Report of the Board of Directors & Management Discussion and Analysis
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Report of the Board of Directors & Management Discussion and Analysis For the Financial Year Ended 31st March, 2020 SOCIO-ECONOMIC ENVIRONMENT safety nets to support the weaker sections of society will take centre stage in policy formulation going forward. The global economy witnessed a marked slowdown in Coordination and cooperation on a global scale will be 2019 with growth softening to 2.9% in 2019 from 3.6% of paramount importance to revive the world economy. in 2018 and 3.9% in 2017. Growth in the US economy decelerated to 2.3% during the year as against 2.9% A significant global recession looms on the horizon for in 2018, while expansion in the Euro area slowed down all major world economies. As per IMF estimates for to 1.2% in 2019 from 1.9% in 2018. Emerging Markets 2020, advanced economies are projected to contract were under pressure as well – with growth decelerating by a staggering 6% to 7%, with all major economies to 3.7% in 2019 against 4.5% in 2018. such as USA, Euro Area, UK and Japan set to contract substantially. China is expected to report a flat growth The COVID-19 pandemic has unleashed unprecedented in 2020 while latest estimates for the Indian economy disruption to human life and economic activity the world indicate a contraction in the range of 3.5% to 7% in over, and has sent the already slowing global economy 2020-21. The rapidly worsening economic outlook and into a massive recessionary shock. With world output deterioration of the risk sentiment have prompted a estimated to contract by 5% to 7% in 2020 (as per latest series of government initiatives across the world. Further, estimates of international agencies) the anticipated central banks across the world have responded recession would be the deepest since the Great synchronously effecting sharp cuts in policy interest Depression of the 1930s and the first one since 1870 rates, boosting liquidity and undertaking large asset to be triggered solely by a pandemic. In emerging purchase programs to help stimulate economic activity economies, the pandemic is likely to cause the first and alleviate tight financial conditions. Major economies output contraction in the past six decades. The pandemic across the world have announced stimulus packages will result in significant contractions across the vast in the range of 10% to 15% of their respective GDPs. majority of advanced economies, emerging markets and developing economies; the ultimate outcomes, The Government of India responded proactively by however, remain uncertain. While the immediate priorities announcing a lockdown towards the end of March 2020 are to alleviate human costs, protect vulnerable sections to flatten the pandemic curve. While this was required of population and mitigate the near-term economic to protect lives at that stage, the Government has losses, a credible commitment to sustainable policies thereafter taken steps to support livelihoods. The and structural reforms would be necessary to buttress Government has also responded swiftly in announcing long-term prospects, once the crisis abates. Building an overall package of over ` 20 lakh crores largely in capacity to deal with similar future events and appropriate the form of liquidity boosting measures, with about The COVID-19 pandemic has unleashed unprecedented disruption to human life and economic activity. The Government has responded swiftly to the pandemic in announcing a package of over ` 20 lakh crores largely in the form of liquidity boosting measures. 36 ITC Limited REPORT AND ACCOUNTS 2020 Report of the Board of Directors ` 1.5 lakh crores representing direct cash transfers and resulting in CPI touching 4.8% in 2019-20 versus subsidies. Several initiatives to support the Micro, Small 3.4% in 2018-19. Forecast of a normal monsoon along and Medium Enterprises (MSME) sector and a slew of with soft global prices of oil, metals and other industrial agri-reforms have also been announced recently which raw materials are likely to keep input costs low. These augur well for the long-term prospects of the Indian factors, combined with favourable base effect, are economy. Further to the ‘Make in India’ programme expected to pull down headline inflation below the announced earlier, the Hon’ble Prime Minister has made 4% target in the latter half of 2020-21. a clarion call to achieve self-reliance through the As per latest estimates, Fiscal Deficit for 2019-20 ‘Atmanirbhar Bharat’ programme, which seeks to widened to 4.6%, overshooting the Government’s revised make India an even stronger, more competitive and target of 3.8% and original target of 3.3%. Slowdown resilient economy. in economic activity, exacerbated by the lockdown in March 2020, and lower tax collections contributed to In retrospect, 2019-20 turned out to be one of the most the higher than planned deficit. In view of the prevailing challenging years for the Indian economy with GDP recessionary situation, a combination of low tax growth at an 11-year low (estimated at 4.2% Vs. 6.1% collections and stimulus measures by the Government in 2018-19) despite a low base. On the supply side, could result in significant increase in the Fiscal Deficit growth in the Agriculture sector improved (4.0% in in 2020-21. Estimates currently range from 7% - 10% 2019-20 Vs. 2.4% in 2018-19) while Industry (0.9% Vs. of the GDP, with an upward bias on account of additional 4.9%) and Services (5.5% Vs. 7.7%) sectors came measures that may be needed to support the economy. under severe stress. Persistent weakness in capital formation, manifest in the decline in new project Going forward, there is heightened uncertainty around announcements, transmitted to private consumption the timing and shape of the recovery trajectory as the (PFCE), which slowed down considerably to register a Indian economy is expected to face multi-dimensional growth of 5.3% in 2019-20 Vs. 7.2% in 2018-19. The challenges in the form of health crises, job losses, labour slowdown in consumption expenditure was attributable force displacement, lower productivity, lack of export opportunities and volatility in capital flows. Studies largely to subdued consumer sentiment, agrarian distress indicate that the pandemic has put as much as 40% of and low rate of rural wage growth, and tight liquidity Indian household expenditure at grave risk, which would conditions. PFCE growth, in the fourth quarter of weigh on consumption expenditure in the short to 2019-20 was reported at a mere 2.7% - the lowest in medium-term. Even as the pace of re-opening of the decades - reflecting inter alia the impact of nationwide economy accelerates and alignment to the new normal lockdowns in late March 2020. becomes a key imperative across sectors, it is clear While inflation remained benign during the first half of that the economic impact on certain industries is likely 2019-20 prompting consecutive policy rate cuts by to be more severe. This will be a key monitorable and the Reserve Bank of India (RBI), a surge in food prices requisite support would need to be extended to nurture in the second half caused a spike in retail inflation them back to health. Going forward, there is heightened uncertainty around the timing and shape of the recovery trajectory as the Indian economy is expected to face multi-dimensional challenges in the form of health crises, job losses, labour force displacement, lower productivity, lack of export opportunities and volatility in capital flows. ITC Limited REPORT AND ACCOUNTS 2020 37 Report of the Board of Directors Even in the face of such tumultuous and challenging product-specific climate-controlled infrastructure global upheavals, India remains one of the most dynamic as well as in branded products that benefit large major economies in the world. With structural drivers agri value chains. Corporate participation is essential of growth firmly in place, the pace of economic growth not only to invest in requisite infrastructure, but also is expected to pick up over time. The significant actions to provide assured market linkages to farmers. of the Government as well as the Reserve Bank of India The slew of reforms announced recently by the in recent months, including monetary stimulus and Government of India including amendment of certain liquidity facilities to reduce systemic stress, have provisions of the Essential Commodities Act, 1955, supported confidence building measures and contributed reforms in agricultural marketing and risk mitigation to limiting the amplification of the shock. Further through predictable prices are commendable and measures may be warranted going forward to will go a long way in stimulating growth in the improve demand, drive consumption and revive the Agriculture sector in the country. These powerful Indian economy. reforms will empower farmers, strengthen agri-food During the year, India has moved up 14 places to the processing linkages and enable demand-driven 63rd position globally in the ‘Ease of Doing Business’ value-added agriculture. rankings on the back of reforms in areas such as starting A big thrust on India’s Food Processing sector can lead a business, dealing with construction permits, trading to significant job creation, enhance rural incomes and across borders and resolving insolvency. The successful help manage food inflation. Similarly, the Agro-forestry implementation of further structural initiatives identified sector, as a source of raw material for wood-based by the Government towards improving the ease of industry, is woefully constrained by policies that not doing business and fostering greater levels of value only prevent job creation in India but also promote addition within the country would be crucial to boost the avoidable imports. By providing crucial policy support, performance of the Indian economy and realise its the entire wood-based value chain can substantially full potential.