` ` 6/2020 INDIA Contact: Rajesh Nath, Managing Director Please Note: Jamly John, General Manager Telephone: +91 33 40602364 1 trillion = 100,000 crores or Fax: +91 33 23217073 1,000 billions 1 billion = 100 crores or 10,000 lakhs E-mail: [email protected] 1 crore = 100 lakhs 1 million= 10 lakhs The Economic Scenario 1 Euro = Rs.82 Economic Growth As per the United Nations Conference on Trade and Development (UNCTAD), India’s economy could prove the most resilient in South Asia and its large market will continue to attract market-seeking investments to the country even as it expects a dramatic fall in global foreign direct investment (FDI). However, inflows may shrink sharply. India jumped to ninth spot in 2019 on the list of global top FDI recipients from the twelfth spot in 2018. Due to the Covid-19 crisis, global FDI flows are forecast to nosedive by upto 40% in 2020, from their 2019 value of € 1.40 ($1.54) trillion, bringing FDI below € 0.91 ($1) trillion for the first time since 2005. FDI is projected to decrease by a further 5-10% in 2021 and a recovery is likely in 2022 amid a highly uncertain outlook. A rebound in 2022, with FDI reverting to the pre-pandemic underlying trend, is possible, but only at the upper bound of expectations. The outlook looks highly uncertain. FDI inflows into India rose 13% on year in FY20 to a record € 45 ($49.97) billion compared to € 40 ($44.36) billion in 2018-19. In 2019, FDI flows to the region declined by 5%, to € 431 ($474) billion, despite gains in South East Asia, China and India. FDI to India has been on a long-term growth trend. Positive, albeit lower, economic growth in the post pandemic period and India’s large market will continue to attract market-seeking investments to the country. India’s most sought-after industries, which include professional services and the digital economy, could see a faster rebound as global venture capital firms and technology companies continue to show interest in India’s market through acquisitions. Investors concluded deals worth over € 592 ($650) million in the first quarter of 2020, mostly in the digital sector, twelve large deals in energy were also concluded. Singapore remained the largest source of intraregional investment and a major investor in India. The largest five recipients were China, Hong Kong (China), Singapore, India and Indonesia in VDMA-Newsletter “India”, Edition 6/2020 Contact: Oliver Wack, Phone: +49 69 6603-1444 2 Indian Economic and Industrial Scenario, 6/2020 VDMA INDIA Office developing Asia. Outflows from South Asia grew 6%, driven by investment from India. Yet they remained small, representing only 1% of global outflows. Companies in India are the subregion’s largest investors, with more than 90% of outflows in 2019. Investments from India are expected to decline in 2020, with the largest MNEs revising their earnings down by 25% in early 2020 due to the impact of the pandemic. In order to address the adverse impact of the pandemic, several economies have recently adopted policy measures to boost investment in those industries that are crucial to containing the spread of the virus. India, Italy and the US have adopted measures to encourage manufacturers to expand or shift production lines to medical equipment and personal protective equipment (PPE) to increase the quantity available. All states are expected to see a contraction in their gross state domestic products (GSDP) this fiscal, averaging a sharp 6.3% decline. With contractions ranging from 1.4%-14.3%, four states will witness double-digit GSDP declines. Goa is likely to be worst affected at the upper end of the range, followed by -12.4% for Gujarat and -10.9% and 10.7% for Sikkim and Assam respectively. As agricultural activities were considered as essential services and were less impacted by the lockdown, states with a higher share of agriculture took a relatively smaller hit than others. Similarly, the high levels of digital penetration in the operations of IT, IT enabled, banking and financial services cushioned the lockdown impact on these sectors, giving an advantage to states with a high share of these activities. Among the major states, those likely to be most impacted over the fiscal were Karnataka, Jharkhand, Tamil Nadu, Kerala and Odisha, whereas the least affected would be Madhya Pradesh, Punjab, Bihar, Andhra Pradesh and Uttar Pradesh. Further, given that the states’ own tax revenue (SOTR) is a function of nominal GSDP, states with a high share of SOTR in their total revenue would see a more pronounced impact than others. The most vulnerable states in this respect are Maharashtra, Gujarat, Tamil Nadu, Kerala, Telangana and Haryana. These states are likely to see a higher deviation in nominal GSDP compared to budgeted GSDP of around 15-24%, since they have budgeted for SOTR at between 57-64% of their respective total FY21 revenues. India is looking to increase the scrutiny of imports from Chinese companies or entities located in Association of Southeast Asian Nations (Asean) countries. New Delhi has information about China setting up new entities or acquiring defunct companies in countries such as Vietnam and using these shell enterprises to re-label and export goods to India, exploiting India’s free trade agreement (FTA) with Asean. The government has also sounded out industry and importers to identify such shipments that abuse the FTA as it contemplates actions such as enhanced checks on country of origin certificates by customs authorities. The FTA with Asean allows lower tariffs on most manufactured goods. There are large quantities of imports that are being routed under the Indian-Asean, India-Singapore Free Trade Agreement. A number of these entities there are just engaged in re-labelling of goods for re-export to India. India is seeking to lower its dependence on imports and, following border hostilities with China, looking for ways in which it can reduce trade and business ties with its northern neighbour. The identification of such entities will help the government take effective measures to curb imports through stringent checks of country of origin certificates. These certify where an item has been manufactured and the amount of value addition in the country from which they are shipped. Moreover, verification that exports were being carried out by a shell entity will allow India to make a case for strict country of origin rules, said the people cited above. India’s imports from Asean rose 26% in FY19 against a 10% overall increase. Imports from Vietnam were up 43.3% to € 7 ($7.2) billion. Customs and other revenue agencies can seek verification of country of origin certificates, which are issued by local trade bodies, from revenue authorities in the partner country. This was done in 2015 following a spurt in gold jewellery imports from Thailand. Raising tariffs helps domestic industry only partially as importers resort to the FTA route that offers lower tariffs on 80% of goods. VDMA-Newsletter “India”, Edition 6/2020 Contact: Oliver Wack, Phone: +49 69 6603-1444 3 Indian Economic and Industrial Scenario, 6/2020 VDMA INDIA Office Industry Scenario Infrastructure European infra company A&M’s JV to invest in Mumbai Metro project A&M Development Group has committed € 12.20 million (Rs 100 crore) to a Mumbai metro project along with RCC Infra Ventures through its recently formed Indian arm, Oberoi-A&M Infra-Consortium. The company, backed by Nasdaq-listed Polaris Energy Resources, has written to Maharashtra Government seeking permission to invest in Chembur-Bandra-Kurla Complex (BKC) phase of the Mumbai metro project. This will be A&M Development Group’s maiden investment in India after its announcement to invest € 18.2 ($20) billion in mega projects including smart cities in the country in the coming years. Amid the ongoing Covid-19 crisis, A&M Development Group established its India office with plans to develop and execute roads, bridges, metro networks, airports, hydroelectric and irrigation dams, smart cities and low-cost housing projects through contracting and finance route. Delhi-Amritsar travel to get shorter: Govt clears € 3,049 million (Rs 25K) cr for expressway Amritsar will be connected with the national capital via a brand new expressway as the Government sanctioned a sum of € 3,049 million (Rs 25,000 crore) to kick-start the ambitious project. The project will be a Greenfield or a fresh contract under the Union Government’s Bharatmala scheme. The road is part of the larger expressway that would eventually terminate at Katra in Jammu & Kashmir. The proposed expressway would have a completely different alignment from the existing highway that connects Delhi to Amritsar and would reduce the travel time between the two cities by half. The alignment of expressway was firmed up in January 2019 and process of land acquisition has been initiated. The government had envisaged a Delhi-Katra Expressway that would pass through Amritsar and hence conceived Delhi-Amrtsar-Katra Expressway under Bharatmala. With this expressway, travel time from Amritsar to International airport Delhi would reduce to about 4 hours from nearly 8 hours at present. ArcelorMittal to invest € 244 million (Rs 2,000 cr) in Odisha ArcelorMittal’s has pledged € 244 million (Rs 2,000 crore) investment in Odisha. Even though they could not operate at peak capacity at the Hazira plant during the Covid-19 crisis, they could produce steel in Odisha and export pellets. ArcelorMittal Nippon Steel India (AM/NS India), a joint venture between ArcelorMittal and Japan’s Nippon Steel, acquired the debt laden Essar Steel in an insolvency resolution process overseen by National Company Law Tribunal (NCLT).