December 2020 INDIA

Political & Policy Issues to Watch

Important wins for the Defying forecasts of an opposition win, the NDA retained power in Bihar. It
BJP in Bihar and improved its position within its alliance, relegating the JDU to a junior-partner role.
other states… This, and strong wins in by-elections across 10 other states underscore Prime
Minister Modi’s continued popularity. Normally, this would have given the
government a boost as it prepares for the next session of Parliament. However, a
deepening farmer agitation over the passage of 3 important agricultural reform bills
…but the farmer has queered the pitch. Despite the fact that they will bring in fundamentally
agitation has become favourable changes, some sections of farmers, specifically in north India, are
an unwelcome opposed to them fearing that they would lead to the withdrawal of Government
distraction procurement at assured prices. The latter has explicitly stated this to not be the case
but the fracas continues. If it is not quickly resolved the stalemate can turn serious,
and opposition parties are likely to use it to disrupt Parliament as well.

Watch out for possible An important policy development to watch in the months ahead concerns an RBI
banking reforms Internal Working Group report on bank ownership. It proposes new norms for
promoter- and non-promoter shareholding, the conversion of NBFCs to banks and
– most critically – the issue of bank ownership by business houses, albeit with
specific safeguards. Should these proposals find their way into law, they could
potentially change the face of Indian banking.

Outlook for the Market

GDP contracted by India’s Q2 (Jul-Sep) GDP fell by 7.5%, far less than pegged by forecasters. The
7.5% in Q3 – better construction sector and the trade, hotels and communication side of the services
than expected economy both ‘improved’ sharply, from ~-50% in Q1 to -8.6% and -15.6%,
respectively, in Q2. Financial, real estate and related services, though, slowed
further, from -5.3% to -8.1%. Agriculture maintained the 3.4% rate it recorded in
Apr-Jun and continued to pull up the overall economy. Government spending
continued to contract – by 12.2%, compared to 10.3% in Q1. The biggest surprise
was manufacturing, which turned mildly positive (0.6%) from -39% in Q1.

The recovery is likely IMA’s business confidence survey suggests that average revenue growth amongst
to continue in the corporates will rise to 1% yoy in H2 (October-March) after a 13.8% decline in H1.
months ahead but at a Profit growth will improve to -0.5% from -12.8%. Other lead indicators also point
declining rate to upward momentum in Q3 but at a declining rate. GST receipts remain above the
Rs 1 trillion mark in both October and November but e-Way bill issuances dipped
sharply between the two months, from 64 million to 55 million. Similarly, the IHS
Markit PMI indices for manufacturing and services both fell MoM in November, to
56.3 (from 58.9) and 53.7 (from 54.1), respectively. Car sales rose YoY but fell 14%
MoM in November, while 2-wheeler manufacturers maintained 25%+ rates of
growth. Imports (-13%) continue to fall faster than exports (-9%), indicating
weakness in domestic demand. Meanwhile, uncomfortably-high consumer inflation
– it touched a 6-year high of 7.6% in October – prompted the RBI to hold rates
steady for the third straight time.

Fiscal year starting 1 April 2016-17 2017-18 2018-19 2019-20 2020-21

GDP mp (FY12 series), real growth, % 8.2 7.0 6.1 4.2 -7.5
Inflation - WPI, yr avg (FY12 series), % 1.8 2.9 4.3 4.0 2.0
Inflation - CPI, yr avg (FY12 series), % 4.5 3.6 3.4 4.5 7.5
RBI lending (repo) rate, yr-end, % 6.25 6.00 6.25 4.40 3.75
Rupee to US$1, RBI Ref Rate, yr-end 64.8 65.0 68.6 75.4 76.0

Adit Jain, Chairman, IMA India

Tel: (91-124) 4591 200 Fax: (91-124) 4591 250 Email: aditjain@ima-india.com
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