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Brickwork Ratings (BWR) expects gold sales in the domestic market to witness 10%-12% growth in FY23 owing to an increase in consumers’ purchasing power, festivities during the year and pent-up demand from postponed weddings. With gold demand crossing the pre-pandemic level in FY22 and improving further, BWR expects gold prices to increase by 8%-10% in FY23 on account of high inflation rates due to the growing geopolitical tension.
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There has been a dramatic change in the global economic outlook and its transmission to the Indian economy in the last three months. The Russian war on Ukraine and economic sanctions following the same have engulfed the whole world and have caused severe global economic stress, affecting emerging market economies such as India the most.
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Brickwork Ratings estimates the pharmaceutical industry’s revenue to have grown by 11%-12% in FY22 and expects it to grow by 13%-14% in FY23 owing to a recovery in non-covid related drugs, surgeries that were postponed due to the pandemic and the formulation of vaccine boosters.BWR expects the industry to continue to increase its R&D expenses in the coming years on account of an enhanced need in the market to introduce newer products.
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The Reserve Bank of India (RBI), in an unscheduled off-cycle Monetary Policy Committee (MPC) meeting, has increased the policy repo rate by 40 basis points to 4.4% with immediate effect and the CRR by 50 basis points to 4.5% from the midnight of 21 May 2022. Although the statement reiterates the MPC continuing with the accommodative stance, it also talks about its calibrated withdrawal to fight inflation. These decisions of the MPC members are unanimous.
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The deterioration in the global and domestic macroeconomy has been on a fast track since the Russian invasion of Ukraine began on 24 February. The massive destruction in life and properties, increases in global commodity prices and serious supply-side disruptions in essential raw materials due to the ongoing war and accompanying sanctions have adversely impacted both the output and prices. The domestic economy also has been severely affected by global developments, and the growth prospects do not look very promising.
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After having braved multiple headwinds in the last few years, viz., an unfavourable duty structure, volatile cotton prices and the Covid-19 pandemic, the Indian cotton spinning industry is finally enjoying its moment in the sun. The revival, which started in Q2FY21, was led by a surge in export orders, followed by recovery in domestic downstream demand.
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The Reserve Bank of India (RBI) has maintained a status quo on policy rates and has continued the accommodative policy stance in its Monetary Policy Committee (MPC) decision announced today. Both these decisions of the MPC are in line with Brickwork Ratings’ (BWR’s) expectations.
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As per the provisional data released by the CMIE, new industrial investment for the January–March 2022 quarter (Q4FY22) increased sharply to Rs 5.1 trillion. Growth in investments on a year-on-year (y-o-y) basis more than doubled, while on a quarter-on-quarter (Q-o-Q) basis, investments increased by 53.7%. Although, the number of new projects announced during Q4FY22 was 40% lower than in the previous quarter, the investment trend in new projects has shown a marked increase after showing steady deceleration since the onset of the pandemic.
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Despite surging inflationary expectations, supporting broad-based economic recovery remains a priority. The economy has still not fully recovered from the pandemic shock and adverse geopolitical developments impeding the recovery process.
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Receding Covid-19 caseloads, coupled with lifting of restrictions, are expected to improve growth prospects in the coming fiscal. However, supply side disruptions caused by the Russia-Ukraine war and shortages of critical components like semiconductors are likely to pose inflationary worries and significant downside risks to the growth momentum.
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The CPI inflation rate increased marginally to 6.07% in February 2022 from 6.01% in January. The current level of inflation is the highest recorded in the last eight months and is also higher than the 5.03% in February 2021. The CPI inflation rate remained above the 6% mark for the second consecutive month is a cause for concern.
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As we heaved a sigh of relief when after almost two years, the Covid-19-led restrictions on economic activity were relaxed, and as we began to brace ourselves for economic revival and accelerated growth, we are now struck with a huge uncertainty due to the Russia-Ukraine war. The fallout of the war on the already battered economy is on both the growth and inflation fronts.
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Going forward, in FY22 and FY23, BWR expects banks’ credit outstanding to increase by 7.5-8.5% and 8-9% respectively, backed by a revival and growth in services and industries. The services sector, which was the worst affected during the pandemic, is expected to witness a turnaround as restrictions ease and economic activities improve.
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The Indian tele-density has grown at a brisk pace in the past couple of years, making India the world’s second largest telecom network. Since the last couple of quarters, the Average Revenue Per User (ARPU) has also grown at a steady rate, led by tariff hikes by all the three major telecom operators, as witnessed in November 2021.
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The impact of the third wave of Covid on economic momentum may lower growth in the second half of the current fiscal (H2FY22). With the upward revisions of the FY21 GDP growth by Mospi, we revise our GDP growth projections for FY22 to 8.3% from the earlier forecast of 8.5% to 9%.
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The Reserve Bank of India (RBI) has maintained a status quo on policy rates and has continued the accommodative policy stance in its Monetary Policy Committee (MPC) decision announced today. Both these decisions of the MPC are in line with Brickwork Ratings’ (BWR’s) expectations.
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The Union finance minister was faced with severe constraints and challenges in formulating the budget this year. The pandemic is still on the rage, putting the brakes on capacity utilisation, particularly in contact-intensive sectors. The employment situation is precarious. Except for exports, all the growth engines are stuttering. Private consumption expenditure is still lagging from the pre-pandemic level, while government consumption and gross fixed capital formation have barely crossed it.
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With the economy still in the recovery mode and the pandemic continuing to disrupt the recovery process, the MPC is expected to keep the policy rates stable at the current levels in its upcoming meeting, despite the persistence of higher inflation. However, there is limited scope for the MPC to continue with the current policy stance for long as supply chain disruptions, the elevated level of borrowing shown in the budget and rising crude oil prices amid excess liquidity may exert pressure on inflation.
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There were a lot of hopes and expectations about the 2022-23 Budget. Even as the economy has shown a revival, the first advanced estimate of GDP for the current fiscal shows that it has barely reached the pre- pandemic level. In some contact-intensive sectors, the revival has been slow and is yet to reach the 2019-20 level. These are the sectors that are employment-intensive, and two years of the continuous drag has created a huge burden of unemployment.
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The Economic Survey presented in the Parliament today is essentially a stock taking document on the performance of the economy in the current year, various initiatives on the reforms initiated in various sectors to ease supply side conditions and measures taken to aid the recovery process, and structural reforms introduced for growth acceleration in the medium term. The Survey makes a realistic assessment of economic growth and macroeconomic stability based on reasonable assumptions without resorting to any rhetoric.
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The impact of the Coronavirus (COVID-19) pandemic on economic activities continued in FY22, with the emergence of new COVID variants disrupting recovery in the growth process. After a 7.3% contraction in the GDP in FY21, the economy was bracing for double-digit growth in FY22. Last year’s economic survey projected GDP growth at 11% for FY22. However, due to repeated restrictions following the new COVID mutants and second wave of the pandemic, growth momentum was constrained in several contact- intensive sectors of the economy.
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BWR expects the auto component industry to witness a 15%-17% revenue growth revival in FY22 and 10%-12% in FY23 owing to a recovery in automobile sales, after having remained subdued in the last couple of years. Pent-up demand and a preference for personal mobility due to safety concerns led the recovery in automobile sales post relaxations in the lockdown. Additionally, a pick-up in economic activity augurs well for commercial vehicle sales. In addition, the scrappage policy and strict inspection of Pollution under control (PUC) certificates would boost the aftermarket of the auto component industry.
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The data released by the Ministry of Statistics and Programme Implementation (MOSPI)
has shown that the Consumer Price Index (CPI) rose to 5.59% (provisional estimates,
measured by y-o-y change) in December 2021, and growth in Index of Industrial
Production (IIP) stood at 1.4%
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The advance estimate of GDP for FY22 shows that economic recovery is still in progress and is yet to take firmer roots. The estimated GDP growth in constant prices at 9.2% is marginally lower than the RBI’s estimate of 9.5%. Even this looks optimistic, considering the fact that the advance estimates are made by projecting the actual trend in the important indicators of economic activity in the last 6-8 months, and it does not take into account the economic impact of the meteoric rise in Omicron cases, which has been forcing states to impose restrictions on economic activity in varying degrees.
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Economic recovery was well under way after the second wave of the pandemic although since October, there have been some disruptions caused by semiconductor shortage, along with supply shortages in coal and power outages causing a slowdown in the manufacturing sector. Rising input prices too have added to the problem. Nevertheless, there was steady improvement in economic revival.
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As per the provisional data released by the CMIE, new industrial investment for the September-December 2021 quarter does not infuse much confidence. At Rs 2,086 billion, growth in investments on a Q-o-Q basis was (-)6.5%, although it was higher at 41% on a Y-o-Y basis.
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Data on fiscal trends released by the Controller General of Accounts (CGA) on 31 December shows that the cumulative fiscal deficit up to November 2021 adds up to 46.2% of the whole year’s budget estimate and is substantially lower than 135% recorded for the same period last year.
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Although COVID-related restrictions on economic activity have been substantially relaxed, the relative stagnancy in the manufacturing sector output is a matter for concern. The expansion of the GVA in the manufacturing sector during the second quarter (Q2) of FY22 was the lowest among the secondary and services sectors, at just 5.5%, and as compared to the pre-pandemic level, it was just 3.9%. The sector’s performance in the two months of the Q3 too does not infuse much confidence. Growth in industrial production in October was at 3.2%, which is at eight-month low.
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Data released by the Ministry of Statistics and Programme Implementation (MOSPI) shows that the Consumer Price Index (CPI) rose by 43 basis points over the previous month to 4.91% (provisional estimates, measured by y-o-y change) in November 2021. It was 6.93% in November last year.
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Over the last decade, issues such as a deteriorating air quality due to high pollution, extreme weather events due to global warming and a high dependency on crude oil imports have been a cause of concern for the transport sector in India. These concerns can be mitigated in environment-friendly ways and through the adoption of Electric Vehicles (EV), which could go a long way in reducing pollution, as well as the dependency on crude oil imports. Among all the sectors, automobiles are the major producer of greenhouse gases and have been trying to build a footing for EVs in the market.
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The second quarter (Q2) GDP estimates for FY22 show that economic recovery in India is well and truly underway. Growth in the GVA recorded in the Q2FY22 at 8.5% and in the GDP at 8.4% has been impressive. The fact that GVA growth is higher than that in the GDP shows that recovery in the economy is truly impressive. The lower GDP is mainly due to growth in subsidies exceeding the growth of indirect tax collections. The estimate has exceeded market expectations, as well as that of many rating agencies although it was quite close to Brickwork Ratings’ (BWR’s) estimate of 8.3%.
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Brickwork Ratings, Bengaluru, 08 December 2021: The Reserve Bank of India (RBI) maintained a status quo on policy rates and continued the accommodative policy stance in its Monetary Policy Committee (MPC) decision announced today. Both these decisions of the MPC are in line with the Brickwork Ratings (BWR) expectations.
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Brickwork Ratings (BWR) expects the Indian ceramic tiles industry, which is recovering from the pandemic impact, to witness 15%-20% growth in the next two years, i.e. CY21 and CY22. This can be attributed to an increased share of exports, coupled with the recovery in domestic demand on the back of the thrust on infrastructure development and real estate schemes such as Housing for All. Entities in the ceramic tiles industry have also been trying to penetrate new markets by promoting vitrified tiles, which can be used in non-residential spaces. The sector is highly competitive because of limited product differentiation and the largely unorganised nature of business.
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The Monetary Policy Committee (MPC) is to announce the policy decision on 8 December in its bi-monthly monetary policy meeting. The better- than-expected GDP numbers for Q2FY22 have provided much-needed comfort to the MPC on the growth outlook, while the new Covid variant Omicron weighs concerns on sustaining this recovery. Supply-side concerns are impacting the price level as well, although decline in oil prices witnessed in the last couple of weeks should bring in some comfort.
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The Federal Open Market Committee (FOMC), on 3 November 2021, announced the unwinding of the policy accommodation provided by the Federal Reserve (Fed) in response to the Covid-19 pandemic. In the FOMC statement, the Fed has announced its decision of beginning to reduce the monthly pace of its net asset purchases in stages- by USD 10 billion for Treasury securities and USD 5 billion for agency Mortgage-Backed Securities (MBS) starting later in November 2021.
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As per data put out by the Ministry of Statistics and Programme Implementation (MOSPI), Consumer Prices Index (CPI), inched up by 13 basis points over the previous month to 4.48% (provisional estimates, measured by y-o-y change) in October 2021. The marginal increase in inflation in October over that in September 2021 was largely driven by rising fuel prices.
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Economic recovery in India is well and truly underway. Since the middle of March 2021, the second wave of the pandemic not only has created a severe health crisis, but has also forced the imposition of lockdowns in economic activities in virtually every state, thereby arresting the recovery process, which was underway since October 2020. Thus, although GDP growth in Q1FY22 was about 20.2%, it was well below the contraction in the Q1FY21 at 24.4%. With the relaxation of restrictions, the Q2FY22 has seen a steady recovery with increasing capacity utilisation in many sectors. However, full recovery is still some distance away, and many social distancing sectors are yet to resume their activities.
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With the lockdown-related restrictions on the economy being progressively relaxed owing to the declining COVID-19 cases and over 100 crore vaccinations administered, the economy has seen a fast-paced revival. October has seen a sharp acceleration in both, the manufacturing and services sectors, with the PMI index increasing to 55.9 from 53.7 in the previous month and the services PMI touching the highest in the last 10 years at 58.4 from the previous month’s index of 55.2.
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Many economic growth indicators are suggesting a faster-than-expected revival in economic activities, instilling greater confidence in economic agents as the number of new COVID-19 cases declines and leading to a sustained improvement in growth prospects. Most states have already relaxed restrictions on economic activities; with the progress achieved in vaccinating a sizeable proportion of the population, economic activities are likely to gather momentum. The pandemic toll on the economy has been huge, and contact-intensive sectors and supply disruptions may take some more time to fully recover.
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Cement demand, after having declined in FY20 (-1%) and FY21 (-11%), is expected to see healthy 10-12% growth in FY22 owing to a faster-than-expected recovery in the housing sector and the government’s thrust on infrastructure spending in the country. Pent-up demand and low interest rates have driven the realty sector amid the pandemic, and, the government’s push towards big-ticket infrastructure projects has increased the growth momentum for the highways sector. An improvement in these two sectors, which are among the largest consumers of cement, indicates a strong recovery path for the cement sector. The growth momentum is likely to continue, and production is expected to grow by lower double digits in FY23.
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Prime Minister launched the Gati Shakti master plan on 13th Oct 2021. The plan envisages a centralised portal to unite the infrastructural initiatives planned and initiated by 16 central ministries and departments including Railways, Roads and Highways, Petroleum and Gas, Power, Telecom, Shipping and Aviation etc.
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Steady decline in new cases and the progress achieved in vaccinating a sizeable proportion of the population have led to the relaxation of restrictions in most states. This has progressively revived both production activities and consumption demand. Pent up demand during the festival season is likely to improve demand conditions, further paving the way for improved capacity utilisation during the third quarter. The agricultural sector is also likely to post impressive growth in FY22 as the monsoon shortfall in the first three months has substantially been covered up in September and YTD in October 2021. Recovery seems to be broad-based, with the manufacturing PMI improving to 53.7 (from 52.3 in August) and services PMI at 55.2 (56.7 in August) in September.
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In a unanimous decision, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), after closely assessing growth and the inflation outlook in the economy, has continued to maintain policy rates. With a 5-1 majority, it has also announced the continuation of the accommodative stance. Both the decisions of the MPC are in line with Brickwork Ratings (BWR) expectations.
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The Indian road network is the second largest globally, with a length of around 63.86 lakh km. The outbreak of the virus towards end-FY20 had created panic globally, leading to the temporary suspension of economic activity. The road sector in Q1FY21 suffered a major setback during the initial lockdown, resulting in a delay of commercial operation dates by three to six months for most projects. However, once the lockdown was gradually lifted, it gained pace in terms of construction, project allocation and toll collections. The execution was robust and the pace of 37 kms per day recorded in FY21 was the highest ever recorded by National Highways Authority of India (NHAI) in a financial year.
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The official reaction to the first quarter GDP growth estimate for 2021-22 (Q1FY22) at 20.1% has been euphoric. The chief economic adviser (CEA) KV Subramanian, has emphasised that the economy is recording a “V”-shaped recovery and is poised for 11% growth, as projected in the Economic Survey. However, a closer analysis shows that the growth performance is not as glittering as one would like it to be. This impressive growth was recorded on the base of a devastating 24.4% contraction in the Q1FY21. Thus, even with this impressive growth, the economy is yet to catch up with the 2019-20 estimate. In fact, the Q1FY22 GDP actually declined by 16.9% from the immediately preceding quarter (Q4FY21).
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Brickwork Ratings, 15 September 2021, Bengaluru: The telecom sector which has played a crucial role during the pandemic has been struggling from quite a while now and seeking government support to tide over the crisis. The sector on various platforms have asked the government to address certain issues involving license fees, spectrum pricing & payment and payment of AGR dues.
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Tamil Nadu implemented the Fiscal Responsibility and Budget Management (FRBM) Act in 2003, and until FY20 the state had been adhering to the fiscal deficit target of 3% of the GSDP set in the Act (FRBM), except in FY17. The takeover of TANGEDCO’s debt under the UDAY programme increased the fiscal deficit beyond 3% in 2016-17. Although there was compliance with the fiscal deficit target, fiscal indicators in the state have shown a steady deterioration since FY13 as it moved from a revenue surplus to revenue deficit situation. This was mainly due to substantial decline in its own tax revenues. The surge in the share of revenue deficit in fiscal deficit from 8.69% in FY14 to 66.43% in FY21 sums up the situation.
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Brickwork Ratings, Mumbai, 18 August 2021: Housing Finance Companies (HFCs) have grown at a healthy pace in the past few years, supported by growing demand owing to economic and social development, the government’s consistent focus on promoting housing and a supportive regulatory environment encouraging growth. Following the IL&FS fiasco in September 2018, the lender/investor community became wary of lending to non-banks, especially to standalone entities with exposure to wholesale lending or wherein the asset-liability mismatch was relatively high with a limited liquidity cushion or wherein the AUMs were relatively small or the portfolio had limited vintage.
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At last, after a prolonged period of gloom, there is some good news, though it is too early to start cheering. The number of new coronavirus cases, which rose meteorically from March to peak at a daily average of 3.92 lakh in the week ending 8 May, have shown steady decline to reach 37,975 in the week ending 22 July, but marginally increased to 40,710 in the week ending 3 August. This has led to relaxations in restrictions and not surprisingly, the PMI Manufacturing index, after showing a sharp contraction in June at 48.1, jumped to a 3-month high of 55.3 in July. The Services PMI, however, has continued to remain in the contractionary mode, although it improved from 41.2 in June to 45.4 in July. This trend indicates that the adverse impact of the second wave of the pandemic on economic activities is on the wane and would be confined to the first quarter, unless the pandemic resurges in the form of a third wave.
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Microfinance Institutions (MFIs) that offer financial services to the low-income population felt the heat of the pandemic in FY21, with growth in their Gross Loan Portfolio (GLP) slipping into low double digits, which was probably a first in a long time. The GLP for NBFC-MFIs grew by only 11% y-o-y in FY21, given that H1FY21 witnessed much-reduced activities due to the pandemic- induced lockdown and moratorium. Smaller MFIs were also impacted by the lack of funding availability and high fund costs during this period due to the looming risk of defaults post the moratorium. This low growth has largely been supported by the disbursement of additional loans or top up loans by larger MFIs to existing (relatively better placed) customers as new client additions during the year remained very low owing to an environment of scepticism induced by the pandemic.
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The Reserve Bank of India’s (RBI), Monetary Policy Committee (MPC), after a detailed assessment of growth and inflation outlook in the economy has, in a unanimous decision, continued to hold policy rates. It has also announced the continuation of accommodative stance with 5-1 majority. Both the decisions of the MPC are in line with BWR expectations.
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The Monetary Policy Committee (MPC) of the RBI has kept key policy rates unchanged since May 2020, after having brought them down to a record low of 4% from 5.15% through two rate cuts (75 bps in March 2020 and 40 bps in May 2020), to assuage the economic consequences of the Covid-19 pandemic. Moreover, the MPC has continued with the accommodative policy stance after changing it from neutral to accommodative in June 2019. In addition, to enable the smooth functioning of financial markets, the RBI announced additional liquidity boosting measures such as OMOs, G-saps, forex swaps, TLTROs and sector-specific measures.
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The Indian automobile sector witnessed robust growth over the last decade (during pre-Covid times) due to lower penetration historically and increased disposable incomes among the masses. However, the last couple of years have been an exception, with sales plummeting on account of an overall slowdown in the economy, the rising cost of vehicle ownership, revised axle norms impacting commercial vehicle sales, deferred buying due to the implementation of Bharat Stage Emission Standards and lastly, the pandemic when green shoots were becoming visible.
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Economic recovery, which was progressing well until March this year, was suddenly arrested due to an unprecedented surge in infections. However, unlike last year when the central government imposed the strictest lockdown across the country, curbs imposed by states were partial in terms of both, activities and districts within the states, mainly depending on the positivity rate. Nevertheless, the adverse impact of the second wave of the pandemic on economic activities has been significant, and still continues in some states.
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The economy was well under recovery from the devastation caused by the first wave of the pandemic until the second wave hit the economy, starting April 2021, bringing the recovery process to an abrupt halt. The unprecedented and swift spread of the lethal virus in the second wave has caused a severe disruption in the recovery process, with almost all the states imposing restrictions on economic activities and lockdowns of varying degrees to contain the spread of the virus. Unlike last year when the centre announced a complete lockdown, this year the decision of imposing such restrictions was taken by states. Of course, almost all the states were forced to impose restrictions of varying coverage of activities and regions.
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Kerala’s performance in containing the first wave of the Covid-19 pandemic was
exemplary, and it was the first state to unveil a Rs 20,000 crore financial package in
March 2020 to tide over the pandemic crisis. The impact of the pandemic on this
state’s fiscal health was disastrous, as in the case of other states. Due to the lockdown
and closure of economic activities the GSDP in current prices for 2020-21 contracted
by 3.8% over the previous year. Apparently, the state missed its FY21 budget targets
by a substantial gap.
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The real estate sector was already facing a huge
crisis before the pandemic hit. It was battered by low sales, stagnating prices and high unsold
inventory in the market. Developers were coping with a liquidity crunch on the back of lacklustre
sales and reduced funding from NBFCs. The situation had started to improve, with buyers’
sentiments turning positive, aided with the governments push towards affordable housing.
Hence, developers started focusing towards this segment by reducing ticket sizes and unit sizes
in a bid to encourage sales. The limited recovery witnessed by the sector came to a halt when
the Covid-19 pandemic struck globally and its economic impact started becoming visible.
Complete business closure in the first half of the year to subdued business activity later on
resulted in the sector facing huge losses in terms of demand.
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As per the monetary policy framework, the RBI’s Monetary Policy Committee (MPC) has to maintain CPI inflation in the 2% to 6% range, with the median target of 4%. On 31 March 2021, the Government retained this target for the next five years (April 2021-March 2026), and therefore, keeping the inflation below 6% is crucial for the RBI. Meanwhile, in the June MPC meeting, the RBI projected a 5.1% inflation outlook for FY22. Recent data on inflation in both the Wholesale Price Index (WPI) and Consumer Price Index (CPI) points towards a rising trend. WPI inflation in May rose to 12.94% (highest in the series), and CPI inflation surged to 6.3%, the highest since November 2020.
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The provisional estimate of the GDP for 2020-21 released by the National Statistical Office (NSO) on 31 May 2021 shows a better-than-expected contraction at 7.3%. After registering negative growth of 24.4% in the first quarter and a contraction of 7.4% in the second, the economy started recovering to register positive growth rates of 0.5% and 1.6%, respectively, in the last two quarters of the year. However, this nascent recovery has come to an abrupt reversal with the raging second wave of the pandemic. The pandemic has been spreading at a faster rate than in the first phase and has been more ferocious in claiming lives. What is more saddening is that the second wave has been seen to have a much deeper penetration into rural areas as well. The sudden resurgence of the pandemic has threatened to leave a long trail of death and destruction, reverse the recovery process, sharply increase unemployment and push people deep into the poverty trap.
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Andhra Pradesh is one of those States that were badly ravaged by the Covid-19 pandemic in the first wave. The number of positive cases in the State rose to 6.8 lakh during the July to September 2020 period, making it the State with the second highest number of infections in the country, following Maharashtra. However, in the second wave, the State has witnessed fewer infections, although it has had to adopt containment measures, including the extended curfew till 10 June as it continues to report new cases. The number of active cases are as many as 1,23,426 as of 6 June 2021, and the total confirmed cases number is 17,58,339 so far.
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The Reserve Bank of India (RBI), after its second bi- monthly Monetary Policy Committee (MPC) meeting for the current fiscal year announced today, maintained a status quo and an accommodative policy stance. Both the decisions of the MPC are in line with BWR expectations. Growth and Inflation Outlook: Hope generated by the vaccination drive has been offset by the surge in the number of cases across several states and the virus spreading into smaller towns and villages in the recent months. Due to the fresh restrictions imposed by the states to contain the virus spread, recovery in most sectors of the economy has again been disrupted.
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The better-than-expected GDP numbers provide the much-needed comfort to the MPC on the growth outlook. However, with the imposition of partial lockdown-like restrictions to contain the virus spread in several parts of the country, the downside risk on growth recovery has intensified. Hence, the RBI is likely to continue with its accommodative monetary policy stance in the decision of the MPC meeting to be announced on 4 June 2021.
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The deadly coronavirus disease (COVID-19) has continued to spread at a faster pace in the second wave, crossing the grim milestone of over 4 lakh cases and over 4,500 deaths recorded in a single day. India’s record high infections have put the country’s health infrastructure under tremendous pressure, resulting in a shortage of hospital beds, oxygen and essential drugs. This prompted many states to take safety measures and announce localised restrictions and curfews in different forms. The magnitude of these restrictions was not as stringent as it was in the first wave.
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In the last one month there has been a dramatic change in the country’s economic mood. In end-January, the Economic Survey had declared, “India has been able to avoid the second wave while ably managing to flatten the epidemiological curve, with its caseload peaking in mid-September”. It went on to state, “....The V-shaped economic recovery is supported by the initiation of a mega vaccination drive with hopes of a robust recovery in the services sector. Together, prospects for robust growth in consumption and investment have been rekindled with the estimated real GDP growth for FY 2021-22 at 11%”.
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The Finance Minister of Maharashtra presented the 2021-22 budget in March, against the backdrop of an ailing economy struck by Covid-19. The economy was slowly getting back to normalcy from the grim of the pandemic, but the second wave of Covid infections, with the emergence of variants and fresh lockdowns again posed risks to a sustained recovery. The sharp surge in the cases causing the need for more spending on health infrastructure and vaccination, additional restrictions on economic activities and constraints on manufacturing activities due to problems in both supply (diversion of inputs such as liquid oxygen from manufacturing) and demand sides are likely to substantially change the fiscal estimates of the state for 2021-22 from those budgeted.
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The deadly second wave of COVID-19 has brought India’s nascent economic recovery from the pandemic to an abrupt halt. Many state governments have imposed lockdowns or similar restrictions to contain the virus spread. These lockdowns restrict most of the normal economic activities, thus putting livelihoods at risk. The concern of an uncertain future has led to the start of the exodus of many migrants from urban agglomerations. This has added to the humanitarian crisis due to the non-availability of beds, ventilators and oxygen supplies. The situation is unprecedented, with a heart-breaking situation being witnessed in crematoriums and burial grounds.
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‘Atmanirbharta’ (Self-sufficient in Hindi) is an attractive catchword. In fact, for almost half a century post- independence, India has been talking of self-sufficiency – in food, industrial inputs, key scientific and defence areas, etc. Given the foreign exchange position of India, the amount of money available for imports was anyway very limited. However, the policy makers were also aware of the limitations of such a policy, particularly in certain sophisticated technological fields. Later, in the 90s, as multilateralism became the mantra of a globalised world, India also had to make choices. With a gradual increase in the Forex kitty, thanks to increasing exports, software prowess post the Y2K phenomenon and large inflow of remittances by Indian diaspora, imports got liberalised.
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‘Atmanirbharta’ (Self-sufficient in Hindi) is an attractive catchword. In fact, for almost half a century post-independence, India has been talking of self-sufficiency – in food, industrial inputs, key scientific and defence areas, etc. Given the foreign exchange position of India, the amount of money available for imports was anyway very limited. However, the policy makers were also aware of the limitations of such a policy, particularly in certain sophisticated technological fields. Later, in the 90s, as multilateralism became the mantra of a globalised world, India also had to make choices.
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Near-Term Challenges of Macroeconomy. The policy statement of the Monetary Policy Committee (MPC) was eagerly awaited, not so much for its decision on policy rates as the market did not expect any change, but more importantly for its forward guidance on the policy stance, and measures to manage liquidity and assist the growth process. Although managing inflationary expectations is the primary task of the MPC, its focus has been more towards assisting the government in economic recovery and ensuring liquidity to manage the yield curve to support the government borrowing programme. Of course, the market had expected that both the repo and reverse repo rates will be kept unchanged at 4% and 3.35%, respectively.
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The Reserve Bank of India (RBI), in its first bi-monthly Monetary Policy Committee (MPC) meeting for the current fiscal year announced today, maintained a status quo and an accommodative policy stance. Both the decisions of the MPC are in line with BWR expectations. On the GDP guidance, the RBI continued to maintain its forecast of 10.5% growth for FY22. On the inflationary side, the RBI sees a softening trend in prices in Q3 FY22 (4.4%) and maintained the 5.2% inflation forecast for H2 FY22. The expectation of inflation moving within the MPC’s target provides scope for the continuation of the accommodative policy stance for the near term. Overall, the tone of the MPC remained dovish, while supporting growth recovery, and financial stability concerns continue to remain the central focus of the RBI.
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The inflation levels above the RBI's mandated 4% median target, rising fuel prices, surplus liquidity, frontloading of government borrowings, rising yields, second wave of Covid-19 in the country’s major states, disruptions in economic activities due to partial lockdowns and uneven economic performances are among the major issues before the MPC when it meets for its first FY21 meeting during 5-7 April.
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Karnataka is one of the States with a history of good management of finances. It was the earliest State to enact the Fiscal Responsibility and Budget Management Act, even before the Union government enacted it. The State had a revenue surplus consistently since 2004-05, and its fiscal deficit has been consistently less than 3% of the GSDP since 2011-12. The Debt to GSDP ratio too has been consistently less than 20%, and this was one of the State’s eligible for borrowing more than 3% of the GSDP according to the Fourteenth Finance Commission recommendations. Of course, the State continued to limit its fiscal deficit below 3% of the GSDP. The State has also been transparent by including the off-budget borrowings in the total liabilities, and the Fifteenth Finance Commission has appreciated this.
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The voluntary vehicle scrappage policy, as announced in Union Budget 2021-22, has been rolled out with the idea of fulfilling the government’s manifold objectives of curbing pollution, improving vehicular safety and reducing oil import bills. Simultaneously, it is expected to catalyse demand for new vehicles and indirectly pave the way for promoting electric vehicles, the adoption of which is so far at the nascent stage. Direct incentives under the policy include a scrap value for old vehicle (ranging between 4-6% ex- showroom price of a new vehicle), 5% discount on the purchase of a new vehicle against the scrapping certificate and registration fee waiver.
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Skyrocketing oil prices have once again brought in the need to include petroleum products within the ambit of the GST. The Union Finance Minister recently made a case for its inclusion, and going by press reports, the finance ministers even of some opposition-ruled states are not averse to the idea, as long as their revenues are safeguarded. Besides the inclusion of petroleum product taxes within the ambit of the GST, there have been demands to rationalise GST rates to minimise the inverted rate structure and merge 12% and 18% to evolve into one general rate in addition to the merit rate of 5% and demerit (sin) rate of 18%. Thus, there are expectations that the 44 th Meeting of the GST Council scheduled this month would move in the direction of rationalising the GST structure.
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2021: The second advance estimate and third quarter estimate of GDP for FY21 released by the Ministry of Statistics and Programme Implementation (MOSPI) have brought in some recovery hopes. The estimate of 1% growth in GVA and 0.4% growth in GDP marks the ending of the recessionary phase. In fact, all the sectors except (i) mining and quarrying, (ii) trade, hotels, transport and communication services and (iii) public administration, defence and other services have recorded positive growth in Q3.
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India is globally the second largest sugar producer after Brazil, with the total output pegged at 27.2 MT during SS* 2019-20. The world has faced unprecedented circumstances during these pandemic times, and the sugar industry too has not been an exception to this situation. It witnessed subdued demand during the lockdown period because of reduced off-take from key customer segments such as HORECA (Hotels, Restaurants and Catering), beverage and confectionery. However, all is not gloomy for the sugar industry as price realisations have improved over the last few years. The government has also increased the Fair and Remunerative Price (F&RP) for sugarcane for the upcoming season to increase farmers’ revenues. Although the top sugar companies witnessed a dip in operational and financial performance during FY 2019-20, they appear to be gradually recovering in the current 2020-21 period.
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Union Budget 2021-22: A Filtered Assessment After the hype and hoopla following the budget, the dust has now settled, and the time is opportune to unravel its mysteries. Analysing the macroeconomic implications of the budgeted numbers and unravelling the implications of various proposals and initiatives taken in the budget for the current year and also the expected impact of the proposals in the next year is useful. The Economic Survey presented before the budget made an impassionate plea for adopting a countercyclical fiscal policy. It argued that increased capital expenditure is particularly important in the present juncture.
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Brickwork Ratings, Bangalore, 16 February 2021: The Government has announced modifications in the HAM concession agreement in November 2020 - Linking of interest rates to average MCLR of top 5 banks instead of Bank rates will offset the interest rate risk. This is expected to generate better stability of cash flows which will lead to lower volatility in DSCR and will also safeguard the return of the developers. The revision in the lock-in period to sell 100% equity post Commercial Operation Date (COD) from 2 years to 6 months is expected to deleverage the balance sheet and free up the equity earlier which will lead to increase in the investments in the road sector. The increase in the number of payment milestones to 10 installments of 4% each as against 5 installments of 8% each will enable the developers to improve working capital cycle and may postpone the availment of the debt.
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Stimulus measures announced by the government and the expansionary stance adopted in the budget are seen to be helping revive demand conditions, and the GDP contraction in H2FY21 is likely to be much lower than that estimated earlier. Given the faster-than- expected revival in economic activities so far, the hopes of economic recovery have somewhat brightened. However, the economy is still in the contraction mode and has already entered a recessionary phase in technical terms, with a contraction in two successive quarters.
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The most severe lockdown imposed following the spread of the Coronavirus-19 pandemic had rendered the last budget completely irrelevant. The government has had to provide emergency relief to save lives and livelihoods and provide stimulus to revive the economy. The fiscal stimulus was not large, but due to sharp decline in revenues and additional outlays needed for protecting lives and livelihoods have expected to increase the deficit and debt. Although the economy is in recovery mode, there are also hopes of continued support to recovery through elevated public spending in the coming year.
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This year’s Economic Survey is an impressive document covering a wide canvas. It has an extensive discussion on the spread of the Coronavirus-19 pandemic and performance of different countries in containing it. It also deals extensively with the impact of the pandemic on the Indian economy and government’s policy response. The survey expects a resilient V- shaped growth revival in consumption and investment to register robust real growth of 11% and nominal growth of 15.4% in 2020-21. This is in line with Brickwork Ratings projections. This high growth comes in the wake of a sharp contraction in 2020-21 at 7.7%, and despite this, the survey expects that the economy will take two years to reach and surpass the pre-pandemic GDP level. The survey also argues for a counter-cyclical fiscal policy, mainly by increasing public investment expenditures, which will have significant crowding-in effects on private investments.
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The Coronavirus (COVID-19) pandemic, which began spreading across world in late-2019, disrupted economic activities globally throughout 2020. To contain the virus spread, most countries imposed stringent lockdown measures in the first few months of 2020. India experienced one of the toughest lockdowns (imposed in March 2020) globally, bringing economic activities to a grinding halt and causing a sharp contraction in the GDP in two successive quarters of FY21, pushing the economy into a recessionary phase.
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Budget 2021-22: Setting Sail in the Rough Weather After a year of fear, despair and uncertainties, we seem to have entered 2021 with some measure of assurance and hope. With the recovery rate of COVID-19 cases in the country touching 97% and active cases on the decline, and with the search for the vaccine proving successful, we can finally see the light at the end of the tunnel. The economy is on the mend, as reflected in the better- than- expected growth performance in the Q2FY21. Both the industry and service sectors have shown recovery, with the PMI for manufacturing registering 56.4 in December.
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Low base effect and faster recovery in economic activities foretell better growth prospect. As per the first Advance Estimates (AE) of the GDP released by the Ministry of Statistics and Programme Implementation (MOSPI), the economy is expected to contract by 7.7% in FY21, which is close to our estimate of 7% to 7.5% contraction in GDP. Although these estimates are likely to undergo revisions, the projections in the second AE are likely to be revised upwards owing to the recent economic recovery reflected by the performance of some leading indicators.
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The Finance Ministry proposes to issue an order to impose a basic 40% customs duty on modules and 25% on solar cells as a part of Aatmanirbhar Bharat. The customs duty will replace the current 15% safeguard duty imposed on imports from China and Malaysia. India plans to impose the new tariffs on of solar cell and module imports from 1 April 2022.
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The better-than-expected second quarter (Q2) GDP estimate has raised the hopes of a faster recovery in the second half of the current fiscal (H2FY21). On 27 November 2020, the Ministry of Statistics and Programme Implementation (MOSPI) released Q2FY21 GDP data, wherein the contraction in the economy was estimated at a much lower 7.5%, compared with the 23.9% contraction in Q1FY21. With this, the contraction in H1FY21 stands at 15.7%.
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Better-than-expected GDP estimates in Q2FY21 brought some cheer in an otherwise gloomy scenario. Most forecasters, including the Reserve Bank of India (RBI) and multilateral agencies, had predicted the economy to contract by 9-13% in Q2, and the release of the estimate by the Ministry of Statistics and Programme Implementation (MOSPI) at -7.5% has beaten these expectations. A contraction of this order is still one of the highest among the major economies, and in normal times, it should have rung alarm bells.
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In a unanimous decision by the members of the Monetary Policy Committee (MPC), the RBI maintained status quo and continued with an accommodative policy stance in its fifth bi-monthly MPC meeting; this is in line with BWR expectations. The RBI also revised GDP projections upwards to -7.5% from the earlier estimate of -9.5%, considering the improved performance of the economy in the second quarter and the recent recovery seen in high-frequency indicators and urban demand.
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CPI inflation remained above the RBI MPC’s median target of 4% for the last 13 months and in October 2020, the inflation rate touched 7.61%, the highest since May 2014, largely due to the high rate of food inflation. Supply-side disruptions that were seen driving inflationary pressures since the imposition of the lockdown continued, despite the easing of lockdown restrictions. Price pressures are likely to be transient and are expected to ease gradually in the coming months if the economy normalises.
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With strong backward and forward linkages, the Steel industry serves as an engine for economic growth and a symbol of economic prosperity. With steel demand being derived from other sectors such as automobiles, constructions, infrastructure and machinery, its fortune depends on growth in these user industries. Since coal and iron ore are its main raw material, it highly depends on these industries as well.
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After seven months of severe stress triggered by the most severe lock down, there is some good news on the economy. A bountiful monsoon has brought cheer to the farmers, with a record output expected in the Kharif season. With reservoirs filled to the brim, output is expected to be bountiful in the Rabi season as well. Increasing purchasing power in the hands of the farmers is expected to increase rural demand. There has also been appreciable improvement in both manufacturing and service sector performances in October. The manufacturing PMI at 58.9 in October shows the fastest output increase in 13 years. The services PMI after eight consecutive months of contraction has moved into a positive zone, touching 54.1 in October compared with 49.8 in the previous month.
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Power Distribution Companies (Discoms) are usually considered weak links in the entire power value chain, with the grim situation of the country’s power sector being attributed to their poor performance, and rightly so. Despite the implementation of various reforms in the past few years, including the financial restructuring of Discoms during 2012-13 and UDAY during 2015-16, most Discoms have failed to improve their operational efficiencies and consequently, their financial performance. High distribution losses, low billing and collection efficiency, and a wide gap between the Average Cost of Supply (ACS) and Average Revenue Required (ARR) are some factors that have plagued the sector for a long time, leading to considerable losses.
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After six months of severe stress triggered by the severest lockdown so far, there finally is some good news on the economy. Some high-frequency indicators point towards economic recovery. The manufacturing PMI has shown a sharp increase from 52 in August to 56.8 in September, the highest in eight years! GST collections at Rs 95,480 crore in September have recovered to increase by 3.8% from last year and were higher than August collections by 10%. Passenger vehicle sale has increased by 31%. Railway freight traffic showed a 15% increase. After a gap of six months, merchandise exports registered 5.3% growth, driven by outbound shipments of engineering goods, petroleum products, pharmaceuticals and readymade garments.
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The economic damage caused by the lockdown imposed to contain Covid-19 spread manifested itself in the form of the sharpest contraction in the Q1 GDP estimates released on 31 August by the Ministry of Statistics and Programme Implementation (MOSPI). The GVA and GDP contracted by 22.8% and 23.9%, respectively, in Q1FY21. The contraction is the highest among the G-20 countries and emerging market economies.
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The first quarter GDP estimates released on 31 August by the Ministry of Statistics and Programme Implementation are clearly disappointing, although not entirely unexpected. The GDP contraction during the quarter was 23.9%, and the GVA shrunk by 22.8%. The strict lockdown implemented in the last week of March that continued until end-May has brought the economy to a grinding halt for the major part of the quarter. Even as lockdown relaxations have been slow and staggered, most metropolitan and large urban centres continue to be severely constrained in terms of economic activities.
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The report covers BWR view on the GDP growth, fiscal deficit, banking credit growth, asset quality, profitability, capitalisation of PSBs and some of the emerging trends in the banking space like digitisation and co-lending model. The report was launched in CII 13th Banking Colloquium held on 15th September 2020.
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The FY21 first quarter (Q1) GDP estimate released on 31 August 2020 by the Ministry of Statistics and Programme Implementation (MOSPI) clearly depicts the distress in economic activities caused by the lockdown that was implemented in response to the pandemic outbreak. For the first time, the economy has witnessed such a drastic contraction in the quarterly GDP. The grave concern is that these estimates may undergo further downward revisions, given the difficulties in securing real-time data, particularly that related to the unorganized sector, which was severely impacted due to various pandemic-related restrictions in the most part of the first quarter.
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Brickwork Ratings partnered with CII Eastern Region for the 13th Banking Colloquium 2020 on the virtual platform. During the conference, Rajat Bahl released the outlook of Brickwork Ratings - Banking Sector.
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In FY20, auto components players’ revenues declined ~8-10% after a y-o-y increase until FY19 on account of a shrinking order book from Original Equipment Manufacturers (OEMs) due to lower automobile sales in the country during this period. BWR expects the industry’s revenue to slip further and witness ~15%-18% decline in FY21 on account of lower income levels and continued weak sentiments. BWR expects export revenues to decline as well in FY21 as more than 50% of our exports are to markets in Europe, the UK and the US,
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The impact of the lockdown on economic activity shows up starkly in the trends in the Central government revenue collection during the first three months of fiscal 2020-21. As per data released by the Controller General of Accounts (CGA), the Central government’s revenue in Q1 of the current year is much lower than collections for the corresponding period last year. Revenue from income taxes (personal income tax and corporate income taxes) was lower by 30.5%, and the GST (CGST+IGST+UTGST) by almost 34% during the period.
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