducing the report, the Chief of the UN Development Research Branch, Hamid Rashid, said that universal access to vaccines was a critical factor for global economic recovery as it will create her immunity to enable the resumption of economic activities.

The report, however, painted a dim picture of the global vaccination situation.

It said, “As of 24 April 2021, 1.01 billion vaccine doses have been administered globally, with the United States, the United Kingdom and China collectively accounting for nearly 50 per cent of all the doses administered worldwide. Only about 1 in 10 people worldwide have received a vaccine shot so far. The vaccination rate is only 1 in 100 in Africa.”

For South Asia, the report said, economic growth will return in 2021 at 6.9 per cent against a 5.6 per cent drop in 2020, but the recovery will be very uneven, and the scarring effects will run deep.

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RBI unleashes liquidity support to suppress Covid turbulence

Mumbai: India’s Reserve Bank has initiated several liquidity boosting measures to combat economic turbulence unleashed by the resurgence of Covid-19.

In a virtual address, RBI Governor Shaktikanta Das announced a number of liquidity enhancement and targeted measures to ease the build of economic strain seen recently.

“As in the recent past, the Reserve Bank of India (RBI) will continue to monitor the emerging situation and deploy all resources and instruments at its command in the service of the nation, especially for our citizens, business entities and institutions beleaguered by the second wave,” he said.

“The devastating speed with which the virus affects different regions of the country has to be matched by swift-footed and wide-ranging actions that are calibrated, sequenced and well-timed so as to reach out to various sections of society and business, right down to the smallest and the most vulnerable.”

Accordingly, RBI will conduct the second purchase of G-Secs worth Rs 35,000 crore on May 20.

“Domestic financial conditions remain easy on abundant and surplus system liquidity. The average daily net liquidity absorption under the liquidity adjustment facility (LAF) was at Rs 5.8 lakh crore in April 2021,” Das said.

“G-SAP has engendered a softening bias in G- sec yields which has continued since then… With system liquidity assured, the RBI is now focusing on increasingly channelising its liquidity operations to support growth impulses, especially at the grassroot level.”

The first auction under G-SAP 1.0 was conducted on April 15, 2021 for a notified amount of Rs 25,000 crore.

Besides, RBI announced a targeted on-tap liquidity window of Rs 50,000 crore to set up Covid-related healthcare infra till March 31, 2022.

“Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufacturers; importers or suppliers of vaccines and priority medical devices; hospitals or dispensaries; pathology labs; manufactures and suppliers of oxygen and ventilators; importers of vaccines and Covid related drugs; logistics firms and also patients for treatment.”

“Banks are being incentivised for quick delivery of credit under the scheme through extension of priority sector classification to such lending up to March 31, 2022. These loans will continue to be classified under priority sector till repayment or maturity, whichever is earlier.”

According to Das, banks may deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI.

Furthermore, the Reserve Bank will allow restructuring for borrowers with exposure of Rs 25 crore, who have not been beneficiaries of RBI’s previous loan restructuring schemes.

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RBI extends video KYC to new customers

Mumbai: The Reserve Bank of India did not stop at providing liquidity enhancement measures to tackle the current economic strain unleashed by the resurgence of a Covid-19 wave. It also rationalised certain compliance matters to provide ease of doing business for consumers.

Accordingly, RBI governor Shaktikanta Das, in his virtual address on Wednesday also announced rationalisation of compliance to KYC requirements.

Taking forward the initiatives of the apex bank for enhancing customer convenience, it has now been decided to rationalise certain components of the extant KYC norms including extension of the scope of video KYC known as V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of Legal Entities and for periodic updation of KYC.

The easing of compliance measures also includes conversion of limited KYC accounts opened on the basis of Aadhaar e-KYC authentication in non face-to-face mode to fully KYC-compliant accounts. Also, the RBI has allowed the use of KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP and submission of electronic documents (including identity documents issued through DigiLocker) as identity proof.

Banks have also been asked to introduce more customer-friendly options, including the use of digital channels for the purpose of periodically updating KYC details of customers.

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America is Rising Anew: Biden

Washington: President Joe Biden declared “America is ready for a takeoff” as he pitched a sweeping vision for greater government investment to boost the economy Wednesday, including a $1.8 trillion proposal for new spending on child care, education and paid leave.

Addressing a joint session of Congress for the first time as President, Mr. Biden sought to strike a hopeful tone, stressing his efforts to combat the pandemic, expand Covid-19 vaccinations—which he urged all Americans to get—and spur economic growth.

Biden said that 100 days since he took office and inherited the worst pandemic in a century and the worst economic crisis in a decade, America is on the move again, turning peril into possibility, crisis into opportunity and setback into strength.

“America is rising anew, choosing hope over fear, truth over lies, and light over darkness. After 100 days of rescue and renewal, America is ready for a take-off. We are working again, dreaming again, discovering again and leading the world again. We have shown each other and the world that there is no quit in America,” Biden said.

Mr. Biden promoted his economic plans to the public, including his new American Families Plan, which is paid for largely by raising taxes on the wealthiest Americans, and his $2.3 trillion infrastructure package that includes new spending on bridges, roads and broadband internet. He cast the massive spending proposals as necessary to help the nation’s economy and workers.

Referring to the family policies, Mr. Biden said it was time to make a “once in a generation investment in our families and our children.”

Mr. Biden made his case that the federal investments he’s calling on Congress to pass are necessary to compete with autocratic countries like China. He pushed for funding to expand broadband, update infrastructure for drinking water and modernize the energy grid as part of the administration’s proposed American Jobs Plan, which he described as the “blue-collar blueprint to build America.”

“These are investments we made together as one country, and investments that only the government was in a position to make,” he said. “Time and again, they propel us into the future.”

Mr. Biden said Chinese President Xi Jinping and other world leaders believe democracies are too slow to compete with them. “The rest of the world isn’t waiting for us…. Doing nothing is not an option,” he said.

“In my conversations with world leaders – many I’ve known for a long time – the comment I hear most often is: we see that America is back – but for how long?” Biden said in his prime-time address.

“We have to show not just that we are back, but that we are here to stay. And that we aren’t going it alone – we’re going to be leading with our allies. No one nation can deal with all the crises of our time alone – from terrorism to nuclear proliferation to mass migration, cybersecurity, climate change – and as we’re experiencing now, pandemics,” he said.

Biden touted the success of his administration’s COVID-19 vaccine rollout and urged everyone to get vaccinated against the deadly disease that has claimed over 574,000 lives in the country.

“Go get vaccinated, America. They are available,” Biden said.

Biden also said that the climate crisis is not America’s fight alone, but a global one as he asserted that he pushed for the US to meet its international obligations to slow the impact of climate change.

He said that the US accounts for less than 15 per cent of carbon emissions while the rest of the world accounts for 85 per cent. “That’s why – I kept my commitment to rejoin the Paris Climate Agreement on my first day in office,” he said.

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Former Maruti Suzuki MD Jagdish Khattar no more

New Delhi: Former bureaucrat and Managing Director of automobile major Maruti Suzuki Jagdish Khattar passed away this week.

According to reports, Khattar suffered a heart attack.

He leaves behind a rich legacy, born in present day Pakistan, Khattar finished his education from Delhi University before joining the Indian Administrative Service (IAS).

As an IAS he served at various high ranking administrative posts in UP and in PSUs as well as government backed boards.

Besides, he served as the Joint Secretary in the Ministry of Steel before joining Maruti Udyog from 1993 as a director of marketing.

He later rose to become MD of the company in 1999.

Industry insiders contend that under his leadership the company solidified its market leadership despite the onslaught from new competitors.

Under his leadership the company launched hugely successful hatchback Alto and Swift amongst other models.

The focus on the hatchback and emerging segments paid rich dividends to the company as a booming fast time car buying public quickly lapped on the Maruti bandwagon.

After retiring in 2007, he started his entrepreneurial journey by starting a pan India multi-brand automobile sales and services company ‘Carnation’.

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India business activity falls to August 2020 levels

New Delhi: The raging second wave of Covid-19 infections in India continues to disrupt the economy. The Nomura India Business Resumption Index (NIBRI) suffered its biggest week-on-week fall to reach 75.9 in the week ending April 25.

The NIBRI is a weekly dashboard of ultra-high frequency data compiled by Nomura research; a value of 100 refers to pre-pandemic levels of economic activity. The NIBRI was last lower than 75.9 in the week ending August 30, 2020. It reached a value of 99.3 in the week ending February 23. That the NIBRI has fallen by almost 25 points in two months, captures the disruptive impact of the second wave of the pandemic on the economy.

As new infections continue to soar and more regions come under a lockdown or similar restrictions — Karnataka, Kerala and Assam, for instance, imposed tighter restrictions since April 26; Maharashtra is already under a lockdown as is Delhi — the NIBRI could fall further. This is bound to have an adverse effect on the economy.

“With more states extending restrictions, sequential momentum is likely to remain weak over the next month, hurting gross domestic product (GDP) growth in Q2 2020 (April-June 2020),” Nomura economists Sonal Varma and Aurodeep Nandi said in a research note.

Vaccinations will play a crucial role in muting the economic impact of the second wave.

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No major trading partner manipulates currency: US Treasury

Washington: The US Treasury Department said that no major trading partner of Washington meets the criteria as a currency manipulator, but Vietnam, Switzerland and Taiwan will be under enhanced monitoring for their currency practices.

In its semi-annual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the US, the Department concluded that Vietnam, Switzerland and Taiwan met all three criteria for enhanced currency analysis under the Trade Facilitation and Trade Enforcement Act of 2015 during the four quarters through December 2020.

However, there is “insufficient evidence” to make a finding that Vietnam, Switzerland, or Taiwan manipulates its exchange rate for either of the purposes referenced in the Omnibus Trade and Competitiveness Act of 1988, the Department said.

The Treasury believed that “enhanced engagements” with Switzerland, Vietnam and Taiwan will enable it to better determine whether any of these economies intervened in currency markets to “prevent effective balance of payments adjustment or gain an unfair competitive advantage in trade”.

No other major US trading partner met the relevant 1988 or 2015 legislative criteria for currency manipulation or enhanced analysis during the review period, according to the Treasury.

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Indian economy to grow but COVID wave ‘concerning’: IMF

United Nations: India’s economy is projected to grow at the historically high level of 12.5 per cent this fiscal year, but the International Monetary Fund’s (IMF) Chief Economist Gita Gopinath cautioned that the current wave of the pandemic “is quite concerning.”

The growth projection was raised on the basis of “evidence we were getting in the last couple of months in terms of the normalisation of economic activity,” she said at the release of the World Economic Outlook (WEO) report in Washington, DC.

“These numbers precede the current wave of the virus, which is quite concerning,” she added.

With the unprecedented growth rate projection of 12.5 per cent not seen in modern times, India also regains its status as the world’s fastest growing economy, according to the WEO.

Malhar Nabar, the Division Chief in IMF’s Research Department, said, “The current forecast that we have already takes a fairly conservative view on the sequential growth for the Indian economy for this year.”

“But it’s true that with this very worrying uptick in (COVID-19) cases that poses very severe downside risks to the growth outlook for the economy,” he added.

The WEO projected India’s gross domestic product (GDP) growth to moderate to 6.9 per cent in next fiscal year, while still retaining the top growth rate spot.

Any elation over the historically high rate is, however, moderated by the fact of India’s negative growth rate of 8 per cent during 2020-21.

The growth rate projection for 2021-22 is 1 per cent higher than the 11.5 per cent projection made by the IMF in January and 5.1 per cent more than the 7.4 per cent in April last year.

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India’s 2021 economic output may remain below 2019

New Delhi: Although India is witnessing a recovery in economic activities and businesses, its economic output is expected to remain below the 2019 level, said a report by US Economic and Social Commission for Asia and the Pacific (ESCAP).

 

For FY22 starting April 1, the USESCAP report has projected a growth rate of 7 per cent, followed by 6.5 per cent growth in the next fiscal.

 

Titled ‘Economic And Social Survey of Asia And the Pacific 2021’, the report noted that India entered the pandemic with subdued GDP growth and investment. Following one of the most stringent lockdowns in the world, the economic disruptions that the country experienced mounted in the second quarter of 2020.

 

A subsequent change in lockdown policies and success in reducing infection rates supported an impressive economic turnaround in the third quarter, it said.

 

“However, the pace of recovery moderated in the fourth quarter with estimated year-on-year growth still close to zero. Despite a robust reduction in new Covid-19 cases and the start of vaccine roll-out, India’s 2021 economic output is expected to remain below the 2019 level,” said the report.

 

Further, maintaining low borrowing costs while keeping non-performing loans in check would be a challenge, it added.

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