Economy

India-UK FTA negotiations conclude with 'detailed' policy discussions

Date: 10th May, 2023

Source: Business Standard

The ninth round of India-UK free trade agreement (FTA) negotiations concluded with detailed discussions across a range of policy areas, the UK government said. A joint outcome statement issued by the Department for Business and Trade (DBT) revealed that Round 9 of the ongoing talks took place between April 24 and 28 in a hybrid format, with some Indian officials travelling to London and others attending virtually. There is no date set for the 10th round of negotiations, which is likely to be hosted by New Delhi, also in a hybrid format. In continuation of the eighth round of negotiations held during 20-31 March 2023 in New Delhi, the United Kingdom and the Republic of India held the ninth round of talks during 24-28 April for a UK-India FTA, the DBT statement said. As with previous rounds, these were conducted in a hybrid fashion a number of officials from India travelled to London and others attended virtually. During the round, detailed discussions took place across a range of policy areas, it said. The tenth round of negotiations is due to take place in the coming months, it added. India and the UK have been negotiating an FTA since January last year, with a goal towards a comprehensive pact that is expected to significantly enhance the bilateral trading relationship worth an estimated GBP 34 billion in 2022. Recently, Britain's Chief Negotiator for the FTA Harjinder Kang was appointed the country's new Trade Commissioner to South Asia and Deputy High Commissioner for Western India, based in Mumbai.

UK Business and Trade Secretary Kemi Badenoch said he is expected to use the FTA talks experience to build on the UK's outstanding track record on trade in South Asia. Kang has been succeeded in the role of the UK's Chief Negotiator for the India-UK FTA by Kate Thornley, previously Deputy Chief Negotiator. According to official UK government statistics, India was the UK's 12th largest trading partner in the four quarters to the end of Q3 2022, accounting for 2.1 per cent of total UK trade. The DBT describes the UK-India investment partnership as "thriving", with over GBP 28 billion invested in each other's economies supporting over half a million jobs. 

Dalmia Bharat, Ruia Co in fray for Birla Tyres

Date: 02nd May, 2023

Source: Economic Times

The Dalmia Bharat Group, with interests in cement, refractories, power and sugar, and an affiliate company of stressed assets aquirer Pawan Ruia are in the race to buy Kolkata-based Birla Tyres, a Kesoram Industries company undergoing insolvency proceedings, people aware of the development told ET. Lenders received two binding offers - one from a consortium led by Stephens Financial Services in partnership with Melrose Creations, and the other from Dalmia Bharat Refractories.

Melrose Creations is a Pawan Ruia group company set up three years ago for making N95 masks under the flagship brand Dunlop, the company said in June 2020. "Both the applicants have offered staggered payment and the net present value offered by both is below `100 crore. It is substantially below our expectations," said a lender. "We have asked the resolution applicants to improve the offer," the same person said. Dalmia Bharat, Pawan Ruia group and resolution professional Pratim Bayal, supported by PwC India, did not respond to ET's request for comment.

Pawan Ruia gained popularity as a stressed assets buyer after it acquired Jessop & Co from the central government in 2003, and later it purchased troubled tyre maker Dunlop India in 2005 from Jumbo group owned by Manu Chhabria. Jessop & Co in partnership with British company Braithwaite Burn has built Howrah Bridge over river Ganga in Kolkata.

Ruia managed to take Dunlop Tyres out of the purview of Board for Industrial and Financial Reconstruction (BIFR) in 2007 but failed to fully revive the company due to labour-related problems and high operational costs. Calcutta High Court had ordered the liquidation of Dunlop in 2015, but the sale did not go through.

The RP, who admitted `1,128 crore in claims from financial creditors, received over two dozen expressions of interest. It includes Ceat, Bain-Piramal backed India Resurgent Fund, Jindal Steel & Power, a Naveen Jindal company, Bommidala Enterprises, Purnendu Chatterjee-promoted MCPI and Himadri Speciality Chemicals.

Birla Tyres manufactures tyres for commercial vehicles, farm vehicles, heavy earth-moving machinery, motorcycles, and three-wheelers. It was demerged from its parent entity - Kesoram - into a standalone tyre manufacturing company in 2019.

One of the key attractions is the location of the plant. It is situated in an industrial area with 181 acres of freehold land available for development. Secondly, it is close to three ports and one airport - Subarnarekha Port, Mahanadi Riverine Port, Paradip Port, and Biju Patnaik International Airport.

Among lenders, Axis Bank has made the highest claim of `555.6 crore, followed by Asset Reconstruction Company of India at `196 crore and State Bank of India at `120 crore.

Risks weigh on FY24 GDP forecast of 6.5%: Govt

Date: 26th Apr, 2023

Source: Financial Express

The finance ministry on Tuesday said that downside risks to the official GDP growth forecast of 6.5% in 2023-24 dominate upside risks, given the hardening of oil prices, troubles in the global financial sector and subdued monsoon forecasts. It, however, reposed faith in the country’s strong banking system and said it is less prone to Silicon Valley Bank type failures, as Indian banks are well placed to handle any stress emanating from the current monetary tightening cycle. “Opec’s surprise production cut has seen oil prices rise in April, off their lows of low-Seventies per barrel in March. Further troubles in the financial sector in advanced nations can increase risk aversion in financial markets and impede capital flows. Forecasts of El Nino, at the margin, have elevated the risks to Indian monsoon rains,” said the finance ministry’s Monthly Economic Review for March 2023. Interestingly, the ministry’s comments are somewhat at divergence with the State of the Economy report for April, written by top RBI staffers, where they suggested that there could be positive surprises to the IMF, which recently cut its India growth estimate for the current fiscal to 5.9% from 6.1%. Pinning hopes on the corporate capex revival in the year, the RBI officials noted many industries like cement, oil and gas, textiles and data centres were looking up. “Although too early to tell, most recent data arrivals suggest that multilateral institutions – the IMF, in particular – might encounter forecast errors, with actual outcomes surprising them positively,” the RBI report had said. The Economic Survey 2022-23 has projected the country’s real GDP expansion for FY24 to be in the range of 6-6.8%, while the RBI in the latest monetary policy statement raised its forecast to 6.5% from 6.4% earlier. While the economy is estimated to have grown by 7% in FY23 by the National Statistical Office, international agencies and private forecasters expect growth to slow down to less than 6% or remain just a tad above 6% in the current fiscal. The International Monetary Fund has lowered India’s GDP forecast to 5.9% in the current fiscal although the RBI has recently marginally raised its projection to 6.5% from the previous 6.4%. “The collapse of a few regional banks in the United States and the takeover of the crisis-hit Credit Suisse by the Union Bank of Switzerland (UBS) have sent ripples across the global banking industry and posed fears of a contagion effect across economies,” said the latest finance ministry report, adding that it raised questions among policymakers on the vulnerability of their financial system to such a collapse, especially in Emerging Market Economies (EMEs) that may lack the fiscal space to calm financial markets with fiscal packages. “The multifaceted nature of RBI’s regulatory actions, the improved bank balance sheets and the attunement of the Indian banking system to frequent interest rate cycles augur well for India’s financial stability and significantly reduce the probability of an SVB-like event occurring in India,” the report said.

Various measures have been taken such as the creation of an investment fluctuation reserve (IFR) to create a buffer to shield banks from adverse yield movements, uniform application of capital and liquidity requirements to all banks as well as guidelines on governance in commercial banks to deal with any root cause of vulnerabilities, it noted, adding that the Reserve Bank of India undertakes meticulous bi-annual assessments of scheduled commercial banks, shadow lenders as well as cooperative banks that help identify weaknesses which may be impacted relatively more by monetary tightening and yield spikes. Apart from regulatory requirements and actions, the ministry noted that certain characteristics of the banking system will also help reduce the probability of an SVB-like incident occurring in India. To this end, it highlighted that as of March 2022, 60.1% of India’s deposits are with public sector banks. Further, 63% of total deposits are owned by households considered sticky retail customers and therefore deposit withdrawals in this category will remain limited. It also pointed out that Indian banks don’t hold a majority of their assets in the form of bonds. Instead, for the top 10 banks in terms of asset size, loans constitute more than 50% of their total assets, making banks more immune to the rising interest rate cycle. Asset-Liability Mismatch (ALM) is another threat that emerges as policy rates are hiked but it is not an onerous issue in the Indian banking system. Interest rate cycles have also been quite prominent in India, and exposure and attunement to regular interest rate cycles have made Indian banks well equipped to handle the cycles, the ministry said. Further, the spread between deposit rates and the policy rate in India is much lower compared to that in the US, which makes “withdrawal of deposits en masse an improbable event”, it said. According to the finance ministry, these factors will also help support the medium-term growth trajectory to remain on course. It, however, stressed that it is important to remain vigilant against potential risks such as El Nino conditions creating drought conditions and lowering agricultural output and elevating prices, geopolitical developments and global financial stability. “All these three could affect the favourable combination of growth and inflation outcomes currently anticipated,” the report said. The ministry, however, stressed that even as external stability strengthened, factors contributing to internal stability also improved. While fiscal parameters for the Centre and the states in FY23 were robust, internal macroeconomic stability has further strengthened with easing inflationary pressures in March 2023, driven by the softening of food and core inflation. The International Monetary Fund has lowered India's GDP forecast to 5.9% in the current fiscal although the RBI has recently marginally raised its projection to 6.5% from the previous 6.4%

India is set to become the most populous country in the world with 1.429 billion people by the middle of 2023, surpassing China at 1.426 billion, according to the latest report released by the United

Date: 20th Apr, 2023

Source: Business Standard

India is set to become the most populous country in the world with 1.429 billion people by the middle of 2023, surpassing China at 1.426 billion, according to the latest report released by the United Nations (UN) Population Fund (formerly United Nations Fund for Population Activities, or UNFPA). This is nearly 3 million more than its neighbour. The Asian nations have accounted for more than a third of the global population for over 70 years. For statistical purposes, the data for China does not include Hong Kong and Macao, the Special Administrative Regions of China, and the Taiwan Province of China, the State of World Population report said. However, China stands ahead of India on most socio-economic parameters. While the life expectancy at birth of women in India is 74 years, in China it stands at 82 years. Similarly, the per capita income of China is projected to be 5x India’s ($2,601) in 2023 by the International Monetary Fund. With close to 50 per cent of its population below the age of 25, India has a time-bound opportunity to benefit from the demographic dividend, Andrea Wojnar, Representative of UNFPA India, said.

“As the national fertility rate falls below 2.1 (the replacement level), India is at a unique historical opportunity, witnessing a great demographic transition as a youthful nation, with a notable demographic diversity across states to convert the potential demographic dividend into economic benefits through additional investments in health, education, and quality jobs for young people — including targeted investments in women and girls,” she said. “India’s demographic dividend can be further secured by incorporating the impact of megatrends such as climate change, urbanisation, migration, and ageing into policy initiatives,” she added. Without the decadal Census of 2021, India lacks accurate estimates of its population.

According to report of the technical group of population projections under the Ministry of Health and Family Welfare submitted in July 2020, India’s total population was expected to be 1.388 billion in 2023 based on 2011 Census data. “The youth population in the age group 15-24 years is expected to increase from 233 million in 2011 to 251 million in 2021 and then continue to decrease to 229 million in 2036. Its proportion to total population is expected to fall from 19.3 per cent in 2011 to 15.1 per cent in 2036,” it had said. Santosh Mehrotra, visiting professor, Centre for Development Studies, University of Bath (UK), said China’s demographic dividend is over but it rode the wave of its demographic dividend and grew fast.

But we are consistently not able to do that. We have not only made economic policy mistakes but social policy mistakes as well, with health and education remaining as neglected as ever,” he added. However, China on Wednesday sought to downplay India overtaking it as the world’s most populous nation, saying it still has a “quality” workforce of close to 900 million people to provide strong impetus to development. When assessing a country’s demographic dividend, we need to look at not just the size but also the quality of its population. Size matters, but what matters more is talent resources. Nearly 900 million of the 1.4 billion Chinese are of working age and on average have received 10.9 years of education,” Chinese Foreign Ministry Spokesperson Wang Wenbin told reporters in a media briefing in Beijing.

 But we are consistently not able to do that. We have not only made economic policy mistakes but social policy mistakes as well, with health and education remaining as neglected as ever,” he added. However, China on Wednesday sought to downplay India overtaking it as the world’s most populous nation, saying it still has a “quality” workforce of close to 900 million people to provide strong impetus to development. When assessing a country’s demographic dividend, we need to look at not just the size but also the quality of its population. Size matters, but what matters more is talent resources. Nearly 900 million of the 1.4 billion Chinese are of working age and on average have received 10.9 years of education,” Chinese Foreign Ministry Spokesperson Wang Wenbin told reporters in a media briefing in Beijing.

China to be top world growth source in next five years, India second: IMF

Date: 18th Apr, 2023

Source: Economic Times

China will be the top contributor to global growth over the next five years, with its share set to be double that of the US, according to the International Monetary Fund. The nation’s slice of global gross domestic product expansion is expected to represent 22.6% of total world growth through 2028, according to Bloomberg calculations using data the fund released in its World Economic Outlook released last week. India follows at 12.9%, while the US will contribute 11.3%.

The emergency lender sees the world economy expanding about 3% over the next half decade as higher interest rates bite. The outlook over the next five years is the weakest in more than three decades, with the fund urging nations to avoid economic fragmentation caused by geopolitical tension and take steps to bolster productivity.

In total, 75% of global growth is expected to be concentrated in 20 countries and over half in the top four: China, India, the US and Indonesia. While Group of Seven countries will comprise a smaller share, Germany, Japan, the United Kingdom and France are seen among the top 10 contributors.

Brazil, Russia, India and China — known by the acronym BRIC coined by Jim O’Neill, a former Goldman Sachs Group Inc. chief economist — are expected to add almost 40% of the world’s growth through 2028. The four nations established the BRIC forum in 2009 and the bloc became Brics a year later when South Africa — by far the smallest economy in the grouping — was admitted, a move O’Neill disagreed with. South African expansion is set to be anemic in the next five years, adding roughly half a percentage point to the world total. 

Michelin may soon produce passenger vehicle tyres in India

Date: 17th Apr, 2023

Source: Economic Times

French tyre major Michelin is actively considering production of passenger vehicle tyres locally in India, according to the group Chief Executive Officer Florent Menegaux. The local manufacturing would help the Clermont-Ferrand based tyre major to scale up operations in India, which remain critically subdued with the government introducing import restrictions in 2020.

The tyre maker, which has presence in 175 countries with 67 plants, currently sells only premium bigger size tyres in limited quantity especially for performance oriented models in India. In 2020, the government imposed curbs on imports of certain new pneumatic tyres used in motor cars, busses, lorries and motorcycles in a move to promote domestic manufacturing. Tyre companies can now import only a small number of tyres into the country under a limited import licence, which was not the case before 2020.

In an interaction with PTI here, Menegaux said the group sees India as a great developing market. He noted that the company is eager to invest in the local production of passenger vehicle tyres in India and the only thing which needs to be worked out is the timing for the same. "Now we are reaching the moment where it will make sense to invest in the passenger car capacity (in India)," Menegaux noted. Elaborating further, he said that as the company has presence across the globe it needs to carefully evaluate investment options across the regions. "We invest in many places around the world so the question is when is the right time for India. It is not a question whether we should invest in India, the question is when," Menegaux said.

When asked specifically about the timeframe for the new investment, he said: "It is under the process right now."

Menegaux noted that the Michelin group sees India as a great developing market where infrastructure is developing at a very fast pace. "With proper infrastructure in place the speed (of vehicles on roads) will increase and the relevance of our technology will be even more visible," he said.

Michelin currently has presence in the truck and bus radial tyres in India. It has a production facility in Chennai with an installed capacity of over 30,000 tonnes per annum. The facility is currently focussed on manufacturing a range of radial truck/bus tyres and defence tyres for original equipment manufacturers (OEMs) as well as for the replacement market in the country.

Michelin also gets two-wheeler tyres manufactured in the country through a partner.

On the government putting restrictions on imported tyres in India, Menegaux noted that it was a bit disappointing for the company which was in the process of scaling up operations in the country. "We had developed a good market in the passenger car segment with imports which is the traditional way of doing business. Everywhere we start by importing up to a point where we reach a certain volume and then we implement production," he noted.

Terming the government policies in India as excellent, Menegaux noted that putting restrictions on imported tyres was probably not the right thing to do. He also sought government support in safeguarding the intellectual property (IP) environment in the country. "We invent a lot, we innovate a lot and therefore IP protection is crucial for us," he noted.

Menegaux noted that the group, which employs close to 1.32 lakh people globally, continues to invest in various competencies in India. "We have developed a big centre in Pune as a worldwide hub for artificial intelligence. We have research activities and digital services...We employ over 2,300 people in the country," Menegaux said.

Michelin group, which produced around 200 million tyres globally in 2022, has set a goal of achieving 100 per cent sustainable materials in its tyres by 2050.

The company recently unveiled two tyres, one for cars and the other for buses, containing 45 per cent and 58 per cent sustainable materials, respectively. "We will meet the challenges of the changing tyre markets thanks to industrial facilities that place people at their heart, that are ever more innovative and more environmentally friendly...We are confident that we will achieve our strategic goals: with, around and beyond tyres," Menegaux stated. He outlined the company's goals and strategies at Michelin's facility in Cuneo, Italy, the largest car tyre factory in western Europe.

India’s WPI inflation eases to 3.85 per cent in February

Date: 14th Apr, 2023

Source: The Economic Times

India's wholesale price index (WPI)-based inflation eased to 3.85 per cent in February on an annual basis from 4.73 per cent in January, stated provisional data from the Commerce Ministry on Tuesday.

The month-on-month change in WPI index for February saw an increase of 0.20 per cent as against 0.13 per cent in the preceding month.

"Decline in the rate of inflation in February, 2023 is primarily contributed by fall in prices of crude petroleum & natural gas, non-food articles, food products, minerals, computer, electronic & optical products, chemicals & chemical products, electrical equipment and motor vehicles, trailers & semitrailers," stated a press release. 

The latest WPI number could be favourable for corporates as a dip in wholesale prices might ease pressure on corporate earnings. Lower input costs might also bode well for retail prices.

The rate of inflation based on WPI Food Index slowed from 2.95 per cent in January, 2023 to 2.76 per cent in February, 2023.

For the primary articles segment, the inflation rate eased to 3.28 per cent from 3.88 per cent in the previous month .

Wholesale inflation in crude petroleum and natural gas eased significantly to 14.47 per cent from 23.79 per cent in January. February’s fuel and power inflation declined to 14.82 per cent as against 15.15 per cent last month.

The rate of inflation based on WPI Food Index slowed from 2.95 per cent in January, 2023 to 2.76 per cent in February, 2023.

For the primary articles segment, the inflation rate eased to 3.28 per cent from 3.88 per cent in the previous month .

Wholesale inflation in crude petroleum and natural gas eased significantly to 14.47 per cent from 23.79 per cent in January. February’s fuel and power inflation declined to 14.82 per cent as against 15.15 per cent last month.

Inflation for manufactured products came in at 1.94 per cent in February.

The CPI number for February, which came out on Monday, also eased to 6.44 per cent from 6.52 per cent in January.

In May last year, the WPI had climbed by 15.88 per cent, the highest since September 1991, due to rising prices for crude petroleum and natural gas, food items, basic metals and chemical products.

The WPI inflation had eased to a 24-month low of 4.73 per cent in January, due to fall in prices of food articles, mineral oils, crude petroleum & natural gas, food products, textiles and chemicals & chemical products. The WPI inflation has been decreasing for the past several months.

The WPI is one of the two indices that measure inflation in India. The other is Consumer Price Inflation (CPI). The WPI captures prices at the level of production or manufacturing, taking into account goods traded between companies, as against the CPI that measures prices at the retail consumer level. Food items, which constitute a major part of the CPI, drive retail inflation, while for the WPI, it's manufactured goods.

India's forex reserves up $6.3 bn to $585 bn, highest in nine months

Date: 14th Apr, 2023

Source: Business Standard

India Inc's topline growth in Q4FY23 to halve to 10-12%, says report

Date: 13th Apr, 2023

Source: Business Standard

India Inc is likely to report a halving of revenue growth in the fourth quarter of FY23, a credit rating agency said on Thursday, as companies start reporting their financials. The revenue growth will come down to 10-12 per cent as against 22.8 per cent for the January-March period in the year-ago, Crisil's Market Intelligence and Analytics arm said.

For the full fiscal FY23, revenue is estimated to have grown 19-21 per cent, which is slower than over 27 per cent growth registered in FY22, it said, adding that operating margin is likely to have moderated by 3 percentage points.

The continuing headwinds to exports which have had an impact on volume growth, and the high base were cited as the main reasons which will cause the sharp slowdown in topline growth for Q4FY23, Crisil, which analysed 300 companies across 47 sectors to arrive at the expectations, said. It said revenues of commodities and export-oriented sectors such as textiles, gems and jewellery, and information technology-enabled services, declined on-year.

Steel products, which account for around 11 per cent of the revenue of the set, are estimated to have witnessed a 7-9 per cent drop in revenue on-year during the March quarter due to the imposition of export duty in May 2022 and weakness in global demand amid elevated input costs.

Similarly, muted global demand is expected to have driven a 17-19 per cent fall in revenue for the aluminium industry, it said.

Consumer discretionary products such as airlines, hotels, media and entertainment, and retail led to the revenue growth, while demand for consumer staples such as pharmaceuticals and fast-moving consumer goods (FMCG) continued its growth momentum, its director for research Ankit Dani said. Hotel revenues are expected to grow 98 per cent, airlines by 67 per cent and telcos by 13 per cent, it said.

On the profitability front, operating profit margin is estimated to have improved a tad for the second consecutive quarter -- from 19 per cent in the December 2022 quarter to 19-20 per cent during the March 2023 quarter, the agency said. "Prices of key energy-linked commodities such as crude oil and non-coking coal seem to have come off their earlier highs and will partially offset the impact of lower global demand," its associate director Sehul Bhatt said.

Corporates are likely to see their profitability improve this fiscal as commodity prices scale down and volumes drive revenue growth, it said.

IMF keeps developing Asia 2023 growth forecast at 5.3%: trims India projections

Date: 12th Apr, 2023

Source: ICIS

The International Monetary Fund (IMF) has kept its 2023 growth forecast for developing Asia at 5.3% but trimmed its forecast for next year amid rising risks in global financial conditions. For 2024, these economies were projected to post a slower growth of 5.1%, down from the previous estimate of 5.2%, according to the IMF World Economic Outlook (WEO) Update released on 11 April.

China, India, Indonesia, Thailand, Malaysia, Vietnam and Philippines belong to the IMF category of emerging and developing nations in Asia.

For China, the world’s second-biggest economy and Asia’s largest, GDP growth forecasts were maintained - at 5.2% in 2023 and a slowdown to 4.5% in 2024. The economy posted a 3.0% growth in 2022. "With China absorbing about a quarter of exports from Asia and between 5% and 10% from other geographic regions, the reopening and growth of its economy will likely generate positive spillovers, with even greater spillovers for countries with stronger trade links and reliance on Chinese tourism," the IMF said.

For the giant emerging market of India, however, the pace of expansion is projected to slow to 5.9% this year from 6.8% in 2022, before accelerating to 6.3% in 2024. GDP growth expectations for the south Asian nation were trimmed from previous estimates.

The country is grappling with high inflation, to which it responded with high interest rates that, in turn, undermine consumption further. Weak external demand is also expected to take a toll on the economy.

Other multilateral institutions such as the World Bank (WB) and the Asian Development Bank (ADB) have likewise cut their GDP growth forecast for India in the next two years.

Downside risks abound

The global economy’s gradual recovery from both the COVID-19 pandemic and the implication of Russia’s invasion of Ukraine remains on track, IMF chief economist said Pierre-Olivier Gourinchas said. "The unexpected failures of two specialized regional banks in the United States in mid-March 2023 and the collapse of confidence in Credit Suisse - a globally significant bank - have roiled financial markets, with bank depositors and investors reevaluating the safety of their holdings and shifting away from institutions and investments perceived as vulnerable," the IMF said. "Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled," it said.

Based on IMF's projections, global growth will bottom out at 2.8% this year before rising modestly to 3% next year. The forecast for 2024 was lower than the previous estimate of 2.9%. "Global inflation will fall, though more slowly than initially anticipated, from 8.7 percent last year to 7% this year and 4.9% in 2024," Gourinchas said.