India to be fastest growing economy among G-20 nations in new fiscal: FM Sitharaman - Business Guardian
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India to be fastest growing economy among G-20 nations in new fiscal: FM Sitharaman

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India’s has been one of the fastest growing economies since decades and yet again India has emerged as the fastest growing economy amongst the G20 nations in 2024. In the preceding three quarters, the Indian economy registered growth rates of 7.8 percent in Q1, 7.6 percent in Q2, and 8.4 percent in Q3.

India is poised to outpace all other G-20 economies in growth throughout 2024. Over the past three quarters, India has seen a steady economic expansion, with growth rates of 7.8 percent in Q1, 7.6 percent in Q2, and a remarkable 8.4 percent in Q3. During an event in Mumbai on Saturday, Finance Minister Nirmala Sitharaman announced that India’s growth is expected to exceed 8 percent in the January–March quarter of 2024.

With this surge, India has ascended to become the world’s 5th largest economy, with the Modi government aiming to elevate it to the 3rd position by 2027. The Q3 growth of 8.4 percent has exceeded expectations, prompting several institutions to upgrade their GDP forecasts for India. Goldman Sachs, for instance, has revised its 2024 growth projections to 6.6 percent, marking a 10-basis-point improvement from its previous estimate. In a similar vein, S&P, Morgan Stanley, and Moody’s have also revised India’s growth projections upwards this month. S&P now forecasts a growth of 6.8 percent, up from 6.4 per cent; Morgan Stanley has adjusted it to 6.8 percent from 6.1 percent, while Moody’s projects an 8 percent growth for the current fiscal year, up from 6.6 percent.

These revisions by rating agencies reflect both global and domestic optimism in India’s economy, fueled by robust manufacturing activity and increased infrastructure spending. Moody’s anticipates India to lead the G-20 economies in growth, driven by strong government expenditure and domestic consumption. The Modi government’s commitment to boosting capital expenditure is evident, with a significant increase from 2 percent of GDP nine years ago to 3.8 percent in the interim budget of 2024, marking a 4.5 times rise compared to 2014–15. S&P attributes the upward revision of India’s growth forecast to stronger-than-expected momentum at the beginning of the year, alongside an improving global economic environment and an anticipated gradual easing of domestic financial conditions.

Furthermore, the global analytics firm has raised India’s FY24 forecast to 7.3 percent from 6.9 percent projected earlier. On the inflation front, the firm is optimistic, projecting a decline to 5.1 percent in FY25 from 5.6 percent earlier, with an average of 5.7 percent in FY24. Despite the government’s latest forecast of 7.6 percent growth in FY24, the economy has shown resilience, expanding at 8.2 percent in the first three quarters of the fiscal year. Minister Sitharaman’s statement of anticipated GDP growth exceeding 8 percent is likely to prompt rating agencies to reconsider India’s growth narrative.

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Economic

Retail inflation eases to 4.85 % in March’24, experts flag food price worry

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Days after RBI kept its policy rates in abeyance, India’s consumer price index led retail inflation moderated to 4.85 per cent in March 2024 even as food inflation softened marginally and core inflation remained steady at 3.5 per cent. The CPI stood at 5.1 per cent in January and February, according to data from the Ministry of Statistics and Programme Implementation, released on Friday.

Retail inflation averaged 5.4 per cent yoy in the first eleven months of FY24 (April ‘23 to Feb ‘24), with the trend marked by a higher first half at 5.5 per cent and moderation in second half on a pullback in food and core price pressures. “The evolving trend is close to our forecast of 5.3 per cent for the year, from 6.4 per cent the year before. We discuss relevant catalysts for the year ahead, with our forecast of 4.5% yoy in line with the central bank’s economic assessment,” Radhika Rao, Senior Economist DBS Group Research. Economists expect food and beverages inflation to remain above the 7.0 per cent mark in April 2024.

An intensification of the impending heatwave may worsen the seasonal uptick in prices of perishables, heightening the criticality of a favourable monsoon in 2024 to keep food inflation in check and inflationary expectations well-anchored, as per ICRA estimates, notes Aditi Nayar, Chief Economist ICRA. Yet far in FY24, food inflation is still elevated in contrast to the global indices, with 11 out of 12 subsegments posting growth on the year (see chart). Barring edible oil prices which have benefited from stabilising supply issues, all the other segments stay elevated, necessitating the authorities’ close attention.

This suggests that domestic steps to control price rise is likely to continue, marking a continuation for export restrictions (wheat and rice already in place), cut in stockholding limits, cut in import duties, and improving inter-state procurement arrangements, amongst others. The RBI has retained its FY25 CPI inflation outlook of 4.5 per cent even as the MPC remains cautious on food price uncertainties, but optimistic on expectations of record rabi wheat production and early indications of normal monsoons this year.

It also sees continued deflation in the fuel basket after the cut in LPG prices, but sees upside risks from rising costs faced by firms, geopolitical tensions, financial market volatility and the recent rise in global crude oil prices. Nayar suggests that the ongoing uptrend in international crude oil prices could also pose a risk to the CPI inflation outlook in the near term, although the extent of the impact would depend on the pass-through to retail fuel prices. Monetary easing is likely to be quite back-ended in 2024, pending clarity on various factors such as the turnout of the monsoon, evolution of crude oil prices as well as rate action from the US Fed.

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Economic

China: Consumer prices up 2nd month, factory deflation persists

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China’s consumer prices showed a modest increase in March, but factory deflation persists, indicating a continuation of weak demand.

In March, China experienced a greater-than-expected cooling of consumer inflation, alongside persistent deflation in producer prices. This maintains pressure on policymakers to implement additional stimulus measures, given the ongoing weakness in demand. While deflationary pressures in the world’s second-largest economy seem to be gradually alleviating, concerns persist due to the prolonged property crisis, which continues to undermine both consumer and business confidence.

Consumer prices rose by a muted 0.1 per cent in March from a year earlier, National Bureau of Statistics (NBS) data showed on Thursday, versus a 0.7 per cent rise in February which was the first gain in six months and a 0.4 per cent rise in a Reuters poll. “Seasonal effects definitely played a role – food prices rose sharply during the Chinese New Year in February and subsequently came back down,” said Xu Tianchen, senior economist at the Economist Intelligence Unit. “More broadly, the over capacity issue is passing into prices in a way that will thwart the People’s Bank of China’s efforts to reflate the economy,” Xu added.

“Vehicle prices fell an annual 4.6 per cent, which could suggest manufacturers are introducing deeper price cuts in the distribution and sales process.” Factory-gate prices fell 2.8 per cent in March from a year earlier, with the producer price index (PPI) widening a 2.7 per cent slide from the previous month and extending a year-and-a-half long stretch of declines. On a month-on-month basis, the PPI fell 0.1 per cent. “Although consumer prices are no longer falling, rapid investment in manufacturing capacity is still weighing on factory-gate prices,” said Julian Evans-Pritchard, head of China economics at Capital Economics.

In recent months China has rolled out a raft of incentives to spur household spending including easier car loan rules, but consumers remain cautious about big-ticket purchases amid worries about the sputtering economy and the weak job market. Earlier this month, China’s central bank vowed to strengthen efforts to expand domestic demand and boost confidence. Core inflation, excluding volatile food and energy prices, in March was at 0.6 per cent from a year earlier, slower than 1.2 per cent in February.

The CPI fell 1.0 per cent month-on-month, cooling from a 1 per cent gain in February and worse than a 0.5 per cent drop forecast by economists. “Interestingly, CPI inflation surprised on the upside in the U.S. and downside in China,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “This indicates the monetary policy stances in these two countries may continue to diverge as well, hence the gap of interest rates in these two countries will likely persist,” he added.

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Economic

India’s UPI transactions way more than US digital payments: EAM S. Jaishankar

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During a recent address, External Affairs Minister (EAM) S Jaishankar highlighted India’s significant progress in digital payments, revealing that the country now conducts transactions worth Rs 120 crore monthly through the Unified Payments Interface (UPI). In comparison, Jaishankar noted that the United States records digital transactions amounting to only Rs 40 crore annually.

Speaking at an event in Rajasthan’s Bikaner, Jaishankar emphasized, “Today, we conduct cashless payments via UPI. Our transactions amount to Rs 120 crore per month, while the US manages Rs 40 crore per year in digital transactions. This substantial progress in certain sectors has been commended by the global community.”

The UPI, a platform launched on April 11, 2016, by former Reserve Bank of India (RBI) Governor Raghuram Rajan, integrates various bank accounts into a unified mobile application. It combines multiple banking functions, enabling seamless fund transfers and merchant transactions.

In a recent development, the RBI proposed allowing users to deposit cash in cash deposit machines (CDMs) via UPI. Presenting the monetary policy outlook for the fiscal year, RBI Governor Shaktikanta Das announced, “Currently, depositing cash in CDMs is primarily done using debit cards. Building on the success of cardless cash withdrawal via UPI at ATMs, we propose enabling cash deposits in CDMs through UPI.”

Das further explained, “Currently, UPI payments from Prepaid Payment Instruments (PPIs) can only be made using the web or mobile app provided by the PPI issuer. We now propose allowing third-party UPI apps for UPI payments from PPI wallets. This will enhance customer convenience and drive digital payments adoption for small value transactions.”

Additionally, Das suggested broadening the accessibility of Central Bank Digital Currency (CBDC) to a wider customer base by permitting non-bank payment system operators to offer CBDC wallets.

India’s UPI services have also expanded to Sri Lanka, Mauritius, and Nepal, marking a significant regional outreach in digital payment solutions.

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Business

India to grow 7 % in FY24, 7.2 % in FY25, driven by robust investment, services exports

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The 2024-25 growth estimate is, however, lower than 7.6 per cent projected for the 2022-23 fiscal. The ADB’s growth forecast for FY25 is in line with projections made by the RBI.

After a slew of upgrades in growth projection , the Asian Development Bank (ADB) on Thursday raised India’s gross domestic product (GDP) growth forecast for fiscal year (FY) 2024 from 6.7 per cent to 7 per cent and 7.2 per cent in FY2025, attributing the robust growth to public and private sector investment demand, gradual improvement in consumer demand and strong services sector.

The 2024-25 growth estimate is, however, lower than 7.6 per cent projected for the 2022-23 fiscal. The ADB’s growth forecast for FY25 is in line with projections made by the RBI. Strong investment drove GDP growth in the 2022-23 fiscal as consumption was muted, the ADB said and expects India to affirm its position as a major growth engine within Asia, driven by strong investment, recovering consumption, and gains in electronics and services exports.

While in the rest of developing Asia, faster growth will be driven by domestic demand and some improvement in semiconductor and services exports, including tourism. Stronger growth in South Asia and Southeast Asia will offset lower growth in other subregions. “Notwithstanding global headwinds, India remains the fastest growing major economy on the strength of its strong domestic demand and supportive policies,” said ADB Country Director for India Mio Oka. “The Government of India’s efforts to boost infrastructure development while undertaking fiscal consolidation and provide an enabling business environment will help in increased manufacturing competitiveness to augment exports and drive future growth,” said Oka.

With inflation moderating to 4.6 per cent in FY2024 and easing further to 4.5 per cent in FY2025, the ADB suggests monetary policy may become less restrictive, which will facilitate rapid offtake of bank credit. Demand for financial, real estate and professional services will grow while manufacturing will benefit from muted input cost pressures that will boost industry sentiment. Expectations of a normal monsoon will help boost growth of the agriculture sector. The report lauds the government’s focus on fiscal consolidation, with a targeted deficit of 5.1 per cent of GDP for FY2024 and 4.5 per cent for FY2025, which will enable the government to reduce its gross marketing borrowing by 0.9 per cent of GDP in FY2024 and create further room for private sector credit.

India’s current account deficit will widen moderately to 1.7 per cent of GDP on rising imports for meeting domestic demand. Foreign direct investment will be affected in the near term due to tight global financial conditions but will pick up in FY2025 with higher industry and infrastructure investment. Goods exports will also be affected by lower growth in advanced economies but pick up in FY2025 as global growth improves.

On the regional front, growth in developing Asia will remain healthy at 4.9 per cent in 2024 and 2025, despite a slowdown in China. In fact, while growth in the PRC will decline from 5.2 per cent in 2023 to 4.8 per cent this year and 4.5 per cent next year, it will accelerate in the rest of developing Asia—from 4.8 per cent in 2023 to 5.0 per cent this year and 5.3 per cent in 2025. The slowdown in the PRC will be driven by the weak property market and amplified by fading domestic consumption growth after last year’s reopening.

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Tech

For equipment upgrades, China eyes fresh $69 bn credit in tech sector

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The Hong Kong-based ‘South China Morning Post’ (SCMP) newspaper, China has unveiled a plan to reintroduce two relending mechanisms previously utilized to mitigate the economic effects of Covid-19. The People’s Bank of China (PBOC) will facilitate loans through 21 banks to support small and medium-sized technology firms at an interest rate of 1.75 per cent. These loans can be extended twice, each extension lasting up to one year, as per the report. The move, announced on Sunday, comes amid challenges posed to the Chinese economy by a property crisis and geopolitical tensions with key trading partners. China’s policymakers are aiming to enhance liquidity and bolster confidence in the world’s second-largest economy.

Relending mechanisms these measures will allocate a combined 500 billion yuan (US $69.1 billion) to incentivise loans supporting technological innovation and large-scale equipment upgrades – two sectors that have been explicitly prioritised by the country’s leadership, said the report. The refinancing programme will cover 60 per cent of the principal amount for eligible loans extended to technology-focused small and medium-sized enterprises (SMEs) and can be renewed twice, each time for an additional year.

By the end of last year, the PBOC had 17 active structural support tools with a cumulative outstanding size of 7.5 trillion yuan – equivalent to 16.4 per cent of central bank assets. What are China’s relending programmes? These targeted monetary instruments gained prominence in 2014 when pledged supplementary lending was first utilised to directly provide loans to commercial banks to renovate outdated residential buildings. Among the tools, 13 were introduced as temporary measures during the pandemic to support small businesses, toll roads, private firms, property delivery, logistics, and carbon emissions reduction. Seven of them have already expired.

SCMP said the move has sparked speculation among market participants regarding the extent to which Chinese authorities are willing to implement monetary easing, in light of the US Federal Reserve postponing anticipated interest rate adjustments and the Chinese economy concluding the first quarter of 2024 on a stronger footing. The previous relending mechanism for technology, with a quota of 400 billion yuan (US $55.2 billion), was initiated in April 2022 and has since concluded. Similarly, the earlier equipment renovation program, with a quota of 200 billion yuan (US $27.6 billion), was active from September to December 2022.

BEIJING GUIDELINES

This relending programme aligns with Beijing’s guidelines for domestic banks, encouraging them to provide funding for five essential finance categories outlined by President Xi Jinping: technology finance, green finance, inclusive finance, pension finance, and digtal finance.

Furthermore, it corresponds with the objective of large-scale equipment upgrades mentioned during the February meeting of the Central Financial and Economic Affairs Commission. This objective serves dual purposes: Leveraging the country’s substantial fixed-asset investment to stimulate economic growth and advancing its vast manufacturing sector, the Hong Kong-daily said. The relending program and other structural measures aim to aid China amidst ongoing challenges in the property market and fragile investor sentiment.

These hurdles will scrutinize the country’s aspirations to attain a 5 percent economic growth rate this year, as reported by SCMP.

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Economic

African economies to grow 3.4 per cent in 2024, says World Bank

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The report said increased private consumption and declining inflation were supporting an economic rebound in Sub-Saharan Africa.

The latest Africa’s Pulse report by the World Bank indicates an economic rebound in Sub-Saharan Africa, driven by increased private consumption and decreasing inflation. However, the recovery remains fragile due to uncertain global economic conditions, mounting debt service obligations, frequent natural disasters, and escalating conflict and violence.

The report emphasizes the necessity for transformative policies to address entrenched inequality, ensuring sustained long-term growth and effective poverty reduction. While the region’s growth is expected to rebound from 2.6% in 2023 to 3.4% in 2024 and 3.8% in 2025, the recovery remains precarious. Despite a decline in inflation across most economies to 5.1% in 2024 from a median of 7.1%, it remains elevated compared to pre-COVID-19 levels.

Additionally, while growth of public debt is slowing, more than half of African governments grapple with external liquidity problems and face unsustainable debt burdens. Overall, the report underscores that despite the projected boost in growth, the pace of economic expansion in the region remained below the growth rate of the previous decade (2000-2014) and is insufficient to have a significant effect on poverty reduction. Moreover, due to multiple factors including structural inequality, economic growth reduces poverty in Sub-Saharan Africa less than in other regions.

“Per capita GDP growth of 1 percent is associated with a reduction in the extreme poverty rate of only about 1 percent in the region, compared to 2.5 percent on average in the rest of the world,” said Andrew Dabalen, World Bank Chief Economist for Africa. “In a context of constrained government budgets, faster poverty reduction will not be achieved through fiscal policy alone. It needs to be supported by policies that expand the productive capacity of the private sector to create more and better jobs for all segments of society.”

The World Bank’s Africa’s Pulse report called for several policy actions to foster stronger and more equitable growth. These include restoring macroeconomic stability, promoting inter-generational mobility, supporting market access, and ensuring that fiscal policies do not overburden the poor.

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