1613021865economy Matters December 2020 - Gems & Jewellery

DECEMBER 2020
Volume 24 No. 12
Gems & Jewellery:

A Sector with High Potential
Inside This Issue

Focus of the Month: Gems & Jewellery:  Domestic Trends
 State of States
Article by:
Mr. Rajesh Khosla, Chairman, Sub-Group on Gold Policy under  Global Trends
CII Task Force on Gems & Jewellery and Chairman Emeritus,
MMTC Pamp  Policy Focus
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FOREWARD
Chandrajit Banerjee
Director General, CII
I
ndia’s Gems and Jewellery (G&J) sector contributes approximately about 7.0 per cent to India’s GDP and
provides employment to more than 40 lakh people. It is one of the largest sectors globally, contributing
29 per cent to the global jewellery consumption. The sector is globally recognised for the craftsmanship
and variety that it offers. Over the last three decades, this industry has undergone transformation, driven
by industry initiatives, supported by some Government policies. The sector has immense scope for growth,
fueled by both domestic demand as well as exports. To further bolster India’s Gem & Jewellery brand, both
within India as well as globally, the industry needs to build advanced manufacturing capabilities, focus on
skill development and strengthen the retail infrastructure. Government support and enabling policies have
gone a long way in ensuring that India’s Gem & Jewellery Sector thrives and contributes to the economy.
For instance, the Gem & Jewellery Export Promotion Council (GJEPC) and the Gem & Jewellery Skill
Council of India (GJSCI) have been set up over the last couple of years, helping to strengthen the ecosystem.
India’s current account stayed in surplus in the second quarter of FY2021 (Q2 FY21) but the quantum of
surplus moderated to US$15.5 billion which translates into 2.4 per cent of gross domestic product (GDP)
from US$19.2 billion (3.8 per cent of GDP) in the previous quarter. The reduction in surplus was driven by a
widening goods trade deficit, even as imports started recovering from record lows. On the capital account front,
the second quarter saw record net FDI inflows — the highest ever post-liberalisation. However, this is expected
to narrow sharply in the second half, driven by continued recovery in import growth. While export recovery
has been uneven, import growth has consistently improved, as domestic demand is normalising. Meanwhile,
there is encouraging news coming from the high-frequency data points as they continued to show a recovery
for December. Manufacturing PMI recorded expansion for the fifth consecutive month in December, while
GST collections for the month also rose to a record high, growing by 11.6 per cent on a sequential basis.
As the availability of a vaccine has become a reality globally, OECD in its latest Economic Outlook has
projected the global growth to contract by a less severe 4.2 per cent in 2020, as against the earlier projection
of a 4.5 per cent decline in output. However, the multilateral organization warned that governments will
have to continue using their policy instruments actively, with better targeting to help those hit hardest by the
pandemic. India is expected to see a decline in output to the tune of 9.9 per cent before bouncing back to
7.9 per cent growth in the next fiscal. There is some grim news on the quality of growth expected though
with India dropping two ranks in the latest United Nations’ Human Development Index rankings. It ranked
129 out of 189 countries which saw Norway topping the charts.
Chandrajit Banerjee
Director General, CII
ECONOMY DECEMBER 2020

MATTERS 3
Contents
07 Focus of the Month:– Gems & Jewellery:
• Economic Integration of the Business of Gold............08
Mr. Rajesh Khosla
Chairman, Sub-Group on Gold Policy under CII Task Force on
Gems & Jewellery and Chairman Emeritus, MMTC Pamp
• An Overview of Gems & Jewellery Sector in India...10
Domestic Trends
13 Analysis of the latest data on IIP, Inflation, Trade, Banking,
Exchange rate, Capital Flows and CII Business Confidence Index
State of States
22 -
-
Export Preparedness Index
State/UT in Focus: Puducherry
Global Trends
25 Analysis of OECD & ADB Economic Outlook, Human
Development Index 2020, Human Freedom Index 2020 and
Global Terrorism Index 2020
Policy in Focus
28 Highlights of key policies announced by the Government/RBI
during December 2020
DECEMBER
OCTOBER 2020
2020
ECONOMY
4 MATTERS
KEY MONTHLY DEVELOPMENTS
DOMESTIC TRENDS
■ Industrial Production: The index of industrial consecutive month in November 2020, exhibiting a
production expanded for the second consecutive month steeper contraction of 8.7 per cent as compared to
in October 2020 as output accelerated to a higher- -5.1 per cent in the previous month, while imports
than-expected 3.6 per cent, as compared to a growth slumped further to -13.3 per cent from -11.5 per cent
of 0.5 per cent (revised higher) seen in September. seen in the previous month.
■ Manufacturing PMI: The Nikkei Manufacturing ■ Current account: The current account surplus
Purchasing Managers' Index remained stable at 56.4 in moderated from US$19.2 billion (3.8 per cent of
December 2020 from its value of 56.3 in the previous GDP) in Q1FY2021 to US$15.5 billion (2.4 per cent
month. This reading further lends credence to the fact of GDP) in Q2FY2021, primarily on account of a rise
that the economy is on a mend supported by enabling in the merchandise trade deficit.
policy measures.
■ Foreign flows: Foreign direct investment (FDI)
■ Inflation: Consumer price index (CPI)-based inflation inflows climbed to US$6.9 billion in October 2020
softened to 6.9 per cent in November 2020, after from US$4.3 billion seen in the previous month, in
having reached a 77-month high of 7.6 per cent in contrast, ECB flows moderated to US$2.0 billion
October 2020, led primarily by food prices, which during the comparable time period.
have subsequently cooled off.
■ CII Business Confidence Index: The CII Business
■ Bank credit: Scheduled commercial banks credit Confidence Index (CII- BCI) for Oct-Dec 2020
stayed stable at 5.7 per cent in November 2020. The maintained the uptrend, recording another quarter
credit demand has recovered from the lows of 5.1 of upbeat business sentiment. The index soared to
per cent seen in September 2020 and is indicative of the level of 62.9 during the Oct-Dec 2020 quarter,
revival in the domestic demand. recording an improvement of 25 per cent over the
■ EXIM: Merchandise exports moderated for the second previous quarter’s reading of 50.3.
GLOBAL TRENDS
■ OECD Economic Outlook: Organisation for Economic Development Index, by the United Nations Development
Co-operation and Development (OECD) expects GDP Program UNDP has ranked Norway in the top spot,
growth to contract by a less severe 4.2 per cent in while Ireland and Switzerland are jointly placed in the
2020, as against the earlier projection of a 4.5 per second spot with equal HDI scores. India's rank on the
cent decline in output, mainly on the prospects of Index fell 2 places, to stand at 131, despite a relative
vaccination campaigns, concerted health policies and improvement in HDI score over last year.
fiscal support raising hopes of a quicker recovery.
■ Human Freedom Index 2020: As per the recent
■ Asian Development Bank Outlook: Asian Development
Human Freedom Index, New Zealand continues to
Bank (ADB) projects developing economies in Asia
to contract by 0.4 per cent in 2020, lower than the hold the prime position as the freest economy of the
earlier forecast of 0.7 per cent contraction. globe for the seventh consecutive year, followed by
Switzerland and Hong Kong. India has slipped 5 spots
■ Global Trade in Merchandise and Services: The
on the index to rank at 111 amongst 162 countries.
latest trade data by UNCTAD reveals that global
merchandize trade is expected to decline by 5.6 per ■ Global Terrorism Index 2020: The annual Global
cent in 2020- marking the biggest fall in merchandize Terrorism Index report which is published annually by
trade since 2009. However, this projection is slightly the Institute for Economics and Peace (IEP), continues
more optimistic than the earlier forecast of a 9 per to place Afghanistan in the numero uno position. India's
cent contraction. rank remain unchanged at the 8th position, among 163
■ Human Development Index 2020: The latest Human countries globally.

MATTERS 5
FOCUS OF THE MONTH Gems & Jewellery: A Sector with High Potential
T
he gems and jewellery sector plays a significant weaknesses are addressed over the next 3 to 4 years.
role in the Indian economy, contributing
Further, the gem & jewellery sector has the potential for
around 7 per cent to country’s GDP and 15
per cent to India’s total merchandise export. India’s India to fuel the Atma Nirbhar Mission while making
gems and jewellery sector is one of the largest in the India for the world. Unfortunately, this shining gem of
world, contributing 29 per cent to the global jewellery India has been slowly losing its sheen and has been
consumption. The sector is home to more than 300,000 unable to harness its full potential. The sector faces
gems and jewellery players. Its market size will grow several challenges such as lack of industry status,
by US$103.06 billion during 2019-2023. inadequate talent retention programmes, unorganized
nature of market, access to finance, lack of transparency
Given this potential the industry has taken the lead among others, that need to be addressed. These
in building a brand for India’s gem & jewellery challenges encompass industry level issues as well as
sector. The focus is on collectively positioning the policy related matters. Addressing these will require
favourable aspects of the sector, especially in the concerted efforts from the sector’s stakeholders such
context of the new and emerging global as well as as manufacturers, retailers and the Government. It
domestic demand. The industry needs to be aware will also require industry-government collaboration.
of its strengths and weaknesses and highlight the
strengths. For example, India is known for the it’s Given the importance of the gem & jewellery sector
cutting and polishing in gems & jewellery. Though for India’s economy, this month’s Focus of the Month
this is because of the availability of cheap labour, has analysis of the growth drivers and challenges
the strength itself needs to be emphasized, while the facing the sector.

MATTERS 7
Economic Integration of the Business of Gold
Mr. Rajesh Khosla
Chairman, Sub-Group on Gold Policy under CII Task Force on Gems & Jewellery and
Chairman Emeritus, MMTC Pamp
I
ntroduction of the Gold Control Act in 1962 had mine in the world. The ability to mobilise some of
the effect of killing the official gold market. For these above-ground holdings can address reducing
close to thirty years gold got associated with black non-essential imports like gold, help manage its
money and corruption. Repealing the Gold Control current account deficit better, while simultaneously
Act in 1990 and liberalising import of gold in 1997 encouraging Make in India in this sector.
as part of the liberation policy were signs of restoring
Thus, India’s struggle to find a policy coherence
economic respectability to gold, culminating with
that balances the cultural thirst for gold with macro-
Niti Aayog’s 2018 magnum opus on Transforming
economic pressures and enforcement vulnerabilities
India’s Gold Market.
that enable illicit activity.
While liberalization was largely a success, the
Economic integration of the gold value chain
imports of two commodities in particular—crude oil
transcends a pro-gold or pro-gold business policy.
and gold—exposed India to an account deficit from
What does economic integration mean exactly? For
which it has never recovered. Oil is an everyday
India most importantly it must mean a market that
necessity. Gold, on the other hand—notwithstanding
has trust and credibility, quality and conformity
the cultural affinity for it, or the numbers employed
throughout the business value chain.
in the jewellery manufacturing and retail sector—is
seen as a luxury good. As an alternative to paper The participants in the value chain, viz. Banks,
currency, gold is often favoured for money laundering Refiners, Nominated Agencies, Bullion Merchants,
and illicit trade. It is a high-value, easy-to-transport Jewellers, Artisans, Assay & Hallmarking Centres,
mineral, making it vulnerable to smuggling and an Trade Associations, need to adopt a proactive mind
ideal target for armed groups. set to take the lead in the journey of gold’s economic
integration. Key areas of an industry driven proactive
When viewed as an asset class, gold jewellery
approach are:
provides safety and security for women, and liquidity
under difficult circumstances. Because of the huge i) Gold of today is associated with smuggling,
demand for gold jewellery, gold is also a large tax avoidance and money laundering. Gold of
industry, with employment potential for a country tomorrow must demonstrate engaging with tax
like India where unemployment is large. more effectively. Industry associations have the
ability, responsibility and commitment to play a
However, since India does not produce gold significant role in enhancing tax compliance in a
domestically, the Indian economy will always have largely unorganised sector and must take the lead.
to pay for gold through dollar outflows. More
ii) Gold of tomorrow must be an economic
significantly, the industry is largely an informal sector,
powerhouse, leading the charge with value-add
the business practices of which are associated with
exports and import substitution. Increased value
economic ills of tax evasion and money laundering,
addition on exports of gold jewellery, as distinct
bringing the entire trade into disrepute.
from merely increasing low value-addition
India’s large gold holdings, estimated at 25,000 export volumes, is key. Higher value addition
tonnes or so, make it the largest above-ground gold requires greater focus on design, craftsmanship,
DECEMBER 2020
ECONOMY
8 MATTERS
consistency in quality, all of which get translated its standard for Good Delivery Gold and Silver
to enhanced skills in the domestic market, which bars, industry must create and manage the
in turn will enable more exports. Good Delivery eco-system, a self-regulating
iii) Gold of today lacks financial inclusion. Currently mechanism drawn on the lines of the globally
financial inclusion is limited to pledging gold accepted benchmark, the London Bullion Market
jewellery as collateral for a Rupee loan. Yet to Association Good Delivery system. This is a key
reach double digits, digital purchase of gold is enabler for financial inclusion.
becoming increasingly popular among the digital vi) Almost twenty percent of the world’s mined gold
savvy millennials, who value its convenience. raw material is produced by artisanal miners and
Gold Savings Account is still in its infancy and their informality, and in many cases illegality,
has some time to go before it is features as a make them vulnerable to corruption and violence.
regular portfolio investment. The key is to unlock The refinery industry needs to be cognizant
the value of digital gold holding by making it of the reputational risks associated with the
on par with any other financial instrument, i.e. likely sources of raw material. If gold is being
converting it into a tradeable financial asset. Lots illicitly mined or traded along its journey from
more regulatory homework needed, but definitely a producing country to India—whether or not
the way forward. it picks up legal paperwork along the way—it
iv) Gold jewellery industry is still primarily an remains a tainted product. Sourcing practices
unorganised sector, with poorly trained resources, should align with the OECD Due Diligence
leading to leakage and low quality. Industry Guidance.
needs to introspect, recognise and develop Economic integration is the outcome of dedicated
business practices at par with global trade effort across the value chain, based on achieving
practices. Jewellery trade associations must demonstrable goals with sincerity and commitment.
take the lead in organising workshops for skill Industry-led initiatives, sincerity of effort and results
development of karigars, including exposure to achieved will facilitate a sympathetic regulatory
new manufacturing techniques.
environment and will enable gold to restore its rightful
v) With Bureau of Indian Standard (BIS) finalising place in India’s economy.

MATTERS 9
An Overview of Gems & Jewellery Sector in India
T
he Gem & Jewellery sector is truly India’s thus largely comprise of handmade jewellery. Whereas
sparkling gem that contributes about 7.0 India’s imports of about US$290.36 million comprise
per cent to the country’s Gross Domestic of high-end or machine-made jewellery.
Product (GDP), employs over 4.64 million people
Pre-COVID growth estimates for the sector stood at
and is responsible for about 16.0 per cent of the
a market size of US$103.06 billion by 2023, with
country’s total merchandise export. Being one of
the domestic jewellery market growing at a CAGR
the largest exporting sectors, the gems and jewellery
(G&J) industry plays a key role in India’s economy, of 5.6 per cent during FY18-23. The cumulative
contributing a large percentage of the total foreign foreign direct investment (FDI) in diamond and gold
reserves of the country. During Financial Year, 2020 ornaments stood at US$1.17 billion between April
the net exports of the sector stood at US$29.01 2000 and March 2020, with domestic companies
billion. Industry experts estimate that import duties also increasingly investing in India by expanding
on gold alone contribute close to Rs 56,000 crores their business.
per annum to the exchequer. However, the sector continues to remain besieged
As the world’s largest centre for cut and polished by a host of challenges which has prevented the
diamonds, annually India processes about 1 billion sector from realising its true potential. Addressing
pieces of diamonds valued at US$23 billion. India these will require concerted efforts from the sector’s
is deemed to be the hub of the global jewellery stakeholders such as manufacturers, retailers and the
market because of its low costs and availability of Government. It will also require industry-government
cheap labour. collaboration. The key challenges faced by the sector
have been captured below:
Not only does India export 75 per cent of the cut
and polished diamonds, the country also contributes 1) Fluctuating Gold Prices: Fluctuating gold prices
to 29 per cent of the global jewellery consumption. amid increasing gold smuggling have led to
The sector is home to more than 300,000 gems and increased prices, which is further impacting sales.
jewellery players. Several of these players have In an already negatively charged environment,
developed capabilities for mass produced diamond retailers are expecting export order cancellations,
jewellery designed for Europe or US as well as specially from USA, UAE and other large buying
exquisitely crafted designer jewellery in plain gold markets.
or studded with diamonds and coloured gemstones.
2) Transparency & Trust: Since a jewellery
India also counts amongst the largest gold jewellery purchase is often an expensive affair and is
exporters of the world, with almost 160 countries considered an investment by the buyer, trust,
buying from India. India boasts of close to 20 transparency and fair price become major
unique jewellery making styles. Globally, thus, the decision-making factors. It does not help that
sector is renowned for its handmade jewellery, with this sector in India largely fragmented comprising
specialisation in areas such as kundan, temple and mainly of small, unorganized players. The
meenakari, not available anywhere else in the world. perceived lack of transparency, customer doubts
India’s gold jewellery exports of US$11.99 million, and lack of knowledge on how to assess value
DECEMBER 2020
ECONOMY
10 MATTERS
of the product purchased add to the buyer’s skill upgradation, to enable them to work
discomfort. Implementation of hallmarking with new technologies. They need to acquire
introduced by the Government of India and certifications for the new skills, while retaining
collection of data remain a challenge given the their traditional expertise and artistic appeal for
unorganised nature of the sector. the industry to remain globally relevant. However,
smaller companies often do not have the resources
3) Unorganized, Fragmented Nature: The fact that
to invest in Karigar training, leaving much to be
G&J sector is not considered a manufacturing
desired.
activity and is also counted as a luxury item,
makes it a low priority on the government’s 6) Manufacturing Capability: Globally, jewellery
agenda. This is one of the reasons for this sector is considered a luxury item and therefore a
to continue to remain largely unorganised and non-essential purchase. Thus, buyers often defer
fragmented. However, in the recent years, India their purchase or buy cheaper substitutes such as
is now beginning to move towards branded custom/designer jewellery, when in a situation
jewellery and modern retail formats, bringing where they really need to buy. This has led to an
in a semblance of an organised sector. However, increased share of international purchases shifting
national level retail chains are only about 4 to 5 to Thailand and China, where manufacturers
with another 10 to 15 regional chains totalling have changed their man-machine mix to deliver
bringing in their fold about 1500 stores. customized-handmade jewellery.
4) Lack of Industry Status: Since this sector While India has made a small start, deploying
has not been granted a manufacturing industry more machines in both precious and semi-
status, thousands of workers are often deprived precious jewellery is now a necessity for
of benefits such as ESI, PF. It also restricts G&J survival. Lack of technological advancement
companies’ access to banking finance. Granting it impacts productivity, design capabilities, product
a priority sector status, would encourage growth quality & standardisation. Indian companies
through increased financial credit availability. need to draw a balance between low-cost, high-
Though small, often jewellery companies fall volume, machine-made jewellery and high-value
out of the ambit of MSMEs definition, given that handmade jewellery.
this is a high value item. A specific definition
7) Government Policy: Unlike countries such as
of MSMEs for this sector is thus necessary to
China and Vietnam, India has not been able to
give a boost to the sector.
use its Special Economic Zones (SEZ) policy to
5) Talent Upgradation and Retention: The either move up the value chain into high-value
unorganized and fragmented nature of the manufacturing or increase exports, attract greater
industry has made it difficult to retain talent and FDI or integrate into the global value chains.
attract new talent to the sector. The industry’s The sector has thus been recording a declining
biggest assets – the kaarigars, often have to trend since the beginning of FY 2019-20 due to
work in very difficult conditions and are often various domestic as well as global challenges
not entitled to benefits and government welfare such as rise in import duty on precious stones,
schemes. Moreover, most karigars develop visual tightening of lending terms by banks, stringent
problems due to the intricate nature of work. customs inspection procedures, sluggish import
Due to all these reasons, the younger generation demand and withdrawal of GSP benefit by USA
of Karigars prefer to work in other domestic amongst others.
services instead of being craftsmen.
8) Access to Finance: All these challenges together
Moreover, increasing buyer inclination towards become a roadblock in G&J companies’ access to
custom, machine made jewellery requires kaarigar finance, which further creates a slew of challenges

MATTERS 11
such as lack of investment in technology 10) Global Pandemic: The situation has been further
upgradation, expansion and skill development, exacerbated by the COVID pandemic. The sales
limiting the sector’s growth. Even as companies of this sector have already plunged with demand
work to overcome these challenges, the financing dying down. According to the Gem & Jewellery
fraternity remains wary of lending to the Gem & Export Promotion Council (GJEPC), after the
Jewellery sector. With inadequate understanding COVID-19 outbreak, the declining rate of gem
of this sector’s functioning and the nuances, & jewellery exports doubled to (-)11.32 per cent
Bankers are unable to correctly assess the risks during December-February 2020 as compared to
of lending to companies from this sector. Those (-)5.53 per cent registered in April-Nov 2019.
who do are prompted to lend at unaffordable Moreover, the lakhs of Kaarigars (artisans)
interest rates, due to the assumed risks of lending employed in the sector who are often not paid a
to this sector. fixed salary/wage have been adversely impacted
and their migration back to their villages will
9) Lack of Customer Awareness: While building
place further production challenges on the sector.
customer trust and enhancing transparency are
a challenge for the gem & jewellery industry, To conclude, in a highly competitive global
the lack of customer education and awareness environment, with the biggest competitors being USA
make it a more difficult task. While a customer and China, India’s sparkling gem is making every
would normally not accept a white good purchase effort to thrive. It is a unique industry, with India
without a bill, they are somehow comfortable being a proud global leader in terms of heritage,
buying jewellery without one, often to save the designs and craftsmanship. However, for it to remain
taxes. Additionally, even after two decades of a sparkling gem, a strong global push to positioning
it being around, there is little or no consumer Indian Jewellery as an aspirational brand that bears
awareness about what hallmarking is and how a mark of quality is critical. The sector also needs a
to read it. Thus, running campaigns to build more enabling domestic environment to not only give
consumer awareness will not only help win the industry a boost but also empower it to continue
customer trust but also address the data capturing to support the Government’s ‘Make in India’ and
challenge, accelerate hallmarking implementation Aatmanirbhar Bharat initiatives.
and push the industry towards becoming more
organised.
DECEMBER 2020
ECONOMY
12 MATTERS
DOMESTIC TRENDS
I
ndustrial output – measured by the Index of in perishables and cereals group. This trend is expected
Industrial Production – rose 3.6 per cent in given fall in prices in winter months for the former
October 2020, after rising by 0.5 per cent in and robust crop production in the latter. Other food
September 2020, indicating a strong recovery. groups saw elevated inflation though slight moderation
manufacturing growth was back to positive territory was seen on a sequential basis. Given the combination
after a gap of seven months of contraction, while of tepid improvement in economic activity and high
electricity also returned to double-digit growth in inflationary pressures, the Monetary Policy Committee
October after February 2020. However, mining lost (MPC) held on the policy rate in its policy review
sheen, contracting mildly after only a month of held in first week of December 2020 and maintained
positive growth. Consumer goods- both durables as its accommodative stance.
well as non-durables showed robust growth in October
Merchandise exports contracted for the second
on the back of festive season and pent-up demand.
consecutive month in November 2020 as a recurrence
While this IIP print is a welcome surprise, a sustained
of COVID in major trading partners dampened
uptrend will be more important to support growth
demand. Imports slumped further too, at -13.3 per
unequivocally. The surge in consumption propensity
cent as compared to -11.5 per cent. Import decline
will also reflect in the November number, as will
was mainly led by oil and gold. However, the rate of
the loss of working days, given the festive season.
decline in core imports (i.e., non-oil nongold imports)
On the inflation front, headline inflation for November continued to narrow, signaling continuing recovery in
fell to 6.93 per cent as compared to highs of 7.6 per domestic demand. Trade deficit came in at US$9.9
cent, driven by food inflation, even while core inflation billion, US$1.2 billion higher on-month, but US$2.9
remained flat. Food prices fell assisted by moderation billion lower on year-on-year basis.

MATTERS 13
[ DOMESTIC TRENDS ]
Industrial output gathers momentum in October 2020
Growth in Index of Industrial Production (y-o-y%) ■ The index of industrial production
expanded for the second
3.6 consecutive month in October
0.0 2020 as output accelerated to a
-10.0 higher-than-expected 3.6 per cent,
as compared to a growth of 0.5
-20.0
per cent (revised higher) seen in
-30.0
September.
-40.0
■ The significant uptick in industrial
-50.0
production was attributed to higher
-60.0
demand during the festival period,
Dec-18
Aug-19
Dec-19
Aug-20
Oct-18
Feb-19
Apr-19
Oct-19
Feb-20
Apr-20
Oct-20
Jun-19
Jun-20
low base effect, and further easing
of restrictions imposed to contain
Index of Industrial Production (IIP) IIP (3 moving average)
the spread of the novel coronavirus.
Double-digit output growth cheer for the electricity sector

■ On sectoral basis, electricity output Broad Components of Industrial Production
posted strong growth, with output
rising by 11.2 per cent in October Growth, y-o-y%
2020 as compared with 4.9 per cent Overall Manufacturing Mining Electricity IIP-3 MA
in the previous month. The mining Oct-19 -6.6 -5.7 -8.0 -12.2 -4.2
industry, on the other hand, saw Mar-20 -18.7 -22.8 -1.3 -8.2 -3.8
a reversal in its fortune as output Apr-20 -57.3 -66.6 -26.9 -22.9 -23.6
declined by 1.5 per cent in October May-20 -33.4 -37.8 -20.4 -14.9 -36.5
after a positive print of 1.4 per cent Jun-20 -16.6 -17.0 -19.5 -10.0 -35.7
in the previous month. Jul-20 -10.5 -11.4 -12.7 -2.5 -20.2
Aug-20 -7.4 -7.9 -9.0 -1.8 -11.5
■ However, the surprise this month
Sep-20 0.5 -0.2 1.4 4.9 -5.8
came from the manufacturing sector,
Oct-20 3.6 3.5 -1.5 11.2 -1.1
which not just expanded after seven
months of contraction, but posted a Apr-Oct FY20 0.1 0.0 -0.4 1.6
3.5 per cent jump in output. Apr-Oct FY21 -17.5 -19.7 -13.3 -5.6
Volatile capital goods output turns a corner in October 2020

Use-based Classification of Industrial Production ■ On a use-based classification,
Growth, y-o-y% the highly volatile capital goods
Primary Capital Intermediate Infrastructure Consumer Consumer segment has shown significant
Durables Non- upturn over September-October,
Durables as increased industrial traction
Oct-19 -6.0 -22.4 8.7 -9.7 -18.9 -3.3 has manifested in the economy.
Mar-20 -4.0 -38.8 -18.6 -24.3 -36.8 -22.3 Infrastructure goods output also
Apr-20 -26.6 -92.7 -63.9 -85.0 -95.7 -48.1 accelerated significantly in October
May-20 -19.6 -65.9 -39.7 -39.0 -70.3 -9.7 owing to both a low base, as well
Jun-20 -14.5 -37.4 -20.7 -18.3 -34.8 6.9
rise in construction activities.
Jul-20 -10.8 -22.8 -10.7 -8.2 -23.7 1.8 ■ Both consumer durables and non-
Aug-20 -10.8 -14.8 -6.0 -1.6 -9.6 -2.3 durables improved substantially in
Sep-20 -1.5 -1.3 -1.0 2.5 3.4 2.4
October 2020, with festive demand
and general pandemic fatigue
Oct-20 -3.3 3.3 0.8 7.8 17.6 7.5
leading to consumption on a large
Apr-Oct FY20 0.2 -12.1 9.4 -2.7 -7.2 3.9 scale. The double-digit growth
Apr-Oct FY21 -12.7 -34.4 -19.7 -20.8 -31.8 -5.9 clocked by consumer durables was
Source: Central Statistics Office (CSO) and CII estimates last seen in October 2018.
DECEMBER 2020
ECONOMY
14 MATTERS
[ DOMESTIC TRENDS ]
Manufacturing activity ends 2020 on a moderate note
■ The Nikkei Manufacturing NIKKEI India Manufacturing Purchasing Manager's Index (PMI)
Purchasing Managers' Index
remained stable at 56.4 in December 58.9
2020 from its value of 56.3 in the 55.3 54.5 56.8 56.3 56.4
52.7 51.8 52.0
previous month. This reading further 47.2 46.0
lends credence to the fact that the 30.8

economy is on a mend supported 27.4
by enabling policy measures.

■ As per IHS Markit which compiles
the index, both new orders and
Dec-19
Apr-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-20
Feb-20
Mar-20
May-20
Jun-20
output continued to grow strongly,
albeit at a slower pace during the
month. New export orders rose at
the slowest pace in four months as
a recent surge in coronavirus cases
dampened overseas demand.
Core sector output records a weak performance in November 2020
Core Sector Growth (y-o-y%) ■ Core sector industrial production

in declined by 2.6 per cent on
year-on-year basis in November
10.0 3.3
2020, at a more steeper rate than
0.0
the 0.9 per cent decline seen in
-10.0 -2.6 the previous month.
-20.0
■ On a cumultative basis, in Apr‑Nov
-30.0
FY21 so far, the industries' output
-40.0 declined by 11.4 per cent as
-50.0 compared to a growth of 0.3 per
Nov-18
Jan-19
Jul-19
Sep-19
Nov-19
Jan-20
Jul-20
Sep-20
Nov-20
Mar-19
May-19
Mar-20
May-20
cent seen during the same period

last year.
Broad-based moderation seen across all sub-sectors of core

Broad Components of Core Sector Output (y-o-y%)
■ Among the sub-sectors, while Coal Crude Natural Petroleum Fertilizers Steel Cement Electricity
coal, fertilisers, cement and Oil Gas Refinery
Products
electricity recorded positive
Oct-19 -17.6 -5.1 -5.6 0.4 11.8 -0.5 -7.7 -12.2
growth, crude oil, natural gas,
refinery products and steel Apr-20 -15.5 -6.4 -19.9 -24.2 -4.5 -82.8 -85.2 -22.9
registered negative growth in May-20 -14.0 -7.1 -16.8 -21.3 7.5 -40.4 -21.4 -14.8
the month under review. Jun-20 -15.5 -6.0 -12.0 -8.9 4.2 -23.2 -6.8 -10.0
Jul-20 -5.7 -4.9 -10.2 -13.9 6.9 -6.5 -13.5 -2.4
■ After rising to a 8-month high
Aug-20 3.6 -6.3 -9.5 -19.1 7.3 0.5 -14.5 -1.8
in October 2020, electricity
Sep-20 21.2 -6.0 -10.6 -9.5 -0.3 2.8 -3.5 4.8
production moderated sharply to
Oct-20 11.7 -6.2 -8.6 -17.0 6.3 4.0 3.2 11.2
2.2 per cent in November 2020
despite a low base of last year. Nov-20 2.9 -4.9 -9.3 -4.8 1.6 -4.4 -7.1 2.2
In contrast, natural gas output Apr-Nov FY20 -5.4 -5.9 -3.1 -1.1 4.0 6.7 0.0 0.8
has now shrunk for 17 months Apr-Nov FY21 -2.6 -6.0 -12.1 -14.9 3.8 -19.4 -19.5 -4.7
in a row. Source: Markit Economics and Ministry of Commerce & Industry

MATTERS 15
[ DOMESTIC TRENDS ]
CPI inflation moderates on cooling food prices
■ Consumer price index (CPI)-based
Consumer Price (CPI) and Wholesale Price (WPI) Inflation
inflation, which was persistently high
(y-o-y%)
over the last few months, appears to
8.0
have peaked for now. In November
2020, it softened to 6.9 per cent, after
6.9
having reached a 77-month high of 7.6
6.0
4.5
4.0 per cent in October 2020, led primarily
2.0 2.3 1.6
by food prices, which have subsequently
0.0
cooled off.
-2.0 ■ Despite the softening seen in November,
-4.0
the headline inflation continues to be
outside the upper limit of the Reserve
Nov-18
Aug-19
Nov-19
Aug-20
Nov-20
Feb-19
Feb-20
May-19
May-20
Bank of India’s (RBI’s) band of 2-6 per
cent for the eighth consecutive month.
CPI Inflation WPI Inflation
Hence, the central bank continues to
keep a close tab on the print.
Food prices head southward as fresh kharif produce hits the market
■ Food inflation, with 39.05 per cent weight Components of CPI Inflation (y-o-y%)
in overall CPI, moderated to 9.4 per cent Average Inflation, y-o-y%
in November 2020 as compared to 11.0 CPI Inflation Components
per cent seen in October 2020. This was Over- Food Food and Pan, To- Clothing Fuel Miscel- Core
led by a sharp fall in vegetable prices from all Beverages bacco and and Foot- and laneous CPI
22.1 per cent to 15.6 per cent during the CPI (FB) I ntoxicants wear (CF) Light
month underpinned by the arrival of fresh Oct-19 5.5 10.0 8.7 3.3 1.3 -1.9 3.7 3.4
kharif produce in the market. Apr-20 7.2 11.7 10.5 5.9 3.5 2.9 5.4 4.7
May-20 6.3 9.2 8.4 6.3 3.4 1.6 5.8 4.8
■ Core inflation moderated to 5.7 per cent
Jun-20 6.2 8.7 7.9 11.3 2.7 0.5 6.1 5.2
in November 2020 from 5.8 per cent in Jul-20 6.7 9.3 8.5 10.5 2.8 2.7 6.8 5.4
the previous month. Core inflation seems Aug-20 6.7 9.1 8.3 11.2 2.8 3.2 7.0 5.4
to be becoming persistent as inflation Sep-20 7.3 10.7 9.8 10.7 3.0 2.8 6.9 5.3
in the idiosyncratic categories, i.e. Oct-20 7.6 11.0 10.1 10.6 3.1 2.1 6.9 5.8
personal care and effects and transport & Nov-20 6.9 9.4 8.8 10.4 3.3 1.9 6.9 5.7
communication has remained relatively Apr-Nov 3.7 4.2 3.9 4.2 1.5 -0.1 4.4 3.9
static, whereas inflation in other core FY20
categories such health and education Apr-Nov 6.9 9.9 9.0 9.6 3.1 2.2 6.5 5.3
have been inching up. FY21
WPI inflation inches to fresh 9-month high in November 2020

Components of WPI Inflation (y-o-y%)
Overall Food Primary Mfing Primary Primary Fuel Manufacturing ■ Wholesale price based inflation
WPI Food Food Non-food continued to move up to a fresh
Oct-19 0.0 7.6 9.8 3.8 6.0 2.2 -8.1 -0.9 nine-month high of 1.6 per cent in
Apr-20 -1.6 4.4 3.8 5.3 -1.1 -3.0 -12.6 0.2 November 2020 as compared to 1.5
May-20 -3.4 2.7 1.7 4.8 -2.1 -3.9 -23.1 -0.3 per cent in the previous month even
Jun-20 -1.8 3.1 2.1 5.1 -0.1 -2.8 -16.2 0.1
as food inflation has now started
Jul-20 -0.2 4.7 4.5 5.0 1.6 -3.8 -9.8 0.6
to taper off from its highs.
Aug-20 0.4 4.8 4.4 5.5 1.9 -3.3 -9.1 1.4
Sep-20 1.3 7.2 8.4 4.9 4.1 -1.8 -8.6 1.9 ■ Manufacturing inflation rose to
Oct-20 1.5 5.8 6.4 4.5 4.7 2.9 -10.9 2.1
3.0 per cent in November 2020
Nov-20 1.6 4.3 3.9 4.9 2.7 8.4 -9.9 3.0
from 2.1 per cent on elevated
Apr-Nov
FY20
1.4 6.1 8.0 2.7 6.4 4.0 -3.3 0.3 manufacturing food inflation.
Apr-Nov
-0.3 4.6 4.4 5.0 1.5 -0.9 -12.6 1.1
FY21
Source: Central Statistics Office and Ministry of Commerce and Industry
DECEMBER 2020
ECONOMY
16 MATTERS
[ DOMESTIC TRENDS ]
Stickiness of CPI inflation above RBI's target puts brakes on easing cycle
■ Taking cognisance of the continued upward Policy Instrument: Interest Rates (%)
pressure on inflation, the RBI maintained
status-quo on the key interest rates, putting 7.00
brakes on the easing cycle. The fact that
RBI gave adequate thrust to nurturing 6.00
the growth impulses by maintaining
an accommodative stance as long as 5.00
conditions warranted is encouraging. 4.00
4.00
■ It is also satisfying to note that the Central 3.35
Bank now expects the second-half of 3.00
the current fiscal to log a positive GDP
Jun-17
Jun-18
Jun-19
Jun-20
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
growth, thus taking the full year GDP to
stand at (-)7.5 per cent as compared to
(-)9.5 per cent it had forecasted earlier. Repo rate Reverse Repo rate
Yield on the 10-year G-sec has remained below the 6.0 per cent mark
Debt Markets: Government Bond Yield (%) ■ The yield on the 10-year G-sec
8.0
paper has continued to remain
7.37 below the psychological 6.0 per
7.0 cent mark in December 2020
6.81 despite record level of government
5.93
6.0 borrowings. This is owing to
various central bank measures,
5.0
including, OMOs and Operation
4.0 3.72 Twist, which have had an impact
on the yield curve.
3.0
■ In contrast, the yield on the 1-year
Dec-18
Aug-19
Dec-19
Aug-20
Dec-20
Feb-19
Apr-19
Oct-19
Feb-20
Apr-20
Oct-20
Jun-19
Jun-20
G-sec paper, has remained more-

or-less stable, hovering in a range
10-year 1-year
of 3.4-3.7 per cent on rising risk
Note: G-s aversion.
Unconventional measures keep the systemic liquidity in surplus
■ One of the challenges facing Banking Liquidity (Rs billion) (Deficit (-)/Surplus (+))
the Monetary Policy Committee 10000
(MPC) is the 'problem of plenty',
with regard to systemic liquidity. 8000
Liquidity continues to remain in
6000
considerable surplus in December
2020. 4000
■ Surplus liquidity in the banking 2000

system is largely on account of:
i) RBI’s open market operations 0
(OMOs) directed towards
-2000
containing long-term government
22-May-19
18-Jun-19
12-Jul-19
7-Jan-20
29-Jan-20
19-Feb-20
12-Mar-20
20-May-20
10-Jun-20
2-Jul-20
23-Jul-20
5-Nov-20
7-Dec-20
1-Apr-19
26-Apr-19
7-Aug-19
4-Sep-19
30-Sep-19
28-Oct-19
21-Nov-19
17-Dec-19
4-Apr-20
28-Apr-20
16-Aug-20
6-Sep-20
7-Oct-20
security yields; ii) low credit

disbursal by banks and increased
deposits; and iii) large foreign
Note: Data for Dec is till 18th Dec, 2020 Source: RBI and CII calculations
portfolio inflows. Note: Net liquidity deficit =Total Reverse Repo-Total Repo-MSF (Marginal Standing Facility)-
wStanding Liquidity Facility (SLF)

MATTERS 17
[ DOMESTIC TRENDS ]
Credit off-take continues to show an uptick in November 2020
Credit and Deposit Growth (y-o-y%) ■ Scheduled commercial banks

credit stayed stable at 5.7 per
12.0 cent in November 2020. The
11.3 credit demand has recovered from
8.0
the lows of 5.1 per cent seen in
9.7 September 2020 and is indicative
8.0
5.7 of revival in the domestic demand.
4.0 ■ In contrast, bank deposit growth

has continued to remain in double-
digits for the seventh consecutive
0.0 month in November 2020. In wake
Jul-20
Oct-20
Jan-20
Apr-20
May-20
Jun-20
Aug-20
Sep-20
Nov-20
Nov-19
Dec-19
Mar-20
Feb-20
of deposits outpacing credit, banks

have been parking their surplus
funds mainly in government
Deposit growth Credit growth securities.
Credit offtake to the mining sector shows an impressive jump in October 2020
■ The industry-wise data shows that Industry-wise Sectoral Deployment (y-o-y%)
the critical sectors of construction
and mining were seen to be leading (y-o-y% growth) Jun-20 Jul-20 Aug-20 Sep-20 Oct-20
the recovery in credit disbursal in Mining & Quarrying (incl. Coal) 4.3 7.6 1.2 -0.03 4.3
October 2020.
Food Processing 4.2 6.0 6.9 4.3 3.2
■ In contrast, credit disbursal to the
gems & jewellery, infrastructure, Basic Metal & Metal Product -0.5 -2.6 -1.3 -3.1 -3.8
engineering & basic metals sector
All Engineering -10.5 -14.2 -16.3 -14.2 -17.7
stood in the negative territory in
October 2020. The negative rate Gems & Jewellery -15.9 -17.4 -18.3 -15.3 -8.6
of credit disbursal of infrastructure
during the month will need to Construction 5.6 7.5 8.1 4.5 5.1
be monitored carefully as we go Infrastructure 4.2 1.9 1.8 1.1 -2.0
forward.
Trade sub-sector leads services sector increase in credit growth in October 2020
Sectoral Deployment of Gross Bank Credit (y-o-y%)
■ The credit off-take to the services
S. No. Sector Jul-20 Aug-20 Sep-20 Oct-20
sector saw an uptick to 9.5 per
1 Agriculture & allied 5.4 4.9 5.9 7.4 cent in October 2020 as compared
2 Industry 0.8 0.5 0.0 -1.7 to the previous month underpinned
by higher credit disbursal in its sub-
2.1 Micro & Small -1.9 -1.2 -0.1 0.7
component of trade. In contrast, the
2.2 Large 1.4 0.6 -0.6 -2.9 remaining components of services
2.3 Medium -3.1 2.8 14.5 16.7 such as NBFC, computer software
saw a sharp moderation in credit
3 Services 10.1 8.6 9.1 9.5
off-take during the month.
3.1 Computer software 16.2 7.0 5.6 1.7
■ Credit off-take to the industry sector
Tourism, hotel and
3.2 18.7 17.6 19.7 12.0 further slowed down in October
restaurants
2020 as compared to the previous
3.3 Trade 9.2 12.5 11.5 14.0 month. This was mainly attributable
3.4 Commercial real estate 11.8 6.6 5.5 3.5 to weaker credit off-take to the large
industries. Credit off-take to agri
3.5 NBFC 24.6 17.1 12.5 9.2
sector meanwhile has continued to
4 Personal Loans 11.2 10.6 9.2 9.3 remain relatively healthy.
DECEMBER 2020
ECONOMY
18 MATTERS
[ DOMESTIC TRENDS ]
Merchandise exports witness moderation for second consecutive month in November
■ Merchandise exports moderated Merchandise Trade Growth (y-o-y%)
for the second consecutive month
in November, exhibiting a steeper 20.0
5.5
contraction of 8.7 per cent as
0.0
compared to -5.1 per cent in the -0.8
-8.7
previous month. This was mainly -20.0 -13.3
attributable to dampened demand due -40.0
to recurrence of COVID case-load in
major trading partners. -60.0
-80.0
■ Merchandise imports slumped further
Jan-19
Jun-19
Jul-19
Jan-20
Jun-20
Jul-20
Aug-20
Sep-20
Nov-20
Nov-18
Dec-18
Feb-19
Mar-19
Aug-19
Sep-19
Nov-19
Dec-19
Feb-20
Mar-20
Oct-19
Oct-20
Apr-19
May-19
Apr-20
May-20
too, at -13.3 per cent in November
2020 as compared to -11.5 per cent
in the previous month. Import decline
was mainly led by oil and gold. Merchandise Exports growth Merchandise Imports growth
Decline in imports driven by steeper contraction in oil and moderation in gold imports
Trade Performance
April-Nov ■ Import decline in November 2020 was
driven by a steeper rate of decline in
Nov-19 Oct-20 Nov-20 FY20 FY21
petroleum products (-43.4 per cent
(US$ billion) as compared to -38.5 per cent) and
Exports 25.8 24.9 23.5 211.2 173.8 a sharp slowdown in gold (+2.6 per
Imports 38.5 33.6 33.4 324.6 216.5 cent as compared to +35.9 per cent).
Oil Imports 11.1 6.0 6.3 86.0 44.2
■ Exports performance deteriorated due
Non-oil Imports 27.5 27.6 27.1 238.6 172.3 to contraction in outbound shipments
Trade Balance -12.8 -8.7 -9.9 -113.4 -42.7 of engineering goods (-8.0 per cent),
(y-o-y%) petroleum products (-60 per cent),
Exports -1.2 -5.1 -8.7 -2.3 -17.7 leather & products (-30 per cent)
Imports -11.8 -11.5 -13.3 -7.3 -33.3 and organic & inorganic chemicals
(-8 per cent). This was largely due to
Oil Imports -18.1 -38.5 -43.4 -12.0 -48.6
a major second wave of COVID-19
Non-oil Imports -8.9 -2.2 -1.2 -5.4 -27.8 and consequent restrictions imposed
Trade Balance -27.5 -25.9 -22.6 -15.2 -62.4 in major export destinations.
Current account deficit narrows in 2QFY21 on wider trade deficit
■ As per the recently balance of Components of Current Account (US$ billion)

payments (BoP) data, the current
20.9 20.5 21.2
account surplus moderated from 19.2
15.5
11.2
US$19.2 billion (3.83 per cent of 9.5 9.1
GDP) in 1QFY21 to US$15.5 billion

(2.45 per cent of GDP) in 2QFY21,
-7.6
primarily on account of a rise in the -10.8
-14.8
merchandise trade deficit.
■ On the capital account front, both -39.6

net FDI and net portfolio investment
2QFY20
1QFY21
2QFY21
2QFY20
1QFY21
2QFY21
2QFY20
1QFY21
2QFY21
2QFY20
1QFY21
2QFY21
recorded a sharp accretion in the

second quarter as gradual unlocking Current account Good trade balance Services balance Income balance
of global economies rekindled the balance
risk appetite of investors. Source:Ministry of Commerce & RBI

MATTERS 19
[ DOMESTIC TRENDS ]
Unabated flows to India encouraging the Rupee to strengthen
Net FII Inflows and Average Monthly Exchange Rate ■ The Indian Rupee has strengthened
considerably against the US Dollar
80.0 12.0
since mid-November 2020 post the
8.0
turmoil in the days following the
76.0 4.0 US elections and uncertainty about
72.0 73.7
0.0 the results. Healthy FII flows have
70.7
-4.0 supported the strengthening of the
68.0 -8.0 rupee against the greenback.
-12.0
64.0 -16.0 ■ Net FII inflows have continued
to stay robust in December 2020
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
on the back of global liquidity
Net FII inflow, US$ bn (RHS) Rs/US$
flush, hefty foreign flows, positive
domestic data and hopes of a
Note: Data for December 2020 for both exchange rate and FII flows is till 24th Dec vaccine arrival.
Gross FDI flows have hit a record high this year so far
■ Foreign direct investment (FDI)
inflows climbed to US$6.9 billion in
Foreign Inflows (US$ billion)
October 2020 from US$4.3 billion
seen in the previous month. The 20.0
steps taken in the last few years 16.0
to liberalise FDI policy have borne
12.0
fruit as is evident from the ever
increasing volumes of FDI inflows 8.0 6.3 6.9
being received into the country. 4.0
1.4
2.0
■ ECB flows moderated to US$2.0 0.0
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Jun-19
Jul-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Jun-20
Jul-20
Oct-18
Apr-19
May-19
Apr-20
Aug-19
Sep-19
Oct-19
May-20
Aug-20
Sep-20
Oct-20
billion in October 2020 as compared
to US$5.2 billion in September 2020.
This year, till date (Apr-Oct), ECB Gross FDI flows (US$ bn) ECB flows (US$ bn)
flows have stood at US$14.6 billion
as compared to US$28.6 billion seen
in the same period last year.
There is no stopping the accretion to forex exchange reserves
Foreign Exchange Reserves (US$ billion) ■ Foreign exchange reserves scaled

new heights as they hit a fresh
600.0 581.1
lifetime high of US$581.1 billion
550.0 in December 2020 (data taken till
500.0 18th Dec). The bulk of the increase
450.0
was attributable to a rise in foreign
395.6 currency assets (FCAs), a major
400.0
component of the overall reserves.
350.0
300.0 ■ Apart from indicating relative

stability in the external sector,
Dec-18
Jan-19
Feb-19
Mar-19
Jun-19
Jul-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Jun-20
Jul-20
Nov-20
Dec-20
Apr-19
May-19
Aug-19
Sep-19
Oct-19
Apr-20
May-20
Aug-20
Sep-20
Oct-20
record-high forex reserves are also

due to the sluggish imports which
Note: Data for December 2020 is till 18th December, 2020 have kept the demand for foreign
Source: RBI exchange contained.
DECEMBER 2020
ECONOMY
20 MATTERS
[ DOMESTIC TRENDS ]
Business sentiment maintains its uptrend in Oct-Dec quarter as per CII Business Outlook Index
Page 10
■ The CII Business Confidence CII 113th itsBusiness
Business sentiment maintains
Confidence Index
uptrend in Oct-Dec quarter as per CII Business Outlook Index
Index (CII- BCI) for Oct-Dec 2020
th
CII 113 Business Confidence Index
■ The CII Bus
maintained the uptrend, recording BCI) for Oct-D
Page another
10 quarter of upbeat business 75 uptrend, recor
66.3
sentiment. The index soared to the
70 62.9 upbeat busine
65
Business sentiment maintains its uptrend in Oct-Dec quarter as per CII Business Outlook Index soared to the
level of 62.9 during the Oct-Dec 2020 60 56.1 55.2
th
CII 113 Business Confidence Index 55 50.3 Dec 2020 qua
quarter, recording an improvement of ■ The
50
CII Business Confidence
40.6 Index (CII- improvement
45
25 per cent over the previous quarter’s BCI) for
40 Oct-Dec 2020 maintained the
previous quar
75
reading of 50.3. 35
66.3
uptrend, recording another quarter of
30
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
70 62.9 ■ The BCI con upbeat business sentiment.
Business CurrentThe index Expectation
Situation
65
■ The BCI continued to recover in the soared to Confidence
the level Index Dec quarter, m
Index the Oct-
of 62.9 during Index
60 56.1 55.2
55 50.3 Dec 2020 quarter, recording an based improv
Oct-Dec quarter, mainly on the back 50 BCI CSI EI improvement of 25 per cent over the situations inde
of a broad-based improvement in both 40.6 Q2FY21 Q3FY21
45 previous quarter’s reading of 50.3. Index (EI).
40
the current situations index (CSI) and Note: BCI is Business Confidence Index, CSI is Current Situations Index and EI is Expectation Index
30 Note: BCI is Business Confidence Index, CSI is Current Situations Index and
35
the Expectation Index (EI).
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
EI34
isBusiness
Expectation
per Index
cent ofCurrent
the respondents expect GDP ■
Situation Expectation toThe BCI continued
contract to cent
by 6-10 per recover in the Oct-
in FY21
Confidence Index Index Index Dec quarter, mainly on the back of a broad-
Growth and Expectations of Business Activity in 2020-21
based improvement in both the current
situations index (CSI) and the Expectation
34 per cent of the respondents expect GDP
(% of to contract by 6-10 per cent in FY21
BCI Q2FY21 CSI
Q3FY21 EI Expected GDP Growth in 2020-21
Respondents) Index (EI). Expectation of Business ■ More than th
Recovery per cent) felt t
Note: BCI is Business Confidence Index, CSI is Current Situations Index and EI is Expectation Index (% of Respondents)
contraction ra
Growth
34 per and
cent of the Expectations
respondents of toBusiness
expect GDP contract byActivity in 2020-21
6-10 per cent
>0.0%in FY21
■ More than third of the 32.1respondents per cent durin
<-10.0%
(34 20.2
per cent) felt that India’s GDP
22.0 cent of respon
Growth and Expectations of Business Activity in 2020-21 8% 11% in GDP growth
16.7
-3.0% to
0.0%
will record8.9 a contraction ranging from 3 per cent.
Expected GDP Growth in 2020-21
(% of Respondents) Expectation
21% of Business ■ -10
More per centoftothe-6
than third per cent(34during
respondents
Recovery -10.0%
(% of Respondents) to -6.0% FY21,
per followed
cent) felt that India’sby
GDP26willper cent
record a of
Within 3 months
6-12 months
More than a year

Has already
3-6 months
recovered
contraction ranging from -10 per cent to -6
32.1
34% respondents
per anticipating
cent during FY21, followed bya26 decline
per in
-6.0% to
>0.0%<-10.0% -3.0%
22.0 GDP
cent growth ranging
of respondents froma decline
anticipating -6 per cent
8% 11% 20.2 ■ Nearly a thir
-3.0% to
26% 16.7 to -3 per cent.
in GDP growth ranging from -6 per cent to -
3 per cent. cent) foresee
0.0% 8.9 condition in th
21% Nearly a third of the respondents (32 ■ about 17 per c
-10.0% that it may tak
Capacity utilization expected to improve as indicated by the CII Survey
to -6.0% per cent) foresee a recovery in their achieve norm
Within 3 months
6-12 months
More than a year

Has already
3-6 months
recovered
Capacity Utilisation Levels and Expectations of Sales & New Orders

34% business condition in the next 6-12
-6.0% to
-3.0%
Capacity Utilization
(% of Respondents) months,Topmost while about 17 per cent of
business concerns
(% of Respondents)
■ Nearly a third of the respondents (32 per
26% the respondents
cent) foresee a recovery feltin their
that business
it may take ■ Even though
39
46
more
waves than anext
year6-12
Subsequent (second and third)
condition ofin
thethe
pandemic to achieve normalcy.
months, while 32.4
respondents (
capacity utiliza
34
33 about 17 per cent of the respondents felt cent range du
27 Weak domestic demand 29.1
that it may take more than a year to nearly half of
expected to improve as indicated by the CII Survey
16 achieve Slow
normalcy.
Capacity utilization expected to improve as indicated by1 the CII Survey global recovery 22.3 cent) foresee
Capacity Utilisation Levels and Expectations of Sales & New Orders4 utilization leve
Unavailability / Restricted
Capacity Utilization Topmost business concerns Movement of Labor 8.1 in Oct-Dec 20
Below 50% 50-75% 75-100% Above 100%
■ Even(%though a large
of Respondents) share of the (% of Respondents) Capacity Utilisation Levels and
■ Even though a large share of the
respondents (39 per 46
cent) witnessed
Topmost Business respondents Concerns
(39 per cent) witnessed
capacity39 utilization
34 levels in the 50-
waves of the pandemic 32.4
capacity utilization levels in the 50-75 per
33
75 per cent range 27 during the Jul-SepWeak domestic demand
Capacity Utilization
29.1 cent range during the Jul-Sep quarter,
Topmost business concerns
nearly half of the respondents (46 per
quarter,
16 nearly half of the respondents Slow global recovery (% of Respondents)
22.3 cent) foresee(% anofimprovement
Respondents)
in capacity
(46 per cent) foresee an improvement
1
4
Unavailability / Restricted 46
utilization levels to 75-100 per cent range
Below 50%
in capacity
50-75%
utilization levels to 75-100
75-100% Above 100%
Movement of Labor 39 8.1 inwaves
Oct-Dec
33
2020 quarter.
of the pandemic 32.4
34
per cent range in Oct-Dec 2020 quarter. 27 Weak domestic demand 29.1
16
Slow global recovery 22.3
■ Nearly a third of the respondents (32.4 1
4
Unavailability / Restricted
per cent) have indicated the subsequent Movement of Labor 8.1
Below 50% 50-75% 75-100% Above 100%
waves of the pandemic as the topmost
Production/ Distribution value
chain not fully operational 8.1
business concern over the next six Actual Q2 FY21 (Jul-Sep 2020)
0 10 20 30 40
months, followed by 29 per cent who Expected Q3 FY21 (Oct-Dec 2020)
cited weak domestic demand as the

Source: 113th CII Business Outlook Survey (Oct-Dec 2020)
biggest risk to business confidence
during the said period.

MATTERS 21
STATE OF STATES Export Preparedness Index
N
ITI Aayog in partnership with the Institute union territories. The EPI provides invaluable insights
of Competitiveness released the Export on how states can attain this goal. The rapid growth of
Preparedness Index (EPI) 2020 for the exports is a crucial component for long-term economic
Indian states. It is the first report to examine export growth. A favourable ecosystem enables a country to
preparedness and performance of Indian states, EPI contribute significantly to global value chains and reap
intends to identify challenges and opportunities; the benefits of integrated production networks, globally.
enhance the effectiveness of government policies; and
The state/UT in focus for this issue is Puducherry.
encourage a facilitative regulatory framework. The
The growth of the city-state decelerated to 8.1 per
structure of the EPI includes 4 pillars – Policy;
cent in 2019-20 as compared to 8.5 per cent in the
Business Ecosystem; Export Ecosystem; Export
previous year, mainly on account of moderation noted
Performance. Overall, most of the Coastal states
in agri and industrial sector. Despite the slowing
were the best performers. Gujarat, Maharashtra and
growth seen in 2019-20, the growth rate of the UT
Tamil Nadu occupied the top three ranks, respectively.
has averaged above 8.0 per cent in the last three
Six of eight coastal states feature in the top ten
years. However, despite its impressive performance
rankings, indicating the presence of strong enabling
over the years, Puducherry has fared poorly in the
and facilitating factors to promote exports. In the
BRAP’s ease of doing business rankings. The city’s
landlocked states, Rajasthan has performed the best,
ranking remained unchanged at 27 in 2019 from the
followed by Telangana and Haryana.
previous year. On the socio-economic indicators front,
To achieve the target of making India a developed Puducherry has made impressive improvements in
economy by focusing on ‘Atmanirbhar Bharat’, there the various indicators such as infant mortality rate
is a need to increase exports from all the states and and literacy rate over the years.
DECEMBER 2020
ECONOMY
22 MATTERS
[ STATE OF STATES - EXPORT PREPAREDNESS INDEX ]
Gujarat tops Niti Aayog's Export Preparedness Index 2020
Export Preparedness Index ■ As per the Export Preparedness Index (EPI)
2020 released by NITI Aayog in partnership
75.2 75.1
with the Institute of Competitiveness,
64.9 62.6
58.2 57.4 56.0 56.0 55.2
54.1 53.6 most of the Coastal States were the best
49.5 48.0
performers. Gujarat, Maharashtra and
39.6
35.6 34.1
Tamil Nadu occupied the top three ranks,
21.6 respectively.
■ Six of eight coastal states featured in the

top ten rankings, indicating the presence of
Tamil Nadu
Telangana
Haryana
Chhattisgarh
Karnataka
Kerala
Madhya Pradesh
Punjab
Andhra Pradesh
Gujarat
Maharashtra
Rajasthan
Odisha
Uttar Pradesh
West Bengal
Jharkhand
Bihar
strong enabling and facilitating factors to
promote exports. In the landlocked states,
Rajasthan performed the best, followed by
Telangana and Haryana.
The landlocked states do well on most of the pillars of the index

■ The structure of the EPI includes 4
pillars – Policy; Business Ecosystem; Policy and Business Ecosystem Pillar
Export Ecosystem; Export Performance. 90.6 94.9
On the first two pillars Policy and 85.7 80.6
77.6 79.2 76.3 78.3 76.2
74.8 75.3
79.2
71.2
Business Ecosystem, once again the 68.1 71.3
65.0 64.7 62.9 66.1
59.6
56.8 56.2 55.8 53.7
three landlocked states of Gujarat,
52.3 50.5 51.1
45.9 45.1 43.9
Tamil Nadu and Maharashtra topped 27.3 31.2
the list. 0.0 0.0
■ It is useful to point here that Bihar

Andhra Pradesh
West Bengal
Tamil Nadu
Karnataka
Rajasthan
Chhattisgarh
Haryana
Kerala
Telangana
Madhya Pradesh
Punjab
Gujarat
Maharashtra
Uttar Pradesh
Odisha
Jharkhand
Bihar
and West Bengal scored a naught in
the Policy Pillar due to lack of policy
mechanism such as Export Promotion
Policy and adequate Institutional Policy Pillar Business Ecosystem Pillar
Framework in place in the two states.
Maharashtra, Odisha and Rajasthan top in the export related pillars of the index
■ On the Export Ecosystem pillar
Export Ecosystem and Export Performance Pillar which aims to assess the business
environment, which is specific to
81.2
exports, Maharashtra, Odisha and
57.3
65.9 65.0
60.9 60.3 57.8
61.7
56.3
Rajasthan were the top three states,
while Bihar and Punjab were the
48.4 47.4 44.2 43.9 38.8
42.3 40.3 46.5 46.6 41.0 43.7
40.7 38.9 27.0 38.4
29.9 36.9 28.3
28.0
18.7 16.6
24.9 21.5
15.6
laggards.
7.0
■ The findings of the report also
Kerala
highlight that export orientation and

Karnataka
Uttar Pradesh
West Bengal
Bihar
Maharashtra
Rajasthan
Haryana
Tamil Nadu
Madhya Pradesh
Jharkhand
Gujarat
Andhra Pradesh
Punjab
Odisha
Telangana
Chhattisgarh
preparedness are not just restricted

to prosperous states. Even emerging
states such as Uttar Pradesh,
Rajasthan, Chhattisgarh etc, can
Export Ecosystem pillar Export Performance Pillar
undertake dynamic export policy
measures, and synchronize with
Source: NITI AAYOG
national logistical plans to grow their
exports.

MATTERS 23
[ STATE IN FOCUS: PUDUCHERRY ]
Puducherry sees moderation of growth in 2019-20 on lower agri and industrial growth
■ Puducherry saw its real growth Real GSDP by Economic Activity (y-o-y%)
decelerating to 8.1 per cent in 2019‑20
as compared to 8.5 per cent in the 9.0
10.4
8.8 8.6
9.5
8.7 8.5
previous fiscal. The moderation was 8.1
underpinned by a slowdown noted 5.6 8.2 5.5
across the agri and industrial sectors.
■ A stellar performance by the service
sector as it grew by 9.5 per cent was
the major contributor to the growth in
2019-20. In industry, the sub-sector of -3.5
Construction was the major driver of
2017-18
2018-19
2019-20
2017-18
2018-19
2019-20
2017-18
2018-19
2019-20
2017-18
2018-19
2019-20
growth as it grew by 14.2 per cent
during the year.
Agriculture Industry Services Real GVA
Puducherry is a laggard in the BRAP's EoDB rankings

Ease of Doing Business in the State ■ Puducherry has been stuck at 27th
position out of 36 in the ease
Ease of Doing Business Rankings Provision of Infrastructure of doing business state rankings,
2019, prepared by the Department
26 27 27 Per capita for Promotion of Industry and
Length of Internal Trade (DPIIT). Puducherry
availability
roads (in
of power
kms)
fared poorly as the government
20 (KwH hour) implemented just 61 reforms while
failing to make any headway in
2014-15 1909.3 2890
executing the 300 reforms as
advocated by the Union Govt.
2015-16 1951.8 3020
■ Infrastructure as proxied by per capita
2016-17 2045.9 3072 availability of power and length of
roads has seen an improvement over
2017-18 2139.1 3174 the years in the Union Territory. This
mirrors the efforts being made by
2018-19 2210.6 3242 the administration to improve the
2015 2016 2017 2019 infrastructure over the years.
Impressive improvements seen in various socio-economic indicators of Puducherry

■ Puducherry has seen a sharp Socio-Economic Indicators in the State
improvement in its infant mortality
rate (IMR) over the years as the Infant Mortality Rate Literacy Rate (%)
number has decreased from 14 per (Per Thousand)
thousand in 2014 to a low of 11 per
14
thousand in 2018. This was possible
due to effective, comprehensive, 11 11 11
quality antenatal, intra-natal, prenatal, 10
81.2% 85.9%
and postnatal care, in all the primary 74.7%
65.1%
health centres, community health
centres, district hospitals in the UT.
■ Literacy rate, too, has seen a sharp
improvement, with the latest reading
standing at 85.9 per cent in 2011 as 2014 2015 2016 2017 2018 1981 1991 2001 2011
compared to 81.2 per cent and 74.7
Source: RBI & CSO
per cent in the previous two decades
respectively.
DECEMBER 2020
ECONOMY
24 MATTERS
GLOBAL TRENDS
A
s the global economy slowly crawls back to contract by 0.4 per cent in 2020, as against
to life and people get attuned to living with the previous forecast of 0.7 per cent contraction
the virus, the prospects of multiple vaccines envisaged in the September update. However, the
becoming available in the next few months have not paths of recovery are expected to diverge within
only raised hopes of an imminent end to the virus but the region. While 2020 growth projections for East
have also perked up growth prospects- with several Asia and South Asia have been revised upwards,
multilateral agencies raising their GDP projections to 1.6 per cent expansion in East Asia and a less
for 2020. severe contraction (-6.1 per cent) in South Asia,
According to the recent OECD Economic Outlook, the recovery in Southeast Asia is expected to lag,
global growth is expected to contract by a less and growth forecasts have been downgraded further
severe 4.2 per cent in 2020, as against the earlier to -4.4 per cent- as virus containment measures
projection of a 4.5 per cent decline in output. continue to hamper economic activity. For Central
During the next two years, global economy is Asia and the Pacific, growth forecasts have been
expected to gain momentum, expanding by 4.2 kept unchanged from the September Update.
per cent in 2021 and 3.7 per cent in 2022, and
As per the latest World Trade projections by the
the global GDP is expected to reach pre-pandemic
UNCTAD, the volume of global merchandize trade
levels by the end of 2021. However, while the
is set to face the sharpest decline since the end of
outlook is highly uncertain with both upside and
the global financial crisis, falling by 5.6 per cent
downside risks, economic recovery is likely to be
in 2020. While the forecast for merchandize trade
extensively uneven across countries and may even
was upgraded, from 9 per cent projected earlier,
lead to lasting changes in the world economy, given
the UNCTAD has downgraded its forecast for the
that the pandemic has already damaged socio-
service sector to a contraction of 15.4 per cent
economic fabric of countries all over the world.
during 2020. The sector has been hit hard due to
The Asian Development Bank (ADB) has also the steep decline in travel, transport and tourism
released a supplement to its Asian Development activity owing to the pandemic and is likely to
Outlook and projects developing economies in Asia record its worst contraction since 1990s.

MATTERS 25
[ GLOBAL TRENDS ]
OECD raises global growth forecasts to -4.2 per cent for 2020 from -4.5 per cent
■ Organisation for Economic Co-operation and OECD Economic Outlook, December 2020
Development (OECD) expects GDP growth
to contract by a less severe 4.2 per cent in 2020 2021 (F) 2022 (F)
2020, as against the earlier projection of a
World -4.2 4.2 3.7
4.5 per cent decline in output, mainly on the
Euro Area -7.5 3.6 3.3
prospects of vaccination campaigns, concerted
health policies and fiscal support raising hopes G20 -3.8 4.7 3.7
of a quicker recovery. US -3.7 3.2 3.5
■ During the next two years, global economy UK -11.2 4.2 4.1
is expected to gain momentum, expanding Japan -5.3 2.3 1.5
by 4.2 per cent in 2021 and 3.7 per cent China 1.8 8.0 4.9
in 2022, and the global GDP is expected India -9.9 7.9 4.8
to reach pre-pandemic levels by the end of
2021. However, this recovery is likely to be
highly uneven across countries.
Developing Asia to contract by 0.4 per cent in 2020 as per ADB latest outlook
■ Asian Development Bank (ADB) projects

Asian Development Outlook, December 2020 developing economies in Asia to contract by 0.4
per cent in 2020, lower than the earlier forecast
Developing Asia 5.1 -0.4 6.8 of 0.7 per cent contraction. For 2021, growth is
Central Asia 4.9 -2.1 3.8 expected to rebound to 6.8 per cent, however
output would remain below the level envisioned
East Asia 5.4 1.6 7.0
prior to the pandemic.
South Asia 4.3 -6.1 7.2
■ Further, the paths of recovery are expected to
India 4.2 -8.0 8.0 be divergent within the region with improved
Southeast Asia 4.4 -4.4 5.2 outlook for East Asia (1.6 per cent) and South
Asia (-6.1 per cent) — mainly driven by China
and India — while Southeast Asia expected to
lag (-4.4 per cent).
Global trade set to suffer due to the pandemic
■ The latest trade data by UNCTAD reveals

Global Trade in Merchandise and Services, December 2020
that global merchandize trade is expected 30.0
to decline by 5.6 per cent in 2020- marking 20.0
the biggest fall in merchandize trade since 10.0
2009. However, this projection is slightly 0.0

more optimistic than the earlier forecast of -10.0 -5.6
a 9 per cent contraction. -20.0 -15.4
-30.0
■ Global services trade is projected to decline
2020F
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
by a much greater 15.4 per cent in 2020-

marking the biggest decline since 1990 and Merchandize Service
even greater than the 9.5 per cent fall seen
Note: F is Forecast
during the 2009 Global Financial Crisis.
Source: OECD, ADB, UNCTAD
DECEMBER 2020
ECONOMY
26 MATTERS
[ GLOBAL TRENDS ]
Norway retains top spot while India's rank slips 2 places in HDI Rankings for 2020
Human Development Index (HDI) 2020 ■ The latest Human Development Index
2020 HDI 2020 HDI Change in rank (HDI) 2020 by the United Nations
Country
Rank Score from 2019 Development Program UNDP has ranked
Norway 1 0.957 ▄ Norway in the top spot, while Ireland and
Ireland 2 0.955  Switzerland are jointly placed in the second
Switzerland 2 0.955 ▄ spot with equal HDI scores. The Index
Hong Kong 4 0.949 ▄ ranks 189 countries on key dimensions
Iceland 4 0.949 of human development-health, education

and standard of living.
Germany 6 0.947 
Sweden 7 0.945  ■ India's rank on the Index fell 2 places, to
Australia 8 0.944  stand at 131, despite a relative improvement
Netherlands 8 0.944 ▄ in HDI score over last year. India’s gross
national income per capita fell to US$6,681
Denmark 10 0.94 
in 2019 from US$6,829 in 2018 on PPP
India 131 0.645 
basis.
New Zealand remains world's most free country while India slips to 111th spot
Human Freedom Index (HFI) 2020
■ As per the recent Human Freedom 2020 HFI 2020 HFI Change in rank
Index (HFI), New Zealand continues Country
Rank Score from 2019
to hold the prime position as the New Zealand 1 8.87 ▄
freest economy of the globe for the Switzerland 2 8.82 ▄
seventh consecutive year, followed by
Hong Kong SAR, China 3 8.74 ▄
Switzerland and Hong Kong.
Denmark 4 8.73 
■ The index assesses 162 countries on Australia 5 8.68 
personal, civic & economic freedom Canada 6 8.64 
and India has slipped 5 spots on the Ireland 7 8.62 ▄
index to rank to stand at 111. While
Estonia 8 8.54 
the overall score for India was 6.43,
Germany 9 8.52 
personal freedom received a score of
6.30 while economic freedom was Sweden 9 8.52 
rated at 6.56. India 111 6.43 
Afghanistan most impacted by terrorism while India ranks 8th globally

Global Terrorism Index (GTI) 2020
2020 GTI 2020 GTI Change in Rank ■ The annual Global Terrorism Index report
Country published by the Institute for Economics
Rank Score from 2019
Afghanistan 1 9.592 ▄ and Peace (IEP), continues to place
Iraq 2 8.682 ▄ Afghanistan in the numero uno position.
The country had the highest economic
Nigeria 3 8.314 ▄
impact of terrorism equivalent to 16.7 per
Syria 4 7.778 ▄
cent of GDP in 2019, despite a 22.4 per
Somalia 5 7.645 cent decline in terrorism related deaths
Yemem 6 7.581 during the year.
Pakistan 7 7.541
■ India's rank remains unchanged at the 8th
India 8 7.353 ▄
position, among 163 countries globally,
Dem. Rep. of Congo 9 7.178
despite a decline in its terrorism score-
Philippines 10 7.099 which was supported by a fall in both
Means an inrease in ranking Means a decline in ranking ▄ Means no change in ranking
terrorist attacks and deaths from terrorism
Source: HDI-United Nations Development Program (UNDP), HFI-Cato Institute during 2019.
and Fraser Institute, GTI-Institute for Economics and Peace

MATTERS 27
POLICY FOCUS
The important policy announcements made by the Government/RBI and other major regulators in the month
of December 2020 are covered in this month's Policy Focus. Our endeavour, through this section, is to
keep our readers abreast of the latest happenings on the policy front and the implications of the same on
the industry so that they can take informed decisions accordingly.
S. No Area Policy Announcement Likely Impact

1. Banking The Reserve Bank of India (RBI) has clarified that borrowers opting for The move is
and resolution of COVID-19 related stressed loans do not need to submit aimed easing the
Finance any specific resolution plans to the lending institutions and can invoke regulatory burden
the resolution framework by merely submitting a request to the them. on businesses in
The lending institutions will then take an in-principle decision, as per stress due to the
their Board-approved policy, on invoking the Resolution Framework. pandemic
After invocation of the Resolution Framework, the contours of the
resolution plan will be decided by the lending institution in consultation
with the borrower. For personal loans, the resolution plan would need
to be implemented within 90 days from the date of invocation while
for all other loans a period of 180 days has been prescribed.
2. Financial The Securities and Exchange Board of India (SEBI) released norms The move is aimed
Markets related to core settlement guarantee fund (SGF), stress testing and at enhancing the
default waterfall procedure for limited purpose clearing corporations robustness of the
(LPCCs). With regards to the core SGF, a contribution to the Fund risk management
will be made by the recognised limited purpose clearing corporation, system in LPCCs.
the clearing members and issuers of the debt securities and any
shortfall in the Fund will be replenished by the recognised LPCC to
the threshold level as specified by SEBI. Further, SEBI has put in
place some measures for stress testing of LPCCs too. Also, SEBI has
prescribed default waterfall procedure, whereby clearing corporation
applies different types of its financial resources to meet a default loss,
such as margins brought in by defaulting participant, clearing funds
and its own assets, in a systematic manner.
3. Financial The SEBI has approved new shareholding norms for companies under The move would
markets Corporate Insolvency Resolution Process and has also decided to give ensure revival of
relaxation in minimum promoter contribution in follow-on public offer. the corporate debtor
For companies that continue to remain listed due to implementation pursuant to the
of the resolution plan under the Insolvency and Bankruptcy Code- resolution plan.
they will be required to have at least 5 per cent public shareholding
at the time of their admission to dealing on the stock exchange.
Further, such companies will be provided 12 months to achieve public
shareholding of 10 per cent and a further 6 months to reach 25 per
cent public shareholding. Additionally, companies will be required
to make additional disclosures, such as specific details of resolution
plan including details of assets post-CIRP and details of securities
continuing to be imposed on the companies' assets and other material
liabilities imposed on the firm.
DECEMBER 2020
ECONOMY
28 MATTERS
[ POLICY FOCUS ]
4. Power The government has notified the Electricity (Rights of Consumers) The move will
sector Rules, 2020. The new rules provide for rights of consumers and give consumers the
obligations of distribution licensees, release of new connection and right to a minimum
modification in existing connection, metering arrangement, billing standard of service
and payment, etc. The new rules state that every distribution licensee for supply of
must supply electricity on request made by an owner or occupier of electricity.
any premises in line with the provisions of the Act. Further, a new
connection has to be given within a maximum time period of seven
days in metro cities, 15 days in other municipal areas, and 30 days
in rural areas. The distribution licensee shall supply 24x7 power to
all consumers, with the exception of some consumers like agriculture,
and must ensure a robust grievance redressal mechanism.
5. GST The government has launched the Quarterly Return filing & Monthly The move is aimed
Payment of Taxes (QRMP) scheme for small taxpayers under GST at improving the
system. Taxpayers who have an aggregate annual turnover of up to ease of doing
Rs 5 crore in the preceding financial year and have filed their October business.
GSTR-3B (sales) return by November 30, 2020, are eligible for this
scheme. Through this scheme, these taxpayers have the option of filing
heir GSTR-1 and GSTR-3B returns quarterly beginning with January-
March period. They can make GST payments through challan every
month either by self-assessment of monthly liability or 35 per cent of
net cash liability of previous filed GSTR-3B of the quarter. Further,
quarterly GSTR-1 and GSTR-3B can also be filed through an SMS.
6. GST The Central Board of Indirect Taxes and Customs (CBIC) has made The move is aimed
it mandatory to mention 8-digit HSN or tariff code for 49 chemical- at curbing tax
based products while issuing Goods and Services Tax (GST) invoice. evasion.
At present, businesses mention up to 4-digit tariff code while issuing
invoices. HSN code or the Harmonised System of Nomenclature code
is used across the globe for systematic classification of goods.
7. GST The government has notified modifications in the GST rules as per which The move is aimed
a business will now undergo in-person verification before it is registered at curbing GST
under GST. Incase an applicant opts for Aadhaar authentication, they will credit fraud and
undergo biometric-based Aadhaar authentication at one of the facilitation fake invoicing.
centres, notified by the commissioner. However, if registering without
Aadhar, the GST administration would need biometric information
and verification of KYC documents at designated verification centres.
For existing registrants suspected of foul play, their registration can now
be cancelled if Input Tax Credit (ITC) is claimed in violation of law.
Further, taxpayers who could claim 10 per cent of ITC for invoices
that were not uploaded by their supplier can now claim only 5 per cent
ITC on such invoices. This rule will come into effect from January
1 next year.
Additionally, certain businesses will now have to discharge at least
1 per cent of their tax liability through cash owing to restriction on
using ITC for the full amount. These taxpayers are those whose GST
turnover isn’t commensurate with their income tax profile or the ones
who supply goods and services worth more than Rs 50 lakh in a month.

MATTERS 29
[ POLICY FOCUS ]
8. Agricul- The government has issued guidelines for implementation of feeder- The move would
ture level solarisation under the PM-KUSUM scheme after consultation help in achieving
with state governments. The scheme consists of three components: economies of scale
1. Component-A includes installation of decentralised ground mounted and ensure better
grid connected renewable power plants, efficiency.
2. Component-B includes installation of standalone solar powered
agriculture pumps and
3. Component-C includes solarisation of grid-connected agriculture
pumps.
After consultation with states, it has been decided to also include
feeder level solarisation under Component-C of the Scheme. As per
the guidelines, distribution company (discom)/power department will be
the implementing agency for feeder-level solarisation in their respective
area and the state may choose to install feeder-level solar power
plants of capacity higher than capacity required for supplying power
to agriculture feeder. However, the use of indigenously manufactured
solar panels with indigenous solar cells and modules has been made
mandatory.
9. Bilateral India and the US have signed a Memorandum of Understanding to The move will
Agree- co-operate on intellectual property examination and protection for the strengthen IP
ments next 10 years and to strengthen the IP systems in both countries. The systems of both the
MoU was signed between the United States Patent and Trademark countries, enabling
Office (USPTO) and Department for Promotion of Industry and Internal further innovation
Trade (DPIIT) during a virtual meeting after and earlier MoU between and growth.
the two countries expired nine years ago. The new MoU envisions
work on two paths -- substantive, and administrative. Within the
substantive pathway, the two countries will jointly build capacity in
the full range of intellectual property disciplines, including patents,
trademarks, copyright, and geographical indications. While on the
administrative side, ideas and experiences will be shared on how to
manage the operations of the respective IP offices, including the use
of tools to enhance efficiency and productivity.
DECEMBER 2020
ECONOMY
30 MATTERS
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1613021865economy Matters December 2020 - Gems & Jewellery

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1613021865economy Matters December 2020 - Gems & Jewellery

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DECEMBER 2020

Gems & Jewellery:

Inside This Issue

ECONOMY DECEMBER 2020

• An Overview of Gems & Jewellery Sector in India...10

ECONOMY DECEMBER 2020

ECONOMY DECEMBER 2020

ECONOMY DECEMBER 2020

ECONOMY DECEMBER 2020

ECONOMY DECEMBER 2020

Double-digit output growth cheer for the electricity sector

Volatile capital goods output turns a corner in October 2020

lends credence to the fact that the 30.8

by enabling policy measures.

Core sector output records a weak performance in November 2020

Core Sector Growth (y-o-y%) ■ Core sector industrial production

cent seen during the same period

Broad-based moderation seen across all sub-sectors of core

ECONOMY DECEMBER 2020

WPI inflation inches to fresh 9-month high in November 2020

G-sec paper, has remained more-

Unconventional measures keep the systemic liquidity in surplus

■ Surplus liquidity in the banking 2000

security yields; ii) low credit

ECONOMY DECEMBER 2020

Credit and Deposit Growth (y-o-y%) ■ Scheduled commercial banks

4.0 ■ In contrast, bank deposit growth

of deposits outpacing credit, banks

Current account deficit narrows in 2QFY21 on wider trade deficit

■ As per the recently balance of Components of Current Account (US$ billion)

GDP) in 1QFY21 to US$15.5 billion

■ On the capital account front, both -39.6

recorded a sharp accretion in the

risk appetite of investors. Source:Ministry of Commerce & RBI

ECONOMY DECEMBER 2020

There is no stopping the accretion to forex exchange reserves

Foreign Exchange Reserves (US$ billion) ■ Foreign exchange reserves scaled

300.0 ■ Apart from indicating relative

record-high forex reserves are also

More than a year

More than a year

Capacity Utilisation Levels and Expectations of Sales & New Orders

months, followed by 29 per cent who Expected Q3 FY21 (Oct-Dec 2020)

cited weak domestic demand as the

ECONOMY DECEMBER 2020

■ Six of eight coastal states featured in the

The landlocked states do well on most of the pillars of the index

Tamil Nadu and Maharashtra topped 27.3 31.2

the list. 0.0 0.0

■ It is useful to point here that Bihar

highlight that export orientation and

preparedness are not just restricted

ECONOMY DECEMBER 2020

Puducherry is a laggard in the BRAP's EoDB rankings

Impressive improvements seen in various socio-economic indicators of Puducherry

ECONOMY DECEMBER 2020

■ Asian Development Bank (ADB) projects

Global trade set to suffer due to the pandemic