Canara Bank Management Discussions.


The global economy slowed down to 2.9% in 2019 Calendar Year from 3.6% in 2018 on the back of sluggish demand, dwindling global trade volumes and geo-political woes. A slew of global events such as US-China trade war tensions, uncertainty over Brexit and geo-political tensions in Middle East and other parts of the world were responsible for the slow pace of

economic activities in the bygone year. The outbreak of the novel Covid-19 virus, kept the entire world standstill, since mid-January 2020. Consequently, the global macroeconomic conditions have undergone a massive change in all respects.

Though global financial markets broadly remained resilient in the major part of the year, pandemic induced volatile swing was evident post January 2020 with respect to equities and debt segments. All major central banks turned dovish and provided accommodative guidance in the latter part of the fiscal to mitigate the ripple effects of the pandemic.

First part of the year saw elevated crude oil and gold prices, however post pandemic outbreak, crude oil prices nosedived due to massive sell offs. On the other hand, gold prices increased as investors preferred safe havens. International food prices inched up tracking higher demand and supply gluts during the latter part of the year.

The unprecedented Covid-19 virus spread dented the growth estimates further for 2020 and its repercussions in every respect are deeper than ever anticipated. Citing the evolving challenges of the global economy, International Monetary Fund (IMF) estimated the world economic output to contract by 4.9% in 2020 and recover at a pace of 5.4% in 2021. The revival of the economic growth is now projected to be more gradual than earlier estimates. Advanced Economies will contract by 8.0% y.o.y, while Emerging Market and Developing Economies will shrink 3.0% y.o.y in 2020. Nevertheless, positive growth is expected during 2021.


The domestic economy grew at 4.2% in FY2020, lower than 6.1% in FY2019, as the Covid-19 pandemic adversely impacted economic activity in the last month of the fiscal year, especially manufacturing and construction. Agriculture was the only sector which saw a healthy growth of 4% y.o.y, led by normal monsoon and robust food production. The essential services status of agriculture produce contributed to the near normal functioning of the sector in last two weeks of March even during the lockdown. Sluggishness in tourism and financial services pulled down the service sector growth to 5.5% y.o.y from 7.7% y.o.y in March 2020. The lower growth in financial services can be attributed to prolonged liquidity crisis in the NBFC segment. On the expenditure front, private consumption expenditure decelerated to 5.3% y.o.y, while Government expenditure increased at a pace of 11.8% y.o.y and investments contacted to 2.8% y.o.y in FY2020.

The headline inflation rose in the later part of the year and stood at an elevated level of 4.8% in FY2020 owing to the reversal in food prices. However, the core inflation remained low at 4.0%, highlighting lower underlying inflationary pressure in the economy.

With changing landscape of domestic macroeconomic fundamentals amid pandemic challenge, economic activities other than agriculture are expected to be muted in the near term. The revival of commercial activities, restoration of supply chains and improved demand impulses are the prerequisite to keep economy back on growth track. Thus, with lingering uncertainty in the current fiscal, downside risk to domestic growth is pronounced in FY2021 and by FY 2022, it is likely to be in the positive zone as pandemic concerns ebb off. The expansionary fiscal and monetary policy of the Government and RBI will remain supportive for few more quarters to support economic growth.

RBI provided significant monetary stimulus to support economic growth. The central bank cut the repo rate, by a cumulative 200 basis points since April 2019 to the current 4.0% level and maintained an accommodative policy stance. In a bid to mitigate the economic impact of the pandemic, RBI resorted to several measures including auctioning under TLTRO.1 and 2 to the tune of 1.5 lakh crore to infuse adequate liquidity.

Government also announced several measures to arrest the slide in growth and support the economy during the first half of the year. The most important among those measures was the cut in corporate tax from 30% to 22% without any exemptions.

Keeping the economic risk emanating from the pandemic, Government has rolled out 20 lakh crore plus stimulus package for all significant sectors in the economy, out of which 6 lakh crore will be financed through banking channel. This effective complementarity of fiscal and monetary policies will indeed give impetus to economic growth in the coming years.

The credit guarantee provided by the central Government for lending to MSMEs, and slew of measures taken for liquidity support to NBFCs, HFCs and MFIs in the special economic package is likely to stimulate bank credit off take. The credit growth is expected to pick up in tandem with rebound in economic growth.