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Daily Financial News Analysis – 21st Dec’20 – Free PDF Download


Laying the foundation for faster growth

  • In recent memory this is the first economic crisis that has been triggered by a non-economic factor.
  • In Q1, the economy declined by 23.9%; it declined by 7.5% in Q2
  • At the dawn of the New Year 2021, several questions rise in our mind.
  1. How bad was the performance of the Indian economy in 2020-21?
  2. What are the prospects for 2021-22?
  3. What should the stance of monetary policy be in the coming months?
  4. What should the Budget to be presented by the central government in February 2021 focus on?
  5. Will the global environment for trade and investment improve and help India?
  6. What should be the medium-term focus including the role of reforms be?
  • We now know the GDP numbers for the first half of 2020-21.
  • Reductions in the first half of GDP at 2011-12 prices in 2020-21 as compared to the first half of 2019-20 is ₹11,15,879 crore which is 7.66% of the 2019-20 GDP.
  • If the Indian economy at least maintains the second half GDP in 2020-21 at the level of the previous year, the full year contraction can be limited to about 7.7%.
  • Our estimate (by D.K. Srivastava and C. Rangarajan) is that if there is an increase in GDP at least in Q4 if not in Q3, the overall contraction in 2020-21 can be be limited to the range of 6% to 7%.
  • This of course would require a substantial pick up in government expenditure.
  • GST, Coal output, Steel, Cement & positive growth in manufacturing in October 2020 which point to better performance of the private sector.
  • Of course, some segments of the economy such as the hospitality sector will take time to recover.
  • To compensate for the losses of 2020-21, the Indian economy has to grow at 8% in 2021-22
  • The two years taken together cancel each other.
  • Some sectors can act as lead sectors or engines of growth.
  • This is where increased government capital expenditures become relevant.
  • The global environment for trade and growth is an uncertain factor.
  • The attitude to trade must also change.
  • A strong surge in our exports will greatly facilitate growth.
  • Growth must not only be consumption driven but also investment driven.
  • The stance of monetary policy in 2020-21 has been extremely accommodative.
  1. A reduction in interest rate through changes in policy rate
  2. Providing liquidity through various measures
  3. Regulatory changes such as moratorium
  • Government expenditures play a key role in a situation such as the one we are facing.
  • The performance of the sector “Public Administration, Defence, and other services” which is subject to policy intervention is disappointing.
  • In the second quarter of 2020-21, there was a contraction of this sector by 12.2%.
  • In 2021-22, government revenues should pick up with the rise in GDP.
  • The process of bringing down the fiscal deficit must also start.
  • What is required is a sharp increase in government capital expenditures which can act as a stimulus for growth.
  • Some of the recent measures including corporate tax rate changes may help in augmenting investment.
  • The National Infrastructure Pipeline is a good initiative.
  • We must also remind ourselves that the climate for investment is also influenced by non-economic factors of which social cohesion is most important.
  • The Indian economy in 2019 was at around $2.7 trillion.
  • To achieve the level of $5 trillion, we need to grow continuously at 9% for six years from now.
  • Jobs and employment will come from growth.

IBC Suspension

  • The government is likely to extend the suspension of the bankruptcy code by another 3 months to prevent companies from being forced into insolvency proceedings due to debt defaults triggered by the Covid-19 crisis.
  • Data from CARE Ratings show cases admitted for insolvency proceedings fell to 161 in the first half from 889 cases admitted in the year earlier.
  • Policymakers are of the view that a further extension is required as the economy is yet to emerge from contraction and businesses need relief for some more time.
  • Banks are working with companies in stressed sectors to restructure loans.


  • Apple’s decision to put Wistron Corp on probation over labour practice lapses will not derail the Cupertino-based company’s plans of manufacturing its latest flagship model, iPhone 12, as it would be made at the plant of its other contract manufacturer, Foxconn, in Tamil Nadu.
  • Two industry executives said the ‘Made in India’ iPhone 12 from Foxconn is expected to hit the stores within two months, in accordance with Apple’s original plan of manufacturing the iPhone 12 at the Foxconn facility.

Additional Duties on Import of Raw Materials

  • Several businesses could go to court against the indirect tax department after being asked to pay additional duties on imported goods and raw materials eventually used to manufacture items that were finally exported.
  • Under the advance authorisation scheme in the erstwhile tax regime, exporters could get an authorisation to import raw materials used for manufacturing exported goods without payment of taxes on imports.
  • India levies additional duty on certain imports to protect domestic manufacturers from dumping.
  • The additional duty would also lead to cash flow issues for the importers and exporters, say industry trackers.

Pillai Panel on RoDTEP

  • A three-member committee under former home and commerce secretary GK Pillai has sought evidence and data from the industry to justify their claim of the benefit needed to be given under the proposed tax neutralisation.
  • The government proposes to roll out the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme next month replacing popular Merchandise Exports from India Scheme.
  • Remission rates suggested by the industry are higher than the incentives under MEIS, payable as a percentage of realised free-on-board value of 2%, 3% and 5%.
  • MEIS is being replaced by RoDTEP as the former violates the global trade norms.
  • The RoDTEP committee, headed by Pillai, was constituted in July to formulate the modalities to calculate taxes at the central, state and local levels imposed on the exported products including embedded taxes, such as local levies, coal cess, mandi tax, electricity duties and fuel used for transportation, which are not exempted or refunded under any other existing scheme.
  • The carpet industry has suggested a RoDTEP rate of 8%, the apparel export sector has suggested 6-6.5%, while the range for leather goods is 1.6-6% and the handicrafts sector has sought a 5-7% benefit rate.
  • The aluminium industry has sought a tax refund rate of 12-13%.
  • India’s exports fell 8.74% in November, steeper than the 5.12% dip in October, at $23.52 billion with the trade deficit touching a 10-month high of $9.87 billion.




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