Indian economy to grow 7.1-7.6% in current fiscal: Report

Source: Economic Times, 13 July 2022

Indian economy is projected to grow 7.1-7.6 per cent in the current financial year despite shifting geopolitical realities across the world, a report said on Wednesday. In its India’s economic outlook – July 2022 report, leading consultancy Deloitte India said that as 2021 was coming to a close, there was optimism in the air but the optimism received a jolt early this year as a wave of Omicron infections swept through the country and Russia’s invasion of Ukraine happened in February.

“These events aggravated the pre-existing challenges such as surging inflation, supply shortages, and shifting geopolitical realities across the world with no definite end in sight.

“And the subsequent confluence of headwinds such as surging commodity prices and disruption in trade and financial transactions quickly deteriorated economic fundamentals that were trending up a few months back,” the report said.

Rising commodity prices, surging inflation, supply shortages, and shifting geopolitical realities across the world weigh on the growth outlook. Still, India will likely reign as the world’s fastest-growing economy, it noted.

“India is expected to grow by 7.1-7.6 per cent in 2022-23 and 6-6.7 per cent in 2023-24. This will ensure that India reigns as the world’s fastest-growing economy over the next few years, driving world growth,” the report said.

Reserve Bank of India (RBI) has projected a GDP growth of 7.2 per cent for the current fiscal ending March 2023.

Deloitte India said that it expects inflation and supply chain disruptions to remain entrenched for some time.

The domestic currency will likely recover some lost ground against the US dollar, but not before early next year. India’s relatively strong recovery and the global slowdown will improve INR’s strength, it added.

The rupee depreciated by 3 paise to close at a record low of 79.62 (provisional) against the US currency on Wednesday.

“The desire of global businesses to look for more resilient and cost-effective investment and export destinations during difficult times, among other factors, could work in India’s favour,” Rumki Majumdar, Economist at Deloitte India, said.

The report also said that uncertainties in the global business ecosystem will pose significant risks.

Role of power exchanges in transforming energy markets and economy

Source: Financial Express, 04 July 2022

India is taking giant strides to emerge as the strongest economy in the world and the power sector is playing a major role in this process. India is the third-largest producer and second-largest consumer of electricity worldwide. Country’s peak power demand surpassed the 200 GW mark and reached a record high of 210.8 GW. For India to take its rightful place in the world economy, making its electricity market more competitive and efficient is of utmost importance.

A significant step in this direction was the enactment of the Electricity Act (EA) 2003. The Act made electricity trading a separate and distinct activity and paved the way for efficient, transparent and competitive price discovery through power exchanges. Recently, with the Power Market Regulations 2021, Hon’ble Central Electricity Regulatory Commission (CERC) has incorporated learnings of the past decade and provided new instruments to make transactions more efficient and reliable and with approval for go live of another power exchange (Hindustan Power Exchange Ltd. Or HPX), this process is expected to get yet another boost towards this objective.

Currently there are two exchanges operating in India and the third exchange, HPX, is expected to commence its operations from 6th July 2022. However, sometimes a question is raised over the presence of multiple exchanges in a geography. To answer this question, we need to investigate how exchanges are evolving in developed countries.

In the case of Europe, initially each exchange was operating as the sole provider of trading platforms in a country or a group of countries. Thereafter pan-European market coupling was implemented, wherein the prices were being discovered at a common platform. It benefitted Europe as the market spread increased, which resulted in substantial savings for the participants as well as to economies in these countries.

After the market coupling, European regulators allowed multiple exchanges to exist in the same geography. Today, the Nordic countries have an existing exchange which is Nordpool, as well as EEX is also providing its platform. Similar is the situation in other parts of Europe.

When we compare this evolution process in Europe with that of the Indian power market, we have three power exchanges (HPX starting operations soon) and neighbouring countries (Nepal and Bhutan) are now part of the common power market. Discussion for market coupling has already started with suitable enabling provisions in the Power Market Regulations 2021. As such in time to come, while footprints of the Indian Power Market are expected to increase further in the SAARC countries, the price determination process would be managed by one entity (which would be decided by the CERC) and the power exchange would be competing for market share based on their services. Thus, in both cases (Europe and India), the power market is moving towards multiple exchange models with common price discovery.

Traditionally in India, state utilities and producers enter long-term power purchase agreements (PPAs) for trade of power. These bilateral contracts generally run for over two decades and support overall capacity creation. However, when these PPAs are executed in excess of requirement, they prove to be burdensome for distribution companies.

The PPAs do not provide flexibility to the beneficiaries to take advantage of changing market situations. Power exchanges, on the other hand, allow different avenues to the participants to buy/sell power in the form of multiple market segments. As such, the need of the hour for all participants is to maintain a judicious mix between the long-term commitment and short term opportunities. Learnings from the recent debacle of the Energy Only Market of Australia are also instructive for us to offer products such as Capacity Market in the right earnest, so that we do not fall into a similar crisis.

Trading on power exchanges is conducted in a fair and transparent manner and has advantages over the traditional bilateral approach. For example, generation companies greatly benefit from the timely payments. For buyers, power exchanges help in efficient management of their power portfolios. If India has more power exchanges, it will deepen the market and will encourage spot deals for electricity. Currently, only 6 per cent of the nation’s electricity is traded through spot deals and with power exchanges, it would be possible to purchase more of India’s electricity through spot deals which can bring ground-breaking results.

Today, power exchanges have emerged as the most preferred entities to enable buying and selling of electricity and create a more competitive and liberalised market. For a country like India which is fast-emerging as a global superpower, it is crucial to ensure best possible utilisation of energy generated for economic resilience and power exchanges definitely have a pivotal role to play in it.

(Akhilesh Awasthy is the COO of Hindustan Power Exchange. In his current role, he has been responsible for successfully establishing HPX)

Short-term risk management must not hurt macro stability

Source: Economic Times, 21 June 2022

The government needs to carefully manage short-term risks that the country face without sacrificing the “hard-earned macroeconomic stability”, the finance ministry said in its monthly economic report on Monday.

India faced near-term challenges in managing its fiscal deficit, sustaining economic growth, reining in inflation, and containing current account deficit while maintaining a fair value of rupee, the report said. Despite all the challenges posed by external factors, the country is still at a lower risk of stagflation, it noted.

The report made a strong case for rationalisation of non-capex spending to prevent any fiscal slippage.

India’s medium-term growth prospects remain bright as pent-up capacity expansion in the private sector is expected to drive capital formation and employment generation in the rest of this decade, it said. “Many countries around the world, especially developed countries, face similar challenges. India is relatively better placed to weather these challenges because of its financial sector stability and its vaccination success in enabling the economy to open up,” the report said.

While external challenges will keep on stoking inflation, which will persist as long as the Russia-Ukraine conflict persists, India is better placed than its global peers, and the recent measures taken by the Reserve Bank of India and the government will manifest in coming months, it said.

The report said headwinds from monetary tightening, seen globally, are a concern.

“Depreciation risk to rupee, however, still remains as long as net foreign portfolio investor (FPI) outflows continue in response to the increase in policy rates and quantitative tightening in advanced economies as they wage a prolonged battle to calm inflation,” it said

Pruning non-capex spending

The finance ministry report stressed on cutting non-essential spending in the government.

The capex budget for 2022-23 is expected to underpin growth, it said, adding that an upside risk to the budgeted level of gross fiscal deficit has emerged following cuts in excise duties on diesel and petrol. Last month, the government had slashed excise duty on petrol and diesel by Rs 8 per litre and Rs 6 a litre, respectively, to tame price rise. “Rationalising non-capex expenditure has thus become critical, not only for protecting growth supportive capex but also for avoiding fiscal slippages,” the report said.

An increase in the fiscal deficit may cause the current account deficit to widen, compounding the effect of costlier imports, and weaken the value of the rupee, thereby, further aggravating external imbalances, creating risk (admittedly low at this time) of a cycle of wider deficits and a weaker currency, it said.

Growth prospects

Citing various parameters, the report said the momentum of economic activities sustained in the first two months of the current financial year augured well for India that remains the quickest growing economy among major countries in 2022-23. This is despite the country being vulnerable to headwinds with rising commodity prices, supply chain bottlenecks, and faster than the projected withdrawal of monetary accommodation.

India to be a $5-trn economy by FY27, says CEA V Anantha Nageswaran

Source: Financial Express, 15 June 2022

India would emerge as a $5-trillion economy by FY27 and a $10-trillion one by FY34, chief economic adviser (CEA) V Anantha Nageswaran said on Tuesday.

“We are now at $3.3 trillion, it is not such a difficult target to reach. Then if you simply assume 10% nominal GDP growth in dollar terms, then you get to $10 trillion by FY34 and another doubling with the same rate,” the CEA said at an event by the UNDP India.

In 2019, before the pandemic hit the nation and the world, Prime Minister Narendra Modi had envisioned to make India a $5-trillion economy by FY25. With its strong fundamentals, the Indian economy is much better placed now than many others, Nageswaran added.

Last week, the CEA had said India had displayed remarkable resilience in recovery after a Covid-induced slump in growth. Key indicators of the economy, he stressed, had crossed their pre-pandemic levels. The latest GDP data showed real growth in FY22 exceeded the pre-pandemic (FY20) level by 1.5%, private consumption by 1.4% and fixed investment by 3.8%. On a year-on-year basis, the economy grew 8.7% in FY22 from -6.6% in the previous year.

Quick and decisive policy interventions by the government, duly supported with monetary measures by the central bank, have enabled the economy to stage a smart rebound, the CEA had said.

Economy gathering momentum: GST mop-up past Rs 1.4 trillion in May too

Source: Financial Express, 02 June 2022

Goods and services tax (GST) collections crossed Rs 1.4-trillion mark for the third month in a row in May 2022 and came in at the fourth-highest level since the launch of comprehensive consumption tax about five years ago. The continued buoyancy in GST receipts over the last few months denotes the economic momentum is not badly hit by the external headwinds. An expansion of the tax base, reduced evasion and the elevated price levels across commodities, raw materials and finished goods are also boosting the tax collections.

According to the official data released on Wednesday, gross GST revenue in May 2022 rose 44% on year to about Rs 1.41 trillion.

Continued buoyancy in GST collections for several months in a row would help allay the state governments’ concerns about a revenue shock they might have to deal with once a five-year revenue protection period ends on June 30. For the Centre, if the trend of higher-than-estimated mop-up is sustained, its share of GST revenues would be substantially higher than the budget estimate (BE) of Rs 6.6 trillion for FY23.

GST collections accelerated even as consumption in the economy slowly recovered from the lows caused by the pandemic. Growth in private consumption expenditure slipped from 10.5% in Q1FY22 to 7.4% in Q3FY22 and further to 1.8% in Q4.

A senior official recently told FE that gross GST revenues in FY23 may be Rs 1.3-1.35 trillion a month on average (about Rs 16 trillion in the year), which could mean the Centre’s FY23 GST revenues could be about Rs 60,000 crore more than the BE, after adjusting for cess collections which are to be used mainly to service the loans taken in the last two years to bridge the states’ revenue shortfall from protected levels in FY21 and FY22.

The average monthly GST mop-up was Rs 1.23 trillion in FY22. The Budget FY23 has conservatively estimated average monthly GST collections in the year at Rs 1.2 trillion.

Most of the large states, including Tamil Nadu, Maharashtra, Uttar Pradesh and Karnataka, reported 40-60% growth GST collections in May 2022.

“The collection in May, which pertains to the returns for April, the first month of the financial year, has always been lesser than that in April, which pertains to the returns for March, the closing of the financial year. However, it is encouraging to see that even in the month of May 2022, the gross GST revenues have crossed the Rs 1.4 trillion mark,” the finance ministry said in a statement.

Total number of e-way bills generated in April 2022 was 7.4 crore, 4% lower than in March 2022.

During May, revenues from import of goods was 43% higher and the revenues from domestic transaction (including import of services) are 44% higher than the revenues from these sources during the same month last year.

“The gross GST revenue collected in May is Rs 1,40,885 crore of which CGST is Rs 25,036 crore, SGST is Rs 32,001 crore, IGST is Rs 73,345 crore (including Rs 37,469 crore collected on import of goods) and cess is Rs 10,502 crore (including Rs 931 crore collected on import of goods),” the ministry said.

Land, labour and education key to support India’s economic growth as Ukraine war lingers: IMF

Source: Financial Express, 27 April 2022

The International Monetary Fund (IMF) said India needs to strengthen its labour, land and education sector, with a focus on improving participation of women in the labour force, if it wants to improve its growth potential. The three areas are potential bottlenecks that could hamper India’s growth, IMF said. Furthermore, putting focus on infrastructure investment and keeping a commodity fiscal stance could be an appropriate action to support the vulnerable households, it added. For FY 2023, IMF cut growth outlook for India last week by 80 basis points to 8.2 per cent amid spillovers from the Russia Ukraine war.

“In India, the difficult policy tradeoffs are evident from the fallout from the Ukraine war, especially, higher oil prices expected to weigh on gross and increase current account deficits and push up inflation. While growth is still expected to be strong at 8.2 percent, this is 0.8 percentage points lower than in the January Update,” Anne-Marie Gulde-Wolf, Acting Director of the IMF’s Asia and Pacific Department said.

“To enhance India’s growth potential, it is important to address structural weaknesses of the Indian economy that provide bottlenecks to achieve longer-lasting growth. These bottlenecks are in the labor market, land market, better educational outcomes, and very much also getting a higher share of females into the labor force,” Gulde-Wolf added.

As food and fuel prices rise, the IMF said the government needs to support the economy by fiscal support through in-kind and cash transfers pinching the pockets of households while RBI, the central bank, must make a well-communicated monetary policy action, and probably “some monetary tightening”.

High inflation, Fed policy tightening to hurt growth in Asia

“Inflation in Asia, which was relatively low during the pandemic, has started rising following the spike in food and fuel prices. The shock from the war comes at a time when recovery from the pandemic is still incomplete and global financial conditions are tightening. New COVID waves are adding to headwinds in some countries, most notably, China. Lower growth in China is affecting many Asian trading partners that are tightly integrated,” IMF said Tuesday.

“Monetary tightening in advanced economies is leading to higher interest rates in Asia as well, placing a further drag on growth. These headwinds will exacerbate the medium-term scarring effects from the pandemic that many emerging and developing economies in the region are expected to suffer; amplified by their higher debt burdens,” it added.

Moody’s maintains ‘stable’ outlook for Indian banks on recovering economy

Source: Business Standards, 11 April 2022

Rating agency Moody’s has maintained ‘stable’ outlook for India’s banking system. The operating conditions for banks will be stable, supported by improving consumer and business confidence, as well as improving domestic demand, Moody’s said in a statement.

Still, the banking sector’s financial fundamentals will improve. Declines in loan-loss provisions and increases in net interest margins will boost banks’ profitability.

Moody’s said that capitalisation, funding, and liquidity will be stable and support loan growth. However, the global economic fallout from the Russia-Ukraine military conflict will create some risks, pushing up inflation and interest rates, and creating supply constraints.

The Indian economy is expected to continue to recover in the next 12-18 months and the gross domestic product (GDP) will grow at 9.3 per cent in the year ending March 2022, and 8.4 per cent in the following year. Improving consumer and business confidence, as well as improving domestic demand, will support economic growth and credit demand.

The increasing corporate earnings and easing funding constraints for non-bank finance companies (NBFCs), which are significant borrowers from banks, will support loan growth. The growth in bank loans is expected to accelerate by 12-13 per cent in fiscal 2023 from five per cent in fiscal 2021, Moody’s added.

Asset quality will improve

The non-performing loan (NPL) ratios will decline due to recoveries or write-offs of legacy problem loans, while the formation of new NPLs will be stable as the economy recovers. Loan growth will help push NPL ratios down by expanding the overall pool.

The asset-weighted average of rated banks’ gross NPL ratios nearly halved to 5.7 per cent as of 31 December 2021 from a peak of 10.3 per cent at end of March 2018.

The rating agency flagged prospects of rise in asset quality pressure and said new defaults may arise from loans that have been restructured because of economic disruptions from the pandemic.

Capital will be stable

The improving profitability will offset increases in capital consumption due to an acceleration in loan growth, helping banks across the system maintain capital at current levels.

Capital ratios at public sector banks (PSBs) have improved in the past year, helped by capital infusions from the government. Also, PSBs, as well as their private sector banks, have proactively sought to raise capital from the equity capital market, taking advantage of improvements in profitability to attract investor interest.

Rated private sector banks had an asset-weighted average Common Equity Tier 1 (CET1) ratio of 15.8 per cent at the end of 2021.

PSBs’ capitalisation remains weaker than that of their private sector peers. However, their asset-weighted average CET1 rose to 10.5 per cent at the end of 2021 from 10 per cent as of end-March 2021.

Industry sector in Odisha set for 14.5% growth in current fiscal: Naveen Patnaik

Source: Financial Express, 02 April 2022

After a stellar performance in 2021-22 fiscal, Chief Minister Naveen Patnaik on Saturday said that the industry sector of Odisha is set for a 14.5 per cent growth in the current financial year.

Patnaik pointed out that “spectacular growth” of 10.1 per cent in the industry sector in 2021-22 was “way ahead” of the national GDP of 8.8 per cent in the same period.

He was addressing a Business Eminence Awards function organised by ‘Dharitri’ and ‘Orissa Post’.

“This is really quite a good time for our industries. I hope all entrepreneurs and top business leaders of the state will carry the momentum forward in the current financial year,” the chief minister said.

Patnaik pointed out that Odisha has received over Rs.4.4 lakh crore investment intent during the last three years despite the COVID-19 pandemic.

“This could create employment opportunities for over 1.5 lakh people, and Odisha will continue to be the most favoured destination of investors from across the globe,” the chief minister said.

The chief minister also congratulated the ‘Dharitri’ and ‘Orissa Post’ for organising the event which will encourage the business community of Odisha.

“Our business eco-system is one of the best in India and we will continue to make improvements to provide the best possible opportunities to people who can create jobs in our state,” he said.

Congratulating the award winners, he said they have become role models for the state’s young entrepreneurs by registering achievements through the tough times of the COVID-19 pandemic to create a positive business atmosphere in Odisha.

Indian economy better placed to deal with any challenge, says RBI governor

Source: Financial Express, 21 March 2022

Reserve Bank Governor Shaktikanta Das on Monday said the RBI will continue to ensure adequate liquidity to support the economy, which is facing many headwinds in the form of soaring crude oil and key commodity prices following the Russian invasion of Ukraine.

Das, while addressing an industry meet organised by CII here this evening, said since the pandemic-hit the economy in March 2020, the central bank has pumped in a whopping Rs 17 lakh crore into the economy and assured the industry that the RBI will continue to ensure that the economy is well oiled with funds.

The governor further said banks at the system level are in better health now with the capital adequacy ratio at 16 per cent, and gross NPAs falling to a record low of 6.5 per cent.

He said despite the headwinds arising from the Russia-Ukraine war, the economy is better placed given the high forex reserves and low current account gap.

“We are comfortably placed to deal with any challenges with regard to financing the CAD, and the RBI stands committed to deal with any challenges on this front,” he said.

Eye on economy: Govt sticks to growth and inflation estimates

Source: Financial Express, 17 February 2022

Amid criticism that the Budget for FY23 has underestimated the so-called gross domestic product (GDP) deflator despite elevated price pressure in the economy, the finance ministry said on Wednesday that global inflation and energy prices will likely moderate in the next fiscal, allowing the projection to hold true.

While estimating a nominal GDP expansion of 11.1%, the Budget has projected a real growth rate of about 8% for the next fiscal and the implied GDP deflator, used to compute real expansion from nominal, is pegged at 3-3.5%, the ministry said. This is in sync with the growth rate of 8-8.5% projected by the Economic Survey for FY23 and is close to the Reserve Bank of India’s (RBI’s) forecast of 7.8%, it added.

In its report for January, the department of economic affairs (DEA) asserted that retail inflation will likely close within the RBI’s target band of 2-6% despite a spurt in price pressure in recent months. Between April and January this fiscal, retail inflation stood at an average of 5.3%, although it scaled a seven-month peak of 6.01% last month. Presenting an optimistic picture of the economy, the report stressed it’s “on its way” to growing at above 9% in the current fiscal, as projected by the National Statistical Office, despite the Omicron effect.

In an interview to FE earlier this month, DEA secretary Ajay Seth had said the GDP deflator would drop, as wholesale price index (WPI), which typically influences the deflator more than retail inflation, could ease considerably next fiscal due to a favourable base effect and a possible softening of global commodity prices in the wake of liquidity tightening measures by key central banks. WPI inflation averaged as much as 12.5% between April and December.

The report conceded that private consumption, the principal pillar of the economy that is yet to return to the pre-Covid level, will “grow cautiously as precautionary demand for money will rise at every hint of a new infection”. It will pick up once Covid-related uncertainty wanes. Consequently, demand revival will prompt the private sector to boost investments and augment production to cater for rising consumption.

The long-elusive private investment will get the necessary help from the complementary support of public investment in infrastructure and continue to gain traction from the Atmanirbhar Bharat initiative, it said. Production-linked incentive schemes (PLI) schemes will further draw private investment and drive up export growth. Manufacturing and construction sectors will be the “growth drivers”, supported by the PLI schemes and public capex in infrastructure.

The Centre’s budgetary capital spending is estimated to rise 36% to a record Rs 7.5 lakh crore in FY23 from the revised estimate for FY22 (excluding capital infusion into Air India). Its capex next fiscal will more than double from the pre-pandemic (FY20) level. The Budget’s “commitment towards asset creation (public infrastructure development) will invigorate the virtuous cycle of investment and crowd in private investment with large multiplier effects which in turn will augment inclusive and sustainable growth”, the report said.

“The unchanged repo and reverse repo rate along with the MPCs (Monetary Policy Committee’s) accommodative stance prioritise growth during these uncertain times and reinforce the investment orientation of the Budget. Should retail inflation remain range-bound at 4.5% as projected by the MPC in 2022-23, liquidity levels in the economy will remain high and interface with low interest rates to provide easier financing options to industry and individuals,” the DEA said in the report.