India’s five-year plans (FYPs) highlighted the import substitution policy under India’s inward-looking strategy. This meant that the goods that can be produced domestically should be produced domestically rather than importing from the foreign market. The domestic producers could thus sell their products in the Indian markets without any foreign competition. The main aim here was to boost the economic growth of the nation and achieve self-sufficiency. Such an economy is also known as a closed economy. Up until the 1990s, India chose to remain as a closed economy.

The system of import substitution and import restrictions was implemented with the help of a number of different methodsー through the imposition of a) Tariffs, b) Quotas.

Extremely high tariffs were levied on imported goods making them very expensive for the Indian consumers. This eventually forced them to buy goods that have been made domestically rather than the imported items.

The quota system led to the fixing the maximum limit on the imports made by a domestic consumer. Only a certain amount of very essential items such as raw materials and capital equipment were allowed to be imported and used. That means, if the producers wanted extra materials, they had to fend for themselves.

No doubt that the inward looking strategy brought a rise in the foreign trade sector with the domestic producers gaining exponentially but towards the early 1990s, the Indian law makers realised that there are many loopholes in the current foreign trade policy that they adopted. The main problem was that the domestic producers made no sincere efforts to step up the quality of their products, forcing the Indian consumers to purchase whatever was supplied by them.

In 1962, a review committee was formed to discuss the changes required in the government’s existing foreign trade rules and hence, in 1985, then Finance Minister V.P. Singh announced the EXIM Policy (short for Export-Import Policy) which formulated the export and import policies of the country. Initially, the policy was meant to be followed for a period of three years. Later from 1991, the policies were revised every 5 years in view of the changing international economic context. The EXIM policy came into being to get a better view of the trade situation of the country and to correct trade deficits, if any.

In the year 1991, India received a major setback. The Indian government availed a loan of $7 billion from the IMF (International Monetary Fund) and the World Bank due to its inability to manage the economic condition of the country. In order to avail the loan, these international agencies expected India to liberalise, privatise and globalise its economy. The Indian government thus announced the New Economic Policy (NEP), popularly known as the LPG (Liberalisation, Privatisation, Globalisation) policies. Under the New Economic Policy, quantitative restrictions that were imposed after independence were substantially removed. For example, by the year 2001, import restrictions on manufactured consumer goods and agricultural products were completely eliminated. Similarly, tariffs were removed to a great extent in order to increase the competitiveness of the domestic goods in the foreign markets and to improve the quality of the products.

The first EXIM policy came into effect in 1992 and was effective until 1997. This policy aimed at removing the various protectionist measures that were taken by the Indian government previously. After that, the second EXIM policy started in the same year (1997) and stayed up until 2002. This time the focus was on making India a globally oriented economy through the adoption of a set of schemes such as the Export Promotion Capital Goods Schemes and Advanced License Schemes aimed at increasing investments from abroad. The next EXIM policy emerged after 2 years i.e. in 2004 up to 2009 (major trade decisions were taken under this EXIM policy which is why it is also called the ‘Trade Constitution’), under which newer policies such as Target Plus which focussed on providing incentives to producers and exporters with duty-free credit and Free Trade Zones. Soon after, the fourth EXIM policy came into effect from 2009 till 2014 which brought in new initiatives known as Focus Market scheme and product market scheme to help exporters compete in foreign markets and incentivise the export of those products which have high employment intensity. The fifth EXIM policy came after one gap year and came into effect in 2015 and stayed till 2020. This policy focussed on the export as well as the manufacturing services to improve the ease of doing business to increase India’s exports and thus increase its participation in the global market.

Fig 1. Imports of goods and services (% of GDP) – India | Source: World Bank

Fig 2. Exports of goods and services (% of GDP) – India | Source: World Bank

On March 31, 2020, the Government of India decided to extend the Foreign Trade Policy 2015-2020 for one year in light of the Covid-19 situation. It was to expire on March 31, 2021, but the Directorate General of Foreign Trade (DGFT) again extended FTP 2015-20 up to September 30, 2021, and it has been operational since.

References:

1. Arora, S. (2019). What are the objectives of Foreign Trade Policy in India? Legodesk. https://legodesk.com/legopedia/foreign-trade-policy-india/

2. India’s International Trade Policy – EXIM Policy. Economics Discussion. https://www.economicsdiscussion.net/international-economics/indias-international-trade-policy-exim-policy/4241

3. Soares, N. (2014). Foreign Trade Policy of India since 1980. Slideshare. https://www.slideshare.net/NikhilSoares/foreign-trade-policy-of-india-since-1980

4. Saluja, N. (2021). Govt extends current foreign trade policy till September. The Economic Times. https://m.economictimes.com/news/economy/foreign-trade/govt-extends-current-foreign-trade-policy-till-september/amp_articleshow/81777971.cms

The post EVOLUTION OF INDIAN FOREIGN TRADE POLICY appeared first on WISER WORLD.

The associated risks can come from (i) rising Oil prices, (ii) rising interest rates due to fiscal deficit, and (iii) synchronous global market correction as US multi-year economic expansion is behind India.

Bond Interest Rate and the Stock Market

In the month of February, the bond investors were revolting against the bond market interest rate. As a result of which reflation (stimulating the economic output by means of fiscal stimulus or reduction in taxes)- the guiding light of treasuries betting on rebounding growth is proving to be resilient. Long-term Treasury yields touched the highest in almost a year, the market stumbled on the expectations of inflation that accelerated to the fastest pace since 2014 and the yield curve reached the steepest levels in more than 5 years (Bloomberg, 2021). 

The reflation trade paused for a while after the government press release on 10 February showed the consumer-price inflation to be revolving around 1.4% annually, which was lower than expected. According to Michael Pond, global head of inflation strategy at Barclays, the CPI report was a disappointment as it doesn’t change the outlook of investors and there is no expectation that it will change investors’ views about expected inflation (Bloomberg, 2021).

Hence the theme of reflation is based on a story about where inflation will move once the majority of the citizens are vaccinated and demand normalisation. 

Does a Change in the Federal Reserve Interest Rate on New Bonds Stimulate the Indian Market?

After Joe Biden swearing as the 46th US President and taking over his role in the White House, the Fed, the central bank of the US has been closely involved in changing the interest rates on new bonds in the month of February. For an emerging economy like India, these changes have a significant effect. The India investors whose speculations are based on the daily movements in the world stock markets are of the view that the decision of the Fed to decrease the interstate rate on bonds will be welcomed by the citizens as the economy struggles to revive from the COVID-19 pandemic. The ultimate goal is to infuse liquidity in the market so that citizens have cash in their hands which will help to pull up the demand in India. 

The Fed expected its interest rate to be close to zero and signalled that it will remain close to zero in many years to come. This is a part of a long-term strategy that the Fed adopted in the year 2020 that proved to be helpful while navigating a world of persistently low-interest rates that makes it difficult to hit its 2 percent inflation goal (Reuters, 2020). 

A sharp increase in demand as Covid-19 inoculations allow more of the economy to reopen could push inflation above the Fed’s 2 per cent target. If markets push up long-run interest rates a bit to reflect expectations for future faster growth, the Fed likely wouldn’t change course. That’s consistent with the new framework if the economy hasn’t achieved sustained 2 percent inflation by then (Reuters, 2020).

RBI Having a Tough Time in Keeping a Check on Bond Yields

After the release of Union Budget 2021, RBI is under constant pressure to keep the traders of bond calm. Although a higher fiscal deficit was expected, it rose to 9.5% as a percentage of India’s GDP for FY21 and is forecasted to touch 6.8% in FY22. A higher fiscal deficit came as a daunting news for the bond market which led to a surge in bond yields. 

There is an estimate made that the market borrowing of the central government will be at Rs 12 lakh crore in FY22. There is an increased supply of government bonds in the market that could lead to a demand-supply gap, thus putting pressure on yields. The investors in the government bonds are receiving higher yields thereby causing a similar demand on corporate bonds (ET Contributors, 2021). This leads to a rise in borrowing cost for corporates, thereby negatively impacting private investments in the country. In addition, higher bond yields further complicate the transmission process of the rate cut by the central bank (ET Contributors, 2021).

The responsibility now falls on the shoulders of RBI to keep a check on bond yields. In the last bi-monthly Monetary Policy meeting (MPC), there were no announcements made in this regard. As the economy is currently recovering from a recessionary phase, the phase of increase in inflation is getting stronger (ET Contributors, 2021). 

Thus given the current circumstances, RBI would be having a tough time in keeping the check on yields. The central bank has to deal with two-fold problems: on one hand to check the inflation while on the other hand has to handle the market borrowings from both the central and state governments. RBI needs to actively participate in the bond market and communicate well with the market participants in order to ensure that the bond yields are in check. 

Pandemic Fatigue Leading to a Fear of Lockdown

As news around the second wave, COVID-19 pandemic in foreign countries like UK, US, Australia are reaching the Indian households, residents are in a fist that there might be phased lockdown across the states in India. Several states like Maharashtra, Uttar Pradesh, Gujarat and Kerala are recording a spike in COVID-19 cases again which is directing the state and central government to impose night curfews in these states. Cities like Mumbai, Pune, Amravati, Aurangabad, Ahmedabad are already observing night curfews due to a rapid hike in COVID-19 cases. 

In a recent report released by Union Health Ministry, the primary reasons for the growing number of cases in few states were reported as – COVID inappropriate behaviour due to “lack of fear of disease”, pandemic fatigue, missed cases, super spreading events and crowds due to recent gram panchayat elections, marriages, reopening of schools, and crowded public transport.

The Recent INR-USD Change

The US Dollar to Indian Rupee Exchange Rate measures the ratio between the US Dollar and the Indian Rupee. Exchange Rates can be used to measure the relative health of an economy versus another. Exchange rates are also important in corporations that operate worldwide because they will directly impact their financials (YC, 2021).

US Dollar to Indian Rupee Exchange Rate is at a current level of 73.92, up from 72.74 the previous market day (February 25, 2021)  and up from 71.65 one year ago. This is a change of 1.62% from the previous market day and 3.17% from one year ago (YC, 2021). 

F&O Cues

F&O stands for Future and Options. These are the major types of stock derivatives traded in a share market. These Derivatives are the financial instruments deriving their values from an underlying such as currency, gold, or the stocks of a company.

Such contracts try to hedge market risks involved in stock market trading by locking in the price beforehand.

• Nifty February futures ended at 15,195; premium of 22 points 
• Nifty February futures add 1.2% and 1,745 shares in Open Interest
• Nifty Bank February futures ended at 35,854; premium of 102 points
• Nifty Bank February futures add 4.3% and 2,621 shares in Open Interest 
• Nifty Put-Call Ratio at 1.48 Out of F&O Ban: Sun TV Stocks In F&O Ban: BHEL, SAIL 

Brief on FII and DII Trading Activities during February 2021

Foreign Institutional Investors (FII) is the term used for investors who belong to foreign lands and are interested in putting their money in the Indian stock market. These are available in various forms such as mutual funds, investment trusts and pension funds. Domestic Institutional Investors (DII), on the other hand, refer to the investors belonging to India who invest their money in the Indian stock market. This comprises domestic mutual funds, banking and financial institutions, insurance companies and domestic pension funds (Dhanorker, 2020).

Indian stock market attracts millions of investors annually. These investors are primarily driven by institutional money. Both FIIs as well as DIIs constitute the major part of liquidity in the stock market. Therefore the effective tracking of their inflows and outflows are helpful in forecasting the broader trends in the markets. FIIs are believed to have a greater influence on the domestic markets along with the sustained flows from DIIs (Dhanorker, 2020). The countries which constitute a major portion of FII inflows into India are listed below. 

The performance of FIIs and DIIs have been carefully traced to meet the expectations of the investors during the month of February 2021. One of the primary reasons behind this is that the year 2021 will mark the arrival of the COVID-19 vaccine followed by the economic recovery that will see the Indian government taking stimulus measures to cope with the weak performance of the Indian economy during the COVID-19 pandemic. So it becomes of utmost importance to keep a track of previous FII and DII trading activities. 

The above table shows the trading activities of FIIs and DIIs from December 2020 to February 2021. There has been a continuous increase in the gross purchase of FII from Rs. 182 crores (approximately) in December 2020 to Rs. 223 crores (approximately) in February 2021. The gross sales of FII also increased from Rs 134 crores (approximately) in December 2020  to Rs. 180 crores (approximately) in February 2021. This increase was sharp for the month of  January and February because of the speculations surrounding the foreign investors due to the successful release of the COVID-19 vaccine and vaccination of common citizens which ultimately registered a steep increase in the net purchase/sales for the FIIs. 

Similarly, DIIs showed an impressive improvement in their performance as their gross purchases increased threefold from Rs. 84 crores (approximately) in December 2020 to Rs. 104 crores (approximately) in February 2021. Due to the restrictions on the movement across the borders and closing of the economies worldwide, the domestic investors started putting their money in the Indian stock market as a result of which the gross purchase increased. However, the gross sales had reduced from December  2020 to January 2021 2020 but increased during February 2021. 

Conclusion

In my opinion, the COVID-19 pandemic in 2020 delivered some of the greatest shocks to the global economies since World War II. The entire economies have been locked down and people adjusted to the new ways of working, studying and socialising. There are millions of people who have lost their jobs and became unemployed as a result of which inequality and poverty soared. The globalised economies acting as lifelines to billions of people worldwide has suddenly become vulnerable, owing to the disruptions of the global supply chains and government strategies to protect domestic stock market. Given the persistence of COVID-19, the recovery in 2021 will largely depend on how effectively the vaccine is distributed and how the various industry stakeholders reacted to the Union Budget 2021-22. The multidisciplinary robust approach will be required to mitigate the ill-effects of the pandemic and to address longer-term challenges posed by climate change. For this current and former political leaders, scholars, academicians, senior policymakers should provide exclusive analyses of the tasks that lie ahead in order to ensure that we are ready to meet the forthcoming challenges. 

References

Bhise, R. (2021, February 11). February 2021 Stock Market Outlook. investment shastra. https://www.moneyworks4me.com/investmentshastra/february-2021-stock-market-outlook/

Bloomberg. (2021, February 14). Bond market reflation trade absorbs punch to extend 2021 advance. Economic Times. https://economictimes.indiatimes.com/markets/bonds/bond-market-reflation-trade-absorbs-punch-to-extend-2021-advance/articleshow/80906847.cms?from=mdr

Dhanorker, S. (2020, June 29). What stocks are FPIs, FIIs and DIIs buying and selling? Economic Times. https://economictimes.indiatimes.com/wealth/invest/retail-investors-urged-to-stay-away-from-gamestop-inspired-communities/articleshow/80663373.cms

ET Contributors. (2021, February 18). Why is RBI having a tough ride in keeping bond yields in check. Economic Times. https://economictimes.indiatimes.com/markets/bonds/why-is-rbi-having-a-tough-ride-in-keeping-bond-yields-in-check/articleshow/81088372.cms?from=mdr

Reuters. (2020, December 16). Fed will be tested in 2021 as vaccines boost US economic outlook. Economic Times. https://economictimes.indiatimes.com/markets/stocks/news/fed-will-be-tested-in-2021-as-vaccines-boost-us-economic-outlook/articleshow/79751536.cms?from=md

YC. (2021, March 7). US Dollar to Indian Rupee Exchange Rate 73.92 INR/1 USD for Feb 26 2021. Charts. https://ycharts.com/indicators/us_dollar_to_indian_rupee_exchange_rate_h10

The post GLOBAL MARKET ANALYSIS: AN OUTLOOK OF FEBRUARY 2021 appeared first on WISER WORLD.

The Indian stock market attracts millions of investors annually. These investors are primarily driven by institutional money. Both FIIs as well as DIIs constitute the major part of liquidity in the stock markets. Therefore the effective tracking of their inflows and outflows are helpful in forecasting the broader trends in the markets. FIIs are believed to have a greater influence on the domestic markets along with the sustained flows from DIIs (Dhanorker, 2020). The countries which constitute a major portion of FII inflows into India are listed below. 

The performance of FIIs and DIIs have been carefully traced to meet the expectations of the investors during the month of January 2021. One of the primary reasons behind this is that the year 2021 will mark the arrival of the COVID-19 vaccine followed by the economic recovery that will see Indian government taking stimulus measures to cope with the weak performance of Indian economy during the COVID-19 pandemic. So it becomes utmost important to keep a track of previous FII and DII trading activities. 

The above table shows the trading activities of FIIs and DIIs from November 2020 to January 2021. There has been a continuous decline in the gross purchase of FII from Rs. 260 crores (approximately) in November 2020 to Rs. 168 crores (approximately) in January 2021. The gross sales of FII also declined from Rs 194 crores (approximately) in November 2020  to Rs. 160 crores (approximately) in January 2021. This decline was sharp for the month of  November and December because of the speculations surrounding the foreign investors due to the outbreak of COVID-19 which ultimately registered a steep decline in the net purchase/sales for the FIIs. 

While FIIs were registering a decline in their performance, DIIs, on the other hand, showed an impressive improvement in their performance as their gross purchases increased threefold from Rs. 71 crores (approximately) in November 2020 to Rs. 105 crores (approximately) in January 2021. Due to the restrictions on the movement across the borders and closing of the economies worldwide, the domestic investors started putting their money in the Indian stock market as a result of which the gross purchase increased. The gross sales had increased from November 2020 to December 2020 but reduced during January 2021. This is primarily due to the fact that the domestic inventors chose to wait till the releases of Union Budget 2021-22 before taking any financial decision. 

Vaccine, Covid Situation and Geopolitical Trends to Be Major Drivers for Indian Stock Market in 2021

The global outbreak of COVID-19 pandemic, news about the release of vaccines, Union budget 2021-22, economic growth and recovery and geopolitical trends are the major factors that would be driving the sentiments of investors in the year 2021 after the pandemic year 2020 that witnessed both good as well as bad times for the stock market in India (PTI, 2021). There were losses incurred by the investors while few record-shattering gains were also observed which depicted that the investors went on a roller-coaster ride amidst the COVID-19 pandemic followed by announcements of massive stimulus measures.  

The Indian stock market experts are of the view that 2021 will see massive changes in the perception and preference of people towards buying and selling of shares, stocks, assets and equities in the financial markets thus affecting their financial decision. In the words of Mr. Hemant Kanawala, Head, Kotak Mahindra Life Insurance, “If 2020 was a year of COVID infection, lockdown and recession, 2021 will be a year of vaccination, reopening and recovery.” (PTI, 2021).

Some new highs are continuously observed in the markets due to the positive news on the progress of COVID-19 vaccines and US stimulus announcement. The FY21 will be marked with greater hopes of early release and distribution of COVID-19 vaccine, normalisation of economic activities and undisturbed growth recovery. This will result in better recovery in both economies as well as earnings (PTI, 2021).

The optimism surrounding the vaccine release and measures supporting liquidity which was on a rough path during trading sessions in March 2020 has infused positivity and life into the Indian equity market.  As countries are in a race to vaccinate their large number of people against COVID-19 amidst the news of vaccine makers struggling continuously to meet their demand, India is making plans to speed up the manufacturing of vaccines so as to supply it to 60 nations in the coming months of FY21. 

India’s role as the “pharmacy to the world”, which will be reinforced by its supply of vaccines, will win it goodwill that will stand New Delhi in good stead as it looks to carve out a bigger role for itself in world affairs, analysts said (Roche, 2021). 

Companies’ Quarterly (Q3) Results: An Overview of Performance During the Covid-19 Pandemic

Various companies in India are seeking an increase in their net profits during the Q3 following the strategies adopted by them to deal with the pandemic. This makes Q3 extremely important from the economic recovery point of view. 

The following section suffices the performance of several companies in Q3 and highlights the net profits and net losses incurred by them respectively. 

1. Triveni Turbine posts ₹27.54 crore net profit in Q3.
2. IDFC First Bank posts ₹130 crore profit in Q3.
3. Relaxo Footwears Q3 net profit jumps 67% to ₹90 crores.
4. Shree Cements Q3 profit jumps over two folds to ₹632 crores.
5. ICICI Bank Q3 net profit rises 19.1% to ₹4,939.6 crore.
6. Tata Consumer Q3 results: Net profit rises to 29% to 218 crores, revenue up 23%.
7. Escorts’ net profits jumped 83% in Q3. 
8. Reliance Industries Ltd. net profits rose 12% in Q3. 
9. DLF posts 9% jump in net profits in Q3.
10. Tata Motors recorded a 67% rise in net profits on account of festive boost.
11. IRCTC Q3 net profits plunged to 67%.
12. TVS Q3 net profits rose to 120%. 
13. Maruti Suzuki Q3 net profits rose to 24%.
14. HUL Q3 net profits jumped 19% on account of demand recovery.
15. JSW Steel net profit surges 93% in Q3. 

The following companies showed a decline in their net profits during Q3:

1. CITY Union bank Q3 net profits decline 12%.
2. Adani enterprises net profits decline by 10% in Q3.
3. HDFC Q3 net profits decline by 65%.
4. Chevron falls to a fourth-quarter loss on weak refining charges.
5. Union Bank of India net profits drop 37% in Q3.
6. IndusInd Bank net profits fell 34% in Q3.
7. Indigo reports quarterly loss of Rs. 620 crore.
8. Axis Bank net profits drop 36% in Q3.
9. Bardhan Bank Q3 net profit falls 14%.
10. PVR reports net loss of Rs. 49 crore in Q3. 

The net earnings of companies in Q3 points to economic recovery for India. Some of the companies dealing with the consumer durables and automobiles like HUL, TVS, Maruti Suzuki and Tata Motors registered a sharp increase in their net profits due to the festive boost that led to the demand recovery in the economy. 

The oil and gas companies like Reliance Industries Ltd. showed a rise of 12% in their net profits during Q3. However, the analysts are concerned over the issue of transparency as the company made a firm decision of not reporting its gross refining margin. The net subscriber of the Info COMM department of Reliance Industries increased to 5.2 million in the third quarter showing the trust placed by the customers in the reliance company (Bhardwaj, 2021). 

Some of the Banks like City Union Bank, HDFC Bank, Union Bank of India, IndusInd Bank and Axis Bank have announced their quarterly results which reported a decline in their net profits. This is because of the rising NPAs of these banks which is acting as a major driver for losing the confidence entrusted by the customers in these banks. The shareholders are not receiving the due dividends which are making the banks think of the measures to take care of probable hit on the asset quality for the quarter. 

Forecast for Indian Rupee to Average at Rs 75.50/USD for 2021

With the revision in Forecast for the Indian rupee from Rs 77/USD to average at Rs 75.50/USD, the central banks of both the countries- RBI and the Fed are in the row for a stronger 2021 forecast. This is followed by the expectation that the rupee will trade only slightly weaker over the upcoming near term from the current rupee levels. There was depreciatory pressure built up on the rupee due to the declining terms of trade which arose from a rise in oil prices and central bank foreign exchange intervention aimed at combating the imported inflation (Kumar, 2021).

It is expected that over the longer term, the overvaluation of rupee in real terms in India should aim at exerting weakening pressure for the rupee vis-à-vis the US dollar. In addition to this, the experts of the Indian economy are expecting a 50 basis point cut in the interest rates and repo rates by the RBI which will also add to the downward pressure on the Indian rupee. 

According to the forecast made by Fitch Solutions, there are two factors that will partially offset the effect of depreciatory pressure on the Indian rupee. First, the adoption of the loose fiscal and monetary policy by the US Fed will exert downside pressure on the US dollar in 2021 as well that would ultimately offset rupee weakness. 

Second, the RBI, with a foreign exchange reserve position of USD 578 billion as of December 2020, representing an import cover of around 19 months, will likely intervene to prevent excessive rupee weakness to manage imported inflation to reduce the risk of high inflation derailing India’s recovery in 2021 (Kumar, 2021). 

Dalal Street Cheers Budget 2021 as Sensex Surges 2,315 Points, Nifty Settles at 14,281

While the Union Finance Minister Nirmala Sitharaman presented the Union Budget 2021-22 on the morning of February 1, 2021; the Indian stock market reacted to the proposals she announced on the floor of the Lok Sabha. The Indian equity indices responded to the Union Budget 2021 by breaking up the six-day losing streak as they cheered the announcement of the government’s plan for the economic recovery. As a result, the Nifty was up 646.6 points and settled at 14,281 while the Sensex recorded the best Budget day since 1997 and surged 2,315 points. 

The volume of shares on the NSE was highest on Budget day. All the sectoral indices except pharma recorded a gain of 1-8%. The other broad market indices like BSE Midcap and Small cap rose 2-3%. This is because the markets and investors speculated that the Banks, Materials and Metals sector might be benefitted by the increasing privatisation and spending in the Union Budget. The stock market of Asia gained as well after the COVID-19 vaccine maker AstraZeneca agreed to increase their supplies to Europe amidst the worries about the pandemic. 

The manufacturing sector of India also started the year 2021 on a strong note as the Manufacturing Purchasing Managers Index (PMI) for the month of January stood at 57.7, which reflected the strongest improvement in three months. Manufacturing PMI in December 2020 and November 2020 came in at 56.4 and 56.3, respectively (Pachal, 2021).

Top Sensex gainers were  IndusInd Bank, ICICI Bank, Bajaj FinServ, State Bank of India (SBI), Larsen $ Toubro, Housing Development Finance Corporation (GDFC) on the Budget day. On the flip side, Dr Reddy’s, Tech Mahindra and Hindustan Unilever Ltd (HUL) were the only Sensex laggards as shown in the red colour in the following illustration (Pachal, 2021). 

2021: The year of The Great Reset for Indian Stock Market

The sentiments of the Dalal Street in Mumbai have been largely driven by the geopolitical situation with the new US President Joe Biden taking charge of the largest superpower of the world-USA. The experts are of the view that the improvement in the trade relations between US and India under the new US president and his administration will play a major role in speeding up the economic recovery (PTI, 2021). 

The continuity of the global liquidity in the financial markets and the changing geopolitical situation with Joe Biden taking the charge of the White House will drive global sentiments. The global recovery’s leading variables added that the COVID-19 is not going to disappear just like that, as the outgoing US President Donald Trump suggested to the world in his last speech. Although there are instances of substantial recovery of the economy from the initial depths of economic lockdown, the losses to the macroeconomic variables like GDP and employment around the world are yet to pick up its original pace (Mint, 2021). This will hold true with the releases of vaccines and its availability to the masses. 

For the European Union (EU), navigating the COVID-19 crises has been challenging yet the Europeans stuck together in these difficult times and grew together, forging a more cohesive bloc. In 2021, it is believed that global cooperation will make a strong comeback and the EU will pursue its own strategic autonomy in order to safeguard its citizens and their interests in the coming decades (Mint, 2021). 

In my opinion, the COVID-19 pandemic in 2020 delivered some of the greatest shocks to the global economies since World War II. The entire economies have been locked down and people adjusted to the new ways of working, studying and socialising. There are millions of people who have lost their jobs and became unemployed as a result of which inequality and poverty soared. The globalised economies acting as lifelines to billions of people worldwide has suddenly become vulnerable, owing to the disruptions of the global supply chains and government strategies to protect the domestic stock market. Given the persistence of COVID-19, the recovery in 2021 will largely depend on how effectively the vaccine is distributed and how the various industry stakeholders will react to the Union Budget 2021-22. The multidisciplinary robust approach will be required to mitigate the ill-effects of the pandemic and to address longer-term challenges posed by climate change. For this current and former political leaders, scholars, academicians, senior policymakers should provide exclusive analyses of the tasks that lie ahead in order to ensure that we are ready to meet the forthcoming challenges. 

References

Bhardwaj, S. (2021, February 2). Q3 Nifty Earnings Point To Recovery For India Inc. Bloomberg Quint. https://www.bloombergquint.com/quarterly-earnings/q3-nifty-earnings-point-to-recovery-for-india-inc

Dhanorker, S. (2020, June 29). What stocks are FPIs, FIIs and DIIs buying and selling? Economic Times. https://economictimes.indiatimes.com/wealth/invest/retail-investors-urged-to-stay-away-from-gamestop-inspired-communities/articleshow/80663373.cms

Kumar, S. (2021, January 4). Fitch Solutions revises forecast for Indian rupee to average at Rs 75.50/USD for 2021. Hindustan Times. https://www.hindustantimes.com/business-news/fitch-solutions-revises-forecast-for-indian-rupee-to-average-at-rs-75-50-usd-for-2021/story-u0nP8yvh83aeVb77OEz5kO.html

Mint. (2021, January 1). Lessons from COVID-19 pandemic. Mint. https://www.livemint.com/news/world/2021-the-year-of-the-great-reset-11609434044784.html

Pachal, D. (2021, February 1). Budget 2021 Market HIGHLIGHTS: Sensex zooms 2315 pts, ends at 48,600, Nifty at 14,281 as D-St cheered Budget. The Indian Express. https://indianexpress.com/article/business/budget/budget-2021-market-live-updates-bse-sensex-nse-nifty-stocks-shares-benchmark-indices-finance-minister-nirmala-sitharaman-7169479/

PTI. (2021, January 1). Analysis of Budget 2021. Economic Times. https://economictimes.indiatimes.com/markets/stocks/news/vaccine-covid-situation-geopolitical-trends-budget-to-be-major-drivers-for-indian-equities-in-2021/articleshow/80056883.cms

Roche, E. (2021, January 31). India ramps up exports of covid vaccines to plug supply gaps. Mint. https://www.livemint.com/news/india/india-a-major-player-at-home-and-world-in-covid-vaccination-drive-11612085153226.html

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In these unprecedented times, when the common citizens are adapting to the new normal and life is returning to normalcy, the eyes of the entire nation will be stuck at the national television and channels on February 1, 2021, when the union finance minister Nirmala Sitharaman will be presenting the Union Budget for the upcoming financial year 2021-22. This will be the first time ever since the release of independent India’s first budget on November 26, 1947 that the government has decided not to print the Budget documents following the protocols of COVID-19. Hence all the MPs will be receiving soft copies of the Budget and Economic Survey of FY 2021-22. 

Speaking about Union Budget 2021-22 set to be presented in the Parliament on February 1, 2020, FM Sitharaman said-

“100 years of India wouldn’t have seen a Budget being made post-pandemic like this”

The Union Budget 2021-22 will make it quite imperative for the government to come up with a comprehensive strategy for the revival of the Indian economy against the backdrop of an economic contraction of 7.7% (Mint, 2021). Therefore all the stakeholders hold great expectations from the release of the budget hoping that it provides a boost to the economic growth. While the investments in social sectors like health, education, medical infrastructure, Research and Development (R&D), inculcating better skills to manage the use of technology in medicine is going to be important, challenges in the livelihood pattern ought to be seen in a broader canvas with the changed perspective on skill development. 

Tax and FDI reforms: Impetus to the insurance industry

During the past several years, there has been a tendency of low insurance penetration in health insurance that has acted as a cause of worry for the common citizens. Following the shortage of healthcare insurance funds in the light of  COVID-19, it becomes imperative for the industry experts to believe that the Union Budget 2021 should be leveraged in such a way to mitigate the distress of individuals and industry to some extent. 

It is being speculated that the reforms in two key spheres- tax and foreign direct investment (FDI) can be undertaken and discussed at length under the Union Budget 2021. The provisions should be made for enhancing the limits of insurance under section 80C and 80D that will encourage consumers to opt for health life insurance (Mint, 2021).  

Further, the GST payable currently on the insurance premiums must be reduced by the government thus making life insurance affordable to the vulnerable sections of the society. Such tax reductions and incentives will prove to be successful in the long run by ensuring insurance penetration in India. 

Liberalisation in the FDI regime is extremely important in order to attract additional capital to expand the business in the economy and ensure substantial insurance penetration into India. Therefore, there is a growing need that the government should liberalise the current FDI regime by raising the FDI limits to 74% from the current limit of 49% of paid-up equity capital (Mint, 2021). This would in turn support the disinvestment programme of the government. The reduction in the FDI limits will prove to be an impetus to the expanding insurance industry of India thereby providing opportunities to the investors to fetch higher returns on the assets and capital. 

Another important recommendation has to be made in the form of treating annuity income as tax-free income which will encourage higher uptake of annuity policies and better financial security during the old age years.  This recommendation is significant for a country like India, which has a history of limited social security measures. 

Work from home: A time to rethink the income tax allowances 

The global outbreak of the novel COVID-19 in the month of March has drastically changed the working landscape for the organisations globally. This shift in the working landscape has put in several companies to provide enabling infrastructure such as furniture (like tables, chairs etc), printers, high-speed internet connectivity, stationery etc for providing ease to the employees working at their residences. 

For the smooth conduct of the work at their respective places, the organisations are providing a fixed allowance to the employees in order to meet the expenditure incurred on furniture and digital infrastructure. The governments have to work in tandem with these organizations and ensure the efficient provision of exemption and deductions for the allowances which are reimbursed by the employer to employees who are working from their respective homes. The Union Budget 2021 should also incorporate a similar approach as well thus reaping the benefits of evolving a new digital working landscape. 

The Education sector: Seeking an array of Expectations

With just a fortnight left for the release of Union Budget 2021-22 by the Ministry of Finance, the experts are in lieu of several expectations in the education sector from the Union finance minister Nirmala Sitharaman. Here is the discussion on the top five expectations for the education sector in Budget 2021 (Economic Times, 2021). 

Use of Technology in Education

Following the outbreak of COVID-19, there was an increasing use of technology in education as the schools and academic institutions were shut down. The Finance minister should provide some relief to the education sector in terms of reduction in GST and subsidy on the education loans which are granted for both formal as well as skill-based learning. The focus should also be on the provision of the appropriate flow of ed tech-focused funds into the education sector that will enable the mid-size tech start-ups inside the campuses in raising the money for better and faster experiences using technology in education. 

Online teaching

In order to make online education accessible to each and every student, the GST on online education should be cut down to 5% from 18% in the upcoming Budget 2021 (Economic Times, 2021). The experts are looking at the more announcements especially in reference to New Education Policy 2020 with a primary focus on the K12 segment. The collaborative approach should be adopted wherein the government and private institutions can come forward in order to scale up the coding education. Thus increasing the contribution of education in the lives of students across the nation. 

National Education Policy 2020

The NEP 2020 marked the historic turn of events in the education sector. The vision laid by the government in the form of mandates in NEP 2020 will play a significant role in achieving the inclusive education system. There has to be a concrete implementation plan for the NEP 2020 in the Union Budget 2021 to further ensure focussed investment in Edu-tech companies. 

Tax Exemption

In the Union Budget 2021, the central government must ensure to reduce the expenditure limit of 85% to obtain tax exemption of 75% (Economic Times, 2021). Further, the academic institutions having good NAAC score should be allowed to retain the additional 10% of the funds received by them for providing education loans to the students. Such a provision will prove to be successful in providing funds to students that cannot provide collaterals to obtain loans in the long run. 

Restoring the trust of India’s upset farmers

With the farmers’ agitation still in place, the Union Budget 2021-22 will have to address the problems in agriculture with a more comprehensive and practical approach. The promise of doubling farmers income by 2022 made by the then finance minister Nirmala Sitharaman in her last year budget would require annual growth of 15% in the real income of the farmers till 2022. The Union Budget 2021-22 will therefore have an action to increase the allocation of Central government to schemes like on irrigation, rural roads, warehousing and storage facilities. Moreover, the new Acts are likely to supplement the working of mandis and will not replace them. The Minimum Support Price (MSP) will continue with no substantial changes. This will reorient the expenditure of the government in the right direction to restore the lost trust of farmers. 

Weaving a way for healthcare innovations

While the country is still struggling to deal with the pandemic, the state of health infrastructure in some of the developed economies has raised an alarm across the globe. This pandemic has reflected on the structure of the healthcare sector in India. Keeping  in view the last year allocation of Rs 69,000 crore to the healthcare budget, some of the key considerations for the Union Budget 2021-22 are listed below:

1. The centrally funded hospital and medical college have to be established in each Indian district. This will change the landscape of healthcare in India by ensuring effective and quality healthcare facilities to citizens.
2. The National Healthcare Audit Authority (NHAA) should be set up and funded which will provide the facility of audit functioning of all the healthcare institutions in the country.
3. The Ayushman Bharat Yojana, also known as the Pradhan Mantri Jan Arogya Yojana (PMJAY) should be expanded to include all the taxpayers. 

The gap in the accessibility and affordability in healthcare facilities is enabling local technology-driven innovations that will facilitate the delivery of medical devices within the country. This gap and provision need to be addressed in Budget 2021 with a special focus on the equitable allocation of the funds for healthcare delivery, healthcare equipment, healthcare infrastructure and healthcare innovations by means of start-ups. 

Hospitality sector: Looking for a fair deal in Budget 2021

The travel and tourism sector is the worst-hit sector due to COVID-19 pandemic. The structural financial reforms are needed to ensure the pathbreaking recovery of the sector in the upcoming Union Budget 2021. The experts of the sector are in the view of revitalising the famous Incredible India campaign in accordance with the year 2023 when India will be hosting the G20 summit. The current GST structure of wellness and medical tourism should be restructured so that there is an infusion of funds into the tourism businesses. 

The Federation of Association in Indian Tourism and Hospitality (FAITH) has proposed the setting up of a National Council of Chief Ministers to be headed by the Prime Minister as well as the Tourism Minister. This Council should be placed in the concurrent list and be a subject matter of both Central and State government. Further, the incidence of taxes on tourism earnings should be cut down to zero per cent. The current Service Exports from India Scheme (SEIS) of 10% to all the foreign exchange earnings in tourism be made in place for the next 5 years in order to ensure the post-covid recovery (Sinha, 2021). 

The country holds immense potential for promoting domestic tourism. The Indian organisations and business houses should be encouraged to promote domestic MICE (meetings, incentives, conferences and events) by offering them 200% income tax expense benefits to those Indian organisations who are a part of domestic MICE in India. For conserving the rich cultural heritage of our country, there is a need to establish a Natural and Cultural Heritage Restoration Fund with a backup of at least Rs 2000 crore that will encourage sustainable tourism around each horizon of tourism. 

A secured comprehensive mechanism is required to secure the future travel plans for the travel agents and tour operators who are affected by the pandemic thus restoring the higher growth in the travel and tourism sector. 

Privatisation of Public Sector Banks and PSUs

While the previous year’s budget(2020-2021) made way for the bank-led growth, banks are facing the challenge of confounding the impact of COVID-19 pandemic on their balance sheets and focussing on the economic recovery of India. It is expected that the upcoming Union Budget will include the proposal for Bank Investment Company (BIC) which will increase the shareholding of the government in its banks. As a result of which Public sector banks (PSBs) will dominate the banking sector as the major responsibility will fall on them. 

The government which is running a high fiscal deficit is in search of alternatives in order to reduce its burden on the Non-Performing Assets (NPAs). it is projected that the gross NPAs will be rising to 16.2% in the first quarter of FY21. the mounting NPAs has to be reduced. The BIC is therefore seen as a first welcoming step signalling the intention of the government to undertake reforms in order to ensure that the performance of PSBs are improved. The upcoming budget could therefore act as a signal by announcing the first step- the re-emergence of the Bank Nationalisation Acts and the State Bank of India Act.

Fiscal deficit targeted at 4% of GDP by FY26

It is expected that the Central government will provide an outline and lay down a road map in the Union Budget 2021 to bring the fiscal deficit down to 4% of GDP by FY 2025-26. This plays an important role in considering the fact that there will be growing demands for expansionary policies for the next 4-5 years. This further means that the government had to deviate from the set medium-term target of around 2-3% of GDP as the recommendations made by the Fiscal Responsibility and Budget Management Act (FRBM).

An opportunity to fund data infrastructure and Artificial Intelligence skills 

India has a golden opportunity to lead the next Industrial Revolution which is dominated by Big Data and Artificial Intelligence. The upcoming Union Budget 2021-22 will act as a platform for the Union Finance Minister Nirmala Sitharaman to unfold the benefits of big data through employment multiplier by means of funding through data science which is subjected to research (Umapathy & Singh, 2021). The integrated pool of the entire national data will be the way forward. The data generators ought to share the unfiltered data with the pool. This step will boost employment, nurture the start-up ecosystem and generate employment in the economy.  

Inclusion of Climate-responsive budgeting: A way forward

There is a growing need to recognise the potential of India is working towards a national budget responsive to climate change. Several initiatives have been taken by the leaders worldwide after recognising the significance of efficient fiscal handling of the climate changes in the spheres of planning of domestic public finances. For example, the Paris government has launched the Paris Collaborative on Green Budgeting. In south-east Asia, Indonesia has successfully implemented its climate budget tagging framework in 2016 and leveraged it in 2018. 

The state of Odisha in India which is the most disaster-prone state with the highest disaster score in the country has launched its own climate-budgeting based on the experiences of budget lines across the key economic sectors. Gujarat is another Indian state which has worked at length to adopt its own annual climate budgeting framework. However, India lacks such uniformity in the process of integrating all the subnational climate actions with the national climate goals. The state governments need the leadership of the Centre in establishing guidelines for climate-budgeting at the national level and work on climate-related risk planning. 

Climate-responsive budgeting will make sure that the future governments in power are financially stable in order to ensure the smooth transition of the economy. Moreover, India has to be ready to act as a responsible host during its maiden G20 presidency on climate change and economy. 

Personally, I believe the upcoming Union Budget 2021 will play a crucial role in lifting the Indian economy out of the recession and take significant steps that will focus on post-Covid recovery. Additionally, it is extremely important to concentrate on the forthcoming vision of the upcoming budgets on the threats imposed by climate change. For this, a proper national framework will be required focussing on the contribution of stakeholders from a diverse background including civil society and think tanks. 

Bibliography

Economic Times. (2021, January 17). Budget 2021: Expectations of Education Sector. Economic Times. https://indianexpress.com/article/opinion/columns/union-budget-2021-psb-privatisation-7148097/

Maji, P. (2021, January 15). Budget 2021 expectations. Financial Express. https://www.financialexpress.com/money/budget-2021-expectations-tax-fdi-reforms-to-provide-much-needed-impetus-to-insurance-industry/2171583/

Mint. (2021, January 16). FM holds pre budget meetings with the key stakeholders. mint. https://www.livemint.com/budget/expectations/page-2

Pandey, R., & Priyadarshini, D. (2021, January 16). Budget must take steps towards privatising ownership of public sector banks. The Indian Express. https://indianexpress.com/article/opinion/columns/union-budget-2021-psb-privatisation-7148097/

Sinha, D. (2021, January 18). Budget 2021 Expectations: Travel, Tourism sector expects pathbreaking Union Budget for post-Covid recovery. Financial Express. https://www.financialexpress.com/budget/budget-2021-expectations-travel-tourism-sector-expects-pathbreaking-union-budget-for-post-covid-recovery/2173235/

Umapathy, S., & Singh, R. (2021, January 19). View: Budget 2021 should fund data infrastructure and Artificial Intelligence skills. Economic Times. https://economictimes.indiatimes.com/tech/technology/view-budget-2021-should-fund-data-infrastructure-and-artificial-intelligence-skills/articleshow/80317424.cms

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We’ve heard the word superpower in different contexts over media and academia, the word, superpower for most children across the world would mean an exceptional or extraordinary power or ability, mostly in the form of superman or superwoman, a fictional character that possesses the power to make a significant impact on the world, while keeping the very crux of the word alive, we will talk about a very specific nation, India, and its journey to be a superpower. However, we need to go back to the century that went by to understand how the idea of a superpower came about. 

The rise and fall of two superpowers 

Until the 20^th century, the world knew only two superpowers, USA and the Soviet Union, the landmark emergence of two world superpowers stems from the end of  World War II marked by the bombings on Hiroshima and Nagasaki by the USA, critics over the world suggest that the US knew that Japan was about to surrender and that it was Unnecessary to bomb the two Japanese ports. However, the USA went ahead with its decision to stop the Soviet Union from making any military and political gains in Asia and prove that America is supreme. The end of World War II led to every newly decolonised country had two options in front of it, either be friends with the US or Soviet Union. At this time, countries in Asia and Africa had got independence and most of these countries wanted to claim their sovereignty and didn’t wish to side with either of two power blocks. One would say it was the emergence of Non-aligned movement (NAM) as India’s bid to stay non aligned that can be seen as a sign of non-adherence to power systems.

India’s economic policy from 1951-1991

India’s economy at the dawn of independence was in distress. For over 200 years, India served the purpose for the good of the United Kingdom, the good that was bought on the ruins of India’s economic tradition. Post-independence, one of the major questions in the mind of policymakers was if India’s growth should be agriculture or industry-led and we went ahead with industry-led growth primarily because there was almost no presence of infrastructure sector, i.e, power, transportation and communication, there was the negligible presence of the infrastructure industries like iron and steel, cement, coal, crude oil, oil refining and electricity, lack of skilled manpower, absence of a market of industrial goods.

However, the obvious choice for India would have been to go for the agricultural sector as the prime moving force because India had natural resources from Rajasthan in the west to Odisha in the east and the fertile plains to feed the country. By organising our land ownership, irrigation and other inputs of agriculture, India could have gone for better prospects of development, once we as a nation would have achieved self-sufficiency in food grains, food security, national healthcare infrastructure, a shelter for all and universal education we could’ve realised one of biggest goals in human development. The most prosperous countries in the world today are not the most industrial in their approach towards development, they mostly have an all-round approach to human development that focuses on improving the standard of living of its citizens by ensuring excellent health care system and education.

However, learning from these prosperous Scandinavian countries we must plan our future course of action. In 1991, the government in power under late prime minister P.V  Narasimha Rao led LPG reforms right after the Current account deficit wherein India was only three weeks away from welshing on its external balance of payment obligations. International Monetary fund asked India to go for the reforms in exchange for an emergency loan of 2.2 billion dollars. Reforms formally began on 1^st July 1991 when RBI devaluated Indian rupee by 9% and by a further 11% on 3^rd July. The economic policy reforms yielded good results, dramatically improving the quality of life in India and a new boast to the banking industry. However, like every action has equal and opposite reaction, trade liberalisation corresponded with a dramatic rise in inequality and associated social issues. The Indian GDP rose from $266 billion in 1991(inflation-adjusted) to $3 trillion in 2019 (1100% increase) while its purchasing power parity rose from $1 trillion in 1991 to $12 trillion in 2019. Now let’s move ahead and understand the challenges ahead of India in becoming a superpower. 

India’s strengths in achieving its goals

India’s demographic dividend 

India’s biggest strength lies in its demographic dividend. India is the youngest country in the world with 2/3^rd of its population in the working-age group, the young blood in India should be channelised to achieve the goals India has set for herself. However, this aim can only be realised if our educational, manufacturing and service sectors are given a boost along with a steady medical infrastructure

The abundance of natural resources

Among India’s many other strength lies, its abundant natural resources and varied topography. Our land is endowed with a range of topographies ranging from the Himalayas in the north to the northern fertile plains, from the coal mines in Jharkhand and Odisha to gold mines in Karnataka and copper mines in Rajasthan. The fact that we’ve such a wide variety of natural resources puts us in a strong position to utilise our resources effectively while depending less on imports from our neighbours. The recent strides made by India in utilising solar, wind, thermal energy will only bring in long term dividends to India’s energy sector while cutting down our imports.

An ever-growing service sector

 One of the major advantages for India lies in its service sector. The service sector accounts for 53.66% of India’s Gross value-added product (GVA) while the industrial sector is at the second spot and contributing around 31% of the Indian GDP, this means that both service and industrial sector are contributing to the Indian GDP effectively. The only matter of concern here is, even though both service and industrial sector are the highest contributors to the GDP, the maximum number of people are still in the agriculture and fishery sector.

Strides in ease of doing business

India has continuously improved her position in the ease of doing business report published by the World bank year after year. The report measures the performance of countries across 10 different dimensions ranging from how easy or difficult it is to start a business, get access to construction permits, resolving insolvency, electricity availability, credit availability among others. India maintains its 1^st position among South Asian economies which was 6^th in the year 2014. Our performance in ease of doing business has created enough room for foreign investment in the country that will ultimately employ the youth, nurture their skill set and increase saving which will ultimately lead to economic growth. 

A growing economy

 At present, the Indian economy is passing through a rough time but it is expected to recover soon. As per the latest report of ‘World economic league table 2020; India has overtaken both France and the UK to become the world’s 5^th largest economy in 2019. Well, that certainly is some good news. Isn’t it?

India’s weaknesses

Inadequate health and education infrastructure 

Every country has its set of problems and so does India. Our problems are varied, the most important being inadequate health and educational infrastructure. Our health and education spending is hardly 3% of our GDP, i.e one of the lowest in the world. It is indeed alarming that a country of almost 3 billion people are not given appropriate health and educational infrastructure and has aspirations of being a superpower. In most modern democracies, health and education fall under the wider umbrella of duties of the state and it is indeed the responsibility of the state to make sure that an appropriate share of GDP is allocated on the two primary pillars of human development. 

Red-Tapism

Bureaucracy in India has long been plagued with Red-Tape. Excessive regulation and paperwork in every department and delay in the processing of documentation to achieve the desired goal makes it an uphill task for a common man to get the work done in Indian offices, corporations and other large organisations. The foremost solution to decrease red tape is by bridging the digital divide between the have and have nots and along the process digitalise most government offices and grievance redressal mechanisms for the benefit of the citizens at large. 

High interest rate 

The central bank is infamous for asking Indian banks to charge high-interest rates from its customers especially when inflation is predicted to rise more than the target. However, even when inflation rates are rather in control we often see Indians under the gloomy cloud of high-interest rates, with the high interest rate, the payment of interest rate and loans become ever more expensive, this in return discourages people from borrowing and further spending. Those who have taken loans will have less disposable income at their end that will ultimately lead to less consumption. 

A growing divide between the rich and the poor

The Indian economy is among one of the largest in the world. Its free-market principles post-1990 has brought significant dividends for the economy but at the same time, wealth distribution has been highly unequal. It is alarming how the richest 1% of Indian’s own 58.4% of the wealth. With the trend only going upwards every year. The irony of the situation is that even to this day, 22% of Indians are below the poverty line. What is particularly worrisome in India’s case is that economic inequality is often being added to a society that is already divided into the lines of caste, religion and gender. Income inequality when analysed and understood in terms of caste, religious and gender lines bring to us a blurry picture of shattered dreams and dual reality. This dual reality is of an India that is indeed an emerging superpower but at the same time, 22% of her population still does not know where its next meal will come from.

What needs to be done

We’ve made significant strides in the years gone by and it won’t be an understatement to give ourselves a pat on the back, but it’s time we accept the challenges ahead of us and strategise our plan of action accordingly. For starters, India needs to focus on strengthening health and education infrastructure, the healthier and educated our young ones are, the easier it is to achieve the goal of holistic development. Along with boosting our infrastructure, we must realise the principle of sustainable development. Since last 30 years world has been ever more conscious about preserving the environment, even though India has been given certain advantages because it’s a developing country, we should not undermine the importance of developing our infrastructure and our way of life on the lines of environmental ethics. 

Analysis 

It’s been over 70 years since India achieved its independence, it was a hard battle but we won it our independence by our very conviction in self-reliance and will to hold the baton of self-rule in our very hands. What India needs to do now is work towards achieving economic growth that has its roots in human development at large. We have indeed come far, but there’s still a long way to go. Being a superpower is not merely about a number or a spot on the world map, it is battle to become a better nation for ourselves and for those who dreamt of a nation that was united in its spirit, ever-growing, ever-flourishing, in letter and spirit.

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China is a one-party state with power lying mainly in the hands of the Chinese Communist Party. Moreover, it is one of the five permanent members of the UN’s Security Council and thus possesses tremendous power and reach.

History of China’s Economy

The trade reforms introduced in 1978 have changed the economic position of the country on a gigantic level. 

After the reforms were introduced, the country began to open and its economy has seen tremendous growth. GDP growth averaged over 10% per year, making it one of the world’s fastest-growing-economies.

Recently, however, due to several imbalances, comparatively low growth rate of institutional development and fast pacing economic development, there have been several reform gaps that have kept the GDP growth rate at 6% per year and it has been decreasing continuously. The country has made Innovation its top priority while working on the strategy for the 2020-25 growth model catering to the current scenario.

China’s Strategic Advantage

China is an upper-middle-income country and a major supplier of raw materials to the rest of the world. It observes major investment from MNCs globally. Most of the products that we use in our daily life are labeled as either made in China or assembled in China.

Apple iPhone, which is considered a revolutionary product, gets its product assembling done in China. Low labour costs were considered the main reason initially but there has been a shift in recent years. Since countries like India, Vietnam, etc. can provide even cheaper labour, hence the question arises, what makes China different?

The answer is the quality of labour and the type of skill provided. As said by Tim Cook “You find in China the intersection of craftsman kind of skill, and sophisticated robotics and the computer science world. That intersection, which is very rare to find anywhere, is very important to our business.”

Thus, comparatively low labour costs, highly skilled labour, the ability to produce big consignment daily due to the strong labour force and a large home market make China an ideal country for product assembly. 

Trade Relations with India

Economic relations between India and China date back to ancient times with the Silk Route being the major trade route then. China is a major exporter of raw materials like pharmaceutical ingredients, steel, electronic devices, fertilizers for India, thus making India as China’s biggest trading partner after the US. India too runs a huge trade deficit with China.

The major inability of Indian companies to produce products at low rates arises because of a lack of research and development facilities, poor infrastructure and incompetent labour policies.

In a survey of about 90 people, it was asked: “What is the main reason that encourages you to buy foreign goods?”

The following were the observations:

Due to this Chinese goods gain an edge and find a huge market in India. Moreover, the Indian population forms a large base for many Chinese apps. These do not mainly contribute to revenue but they help in boosting the reach of the product which is even more beneficial for the companies.

However, with the recent clashes and increasing deficits, the Indian government has banned several Chinese applications and has been constantly focusing on promoting the ‘Made in India’ campaign.

Impact of the Current Situation

With the advent of the current pandemic, almost all economies have come to a standstill. While some of the countries have been able to deal with the situation efficiently and have already observed the peaks, others like the US and India are the worst struck and their economies have faced a major shock. 

China has been accused of hiding information about the virus which eventually led to the pandemic. Markets crashed and the price of crude barrels fell to such an extent that they became negative for the first time in history. Many people have been laid off from their jobs, causing them to fall into debt traps.

However, the current border tensions with China have induced an even greater hatred among Indian citizens towards Chinese goods and services. Many Chinese contracts and tenders have been reworked and the suppliers have been changed. These have vastly affected China’s economy.

Nevertheless, the economic interdependence of the two nations is way too important to be ignored. An all-out boycotting of Chinese goods would force people to buy expensive goods in this period of recession. This would just worsen the situation and the governments would have to further moderate the policies to accommodate the situation.

Conclusion

 It can be rightly said that the expansionist and influential regime of the Chinese government is at an all-time high. China might be taking this course of action to drive the attention of the world away from COVID allegations by having disputes with other nations. However, with this course of action, it is losing a huge consumer base in India. Though low priced quality goods might still prevail in the markets as Indians don’t have good homemade alternatives.

India and China have been embroiled in border disputes since 1962 after the Indo-China talks failed. China has always been intruding in the territorial sovereignty of India, this has been very common but the international community never held China liable because of its veto in UN and structural hegemony in international markets but the advent of COVID-19 has led to an international bias against China. The factual matrix has created a situation in which China might be held liable for the very first time for violating the ceasefire agreement on LAC as it has lost support in the international arena and the CCP is facing extreme criticisms for its violations and misuse of authority.

The first step towards the long turn process of improving the efficiency of production in India should be taken immediately. Trade shouldn’t be stopped but the trade deficit needs to be brought to a balance to prevent other nations from exerting dominance in the future.

China needs to take into account the possible isolation by other countries in the long run which might bring down the already decreasing GDP growth and the scenario before 1978 might come into the picture again. China should acknowledge the need of the hour and help its subordinate countries with the current pandemic, help in building their economies to ensure healthy trade relations, the welfare of mankind and stability. History is evident, Wars cease to create any good, rather are a great way to destroy the global economy, loss of life and property and leave the world in a state of regret and despair. 

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Following the PM’s address, our Finance Minister, Dr. Nirmala Sitharaman, through a set of conferences, laid out the specifics of the package divided into 5 tranches. This article seeks to explore the details, benefits and drawbacks of the same. 

The Package in Details

Some of the Key Highlights of the Package for various sectors in several tranches have been provided below:

EARLIER MEASURES 

The “Pradhan Mantri Garib Kalyan Yojana” provided the following:  

• Foodgrains and gas cylinders to the needy for three months.
• ₹500 to women Jan Dhan account holders for three months.
• Relief to construction workers via a Welfare Fund.
• Insurance cover to health workers.
• District Mineral Fund to facilitate greater medical testing.
• Increased minimum daily wage rate 
• An increased limit of collateral-free loans for Women Self Help Groups.

Apart from the aforementioned activities, the Indian government has also provided relaxation in Statutory and Compliance matters such as extending the last date for Income Tax Returns and filing GST returns, allowing for 24*7 customs clearance till 30th June 2020, and others. It has also sanctioned Rs. 15,000 crores for Emergency Health Response Package and issued pending income-tax returns up to Rs. 5 lakhs.

RBI’s Monetary Measures:

• Reducing Cash Reserve Ratios.
• Providing Targeted Long Term Repo Operations for fresh deployment in investment-grade bonds, commercial paper, and non-convertible debentures. 
• Increasing banks’ borrowing-limit under the Marginal Standing Facility.
• Special refinance facilities for NABARD, SIDBI and the NHB at policy repo rate.
• 3 months of moratorium on payment of all installments and interest on working capital facilities.

MSMEs AND OTHER BUSINESSES

• Availability of collateral-free, automatic loans with 4-year tenure.
• 25% reduction in the rate of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) 
• Equity infusion and Equity Support for MSMEs.
• Providing a new definition of MSMEs with additional turnover criteria to incentivise them to grow.
• Amendments of General Financial Rules to disallow Global tenders up to Rs.200 crores.
• Extension of the due date of all income-tax return for FY 2019-20.

AGRICULTURE^[3]

• Additional Emergency Working Capital for farmers through NABARD
• Provision of concessional credit to PM-KISAN beneficiaries.
• Promotion of ‘Vocal for Local with Global outreach’ vision via schemes formalising Micro Food Enterprises.
• Facilitating risk mitigation, assured returns and quality standardisation for farmers.
• Implementation of schemes for sustainable development of marine and inland fisheries, development of herbal cultivation, animal husbandry and beekeeping.
• Subsidies on transportation and storage.

MIGRANTS, LABOURERS and OTHERS^[4]

• Setting up shelters providing food and water to migrants by utilising  State Disaster Response Fund.
• Launching schemes to provide free food supply and affordable rental accommodation to migrant workers.
• Providing employment opportunities to the urban-poor by mass production of sanitizers and masks.
• Launching a Special Credit Facility for Street Vendors.
• Universalizing the minimum wage right and implementing the statutory concept of National Floor Wage to reduce regional disparity in minimum wages.
• Boosting the housing sector and the middle-income group through the extension of the Credit Linked Subsidy Scheme.

NEW HORIZONS^[5]

• Fast track Investment Clearance through Empowered Group of Secretaries (EGoS)
• Implementing schemes to upgrade industrial infrastructure and bring about beneficial policy reforms.
• Encouraging private sector participation and boosting investment in several sectors, including space activities.
• Facilitating Efficient Airspace Management for Civil Aviation.
• Improve autonomy, accountability and efficiency in Defence Production.
• Implementing a Tariff Policy Reform pertaining to Consumer Rights, Industry Promotion and Sector-Sustainability.

      GOVERNMENT REFORMS^[6]

• Promoting India as one of the easiest business locations by modifying the Ease of Doing Business Reforms relating to easy registration of property, fast disposal of commercial disputes and simpler tax regime. 
• Facilitating Technology-Driven Education via PM eVIDYA programme
• Increasing investments in the Public Health Sector to not only combat the present pandemic but also prepare for future pandemics.
• Supporting State Governments & promoting state-level reforms.
• Modifying policies to allow for the privatization of various sectors, while upholding the prominence of Public Service Enterprises in defined areas. 

Overall Stimulus Provided by the Aatmanirbhar Bharat Package

Problems

The earlier fiscal relief measures along with RBI’s measures constitute ₹9,94,403 crores, which leaves an effective amount of ₹11,02,650 crores. Thus, the immediate fiscal boost announced with such grandeur by the government is quite less than the promised amount because of the inclusion of RBI’s monetary measures, despite both being independent institutions. Direct investment by the government in the form of a boost to the aggregate demand guarantees immediate impetus to the economy, however, that might not be the case with the government’s indirect measures and RBI’s credit easing because the banks, instead of lending, might park the money back with the RBI, thus, rendering its help ineffective. Even if the banks transmit the liquidity measures from RBI to the citizens, the transmission procedure will not be smooth due to the prevailing inefficiency of monetary policy transfers.

The economic package includes a lot of measures spread over 5 tranches. However, there exists the problem of implementing those measures. A classic example is the provision of collateral-free automatic loans to MSMEs. There is a high risk of non-return to banks in such cases unless the businesses end up earning high-profits amidst a global crisis, that is if the MSMEs get the required loans after overcoming the hurdles of meeting the high credit score criteria, bearing high processing costs followed by tedious procedures, and still not receiving the entire amount applied for. 

Conclusion

Both ‘Aatmanirbhar Bharat Abhiyaan’ and the ‘Make In India Campaign’ attempt to attract Foreign Direct Investment by laying emphasis on the promotion of local products to help with the declining job market. However, this causes a critical problem in a developing country like India which needs to depend on cost-effective imports of several products in which it does not have a comparative advantage and the domestic production of which will lead to increased manufacturing cost, thus, leading to the loss of a competitive edge in the Global Market. Although, Aatmanirbhar Bharat Abhiyaan does possess an advantage due to the inclusion of agriculture, which had been neglected all this while.

Although the package is very comprehensive and caters to the needs of all people, past history of failures due to the presence of corrupt bureaucracy raises the question of whether the relief package will have its desired effect. However, if the package is properly implemented and people are educated about the schemes through various drives and trained to utilize the benefits available to them, then there exists the possibility of success of the package through economic upliftment of the nation.

The post AATMANIRBHAR BHARAT ABHIYAAN: RELYING ON A SELF-RELIANT ECONOMY appeared first on WISER WORLD.

Coronavirus (CoV) is a large family of viruses that causing illness ranging broadly in severity. It ranges from the common cold, fever to more severe diseases like Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV).

Along with all other serious problems related to the coronavirus, we can’t ignore the fact that outbreak of COVID-19 in China is expected to have a considerable impact on the global economy including economic slowdown, foreign trade, supply chain disruption, commodities, and logistics. 

Impact of the Coronavirus in India…

To control the toll, the Indian govt has taken some severe steps towards it. Govt has decided a complete social and economic lockdown of India for the next 21 days, i.e, from 24 Mar to 14 Apr, to contain the spread of coronavirus. The Indian economy was already staggering under a falling demand, high unemployment, and decrement of industrial output and profits, all of which happening together for several quarters. Now the lockdown would severely impact the supply side of the economy, i.e, production and distribution of goods and services, except for the essential items that are exempt. Both production and distribution of non-essentials have come to a suspension. This impacts at least 55% of the economy for 21 days lockdown or about Rs 2 lakh crore. It may even be more due to previous partial lockdowns by various state governments. The impact of the move will spill over to FY21, which begins on April 1. Although India may not fall into a recession, unlike the eurozone, the US or Asia-Pacific major trade contacts with china, yet the effect on the GDP growth will be significant. 

The quarterly GDP growth has been consistently falling since Q4 of FY18; from 8.1% in Q4 of FY18 to 4.7% in Q3 of FY20. 

Major rating agency like Moody’s sharply slashed its previous projection for India’s GDP growth in FY20 from 5.3% to 2.5%. Crisil slashed its base case GDP growth forecast for India in FY21 from 5.7% to 5.2%. It warned that there are greater downside risks if the pandemic is not contained by April-June 2020, or if it spreads rapidly in India, affecting domestic consumption, and investment(source). 

On Mar 26, Finance minister Nirmala Sitharaman announced a $23 billion package pointed at cushioning the panic. A day later, RBI and central banks also made a sharp interest rate cuts. CLSA reported pharmaceuticals, chemicals, and electronics businesses may face supply-chain problems and prices will rise by 10%. The report also tells that India could also be a recipient of positive flows since it appears to be the least-impacted market. 

Let us take a look at the sector-wise impact on Indian industry:

Chemical Industry: China is a major supplier of Indigo that is required for denim. It was found that 20% of the production has been impacted due to the disruption in raw material supply.

Shipping Industry: Coronavirus outbreak has impacted the business of cargo transportation service providers. Per day per vessel has declined by more than 75-80% in dry bulk trade. 

Auto Industry: Indian carmakers imports between 10-30% of auto parts from Chinese firms. It is expected to result in an 8-10% contraction of Indian auto manufacturing in 2020 if the threat of coronavirus stays longer.

Pharmaceuticals Industry: China is the world’s largest exporter of active pharmaceutical ingredient (APIs) and intermediates. Approx. 70% of India’s total API requirement is met by imports from China.

Textiles Industry: India exports around 20-25 million kg of cotton yarn a month to China. Due to the coronavirus outbreak, several industries in China have stopped operations. Cotton yarn prices have fallen by 3-4% in the domestic market. 

IT Industry: The 3 weeks lockdown period adversely impacted the revenue and growth of Indian IT companies.

Tourism and Aviation: Due to the coronavirus outbreak, airlines and tourism services are suspended that will impact the tourism sector and revenue.

The Federation of Indian Chambers of Commerce and Industry (FICCI) said (that there was a strong hope of economic recovery in the last quarter of the current fiscal. However, the coronavirus epidemic has made the recovery extremely difficult in the near to medium term(source). 

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