Economic
Highlights
New Delhi, 2 October 2023
Indian Macros ‘Charm’
US BONDS HOLD UP MANY GAINS
By Shivaji Sarkar
Developments and statistics about India’s growth are
interesting. Various contrary figures indicate a queer pitch. While global
financial services group Nomura upgrades India’s rating over “strong macro”,
start-ups see 72 per cent funding fall in January-September, top 75 Indian
brands see 4 per cent dip in value even as India Inc. is worried over the staggering
growth in illicit trade.
Not less interesting are the stock market figures. As
number of IPOs, new equities hit multi-year high on good valuations and
pricing, Mumbai Sensex continues its selling spree on cues, losing over 2200
points in less than a week. Like Nomura, Morgan Stanley and Goldman Sachs also
upgraded India to “overweight” from neutral ‘on the back of strong
macro-economic fundamentals’. Nomura,
however, says there could be some cyclical slowdown in the next few months.
Still there is “long-term structural attractiveness of India”. The jargon is
not easy to comprehend.
Amid these, Abu Dhabi’s International Holding Company
(IHC) exits two energy companies-- Adani Green Energy and Adani Energy
Solutions, earlier was known Adani Transmission. The IHC is selling the stakes
of Rs 7700 crore it invested in these two companies. It will clock a loss of Rs
1831 crore in Adani Green and Rs 2545 crore in Adani Energy. It also has stake
of Rs 9934 crore in Adani Enterprises.
A Federation of Indian Chambers of
Commerce & Industry (FICCI) report on India’s illicit flows of 5
per cent of GDP based on data from United Nations Office on drugs & Crime (UNDOC)
and Global Financial Integrity by Ford Foundation has caused jitters among the Indian
businesses. Prior to this, a UNDOC report of 2011, was the most widely quoted
figure for the extent of money-laundering as the International Monetary Fund’s
consensus range of between 2.5 per cent of global GDP or $1.6 trillion
announced in 1998. The UNDOC analysis suggests that all criminal proceeds then
were likely to have amounted to some 3.6 per cent of the GDP (2.3 – 5.5per cent)
or around $2.1 trillion in 2009.
The FICCI report says, “Trade-based money
laundering in India soared to a whopping $674.9 billion for the 10-year period
from 2009 to 2018, which reflects the magnitude of illicit trade that has
emerged as a major threat to the country’s economy and security”.
“Based on UNDOC estimates, when the Indian economy
surpassed the $3 trillion mark in 2021, the quantum of money laundering in the
country can be estimated at $159 billion which is around 5 per cent of the GDP.
This accentuates the magnitude of the problem driven by the rise in illicit
markets (trade, illegal drugs, arms etc.) and non-market actors.”
It cites recent data provided by the Directorate of
Revenue Intelligence (DRI) to illustrate India’s substantial trade gap due to
mis-invoicing and highlights the growing illicit trade. Smuggling in India
report 2021-22 identified 437 instances of duty evasion totalling Rs3,924
crore, which was a 40 per cent jump from the corresponding figure of Rs 2,810
crore in 2020-21.
Currently India’s illicit trade gap as estimated by
Global Financial Integrity (GFI) is 20 per cent, or about $300 billion when the
country’s economy reaches the $5 trillion-dollar mark. FICCI has flagged this
as a major concern as its study shows that illicit trade is directly linked
with organised crime and terrorism. The study also cites the examples of
various countries worldwide in this regard. “The convergence of trade-based
money laundering with terrorism raises significant concerns for our national
security,” the report observes.
Counterfeiting and illicit goods in India pose
significant risks, including financial risks, public health threats in the case
of fake pharma products and intellectual property issues as well, the report
points out.
The Global Organised Crime Index (2021) shows low
prevalence of organised crime actors, in India but the criminal network has
significant influence, with a score of six which is higher than the average
score of five for 122 countries.
Though it is not clear whether such activities are
impacting start-up fundings or not, it has been observed that the dearth in the
availability of easy money has stranded many start-up ventures. It has fallen
by 72 per cent to $ 6.6 billion between January and September, according to
Tracxn market research company. Earlier the start-ups had garnered $23 billion.
Many cash strapped companies have laid off employees.
Similarly, a study by leading data, insights and
consulting company Kantar reveals that 75 Indian brands valuation declined by 4
per cent to $79 billion this year. This is in addition to the losses of value
of “100 most valuable global brands” in 2022-2023. The overseas contribution
for the top 30 Indian brands accounts for 31 per cent of branded value,
compared with 47 per cent for Japan, 59 per cent of UK, and 85 per cent for
France.
As the US interest rates firm up, the foreign portfolio
investors are selling Indian equities leading to a continuous fall in the
Sensex. The US bond yields have become lucrative. The US
Fed decision has helped it get back global investments and causing fund
crunch for countries like India. A high inflationary Indian economy, with oil
and dollar price surging, grapples to keep its level.
It is no wonder that in such scenario initial public
offerings are doing well and reaching a multi-year high. So far 166 companies
have launched IPOs compared to 164 in 2022-23. Even the large companies have
floated many IPOs. In terms of money raised, so far this year it could get Rs
30,090 crore or a quarter of Rs 1.1 lakh crore raised in 2021-22, when large
offers such as from Paytm, Zomato, Star Health and Nykas hit the market.
However, the largest IPO in the country, Life Insurance
Corporation (LIC), failed to meet investors’ expectations. The LIC launched for
Rs 940 still is below 31 per cent its sale value. Possibly, the discussion
about selling of its stakes did not help it. The US rate hikes have also turned
away many foreign investors. The foreign funds selling led to net outflow of Rs
18000 crore in less than a month.
The FICCI report cites recent data provided by the
Directorate of Revenue Intelligence (DRI) to illustrate India’s substantial
trade gap due to mis-invoicing and highlights the growing illicit trade.
Smuggling in India report 2021-22 identified 437 instances of duty evasion
totalling Rs 3,924 crore, which was a 40 per cent jump from the corresponding
figure of Rs2,810 crore in 2020-21.
This is not to say India lacks the strength as Nomura
and Morgan Stanley point out. However, to strike a continuous growth and gains,
India has to gird up and move beyond mere projections.---INFA
(Copyright, India News & Feature Alliance)
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