Fiscal deficit for April-November likely stood at 107% of FY20 target

For the deficit to be 3.3 per cent of GDP, it assumes a nominal GDP growth of 12 per cent in FY20.

Business Standard : The Centre’s fiscal deficit for April-November likely stood at 107 per cent of the fiscal year 2019-20 target of Rs 7.04 trillion, said senior government sources. This compares to 114.8 per cent for April-November, 2018-19, and 102.4 per cent till the end of October this year.

The April-November fiscal deficit data will be officially released on December 31.

“At end-November, fiscal deficit is at 107 per cent of the full-year target,” said an official. In absolute terms, that comes to around Rs 7.53 trillion.

This means that for the remaining four months of the fiscal year, the Centre has to initiate a heavy compression of expenditure in order to meet the fiscal deficit target, which has been pegged at 3.3 per cent of GDP. For the first half of the year (April-September), fiscal deficit was at 6.6 per cent of the GDP for that period.

However, as reported earlier, the Narendra Modi government is highly likely to miss its fiscal deficit target for 2019-20. It could be between 3.5 per cent to 3.8 per cent of GDP. A final call on the what it will be, within the 3.5-3.8 per cent range, will be taken by Finance Minister Nirmala Sitharaman and her budget team after the advance tax numbers are available in mid-December.

For the deficit to be 3.3 per cent of GDP, it assumes a nominal GDP growth of 12 per cent in FY20. Officials now concede that nominal GDP growth for the year will nowhere be close to 12 per cent. The nominal GDP growth for April-June was 6 per cent and that for July-September was 6 per cent. With the Reserve Bank of India’s latest forecast of 5 per cent real GDP growth for 2019-20, even a 3 per cent deflator would take nominal GDP growth to around 8 per cent.

That means that theoretically, even if the fiscal deficit for the year is Rs 7.04 trillion, as a percentage of GDP, it will shoot up to around 3.5 per cent. Given the revenue scenario, that seems difficult.

While the divestment target is expected to be met and non-tax revenues could even be exceeded, tax revenues remain a major cause of concern and a shortfall of at least Rs 2 trillion is expected in gross tax revenue.

India's economic slowdown will reverse in coming quarters: Mukesh Ambani

What I see happening in the past 2-3 years is transformation, said Ambani

Business Standard : Two top leaders of India Inc — Reliance Industries Chairman Mukesh Ambani and auto major Mahindra & Mahindra Chairman Anand Mahindra (M&M) — have said the Indian economy is showing signs of a pick-up and recent sales indicators show the worst is now behind the nation.

Both business leaders were speaking at the Future Investment Initiative summit in Riyadh. “India’s slight economic slowdown will reverse in the coming quarters. What I see happening in the past 2-3 years is transformation,” said Ambani.

“As a businessman and as an investor, I am all in, in terms of investing in this country,” Ambani said.

“If you look at what happened, yes, there has been a slight slowdown but in my view it’s temporary,” said he. “All the reform measures that have been taken in the last few months will show the outcome. I am quite sure that in the coming quarters this will reverse,” he said.

Ambani, who is in talks with Saudi Arabian oil giant Aramco to sell one-fifth of his oil-to-chemicals business in India for $15 billion, said the two countries have almost factors to drive growth — technology, young demography, and leadership.

“Above all, there is a leadership accelerator. Both the countries are blessed with leadership that is unique in the whole world, at least in today’s time,” he said, referring to Prime Minister Narendra Modi and Saudi King Salman bin Abdulaziz Al-Saud and his son Prince Mohammed bin Salman bin Abdulaziz.

Saudi Arabia, he said, has seen tremendous transformation in the past 2-3 years. “For me, this is 1980 vintage China or India of the 1990s where India took on the world map.”

Ambani had in August announced that Saudi Aramco has agreed to take a 20 per cent stake in Reliance Industries’ refining and petrochemicals business, as the world’s largest crude oil exporter deepens its ties with India, the fastest-growing energy consumer.

On the other hand, Mahindra said Diwali sales have been very good for the Mahindra Group and it has reported double-digit growth in sales over last year. Diwali, he told a TV channel, is like Christmas in India and it has shown a significant jump in consumption for the company. M&M has cut excess inventories and most car companies have sanitised their pipelines and are looking ahead to the festive season with hope, he said.

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

How corporation tax cut has made rupee carry trade more lucrative

Going long on the rupee with borrowed dollars offered the best returns in the past month in Asia.

The carry trade for the Indian rupee is getting boosted after a shock $20 billion tax cut by the government.

The corporate tax reduction announced on Friday has spurred $374 million of inflows into Indian stocks in three days, and supported the rupee. That’s adding to the attractiveness of the currency for carry-trade strategies, according to UBS Group AG and Kotak Securities Ltd.

With the world’s pile of negative debt almost doubling to $15 trillion this year, investors are increasingly employing currency-related strategies that allow them to squeeze more yields. Going long on the rupee with borrowed dollars offered the best returns in the past month in Asia.

“The corporate tax cuts are a response to mounting growth pessimism, and should stem Indian equity outflows,” said Rohit Arora, emerging market Asia strategist at UBS. “This, in our view, works well enough for the rupee carry trades and lower volatility in the near-term.”

Carry trades work by investors borrowing in a lower-yielding currency, such as the yen or the euro, and putting the money into one with higher rates. Indian sovereign bonds offer the second-highest yields among major bond markets in Asia.

Still, growing fears of a global recession have dented risk appetite for emerging markets, with returns from purchasing developing nation currencies with dollars easing since July, according to a Bloomberg index. India is also tussling with its slowest growth in six years.

“Domestic risks abated after multi pronged measures to boost growth made rupee a preferred carry currency,” said Anindya Banerjee, a currency analyst at Kotak Securities. Another trade in vogue is shorting the yuan and going long on the rupee to take advantage of the trade tension risks that the Chinese currency faces, he said.

Business Standard

Cyclical or structural? Decoding the nature of India's economic slowdown

A slowdown in consumption demand, decline in manufacturing, inability of the IBC to resolve cases in a time-bound manner and rising global trade tension is impacting India, analysts say.

Business Standard : India’s real or inflation-adjusted gross domestic product (GDP) grew at 5 per cent in the June 2019 quarter of financial year 2019-20 (Q1FY20), the slowest growth in six years (25 quarters). In nominal terms, the growth stood at 7.99 per cent, lowest since December 2002.

With this, fears of the slowdown being a more structural one than a cyclical one have surfaced.

What is a cyclical slowdown?

A cyclical slowdown is a period of lean economic activity that occurs at regular intervals. Such slowdowns last over the short-to-medium term, and are based on the changes in the business cycle.

Generally, interim fiscal and monetary measures, temporary recapitalisation of credit markets, and need-based regulatory changes are required to revive the economy.

What is a structural slowdown?

A structural slowdown, on the other hand, is a more deep-rooted phenomenon that occurs due to a one-off shift from an existing paradigm. The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour.

Dissecting India’s slowdown

A slowdown in consumption demand, decline in manufacturing, inability of the Insolvency and Bankruptcy Code (IBC) to resolve cases in a time-bound manner, and rising global trade tension and its adverse impact on exports are some of the factors affecting India’s growth, analysts say.

Consumption:

“Private consumption, which contributes nearly 55-60 per cent, to India’s GDP has been slowing down. While the reduced income growth of households has reduced urban consumption, drought/near-drought conditions in three of the past five years coupled with collapse of food prices has taken a heavy toll on rural consumption,” said analysts at India Ratings and Research, Indian arm for Fitch Group. The private final consumption expenditure (PFCE) has slumped to 3.1 per cent in Q1FY20, the weakest level since Q3FY15.

Indian economy to grow at slowest pace in 5 years in June quarter: Poll

The poll median showed the economy was expected to have grown at a year-on-year pace of 5.7 per cent in the June quarter, a touch slower than 5.8 per cent in the preceding three months.

The Indian economy likely expanded at its slowest pace in more than five years in the April-June quarter, driven by weak investment growth and sluggish demand, according to economists polled by Reuters.

That would reinforce concerns seen in the minutes from the central bank's August meeting, which showed policymakers were worried about weak growth and indicated further rate cuts in the next few months to boost the slowing economy.

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The poll median showed the economy was expected to have grown at a year-on-year pace of 5.7 per cent in the June quarter, a touch slower than 5.8 per cent in the preceding three months. But a large minority - about 40 per cent of nearly 65 economists - expect an expansion of 5.6 per cent or lower.

The GDP data is due to be released at 12:00 GMT on Friday.

If the forecast is realised, it would be the weakest start in the first three months of a fiscal year in seven years.

"The deceleration in growth that commenced in the second quarter of the fiscal year ending March 2019 is likely to have continued," said Rini Sen, India economist at ANZ.

"A host of high frequency indicators - consumption and investment - have continued to weaken. The most prominent ones include auto sales, output of consumer durables, cement and steel production."

Domestic passenger vehicle sales in July dived at the steepest pace in nearly two decades and declined for the ninth straight month in July, largely due to a liquidity crunch causing huge job cuts in the sector.

These measures, in addition to the risk of further escalation of the US and China trade war are weighing on demand and business confidence in India.

The median response to an extra question in the poll, which was taken Aug. 21-26, showed the average growth rate for the current fiscal year 2019-2020 is likely to be 6.5 per cent despite a weak start. But it is a downgrade from 6.8 per cent predicted just last month and well below the RBI's projection of 6.9 per cent.