India’s economic growth has further slowed on global cues and disruptions as reflected in the reduced economic growth forecasts by global financial institutions. Concurrently, the Indian Rupee had almost a freefall against the dollar due to global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions. While the Indian Rupee has weakened against the US Dollar, it has strengthened against other major currencies such as the British pound, the Japanese yen and the Euro during 2022. On the brighter side, India recorded its highest annual FDI inflow in in FY 2021-22.   

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International Monetary Fund (IMF) – The IMF recently released its World Economic Outlook July 2022 Update titled ‘Gloomy and More Uncertain’. The outlook for India has been revised down by 0.8 percentage point, to 7.4 percent. A similar 0.8 percentage downgrade in April 2022 World Economic Outlook report had been projected for 2022 for India making it 8.2% at that time (reported by Asia Law Portal). The July 2022 WEO report mentioned that for India, the revision reflects mainly less favorable external conditions and more rapid policy tightening. Downgrades, inter alia for India, are driving the downward revisions to global growth during 2022–23, which reflect the materialization of downside risks highlighted in the April 2022 WEO. The projections for 2023 for India is 6.1%, which is also a similar decline of 0.8 percentage from the April 2022 WEO.

Asian Development Bank (ADB) – ADB recently released its Asian Development Outlook (ADO) 2022 Supplement: Recovery Faces Diverse Challenges. This publication provides updated economic forecasts for Asia and the Pacific and outlines the diverse challenges the region faces as it recovers from the coronavirus disease (Covid-19) pandemic. As per the report, India’s GDP growth moderated to 4.1% in Q4 of fiscal year 2021 (FY2021, ended 31 March 2022) on disappointing growth in private consumption and a contraction in manufacturing. India has been hit by the Omicron Covid-19 variant and the economic impact of the war in Ukraine. Consequently, GDP growth for FY2022 is revised down from 7.5% to 7.2% (as forecasted in the ADO March 2022 report and covered by Asia Law Portal). Although consumer confidence continues to improve, higher-than-expected inflation will erode consumer purchasing power. Some of the impact of this may be offset by a cut in excise duties, the provision of fertilizer and gas subsidies, and the extension of a free-food distribution program. Private investment will soften due to the higher cost of borrowing for firms as the Reserve Bank of India (RBI) continues to raise policy rates to contain inflation. Net exports will shrink due to subdued global demand and a rising real effective exchange rate eroding export competitiveness despite a depreciating rupee. On the supply side, higher commodity prices will boost the mining industry. But manufacturing firms will bear the brunt of higher input costs due to rising oil prices. The services sector, hit hard by Covid-19 since 2020, will do well in FY2022 and beyond as the economy opens up and travel resumes. Even so, growth in FY2023 is revised down to 7.8% from 8% in the ADO March 2022 report.

New Proposed Customs Bonded Zone law – A new draft Bill on the Development of Enterprise and Services Hub (DESH), which will replace the Special Economic Zone (SEZ) Act, proposes a concessional corporate tax rate for units, a revamped indirect tax regime, a dispute settlement mechanism, easier exit and an array of non-fiscal incentives, to draw investors into these customs-bonded zones. It also proposes to allow units in such hubs to sell goods in the domestic tariff area (DTA) by paying basic customs duty on just inputs, instead of the extant stipulation of having to pay it on the more expensive finished products. However, it’s silent on allowing units to sell in the domestic market by paying a proposed nominal “equalisation levy”. The draft Bill prepared by the commerce ministry proposes to freeze the corporation tax at a concessional rate of 15% for all greenfield and certain brownfield units in such “development hubs” until 2032. It’s likely to be introduced in the ongoing monsoon session of Parliament after Cabinet approval. The new Bill was necessitated to revive interests in these industrial clusters that lost their charm after the government set a sunset date to start operations (June 30, 2020) to be eligible for a phased income-tax holiday for 15 years. Moreover, India lost a case at the World Trade Organization (WTO) filed by the US that had claimed New Delhi was offering illegal export subsidies through these SEZs. This will make the DESH architecture more compliant with the WTO rules, as the performance of these hubs will no longer be linked to exports; rather, they can be seen as large clusters of domestic manufacturing and services.

Annual FDI InflowSingapore (27.01%) and USA (17.94%) have emerged as top 2 sourcing nations in Foreign Direct Investment (FDI) equity flows into India in FY2021-22 followed by Mauritius (15.98%), Netherland (7.86%) and Switzerland (7.31%). It may be noted that as per the UNCTAD World Investment Report (WIR) 2022, in its analysis of the global trends in FDI inflows, India has improved one position to 7th rank among the top 20 host economies for 2021. India is rapidly emerging as a preferred country for foreign investments in the manufacturing sector. FDI equity inflow in Manufacturing Sectors have increased by 76% in FY 2021-22 (USD 21.34 billion) compared to previous FY 2020-21 (USD 12.09 billion). The Government has implemented several transformative reforms under the FDI policy regime across sectors such as insurance, defence, telecom, financial services, pharmaceuticals, retail trading, e-commerce, construction & development, civil aviation, manufacturing etc. Despite the ongoing pandemic and global developments, India received the highest annual FDI inflows of USD 84,835 million in FY 21-22 overtaking last year’s FDI by USD 2.87 billion. Earlier, FDI inflows increased from USD 74,391 million in FY 19-20 to USD 81,973 million in FY 20-21.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra, India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel in Delhi, India; views expressed are personal; he can be reached at; Twitter: @sourish247

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