Indian Economy seems to be on way to recovering from Demonetisation Disruptions, says IMF

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India’s economy has expanded strongly in recent years, said Tao Zhang, Deputy Managing Director of IMF.

IMF has underscored the significance of reforms in other key sectors like education, health and improving the efficiency of the banking and financial systems.

 

The Indian economy now seems to be on its way to recovering from disruptions caused by demonetisation and roll-out of goods and services tax, the IMF said today. At the same time, the IMF has underscored the significance of reforms in other key sectors like education, health and improving the efficiency of the banking and financial systems.

India’s economy has expanded strongly in recent years, thanks to macroeconomic policies that emphasise stability and efforts to tackle supply-side bottlenecks and structural reforms. Disruptions from demonetisation and the rollout of the goods and services tax (GST) did slow growth,” Tao Zhang, Deputy Managing Director of IMF, told PTI in an interview.

“However, with the economy expanding by 7.2 per cent in the latest quarter, India has regained the title of the fastest-growing major economy, Zhang said.

Calling this development a “welcome change”, Zhang said the growth prospects remain positive.

“That said, the Indian economy would benefit from further reforms, such as enhancing health and education, encouraging private and public investment, and improving the efficiency of the banking and financial system. This would support durable and inclusive growth and enable India to move toward the income levels of wealthier countries, the top IMF official said ahead of his visit to India.

Given the dominance of cash in everyday transactions in the Indian economy it was inevitable that demonetization would temporarily affect economic activity, said Zhang who is travelling to India and Bhutan from March 12 until March 20.
The rollout of the GST last year was a landmark accomplishment that can be expected to enhance the efficiency of intra-Indian movement of goods and services, create a common national market, enhance tax buoyancy, and boost GDP growth and job creation, he said.

 

Yet the complexities and glitches in GST implementation also resulted in short-term disruptions. As I mentioned earlier, the economy now seems to be on its way to recovering from those disruptions, Zhang said in response to a question.

When asked about the latest Indian budget, which many critics say is protectionist in nature, Zhang said IMF research indicates that tariffs are broadly contractionary, reducing output, investment, and employment.

Trade tariffs may give limited relief to industries and workers that directly compete with affected imports. However, they can raise costs to consumers and other businesses that use the protected products. Tariffs also would reduce incentives for businesses to compete and improve efficiency, he cautioned.

Since the opening of the economy starting in the early-1990s, India has benefitted from trade liberalization, he observed.

Further supply-side reforms aimed at improving the business climate could enhance these benefits, the top IMF official asserted.

Noting that the IMF and India have close relations, and the two have always been good partners, Zhang said his visit is a reflection of this partnership, as is the newest regional capacity development center, SARTTAC, based in New Delhi.

The center partners with India and its South Asian neighbors to build strong institutions and implement policies that promote growth and poverty reduction in the region, he said.

My visit is an opportunity to exchange views with the Indian authorities, senior RBI officials, and representatives from the Indian business community, civil society, and others, he said.

Zhang will also have a presentation on financial technology that will take place on Monday at the National Stock Exchange of India.

We will go over the latest trends in financial technology and their effects on the global economy and India, said the top IMF official.

Source: NDTV

World Bank says India has huge potential, projects 7.3% growth in 2018

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World Bank says India has huge potential, projects 7.3% growth

India’s growth rate in 2018 is projected to hit 7.3 per cent and 7.5 per cent in the next two years, according to the World Bank, which said the country has “enormous growth potential” compared to other emerging economies with the implementation of comprehensive reforms.

India is estimated to have grown at 6.7 per cent in 2017 despite initial setbacks from demonetisation and the Goods and Services Tax (GST), according to the 2018 Global Economics Prospect released by the World Bank here yesterday.

“In all likelihood India is going to register higher growth rate than other major emerging market economies in the next decade. So, I wouldn’t focus on the short-term numbers. I would look at the big picture for India and big picture is telling us that it has enormous potential,” Ayhan Kose, Director, Development Prospects Group at the World Bank, told PTI in an interview.

He said in comparison with China, which is slowing, the World Bank is expecting India to gradually accelerate.

“The growth numbers of the past three years were very healthy,” Kose, author of the report, said.

India’s economy is likely to grow 7.3 per cent in 2018 and then accelerate to 7.5 per cent in the next two years, the bank said.

China grew at 6.8 per cent in 2017, 0.1 per cent more than that of India, while in 2018, its growth rate is projected at 6.4 per cent. And in the next two years, the country’s growth rate will drop marginally to 6.3 and 6.2 per cent, respectively.

To materialise its potential, India, Kose said, needs to take steps to boost investment prospects.

There are measures underway to do in terms of non- performing loans and productivity, he said.

“On the productivity side, India has enormous potential with respect to secondary education completion rate. All in all, improved labour market reforms, education and health reforms as well as relaxing investment bottleneck will help improve India’s prospects,” Kose said.

India has a favourable demographic profile which is rarely seen in other economies, he said.

“In that context, improving female labour force participation rate is going to be important. Female labour force participation still remains low relative to other emerging market economies,” he said.

Reducing youth unemployment is critical, and pushing for private investment, where problems are already well-known like bank assets quality issues…If these are done, India can reach its potential easily and exceed, Kose asserted.

“In fact, we expect India to do better than its potential in 2018 and move forward,” he said.

India’s growth potential, he said would be around 7 per cent for the next 10 years.

The Indian government is “very serious” with the GST being a major turning point and banking recapitalisation programme is really important, Kose said.

“The Indian government has already recognised some of these problems and undertaking measures and willing to see the outcomes of these measures,” he said.

“India is a very large economy. It has a huge potential. At the same time, it has its own challenges. This government is very much aware of these challenges and is showing just doing its best in terms of dealing with them,” the World Bank official said.

The latest World Bank growth estimate for 2017 is 0.5 per cent, less than the previous projection, and 0.2 per cent less in the next two years.

“It is slightly lower than its previous forecast, primarily because India is undertaking major reforms,” Kose said.

These reforms, of course, will bring certain policy uncertainty, he said, “but the big issue about India, when you look at India’s growth potential and our numbers down the road 2019 and 2020, is that it is going to be the fastest growing large emerging market.”

“India has an ambitious government undertaking comprehensive reforms. The GST is a major reform to have harmonised taxes, is one nation one market one tax concept. Then, of course, the late 2016 demonetisation reform was there. The government is well aware of these short-term implications,” Kose said.

He said there might have been some temporary disruptions but “all in all” the Indian economy has done well.

“The potential growth rate of the Indian economy is very healthy to 7 per cent. I think the growth is going to be at a high rate going forward,” the World Bank official said.

In a South Asia regional press release, the World Bank said India is estimated to grow 6.7 percent in fiscal year 2017-18, slightly down from the 7.1 percent of the previous fiscal year.

This is due in part to the effects of the introduction of the Goods and Services Tax, but also to protracted balance sheet weaknesses, including corporate debt burdens and non- performing loans in the banking sector, weighing down private investment, it said.

Read more at: Economic Times

IMF says global growth recovery an opportunity for Indian economy

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IMF expects the Indian economy to recover sharply in 2018 to grow at 7.4%, though 30 basis points lower than its earlier estimate in April.

The International Monetary Fund (IMF) on Tuesday pared its growth forecast for the Indian economy by half a percentage point to 6.7% for 2017, blaming the lingering disruptions caused by demonetisation of high value currencies last year and the roll out of the Goods and Services Tax (GST).

However, IMF said the structural reforms undertaken by the Prime Minister Narendra Modi-led government would trigger a recovery—above 8% in the medium term.

In its latest World Economic Outlook, IMF said the global economy is going through a cyclical upswing that began midway through 2016. It raised the global growth estimate marginally for 2017 to 3.6% while flagging downside risks. The upward revisions in its growth forecasts including for the euro area, Japan, China, emerging Europe, and Russia more than offset downward revisions for the United States, the United Kingdom, and India.

“In India, growth momentum slowed, reflecting the lingering impact of the authorities’ currency exchange initiative as well as uncertainty related to the midyear introduction of the countrywide Goods and Services Tax,” it said in the WEO.

However, IMF expects the Indian economy to recover sharply in 2018 to grow at 7.4%, though 30 basis points lower than its earlier estimate in April.

One basis point is one-hundredth of a percentage point.

In its South Asia Economic Focus (Fall 2017) released on Monday, the World Bank reduced India’s GDP growth forecast to 7% for 2017-18 from 7.2% estimated earlier, blaming disruptions caused by demonetisation and GST implementation, while maintaining at the same time that the Indian economy would claw back to grow at 7.4% by 2019-20.

Both the Asian Development Bank as well as the Organisation for Economic Cooperation and Development (OECD) have also cut their growth projections for India to 7% and 6.7%, respectively, for fiscal 2017-18.

IMF said a gradual recovery in India’s growth trajectory is a result of implementation of important structural reforms. GST, “which promises the unification of India’s vast domestic market, is among several key structural reforms under implementation that are expected to help push growth above 8% in the medium term,” it added.

The multilateral lending agency said India needs to focus on simplifying and easing labour market regulations and land acquisition procedures which are long-standing requirements for improving the business climate. It also called for briding the gender gap in accessing social services, finance and education to accelerate growth in developing countries like India.

IMF said given faster-than-expected declines in inflation rates in many larger economies, including India, “the projected level of monetary policy interest rates for the group is somewhat lower than in the April 2017 WEO.”

In its monetary policy review last week, the Reserve Bank of India (RBI) kept its policy rates unchanged and marginally raised its inflation forecast for rest of the year.

Highlighting the growing income inequality within and among emerging market economies, IMF said a country’s growth rate does not always foretell matching gains in income for the majority of the population. “In China and India, for example, where real per capita GDP grew by 9.6% and 4.9% a year, respectively, in 1993–2007, the median household income is estimated to have grown less—by 7.3% a year in China and only 1.5% a year in India,” it said.

Source: Live Mint

World Bank says Indian economy to grow at 7.2% in FY18

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World Bank says Indian economy to grow at 7.2% in FY18

Having seen a “modest setback” due to demonetisation last fiscal, the Indian economy will claw back to 7.2% growth this financial year and rise further to 7.5% in 2018-19, says a World Bank report.

In its report on South Asian Economy, the World Bank said that “significant risks” to economic growth could emanate from fallout of demonetisation on small and informal economy, stress in the financial sector and uncertainty in global environment. Also, a rapid increase in oil and other commodity prices could have a negative implication for the economy, it added.

The country’s economic growth is expected to see an uptick at 7.2% this fiscal and further accelerate to 7.5% in 2018-19, the report said. The growth slowed down to 6.8% in 2016-17 due to a combination of weak investments and the impact of demonetisation, the World Bank said, adding that timely and smooth implementation of the GST could prove to be a significant “upside risk” to economic activity in 2017-18.

As per the report, the economic growth is projected to increase gradually to 7.7% by 2019-20, underpinned by a recovery in private investments, which are expected to be crowded in by the recent increase in public capex and an improvement in the investment climate.

“India’s economic momentum suffered a modest setback due to demonetisation, while the poor and vulnerable likely witnessed a larger negative shock. The economy is expected to recover and growth will gradually accelerate to 7.7 per cent by 2019-20,” it said.

The demonetisation, the World Bank said, caused an immediate cash crunch, and activity in cash reliant sectors was affected. The GDP growth slowed to 7% during the third quarter of 2016-17, from 7.3% during the first half of the fiscal. India’s fiscal, inflation and external conditions are expected to remain stable, the US-based multilateral lending agency said, adding that the centre will continue to consolidate modestly, while retaining the push towards infrastructure spending.

“Inflation will stabilise, supported by favourable weather and structural reforms. Normal monsoons have so far offset increases in petroleum prices,” it said. Referring to the external factor, it said exchange rate has appreciated, partly reflecting expectations of a narrowing inflation gap between India and the US and limited external vulnerabilities as the current account deficit is expected to remain below 2% of the GDP and fully financed by FDI inflows.

It said challenges to India’s favourable growth outlook could stem from continued uncertainties in the global environment, including rising global protectionism and a sharp slowdown in the Chinese economy, which could further delay a meaningful recovery of external demand. It said there is a great uncertainty about the extent to which demonetisation caused small, informal firms to exit and shed jobs. Also, private investment continues to face several impediments in the form of corporate debt overhang, stress in the financial sector, excess capacity and regulatory and policy challenges.

Source: http://www.livemint.com/Industry/KreF9rUByhFuQClcbJaRrM/World-Bank-says-Indian-economy-to-grow-at-72-in-FY18.html

GST bringing realty shake-up

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Retailers, both of physical stores and e-commerce entities, fast moving consumer goods (FMCG) companies and those in consumer durables have started rejigging their warehouse strategy.

This is in preparation for the national goods and services tax (GST), with the government working to an April 2017 deadline. All this could mean a shake-up in real estate, say analysts. A rough calculation suggests these businesses could look at reducing their warehouse count to half, while stepping up the total space acquisition in select destinations, once GST comes into play. In the next two to three years, businesses could see significant cost reduction due to the revised strategy.

Hindustan Unilever, Nestle, Johnson & Johnson and Shoppers Stop are among those to have begun work on consolidating their warehouses, according to a source. These companies will take up mega space, in millions of square feet, to set up ‘mother warehouses’, he said. In the online space, top companies such as Flipkart and Amazon have been on an expansion spree for warehouses and fulfillment centres in the past two years, primarily to suit the complex tax structure through the country. Now, however, they won’t feel the need to have warehouses in every state and can strategise accordingly, Vijaya Ganesh Thangavel, managing director, Land & Industrial (India), Cushman & Wakefield, told this newspaper.

For instance, Max Fashion, a prominent retailer, has eight warehouses totaling 400,000 sq ft. The number is likely to come down to four after GST, says chief executive Vasanth Kumar. “The number will get firmed up once we know the full GST details and the implications such as the reverse logistics needs,’’ he said. Post GST, their warehouse count will be down but the total space covered could go up to around 600,000 sq ft by 2018 “to meet future business needs, as well our rate of growth at a 30-plus per cent CAGR (compounded annual rate)”.

If a typical e-commerce company was taking 300,000 to 400,000 sq ft in metros and tier-1 cities for warehouses, 100,000 sq ft in tier-2 and 40,000 to 50,000 sq ft in tier-3, the plan now will be to go for million sq ft space and more, away from big cities and in fewer locations, primarily where real estate cost won’t be prohibitive, says Thangavel of Cushman. Distribution centres, smaller in size in the range of 40,000 to 50,000 sq ft, could be set up closer to cities.

The biggest trend now is that prominent developers are getting into the warehouse space, which has mostly been a domain of local land owners till recently, according to Thangavel. Along with realtors, a new breed of advisors are coming up, only for warehouse planning. Also, warehouse parks are being set up for large structures. While the exercise of restructuring the warehouses will take a couple of years, he projects a cost reduction of at least 10 to 15 per cent by 2019-2020. Estimates are that big companies which have on an average one warehouse in every state, totaling to anything from 20 to 25, might look at eight to 10, pan-India post-GST.

“We understand that a few of the larger companies have started consolidating their warehousing requirements in strategic locations, in anticipation of GST, with a view to bringing efficiency into their supply chain,’’ said Rami Kaushal, managing director, Consulting and Valuations, CBRE South Asia.

Besides retailers and FMCG companies, even pharmaceutical companies would look at rationalising the number of operational warehouses and swap these for better quality and larger format ones, he said.

“Implementation of GST is expected to lead to rationalisation of warehousing demand, leading to lower logistics cost and reduced delivery time of manufactured goods,’’ Kaushal explained. The current complicated tax structure meant that choice in setting up inventory and distribution centres were based on the tax regime, rather than on operational efficiency, he said.

GST, when implemented, will free the decisions on warehousing and distribution from these tax considerations, according to Kaushal. ”This would enable occupiers to create larger hubs, servicing two or more states from a single location, which would help optimise inventory costs and increase efficiency.’’ This shift in operational planning would ultimately result in a hub and spoke model being adopted by many of the occupiers, he added.

Industrial warehousing space is estimated at approximately 800 million sq ft across the country and is expected to grow by nine to 10 per cent annually. A few sectors such as e-commerce, modern retailing and FMCG are expected to grow at about 20 per cent annually in the short term, according to CBRE.

A recent JLL report listed the National Capital Region, Mumbai, Pune, Bengaluru, Chennai, Hyderabad, Kolkata and Ahmedabad as top warehouse hubs. These eight city hubs together had a cumulative supply of organised Grade-A and Grade-B warehousing space of around 97 mn sq ft in 2015; this is expected to grow to around 116 mn sq ft by the end of 2016. It added that GST will result in emergence of new hubs such as Belgaum, Bhubaneswar, Coimbatore, Goa, Guwahati, Indore, Jaipur, Kolhapur, Lucknow/ Kanpur, Ludhiana, Nagpur, Patna, Raipur, Ranchi, Vapi and Vijayawada.

 

Source: http://www.business-standard.com/article/companies/gst-bringing-realty-shake-up-116090801173_1.html

ADB trims developing Asia growth forecast; India on track

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ADB today marginally cut economic growth projection for Asia and Pacific region for 2016, though India is likely to meet 7.4 per cent and 7.8 per cent growth forecast for this and the following year.

Asian Development Bank said it has cut its 2016 growth projection for developing economies in Asia and the Pacific to 5.6 per cent from earlier forecast of 5.7 per cent.

“South Asia, meanwhile is expected to be the fastest growing subregion, led by India, whose economy has shrugged off global headwinds and is on track to meet ADB’s March fiscal year 2016 (year to March 2017) projected growth target of 7.4 per cent, supported by brisk consumer spending and an uptick in the rural economy”, ADB said in a supplement to its Asian Development Outlook 2016 report.

“Although the Brexit vote has affected developing Asia’s currency and stock markets, its impact on the real economy in the short term is expected to be small,” said Shang-Jin Wei, ADB’s Chief Economist.

However, in light of the tepid growth prospects in the major industrial economies, policy makers should remain vigilant and be prepared to respond to external shocks to ensure growth in the region remains robust,” Wei said.

ADB said it now forecasts 2016 growth for the developing economies at 5.6 per cent, below its previous projection of 5.7 per cent. For 2017, growth is seen unchanged at 5.7 per cent.

Growth in 2016 and 2017 is led by South Asia, and India in particular, which continues to expand strongly, while China is on track to meet earlier growth projections, it said.

In Southeast Asia, growth projections for the subregion in the 2016 and 2017 remain unchanged at 4.5 per cent and 4.8 per cent, respectively with solid performances by most economies in the first half of 2016 driven by private consumption.

The exception was Vietnam where the economy came under pressure from a worsening drought that caused a contraction in the agriculture sector, it added.

ADB said growth in Asia and the Pacific’s developing economies for 2016 and 2017 will remain solid as firm performances from South Asia, East Asia and Southeast Asia help offset softness from the US economy, and near-term market shocks from the Brexit vote.

It has projected inflation for developing Asia at 2.8 per cent for 2016 and 3 per cent or 2017- a 0.3 percentage point rise for each year from the previous forecasts.

“The rise is largely due to a recovery in oil and food prices,” it added.

The Manila headquartered ADB is owned by 67 members – 48 from the region. In 2015, ADB assistance totalled $27.2 billion, including co-financing of $10.7 billion.

Source :
http://economictimes.indiatimes.com/articleshow/53263953.cms

India records 10-year low in public-private investments: World Bank

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India recorded a 10-year low in investments in public-private sector in the year 2015, adding to contraction that pulled down the global investment to below its five-year average of $124.1 billion, the World Bank has said.

In its latest annual report, the World Bank said global investment in 2015 decreased to $111.6 billion, below the five-year average of $124.1 billion from 2010 to 2014.

“This contraction resulted from lower investments in Brazil, China and India,” the World Bank said on Monday in its latest report on Private Participation in Infrastructure Database.

“India recorded a 10-year low in investments, as only six road projects — usually a rich source of PPI over the past 10 years – reached financial closure,” the World Bank said.

In South Asia, there were 43 deals for a combined total of $5.6 billion that closed in the region, representing 5 per cent of the total investment — a decline of 82 per cent from the five-year average of $30.5 billion.

“Consistent with historical trends, India generated a majority of the projects (36 out of 43); Pakistan had four; Nepal, two; and Bangladesh, one. Notably, 26 of the 36 projects in India, amounting to $2.0 billion, targeted renewable energy, while all of Pakistan’s projects, totalling $749.9 million, solely focussed on renewables,” the Bank said.

Solar energy investments climbed 72 per cent higher than the last five year average, while renewables attracted nearly two-thirds of investments with private participation, it said.

Global private infrastructure investment in 2015 mostly remained steady at $111.6 billion when compared to the previous year, it said.

Among the most notable, commitments in Brazil were only $4.5 billion in 2015 — a sharp decline from $47.2 billion the previous year, reversing a trend of growing investments, it said.

“Investment in China also fell significantly below its 5-, 10-, and 20-year averages, as the average transaction dropped to $63 million,” it said.

By number of projects, however, these three historical heavyweights took the lead, with 131 of the 300 global deals, or 44 per cent of all projects.

Still their combined investment of $11.6 billion only made up 10 per cent of the global total, compared to 54 per cent in 2014, which was also the annual average over the previous four years.

According to the World Bank, global private infrastructure investment in 2015, though on par with the previous year, was 10 per cent lower than the previous five-year average because of dwindling commitments in China, Brazil, and India.

“The data finds that investments in other emerging economies increased rapidly to $99.9 billion, representing a 92 per cent year-over-year increase,” said Clive Harris, Practice Manager, Public-Private Partnerships, World Bank Group.