Everest Industries Ltd Management Discussions.

GLOBAL ECONOMY OVERVIEW

The financial year 2020 started off with rising issues on trade between the worlds two largest economies - US and China. US and China together account for 40%1 of the global GDP and the trade disputes between them have had an adverse effect on the global economy and sentiments, overall. This impact was not only seen in the commodities and financial markets (equities, bonds, currencies), but has also impacted the output and profitability of firms, leading to deferred investment decisions of businesses. The year ended with outbreak of COVID-19 pandemic. COVID-19 effects came in as lockdown on manufacturing units across the world and that put challenges on the demand and supply side, where the availability of goods and services was impacted along with logistics. Economies world over are likely to experience a contraction in 2020. The IMF argues that recovery of the global economy could be weaker than projected as a result of lingering uncertainty about possible contagion, lack of confidence, and permanent closure of businesses and shifts in the behaviour of firms and households. The global trade volumes are projected to decline between 13% and 32% in 20202 as a result of the economic impact of COVID-19.

INDIAN ECONOMY OVERVIEW

The Indian economy started FY20 on a cautious note, owing to the ongoing liquidity crisis. In order to achieve the governments vision of making India a USD 5 trillion economy by 20253, the finance ministry slashed domestic corporate tax rates to 25%4 during mid-year. Considering the conditions attached to this rate, few companies have taken the benefit of the lower rate. This was expected to spur the investments in the economy.

The Current Account Deficit narrowed primarily on account of lower non-oil, non-gold imports and robust services exports, supported by software, travel and financial services. Due to the COVID-19 crisis, global FDI flows are forecast to nosedive by up to 40% in 2020, from their 2019 value of USD 1.54 trillion. FDI is projected to decrease by a further 5-10% in 20215. Indias crude oil import bill fell by 9% Y-o-Y to $102 billion in 2019-206 on account of lower prices; though volumes remained unchanged. Foreign fund outflows and the Feds grim prognosis for the US economy further weighed on the rupee as it touched 77 against US dollar in April 20207. The CPI inflation stands at 5.84% YoY in March 2020 higher from

2.86% Y-o-Y in March 20198. According to the Indian Budget 2020, the real GDP growth was estimated at 5.5% in the financial year 2019-209 but due to the recent COVID-19 crisis has ensured that FY2021 will be a challenging one for India and the world.

OUTLOOK

The Indian economy was on a recovery path from the lower demand positions that were existing when the COVID-19 pandemic hit us in the last few days of the year and the related measures taken by the Government resulted in slowdown of demand. While on one hand the rate of growth of the pandemic was relatively contained, the lockdown impacted the distribution channels and the sales for the year. The pace and scale of lifting lockdown for India may depend on the availability of the crucial testing capabilities which is essential to get a better handle on the spread of the virus, granular data and technology to track and trace infections, and the buildup of healthcare facilities to treat patients. Government of Indias announcements aims at saving the lockdown battered economy by providing tax breaks, incentives for domestic manufacturing and credit guarantee for loans to MSMEs.

RBI announced a slew of measures to address the liquidity concerns of financial institutions by means of targeted longterm repo operations to help ease liquidity of NBFCs, HFCs and MFIs. With IMD monsoon forecast coming at near normal levels, the agricultural sector could turn out to be the lone bright spot as winter crop (Rabi) is being harvested and the impact of this pandemic is not seen across the farmland areas of the country so far.

Source

 

1The NewYork Times 2The Economic Times 3The Economic Times 4The Outlook India 5Business Standard 6The Economic Times 7LiveMint 8The Economic Times

RURAL INDIA GROWTH

In India, agriculture accounts for 17% of Indias $ 2.8 trillion9 economy. The rural section of the population is primarily engaged with agriculture directly or indirectly.

Continuing its thrust on pro-poor, pro-rural and pro- marginalised initiatives, the government in its Budget 2020 laid special emphasis on the welfare of rural India. For the Ministry of Rural Development, the government allocated Rs. 1,22,000 crores. The big chunk of Rs. 60,000 crores went to the biggest job guarantee scheme in the country, MGNREGA10.

For Agriculture, Irrigation and allied activities Rs. 1,60,000 crores was allocated in the budget. The finance minister has proposed a 16 Point action plan in her budgetary speech to improve the condition of agricultural sector and double the farmers income by 2022. Apex agriculture financial institution, NABARD has extended Rs. 42,313 crores financial support during 2019-20 for building rural infrastructure. These efforts have reinforced and supported the Centres initiatives for improving the rural economy, multiply job opportunities in the rural market and thus stabilize income, it said. During the last five years, NABARD has disbursed Rs. 1,98,485 crore11 for allround economic growth of rural India with a view to improving the standard of living of the rural poor.

URBAN INDIA GROWTH

Urbanisation is taking place at a rapid rate in India. According to the World Bank, 28.53% of Indias population was residing in urban areas in 2001 which has increased to 34% in 2017. By the year 2021, more than 43.2 crore people will live in urban areas12.

The Smart Cities Mission introduced by Prime Minister Narendra Modi, is a programme which aimed to develop 100 cities into smart cities across the country by making them citizen-friendly and sustainable by leveraging new-age technologies. The objective of the Mission is to promote cities that provide core infrastructure, and give a decent quality of life to its citizens, a clean and sustainable environment and application of Smart Solutions. A total of 5,151 projects worth Rs. 2,05,018 crores have been proposed by cities participating in the Smart City Mission. 81% of the projects proposed under the Smart City Mission have been tendered out, while 25% of the projects stand completed. The construction industry plays a major role in the development of urban India and has contributed nearly 9% of the national GDP during the last five years and till 2025 it is expected to grow at an average of 7.1% each year13.

INDUSTRIAL SECTOR IN INDIA

The industrial sector is one of the main sectors that contribute to Indias GDP. The country ranks 14th in the factory output in the world. The industrial sector accounts for around 27% of Indias GDP and it employs about 25% of the total workforce in the country14.

The lower corporate income tax rate announced by the government to boost the economy in the middle of the financial year should enhance Indias competitiveness vis-a-vis other potential manufacturing hubs in Taiwan and Southeast Asia, such as Vietnam, Thailand and Indonesia. This tax rate concession should leave the companies with more cash for investment and expansion and persuade them to remain and expand in India. In the short term however, the COVID-19 scenario is going to determine all investments.

HOUSING GROWTH

The Budget 2020 gave a fiscal stimulus to the economy by allocating more funds towards rural India, reducing taxes, and abolishing Dividend Distribution Tax (DDT) to boost growth. Against the backdrop of stagnating farm income and rural demand slowdown, the government has budgeted Rs. 1.3 lakh crore for agriculture and farmers welfare. This includes an allocation to rural employment scheme (NREGS) of Rs. 615 Billion, rural roads (PMGSY) of Rs. 195 Billion, and rural housing (PMAY-G) of Rs. 275 Billion. Additionally, the Budget 2020 saw the Housing and Urban Affairs Ministry outlay touch Rs. 50,039.90 crores, a nearly 18.39 percent increase from the revised estimate of Rs. 42,266.72 crores for 2019-2020. In 2020, the outlay for the flagship scheme of the government - the Pradhan Mantri Awas Yojana - has been granted Rs. 27,500 crores as against the revised estimates of Rs. 25,328 crores in 2019-2020, nearly an 8.5% increase. Over and above the year-on-year budgetary provisions, a separate mechanism through creation of National Urban Housing Funds (NUHF) has been approved by the Union Cabinet to mobilise resources through Extra Budgetary Resources to the tune of Rs. 60,000 crores for funding PMAY15. With constraints on budget due to lower tax collections, these schemes may be impacted during the year.

Source

 

9The Economic Times 10The Economic Times 11Business Standard 12World Bank Report 13The Economic Time 14www.statista.com 15MoneyControl