Central banks may be forced to sell gold; India at risk: Chris Wood

According to reports, official gold reserves in India totaled 653 tonnes at the end of March 2020, while those in Saudi totaled 323 tonnes.

There is a growing risk of liquidation of gold in India caused by a lockdown-triggered collapse in economic growth, wrote Christopher Wood, global head of equity strategy at Jefferies in his weekly note to investors, GREED & fear.

The potential for forced selling in gold, Wood believes, could come from central banks given the dramatic fiscal deterioration being suffered by many countries. India, he said, is at risk given its substantial gold holdings.

“Another potential seller is Saudi Arabia where fiscal pressures caused a draconian threefold increase in the value-added tax (VAT) rate to 15 per cent and the suspension of cost of living allowances,” Wood said.

Given this backdrop, he feels gold prices may not break the $1800-1900 level in a hurry. “Still what investors should remember is that when gold finally takes out the 2011 high of $1921/ounce, it will be the proverbial ‘blue sky’,” Wood wrote.

According to reports, official gold reserves in India totaled 653 tonnes at the end of March 2020, while those in Saudi totaled 323 tonnes.

Bearish on banking stocks

The growing pressure on banks to offer and even extend the moratorium on payment of installments seems to have Wood bearish on the sector, especially in the Indian context. In his Asia Pacific ex-Japan portfolio, Wood has exited his holding in Kotak Bank and replaced it with Maruti Suzuki.

“This issuance of forbearance pressure on banks is not just an issue for India but one for bank stocks globally. It is why bank stocks would not be GREED & fear’s favourite way to add to cyclical exposure for those who buy GREED & fear’s base case that the health crisis will prove to be a three to four-month cycle and that life will return to normal much sooner than currently assumed by the chattering classes,” he wrote.

Economic growth set to bounce back as slump bottoms out: Sanjeev Sanyal

Sanyal dismissed the conservative estimates and said his numbers took into account early signs of recovery in manufacturing and a pick-up in consumer demand.

Indian economic growth is poised to bounce back after slipping to a more than six-year low of 4.5 per cent in the July-September quarter as the government has taken measures to prop up investments and consumer demand, a top government adviser said.

"Corporate tax reductions, the Insolvency and Bankruptcy Code and the banking sector reforms have helped and will help propel growth further," Sanjeev Sanyal (pictured) principal economic adviser at the finance ministry, said.

The Insolvency and Bankruptcy Code, introduced in May 2016, has helped banks to recover billions of dollars stuck in outstanding corporate loans and offer loans to new borrowers.

Sanyal said economic growth was set to accelerate to 6 per cent in the financial year beginning in April, compared with estimated growth of 5.0% in the current one.

But many private economists are less optimistic, saying the current downturn may continue for the next few quarters due to a dip in private investments and tepid consumer demand.

Nomura said Asia’s third-largest economy will see a sub-par recovery, and forecast 4.7 per cent GDP growth for the current fiscal year and 5.7 per cent for the next fiscal year.

Sanyal dismissed the conservative estimates and said his numbers took into account early signs of recovery in manufacturing and a pick-up in consumer demand.

He said the government expected that average consumer price inflation would fall to 4 per cent in the next financial year beginning April, after a recent spike driven largely by food prices.

Economic Survey 2020 expects rebound in FY21 with GDP growth at 6-6.5%

The Survey said government interventions seem to be ineffective in stabilising prices of commodities such as onions.

Budget 2020 : The Economic Survey on Friday projected India's economic growth at 6 per cent to 6.5 per cent in the next financial year starting April 1, saying growth has bottomed out.

The growth in 2020-21 compares to a projected 5 per cent expansion in 2019-20.

Weak global growth impacting India as well as investment slowdown due to financial sector issues had led to growth dropping to a decade low in current fiscal, it said, adding 5 per cent growth projected for 2019-20 is the lowest it could fall for now.

Growth slipped to 4.5 per cent in the July-September quarter.

The Survey this year has been printed in lavender colour - the same as the colour of the new 100 rupee currency note, the oldest currency note in circulation in the country.

The pre-Budget Survey said for wealth to be distributed, it first has to be created and called for looking at wealth creators with respect.

ALSO READ: Economic Survey 2020 LIVE

The Survey said government interventions seem to be ineffective in stabilising prices of commodities such as onions.

For boosting growth, it called for new ideas for manufacturing such as 'assemble in India for the world' which will create jobs.

To further make it easier to do business, the Survey called for removing the red tape at ports to promote exports as well as measures for easing the start of business, register property, pay taxes and enforcing contracts.

It also called for improving governance in public sector banks and the need for more disclosure of information to build trust. It also talks about dwarfism in the banking sector.

Economic Survey advocates 10 new ideas that benefit markets as well as the economy.

Moody's slashes FY20 growth forecast to 4.9% on weak household consumption

Private-sector banks have a larger exposure to retail loans and may be more at risk.

BS : Moody’s Investors Service has lowered India’s gross domestic product (GDP) growth projection for the 2019-20 fiscal year to 4.9 per cent from 5.8 per cent, citing weak household consumption.

The rating agency said slower economic growth over the past few quarters would dent the debt repayment capacity of households and hurt retail loan quality.

Private-sector banks have a larger exposure to retail loans and may be more at risk. However, the increase in non-performing loans (NPLs) will likely be gradual.

Moody’s, in a statement, said India's growth had decelerated as an investment-led slowdown had now broadened into weakening consumption. Financial stress among rural households and sluggish job creation are among the key drivers of the slowdown.

A credit crunch among non-bank financial institutions (NBFIs), the major providers of retail loans in recent years, has exacerbated the weaker conditions. Although the income shock to households has unfolded over years, the effects on headline growth were not visible as long as households could borrow. With the materialisation of a credit supply shock, the impact of these twin shocks to growth is apparent.

The rating agency expects a modest cyclical recovery next year; however, growth will be weaker than in the recent past. The slowdown in household demand will have negative credit implications for Indian issuers in a range of sectors.

The government has responded to the slowdown with a series of steps to stimulate domestic demand. It announced income support to farmers and low-income households, and that reduced the corporate tax base rate to 22 per cent from 30 per cent. However, these steps will likely have limited efficacy.

The industry downturn will persist for automobile manufacturers. Weak demand and tight liquidity will constrain earnings for automakers. Although delinquencies in auto asset-backed securities have not increased significantly, the performance of commercial vehicle loans backing ABS deals could deteriorate if subdued economic conditions prolong, it added.

Reducing taxes to boost investments is a myth, says Abhijit Banerjee

Countries from China to India to Indonesia are slashing taxes for businesses to spur growth amid a gloomy outlook for global economic expansion.

Business Standard : How do you spur demand in an economy? By raising direct taxes and distributing the money among the poor, says this year’s winner of the Nobel prize for economics.

Reducing taxes to boost investments is a myth spread by businesses, says Abhijit Banerjee, who won the prize along with Esther Duflo of the Massachusetts Institute of Technology and Michael Kremer of Harvard University for their approach to alleviating global poverty. “You are giving incentives to the rich who are already sitting on tons of cash.”

Countries from China to India to Indonesia are slashing taxes for businesses to spur growth amid a gloomy outlook for global economic expansion. The International Monetary Fund this month made a fifth-straight cut to its 2019 global growth forecast, pegging it at 3 per cent.

“You don’t boost growth by cutting taxes, you do that by giving money to people,” Banerjee said in an interview Monday, suggesting that cash in the hands of the poor will drive consumption. “Investment will respond to demand.”

China earlier this year rolled out tax cuts worth $280 billion on personal income and corporate profits, while India surprised with a $20 billion stimulus, taking its corporate tax rate to among the lowest in Asia. Indonesia also plans to lower tax on companies to 20 per cent from 25 per cent.

ALSO READ: Inflation isn't a bad thing; it keeps labour demand up: Abhijit Banerjee

MIT Professor Abhijit Banerjee spoke in New Delhi where he was promoting his book ‘Good Economics for Hard Times.’

Last year, US President Donald Trump unveiled a $1.5 trillion tax package, and has promised “very substantial” tax cuts in 2020 for “middle-income” Americans.

It’s the widening inequality in developed countries such as the US that has angered people and pushing the world into a trade war, Banerjee said. “It is unbelievable that in the name of growth you have allowed inequality to explode to this point.”

PM Modi tells investors 'come to India' to aid $5 trillion GDP goal

"India is waiting for you," PM Modi told political and business leaders at the Bloomberg Global Business Forum.

Prime Minister Narendra Modi urged global businesses to “come to India” as his government seeks to build a $5 trillion economy by 2025.

His address to chief executives at a summit in New York comes less than a week after India delivered a $20-billion tax-cut stimulus to help shore up the $2.6-trillion economy that’s growing at the slowest rate in six years amid 45-year-high unemployment.

“India is waiting for you,” Modi told political and business leaders at the Bloomberg Global Business Forum. “India is the only destination for you.”

Competitive Rates

Modi, who met energy company CEOs in Houston, is meeting more than 40 major companies, including Lockheed Martin Corp., American Tower Corp., Mastercard Inc. and Walmart Inc. at the forum hosted by Michael R. Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.

“Just recently we have decided to considerably reduce corporate tax,” Modi said, calling the move revolutionary. “If you want to invest in a market where there’s scale, come to India.”

The cut in corporate tax rates puts India on par with some of the lowest in Asia to help the south Asian nation compete with the likes of Vietnam and Indonesia for investments in the midst of ongoing global trade tensions. Attracting investments is key to revive economic growth and put the nation on the path to becoming a $5-trillion economy by 2025.

The cropped tax rates are the latest in a series of steps announced by the government, including easier foreign investment rules for companies from Apple Inc. to Huawei Technologies Co. to BHP Group Plc, to revive economic growth from the weakest pace since 2013. With $3 billion in foreign direct investment from American companies last year, the US is the fourth largest investor in the Indian economy.

Infrastructure creation is expanding at an unprecedented pace, with highways, metros, railways, ports, airports being built, Modi said. “Each sector is seeing massive investment and tremendous potential.”

Business Standard

IMF says India's growth 'much weaker' than expected; cuts FY20 projection

The economic growth slowed to a seven-year low to 5 per cent in April to June quarter from 8 per cent a year ago, as per the government data.

International Monetary Fund (IMF) on Thursday said that India's economic growth is "much weaker" than expected due to corporate and environmental regulatory uncertainty and "lingering weakness" in some non-Bank financial companies.

"Again, we will have a fresh set of numbers coming up but the recent economic growth in India is much weaker than expected, mainly due to corporate and environmental regulatory uncertainty and lingering weakness in some non-Bank financial companies and risks to the outlook are tilted to the downside, as we like to say," IMF spokesman Gerry Rice told reporters at a news conference.

The economic growth slowed to a seven-year low to 5 per cent in April to June quarter from 8 per cent a year ago, as per the government data.

The International Monetary Fund (IMF) has cut its projection for India's economic growth by 0.3 percentage points to 7 per cent for the fiscal year 2019-20 owing to the "weaker-than-expected outlook" for the domestic demand.

The growth is expected to rise to 7.2 per cent points in FY21, down by the projected growth rate of 7.5 in the earlier report.

The slowdown was largely due to a sharp dip in the manufacturing sector and agriculture output, said the Ministry of Statistics and Programme Implementation in a statement.

The previous low was recorded at 4.9 per cent in April to June 2012-13. Consumer demand and private investment have weakened amid global trade frictions and dampening business sentiment.

Business Standard

PM Narendra Modi starts pre-Budget meets to brainstorm on economy

The focal point of the interaction was drawing a road map for reforms across departments leading up to the ease of doing business and economic growth.

In the run-up to the Union Budget, Prime Minister Narendra Modi has lined up a string of meetings spread across days. He began the exercise on Tuesday with a meeting of top bureaucrats in finance and other key ministries to finalise the government's priorities. The focus is clearly on reviving the economy and creating jobs, officials in the know said.

Next, the PM will interact with economists, bankers and sectoral experts through the week to brainstorm on pressing issues such as agriculture, reforms and effective implementation of signature schemes and projects.

Tuesday’s meeting at the PM’s residence, attended by all the five secretaries in the finance ministry besides top officials of other economic ministries and NITI Aayog, cleared a five-year vision plan for the government to make India a $5-trillion economy by 2024, it is learnt. Also, the future course of PM’s pet projects like doubling farmers' income, PM-Kisan, Pradhan Mantri Awas Yojana, piped water for all, and electricity for all came up for discussion.

The focal point of the interaction was drawing a road map for reforms across departments leading up to the ease of doing business and economic growth. GDP growth, which has been a controversial issue recently due to doubts raised over government data, was discussed too. Stepping up government revenues while carrying out reform to push GDP growth, which slipped to a five-year low of 6.8 per cent in 2018-19, also figured in the meeting, sources said.

With the farm sector facing headwinds, Modi had last week stressed upon the need for structural reforms in agriculture to boost private investment, strengthen logistics, and provide ample market support to farmers.

The PM is expected to meet senior finance ministry bureaucrats on Thursday to discuss issues relevant to the Union Budget, to be presented on July 5.

Apart from reform announcements to be made in the Budget, the government’s fiscal consolidation roadmap, revenue position and expenditure commitments will be taken up at the meeting.

Business Standard

India 43rd most competitive economy, Singapore tops the list: Report

Singapore has moved up to the top, from the third position last year, while the US has slipped to the third place in the 2019 edition of the IMD World Competitiveness Rankings.

India has moved up one place to rank 43rd most competitive economy in the world on the back of its robust economic growth, a large labour force and its huge market size, while Singapore has toppled the US to grab the top position, a global study showed.

Singapore has moved up to the top, from the third position last year, while the US has slipped to the third place in the 2019 edition of the IMD World Competitiveness Rankings. Hong Kong SAR has held onto its second place, helped by a benign tax and business policy environment and access to business finance.

Economists regard competitiveness as vital for the long-term health of a country's economy as it empowers businesses to achieve sustainable growth, generates jobs and, ultimately, enhance the welfare of citizens.

The IMD World Competitiveness Rankings, established in 1989, incorporate 235 indicators from each of the 63 ranked economies to evaluate their ability to foster an environment where enterprises can achieve sustainable growth, generate jobs and increase welfare for its citizens.

The IMD Business School said it takes into account a wide range of statistics such as unemployment, GDP and government spending on health and education, as well as data from an executive opinion survey covering topics such as social cohesion, globalisation and corruption.

The study said the Asia-Pacific region has emerged as a global beacon with 11 out of 14 economies either improving or holding their ground.

India's ranking has improved by one place in past one year to 43rd, driven by a robust rate of growth in real GDP, improvements in business legislation and an increase in public expenditure on education.

Business Standard