1
India Economic PulseEconomic indicators and policy measures
November 2020
ENTER
1 Executive summary
2 The COVID impact
3 Economic indicators
4 Government direction on key policy issues
Dear Reader,
We are pleased to bring to you the first issue of ‘India Economic Pulse’. Prepared by the EY Tax and Economic Policy Group, ‘India Economic Pulse’ decodes high frequency monthly economic indicators and the direction of Government thinking to make them more relevant for your business.
This issue highlights that large parts of the economy have recovered to levels in the same period of the previous year. Rural economy, manufacturing, energy consumption, rail and road freight transportation, merchandise imports and exports and consumption of some services have almost fully recovered.
Businesses in sectors like real estate, hospitality and travel industries continue to be pandemic impacted. Data on home loans, auto loans, credit card debt and other personal loans suggests cautious consumer behaviour. Despite measures taken by the RBI, there is no increase in net credit from scheduled commercial banks suggesting a stalled investment cycle. Further, the production of capital goods have been significantly lower than in previous years.
Emerging economic scenario
Change in capital mix - While there is no credit growth, funds are flowing into India i.e., through FDI and in domestic capital markets.
Pressure on public finance – While tax revenues have now picked up, due to the slowdown in economic activity in previous months, revenue collection is still about 17% lower for the Centre for the period April-October 2020 as against the same period last year. Similarly, the States’ revenues are lower by 10 to 30% during April to September 2020 as against the previous year. Given likely expenditure commitments, for instance, recapitalization of public sector banks, the fiscal stimulus by Government may be limited to avoid the risk of a downgrade.
Exec
utiv
e su
mm
ary
Rajnish GuptaAssociate Partner EY India
Pankaj DhandhariaPartner & Markets Leader EY India
Forex reserves are comfortable. It is reassuring that forex reserves have been increasing and are at comfortable levels.
Food inflation is high. Food inflation is at 10% currently. Future inflation is likely to impact RBI’s present accommodative stance on interest rates.
Government focus is on attracting investments. The Government has focussed on structural reforms and has been addressing supply side issues across sectors. It is actively seeking foreign and private investment. The outcome would probably be seen in the medium to long term.
Multiple agencies currently estimate a contraction in the Indian economy by around 7.5% to 10%. These estimates are likely to be revisited in view of the recently released economic numbers for second quarter of the current fiscal year.
Economic recovery will be contingent on how India and the world is able to manage the pandemic impact in terms of health infrastructure and distribution of vaccine.
Best regards,
Page 4 | Economic Pulse
Lockdown vs voluntary social distancingꟷ impact
Key findings
► Economic activity has been impacted by voluntary social distancing and Government lockdowns.
► Lifting of lockdowns may not result in economic normalcy. If infections continue, people may still follow voluntary social distancing.
► The difference in the impact of social distancing between countries by income reflects inability of the poor to sustain temporary income loss from financial savings.
COVID impact
8%
8%
9%
6%
7%
11%
6%
3%
All
Advanced Economies
Emerging Markets
Low Income Countries
Relative economic impact on mobility and jobs during the first 3 months of a country’s epidemic
Lockdown Voluntary Social distancing
18
16
16
13
10
6
5
1
Stay-at-home orders
Public transport closures
Internal movement restrictions
Workplace closures
Gathering restrictions
Public event cancellations
School closures
International travel controls
Sequencing of lockdown measures (globally) -- number of days after the first COVID case
Note: Based on a study published by IMF in the World Economic Outlook, October 2020. Economic effects of lockdowns and voluntary social distancing has been estimated by using two high-frequency indicators (mobility data and job openings) as proxies for economic activity for 128 countriesSource: Google Mobility Data, Oxford’s COVID-19 Response Tracker and IMF Staff calculations
Page 5 | Economic Pulse
Tracking the spread of COVID-19 cases in India
Key findings
► Economic recovery would depend, first and foremost, on COVID-19 spread.
► All parameters suggest that India has moved past the peak for COVID cases and peak fatality rate. However, there continues to be a significant number of new cases and deaths on account of COVID.
► Both Government-mandated and voluntary social distancing are likely to continue, although in a milder way.
COVID impact
1162
735
528
0
200
400
600
800
1,000
1,200
16-M
ar24
-Mar
01-A
pr09
-Apr
17-A
pr25
-Apr
03-M
ay11
-May
19-M
ay27
-May
04-J
un12
-Jun
20-J
un28
-Jun
06-J
ul14
-Jul
22-J
ul30
-Jul
07-A
ug15
-Aug
23-A
ug31
-Aug
08-S
ep16
-Sep
24-S
ep02
-Oct
10-O
ct18
-Oct
26-O
ct03
-Nov
11-N
ov19
-Nov
27-N
ov
Daily new confirmed COVID-19 deaths (7-day rolling average)
46
0102030405060708090
100
16-M
ar24
-Mar
01-A
pr09
-Apr
17-A
pr25
-Apr
03-M
ay11
-May
19-M
ay27
-May
04-J
un12
-Jun
20-J
un28
-Jun
06-J
ul14
-Jul
22-J
ul30
-Jul
07-A
ug15
-Aug
23-A
ug31
-Aug
08-S
ep16
-Sep
24-S
ep02
-Oct
10-O
ct18
-Oct
26-O
ct03
-Nov
11-N
ov19
-Nov
27-N
ov
Daily new confirmed COVID-19 cases (7-day rolling average) (in '000s)
3.3%
1.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
16-M
ar24
-Mar
01-A
pr09
-Apr
17-A
pr25
-Apr
03-M
ay11
-May
19-M
ay27
-May
04-J
un12
-Jun
20-J
un28
-Jun
06-J
ul14
-Jul
22-J
ul30
-Jul
07-A
ug15
-Aug
23-A
ug31
-Aug
08-S
ep16
-Sep
24-S
ep02
-Oct
10-O
ct18
-Oct
26-O
ct03
-Nov
11-N
ov19
-Nov
27-N
ov
Fatality rate (%)
5%
48%
94%
0%10%20%30%40%50%60%70%80%90%
100%
16-M
ar24
-Mar
01-A
pr09
-Apr
17-A
pr25
-Apr
03-M
ay11
-May
19-M
ay27
-May
04-J
un12
-Jun
20-J
un28
-Jun
06-J
ul14
-Jul
22-J
ul30
-Jul
07-A
ug15
-Aug
23-A
ug31
-Aug
08-S
ep16
-Sep
24-S
ep02
-Oct
10-O
ct18
-Oct
26-O
ct03
-Nov
11-N
ov19
-Nov
27-N
ov
Recovery rate
Source: Our World in Data, COVID19 India, Data available as on 30th November 2020
Page 6 | Economic Pulse
COVID-19: comparing India to the world
Key findings
► On a per capita basis, India has done better than most other countries, both in number of fresh COVID cases as well as deaths.
► The actual infections, however, could be much higher than the official count for India and other countries, as some of the cases may not have been reported.
► Various European countries like France and Spain are undergoing a second wave of COVID-19 cases which serves as a warning for India.
COVID impact
0.1% 0.1% 0.2%0.7% 0.9% 1.0% 1.0%
1.3% 1.3% 1.5%1.7%
2.4% 2.6%3.0% 3.1%
3.5%4.0%
Japa
n
Aus
tral
ia
Indo
nesi
a
Indi
a
Mex
ico
Cana
da
Sing
apor
e
Germ
any
Sout
h A
fric
a
Russ
ia
Uni
ted
Ara
bEm
irate
s
Uni
ted
King
dom
Italy
Braz
il
Arg
entin
a
Spai
n
Uni
ted
Stat
es
Total cases per capita
5 16 36 58 61 99195 268
319 362
806 813 819 851 859 908955
Sing
apor
e
Japa
n
Aus
tral
ia
UA
E
Indo
nesi
a
Indi
a
Germ
any
Russ
ia
Cana
da
Sout
h A
fric
a
Uni
ted
Stat
es
Braz
il
Mex
ico
Arg
entin
a
UK
Italy
Spai
n
Total deaths per million
Source: Our World in Data. Data available as on 30th November 2020
Page 7 | Economic Pulse
Rural economy indicators
Key findings
► Rural economy is showing signs of recovery and possibly positive economic growth, led by agriculture.
► Recent growth in tractor sales has compensated for the lull in the lockdown period. Combined tractor sales during April-October 2020 have grown by 8% over last year. This shows increasing confidence of farmers.
► Growth in fertilizer sales and net crop sown area suggests that agriculture sector is likely to show positive growth this year.
► After an initial push in rural works programme (MNREGA) from May onwards, the demand is going down as people are going back to their original jobs.
Rural economy
605
155
774
10101086
335
662
316
882
1082 1095
348
0
200
400
600
800
1000
1200
Jan Jun Jul Aug Sep Nov
Net Crop Sown Area (lac hectares)
2019 2020
4436
4132 34
35
48 46
31 2937
4641
43
5 8
37
6759 58
4641
0
31
62
93
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Tractor sales (No. of units in ‘000)
2019 2020
18 17 16 1619 20
1512 12 11 12
1518
16
9
31
37
27
20 20 20
15
05
10152025303540
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
2019 2020
Households worked under MNREGA ( in millions)
58
3025
1420
38
6976
5345
7465
47
2921
40
69
92
69
47 49
66
0
20
40
60
80
100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Fertilizer sales (lacs MT)
2019 2020
Source: Ministry of Road Transport and Highways, Ministry of Agriculture & Department of Fertilizers, MNREGAData for Net Crop Sown Area available as on 30th November 2020
Page 8 | Economic Pulse
Overall manufacturing indicators
Key findings
► Manufacturing sector has touched the levels of the corresponding period of the last year with y-o-y growth in overall industrial production index of 0.2% in September 2020.
► The latest reading of the purchasing manufacturers Index (PMI) also suggests a recovery.
► The key question is whether the growth is sustainable, or, temporary due to pent-up demand and inventory build-up.
Manufacturing
24 25 2627
30 31 3125
4
2226 24
2124
27
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Cement production (in million tonnes)
9.5 8.9 9.4 9.810.4 9.8 9.6
8.4
1.7
6.17.5
8.8 9.3 9.2 9.2
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Crude steel production (in million tonnes)
126.2
122.9
124.0
128.8
134.5 137.4 134.2
117.2
54.0
90.2108.9
117.6
116.9
123.2
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
General index of industrial production
51.4
51.4
50.6
51.2
52.755.3
54.551.8
27.430.8
47.2
46.0
52.056.8
58.9
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
PMI manufacturing
Note: PMI >50 indicates expansion,
Page 9 | Economic Pulse
Manufacturing indices for consumer non-durables, consumer durables, intermediate goods and capital goods
Key findings
► Overall, non-durable consumer goods were the first to recover from the pandemic shock. However, recovery is becoming more broad based.
► Consumer non-durables growth was 4% in September 2020 (y-o-y) whereas consumer durables production has increased by 2%. This indicates recovery of consumer confidence.
► Capital goods production is down by -3% indicating weakness in capex investments by businesses and possible squeeze in credit (see slide 21).
► On the other hand, in September 2020, production of infrastructure/construction goods reached the last year’s levels.
Manufacturing
144
144 139150
158 158
153
122
73
135
158149
140150
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Consumer non-durables
131
128
130 135
146147
145
118
20
88
114128 128
128.5
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Infrastructure/ Construction Goods
122
123
113 117 117124 117
83
6 40
79100 109
125.9
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Consumer Durables
8991
89 91
94
102 97
73
735
64 7175
88.4
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Capital Goods
Source: RBIIIP Base: 2011-12=100
Page 10 | Economic Pulse
Vehicle registration trends
Key findings
► 2-wheelers and passenger vehicles have shown the fastest recovery among the four segments, though October 2020 sales for both these categories are lower than that in October 2019.
► Despite near zero sales during lockdown, the demand for other automobile categories has not yet recovered to pre-lockdown period.
Manufacturing
62 60 6469 68
8293
311
1927
40 4444
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Commercial vehicles (in '000s)
192 178
274 291
216
291
226
31
126157
179 197
250
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Passenger vehicles (in '000s)
55 5863
107
58 64 66
212 15 17
24 22
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
3 wheelers (in '000s)
1.261.161.42
1.90
1.26
1.26
1.29
0.16
0.790.87
0.90
1.01
1.04
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
2 wheelers (in million)
Note: FADA has not released sales data for March and April 2020Source: FADA. (The vehicles data has been compiled by FADA in collaboration with Ministry of Road Transport and Highways (excludes data for MP, AP, LD and TS))
Page 11 | Economic Pulse
Policy initiatives to push manufacturing in India
Key findings► Government’s structural
reforms are aimed towards improving manufacturing competitiveness and providing medium-term growth opportunities.
► Pre-COVID initiatives focussed around fiscal measures.
► Post-COVID initiatives seek to address structural weaknesses along with continuing fiscal measures.
► Manufacturing push will create more investment opportunities.
► Indian market access strategy would need to be carefully calibrated i.e., sourcing and local manufacturing in India.
Pre-COVID Initiatives Description and Intent
Corporate tax cut Rate for new manufacturing facilities at 15% to make it competitive vis-à-vis ASEAN countries
Customs duty increase Increased duty for number of products in 2020 budget e.g., footwear, toys, automobiles, etc
Phased manufacturing plans Phased and graded duty structure to incentivize indigenous manufacturing e.g., Electric Vehicles
Production linked incentive scheme (PLI)
Monetary incentives on incremental sales (over the base year) for a period of five years to offset disability (read inefficiencies) of manufacturing in India. Initial sectors covered were high import items (cell phones) and healthcare related products (medical equipment and pharmaceutical). Recently, Government has announced its intent to increase coverage to 10 new sectors such as textiles, PV modules, telecom products, autos, etc.
Quality standards Quality standards being notified by Bureau of Indian Standards (BIS) for products to be sold in India e.g., footwear, toys, automobile tyres, etc
Post-COVID Initiatives Description and Intent
Change in definition of MSMEs Expanding the definition (turnover and investment thresh holds) to encourage MSMEs to grow
Labour reforms Consolidation of over 100 laws into 4 codes with higher exemptions for retrenchment and fewer registrations and is subject to ratification by State Governments
Preference for domestic manufacture
Preference for domestic manufacture in Government purchases, especially Defence
Agricultural reforms Enactment of 2 new laws and amendment of one statute – will likely facilitate larger scale food processing
Land Implementing a GIS system to provide information on industrial land include plot level information
Manufacturing
Page 12 | Economic Pulse
-80
-60
-40
-20
0
20
40
60
17-0
2-20
20
29-0
2-20
20
12-0
3-20
20
24-0
3-20
20
05-0
4-20
20
17-0
4-20
20
29-0
4-20
20
11-0
5-20
20
23-0
5-20
20
04-0
6-20
20
16-0
6-20
20
28-0
6-20
20
10-0
7-20
20
22-0
7-20
20
03-0
8-20
20
15-0
8-20
20
27-0
8-20
20
08-0
9-20
20
20-0
9-20
20
02-1
0-20
20
14-1
0-20
20
26-1
0-20
20
07-1
1-20
20
19-1
1-20
20
-80-70-60-50-40-30-20-10
01020
17-0
2-20
20
29-0
2-20
20
12-0
3-20
20
24-0
3-20
20
05-0
4-20
20
17-0
4-20
20
29-0
4-20
20
11-0
5-20
20
23-0
5-20
20
04-0
6-20
20
16-0
6-20
20
28-0
6-20
20
10-0
7-20
20
22-0
7-20
20
03-0
8-20
20
15-0
8-20
20
27-0
8-20
20
08-0
9-20
20
20-0
9-20
20
02-1
0-20
20
14-1
0-20
20
26-1
0-20
20
07-1
1-20
20
19-1
1-20
20
Mobility change from baseline of Feb,20 for workplace
Service sector indicators based on movement of people
Key findings► PMI numbers reflect recovery in
confidence of services sector.
► Visits to grocery stores and pharmacies are back to pre-COVID levels. This is in line with the trends for consumer non-durables (See slide 9).
► Visits to recreation, shopping centres and offices is lower by about 30%, though recovering.
► Low mobility for retail and recreation will affect trade, repair services, hotels and restaurants sectors accounting for approximately 12% of the economy.
► Low mobility to offices has implications for commercial real estate sector.
-28
-29
Services
52 49 49 5353 56
5849
513
34 3442
5054
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
PMI services
Note: PMI >50 indicates expansion,
Page 13 | Economic Pulse
Transport: passenger transportation
Key findings
► Personal travel is still severely affected –particularly for mass transport systems as compared to individual driving.
► Both Apple mobility data and FASTag transactions show that driving trends have recovered, indicating an upsurge in the road transportation sector. However, partial lockdowns and restrictions in key states could affect this nascent recovery.
► Passenger travel through rail and air is still severely affected with a very slow recovery.
Services
690 692 703 700 693 715 676
436
-8 -4 4 14.622.00
-1090
190290390490590690790
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Railway passengers traffic*(millions)
020406080
100120140160
13-0
1-20
2023
-01-
2020
02-0
2-20
2012
-02-
2020
22-0
2-20
2003
-03-
2020
13-0
3-20
2023
-03-
2020
02-0
4-20
2012
-04-
2020
22-0
4-20
2002
-05-
2020
12-0
5-20
2022
-05-
2020
01-0
6-20
2011
-06-
2020
21-0
6-20
2001
-07-
2020
11-0
7-20
2021
-07-
2020
31-0
7-20
2010
-08-
2020
20-0
8-20
2030
-08-
2020
09-0
9-20
2019
-09-
2020
29-0
9-20
2009
-10-
2020
19-1
0-20
2029
-10-
2020
08-1
1-20
2018
-11-
2020
Mobility/Driving trends for India from baseline of Jan, 20 (apple)
29 28 3031 32 31 29
18
0 14 5 6
911
0
5
10
15
20
25
30
35
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Air passengers traffic (intn’l + domestic in millions )
28
110
10
97 122
6
18
2
1721.00
0
5
10
15
20
25
020406080
100120140
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
FASTag transactions
Volume in Millions Value In USD Billions
127
Source: NPCI , Ministry of Railways, Ministry of Civil Aviation, Apple Mobility Data (excluding all the movements during weekends and May 11 & 12, 2020) The negative railway passenger traffic for April & May 2020 is a result of refunds provided by the Railways FASTag transaction numbers and values are taken from National Electronic Toll Collection (NETC).
-17
Page 14 | Economic Pulse
Transport: freight transportation
Key findings
► Rail freight in August 2020 was higher than the levels in August 2019.
► However, road freight (as reflected in E-Way Bills) continues to be lower than that in the corresponding period last year by approximately 5% in volume terms.
► Air freight is lower by about 15% vis-a-vis the corresponding period last year.
Services
289 284300
280
283
276
268
210
47
95
163192 204 239
259
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Air freight (‘000 tonnes)
434
400 403384
418
426
417
410
284 275289
344
353380
423
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
JNPT container traffic (‘000 TEU’s)
107.3999.86
119.58
100.94104.65 101.26 99.59
90.92
110.38106.28 102.9
65.3 82.46
93.45 95.01
94.5
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Railways freight (Million tonnes)
2019 2020
Source: Ministry of Civil Aviation, Railways, JNPT Terminal, GSTIN Network
1,960 1,993 1,948 2,009 2,097 2,167 2,129 1,576 519 1,194 1,689 1,869 1,905
70.0 72.4 72.8 72.775.6 77.9 78.4
55.0
10.432.5
57.564.7 66.3
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
E- way bills generated
Value in INR '000 Crores Volume in Millions
Page 15 | Economic Pulse
Energy consumption
Key findings
► Power consumption has recovered with a y-o-y growth of 12%.
► Consumption of petroleum products also has reached the levels of the corresponding period last year.
Services
3.64 3.62
3.19 3.173.30
3.433.62
3.23
2.84
3.323.55
3.663.57
3.79
3.58
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Power consumption (bill ion units)
17.18
16.19
17.3118.48
18.87
18.54
18.22
16.08
9.40
15.3716.19
15.56
14.39
15.47
17.78
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Consumption of petroleum products (million metric tonnes)
54.3
52.9
54.050.8
53.0
53.4
57.6
53.0
45.8
50.553.4
53.450.8
56.3
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Consumption of natural gas (‘00 MMSCM)
Source: Ministry of Petroleum, Coal & Power. POSOCO,MMSCM stand for Million Standard Cubic Metre
Page 16 | Economic Pulse
Telecom and digitization
Key findings
► Telecom market is relatively saturated in the urban areas while the rural areas continue to offer growth.
► Wireless subscriptions have continued to grow rapidly in the rural areas but have shown significant reduction in urban areas in recent months.
► Total retail digital payments are again growing rapidly and have crossed the levels achieved in the same period last year.
► UPI transactions are driving the overall growth in digital retail payments at the expense of debit and credit cards.
54% 67%
39%28%
4% 3%2% 2%
Nov
-201
9
Dec
-201
9
Jan-
2020
Feb-
2020
Mar
-202
0
Apr
-202
0
May
-202
0
Jun-
2020
Jul-2
020
Aug
-202
0
UPI Card Payments Wallets Others
Share of different segments in total digital retail payments
Digitization
-0.7 -0.7
-15.8
-1.4-4.4
2.60.3 -0.2
6.3 5.9
-13.2
0.24.4 5.4
1.9 0.83.6
-2.11.9
-0.5
6.72.4
-6.1
1.9 3.9 1.0 2.6 2.9
-3.6
3.7
-15.6
-3.40.6 -1.3
-4.8-9.0 -9.2
-1.11.6
4.25
Jan-
19
Feb-
19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-1
9
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Wireless subscribers addition (in millions)
Rural Subscribers Urban Subscribers
3,487
3,742
3,924
3,883
3,436
2,289
3,242
3,912 4,247
4,420
Nov
-201
9
Dec-
2019
Jan-
2020
Feb-
2020
Mar
-202
0
Apr
-202
0
May
-202
0
Jun-
2020
Jul-2
020
Aug
-202
0
Total digital retail payments (in INR billions)
Note: Others include ECS, AEPS, APBS and BHIMSource: TRAI, RBI
Page 17 | Economic Pulse
Policy direction: IT and digitization
Key findings
► With the onset of COVID, digitization and maintenance of digital infrastructure has become more strategic for the Government.
► Government’s strong focus on self-reliance is reflected in multiple policy actions e.g., manufacture of products in India, usage of non-personal data and urging businesses and Government agencies to develop new solutions.
Digitization
Develop technologies indigenously
► Technology sector seen as strategic by the Government► Push towards indigenous driven technology as reflected in repeated statements by the
Government e.g., Artificial Intelligence, 5G, etc. ► Continuing push towards start-ups
Digitize the processes and leverage IT in delivery of public services
► Several initiatives during COVID such as new Faceless Assessment Scheme of Income Tax returns, One Nation One Ration Card, Unique Health IDs for all citizens of India, etc
► Continuous push on digital connecting India through a broadband network
Use the data generated in India for use by Indian businesses/ agencies
► Government is studying Non Personal Data (NPD) (public, private and community) and evaluating making more and more non-personal data to Indian companies for development of technologies.
► Ownership of certain public data with Government and organizations representing the community
► Restrictions on transfer on sensitive and critical NPD outside India
Manufacture of IT equipment in India
► As part of the production linked incentive scheme, the Government has set budget of USD 6.5B for manufacturing of cell phones, specified electronic components and telecom products in India
National security and law and order considerations
► Government recognizes the role of IT on law and order and national security e.g., banning over 100 applications to protect privacy and data of Indian citizens has been taken
► Proposal to regulate social media in the future
Page 18 | Economic Pulse
Foreign trade trends
Key findings
► In terms of goods exports, India has already recovered and is now showing positive growth. According to Government, non-oil growth in October 2020 over last year was 2%.
► However, services exports are still about 2% lower than the last year.
► Imports of both goods and services have recovered nearly to the pre-COVID levels indicating uptick in domestic demand.
► Non-oil imports in October 2020 are lower by 2% while services imports are lower by 6% in October 2020.
22.8
22.6
22.8
21.9
23.5
22.7
24.319.0
8.9
17.520.0
21.9
20.7
23.9
23.2
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Non- oil merchandise exports (in USD billion)
28.9
28.6
28.3
27.5
28.928.1
26.7
21.1
12.4
18.7
16.2
21.9
23.1
24.5
27.6
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Non- oil merchandise imports (in USD billion)
12.8
12.0
11.1
10.911.5
12.612.011.1
11.1
9.3
9.9
10.0
10.1
9.610.1
10.2Ju
l-19
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Services imports (in USD billion)
18.2
17.5 17.7
18.020.0
19.017.7
18.216.5
16.8
17.0
17.016.4
17.317.4
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Services exports (in USD billion)
Foreign trade and external sector
Note: Oct 2020 data is provisional Source: RBI, Ministry of Commerce & Industry
Page 19 | Economic Pulse
Foreign capital flows and exchange rate position
Key findings
► Due to falling imports and recovering exports, India’s current account position has turned from deficit to surplus. However, with the increase in imports, the current account may turn to deficit again.
► India has been receiving large foreign portfolio inflows. In November 2020, India received much higher equity inflows than last year’s corresponding period.
► Due to both capital account surplus and incoming capital inflows, India’s foreign exchange reserves have been growing rapidly.
► Due to dollar depreciation, INR has appreciated vis-à-vis USD but it has depreciated vis-à-vis Euro and pound during this year.
-0.7%
-2.1%
-0.9%-0.2%
0.1%
3.9%
Q4
FY19
Q1
FY20
Q2
FY20
Q3
FY20
Q4
FY20
Q1
FY21
Current account deficit (as percentage of GDP)
71.1
71.3
71.0
71.5
71.2
71.371.5
74.476.2
75.7
75.7
75.0
74.7
73.5
73.5
74.3
7977
79 79 80 79 8083 82
84 8588 87 86 87
88
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Nov
-20
Exchange rates
USD/INR EUR/INR
Foreign trade and external sector
-2.5
1.1 1.7 3
.5
1.0 1.7
0.3
-8.3
-0.9
1.9 2.
9
1.0
6.3
-1.1
2.7
8.1
1.6
-0.1
0.5
-0.3
-0.7
-1.6
0.7
-7.6
-1.1
-2.9
0.3
-0.6 -0.1
0.6
0.2
-0.2
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Nov
-20
FPI investments (in US$ billion)
Equity Debt
428
478 506
575
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-…
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Nov
-20
India foreign exchange reserves (in US$ billion)
Source: DBIE, RBI, FBIL, NSDLAll date available as on 30th November 2020
Page 20 | Economic Pulse
Inflation
Key findings
► The inflation scenario shows overall dichotomy between high transitionary inflation in food items and overall deflation in rest of the economy.
► While the overall consumer inflation is at 7.6%, the wholesale price index showing prices for the producers is much lower at 1.6%.
Financial markets
Note: Data not available for April and May 2020Source: MoSPI, Ministry of Commerce and Industry, Office of Economic Advisor
1.20.6
3.50.4
-1.6 -0.3 0.41.3
1.5
7.8 7.59.8
11.213.2
11.3
7.8
4.6 3.81.7 2.1
4.5 4.4
8.26.4
4.72.2 1.9
7.16.8
-3.0 -3.8 -3.3
-0.1
2.9
0.0 -0.9 -0.80.6 0.4 0.3
0.2 0.61.4 1.6 2.1
Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20
WPI inflation (%)
All Commodities Food Articles Non Food Articles Manufactured Products
2.02.6
2.9 3.0 3.1 3.2 3.2 3.3 4.04.6
5.5
7.4 7.6 6.65.8 6.2
6.7 6.77.3 7.6
0.71.4
2.0 2.4 2.3 3.0
4.7
6.9
8.7
12.2 11.7
9.5
7.8 7.9 8.5 8.3
9.8 10.2
2.9 2.7
2.5 2.01.8 1.5 1.4 1.2 1.0
1.71.3 1.5 1.9 2.1 2.1
2.7 2.8 2.8
3.0
3.2
5.2 5.1 4.9 4.8 4.8 4.8 4.9 4.8 4.8
4.5 4.3 4.2 4.2 3.7 3.6 3.3 3.1
2.8
3.3
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20
CPI inflation (%)
All Groups Food & Beverages Clothing & Footwear Housing
Page 21 | Economic Pulse
Credit flow trends
Key findings
► There is practically no credit growth since the commencement of the pandemic, despite the efforts made by the government and the RBI.
► Total debt inflow, after accounting for other sources like corporate bonds and external commercial borrowings has remained negative during the current fiscal year.
Financial markets
337
541
311
-4
69
Apr,17 - Mar,18 Apr,18 - Mar,19 Apr,19 - Mar,20 Apr,19-Jun-19 Apr,20 -Jun,20
Change in outstanding corporate bonds listed on NSE and BSE (Rs ‘000 Crores)
Source: RBI,
-25.39
110.51
-138.56
(23.34)
17.78
Apr,17-Mar,18 Apr,18-Mar,19 Apr,19-Mar,20 Apr-19-Sep-19 Apr,20-Sep,20
Change in outstanding commercial paper (Rs ‘000 Crores)
594
945
578
-13 -94
Apr,17-Mar,18 Apr,18-Mar,19 Apr,19-Mar,20 Apr-19-Sep-19 Apr,20-Sep,20
Flow of gross non food credit of scheduled commercial banks (Rs ‘000 Crores)
29.4
4.4
13.4 7
-9.0 Apr,17-Mar,18 Apr,18-Mar,19 Apr,19-Mar,20 Apr,19-Jun,19 Apr,20-Jun,20
Change in outstanding external commercial borrowings (US$ billions)
Page 22 | Economic Pulse
Change in gross personal loans advanced by banks
Key findings
► Credit driven consumption has fallen significantly compared to corresponding period in the previous years.
► Unless credit expansion takes place, the recovery in consumer durables may not be sustainable.
Financial markets
485
757
931
209
Mar-17 to Sep-17
Mar-18 to Sep-18
Mar-19 to Sep-19
Mar-20 to Sep-20
Housing loans (in INR billions)
78
103
111
-25
Mar-17 to Sep-17
Mar-18 to Sep-18
Mar-19 to Sep-19
Mar-20 to Sep-20
Credit card debt (in INR billions)
81
56
13
8
Mar-17 to Sep-17
Mar-18 to Sep-18
Mar-19 to Sep-19
Mar-20 to Sep-20
Auto loans (in INR billions)
703
199
296
-11
Mar-17 to Sep-17
Mar-18 to Sep-18
Mar-19 to Sep-19
Mar-20 to Sep-20
Other personal loans (in INR billions)
Source: RBIOther personal loans include consumer durables, advances to individuals and FDs, education, other personal loans
Page 23 | Economic Pulse
Key findings
► While credit growth has not picked up, fund raising has continued.
► The decline in the number of public issues of equity (new and rights issues) reflects that access to this route to raise resources is available to fewer players. It also indicates a few, but large, issues.
Fund raising trends Financial markets
73
53
80
67
78
Apr
,17-
Mar
,18
Apr
,18-
Mar
,19
Apr
,19-
Mar
,20
Apr
,19-
Sep-
19
Apr
,20-
Sep,
20
Money raised by non Governmental companies (‘000 crores)
26.18
37.41
47.3
25 24
Apr
,17
-M
ar,1
8
Apr
,18
-M
ar,1
9
Apr
,19
-M
ar,2
0
Apr
,19
-Se
p,19
Apr
,20
-Se
p,20
PE/VC Investments (US$ bill ions)
221
154106
6229
Apr
,17-
Mar
,18
Apr
,18-
Mar
,19
Apr
,19-
Mar
,20
Apr
,19-
Sep,
19
Apr
,20
-Sep
,20
No. of issues to raise money by non Governmental companies
Source: RBI, EY Analysis
30 31
43
21 23
Apr
,17-
Mar
,18
Apr
,18-
Mar
,19
Apr
,19-
Mar
,20
Apr
,19-
Sep,
19
Apr
,20-
Sep,
20
Net FDI inflows in India (US$ bill ions)
Page 24 | Economic Pulse
Trends in Centre's tax collections
Key findings
► Corporate tax collections show a declining trend vis-à-vis the previous year both due to rate cuts and the cessation of economic activity.
Public finance
27 21
188
12
-11
70
18 23
138
2324 25
138
20
-3
37
-0.5
11
86
22
Jan Feb Mar (Prov) April May June July Aug Sep Oct
Net corporate tax collection (INR ‘000 crores)
2019 2020
27 31
101
4021
36 32 3748
31 35 36
92
27 9
26 29 26
49 37
Jan Feb Mar (Prov) April May June July Aug Sep Oct
Net personal tax collection (INR ‘000 crores)
2019 2020
Source: Controller General of Accounts; GST Council/ PIB
Page 25 | Economic Pulse
Trends in Centre's tax collections
Key findings
► GST collections in October 2020 crossed the INR 1 lakh crore mark. The rise in collections is indicative of pick up in economic activity and demand.
► Customs duty collections, after being consistently lower by a significant margin till September 2020 (vis-à-vis corresponding period in 2019), have recovered in October 2020 and are close to levels in October 2019.
► Increase in taxes on petrol and diesel have led to increase in excise revenues. Further, as noted previously, rail freight and road driving has recovered.
103 97107
114100 100 102 98
92 95
111 105 98
32
62
91 87 86 95
105
Jan Feb Mar (Prov) Apr May Jun Jul Aug Sep Oct
GST collections (Centre + States) (INR ‘000 crores)
2019 2020
10 9
1
1315
11 12 10 10
-7
11 9
4 4 6 6
8 9 8 10
Jan Feb Mar(Prov)
April May June July Aug Sep Oct
Customs (INR ‘000 crores)
2019 2020
18 19
38
-0.1
17 20 1821 20 18
21 22
43
0.1
11
24 33 33
28 32
Jan Feb Mar(Prov)
Apr May Jun Jul Aug Sep Oct
Union excise duty (INR ‘000 crores)
2019 2020
Source: Controller General of Accounts; GST Council/ PIB
Public finance
Page 26 | Economic Pulse
Centre’s finances are impacted by increased borrowings and lower tax revenues
Key findings► COVID-induced additional
expenditure and borrowings, coupled with falling revenues, have impacted the fiscal deficit and has already breached the Budget Estimate.
► Actual fiscal deficit may be much higher than the budgeted estimate of 3.5% of GDP. As per IMF's estimate for India's GDP for FY21, and the increased borrowing plan of the Government, the deficit could be more than 6.3% of the GDP.
► The Government’s debt is also likely to increase significantly in the coming years, which could impact the financial markets.
► The state of public finance could impact future stimulus measures and probably explains the Government's fiscal thinking (see Slide 35).
Public finance
Particulars Budget estimate
(2020-21)(INR crores)
Actuals (Apr to Oct
FY21)(INR crores)
% of BE
Tax revenues (net) 16,35,909 5,75,697 35.2%
Non tax revenues 3,85,017 1,16,206 30.2%
Revenue receipts 20,20,926 6,91,903 34.2%
Other receipts* 2,24,967 16,397 7.3%
Total receipts 22,45,893 7,08,300 31.5%
Revenue expenditure other than interest
19,22,018 11,30,643 58.8%
Interest 7,08,203 3,33,456 47.1%
Capital expenditure 4,12,009 1,97,355 47.9%
Total expenditure 30,42,230 16,61,454 54.6%
Fiscal deficit (9-5) 7,96,337 9,53,154 119.7%
Revenue deficit (6-3) 6,09,295 7,72,196 126.7%
649 936 796 1200
3.44.6
3.5
6.3
0
2
4
6
8
0
500
1000
1500
FY 19(Actual)
FY 20(Actual)
FY 21(BE)
FY 21(RE)
Fiscal Deficit FD (% of GDP)
.
(INR ‘000 crores)Fiscal deficit
70%72%
89%
2018 2019 2020
Source: IMF, Ministry of Finance, Controller General of Accounts, RBI Annual Report 2020*Other receipts include non-debt capital receipts and Recovery of loans
Debt to GDP (%)
Page 27 | Economic Pulse
The States’ tax revenues have been affected by the pandemic
Key findings
► Like the Centre, the States’ fiscal position is also stressed on account of COVID related economic activity shutdown and the already contracting economic growth before COVID.
► Growth in tax revenues of top States is down by -15% to -40% compared to last year.
► On the expenditure front, while many States show a negative growth in both revenue and capital expenditures, some states like AP and Kerala show a higher spend on Capex.
States’ tax revenue and expenditure growth (%) in FY 21 as compared to same period last year
-32.7%
-28.6%
-26.9%
-26.5%
-25.9%
-25.8%
-20.7%
-15.5%
-15.5%
-13.5%
-11.9%
-10.4%
KL
AP
HR
GJ
TN
KA
UP
TS
MP
OD
RJ
CH
Tax revenue
-16.4%
-13.0%
-8.9%
-8.7%
-6.6%
-5.4%
-5.2%
-3.0%
2.5% 6.6%12.9%
48.4%
CH OD MP KA UP HR TN GJ KL RJ TS AP
Revenue expenditure growth
-92.1%
-82.3%
-33.7%
-30.0%
-27.2%
-19.3%
-18.4%
-11.2%
-9.1%
-7.7%22.1%
165.2%
HR UP RJ MP GJ TN OD TS CH KA KL AP
Capital expenditure
AP: Andhra Pradesh; CH: Chhattisgarh; GJ: Gujarat: HR: Haryana; KA: Karnataka; KL: Kerala; MP: Madhya Pradesh; OR: Odisha; RJ: Rajasthan; TN: Tamil Nadu; TS: Telangana; UP: Uttar Pradesh; Source: Controller and Auditor General; State Accounts
Public finance
Page 28 | Economic Pulse
1 2 3 4
5 6 7 8
Countries globally are thinking of ways to restore public finances to enable economic reconstruction, post COVID
► Comprehensive fiscal packages given by countries to support businesses and households have led to increased pressure on public finances. ► Governments are considering various measures to raise resources for economic reconstruction. ► Divestments / privatization could be an important revenue raising measure.► Increased borrowings at very low interest rates and financial repression could also supplement public finances.► Tax policy will be an important part of the strategy to garner resources.
Key tax policy considerations
Medium term tax policy outlook
1 2 3 4
5 6 7 8
Increasing public pressure on profitable MNEs to pay
their fair share of taxes. This may lead to the push for
minimum taxation of MNEs Some economies are
exploring hike in CIT rate.
Possibility of more unilateral measures for taxing the digital economy, with increased use of digital services and the need to
expand revenue.
Taxation of property and personal capital income (taxing the High Net-worth Individuals) is likely to become an important
focus area.
Favourable tax treatment may be limited to investments with
positive social spill-over effects, e.g. health, R&D, employment,
low carbon technologies.
Move to incentivize domestic manufacture / activity while
focusing on rebuilding domestic supply chains rather than global
supply chains.
Increased emphasis on Smart tax administrations through use
of new technologies/ digitalization. Focus on greater
tax transparency and international cooperation to
minimize tax disputes and trade wars.
Simplification of tax laws, rates and procedures are likely to
enable small enterprises in the informal sector to come into
the formal set-up.
Environment / carbon taxes and specific taxes or cesses could be explored to raise
additional revenues.
Page 29 | Economic Pulse
NSE indices (% change YTD)
Key findings
► With the exception of Bank, Realty, Media and PSE sectors, the stock markets are in positive territory in 2020.
► Overall NIFTY 50 is up by 6% with Pharma and IT recording highest increases YTD.
Financial markets
47%
38%
8%
6%
5%
5%
2%
-8%
-12%
-16%
-20%
Pharma
IT
Auto
Nifty 50
FMCG
Commodity
Energy
Bank
Realty
Media
PSE
NSE indices (% change YTD)
40
50
60
70
80
90
100
110
120
130
140
150
160
01-J
an-2
011
-Jan
-20
21-J
an-2
031
-Jan
-20
10-F
eb-2
020
-Feb
-20
01-M
ar-2
011
-Mar
-20
21-M
ar-2
031
-Mar
-20
10-A
pr-2
020
-Apr
-20
30-A
pr-2
010
-May
-20
20-M
ay-2
030
-May
-20
09-J
un-2
019
-Jun
-20
29-J
un-2
009
-Jul
-20
19-J
ul-2
029
-Jul
-20
08-A
ug-2
018
-Aug
-20
28-A
ug-2
007
-Sep
-20
17-S
ep-2
027
-Sep
-20
07-O
ct-2
017
-Oct
-20
27-O
ct-2
006
-Nov
-20
16-N
ov-2
026
-Nov
-20
Bank FMCG IT Media Energy Pharma
Realty Commodity Nifty 50 PSE Base Auto
Source: NSE, Bloomberg QuintData available as on 30th November 2020
Page 30 | Economic Pulse
Stock market turnover and interest yields
Key findings
► Stock market turnover has not been much impacted by COVID. Even though there was a marked decline in March 2020, the market picked up from April 2020 onwards.
► Bond yields have been steady, though the spread between bond yield and Repo rate has widened.
► Government can continue to raise more money. Government bond yields have not fallen as much as the repo rate due to higher government borrowings and lower investments by the FPIs.
Financial markets
6.4%6.0% 6.0% 5.9%
5.4%5.2%
4.40% 4%3.6%4.4%5.2%6.0%6.8%
01-J
an-2
0
10-J
an-2
0
21-J
an-2
0
30-J
an-2
0
10-F
eb-2
0
20-F
eb-2
0
03-M
ar-2
0
13-M
ar-2
0
24-M
ar-2
0
08-A
pr-2
0
21-A
pr-2
0
30-A
pr-2
0
13-M
ay-2
0
22-M
ay-2
0
03-J
un-2
0
12-J
un-2
0
23-J
un-2
0
02-J
ul-2
0
13-J
ul-2
0
22-J
ul-2
0
31-J
ul-2
0
11-A
ug-2
0
20-A
ug-2
0
31-A
ug-2
0
09-S
ep-2
0
18-S
ep-2
0
29-S
ep-2
0
09-O
ct-2
0
20-O
ct-2
0
29-O
ct-2
0
10-N
ov-2
0
20-N
ov-2
0
G-Sec yield, policy rate and spread
Spread G-sec yield Repo Rate
696 846
643 761 724 763 810 889 726 861
852 1,088 950 1,065
1,461 1,429 1,376 1,293 1,157
1,408
0%10%20%30%40%50%60%70%
0
500
1000
1500
2000A
pr-1
9
May
-19
Jun-
19
Jul-1
9
Aug
-19
Sep-
19
Oct
-19
Nov
-19
Dec-
19
Jan-
20
Feb-
20
Mar
-20
Apr
-20
May
-20
Jun-
20
Jul-2
0
Aug
-20
Sep-
20
Oct
-20
Nov
-20
INR
'000
cro
res
Stock market turnover and volatility
NSE turnover BSE turnover VIX
Source: NSE, BSE. Data available as on 30th November 2020VIX is a volatility index based on the NIFTY Index Option prices. It indicates the expected market volatility over the next 30 calendar day
Page 31 | Economic Pulse
Trends in commodity prices
Key findings
► Steel and Copper prices are well above the levels at the same time last year, reflecting the confidence in global manufacturing volumes.
► Steel price increase is also due to an increase in iron ore prices. The latter is a result of temporary supply constraints from key supplier i.e., Brazil.
► Crude oil still trades well below the same period last year. Prices have been steady since June, 2020.
Commodity markets
620
576
516567
806
400500600700800900
1000
01-A
ug-1
928
-Aug
-19
24-S
ep-1
921
-Oct
-19
17-N
ov-1
914
-Dec
-19
10-J
an-2
006
-Feb
-20
04-M
ar-2
031
-Mar
-20
27-A
pr-2
024
-May
-20
20-J
un-2
017
-Jul
-20
13-A
ug-2
009
-Sep
-20
06-O
ct-2
002
-Nov
-20
29-N
ov-2
0
Hot Rolled Coil Steel prices (US$ per tonne)
6258
27
4248
203040506070
01-A
ug-1
928
-Aug
-19
24-S
ep-1
921
-Oct
-19
17-N
ov-1
914
-Dec
-19
10-J
an-2
006
-Feb
-20
04-M
ar-2
031
-Mar
-20
27-A
pr-2
024
-May
-20
20-J
un-2
017
-Jul
-20
13-A
ug-2
009
-Sep
-20
06-O
ct-2
002
-Nov
-20
29-N
ov-2
0
Crude Oil - Brent Price (US$ per bbl)
2.6 2.9
3.13.3
22.22.42.62.8
33.23.43.6
01-A
ug-1
928
-Aug
-19
24-S
ep-1
921
-Oct
-19
17-N
ov-1
914
-Dec
-19
10-J
an-2
006
-Feb
-20
04-M
ar-2
031
-Mar
-20
27-A
pr-2
024
-May
-20
20-J
un-2
017
-Jul
-20
13-A
ug-2
009
-Sep
-20
06-O
ct-2
002
-Nov
-20
29-N
ov-2
0
High grade Copper prices (US$ per lb)
12.0
11.4
12.4
91113151719
01-A
ug-1
928
-Aug
-19
24-S
ep-1
921
-Oct
-19
17-N
ov-1
914
-Dec
-19
10-J
an-2
006
-Feb
-20
04-M
ar-2
031
-Mar
-20
27-A
pr-2
024
-May
-20
20-J
un-2
017
-Jul
-20
13-A
ug-2
009
-Sep
-20
06-O
ct-2
002
-Nov
-20
29-N
ov-2
0
Rice - Rough (CBOT) Price (US$ per cwt)
Note: 1. All data as on 30th November 2020; 2. Copper Prices- High Grade, Chicago Mercantile Exchange , Steel Prices- Domestic Hot Rolled Coil, Source: CapitalIQ, MCX
Page 32 | Economic Pulse
IMF’s world economic outlook for 2021 predicts an uneven and uncertain growth
Key findings► The global growth projection for
2020 at (-)4.4 is an upward revision by 0.8 compared to forecast in June due to improved Q2-GDP numbers for advanced economies.
► Except China, output in both advanced economies and EMDEs is projected to remain below 2019 levels for 2020 and 2021.
► The cumulative loss in output relative to the pre-pandemic projections is projected to grow from US$11 trillion over 2020–21 to US$ 28 trillion over 2020–25.
► Sovereign debt levels are set to increase significantly. Lower output also implies a smaller tax base over the medium term, which will further compound difficulties in servicing debt.
► Governments may raise the progressivity of taxes and ensure that corporations pay their fair share of taxes, alongside eliminating inefficient spending.
Economic outlook
2.81.7
3.7
-4.4-5.8 -3.3
5.23.9
6.0
Global Economy AdvancedEconomies
Emerging Markets& DevelopingEconomies
Global growth projections (%)
2019 2020 2021
“After the rebound in 2021, global growth is expected to slow to about
3.5% in the medium term”8.28.8
6.2
3.0
2.8
3.6
3.1
7.2
5.2
2.3
3
1.9
-10.3-3.4
-4.1
-4.1
-8.1
-4.3
-12.8
-8.3
-5.3
-4.2
6.1
4.2
4.9
1.4
1.3
0.0
2.2
2.0
1.3
0.7
1.8
-15 -10 -5 0 5 10
China
India
ASEAN-5*
Middle East & Central Asia
Russia
Latin America
US
Spain
Euro Area
Japan
Australia
India and other regions
2019 2020 2021
Source: International Monetary Fund, World Economic Outlook, October 2020*Indonesia, Malaysia, Philippines, Thailand and Vietnam
Page 33 | Economic Pulse
India’s GDP for FY’21 projected in the range of (-)9 to (-)11.0%
Key findings
► GDP growth Q2 of the current fiscal at -7.5% is an improvement over -23.9% in Q1. This indicates that economy is gradually normalizing after the severe COVID shock.
► Construction, financial, real estate and professional services and trade had witnessed the sharpest fall in growth in Q1 FY21. In Q2, construction has shown greater recovery compared to trade and hotels. Together, these sectors represent about 40% of the GDP.
► Manufacturing along with electricity, gas and other utilities now show positive growth – a sign of pick up in economic activity.
Economic outlook
Forecast for India’s GDP for FY21
-7.5%
-23.9%Actual GDP
growth for Q1 FY 21
-47.0
-10.3
-23.3
-50.3
-5.3
-39.3
3.4
-7.0
-22.8-15.6 -12.2
-9.1 -8.6 -8.1
0.6 3.4 4.4
-7.0
Trade, Hotelsetc.
PublicAdministration,
Defence &other services
Mining &Quarrying Construction
Financial, RealEstate &
Professionalservices Manufacturing
Agriculture,Forestry &
FishingElectricity, Gas
etc Overall
Gross Value Added Growth (%): major sectors
Q1 FY21 Q2 FY21
-11.0 -10.8 -10.5 -10.3 -10.2-9.5 -9.0
ICRA Nomura FitchGoldman
Sachs OECD RBIADB/
CRISIL
Source: EY analysis, MoSPI, GoI, RBI, OECD
Actual GDP growth for Q2 FY21
Page 34 | Economic Pulse
Government direction on key policy issues
Comments
► RBI is actively engaged in ensuring that the banking and financial sector is stable and facilitates credit flow.
► Despite injection of liquidity in the banks, there is very little flow of net credit.
► Relief to businesses has been routed through banks and debt restructuring.
Overall economic policy
Monetary Policy Description and Intent
Interest rate reduction Since March 2020, the RBI has reduced the repo and reverse repo rates by 115 and 155 basis points (bps) to 4.0% and 3.35% respectively.
Continue to target inflation. Future inflation is likely to impact any changes in interest rates.
Provide liquidity to the economy and stabilize the financial markets
Liquidity to banks through Long Term Repo Operations (LTROs) of INR 1.12 lakh crore, targeted at corporate bonds. NBFCs, Commercial paper, MSMEs and Housing Finance Companies.
Additional liquidity to banks through 100 basis point cut in CRR and allowing banks to borrow through increase in marginal standing facility.
Liquidity to businesses Liquidity to be provided to by banks to businesses by banks on a case to case basis Central Government has not provided any direct liquidity to businesses. Forbearance on asset classification and bankruptcy by putting a moratorium on new
cases. One time loan restructuring allowed for 26 sectors on a case by case basis by banks.
Aid Central and State governments in their debt management and market borrowings
Increase short term borrowing (ways and means advances) limits for Central and State Governments.
RBI decreasing the interest cost for Government by purchasing Government securities and issuing new debt at lower interest rates .
Supporting Indian Rupee by intervening in forex markets
Regular intervention in the forex markets by purchasing dollars to arrest the appreciation of Rupee as reflected in increased foreign exchange reserves.
Supporting the real estate market
Changes in the risk weights for the real estate sector to support credit expansion to the sector.
Page 35 | Economic Pulse
Government direction on key policy issues
Comments
► OECD economies, in general, have relied upon large fiscal stimulus to minimize the fall in economic activity.
► Cost of borrowing for OECD Governments is extremely low and even negative, at times. This aids OECD countries in raising more debt.
► While the yield on Government bonds has come down (See slide 30), the ability to borrow more money may be limited for emerging markets due to credit rating issues, cost of debt and threat of inflation.
► Governments might continue to face demands for fiscal stimulus in the next few months.
Overall economic policy
Fiscal Policy Description and Intent
Help the vulnerable sections of the society
Through direct bank transfers, increased outlay for MNREGA and supply of food
Indirect fiscal support to businesses
Fiscal support through banks to businesses in form of loan -- Agriculture, MSMEs, Electricity distribution and NBFCs
Central Government supporting banks through guarantees (contingent liabilities) and not through any direct spending
Possibly not changing the GST or Direct tax rates – reiterated repeatedly by the Government
Signalled towards providing fiscal stimulus through infrastructure spending in the future but limited stimulus on this till date
Shoring up Government finances
Increased the excise duty on petroleum products to shore up revenue Besides digital tax, no proposal in the public domain to increase taxes or introduce new
taxes Been negotiating with state governments to find solution to the GST revenue shortfall
issue and replenishing the compensation cess fund Aggressive privatization of PSUs Monetization of government land
Funding of fiscal stimulus Unlike in advanced economies, limited increase in fiscal deficit and market borrowing Avoiding deficit financing by RBI Avoiding a sovereign rating downgrade
Page 36 | Economic Pulse
Government direction on key policy issues
Comments
► Government has responded to the COVID crisis by undertaking difficult reforms, addressing supply side issues and facilitating flow of greater capital into the economy to get the investment cycle going.
Overall economic policy
Reforms with a medium term outlook
Description and Intent
Structural reforms (that can transform a sector) with a medium term outlook
Position India for long term economic growth through further reforms Create investment opportunities in the agricultural sector through introduction of two new
laws and amendment of an existing law Push on manufacturing (discussed on slide 11) Proposed reforms in the electricity sector – rationalize tariffs, reduce disputes and
implement open access
Measures to attract private capital including foreign capital
Given the shortfall in Government revenues and to get the investment cycle going Allowing commercial mining of coal Attracting foreign capital and private capital into infrastructure by modifying and
implementing new PPP models e.g., development of railway stations, running on trains, monetization of completed roads, award of new concessions for airports, etc
Marketing of India to foreign investors Potential opportunities from privatisation and monetization of Government land Increasing foreign investment in Government securities
Ease of doing business and improving efficiency
Faceless tax assessments Allowing net settlements of financial contracts Proposals to decriminalise economic laws
Our team
Navneeraj SharmaSenior ManagerTax and Economic Policy Group EY India
Chinmaya GoyalSenior ManagerTax and Economic Policy Group EY India
Shalini MathurDirectorTax and Economic Policy Group EY India
D.K. SrivastavaChief Policy AdvisorTax and Economic Policy Group EY India
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AGK
India Economic PulseSlide Number 2Slide Number 3Lockdown vs voluntary social distancingꟷ impactTracking the spread of COVID-19 cases in IndiaCOVID-19: comparing India to the worldRural economy indicatorsOverall manufacturing indicatorsManufacturing indices for consumer non-durables, consumer durables, intermediate goods and capital goodsVehicle registration trendsPolicy initiatives to push manufacturing in IndiaService sector indicators based on movement of peopleTransport: passenger transportationTransport: freight transportationEnergy consumptionTelecom and digitization Policy direction: IT and digitization Foreign trade trendsForeign capital flows and exchange rate positionInflationCredit flow trendsChange in gross personal loans advanced by banksFund raising trendsTrends in Centre's tax collectionsTrends in Centre's tax collectionsCentre’s finances are impacted by increased borrowings and lower tax revenuesThe States’ tax revenues have been affected by the pandemicCountries globally are thinking of ways to restore public finances to enable economic reconstruction, post COVIDNSE indices (% change YTD)Stock market turnover and interest yieldsTrends in commodity pricesIMF’s world economic outlook for 2021 predicts an uneven and uncertain growthIndia’s GDP for FY’21 projected in the range of (-)9 to (-)11.0%Government direction on key policy issuesGovernment direction on key policy issuesGovernment direction on key policy issuesOur teamSlide Number 38Slide Number 39
