INDIA the Economic Scenario

` ` 07/2019 INDIA Contact: Rajesh Nath, Managing Director Please Note: Jamly John, General Manager Telephone: +91 33 40602364 1 crore = 10 000 000 Fax: +91 33 40602364 1 lakh = 100 000 E-mail: [email protected] 1 Euro = Rs.80 The Economic Scenario Economic Growth The largest emerging market economies like India are experiencing an even more pronounced effect of the global downturn as per the IMF, warning that the global economy is witnessing synchronized slowdown which will result in slower growth for 90% of the world this year. IMF pointed out that the widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade. The World Economic Outlook to be released shortly will show downward revisions for 2019 and 2020. Despite this overall deceleration, close to 40 emerging market and developing economies are forecast to have real GDP growth rates above 5% including 19 in sub-Saharan Africa. The precarious outlook presents challenges for countries already facing difficulties including some of the Fund's programme countries. The Reserve Bank of India recently lowered India's GDP growth estimate for the year to 6.1% from the earlier figure of 6.9% due to the on-going period of economic slowdown. It is advised to use monetary policy wisely and enhancing financial stability. Referring to a new IMF research, which shows how structural reforms can raise productivity and generate enormous economic gains, they refer to these changes as the key to achieving higher growth over the medium and long-term. The right reforms in the right sequence could double the speed at which emerging markets and developing economies reach the living standards of the advanced economies as per IMF. While the need for international cooperation is going up, the will to engage is going down. While bank credit numbers have been weak in FY19, broader data released by the Reserve Bank of India (RBI) shows that financing of business shrunk 87% in FY20 up to mid-September. The numbers indicate that the slowdown is more intense than earlier estimated and explains the RBI’s decision to VDMA-Newsletter “India”, Edition 07/2019 Contact: Oliver Wack, Phone: +49 69 6603-1444 2 Indian Economic and Industrial Scenario, 07/2019 VDMA INDIA Office slash its growth forecast from 6.9% to 6.1%. The total funds flow in FY19 (up to mid-September) to businesses from banks, capital markets and non- bank lenders stood at nearly € 92,500 million (Rs 7.4 lakh crore). This number shrunk to € 11,374 million (Rs 90,995 crore) in FY20 in the same period. A large chunk of this difference comes from the € 38,750 million (Rs 3.1-lakh-crore) drop in bank credit growth. As against last year’s credit growth of € 23,125 million (Rs 1.85 lakh crore), banks’ lending went into the negative region by € 16,000 million (Rs 1.28 lakh crore) in the first half this year. The second big drop is in the flow from non-banks, which fell € 41,250 million (Rs 3.3 lakh crore) from € 68,750 million (Rs 5.5 lakh crore) to € Rs. 27,500 million (Rs 2.2 lakh crore). This drop was because finance companies and mutual funds did not invest in commercial papers (CPs) and other debt issued by businesses. The slowdown in credit growth was led by public sector banks and private sector banks, while credit growth of foreign banks continued to be modest, despite some uptick in the recent period. While credit growth to agriculture and personal loans remained broadly unchanged in the last one year, credit growth to industry moderated in the last four months after accelerating continuously between August 2018 and April 2019. Credit growth to services has decelerated sharply since January 2019. For banks, it is personal loans that have been the only drivers of credit. Within personal loans, credit offtake has been broadly concentrated in two segments — housing and credit card outstanding. Within industry, credit growth to beverages & tobacco, cement, engineering, vehicles, construction & power, telecommunications and roads in the infra segment accelerated. Risk-averse banks are choosing to put their money in government bonds. Banks’ holding of government in excess of the statutory requirement stood at 6.9% of deposits, up from 6.3% as of end-March 2019. Among domestic non-bank sources of funding, public issues of equity and private placement increased significantly. India ranks high in terms of macroeconomic stability and market size, while its financial sector is relatively deep and stable despite the high delinquency rate, which contributes to weakening the soundness of its banking system. India has moved down 10 places to rank 68th on an annual global competitiveness index, largely due to improvements witnessed by several other economies, while Singapore has replaced the US as the world's most competitive economy. India, which was ranked 58th in the annual Global Competitiveness Index compiled by Geneva-based World Economic Forum (WEF), is among the worst-performing BRICS nations along with Brazil (ranked even lower than India at 71st this year). India is ranked also high at 15th place in terms of corporate governance, while it is ranked second globally for shareholder governance, the WEF study showed. In terms of the market size, India is ranked third, while it has got the same rank for renewable energy regulation. Besides, India also punches above its development status when it comes to innovation, which is well ahead of most emerging economies and on par with several advanced economies. As per WEF with respect to the healthy life expectancy, where India has been ranked 109th out of total the 141 countries surveyed for the index, is one of the shortest outside Africa and significantly below the South Asian average. Besides, India needs to grow its skills base, while its product market efficiency is undermined by a lack of trade openness and the labour market is characterised by a lack of worker rights' protections, insufficiently developed active labour market policies and critically low participation of women. With a ratio of female workers to male workers of 0.26, India has been ranked very low at 128th place. India is also ranked low at 118th in terms of meritocracy and incentivisation and at 107th place for skills. In the overall ranking, India is followed by some of its neighbours including Sri Lanka at 84th place, Bangladesh at 105th, Nepal at 108th and Pakistan at 110th place. The drop of 10 places in India's position to 68th place may look dramatic, but the decline in the country's competitiveness score is relatively small. A number of similarly placed economies including Colombia, South Africa and Turkey improved over the past year and hence have overtaken India. The study highlighted that the global economy is unprepared for a major slowdown. The Global Competitiveness Index (GCI), which was launched in 1979, maps the competitiveness landscape of 141 economies through 103 indicators organised into 12 pillars. Singapore has become the world's most competitive economy in 2019, pushing the US to the second place. Hong Kong SAR is ranked 3rd, Netherlands is 4th and Switzerland is ranked 5th. VDMA-Newsletter “India”, Edition 07/2019 Contact: Oliver Wack, Phone: +49 69 6603-1444 3 Indian Economic and Industrial Scenario, 07/2019 VDMA INDIA Office Industry Scenario Infrastructure GVK group to spend € 1063 million(Rs 8,500 Cr)on Navi Mumbai airport phase I The GVK group, which is in the process of developing Navi Mumbai International Airport, will be spending € 1063 million (Rs 8,500 crore) in the first phase to cater to 10 million passengers per annum. The airport is a public-private partnership venture in which the GVK-led Mumbai International Airport has a 74% stake with CIDCO, the Maharashtra government's nodal agency for the project, holding the remaining 26%. The greenfield international airport will be built on 1,160 hectares in phases and eventually cater to 60 million passengers per year. There is a possibility of spending another € 312.5 million (Rs 2,500 crore) or € 375 million (Rs 3000 crore) and another 20 million could go ahead. The initial concession period is 30 years from the appointed date which is extendable for a further 10 years. 94% of land development works have been completed as in April 2019 and about 85% of structures at the site have been demolished and vacated by CIDCO. The group is determined to acquire the 13.5% Mumbai International Airport Limited owned by South African firm Bid Services Division Mauritius or Bidvest. Vedanta plans € 312.5 million (Rs 2,500 crore) plant for flat rolled products India’s largest aluminium maker Vedanta is expanding its portfolio of value-added products and is planning to set up an aluminium flat rolled products plant with an estimated capital expenditure of € 312.5 million (Rs 2,500 crore). Flat rolled products, or FRPs, comprise foils, sheets and plates and are used in the automobile, aerospace, consumer durables sectors, among others. This capex will be part of the € 1875 million (Rs 15,000 crore) investment plan by Vedanta to take its aluminium capacity from the current 2 million to 3 million tonnes in the next 3-4 years. They are looking at producing rolled products and entering the sheets market. For this, they are currently talking to Chinese players to see if they can bring a plant here. This project needs some capex. It also gives you high margins and therefore they are investing in R&D to move ahead in that direction. The company will be housing the plant in either of its two aluminium facilities in Chhattisgarh or Odisha.

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