Connect with us

Reports

India’s Growth Story Since the 1990s Remarkably Stable and Resilient

Published

on

The Indian economy is set to revert to its trend growth rate of 7.5 percent in the coming years as it bottoms out from the impact of the Goods and Services Tax (GST) and demonetization, a new World Bank report says.

The India Development Update, released today, is a biannual flagship publication of the World Bank which takes stock of the Indian economy. The current issue (March 2018), titled “India’s Growth Story” describes the state of the Indian economy, shares India’s growth experience and trajectory over the past several decades and provides a long-term perspective on India’s growth outlook. Over the last 50 years, the Update notes that India’s average growth has accelerated slowly but steadily across sectors – agriculture, industry and services – and become more stable. This is reflected in increasing labor productivity and total factor productivity. After growing far more rapidly before the global financial crisis, the economy has grown at an average rate of about 7 percent since 2008–09.

The Update centers around an assessment of what it will take for India to return to growth rates of 8 percent and higher on a sustained basis. To sustain its growth path, India will need to keep a close eye on several factors to make the country more resilient to shocks: the changing landscape of open trade, reforms in the banking sector, strengthening financial institutions, and regulatory supervision of the financial sector. Deepening its structural reforms in the areas of health, education and service delivery will be critical for development of human capital required to sustain growth.

Outlook

India’s GDP growth saw a temporary dip in the last two quarters of 2016-17 and the first quarter of 2017-18 due to demonetization and disruptions surrounding the initial implementation of GST. Economic activity has begun to stabilize since August 2017. India’s GDP growth is projected to reach 6.7 percent in 2017-18 and accelerate to 7.3 percent and 7.5 percent in 2018-19 and 2019-20 respectively. While services will continue to remain the main driver of economic growth; industrial activity is poised to grow, with manufacturing expected to accelerate following the implementation of the GST, and agriculture will likely grow at its long-term average growth rate.

India’s growth in recent years has been supported by prudent macroeconomic policy: a new inflation targeting framework, energy subsidy reforms, fiscal consolidation, higher quality of public expenditure and a stable balance of payment situation. In addition, recent policy reforms have helped India improve the business environment, ease inflows of foreign direct investment (FDI) and improve credit behavior.

The Update points to the positive impulse expected from India’s novel GST system which, while remaining more complex than comparable systems in other countries, is likely to improve the domestic flow of goods and services, contribute to the formalization of the economy and sustainably enhance growth.

“India’s long-term growth has become more steady, stable, diversified and resilient. In the long-run, for higher growth to be sustainable and inclusive, India needs to use land and water, which are increasingly becoming scarce resources, more productively, make growth more inclusive, and strengthen its public sector to meet the challenges of a fast growing, globalizing and increasingly middle-class economy,” said Junaid Ahmad, World Bank Country Director in India.

Higher growth requires reforms

Despite the recent momentum, attaining a growth rate of 8 percent and higher on a sustained basis will require addressing several structural challenges. India needs to durably recover its two lagging engines of growth – private investments and exports – while maintaining its hard-won macroeconomic stability. Crucial steps in this process include cleaning up banks’ balance sheets, realizing the expected growth and fiscal dividend from the GST, and continuing the integration into the global economy.

“Durable revival in private investments and exports would be crucial for India achieving a sustained high growth of 8 percent and above,” said Poonam Gupta, Lead Economist and the main author of the report. “This will require continued impetus for structural reforms. Resorting to countercyclical policies will not help spur sustained growth and India should not compromise its hard-earned fiscal discipline in order to accelerate growth,” she added.

Priority areas for reform

Investments 

The rate of investment needs to accelerate. Private investment in India is constrained by several factors including issues related to past leverages, credit availability, market demand, and policy uncertainty. Understanding and relieving the generic, spatial, or sector-specific constraints to investment growth is important. Further policy measures should aim at assuring an efficient mix of public and private resources to effectively use scarce public funds and crowd-in private investment. Private sector investment in particular needs to be enhanced, through measures that assure a favorable investment climate while reducing policy uncertainty.

Bank Credit

Reviving bank credit to support growth is important. The banking sector is experiencing high balance sheet stress. The genesis of the problem can be traced to the period of exuberant bank credit growth during 2004–08, and to the response to the global financial crisis, which entailed evergreening of loans. Decisive reforms will be needed to enable the Indian banking sector to help finance India’s growth aspirations. The implementation of the new Insolvency and Bankruptcy Code is an important step towards improving the credit behavior; and the recent efforts towards recapitalization have the potential to ease stress on the banking sector and reinvigorate bank credit. However, they need to be followed by wider reforms. Additional measures could include a consolidation of public-sector banks, revising their incentive structure to align more closely with their commercial performance, ensuring a level playing field for private banks, and opening the space for greater competition.

Exports

Export growth rate remains well below the levels registered during the boom years of 2004-2008. The Update points out that India’s export growth has lagged global growth in recent years. Among the many preconditions for India to reverse this pattern are an infrastructural boost to bring it on par with the world’s current manufacturing hubs. In addition, reforms to land, labor and financial markets would be needed to assure the continued competitive supply and use of key production inputs. Finally, building on recent improvements to its doing business ranking, India can benefit from further strengthening its competitive business environment.

Leverage external conditions

As India has increased the level of integration with the rest of the world in recent years, it could benefit from the revival in the global economy and trade volumes, both of which are poised to grow at healthy rates in the near-term. Leveraging the global recovery will be key for India to elevate its growth rates. While oil prices pose less of a risk for the Indian economy, the expected normalization of monetary policy by the US and other advanced economies are likely to tighten financing conditions.

Continue Reading
Comments

Reports

Renewable Energy Jobs Reach 12 Million Globally

Published

on

Renewable energy employment worldwide reached 12 million last year, up from 11.5 million in 2019, according to the eighth edition of Renewable Energy and Jobs: Annual Review 2021. The report was released by the International Renewable Energy Agency (IRENA) in collaboration with the International Labour Organization (ILO) at a high-level opening of IRENA’s Collaborative Framework on Just and Inclusive Transitions, co-facilitated by the United States and South Africa.

The report confirms that COVID-19 caused delays and supply chain disruptions, with impacts on jobs varying by country and end use, and among segments of the value chain. While solar and wind jobs continued leading global employment growth in the renewable energies sector, accounting for a total of  4 million and 1.25 million jobs respectively, liquid biofuels employment decreased as demand for transport fuels fell. Off-grid solar lighting sales suffered, but companies were able to limit job losses.

China commanded a 39% share of renewable energy jobs worldwide in 2020, followed by Brazil, India, the United States, and members of the European Union. Many other countries are also creating jobs in renewables. Among them are Viet Nam and Malaysia, key solar PV exporters; Indonesia and Colombia, with large agricultural supply chains for biofuels; and Mexico and the Russian Federation, where wind power is growing. In Sub-Saharan Africa, solar jobs are expanding in diverse countries like Nigeria, Togo, and South Africa.

“Renewable energy’s ability to create jobs and meet climate goals is beyond doubt. With COP26 in front of us, governments must raise their ambition to reach net zero,” says Francesco la Camera, IRENA Director-General. “The only path forward is to increase investments in a just and inclusive transition, reaping the full socioeconomic benefits along the way.”

“The potential for renewable energies to generate decent work is a clear indication that we do not have to choose between environmental sustainability on the one hand, and employment creation on the other. The two can go hand-in-hand,” said ILO Director-General, Guy Ryder.

Recognising that women suffered more from the pandemic because they tend to work in sectors more vulnerable to economic shocks, the report highlights the importance of a just transition and decent jobs for all, ensuring that jobs pay a living wage, workplaces are safe, and rights at work are respected. A just transition requires a workforce that is diverse – with equal chances for women and men, and with career paths open to youth, minorities, and marginalised groups. International Labour Standards and collective bargaining arrangements are crucial in this context.

Fulfilling the renewable energy jobs potential will depend on ambitious policies to drive the energy transition in coming decades. In addition to deployment, enabling, and integrating policies for the sector itself, there is a need to overcome structural barriers in the wider economy and minimise potential misalignments between job losses and gains during the transition.

Indeed, IRENA and ILO’s work finds that more jobs will be gained by the energy transition than lost. An ILO global sustainability scenario to 2030 estimates that the 24-25 million new jobs will far surpass losses of between six and seven million jobs. Some five million of the workers who lose their jobs will be able to find new jobs in the same occupation in another industry. IRENA’sWorld Energy Transition Outlook forecasts that the renewable energy sector could employ 43 million by 2050.

The disruption to cross-border supplies caused by COVID-19 restrictions has highlighted the important role of domestic value chains. Strengthening them will facilitate local job creation and income generation, by leveraging existing and new economic activities. IRENA’s work on leveraging local supply chains offers insights into the types of jobs needed to support the transition by technology, segment of the value chain, educational and occupational requirements.

This will require industrial policies to form viable supply chains; education and training strategies to create a skilled workforce; active labour market measures to provide adequate employment services; retraining and recertification together with social protection to assist workers and communities dependent on fossil fuels; and public investment strategies to support regional economic development and diversification.

Read full report

Continue Reading

Reports

In highly uneven recovery, global investment flows rebound

Published

on

After a big drop last year caused by the COVID-19 pandemic, global foreign direct investment (FDI) reached an estimated $852 billion in the first half of 2021, showing a stronger than expected rebound.  

That’s according to the latest Investment Trends Monitor, released this Tuesday by the United Nations Conference on Trade and Development (UNCTAD).  

It shows the increase in the first two quarters in FDI, recovered more than 70 per cent of the losses stemming from the COVID-19 crisis in 2020. 

For the UNCTAD‘s director of investment and enterprise, James Zhan, the good news “masks the growing divergence in FDI flows between developed and developing economies, as well as the lag in a broad-based recovery of the greenfield investment in productive capacity.” 

Mr. Zhan also warns that “uncertainties remain abundant”. 

Global outlook  

The duration of the health crisis, the pace of vaccinations, especially in developing countries, and the speed of implementation of infrastructure stimulus, remain important factors of uncertainty. 

Other important risk factors are labour and supply chain bottlenecks, rising energy prices and inflationary pressures.  

Despite these challenges, the global outlook for the full year has improved from earlier projections. 

The growth in the next few months should be more muted than the in the first half of the year, but it should still take FDI flows to beyond pre-pandemic levels. 

Uneven recovery 

Between January and June, developed economies saw the biggest rise, with FDI reaching an estimated $424 billion, more than three times the exceptionally low level in 2020. 

In Europe, several large economies saw sizeable increases, on average remaining only 5 per cent below pre-pandemic quarterly levels.  

Inflows in the United States were up by 90 per cent, driven by a surge in cross-border mergers and acquisitions. 

FDI flows in developing economies also increased significantly, totalling $427 billion in the first half of the year.  

There was a growth acceleration in east and southeast Asia (25 per cent), a recovery to near pre-pandemic levels in Central and South America, and upticks in several other regional economies across Africa and West and Central Asia. 

Of the total recovery increase, 75 per cent was recorded in developed economies. 

High-income countries more than doubled quarterly FDI inflows from rock bottom 2020 levels, middle-income economies saw a 30 per cent increase, and low-income economies a further nine per cent decline.  

Mixed picture for investors 

Growing investor confidence is most apparent in infrastructure, boosted by favourable long-term financing conditions, recovery stimulus packages and overseas investment programmes. 

International project finance deals were up 32 per cent in number, and 74 per cent in value terms. Sizeable increases happened in most high-income regions and in Asia and South America. 

In contrast, UNCTAD says investor confidence in industry and value chains remains shaky. Greenfield investment project announcements continued their downward path, decreasing 13 per cent in number and 11 per cent in value until the end of September.  

Agenda 2030 

After suffering double-digit declines across almost all sectors, the recovery in areas relevant to Sustainable Development Goals (SDGs) in developing countries remains fragile. 

The combined value of announced greenfield investments and project finance deals rose by 60 per cent, but mostly because of a small number of very large deals in the power sector.  

International project finance in renewable energy and utilities continues to be the strongest growth sector. 

The investment in projects relevant to the SDGs in least developed countries continued to decline precipitously. New greenfield project announcements fell by 51 per cent, and infrastructure project finance deals by 47 per cent. Both had already fallen 28 per cent last year.

Continue Reading

Reports

Capabilities fit is a winning formula for M&A: PwC’s “Doing the right deals” study

Published

on

city business

Ensuring there is a capabilities fit between buyer and target is key to delivering a high-performing deal, according to a new PwC study of 800 corporate acquisitions. . The study finds that capabilities-driven deals generated a significant annual total shareholder return (TSR) premium (equal to 14.2% points) over deals lacking a capabilities fit.

The “Doing the right deals” study looks at the 50 largest deals with publicly-listed buyers in each of 16 industries and evaluates the characteristics that delivered superior financial outcomes for the buyers, as measured by annual TSR.

A capability is defined as the specific combination of processes, tools, technologies, skills, and behaviours that allows the company to deliver unique value to its customers.

Two types of deals were found to outperform the market: capabilities enhancement deals – in which the buyer acquires a target for a capability it needs — and capabilities leverage deals – in which the buyer uses its capabilities to generate value from the target. These represent a true engine of value creation, delivering average annual TSR that was 3.3% points above local market indices. Deals without these characteristics – limited-fit deals – had an average annual TSR of -10.9% points compared to the local market indices.

While 73% of the largest 800 deals analysed sought to combine businesses that did fit from a capabilities perspective, 27% were limited-fit deals. The analysis shows that for every dollar spent on M&A, roughly 25 cents were spent on such limited-fit deals that in many cases destroyed shareholder value.

Alastair Rimmer, Global Deals Strategy Leader, PwC UK said: “Our analysis confirms that deals where the buyer is focused on enhancing its own capabilities or leveraging its capabilities to improve the target can result in a substantial TSR premium. Whether a deal creates value depends less on whether it is aimed at consolidation, diversification or entering new markets. What matters is whether there is a solid capabilities rationale between the buyer and the target.”

Capabilities fit delivers shareholder value across industries

The capabilities premium was found to be positive across all of the 16 industries studied. The share of capabilities-driven deals was highest in pharma & life sciences (92%), an industry where deals often combine one company’s innovation capabilities with another’s strength in distribution.  Other leading industries in capabilities fit deals were health services and telecommunications (both with 90% capabilities-driven deals) and automotive (86%).  Limited fit deals were found to be most prevalent in the oil & gas industry (62%), where asset acquisition can play an important role in addition to capabilities fit.

The analysis shows that the stated strategic intent of a deal, as defined in corporate announcements and regulatory filings, has little to no impact on value creation. Whether a deal fits or not depends less on stated goals of consolidation, diversification or entering new markets. What matters is whether there is a capabilities fit between the buyer and the target.  Deals aiming for geographic expansion notably stood out as performing less well than others, largely because many of them (34%) were limited-fit deals.

The M&A playing field has shifted due to COVID-19

More than ever, companies must be clear in defining which capabilities they can leverage to succeed, and which capabilities gaps they need to fill.

Hein Marais, Global Value Creation Leader, PwC UK added: “Deal rationales have shifted in a COVID context, reflecting the heightened need for new and different capabilities if an enterprise is to generate value and create sustained outcomes.  The need to move quickly increases the pressure to do deals at pace – and thereby the risk of failing to evaluate capabilities fit with enough care. Ensuring such capabilities fit, however, dramatically increases the chances of your deal creating value.”

Continue Reading

Publications

Latest

Intelligence2 hours ago

Israel-Bhutan peace agreement and its affect on China’s influence

First: The relationship between (political normalization agreements between Israel and the Emirates and the State of Bhutan or the Kingdom...

South Asia6 hours ago

The Khalistan nightmare

 After several postponements, the “Punjab Referendum Commission has announced to hold the “Punjab Independence Referendum on October 31, 2021.  The...

Middle East8 hours ago

Saudi Arabia and Iran want to be friends again

Eventually the ice-cold relationship between Iran and Saudi Arabia began to melt. The two countries sat at the negotiating table...

Africa Today12 hours ago

UN chief condemns ‘ongoing military coup’ in Sudan

UN Secretary-General, António Guterres on Monday condemned the “ongoing military coup” in Sudan, saying Prime Minister Abdalla Hamdok and all other officials, “must be released immediately.”  Long-time ruler...

Environment14 hours ago

‘No time to lose’ curbing greenhouse gases

Last year, heat-trapping greenhouse gases reached a new record, surging above the planet’s 2011-2020 average, and has continued in 2021,...

Africa16 hours ago

Resource Curse and Underdevelopment Give Way to Mass Unrest and Political Instability in Sudan

As reported October 25 by the reputable state media, Al Arabiya, Sudanese army and a cross-section of its population have...

Economy20 hours ago

Regulatory Noose Tightens Around the Federal Reserve: Powell Reaffirmed a Second Term

The Federal Reserve has been under a sharp gaze since the twilight years of former president Donald J. Trump. Whether...

Trending