Moody's lowers India's growth rate

Credit rating agency Moody’s has announced the downgrading of India’s growth forecast for 2020 to 5.4% from 6.6% it had projected earlier. The growth projection for 2021 has also been reduced to 5.8% from earlier announced 6.7%. The earlier projections were announced in November’19.

In today’s update, the rating agency has stated that the downward revision of the growth rates is more due to internal factors than external variables. It further stated that revival of the economy would be dependant on reversal of demand slump and bank credit growth and the agency considered the union budget 2020 as lacking enough stimulus to drive domestic demand.

Complicating the current economic scenario is the coronavirus outbreak in India. India is moderately vulnerable to the outbreak. A wide range of Indian manufacturing units are dependant on supplies from Chinese factories that remain inactive. This is likely to put supply chain management of Indian manufacturers in a spot of bother.

Budgetary Allocation Trends on Education and Health

The Union Budget was tabled in the Lok Sabha on 1st February, 2020. The overall budget allocation witnessed a 7.6% increase from the last budget. This growth in overall budget allocation has been the lowest in the last 5 years. The increase was as high as 21.2% in 2018-19. But since then it has seen a slow growth.

Source: Union Budgets, Ministry of Economic Affairs, Government of India

While there has been a 7.6% increase in the overall allocation in 2020-21, the same increase has been 4.7% in terms of allocation to education and 3.9% in terms of allocation to health. This has been lower in terms of last year for both education and health. The retail inflation is as high as 7.5% in January. So effectively in real terms there is deceleration in the growth rate of allocation to health and education.

Source: Union Budgets, Ministry of Economic Affairs, Government of India

The allocation to education has been 3.26% of the total budgetary allocation which is lower then last year when it was 3.36% of the total budget, This is also significantly lower as compared to the previous years. This has been been the lowest in last ten years. The same percentage hovered around 5% till 2016-17. Since then there has been a decline.

Source: Union Budgets, Ministry of Economic Affairs, Government of India

The allocation to health has been 2.21% of the total budgetary allocation with a marginal decline from last year. The percentage of allocation to health in the total budgetary allocation has seen a constant increase since 2015-16 with the highest being 2.4% in 2017-18. It has hovered around this range as against 1.7-1.9% during 2014-15 to 2016-17. The same was around 2.3% during 2011-12 to 2013-14.

The budget also gives the actual estimates of the money spent in previous years. This year the actual estimates of 2018-19 was reported. There has been a 14% growth in the actual estimates of the total spending in 2018-19 as compared to the previous year. This has been the highest in the last three years.

Source: Union Budgets, Ministry of Economic Affairs, Government of India

While the overall actual estimate saw a significant rise, the same was not visible for education and health. The growth in actual estimates has been as low as 0.2% in 2018-19 and this is significantly less than the previous year. The growth of health allocation has been as high as 36% in 2017-18. But this also saw a decline and the growth in 2018-19 is 2.9%.

Source: Union Budgets, Ministry of Economic Affairs, Government of India

A comparison of the percentage of the total allocation of the budgetary estimate and the actual estimates for education shows that while there has significant gap in the two estimates with the actual estimates lower than the budgetary estimates till 2016-17, for 2017-18 and 2018-19, 100% of budgetary allocation was spent on education. However as discussed above there has been decline over time with the actual spending on education which was 4.6% of the actual spending as of 2011-12, stood at 3.3% in 2018-19.

The comparison of budgetary and actual estimates for health shows a reverse picture. Since 2014-15 there has been more than 100% spend on health actually as compared to the budgetary estimates. Overall also there has been a steady increase with the actual spending on health stood at 1.9% of the total spending in 2011-12, the same is at 2.2% in 2018-19.

IIP Show a Decline while Retail Inflation Continues to Rise

The Ministry of Statistics and Programme Implementation released the Index of Industrial Production numbers for December, 2019 and the retail inflation numbers for the month of January, 2020 yesterday.

Source: Ministry of Statistics and Programme Implementation, Government of India

After a positive IIP in the previous month, there is again a decline in the IIP in the month of December, 2019. IIP growth stood at -0.3% in Dec, 2019 as compared to 1.8% in Nov,2019. The same number in Dec, 2018 was at 2.5%. Manufacturing and Electricity show a decline in the month of Dec, 19 while Mining shows a increase. The negative growth of IIP is reflective of lack of demand in the economy. We saw a positive growth in IIP in November riding on the the surge in demand in the festive season. But this surge did not sustain and we again see a decline.

Source: Ministry of Statistics and Programme Implementation, Government of India

A comparison between the first nine months of FY,18-19 and FY-19-20 suggests that across all sectors there has been a decline in the IIP in Apr-Dec, 2019 as compared to Apr-Dec, 2018. It needs to be noted that the decline in Manufacturing is very alarming as this is one of the most people intensive sector after agriculture. The slow or negative growth of the people intensive sector’s IIP has a huge adverse impact on the job creation and leads to higher unemployment. Moreover it should be noted that in Dec, 2018 out of the 22 industries which contribute to manufacturing IIP, only 6 show positive growth while the rest 16 show a negative growth.

Source: Ministry of Statistics and Programme Implementation, Government of India

The retail inflation continues to see a surge with the CPI being as high as 7.59% in Jan, 2020. Rising inflation in a phase where there is a decline in IIP is very alarming as this makes the situation challenging for the policy makers. Rising price reflects that demand will fall further and this will have further impact on IIP leading to further decline.

Source: Ministry of Statistics and Programme Implementation, Government of India

The inflation rate is highest for the food and beverages category which means that the impact of this rising inflation is all across the population across income strata. Food price index is as high as 13.63%. This massive increase in inflation of the most essential category reflects a huge dent in people’s pocket. This further can reduce the savings rate given people have to spend more on essential commodities and can have a adverse impact on future investment as well.

Source: Ministry of Statistics and Programme Implementation, Government of India

A typical food basket for a vegetarian Indian household will have cereals, vegetables and pulses, while the same for a non vegetarian household will have meat, fish and egg in addition to the cereals , vegetables and pulses. The most severe increase in inflation rate is reflected in all the essential items which are typically in the food basket of an average Indian. The vegetable inflation is as high as 50%. This is suggestive of production bottle neck in agriculture as that is a primary reason for this rising food inflation. This reflects a very poor state of affairs for the most people intensive sector of the country.

Source: Ministry of Statistics and Programme Implementation, Government of India

There has been a lot being said on the declining demand specifically in the rural sector. The situation becomes further alarming with the rise in inflation rate being more severe in rural sector. While the urban sector has witnessed a slight decline as compared to previous month, the rural sector has seen a further increase. Moreover for the rural sector the rise when compared to same month previous year is much sharp than the urban sector. This will have further impact on the declining rural demand. Moreover with the bottle neck in the agricultural sector, majority of the rural population which demands primarily on agriculture has been witnessing a huge slowdown in regular income. Over and above this there has been a rising inflation.

The two main components of this is the fact that the farmers are not getting the correct price and the huge dependence of rainfall. This season there has been nonseasonal rainfall which has hampered the vegetable production. Further with the farmers not getting the right price, the ability of the farmers to withstand such loses in production is very grim. IPD sincerely hopes that steps are being taken to solve the bottle neck in agricultural sector.

Highlights of Union Budget 2020-21

Key highlights of the Union Budget presented today:

  • Central government debt reduced to 48.7% of GDP from 52.2% in 2019
  • Fiscal deficit target pegged at 3.8% of GDP for FY 19-20 and 3.5% for FY 20-21
  • Nominal GDP growth for FY 20-21 has been estimated at 10%

On taxation:- A new tax regime has been proposed with tax payers having the option of whether they want to opt for the new regime. The changes in the new regime are as below

Income between 5 Lacs & 7.5 Lacs: reduced to 10% from 20% | Income between 7.5 Lacs and 10 Lacs: reduced to 15% from current 20% | Income between 10 Lacs and 12.5 Lacs: reduced to 20% from current 30% | Income between 12.5 Lacs and 15 Lacs: reduced to 25% from 30% | Income above 15 Lacs: continues at 30%

However, in the new regime, more than 70 deductions will not be available.

(i) Corporates have been made exempt from payment of dividend distribution tax. (ii) Corporate tax for existing companies slashed to 22%. (iii) Govt proposes 100 per cent tax concession to sovereign wealth funds on investment in infra projects. Moreover, concessional tax rate of 15 per cent extended to power generation companies.

On banking & finance:- (i) bank deposit insurance cover has been increased from 1 Lac to 5 Lac per depositor (ii) Government plans to amend the Company’s Act to decriminalise civil offences. (iii) Government to sell part of its stake in LIC through an IPO. Government will also sell stake in IDBI to private investors.

On agriculture:- (i) the budget allocates 2.83 Lac crores for the agriculture & allied activities sector (ii) the budget targets to double farmer income by 2022 (iii) agri-credit availability target set at 15 Lac crore for FY 20-21 (iv) the budget proposes comprehensive measures to help 100 severely water stressed districts (v) the budget proposes to help 20 lakh farmers set-up standalone solar pumps and another 15 lakh in solarizing their power grid. (vi) Indian railways to have refrigerated coaches in kisan trains for carrying perishable commodities. Krishi Udan schemes to national & international routes to be launched.

On healthcare:- (i) the budget announces allocation of 69000 crore for the healthcare sector (ii) also announces 12300 crore for Swachh Bharat this year (iii) proposals tabled for construction of hospitals in tier II & III cities through public-private partnership (PPP) (iv) Jan Ausadhi scheme to be expanded to provide for all hospitals under Ayusmann Bharat by 2025. (v) 3.6 lac crores allocated towards piped water supplies to households (vi) 35600 crore allotted for nutritional related programs in the coming year.

On Education:- (i) budget announces 99300 crore for the Education sector and 3000 crore for skill development in the coming year. (ii) urban local bodies to provide 1 year internships to young engineers (iii) Degree-level full fledged online education programmes by institutions ranked in top 100 in NIRF rankings, especially to benefit underprivileged students. (iv) proposal to setup a national police university and a national forensics university (v) 8000 crore allotted for National Mission on Quantum Technology & Computing.

On infrastructure:- (i) budget proposes 1.7 lakh crores in transport infrastructure for coming year (ii) a national logistics policy to be released soon (iii) 100 new airports by 2024 (iv) 5 new smart cities (v) government to monetize 20 lots of national highways by 2024 (vi) target electrification of 27000 Kms of lines. 1150 trains will be run under the PPP scheme. 4 stations to be redeveloped through private participation (vii) plans to develope large solar power capacity for Indian railways (viii) work to start on Chennai-Bengaluru expressway. Budget also allocates 18600 crores for a suburban railway project in Bangalore (ix) 9000 Kms of economic corridor to be created. Work on Delhi-Mumbai expressway to be completed by 2023 (x) 550 wi-fi facilities have been commissioned at railway stations. 1 lakh gram panchayats to get optical fibre link. 6000 crore to be provided for BharatNet scheme.

On industry & commerce:- (i) Allocation of 27300 crore for development of industry and commerce (ii) 20000 crore allotted to renewable energy (iii) National Textiles Mission to be launched with 1480 crores

Others:- (i) 28600 crores allocated for women linked schemes for coming year (ii) allocation for senior citizens and ‘divyang’ increased to 9500 crores (iii) 85000 crores has been budgeted for development of scheduled castes and other backward classes (iv) 4400 crores announced for tackling Delhi’s air pollution problem.

Major Challenges faced by the Indian Economy

As we are just two days away from the budget, 2020 and a day away from the economic survey to be released, here are a few charts explaining the major challenges faced by the Indian Economy today.

SLOWDOWN IN GDP GROWTH AND RISING INFLATION

Source: MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION, GOVERNMENT OF INDIA

RISING UNEMPLOYMENT

Source: CMIE Data

RISING POVERTY AND HUNGER: Drop in Index for No Poverty and Zero Hunger

Soure: NITI Aayog

DROP IN MONTHLY PER CAPITA EXPENDITURE

SOURCE; BUSINESS STANDARD

LACK OF DEMAND IN RURAL INDIA

Source: Business Standard

MASSIVE SLOWDOWN IN PRIVATE CONSUMPTION, EXPORTS AND INVESTMENT

Source: MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION, GOVERNMENT OF INDIA

SLOWDOWN IN GROWTH OF PEOPLE INTENSIVE SECTORS (AGRICULTURE, MANUFACTURING AND CONSTRUCTION)

Source: MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION, GOVERNMENT OF INDIA

Over and above this, there are also media reports of declining collection of Direct taxes.

The charts depict the challenges faced by the government before the budget. IPD intends to provide no explanation of the above charts. The charts are self explanatory.

Status Report on SDG: Increased Gender Equality But Increased Inequality Overall for Indian States

The NITI Aayog published the status report on Sustainable Development Goals -2019 on 27th December, 2019. United Nations in 2015 has set up 17 sustainable development goals for countries like India. NITI Aayog started publishing a status on 13 of these 17 sustainable goals since 2018. The first such report was published in December, 2018. The report published in 2019 therefore not only talks about the status in terms of the SDG, but also provides a comparison of the situation with respect to 2018. In this article IPD focuses on the performance for SDG 5 and SDG 10

SDG Goal 5: Gender Equality is measured using seven themes: (a) addressing gender based discrimination (b) eradicating sex selection and post birth discrimination (c) access to reproductive health and wellness (d) social protection and economic empowerment (e) women entrepreneurship and economic leadership (f) empowerment through technology and (g) political participation, representation and leadership . The measure is calculated for the all India level as well for the state level separately. ‘SDG Goal 10: Reduced Inequalities’ index comprises of 4 themes – (a) poverty and inequality (b) inequality of opportunities and outcome (c) vulnerable groups and (d) financial inclusion. Higher the value of the index better is the performance for both SDG 5 and SDG 10.

Source: NITI Aayog

In terms of SDG 5: Gender Equality goal, there has been a slight improvement in the index value in 2019 as compared to previous year. However the index value itself is very low till now even with the increase. In terms of SDG 10: Reduced Inequalities goal, there is a decline in performance at the all India level with the index showing a decline in 2019 as compared to 2018. This should be looked in conjecture with the performance in terms of SDG 1 which talks of eradicating poverty and SDG 2 which talks about achieving zero hunger. In both the indices there has been a decline in performance. To add to that there is a growing inequality and while gender inequality shows some reduction but still the inequality is much higher than the desirable levels.

Source: NITI Aayog

Himachal Pradesh, Kerala and Punjab are the top ranked states in terms of the index of gender equality while Telengana, Assam and Jharkhand are the bottom three. The more worry is apart from Himachal Pradesh and Kerala, all other states have index score below 50. In terms of change 11 of the 20 states have seen positive movement in the index value while the performance of 9 states deteriorated. The bottom ranked states have seen a higher drop while the top ranked states showed some improvement.

Source: NITI Aayog

Telengana, Himachal Pradesh and Kerala are the top three states in terms of index on reduced inequality while Uttar Pradesh, Punjab and Haryana are the bottom three states. When we look into change in the index value in 2019 compared to 2018, it is seen that apart from three states ( Uttar Pradesh, Kerala and Karnataka) all other major states showed a decline in the performance. This is really worrisome. Only silver lining is that the bottom ranked state, Uttar Pradesh has shown a significant improvement even though it is still in the bottom ranked position.

So what we see is a deterioration in the performance in terms of index of reduced inequality while in spite of improvement the index of gender equality is still at a very low level. This is over and above the decline in performance in terms of indices of reduced poverty and zero hunger. So all of this indicate a growing inequality in the society. The economy is already witnessing a slowdown. Growing inequality along with a slowdown is worrisome moreover when we are witnessing a lack of demand specially in the rural side. Growing inequality means a vast majority remain deprived and hence will spend less leading to continued lack in demand. Focus needs to be given to reduce inequality while leading the economy out from this slowdown. The upcoming budget will surely focus into this.

Status Report on SDG: Improved Health Quality & Unchanged Quality of Education for Indian States

The NITI Aayog published the status report on Sustainable Development Goals -2019 on 27th December, 2019. United Nations in 2015 has set up 17 sustainable development goals for countries like India. NITI Aayog started publishing a status on 13 of these 17 sustainable goals since 2018. The first such report was published in December, 2018. The report published in 2019 therefore not only talks about the status in terms of the SDG, but also provides a comparison of the situation with respect to 2018. In this article IPD focuses on the performance for SDG 3 and SDG 4

SDG Goal 3: Good Health & Well Being’ index is measured using five themes: (a) reducing the maternity mortality ration (b) reducing mortality for kids with below 5 age (c) addressing the burden of communicable diseases (d) adopting a focused approach for non communicable diseases and (e) ensuring universal health coverage. The measure is calculated for the all India level as well for the state level separately. ‘SDG Goal 4: Quality Education’ index comprises of 5 themes – (a) free, equitable and quality primary and secondary education (b) access to quality early childhood development, care and pre-primary education (c) accessible, affordable and quality higher education (d) skill development and economic growth and (e) conducive education facilities that are child disabled and gender sensitive. Higher the value of the index better is the performance for both SDG 3 and SDG 4.

Source: NITI Aayog

In terms of the SDG 3 index on health, there has been an improvement in the performance at an all India level with the index value showing a 9 point increasein 2019 as compared to 2018. In terms of SDG 4 index on education, there is no change in the index value at an all India level in 2019 and 2018.

Kerala, Maharashtra, Andhra Pradesh and Tamil Nadu are the top performing states in terms of health index while Uttar Pradesh, Bihar and Assam are the bottom ranked states. In terms of improvement of index in 2019 as compared to 2018, it has been seen apart from 3 states, all the other states have shown considerable improvement. There has been considerable improvement for the low ranked states. The decline in index value is noted for few of the high ranked states, the major being the top ranked state of Kerala. However Kerala still has a very high value.

Source: Union Budget * Revised Estimates

It has been the actual expenditure on health has been more than that the budgetary estimates and there is a slight increase in the percentage of total budget spend on health over the years. This definitely has its impact on the improved performance not only at the national level with the increase in the overall index value but also with the improvement in index value of almost all the states with the lower ranked states showing considerable improvement.

Himachal Pradesh, Kerala and Tamil Nadu are the top three ranked states in terms of SDG 4: ‘quality of education’ while Bihar, Odhisa and Jharkhand are the three bottom ranked states in 2019. In terms of change in performance with respect to 2018, it is seen that apart from 3 states ( Madhya Pradesh, Punjab and Haryana), all the other states has shown a decline in the index in 2019 as compared to the last year. Moreover, the low ranked states also witness a significant decline in the performance in 2019 as compared to 2018. The decline in the performance in low ranked states has been severe.

Source: Union Budgets, *Revised Estimates

In terms of education however there has been a steady decline in the percentage of total budget spend on education both in terms of budgetary estimates and actual estimates. Moreover the government was not able to spend the whole amount allocated as the actual estimates have been lower than the budgetary estimates with the exception of 2018-19 where for the first time both the estimates are similar. This decline in education share has its impact on the performance of the education index, it being showing no improvement. Moreover seventeen of the 20 major states has witnessed a significant decline in the performance in terms of the education states. The more important is the fact that the decline is severe in the low ranked states.

So what we have seen is that the trends in budgetary expenditure estimates on health and education has a significant impact in the performance of the SDG indices, With more share being spent on health then the budgetary estimate, we see an improvement in the Good Health & Well Being index. But with a steady decline in the share of total budget spent on education, we see no improvement in the Quality of Education index with over eighty percent of the major states showing a decline in performance.

IPD sincerely hopes that in the upcoming budget, we will see more focus given to education with the continued focus on health.