Indian Economy : News,Discussions & Updates

Nilgiri

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Its typical reductive hot take (doom and gloom if X happens).

Like people will get into one-sided look (depending largely on their own confirmation bias) at which side is benefiting more from say China lowering its reliance/exposure on USD (and thus selling some large % of its holdings to world market at some point this decade for argument sake) ...when really there are two sides to look at (China will hurt itself too in various ways doing this too quickly if it does).

But the key is if someone is selling, it means some one else is buying it ....and the system of trust is still there in larger sense....and then it just boils down to your take on whether any transaction benefits the buyer more or seller more (or near equally).

It is when someone doesnt pay (as agreed on something one takes off the shelf) that we have a real problem. Things like loan or bond defaults.

Or if you want to buy something, but there are no sellers of it (scarcity)....or vice versa you want to sell something, but there are no takers (overabundance)....i.e for whatever reason the (larger) market is completely out of concert with you.

But those are very different matters to simply proposition of buying/selling within market norms.

It is hard to argue USD is near any extreme (scarcity vs overabundance in world forex market) given its a large dominant reference to begin with, hindsight is 20/20 for lot of these things. Certainly US default pressure is very low (even with its terrible debt driven fiscal policy of late) as a whole..... given large world acceptance of that reference to begin with.
 
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RISING SUN

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India to become world's third-largest economy by FY28, says IMF​

India failed to unseat the UK and missed being the fifth-largest economy by $10 billion in 2021-22. It’ll have to wait another year before it gets that coveted spot in 2022-23, overtaking the UK by $27 billion.

By 2025-26 (FY26), the Indian economy would equal Germany’s to be the fourth-largest. It would become the third-largest by 2027-28 (FY28), when it is projected to grow bigger than Japan, according to the International Monetary Fund’s (IMF’s) World Economic Outlook.
By 2026-27, India’s economy would not be $5 trillion as hoped by the finance ministry, but close enough. It would be $4.94 trillion that year.

The following year, India’s economy would hit the $5.36-trillion mark, higher than Japan’s at $5.17 trillion. That year, India would become the third-largest economy.

The size of India’s economy was $3.18 trillion in 2021-22 (FY22), while Britain’s was $3.19 trillion in 2021, according to the flagship publication by the Fund.

The size of India’s economy is calculated on a financial year basis (April to March). For other economies, it is on a calendar year basis.

Earlier, there was a Bloomberg report that stated that India has overtaken the UK in the fourth quarter of FY22, basing it on World Bank data. However, that comparison was made on quarterly figures, not yearly.

India would become a $3.47-trillion economy, while the UK’s would be $3.2 trillion in the current financial year (2022-23), according to the data provided by the IMF.

By FY26, India’s economy would be $4.55 trillion, equal to the size of Germany’s which was bigger than the former by over $1 trillion in FY22. In fact, if figures are not rounded off, India’s economy would be bigger than Germany’s by $1 billion in FY26. But $1 billion is too small a figure for any forecaster to make a precise projection three years down the line, say experts.

Note: For India, financial years are used, so 2020 would mean 2020-21 and so on. Source: IMF
Note: For India, financial years are used, so 2020 would mean 2020-21 and so on. Source: IMF

Note: For India, financial years are used, so 2020 would mean 2020-21 and so on. Source: IMF
Note: For India, financial years are used, so 2020 would mean 2020-21 and so on. Source: IMF
Some may argue that purchasing power parity (PPP) is a better method to gauge the size of the economy. PPP takes into account the cost of living in a country while converting a currency into dollars.


India has been the third-largest economy on PPP terms for quite some time. It will continue to be so until FY28, according to IMF projections.

Bank of Baroda Chief Economist Madan Sabnavis sounded a word of caution in making these interpretations.

“There are issues on gross domestic product numbers and calculations which cause these interpretations. (We) should be cautious since all such calculations are in nominal terms and PPP. Inflation and prices (are) used (to) derive this number,” he observed.



 

RISING SUN

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India’s forex reserves post biggest weekly gain in more than a year​

India’s foreign exchange reserves rose to $531.08 billion in the week through Oct. 28, marking their biggest weekly gain since September 2021, the Reserve Bank of India’s (RBI) weekly statistical supplement showed on Friday.

The country’s reserves were $524.52 billion at the end of the previous week that ended Oct. 21.
They have decline around 16% this year so far due to the RBI’s intervention in the currency markets, as well as valuation changes owing to the dollar’s strength.

In the holiday-shortened week that ended Oct. 28, the rupee rose to snap a run of six weeks of declines. For the current week, it closed flat at 82.44 per dollar.
 

RISING SUN

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India’s manufacturing PMI expands at stronger pace in October​

India’s manufacturing industry remained robust and expanded at a faster pace in October indicating a strong improvement in the health of the sector, a survey showed on Tuesday.
The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) rose to 55.3 in October from 55.1 in September.
While a reading above 50 indicates an overall expansion compared to the previous month, a print below 50 shows an overall decrease. The index is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

The upward movement in the October headline figure largely reflected stronger increases in employment and stocks of purchases.
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There were signs of substantial capacity pressures on Indian goods producers, as outstanding business volumes rose to the greatest extent in almost two years. This led to the hiring of extra workers by some firms. Manufacturing employment rose at a marked rate that was one of the strongest since data collection started in March 2005, the survey showed.

During the month, firms were again able to secure additional work, taking the current sequence of growth to 16 months. Overall, factory orders
increased at an above-trend pace that was nonetheless the weakest since June.
Pollyanna De Lima, Economics Associate Director, S&P Global Market Intelligence said the Indian manufacturing industry again showed signs of resilience in October, with factory orders and production rising strongly despite losing growth momentum.
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“Manufacturers continued to loosen the purse strings as they expect demand buoyancy to be sustained in coming months. There was a marked rise in input purchasing, with firms adding to their inventories to better align with client purchasing,” De Lima noted.
Capacities were again expanded to accommodate for improving sales.
In the month, consumer goods was the best-performing category, recording the greatest performances for output, total sales and exports, De Lima added.
Production likewise expanded at a slower rate at the start of the third fiscal quarter, the slowest since June, albeit one that surpassed its long-run average.

Indian manufacturing companies bought additional inputs in October amid efforts to rebuild stocks and fulfil greater sales, the survey showed.
Price pressures were little-changed from September. The overall rate of cost inflation was the second-weakest for two years. In turn, manufacturers limited hikes to output prices.

On the supply side of the manufacturing industry, the latest results showed a modest increase in input lead times which were nevertheless weaker than those recorded during the first Covid-19 lockdown.

Looking ahead, Indian manufacturers remained confident of a rise in production volumes by October 2023, the survey showed. Predictions of better sales and marketing efforts were among the reasons cited for upbeat projections, it said.

Data also indicated that consumer goods was the brightest area of the manufacturing sector in October. Firms in this segment signaled the fastest increases in output, overall sales and exports.
 

RISING SUN

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India's Impending Economic Boom
India is on track to become the world’s third largest economy by 2027, surpassing Japan and Germany, and have the third largest stock market by 2030, thanks to global trends and key investments the country has made in technology and energy.

India is already the fastest-growing economy in the world, having clocked 5.5% average gross domestic product growth over the past decade. Now, three megatrends—global offshoring, digitalization and energy transition—are setting the scene for unprecedented economic growth in the country of more than 1 billion people.

“We believe India is set to surpass Japan and Germany to become the world’s third-largest economy by 2027 and will have the third-largest stock market by the end of this decade,” says Ridham Desai, Morgan Stanley’s Chief Equity Strategist for India. “Consequently, India is gaining power in the world order, and in our opinion these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies.”

All told, India’s GDP could more than double from $3.5 trillion today to surpass $7.5 trillion by 2031. Its share of global exports could also double over that period, while the Bombay Stock Exchange could deliver 11% annual growth, reaching a market capitalization of $10 trillion in the coming decade.

In a new Morgan Stanley Research Bluepaper, analysts working across sectors look at how this new era of economic development could bring about staggering changes: boosting India’s share of global manufacturing, expanding credit availability, creating new businesses, improving quality of life and spurring a boom in consumer spending.

“In a world that is currently starved of growth, the opportunity set in India must be on global investors’ radar,” says Chetan Ahya, Morgan Stanley’s Chief Asia Economist. “India will be one of only three economies in the world that can generate more than $400 billion annual economic output growth from 2023 onward, and this will rise to more than $500 billion after 2028.”
Global Offshoring Creates a Workforce for the World
Companies around the world have been outsourcing services such as software development, customer service and business process outsourcing to India since the early days of the Internet. Now, however, tighter global labor markets and the emergence of distributed work models are bringing new momentum to the idea of India as the back office to the world.

“In a post-Covid environment, CEOs are more comfortable with both work from home and work from India,” says Desai. In the coming decade, he notes, the number of people employed in India for jobs outside the country is likely to at least double, reaching more than 11 million, as global spending on outsourcing swells from $180 billion per year to around $500 billion by 2030.

India is also poised to become the factory to the world, as corporate tax cuts, investment incentives and infrastructure spending help drive capital investments in manufacturing.

“Multinationals are now buoyant about the prospects of investing in India, and the government is helping their cause by investing in infrastructure as well as supplying land for building factories,” says Upasana Chachra, Chief India Economist. Morgan Stanley data shows that multinational corporations’ sentiment on the investment outlook in India is at an all-time high. Manufacturing’s share of GDP in India could increase from 15.6% currently to 21% by 2031—and, in the process, double India’s export market share.

India's Share of Manufacturing is expected to increase to 21% of GDP by 2031

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Digitalization, Credit and the Consumer​


India began laying the foundation for a more digital economy more than a decade ago with the launch of a national identification program called Aadhaar. The system creates biometric IDs to establish proof of residence and has been instrumental in digitizing financial transactions, among other benefits.

This initiative is now part of IndiaStack, a decentralized public utility offering a low-cost comprehensive digital identity, payment and data-management system. “IndiaStack is likely to lead to a massive change in how India spends, borrows and accesses healthcare,” says Desai.
IndiaStack has broad applications, including a network for lowering credit costs, making loans more accessible and affordable for both consumers and businesses. Credit availability is an important component of economic growth, and “India is currently one of the most under leveraged countries in the world,” says Desai, whose team thinks the ratio of credit to GDP could increase from 57% to 100% over the next decade.

Indian consumers are also likely to have more disposable income. India’s income distribution could flip over the next decade, and consequently overall consumption in the country could more than double from $2 trillion in 2022 to $4.9 trillion by the end of the decade—with the greatest gains going to non-grocery retail, including apparel and accessories, leisure and recreation, and household goods and services, among other categories.

India's overall consumption could more than double as income distribution in the country shifts.

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Energy Access and Transition​


Energy is also key to economic development, as it impacts education, productivity, communication, commerce and quality of life. All of India’s 600,000-plus villages have access to electricity, due to recent upgrades to transmission and distribution, among other changes. This could boost India’s daily energy consumption by 60% over the next decade.

Although India will need to tap fossil fuels to meet its growing energy needs, an estimated two-thirds of India’s new energy consumption will be supplied renewables like biogas and ethanol, hydrogen, wind, solar and hydroelectric power. This could reduce India’s reliance on imported energy and improve living conditions in a country that is now home to 14 of 20 the most polluted cities in the world. It also creates new demand for electric solutions, such electric vehicles, bikes, and green hydrogen-powered trucks and buses.

“The rise in India’s energy consumption alongside the energy transition opens up a new segment to boost investment growth,” says Girish Achhipalia, India Utilities and Industrials analyst. “We believe this rise in capital investments will help to unleash a virtuous cycle of investment, with more jobs and income, more savings and in turn more investment.”

Investing In the India Decade​


Investing in India is a long-term theme, and one that comes with its share of risks, including prolonged global recession, adverse geopolitical developments, domestic policy changes, lack of skilled labor, energy shortages and commodity volatility.

While there are distinct differences between India’s evolution and economic expansion in China, many investment themes that have played out or are playing out in China—including the growth of financial services, industrials and consumer goods—are gaining momentum.

“In the coming decade, as India’s economy transforms, we think that it will be increasingly relevant for global investors in a similar way that China is today,” says Ahya, adding that India’s next decade could resemble China’s path from 2007 through 2012. “We think that India offers the most compelling growth opportunity in Asia in the coming years.”
 

RISING SUN

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Centre allows International Trade Settlements in Indian Rupees for Export Promotion Schemes under the Foreign Trade Policy​

The Government of India has made suitable amendments in the Foreign Trade Policy and Handbook of Procedures to allow for International Trade Settlement in Indian Rupees (INR) i.e., invoicing, payment, and settlement of exports / imports in Indian Rupees. Accordingly, the Directorate General of Foreign Trade (DGFT) had earlier introduced Para 2.52(d) vide Notification No. 33/2015-20 dated 16.09.2022 to permit invoicing, payment and settlements exports and imports in INR in sync with RBI’s A.P. (DIR Series) Circular No.10 dated 11th July 2022.


In continuation to the above notification, changes have been introduced under Para 2.53 of the Foreign Trade Policy, for grant of exports benefits / fulfilment of Export Obligation under the Foreign Trade Policy, for export realisations in Indian Rupees as per the RBI guidelines dated 11th July 2022.


The updated provisions for Export Realisation in Indian rupees been notified for, imports for exports (Para 2.46 of FTP), export performance for recognition as Status Holders (Para 3.20 of FTP), Realisation of export proceeds under Advance Authorisation (AA) and Duty Free Import Authorisation (DFIA) schemes (Para 4.21 of FTP) and Realisation of Export Proceeds under Export Promotion Capital Goods (EPCG) Scheme (Para 5.11 of HBP).


Accordingly, benefits / fulfilment of Export Obligation under the Foreign Trade Policy has been extended for realisations in Indian Rupees as per the RBI guidelines dated 11th July 2022. Given the rise in interest in internationalisation of Indian Rupee, the given Policy amendments have been undertaken to facilitate and to bring ease in international trade transactions in Indian Rupees.
 

RISING SUN

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