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    Why Covid cloud has some silver linings for India


    If we can convert our fiscal and monetary stance and our current account surplus to our advantage and become part of the global supply chain management, growth will sustain for a reasonably long period of time, says Nilesh Shah.

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    Rural India cannot lift the entire economy but whatever part it can play, there is no harm in accepting it, says Nilesh Shah, MD, Kotak AMC.

    From TCS to Reliance, from HDFC Bank to Nestle, companies are saying the worst of the Covid is behind us. Companies are reinstating salary cuts, giving bonuses. Is this an indication that things have normalised at the company level sooner than later?
    There are two sets of companies; one belonging to defensives like tech, pharma, FMCG or sectors which have been less impacted by Covid-19 like companies dependent or operating in rural India. These companies are in a position to restore salary cuts, pay bonuses. However, there are many companies in the sectors which have been hit hard by Covid-19, for example, aviation, tourism, travel, hotel, entertainment, advertising, retailing and here we will see restoration of salaries on a much slower scale. There might even be job cuts in these sectors. So two different sets of companies will behave differently.

    Post festive season, are we in for a sustained pace of growth or is it going to continue to be volatile?
    Recovery looks good for the June ‘21 quarter and September ‘21 quarter and probably December ‘21 quarter as the base is very low in 2020. But we are not looking at a double digit recovery because of low base. What we are interested in as a country is on sustained growth recovery. In these dark clouds of Covid-19, there are some silver linings. This is the first time in my memory that India will post four quarters of current account surplus. Our gold imports are down. Our trade deficit with China is down and most importantly our oil trade deficit is down as oil prices have remained low.

    Even on the services side, Indians who are spending a lot of money on travelling abroad or sending their kids abroad for education, will see a reasonable amount of saving because of Covid-19. So our current account is far superior this time than any other point of time and that is reflected in the forex reserves of over $555 billion.

    The second thing is related to the fiscal and monetary stance. The RBI and the government both have provided a fair amount of support for recovery of growth. For some time to come, fiscal and monetary stance will be supportive of growth.

    The third thing is related to opportunities which arise globally. There is a move to wean away from China. We missed that bus in 1980 where China ended up becoming the manufacturer to the world and becoming five times bigger than India in about four decades. Now we have the opportunity to cover that gap. If we can lay a red carpet for all those companies wanting to move out of China, the growth orbit of India can change substantially.

    So, among the dark clouds, there are some bright silver linings. If we can convert our fiscal and monetary stance to our advantage, if we can convert our current account surplus to our advantage, if we can become part of the global supply chain management, I have no doubt that our growth will sustain for a reasonably long period of time.

    How long will rural India continue to aid recovery? It may spell good news for M&M, Escorts and a couple of the FMCGs, but it is not going to resurrect all of India Inc’s profit?
    Undoubtedly, India Inc’s balance sheet and profitability is more linked to urban India than rural India. But as a country we really do not have a choice. If rural India is doing well because the spread of Covid-19 has not impacted them as much, monsoon has been good and water levels are above 10-year historical leverages, then so be it. Let rural India pull the economy as much as possible and by that time, urban India will catch up. We really do not have a choice today.

    Normally the GDP growth is a function of consumption plus investment plus government spending and the difference in trade sides. Now this can also be divided into rural and urban consumption, rural and urban investment and government spending in rural and urban India. So for us, growth is important. It does not matter where it comes. Rural India cannot lift the entire economy but whatever part it can play, there is no harm in accepting it.
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    2 Comments on this Story

    vijai shanker tewari30 days ago
    Feku is accused of being away from ground reality,
    Quhesobi 30 days ago
    As if the coronavirus does not exist anymore in so-called rural India. If Feku ramps up testing today, the number of positive cases will go through the roof tomorrow. In fact, Feku is still living in a fool's paradise. We are now facing multiple crises simultaneously - coronavirus pandemic, economic crash, floods, unemployment, famine, border disputes, rapes, and pollution. Our economic growth hits 74-year low since Independence. According to the latest IMF report, Bhutan, Sri Lanka, Maldives and of course Bangladesh are ahead of us. On top of that, we have also ranked a low 94 among 107 countries in the Global Hunger Index 2020. Even Nepal (73/107) is doing much better than us. The ground reality is that 80 crore people now need free food grains just to stay alive. Unfortunately, at this critical juncture, Feku is still busy trying to distract people's attention away from the Covid-19 public health and economic crises.
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