Covid-19 hit India severely. The recession exposed the fragility in our economy. After experiencing one of the deepest recessions since the Great Depression, why are investors and analysts positive about India’s economic recovery? Let’s find out!
On February 1st, FM Nirmala Sitharaman presented the Union Budget. With emphasis on Healthcare, Banking & Finance, R&D and Automobiles sectors, Indian investors and analysts are bullish about India’s economic recovery. Despite the covid-19-generated economic uncertainty, 71% of business leaders are optimistic for growth compared to the global average of 57% for world economy recovery. The budget opened avenues for increase of investments in R&D, followed by Tech and Infra.
”Government’s consistent push for ‘Make in India’ and rising interest from companies and governments across the globe in meeting their sourcing requirements from India will pave the way for robust exports. Relentless collaboration between the government and manufacturers and commitment to innovation will go a long way in improving exports. Development of an indigenous supply chain of PPEs within 60 days is one such success story” – said Vishesh C Chandiok, CEO, Grant Thornton Bharat. India’s economy is showing promising signs of a ‘V-shaped’ recovery in 2021 with the return of consumer confidence, strong financial markets and uprise in manufacturing and exporting. India’s GDP is estimated to contract by a record 7.7% during 2020-21 as the COVID-19 pandemic severely hit the key manufacturing and services segments.
VACCINATION PROGRAM HOLDS THE KEY
The covid vaccination program brings along a lot of promise as it will benefit the hospitality, transportation, entertainment sectors which were hit hard during the pandemic. They are immensely critical to India’s recovery over the next few years, and as key to normalizing demand. The programme aims to inoculate as many as 300 million people, most of them frontline workers and high-risk individuals.
BAD BANKS TO THE RESCUE
The budget introduced ‘Bad Banks’ – an asset reconstruction company that will take over existing bad debt and find ways to manage and dispose of them to alternative investment funds. While the corporate sector is recovering, other sectors like construction, real estate development, airlines and tourism continue to struggle with inactivity – which could be a stress towards the banks. This is where ‘Bad Banks’ come into the picture and help the struggling sectors to leverage on debts.
While the budget will support recovery due to greater fiscal spending, India’s improving growth prospects are going to be critical for its ability to sustain the higher levels of deficit. Economists have raised their forecasts for the current fiscal year and 2021-22, expecting a pick-up in government spending, consumer demand and a resumption of most economic activities stopped by the COVID-19 pandemic.
ECONOMY FIGHTS BACK
Annual growth of 3.9% in the agricultural sector and 1.6% in the manufacturing sector in December raised hopes of an early recovery as the government rolls out plans to distribute COVID-19 vaccines to India’s 1.4 billion people . The State-wise collection showed the fightback spirit in consumer confidence.
Maharashtra, which was amongst the severely affected by the COVID-19 pandemic, has posted a healthy growth of 7% in GST collection.
The Indian government focused on spending measures that it said were designed to spur demand and get the economy back on a growth trajectory.
We are an Ahmedabad-based investment and financial advisory firm helping individuals, families and businesses in effectively and efficiently managing their finances, investment and further growing their wealth.