Economy

India may soon be the second biggest bond market among emerging economies

Date: 16th Jul, 2024

Source: CNBC-TV18

China and Brazil have bigger bond markets than India right now. However, the inclusion of India's sovereign bonds may allow a new set of foreign investors to pump in as much as $20 billion by March 2025. according to SBI Research's latest estimate.The Reserve Bank of India introduced a separate channel called the 'Fully Accessible Route' (FAR) for foreign investors in India's sovereign bonds, effective April 1, 2020.

According to an earlier estimate, foreign investors owned by 2.5% of the bonds in circulation. JPMorgan expected the foreign ownership of Indian bonds to increase to 4.4% by March 2025.

When a country's bonds are added to a global index, it opens the window for a new set of foreign investors to make a passive investment. "The enhanced borrowing costs, with embedded refinancing at likely higher rate of interest is making the investors quite sensitive to arbitrage opportunities that should benefit nations like India," he added.

Simply put, it would cost many countries a lot more now to borrow new money to pay back the old bonds and according to the analysts at SBI Research, Indian bonds will have a competitive advantage.

While opening up India's bond markets to foreign investors will bring in big money during the good times, the outflows will also be that much severe during the bad times. It's a risk that the government and the central bank should be wary of.

ADB lowers FY24 GDP forecast to 6.3%, India Ratings raises it to 6.2%

Date: 20th Sep, 2023

Source: Business Standard

The Asian Development Bank (ADB) on Wednesday revised India's growth forecast for FY24 to 6.3 per cent, a change of 10 basis points, attributing it to erratic monsoon patterns that are likely to affect agricultural output. Meanwhile, India Ratings and Research has increased its FY24 growth estimate for India to 6.2 per cent, up by 30 basis points, citing factors such as sustained government capital expenditure (capex), deleveraged corporate and banking balance sheets, and the likelihood of subdued global commodity prices. ADB's latest Asian Development Outlook highlighted that strong private consumption and upticks in both public and private investment are expected to support India's economic growth. The organisation has maintained its growth projection for FY25 at 6.7 per cent, driven by rising private investment and industrial output.

Additionally, ADB revised its inflation projection for India for FY24 to 5.5 per cent, up from the previous 5 per cent. "Food inflation picked up in July due to adverse weather conditions, contributing to a rise in South Asia's overall inflation rate. If India's agricultural output weakens and the rice export ban remains in place, this could escalate food price inflation in developing Asia," the ADB report stated. India Ratings and Research also highlighted challenges facing the Indian economy, such as global headwinds affecting exports and tighter financial conditions that could lead to rising capital costs. According to the agency's report, meeting the government's FY24 fiscal deficit target of 5.9 per cent of gross domestic product (GDP) will be challenging, given that gross tax collection growth has been just 2.8 per cent for the first four months of FY24. Sunil Kumar Sinha, principal economist at India Ratings, pointed out that despite a strong quarterly GDP growth of 7.8 per cent in Q1 FY24, economic expansion is expected to slow sequentially over the remaining quarters of FY24. Sinha also noted that the long-standing drought in private capital expenditure is showing signs of recovery, with new projects emerging in states like Uttar Pradesh, Gujarat, Maharashtra, and Odisha across various sectors, including textile, steel, and power. ‘Economy doing well even amid unsupportive global conditions’

The Indian economy has started doing well even in an unsupportive global environment, as the Modi-led government implemented various reforms in the past nine years, resulting in improvements in key macroeconomic indicators, according to Reserve Bank of India (RBI) Monetary Policy Committee (MPC) Member Ashima Goyal. But, there is still a long way to go to realise India’s full potential, Goyal added. “The UPA government inherited a strong economy and benefitted from a high growth period. But overreaction to the global financial crisis after 2008 and many cor­ruption scan­dals weakened the economy,” she said.

Tyre demand in India to grow by 6-8% in FY24, says Icra report.

Date: 12th Jul, 2023

Source: Business Standard

India’s tyre demand is expected to grow 6-8 percent in Financial Year 2023-24 (FY24) due to replacement and the needs of original equipment manufacturers (OEM), said rating agency Icra in a recent report.

Improved product mix and stable input prices are projected to contribute to a 200-300 basis points expansion in the tyre industry’s margins in FY24. The industry recorded operating and net margins of approximately 11 per cent and 4 per cent, respectively, in FY23. Margins were affected by high input prices and rising freight costs in FY22 and the first half of FY23 but recovered in the second half. Margins will expand by 200-300 basis points in FY24, said Icra.

The OEM segment is expected to grow by 7-9 per cent year-on-year (YoY) in FY24. Icra estimated that passenger vehicle (PV) demand will be stable but highlighted that the commercial vehicle (CV) segment witnessed sluggishness in the first quarter of FY24 due to pre-buying ahead of BS 6.2 emission norms transition. CV demand is supported by infrastructure and construction activities. The two-wheelers segment’s recovery will depend on the performance of the monsoon in the upcoming quarters.

“Following a sharp 26 per cent expansion in FY2022, revenues of the domestic tyre industry witnessed a healthy 19.5 percent growth in FY2023. We expect the revenue growth to moderate to 5-7 per cent YoY in FY24, led by a 6-8 per cent YoY growth in domestic tyre demand, likely decline in exports, and flat average realisations,” said Nithya Debbadi, assistant vice president and sector head–corporate ratings, Icra.

In the replacement segment, the agency expected mid-single-digit growth in FY24. Following two years of pent-up demand and price increases, volume growth is expected to stabilise during the fiscal year.

Tyre export volumes contracted by 7 per cent YoY in FY23 due to reduced demand from key markets affected by global economic slowdown and inflationary pressures. ICRA expected export demand to remain weak for the next few quarters.

Core sector growth stable at 4.3%, fiscal deficit 11.8%

Date: 01st Jul, 2023

Source: Times of India

Growth in the eight key infrastructure sector remained stable in May, although electricity generation, crude oil and natural gas production contracted.
Data released by the commerce and industry ministry on Friday showed eight core infrastructure sectors, spanning coal, crude oil, natural gas, fertilisers, steel, cement, petroleum refinery products and electricity, rose an annual 4.3% in May, similar to the expansion in the previous month. In May last year, the sector grew by 19.3%.

GST mop-up rises 12% to over Rs 1.61 lakh crore in June

Date: 01st Jul, 2023

Source: Indian Express

GST collections rose 12 per cent to over Rs 1.61 lakh crore in June, the Finance Ministry said on Saturday.

The gross GST collection has crossed Rs 1.60 lakh crore mark for the fourth time since the roll-out of the indirect tax regime six years ago on July 1, 2017.

The average monthly gross GST collection for the first (April-June) quarter of the 2021-22, 2022-23 and 2023-24 are Rs 1.10 lakh crore, Rs 1.51 lakh crore and Rs 1.69 lakh crore, respectively, the Finance Ministry said in a statement.

“The gross GST revenue collected in the month of June 2023 is Rs 1,61,497 crore of which Central GST is Rs 31,013 crore, State GST is Rs 38,292 crore, Integrated GST is Rs 80,292 crore (including Rs 39,035 crore collected on import of goods) and cess is Rs 11,900 crore (including Rs 1,028 crore collected on import of goods),” the statement said.

The revenues for June 2023 are 12 per cent higher than the GST revenues in the same month last year. During the month, the revenues from domestic transactions (including import of services) are 18 per cent higher than the revenues from these sources during the same month last year.

CAD narrows to 0.2% of GDP in Q4 FY23

Date: 27th Jun, 2023

Source: PTI

India's current account deficit (CAD) narrowed to USD 1.3 billion or 0.2 per cent of GDP in the January-March quarter of FY23, mainly due to moderation in the trade deficit and a robust increase in services exports, RBI data showed on Tuesday. "India's CAD decreased to USD 1.3 billion (0.2 per cent of GDP) in Q4:2022-23 from USD 16.8 billion (2.0 per cent of GDP) in Q3:2022-231, and USD 13.4 billion (1.6 per cent of GDP) a year ago," the Reserve Bank said. CAD is a key indicator of the balance of payment of a country. The sequential decline in CAD in the fourth quarter of the last fiscal was mainly on account of a moderation in the trade deficit to USD 52.6 billion from USD 71.3 billion in the preceding quarter, coupled with robust services exports. Net services receipts increased, sequentially and on a year-on-year (y-o-y) basis, on the back of a rise in net earnings from computer services, the RBI said. There was an accretion to the foreign exchange reserves (on a BoP basis) to the tune of USD 5.6 billion against depletion of USD 16.0 billion in Q4 2021-22. For fiscal 2022-23, the current account balance recorded a deficit of 2 per cent of GDP compared to a deficit of 1.2 per cent in 2021-22, as the trade deficit widened to USD 265.3 billion from USD 189.5 billion a year ago.

S&P retains FY24 India growth projection at 6 per cent, to be fastest growing in Asia Pacific

Date: 26th Jun, 2023

Source: Financial Express

S&P Global Ratings retained India’s GDP growth forecast at 6 per cent saying it will be the fastest growing economy among Asia Pacific nations. The GDP growth forecast for the current and the next fiscal has been kept unchanged from the forecast made in March partly on account of domestic resilience.

"We see the fastest growth at about 6 per cent in India, Vietnam, and the Philippines, S&P Global Ratings said in its quarterly economic update for Asia-Pacific. "The medium-term growth outlook remains relatively solid. The Asian emerging market economies remain among the fastest growing ones in our global growth outlook through 2026," said Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings.

S&P said retail inflation is likely to soften to 5 per cent this fiscal from 6.7 per cent, and the RBI is expected to cut interest rates only early next year. "In India, under the assumption of normal monsoons, we expect headline consumer inflation to soften to 5 per cent in fiscal 2024 from 6.7 per cent. Softer crude prices and tempering of demand will bring down fuel and core inflation, respectively.

"The inflation and rate hike cycles have peaked, in our opinion. But we expect the Reserve Bank of India to cut rates only in early 2024, as it wants to see consumer inflation moving to 4 per cent–the centre of its target range,” Kuijs said. S&P has lowered the growth forecast for China to 5.2 per cent from 5.5 per cent for 2023. “For the rest of the region, we have left it broadly unchanged, in part because of domestic resilience,” S&P said.

S&P said retail inflation is likely to soften to 5 per cent this fiscal from 6.7 per cent, and the RBI is expected to cut interest rates only early next year.

Yokohama to invest Rs 671 crore to bolster passenger tyre capacity in India

Date: 19th Jun, 2023

Source: Economic Times

Yokohama Rubber Company, a Japan-based manufacturer, has revealed its plans to bolster its passenger car tyre capacity in India. The company is set to invest 671 crore rupees ($80 million) in expanding its annual tyre production capacity in the Indian market through Yokohama India.

Having been operational since 2007, Yokohama India specializes in manufacturing tyres designed for Indian driving conditions. The company aims to install the new capacity within its existing Visakhapatnam plant in India. The expanded production line is projected to commence operations in the fourth quarter of 2024 and will focus on manufacturing 22-inch passenger car tyres.

Yokohama has seen significant growth in its yearly production capacity, that has jumped to 1.53 million tyres in 2019 and 1.96 million tyres in 2021 from 700,000 tyres in 2014. Also, the company's facility in Bahadurgarh, Haryana, has an existing annual capacity to manufacture 2.8 million tyres.

Yokohama operates three production facilities in Tirunelveli (Tamil Nadu), Visakhapatnam (Andhra Pradesh), and Dahej (Gujarat) for the manufacturing of off-road tyres.

The tyre maker has recently expanded its retail presence in Tamil Nadu with the inauguration of its 51st store in Salem. This store serves as a comprehensive showcase for Yokohama's product range, encompassing passenger car tyres and SUV tyres. Additionally, the brand's YIN dealership stores offer various tyre-related services, including wheel alignment and wheel balancing.

Goldman cuts China GDP forecast, citing limited options to boost stimulus

Date: 19th Jun, 2023

Source: CNBC TV 18

Goldman Sachs Group Inc became the latest bank to cut their forecasts for China’s economy, citing limited options to boost stimulus. Analysts at Goldman lowered their estimates for China’s gross domestic product growth this year to 5.4 percent from six percent previously, according to a report dated Sunday.

Any upcoming policy easing is unlikely to exceed those implemented in previous downturns including 2020, economists including Hui Shan said in the report.

Property and infrastructure stimulus will probably be “targeted and moderate” given the shrinking population, elevated debt levels and President Xi Jinping’s call for curbing property speculation, they wrote. “Going down the same old route of using property and infrastructure to engineer a strong economic rebound would be inconsistent with the type of ‘high-quality growth’ that the leadership has been emphasizing repeatedly,” the report said.

Expectations for more policy support including government spending to pay for infrastructure and also property easing measures were rising last week, with some analysts floating the possibility that central government may issue special-purpose bonds to fund projects. May data released last week showed the recovery was weakening and the central bank cut key policy interest rates to lower borrowing costs and boost sentiment.

The State Council, which is China’s cabinet and co-ordinates policy among central government ministries and the central bank, called for “more forceful” policies to support the economy on Friday, saying new measures are being studied and will be adopted in a “timely manner,” although it didn’t release a timeline or details.

“We judge that growth headwinds are likely persistent while policymakers are constrained by economic and political considerations in delivering meaningful stimulus,” said the Goldman economists. They don’t expect the central government to issue special sovereign bonds, as these have only been sold three times in the past during particularly difficult periods including the pandemic in 2020 and during the Asian Financial Crisis in 1998.

The government is also unlikely to launch another round of shantytown redevelopment like it did in 2015, they wrote, which injected central bank money into the property market to pay for urban renewal and also compensate households whose homes were demolished as part of that. That led to a surge in property prices and sales.

Instead, the government may accelerate the issuance of local government special bonds, which are mainly used for infrastructure construction, according to the analysts at Goldman. Authorities may also continue to ease property policies including lowering down-payment requirements, cutting mortgage interest rates and removing purchase restrictions in top-tier cities, they said.

Officials are also supporting industries considered as new growth drivers of the economy, such as high-end manufacturing and new energy vehicles. While supportive policies such as easier lending, tax cuts and subsidies are likely to continue or even increase, the impact on GDP growth is likely limited because these plans have already been in place for years, according to Goldman.

India's trade deficit widens to $22.12 billion; exports and imports slip in May

Date: 15th Jun, 2023

Source: Economic Times

India's exports in the month of May declined 10.3 per cent to $34.98 billion while imports fell 6.6 per cent to $57.1 billion, government data showed Thursday.

Exports have now contracted for the fourth month in a row, after contracting 12.7 per cent in April due to the global demand slowdown, according to the government data.

India's merchandise trade deficit in May stood at $22.12 billion, according to a Reuters calculation based on export and import data released by the government. The trade deficit had reduced to a 20-month low of $15.24 billion in April.

The wider trade gap highlights the challenges for the economy trying to recover from the scars of the pandemic and higher borrowing costs. It is a risk for the nation’s current account deficit, which can affect investor sentiment and hurt appeal of the local currency.

Services exports were $25.30 billion and imports $13.53 billion in May. The services sector is providing some reprieve for now. India’s services exports are booming owing to a sharp jump in information technology and business consulting work. It is estimated to rise to $25.3 billion in May.

In the last two years, India's exports jumped from $500 billion to $767 billion in 2022-23.

Commerce Secretary Sunil Barthwal said headwinds still continue on the global trade front. The Department of Commerce and Department for Promotion of Industry and Internal Trade are working on an exports strategy and focusing on 40 countries, Barthwal added.