The Indian economy fared better to slightly recover from recessionary situation in the past few months. There is optimism due to the impending launch of the vaccination drive after the Government grants emergency authorisation. This is reflected in improved forecasts by global institutions. There is significant impact on the workforce due to Covid 19. The Government continues to focus on developing infrastructure towards improving its position in the World Bank’s Ease of Doing Business rankings.
As we come to the end of a tumultuous year, we wish you all a very happy, safe and progressive new year!
Fitch Revises Outlook – Fitch Ratings recently released its Global Economic Outlook – December 2020. The report mentioned that the Indian economy staged a sharper rebound in 3Q20 from the coronavirus-induced recession than expected in the previous September GEO. GDP fell 7.5% yoy (September GEO: –9.6%), up from –23.9% in 2Q20. The rebound in activity was especially sharp in the manufacturing sector: output reached its pre-pandemic level in 3Q20. The outlook is brighter owing to an expected rollout of various vaccines in 2021. India has pre-ordered 1.6 billion doses including 500 million doses of the Oxford/AstraZeneca vaccine. Distribution should allow a faster-than-expected easing of social-distancing restrictions and boost sentiment. However, it seems likely that the vaccine rollout over the next 12 months will not reach the majority of the people given the huge logistical and distribution challenges in a heavily populated country like India. The report now expects GDP to contract 9.4% in fiscal year to end March 2021 (FY21) (+1.1pp), followed by +11% (unchanged) and +6.3% (+0.3pp) in the following years. The coronavirus recession has nevertheless inflicted severe economic scarring. The need to repair balance sheets, increased caution about long-term planning, and firm closures will limit investment demand. Furthermore, increased financial-sector weakness – amid deteriorating asset quality – will hold back credit provision. The failure of another bank in recent weeks – the third failure in the past 16 months –underlines the challenges in the financial sector.
ADB Improved Growth Forecast – The Asian Development Bank recently released Asian Development Outlook (ADO) 2020 Supplement: ‘Paths Diverge in Recovery from the Pandemic’, which provides updated economic forecasts for Asia and the Pacific and outlines diverging projections for the region. The report mentions that having contracted by 23.9% in Q1 of fiscal year 2020 (FY2020, ending 31 March 2021), the Indian economy began to normalize after containment measures started to ease in June, with economic contraction in Q2 FY2020 narrowing to 7.5%, better than expected. Agriculture, manufacturing, and utilities grew year on year, while a decline in fixed investment improved from 47.1% in Q1 to 7.3%. Net exports contributed 3.4 percentage points to growth in Q2. With the pandemic possibly having peaked in mid-September, many high-frequency indicators are better than a year ago or back to pre-COVID levels, indicating accelerating economic normalization. The GDP forecast for FY2020 is upgraded from 9.0% contraction to 8.0%, with GDP in H2 probably restored to its size a year earlier. The growth projection for FY2021 is kept at 8.0%.
ILO Assesses Covid-19 Impact on Workforce – The International Labour Organisation (ILO) recently released its Asia-Pacific Employment and Social Outlook 2020: ‘Navigating the crisis towards a human-centred future of work’. The report pulls together the most recent statistics to generate an assessment of the impact that the COVID-19 pandemic has had so far on employment and labour markets in the most populous and dynamic region of the world. The report mentions that India has taken a major hit by the COVID-19 pandemic as the country with the second-largest number of detected COVID-19 cases worldwide. India implemented one of the strictest lockdowns among the large middle-income countries, which has impacted its workforce heavily. With the livelihoods of millions of casual urban workers affected by the lockdown measures, many of them were forced to return to rural areas. An estimated 364–429 million workers have been adversely affected by the lockdown measures. While the Indian economy is still largely operating in crisis mode, there are some early signs of recovery. For example, Indian exports in September 2020 experienced positive year-on-year growth for the first time since the start of the COVID-19 pandemic.
Ease of Doing Business Rankings – The government has zeroed in on six laggard segments – especially enforcing contracts, registering property and starting a business — that have prevented India from breaking into the league of top 50 nations in the World Bank’s ease of doing business index. The country’s rank under the Modi government leaped from 142nd in the 2015 report (which reflected reforms undertaken mostly up to May 2014) to 63rd in the report released last year. But its lacklustre performance in six of the 10 indicators delayed the achievement of its target of being in top 50. The Centre has firmed up several proposals — from adopting an online system to approve building plan and e-filing of cases for the enforcement of contracts to providing electricity connections in as early as a week — to make it easier for doing business in Kolkata and Bangalore. The move follows the World Bank’s decision to add these two cities to the list of its existing destinations (Delhi and Mumbai) and widen the coverage of its survey for gauging India’s performance in its ease of doing business index.