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India’s economy likely to tank 9% due to Covid-19 distress: S&P

SINGAPORE, Sept 14: S&P Global Ratings said on Monday it expects India’s economy to contract by 9 per cent in the current fiscal year ending March 31, 2021 as rising Covid-19 cases will keep private spending and investment lower for longer.

Its previous forecast had put the economic hit from Covid at minus 5 per cent.

“One factor holding back private economic activity is the continued escalation of the Covid-19,” said Vishrut Rana, Asia Pacific Economist for S&P Global Ratings.

India’s economy shrank 23.9 per cent year-over-year in the March to June period, larger than expected. The pandemic and tight lockdown measures enforced to combat it knocked private consumption by 26.7 per cent while fixed investment sunk 47.1 per cent.

Higher welfare spending prevented an even sharper fall in growth. Agriculture cushioned the blow as it was the only major sector to expand, thanks to a favourable monsoon season.

“While India eased lockdowns in June, we believe the pandemic will continue to restrain economic activity,” said S&P. New cases per day in India averaged nearly 90,000 in the week ending September 11, according to data from the World Health Organisation.

This is up from an average of about 70,000 per day in August. “As long as the virus spread remains uncontained, consumers will be cautious in going out and spending and firms will be under strain.”

S&P said industrial activity is recovering faster than services. However, high frequency indicators suggest that output is still lower relative to the same period last year and hence growth for the June to September quarter will be negative year on year.

“The potential for further support monetary support is curbed by India’s inflation worries,” said Rana.

“We expect a degree of normalisation to result in growth of about 10 per cent in the following fiscal year as consumers resume discretionary activity that they are curtailing during the pandemic. A significant part of the growth rebound is due to the very weak base during the current fiscal year,” said Rana.

He said S&P does not expect policymakers to enforce further widespread lockdowns. The larger adverse shock to growth will be driven by corporate balance sheet damage with small and mid-size enterprises closing shop, and larger firms holding back capital expenditure, which will constrain their growth capacity.

“We now expect a larger permanent loss in output of 13 per cent over the next three years. We expect growth of 6 per cent in fiscal 2022 and 6.2 per cent in fiscal 2023. Before the pandemic, we expected India’s economy to expand 6.5 per cent in the current fiscal year.”

Risks to the growth outlook include a weaker recovery in the informal sectors of the economy and deeper economic losses for micro and small enterprises. In addition, if credit quality worsens materially following the expiration of loan moratoriums, the recovery will slow.

One factor that presents potential upside to growth is the availability of a widely-distributed Covid vaccine earlier than the current estimate around mid-2021.

Modi positions India as alternative to China in global supply chain

NEW DELHI, Sept 3: Prime Minister Narendra Modi on Thursday pitched India as a key player in the global supply chain that businesses that are looking at re-wiring their operations cannot ignore, saying that trust and reliability should play an important role in decision making, not just cost-considerations.

Modi said at the virtual meeting of the US-India Strategic Partnership Forum on Thursday that the coronavirus pandemic has shown the world that the decision on developing global supply chains should be based on not only on costs. “They should also be based on trust along with affordability. Companies are also now looking for reliability and policy stability. India has all of these qualities," Modi said.

Modi’s message to investors presenting India as destination they cannot ignore comes at a time many multinational corporations are exploring a China plus one strategy for developing their value chain, to de-risk any disruption in the future. Modi also said that because of the advantages India is enjoying, the country is becoming one of the leading destinations for foreign investment.

“Be it America, or the Gulf, be it Europe or Australia, the world believed in us. We have received over $ 20 billion of foreign investment flows during this year," the Prime Minister said, adding that companies like Google and Amazon have announced long term plans for India.

Among the advantages that India offered to investors are transparent and predictable tax regime, a tax system that encourages and supports honest tax payers and a bankruptcy code that reduced the risks in the financial system. “Our labour reforms will reduce compliance burden for employers and provide social security protection to workers," Modi said.

Modi also said that a self reliant and peaceful India ensures a better world. India has political stability, policy continuity and commitment to democracy, he said.

The Prime Minister did not name China but he said that the pandemic has demanded a fresh mindset where the approach to development ought to be human centric where there is spirit of cooperation between everyone.

“While looking at the way ahead, we should focus on ramping up our capacity, securing the poor and future proofing our citizens. This is the path we are taking," said the Prime Minister.

Modi’s call to the US body comes just days after the trade ministers of India, Australia, and Japan in a meeting on Tuesday deciding to launch an initiative on supply chain resilience and invited like-minded countries in the Indo-Pacific region to join the initiative. The move aims to counter China’s dominance of global trade and supply chains.

India has been looking to establish itself as a manufacturing base for some years. In 2014, Modi unveiled the Make in India programme aimed at making India a manufacturing hub but investors have been seen as reluctant to come to the country. But with the pandemic putting question marks on China’s reliability as a supplier, India has been making efforts to woo investors and companies looking to exit China.

 

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