STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

INTERVIEW MATERIAL

Table of Contents

S.No.
Contents Page No.

1 Financial Result For Financial Year Ended Dec‘20 2-5

2 Gist of Economic Survey 2020-2021 6-14

3 Highlights of Union Budget 2021-22 15-20

4 Highlights of RBI Monetary Policy on 5th February 2021 21-24

5 Gist of Report on Trend & Progress of Banking in India 25-31

2019-20

6 RBI Financial Stability Report- December-2020 33-39

7 Gist of World Bank ―Global Economic Prospects‖ - 40-45

January 2021
8 Highlights of Fitch Global Economic Outlook: December 45-50
2020
9 Bank credit & Deposit Growth and 51-53
Sectoral Deployment Of Bank Credit-January 2021

10 Current Economic Scenario 54-60

11 Gist of IMF World Economic Outlook Update 61-64

12 Contemporary Indian Economic Snapshot 65-68

Page 1 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

PRESS RELEASE

Financial Results for the Quarter Ended 31st December 2020

All Branches of both eOBC and eUNI’s Finacle system (CBS) Upgraded from Finacle 7 to
Finacle 10 and Integrated. More than 18 Crore Customers of PNB 2.0 now on same Platform.

Net Profit at Rs. 506 Crore during Q3 FY21.Gross Global Business reached Rs. 18,09,587 Crore
& Global NIM improved to 3.09 % in Q3FY21.

KEY HIGHLIGHTS

 Global Business of the Bank at Rs. 18,09,587 Crore as on Dec’20 against Rs. 17,90,640 in Dec’19 with
a Y-o-Y growth of 1.1%.

 Global Deposit of the Bank at Rs. 10,82,156 Crore as on Dec’20 against Rs. 10,74,157 in Dec’19 with a
Y-o-Y growth of 0.7 %.

 Domestic CASA Share improved by 277 bps on Y-o-Y basis to 44.66 % in Dec’20. CASA Deposits grew
by 6.4 % on Y-o-Y basis to Rs. 4,70,282 Crore in Dec’20.
 Savings Deposit grew by 8.4 % on Y-o-Y basis to Rs. 3,99,418 Crore as on Dec’20.

 Gross Global Credit was at Rs. 7,27,432 Crore as on Dec’20 against Rs. 7,16,483 Crore in Dec’19 with a
Y-o-Y growth of 1.5 %.
 Housing loan grew by 6.5 % on Y-o-Y basis to Rs. 83071 Crore in Dec’20.

 CRAR as per Basel III increased to 13.88 % in Dec’20 from 12.84 % in Sept’20.
 Operating Profit grew by 13.9 % on Y-o-Y basis to Rs. 6391 Crore in Q3 FY’21.

 Net Profit for the quarter is at Rs. 506 Crore as on Dec'20 as against Rs 621 crore as on Sept’20.
 Global NIM increased to 3.09 % in Q3FY21 against 2.49% in Q3FY20.
 Cost to Income Ratio improved QoQ to 43.38% in Q3FY21 from 47.87% in Q2FY21.

 Global Cost of Deposits declined to 4.23% in Q3FY21 from 4.48% in Q2FY21.

 GNPA ratio at 12.99 % in Dec’20 declined by 44 bps from 13.43 % in Sep’20.
 NNPA ratio at 4.03 % in Dec’20 declined by 72 bps from 4.75 % in Sep’20.
 Provision Coverage Ratio (PCR) including TWO improved by 216 bps to 85.16 % as on Dec’20 from
83.00 % as on Sep’20.

Business Performance in Key Parameters (as on 31.12.2020)

❖ Domestic Deposits stood at Rs. 10,52,844 Crore as at the end of Dec’20 as against Rs. 10,55,306
Crore in Dec’19.
❖ Domestic Advances stood at Rs. 7,04,979 Crore as at the end of Dec’20 as against Rs. 7,00,164
Page 2 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Crore in Dec’19.
❖ Domestic Business stood at Rs. 17,57,823 Crore as at the end of Dec’20 as against Rs. 17,55,470
Crore in Dec’19.
❖ Savings Deposit stood at Rs. 3,99,418 Crore as on Dec’20 and Current Deposit was at Rs 70,864
crore.
Priority Sector

❖ Mandated Credit under National Goal achieved by the Bank in all parameters i.e. Priority Sector
40%, Agriculture 18%, Credit to Small and Marginal Farmers 8% and Credit to Weaker Section
10%.
❖ Achievement under Priority sector Credit is 42.4% at Rs. 2,84,122 Crore as on Dec’20.
❖ Achievement under Agriculture is 18.59% at Rs. 1,24,549 Crore as on Dec’20.
❖ Credit to Small and Marginal farmers target is 8.01% at Rs. 53,623 Crore as on Dec’20.
❖ Achievement under Credit to Weaker Sections is 11.04% at Rs. 73,933 Crore as on Dec’20.
Profitability

❖ Net Interest Income grew YoY by 28.0% to Rs 8,313 crore during Q3FY21 and by 22.4% to Rs
23,539 crore during 9M FY ‘21.
❖ Total Income stood at Rs 23,299 crore during Q3FY21 and at Rs 71,030 crore during 9M FY ‘21.
❖ Total Expenditure declined by 10.9% to Rs 16,908 crore during Q3FY21 and by 5.0% to Rs 53,684
crore during 9M’21.
❖ Operating Profit grew by 7.5% on Y-o-Y basis to Rs. 17,346 Crore in 9M’21.
Efficiency Ratios

❖ Global Yield on Advances was at 7.72% in Q3FY21 against 7.88% in Q3FY20.

❖ Global Cost of Deposits declined to 4.23% in Q3FY21 from 5.19% in Q3FY20 and 4.48% in Q2FY21.
Asset Quality

❖ Gross Non Performing Assets (GNPA) has declined to Rs. 94479 Crore as on Dec’20 from Rs.
96314 Crore as on Sep’20.
❖ Net Non Performing Assets (NNPA) has declined to Rs. 26598 Crore as on Dec’20 from Rs. 30920
Crore as on Sep’20.

❖ Provision Coverage Ratio (PCR) excluding TWO improved to 71.85% as on Dec’20 from 67.90% as
on Sep’20 and 58.25% on Dec’19. Credit Cost stood at 2.05% in Dec’20.
Distribution Network

 10925 branches (1967 Metro, 2294 Urban, 2742 Semi-Urban & 3922 Rural). 2 Overseas
branches at Hong Kong and Dubai. 13914 ATMs. 12346 BCs.

Page 3 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Capital Adequacy

❖ CRAR as on December, 2020 improved to 13.88%. Out of which, Tier-I CRAR is 10.90%, CET-I is
10.12% and Tier-II CRAR is 2.98% as on Dec’20.

 Bank has raised Rs. 3,000 Crore Capital through Tier-II Bonds during Q3 FY 21.
 Bank has raised Capital through AT 1 bonds of Rs. 495 crore in Jan’ 2021.

Digitalization

❖ Mobile Banking users crossed 96 lakh and Internet Banking users crossed 250 Lakh. UPI
transactions increased YoY by 23% to 70.18 Crore.
❖ POS installed increased YoY by 31% to 1,09,266.
❖ Bharat/BHIM QR Code installed increased to 4,53,859.
Financial Inclusion

❖ Amount mobilized under Pradhan Mantri Jan Dhan Yojana stood as below:
Particulars As on 31.12.2020
Accounts opened under PMJDY (No. in Lakh) 394
Amount mobilized (Average Balance – Amt in
4021
Rs.)

❖ Enrollment under PMJJBY, PMSBY & APY:-

(No. in Lakh)

JANSURAKSHA SCHEME ENROLLMENT UP TO DEC’20

Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) 33.1

Pradhan Mantri Suraksha Bima Yojana (PMSBY) 147.8

Atal Pension Yojana (APY) 13.9

Amalgamation Update

Integration of all major applications/systems like CBS, ATM switch, Internet Banking, Mobile Banking has
been successfully completed.

❖ 174 surround applications have been made live.

❖ Payment system integration of NEFT/RTGS, IMPS, UPI, NACH/ECS, BHIM has been completed.
❖ Best fit digital solutions of PNB, e-OBC and e-UNI rolled out to all bank customers upon
migration: Internet Banking (Retail & Corporate), PNB One, UPI, PIHU, M- Passbook, Tab Banking.

Page 4 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

New Initiatives Undertaken

❖ Gram Sampark Abhiyan – (Launched on 2nd October 2020): 11 Lakh customers contacted in
around 30000 camps with increased Credit sanctions, digital on-boarding and Enrolment for
Social Security.
❖ Launch of Digital Lending Solution-PNB LenS: Bank has /customized IT based Loan Management
System i.e. PNB LenS (The Lending Solution) to speed up and maintain consistency in
underwriting standards in loan processing and sanctioning of credit proposals.
❖ To accelerate the growth of forex business, Bank launched Trade Finance Redefined Portal. Fx-
Retail portal is also being popularized for direct access to Interbank market.
❖ Fintech Initiative: PNB joins hands with IIT Kanpur to set up Fintech Innovation Centre to conduct
research and develop technological solutions for addressing the challenges & explore
opportunities in BFSI gamut.

Awards and Accolades

❖ ET-BFSI Excellence Awards 2020- Most Innovative Public Sector Bank of the Year.
❖ IBA Banking Technology Award 2020 – Winner of the Most Innovative Project Using Technology -
PNBOne
❖ DSCI Excellence Award 2020 under the Category “Security Leader of the Year Banking”
❖ IBA Banking Technology Awards 2020 - Runner Up in Best Use of Data and Analytics for
Business Outcome in Large Bank Category
❖ Social Media Presence of the Bank: (No. of Followers)
❖ ❖Facebook: 9,85,945 (https://www.facebook.com/pnbindia/)
❖ ❖Twitter: 1,77,946 (https://twitter.com/pnbindia)
❖ ❖LinkedIn: 67,292(https://in.linkedin.com/company/pnbindia)
❖ ❖Instagram: 57,399 (https://www.instagram.com/pnbindia/)
❖ ❖Youtube: 47,993 (https://www.youtube.com/pnbindia)

Note: Oriental Bank of Commerce & United Bank of India have been amalgamated with Punjab National Bank w.e.f 01.04.2020.
Accordingly financials as on December 2019 & March 2020 are combined figures of three banks. The combined financials have
been arrived by aggregation of numbers.

Page 5 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

GIST OF ECONOMIC SURVEY 2020-2021

Economic Survey 2020-21 has presented a picture of the economic health of the country and
giving a sneak peek into what to reasonably expect from the Union budget that finance minister
Nirmala Sitharaman will present on February 1. Key highlights of the survey are as under:
Key Highlights

 V-shaped economic recovery: The advance estimates for FY: 2020-21 released by
NSO manifest that the economy is expected to stage a resilient V-shaped recovery in
H2:2020-21. The V-Shaped economic recovery is due to a mega vaccination drive,
robust recovery in the services sector and robust growth in consumption and investment.
The recovery is also due to resurgence in high frequency indicators such as power
demand, rail freight, E-Way bills, GST collection, steel consumption, Etc.
 The survey expects the Indian economy to grow by 11 % during 2021-22 which is close
to the growth forecast of 11.5 % made by the International Monetary Fund (IMF). This
means that the Indian GDP in 2021-22 is expected to be at ₹149.2 lakh crore.
 India to have a Current Account Surplus of 2% of GDP in FY21, A historic high after 17
years. India to become the fastest growing economy in next two years as per IMF.
India‘s GDP is estimated to contract by 7.7% in FY2020-21.
 The fifth largest economy in the world has never been rated as the lowest rung of the
investment grade (BBB-/Baa3) in sovereign credit ratings.
 Inflation between April and December 2020 stood at 6.6% in comparison to the previous
year on account of high food inflation of 9.1%.
 The gross tax revenue earned by the government during the period April to November
2020 fell by 12.6% to ₹10.26 lakh crore which can be attributed to the contraction of the
economy.
 Agriculture to clock 3.4% Growth, while industry and services to contract by 9.6% and
8.8% respectively this year.
 Disinvestment which was targeted at ₹2.1 lakh crore has only been ₹15,220 crore, 7.2 %
of the targeted amount which according to the survey happened due to the coronavirus
pandemic.
 The survey points out that the economy is recovering during the second half of this year.
The government consumption is expected to grow by 17%, after contracting by 3.9%
during the first half. On the other hand, private consumption is expected to contract by
0.6% in the second half, after having contracted by 18.9% during the first half.
Page 6 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION


 The ₹1.46-lakh crore PLI scheme is expected to make India an integral part of the global
supply chain and create huge employment opportunities.
 The Government in the Survey said the scheme will make ―Indian manufacturers globally
competitive, attract investment in the areas of core competency and cutting-edge
technology.‖It added that the scheme will also establish backward linkages with the
MSME sector in the country, which, in turn,will lead to more inclusive growth and create
huge employment opportunities
 Scores of lives saved and V-Shaped Economic Recovery bear testimony to India‘s
boldness in taking short-term pain for long-term gain.
Banking Sector Highlights
 Credit growth of banks slowed down to 6.7 % as on January 1, 2021. The credit off take
from banking sector witnessed a broad based slowdown.
 Gross Non Performing Assets ratio of Scheduled Commercial Banks decreased from
8.21 % at the end of March 2020 to 7.49 % at the end of September 2020. However, this
has to be seen in conjunction with the asset classification relief provided to borrowers on
account of the pandemic.
 The recovery rate for the Scheduled Commercial Banks through IBC (since its inception)
has been over 45 %.
 In view of COVID-19 pandemic, initiation of Corporate Insolvency Resolution Process
(CIRP) was suspended for any default arising on or after March 25, 2020 for a period of
6 months. This was further extended twice for 3 months on September 24, 2020 and
December 22, 2020. The suspension along with continued clearance of CIRPs allowed a
small decline in accumulated cases.
 Regulatory Forebearance: Given the problem of asymmetric information between
the regulator and the banks, which gets accentuated during the forbearance regime, an
Asset Quality Review exercise must be conducted immediately after the forbearance is
withdrawn. The legal infrastructure for the recovery of loans needs to be strengthened
de facto.
Takeaways: The survey expects a strong recovery with 11 % YoY growth in real GDP in FY22.
The material widening in gross fiscal deficit in FY21 remains inevitable. The survey‘s
suggestions on process reforms, enabling innovations, promoting financial inclusion and
financial literacy are encouraging.

Page 7 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Annexure

SNAPSHOT OF THE SURVEY (VOLUME I & VOLUME II)

VOLUME- I
1. Saving Lives and Livelihoods amidst a Once- in-a-Century Crisis
 The Covid-19 pandemic engendered a once-in-a-century global crisis in 2020. Faced
with unprecedented uncertainty at the onset of the pandemic, India focused on saving
lives and livelihoods by its willingness to take short-term pain for long-term gain.
 While the lockdown resulted in a 23.9 % contraction in GDP in Q1, the recovery has
been a V-shaped one as seen in the 7.5 % decline in Q2 and the recovery across all key
economic indicators.
 Unlike previous crises, the Covid pandemic affects both demand and supply. India was
the only country to announce a slew of structural reforms to expand supply in the
medium to long term and avoid long-term damage to productive capacities.
 The upturn in the economy while avoiding a second wave of infections makes India a sui
generis case in strategic policymaking amidst a once-in-a-century pandemic.
2. Does Growth lead to Debt Sustainability
 In advanced economies, the extremely low interest rates, which have led to negative
Interest Rate Growth Rate Differential (IRGD), on the one hand, and have placed
limitations on monetary policy, on the other hand, have caused a rethink of the role of
fiscal policy. The same phenomenon of a negative IRGD in India – not due to lower
interest rates but much higher growth rates must prompt a debate on the saliency of
fiscal policy, especially during growth slowdowns and economic crises.
 As the COVID-19 pandemic has created a significant negative shock to demand, active
fiscal policy – one that recognises that fiscal multipliers are disproportionately higher
during economic crises than during economic booms – can ensure that the full benefit of
seminal economic reforms is reaped by limiting potential damage to productive capacity.
 As the IRGD is expected to be negative in the foreseeable future, a fiscal policy that
provides an impetus to growth will lead to lower, not higher, debt-to-GDP ratios. In
fact, simulations undertaken till 2030 highlight that given India‘s growth potential, debt
sustainability is unlikely to be a problem even in the worst scenarios. The chapter thus
demonstrates the desirability of using counter-cyclical fiscal policy to enable growth
during economic downturns.

Page 8 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

3. India‟s Sovereign Credit Rating does not reflect its fundamental

 Never in the history of sovereign credit ratings has the fifth largest economy in the world
been rated as the lowest rung of the investment grade (BBB-/Baa3). Reflecting the
economic size and thereby the ability to repay debt, the fifth largest economy has been
predominantly rated AAA. China and India are the only exceptions to this rule – China
was rated A-/A2 in 2005 and now India is rated BBB-/Baa3.
 India‘s sovereign credit ratings do not reflect its fundamentals. Within its sovereign credit
ratings cohort countries rated between A+/A1 and BBB-/Baa3 for S&P/ Moody‘s India is
a clear outlier on several parameters, i.e. it is rated significantly lower than mandated by
the effect on the sovereign rating of the parameter. These include GDP growth rate,
inflation, general government debt (as % of GDP), cyclically adjusted primary balance
(as % of potential GDP), current account balance (as % of GDP), political stability, rule
of law, control of corruption, investor protection, ease of doing business, short-term
external debt (as % of reserves), reserve adequacy ratio and sovereign default history.
This outlier status remains true not only now but also during the last two decades.
 As ratings do not capture India‘s fundamentals, it comes as no surprise that past
episodes of sovereign credit rating changes for India have not had major adverse impact
on select indicators such as Sensex return, foreign exchange rate and yield on
Government securities. Past episodes of rating changes have no or weak correlation
with macroeconomic indicators.
 India‘s fiscal policy, therefore, must not remain beholden to a noisy/biased measure of
India‘s fundamentals.
 Despite ratings not reflecting fundamentals, they can however be pro-cyclical and can
affect equity and debt FPI flows of developing countries, causing damage and worsening
crisis. It is therefore imperative that sovereign credit ratings methodology be made more
transparent, less subjective and better attuned to reflect economies‘ fundamentals.
4. Inequality and Growth : Conflict or Convergence?
 The relationship between inequality and socio-economic outcomes, on the one hand,
and economic growth and socio-economic outcomes, on the other hand, is different in
India from that observed in advanced economies.
 Unlike in advanced economies, economic growth and inequality converge in terms of
their effects on socio-economic indicators in India.
 Economic growth has a far greater impact on poverty alleviation than inequality.

Page 9 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Given India‘s stage of development, India must continue to focus on economic growth to
lift the poor out of poverty by expanding the overall pie.
 Redistribution is only feasible in a developing economy if the size of the economic pie
grows.
5. Healthcare takes Centre Stage
 An increase in public spend from 1 per cent to 2.5-3 per cent of GDP – as envisaged in
the National Health Policy 2017 – can decrease the OOPE from 65 per cent to 30 per
cent of overall healthcare spend.
 A sectoral regulator to undertake regulation and supervision of the healthcare sector
must be considered given the market failures stemming from information asymmetry;
WHO also highlights the growing importance of the same.
 The mitigation of information asymmetry would also help lower insurance premiums,
enable the offering of better products and help increase the insurance penetration in the
country. Information utilities that help mitigate the information asymmetry in healthcare
sector can be very useful in enhancing overall welfare.
 Telemedicine needs to be harnessed to the fullest by investing in internet connectivity
and health infrastructure.
6. Process Reforms
 This chapter argues that the root cause of the problem of over-regulation is an approach
that attempts to account for every possible outcome. This is illustrated by a study of the
time and procedures needed to voluntarily close a company in India, even when there is
no outstanding dispute or litigation.
 The attempt to reduce discretion by having ever more complex regulations, however,
results in even more non-transparent discretion. The solution is to simplify regulations
and invest in greater supervision which, by definition, implies willingness to allow some
discretion.
 Discretion, however, needs to be balanced with transparency, systems of ex-ante
accountability and ex-post resolution mechanisms. The experience with GeM portal for
public procurement illustrates how transparency not only reduces purchase prices but
also provides the honest decision maker with a clean process.
 The above intellectual frame work has already informed reforms ranging from labour
codes to removal of onerous regulations on the BPO sector. The same approach is also
reflected in the rationalization of autonomous bodies.

Page 10 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

7. Regulatory Forebearance an Emergency Medicine

 During the Global Financial Crisis, forbearance helped borrowers‘ tide over temporary
hardship caused due to the crisis and helped prevent a large contagion.
 However, the forbearance continued long after the economic recovery, resulting in
unintended and detrimental consequences for banks, firms, and the economy.
 Given relaxed provisioning requirements, banks exploited the forbearance window to
restructure loans even for unviable entities, thereby window dressing their books.
 As a result of the distorted incentives, banks misallocated credit, thereby damaging the
quality of investment in the economy.
 Forbearance represents emergency medicine that should be discontinued at the first
opportunity when the economy exhibits recovery, not a staple diet that gets continued for
years.
 Given the problem of asymmetric information between the regulator and the banks,
which gets accentuated during the forbearance regime, an Asset Quality Review
exercise must be conducted immediately after the forbearance is withdrawn.
 The legal infrastructure for the recovery of loans needs to be strengthened de facto.

8. Innovation: Trending Up but Needs Thrust

 India entered the top 50 innovating countries for the first time in 2020 since the inception
of the Global Innovation Index in 2007, by improving its rank from 81 in 2015 to 48 in
2020. India ranks first in Central and South Asia, and third amongst lower middle income
group economies.
 Indian residents‘ share in total patents filed in the country stands at 36 %. This lags
behind the average of 62 % in other largest economies. Resident share in patent
applications must rise for India to become an innovative nation.
 India must focus on improving its performance on institutions and business
sophistication innovation inputs. These are expected to result in higher improvement in
innovation output.
9. JAY Ho: Ayushman Bharat‟s Jan Arogya Yojana and Health Outcomes
 Strong positive effects on healthcare outcomes of the Pradhan Mantri Jan Arogya
Yojana (PM-JAY) – the ambitious program launched by Government of India in 2018 to
provide healthcare access to the most vulnerable sections. This is despite the short time
since the introduction of the program.

Page 11 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 PM-JAY is being used significantly for high frequency, low cost care such as dialysis and
continued to be utilised without disruption even during the Covid pandemic and the
lockdown. General medicine the overwhelmingly major clinical specialty accounting for
over half the claims - exhibited a V-shaped recovery after falling during the lockdown
and reached pre-Covid-19 levels in December 2020.
 PM-JAY enhanced health insurance coverage. The proportion of households that had
health insurance increased in Bihar, Assam and Sikkim from 2015-16 to 2019-20 by 89
% while it decreased by 12 % over the same period in West Bengal. Across all the
states, the proportion of households with health insurance increased by 54 % for the
states that implemented PM-JAY while falling by 10 % in states that did not.
 From 2015-16 to 2019-20, infant mortality rates declined by 12 % for states that did not
adopt PM-JAY and by 20 % for the states that adopted it.
 Similarly, while states that did not adopt PM-JAY saw a fall of 14 % in its Under-5
mortality rate, the states that adopted it witnessed a 19 % reduction. While states that
did not adopt PM-JAY witness 15 % decline in unmet need for spacing between
consecutive kids, the states that adopted it recorded a 31 % fall.
 Various metrics for mother and child care improved more in the states that adopted PM-
JAY as compared to those who did not. Each of these health effects manifested similarly
when we compare Bihar, Assam and Sikkim that implemented PM-JAY versus West
Bengal that did not.
 While some of these effects stemmed directly from enhanced care enabled by insurance
coverage, others represent spillover effects due to the same.
 Overall, the comparison reflects significant improvements in several health outcomes in
states that implemented PM-JAY versus those that did not. As the difference-in-
difference analysis controls for confounding factors, the Survey infers that PM-JAY has a
positive impact on health outcomes.
10. The Bare Necessities
 Compared to 2012, access to ―the bare necessities‖ has improved across all States in
the country in 2018. Access to bare necessities is the highest in the States such as
Kerala, Punjab, Haryana and Gujarat while it is the lowest in Odisha, Jharkhand, West
Bengal and Tripura.
 Similarly, improved access to ―the bare necessities‖ correlates with future improvements
in education indicators. Thrust should be given to reduce variation in the access to bare
necessities across states, between rural and urban and between income groups, on
bare necessities. The schemes, inter alia, Jal Jeevan mission, SBM-G, PMAY-G, may
design appropriate strategy to reduce these gaps.

Page 12 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

VOLUME- II

11. State of the Economy 2020-21: A Macro View

 The year 2020 was predominated by the COVID-19 pandemic, posing the most
formidable economic challenge to India and to the world, since the Global Financial
Crisis.
 Global economic output is estimated to fall by 4.4 % in 2020, the sharpest contraction in
a century. Advanced economies were hit harder, in terms of lives and economic output,
compared to Emerging Market Developing Economies.
 India has managed to avoid the second wave despite continual unlocking. It has ably
managed to flatten the epidemiological curve, with the caseload peaking in mid-
September followed by a steady drop in daily cases and fatalities.
 COVID-19 put emergency brake on an economy that was gaining momentum at the start
of the year 2020. India‘s GDP is estimated to grow by (-) 7.7 % in FY2021, composed of
a sharp 15.7 % decline in H1 and a modest (-) 0.1 % fall in the second half.
 Agriculture sector has remained the silver lining while contact-based services,
manufacturing, construction were hit the hardest. Starting July, a resilient V-shaped
recovery is well underway, as demonstrated by the recovery in GDP growth and the
sustained resurgence in high frequency indicators such as power demand, E-way bills,
GST collection, steel consumption, etc.
 Inflation, mainly driven by food prices, remained above 6 % for much of the year, given
supply disruptions. The softening of CPI inflation recently reflects easing of supply side
constraints that affected food inflation.
 The weak demand led to a sharper contraction in imports than exports, with Forex
reserves rising to cover 18 months of imports.
 Sharp rise in commercial paper issuances, easing yields, and sturdy credit growth to
MSMEs, portend a revamped credit flow mechanism for enterprises to survive and grow.
 As part of India‘s four-pillar strategy, calibrated fiscal and monetary support was
provided attuned to the evolving economic situation, cushioning the vulnerable in the
lockdown and boosting consumption and investment while unlocking. Long-pending
structural reforms in agriculture, mining, labour, etc. were concurrently undertaken for
the economy to return to the potential growth path, keeping super-hysteresis at bay.The
estimated real GDP growth for FY 2022 at 11 % is the highest since independence.

Page 13 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

12. Monetary Management and Financial Intermediation

 Monetary policy remained accommodative in 2020. The repo rate has been cut by 115
bps since March 2020.
 Systemic liquidity in 2020-21 remained in surplus so far. RBI undertook various
conventional and unconventional measures like OMOs, Long Term Repo Operations,
Targeted Long Term Repo Operations etc. to manage liquidity situation in the economy.
 The transmission of high reserve money growth to money supply growth was only
partial, showing impaired liquidity transmission as the banks put money back with RBI
under reverse repo.
 Credit growth of banks slowed down to 6.7 % as on January 1, 2021. The credit off take
from banking sector witnessed a broad based slowdown.
 Gross Non Performing Assets ratio of Scheduled Commercial Banks decreased from
8.21 % at the end of March 2020 to 7.49 % at the end of September 2020. However, this
has to be seen in conjunction with the asset classification relief provided to borrowers on
account of the pandemic.
 Nifty 50 and S&P BSE Sensex reached record high closing of 14,644.7 and 49,792.12
on January 20, 2021 respectively.
 The recovery rate for the Scheduled Commercial Banks through IBC (since its inception)
has been over 45 %.
 In view of COVID-19 pandemic, initiation of Corporate Insolvency Resolution Process
(CIRP) was suspended for any default arising on or after March 25, 2020 for a period of
6 months. This was further extended twice for 3 months on September 24, 2020 and
December 22, 2020. The suspension along with continued clearance of CIRPs allowed a
small decline in accumulated cases.

************

Page 14 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Highlights of the Union Budget 2021-22

Faith is the bird that feels the light when the dawn is still dark.
-Rabindranath Tagore

Finance Minister Nirmala Sitharaman has announced Union budget on February

01‘2021. FY21 fiscal deficit pegged at 9.5% of GDP and FY22 fiscal deficit has been
pegged at 6.8% of GDP and below 4.5% of GDP by 2025-26.

Gross market borrowing target is at Rs 12 lakh crore for FY22. The revised expenditure
target is at Rs 34.83 lakh crore for FY21. Government will approach the market for
additional Rs 80,000 crore to fund FY21 fiscal deficit and plans to get back on the fiscal
consolidation path by FY26.

Background

Atmanirbhar Bharat and Pradhan Mantri Yojana were like 3-4 mini Budgets in
themselves. Total COVID-19 support measures amount to 13% of GDP and total
COVID-19 support measures by Government and RBI amounts to Rs 27.1 lakh crore.

Through the past year, the Finance Minister announced a Rs 30-lakh-crore plan, in
'mini-budgets' to beat Covid
a) AtmaNirbhar Bharat programmes
b) Performance-linked incentives
c) Boost for domestic manufacturing
d) Improved credit access for enterprises
e) Moratorium on interest payments
f) Thrust on affordable housing
g) Booster shots for MNREGA

Key highlights of the Union Budget are:

1. To strengthen the vision of Nation First, doubling farmers' income, strong

infra, women's empowerment, healthy India, good governance, education
for all, inclusive development, is the key.

2. Budget 2021 proposals rest on six pillars. These are Health and Well-Being,
Physical and Financial capital and infrastructure, Inclusive Development
for Aspirational India, Reinvigorating Human Capital, Innovation and R&D,
and Minimum Government and Maximum Governance.

Page 15 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

3. Covid-19: Government will provide Rs 35,000 crore for Covid-19 vaccination in

2021-22. India has two COVID-19 vaccines available and two more covid
vaccines are expected soon. India currently also has one of the lowest death rate
and active cases in the world.
4. Health & Well being: Union Budget outlay for the health sector is over Rs
2.24 lakh crore, an increase of 137%. Aatmanirbhar Health Yojana is
introduced with an outlay of Rs 64,180 crore over six years.
 It will be spent on primary, secondary and tertiary healthcare.
 It is in addition to the National Health Mission.
 17,788 rural and 11,024 urban health and wellness centres to be set up.
 Integrated public health labs to be set up in each district.
 The Government will also set up 15 Health Emergency Centres.
 Jal Jeevan Mission with outlay of Rs 2.87 lakh crore to cover houses over
five years.
 Urban 'Swacch Bharat Mission' 2.0 with an outlay of Rs 1.42 lakh crore
over 5 years has been made.

5. Voluntary scrapping policy has been announced for discarding old commercial
vehicles, which are considered a large contributor for air pollution in India.
Scrapping parameters will be based on fitness test - 20 years in a personal
vehicle and 15 years for the commercial vehicle.

6. Infrastructure: National Infrastructure Pipeline has been expanded to 7,400

projects. Futher, projects worth Rs 1.1 lakh crore have been completed under the
National Infra Pipeline.
 FY22 capital expenditure up +34.5% (Vs FY21 BE) at Rs 5.54 lakh
crore: FY21 capital expenditure seen at Rs 4.39 lakh crore.
o Rs 44,000 crore under capital expenditure to be given to
department of Economic Affairs in FY22.
o Over and above this, Rs 2 lakh crore will be provided to states and
autonomous bodies to nudge their expenditure.
 Government to set-up a Development Finance Institution (DFI),
capitalised with Rs 20,000 crore:
o New DFI aims to have lending portfolio of Rs 5 lakh crore in 3 years
 Highway infrastructure work proposed include building 8,500-km of
highways by March 2022.

7. Providing Rs 1.10 lakh crore for Railways, privatizing airports

o Out of the Rs 1.10 lakh crore for Railways, Rs 1.07 lakh crore is
towards CAPEX.

Page 16 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

o Indian Railways - National Rail Plan for India to prepare a

future-ready railway system by 2030.
o Next lot of airports to be privatized in tier 2 & 3 towns and cities
8. National Monetisation Pipeline for brownfield projects to be launched. NHAI
and PGCIL have sponsored one InvIT each.
 5 operational roads with estimated enterprise value of Rs 5,000 cr being
transferred to NHAI InvIT.
 Transmission assets worth Rs 7,000 crore to be transferred to PGCIL
InvIT.
 Pipelines of GAIL (India) Ltd, Indian Oil Corp (IOC) and HPCL will be
monetised.

9. Launch of 7 textile parks in 3 years: Government has committed Rs 1.97 lakh

crore for PLI schemes covering 13 sectors. Further 7 textile parks will be
launched over three years.

10. Ujjwala Scheme will be extended to cover 1 cr more beneficiaries.

 100 more districts to be added in the next 3 years for city gas distribution.
 An independent gas transport system operator to be set up.

11. Agriculture and Allied Activities:

 Agriculture credit target is fixed at 16.5 lakh crore. Farmers paid ₹75,060
cr on wheat MSP in FY21.
 Rural Infrastructure Development Fund has been increased to Rs 40,000
crore and the Micro Irrigation Fund has been increased to Rs 10,000
crore. The Agri Infra Fund will be available to APMCs.
 The '1 Nation 1 Ration Card' plan is under implementation by 32 States &
UTs. The Centre will launch a portal to collect data on migrant workers.
 Social security benefits to be extended to gig and platform workers for the
first time. Minimum wages will apply to all categories of workers.
Employee State Insurance Corporation benefits too would be provided.
Women will be allowed to work in all categories in night shifts too.
 Five major fishing hubs to be developed to promote the fisheries sector.
Additionally, a sea weed park is also being planned in Tamil Nadu.
 ₹1,000 crore to be provided for welfare of tea workers.

12. MSME: MSME allocation to be doubled. Government to set aside Rs 15,700

crore in FY22.
 Government also proposes to reduce margin money requirement from
25% to 15% under Stand Up India scheme.

Page 17 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

13. Banking and Financial Sector: In FY22, PSU bank recapitalisation plan is of Rs
20,000 crore.
 Allow sale of distressed assets to Alternate Investment Funds (AIFs).
 To ensure faster resolution of cases, NCLT framework will be
strengthened, e-Courts system shall be implemented and alternate
methods of debt resolution and special framework for MSMEs shall be
introduced.
 Under DICGC, depositors can have easy and time-bound access to their
deposits to the extent of the deposit insurance cover.
 For NBFCs with minimum asset size of Rs 100 crores, the minimum loan
size eligible for debt recovery under the SARFAESI Act, 2002 is
proposed to be reduced from the existing level of Rs 50 lakhs to Rs 20
lakhs.
 Divestment of 2 PSU banks and 1 General Insurance Company in
FY22. Further, divestments of BPCL, CONCOR, Pawan Hans, and Air
India will be completed in FY22. FY22 Divestment target is at Rs 1.75
lakh crore.
 Asset reconstruction company and management company to be set up for
stressed assets. The transferred assets would be separately dealt with.
Constitution of Asset Reconstruction Management Company in the
banking sector to transfer bad and stressed loans is a great reform
which would reduce the stress on account of NPAs and bad loans.

14. Proposal to consolidate provisions of SEBI Act, Depositories Act,

Securities Contracts Regulation Act, Government Securities Act.

15. Government to amend Insurance Act to allow higher FDI

 FDI limit in insurance increase to 74% from 49%.
 Govt. allows foreign ownership in insurance with safeguards.

16. Proposed to revise definition under Companies Act, 2013 for small
companies by increasing their threshold for capitalization to not exceeding Rs 50
lakh to not exceeding Rs 2 crore and turnover not exceeding Rs 2 crore to not
exceeding Rs 20 crore.

17. The one man show, Government to now allow one-person companies
 No restriction on paid-up capital and turnover, to incentivise incorporation
of one-person companies.
 Conversion of one-person company to any other kind, reducing residency
limit from 182 days to 120 days.
Page 18 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Allow non-resident Indians to incorporate one-person companies in India.

 An investment charter across all financial products is welcome. With this,
special attention to be made to make grievance resolution more robust
and efficient.

18. Divestment target for FY22 at Rs 1.75 lakh crore

 In FY21, the government had budgeted to raise Rs 2.1 lakh crore through
divestments but fell short.
 Some of the big ticket divestments planned last year, like the stake sale in
LIC, may conclude this year.
 The government has approved a new public sector enterprises policy,
which is intended to drive privatisation.
 Fiscal support in FY22 depends on revenue generation from the success
of these programmes.
 A new list of companies for divestment will be created.
 A Special Purpose Vehicle (SPV) will be created for monetising land
owned by state-owned PSUs and will set up separate administrative
structure for co-operatives.

19. Digitalization: Allocation of Rs 1,500 crore for a proposed scheme to provide

financial incentives to promote digital modes of payment.
 Setting up of fintech hub at gift city, enhancing digital payments and use of
AI ML etc in governance. All this provides a great platform for
promoting Digital India.
 FM allocates Rs 3,768 cr for forthcoming Census which will be the first
digital census.

20. Direct Tax:

 Seek to simplify direct tax regime
 No income tax return filing for pensioners above 75 years
 To cut time limit for tax assessment reopen to 3 years vs 6 years
 Setting up dispute resolution panel for small taxpayers
 To set up faceless income tax appellate tribunal.
 To notify rules to protect NRIs from double taxation
 110,000 tax-payers opted for Vivaad se Vishwas scheme
 Vivaad se Vishwas scheme saw 850-bln-rupee disputes for settlement
 Won't allow deductions if company late in depositing staff PF
 Doubling limit for tax audit for digital transactions
 Dividend payment to REITs, InVits exempt from TDS
 Tax holiday for aircraft leasing companies located in IFSC
 Tax holiday eligibility to startups extended to Mar 31, 2022

Page 19 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

21. Indirect Tax:

 To review more than 400 old customs duty exemptions
 Revised customs duty structure from Oct 1‘2021
 To rationalise customs duty on gold, silver
 Customs duty on copper scrap cut to 2.5%
 Customs duty on some mobile phone parts to be raised to 2.5%
 To reduce customs duty on some alloy, steel products to 7.5%
 Customs duty on naphtha cut to 2.5%
 Customs duty on solar inverter raised to 20%
 Customs duty on solar lanterns cut to 15%
 Increasing customs duty on some auto parts to 15%
 Propose hike in customs duty on steel screws to 15%
 Customs duty on finished synthetic gems to be raised
 Raising customs duty on cotton to 10%
 To take all possible measures to smoothen GST process

Takeaways
A huge boost to infrastructure, capex, healthcare and to credit flow by addressing
stressed assets challenges are expected to support economic growth, going forward.
 The asset reconstruction company will act as an aggregator of all stressed assets in
the system and will buy the bad loans and other illiquid holdings of banks. The
proposals to create AMC, Rs 20,000 crore capital infusion in PSBs, decision to pare
stakes in two more PSBs are all indicative of a progressive approach to address
some of the current issues in the banking sector.
 Voluntary scrapping policy is a positive move to create not only employment
opportunities but a move that will ensure a cleaner environment as part of the Health
Infrastructure pillar. This will also boost demand for more cleaner vehicles.
 The scheme of Mega Investments Textile Park will be launched in addition to PLI
Scheme which will create world class infrastructure with plug and play facilities to
enable global champions in exports.
 Rationalising different security market regulations under one market code is a
significant step in ease of doing business and would go a long way in attracting
foreign investments in India.
 One person company and relaxing no of days for NRIs will help in setting of startups
and boosting ease of doing business.
 The increase in the paid-up capital threshold of small companies to Rs 2 crore, and
turnover to Rs 20 crore will ease their compliance and procedural burden.
 The introduction of a Faceless Income tax Appellate Tribunal Scheme will be a
game changer as it will require a complete change in the manner of approaching
appeals.

Page 20 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Allocation of Rs 1,500 crore to promote digital modes of payment, setting up of

fintech hub at gift city, enhancing digital payments and use of AI ML etc in
governance will provide a great platform for promoting Digital India.
 Timely implementation of the plethora of well-targeted budget announcements and
garnering resources, will hold the key for sustaining the nascent growth revival that
is currently underway and helping the Indian economy attain a higher growth
trajectory over the medium term.

Page 21 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Highlights of RBI Monetary Policy on 5th February 2021

Highlights of the RBI‘s 5th Bi-Monthly Monetary Policy announced on 05.02.2021 are
given below:

1. Repo rate has been kept unchanged at 4%. Reverse repo rate stands
unchanged at 3.35%, while maintaining an accommodative stance till current
financial year (FY) and into next FY. Marginal Standing Facility (MSF) rate and
Bank rate also stand unchanged at 4.25%.
2. Inflation has eased to below tolerance level of 6%, supported by fall in
vegetable prices and favourable base effect. Inflation Projections are:
Revised RBI Projection Q4FY21 H1 FY22 Q3FY22
CPI Inflation 5.2% 5.2-5.0% 4.3%
3. Indian economy is poised to move in one direction i.e. upwards. GDP
Projections are:
Revised RBI Projection H1FY22 Q3FY22 FY22
GDP 8.3-26.2% 6% 10.5%
Liqudity Measures:
4. TLTRO on Tap Scheme – Inclusion of NBFCs: Funds from banks under the
TLTRO on Tap scheme are now available to NBFCs for incremental lending to
support revival of activity in specific identified stressed sectors. This will have
both backward and forward linkages and multiplier effects on growth.
5. Restoration of Cash Reserve Ratio (CRR) in two phases beginning March
2021: CRR will be restored in two phases to 3.5% w.e.f March 27,2021 and
4% w.e.f May 22, 2021. CRR normalisation will open up space for a variety of
market operation.
6. Marginal Standing Facility (MSF) - Extension of Relaxation: MSF
relaxation has been extended for 6 months and will provide increased access
to funds to the extent of Rs 1.53 lakh crore.
Regulation and Supervision:
7. SLR Holdings in Held to Maturity (HTM) category: To extend the
dispensation of enhanced HTM of 22% up to March 31, 2023 to include
securities acquired between April 1, 2021 and March 31, 2022. This will
provide certainty to the market participants in the context of the borrowing
programme of the centre and states for 2021-22. The HTM limits would be
restored from 22% to 19.5% in a phased manner starting from the quarter
ending June 30, 2023.

8. Credit to MSME Entrepreneurs: In order to incentivise new credit flow to

MSME borrowers, SCBs will be allowed to deduct credit disbursed to „New
MSME borrowers‟ (who have not availed any credit facilities from the banking
Page 22 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

system as on January 1, 2021) from their NDTL for calculation of the CRR.
This exemption will be available only for exposures up to ₹25 lakh per
borrower for credit extended up to the fortnight ending October 1, 2021 for a
period of one year from the date of origination of the loan or the tenure of the
loan, whichever is earlier.

9. Basel III Capital Regulations: Deferment of the Full Phase-in of Capital

Conservation Buffer: Last tranche of capital conservation buffer of 0.625%
deferred from April 1, 2021 to October 1,2021 in order to aid in the recovery
process on account of Covid-19.
10. Deferment of the implementation of Net Stable Funding Ratio (NSFR): It
has been decided to defer the implementation of NSFR from April 1, 2021 to
October 1, 2021.
11. Review of the Regulatory Framework for Microfinance: RBI will review the
regulatory framework for Non-Banking Financial Company - Micro Finance
Institutions (NBFC-MFIs) which is uniformly applicable to all regulated lenders
in the microfinance space including SCBs, small finance banks and NBFC-
Investment and Credit Companies, rather than prescribing these guidelines for
NBFC-MFIs alone. Accordingly, RBI will come out with a consultative
document harmonising the regulatory frameworks for various regulated lenders
in the microfinance space in March 2021.
12. Constitution of an Expert Committee on Primary (Urban) Co-operative
Banks: RBI has decided to set up an Expert Committee on UCBs in order to
provide a medium-term road map to strengthen the sector, enable faster
rehabilitation/resolution of UCBs and to examine other critical aspects relating
to these entities.
13. Remittances to International Financial Services Centres (IFSCs) under
the Liberalised Remittance Scheme (LRS): In order to deepen the financial
markets in IFSCs and provide an opportunity to resident individuals to diversify
their portfolio, RBI has decided to permit resident individuals to make
remittances to IFSCs established in India under the Scheme. Remittances will
be permitted only for making investments in securities issued by the non-
resident entities in IFSCs. Resident Individuals may also open a non-interest
bearing Foreign Currency Account (FCA) in IFSCs for making investments
under LRS. The funds in the FCA shall be used only for the purpose of making
permissible investments in IFSC and any funds lying idle in the account shall
be repatriated to resident account of the investor in India within a period of 15
days from receipt.
Deepening Financial Markets
14. Allowing Retail Investors to Open Gilt Accounts with RBI: In order to
increase retail participation in government securities and to improve ease of

Page 23 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

access, it has been decided to provide retail investors online access to the
government securities market – both primary and secondary along with the
facility to open their gilt securities account (‗Retail Direct‘) with the RBI.

15. Foreign Portfolio Investors (FPIs) Investment in Defaulted Bonds: In order

to further promote investment by FPIs in corporate bonds, it is proposed to
extend similar exemptions to defaulted corporate bonds. Accordingly, FPI
investment in defaulted corporate bonds will be exempted from the short-term
limit and the minimum residual maturity requirement under the Medium Term
Framework (MTF).
Payment and Settlement Systems
16. Setting up of a 24x7 Helpline for Digital Payment Services: The major
payment system operators would be required to facilitate setting-up of a
centralised industry-wide 24x7 helpline for addressing customer queries in
respect of various digital payment products and give information on available
grievance redress mechanisms by September 2021. The helpline will reduce
expenditure on both financial and human resources, otherwise incurred for
addressing queries and grievances.
17. Guidelines on Outsourcing for Operators and Participants of Authorised
Payment Systems: In order to manage the attendant risks in outsourcing and
ensure that a code of conduct is adhered to while outsourcing payment and
settlement related services, RBI shall issue guidelines to operators and
participants of authorised payment systems.

18. Enabling Participation in CTS Clearing across all Bank Branches in the
Country: In order to bring operational efficiency in paper-based clearing and
make the process of collection & settlement of cheques faster, it is proposed to
bring all 18,000 bank branches which are still outside any formal clearing
arrangement under the CTS clearing mechanism by September 2021.

Customer Protection
19. Integrated Ombudsman Scheme: In order to make the alternate dispute
redress mechanism simpler and more responsive to the customers of
regulated entities, RBI has decided to integrate the three Ombudsman
schemes i.e. (i) Banking Ombudsman Scheme (ii) Ombudsman Scheme for
Non-Banking Financial Companies and (iii) Ombudsman Scheme for Digital
Transactions and adopt the „One Nation One Ombudsman‟ approach for
grievance redressal. This will make the process of redress of grievances
easier by enabling the customers to register their complaints with one
centralised reference point. The Integrated Ombudsman Scheme will be rolled
out in June 2021.

Page 24 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Takeaways
The MPC has chosen to maintain a status quo position both on rates and stance,
which is comforting. Growth will still continue to be the primary driving factor in the
coming year, even as the Monetary Policy Committee keeps close watch on inflation.
Extension of TLTRO to NBFC through the on-tap route is significant as this was a
long-standing demand. NBFCs are well recognised conduits for reaching out last mile
credit and act as a force multiplier in expanding credit to various sectors. This
measure will be useful for this segment and help in channeling of funds to the final
beneficiaries. MSF relaxation will provide increased access to funds to the banks to
the extent of Rs 1.53 lakh crore. Further, Banks will be able to plan their investments
in SLR securities in an optimal manner with a clear glide path for restoration of HTM
limits.
Deduction of credit disbursed to New MSME borrowers from NDTL will incentivise
new credit flow to the MSME segment. Deferment of CCB and NSFR will address the
stress on account of Covid-19. The Expert Committee on UCBs will provide a
medium-term road map to strengthen the sector, enable faster
rehabilitation/resolution of UCBs and examine critical aspects relating to these
entities.

Permitting resident individuals to make remittances to IFSCs established in India will

deepen the financial markets in IFSCs and provide an opportunity to resident
individuals to diversify their portfolio. Providing retail investors online access to the G-
sec market, hailed as major structural reform in select few countries is aimed at
encouraging retail participation in the Government securities market and deepening
financial markets. The 24x7 Helpline for Digital Payment Services will aid in building
trust and confidence of customers, apart from redressal of grievances and also
reduce expenditure on both financial and human resources.

Guidelines on Outsourcing for Operators and Participants of Authorised Payment

Systems will be issued to manage the attendant risks in outsourcing and ensure that
a code of conduct is adhered to while outsourcing payment and settlement related
services. Bringing all branches under the CTS is aimed at bringing operational
efficiency in paper based clearing and make the process of collection & settlement of
cheques faster resulting in better customer service.

Adoption of Integrated Ombudsman Scheme is in line with the global initiatives on

consumer protection and will make the alternate dispute redress mechanism simpler
and more responsive to the customers of regulated entities.

Page 25 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Gist of Report on Trend & Progress of Banking in India 2019-20

The Reserve Bank of India has recently released the statutory Report on Trend and
Progress of Banking in India 2019-20. The Report presents the performance and salient
policy measures relating to the banking sector during 2019-20 and 2020-21 so far.

An analysis of the report and key takeaways for the Bank are summarized below:

The macroeconomic and financial environment, as it were characterised by a sharp

deceleration in economic activity and weakening investment demand was suddenly
exacerbated by COVID-19.

A. Operations and Performance of Commercial Banks

During 2019-20 and first half of 2020-21, Scheduled Commercial Banks (SCBs)
consolidated the gains achieved after the turnaround in 2018-19.

1. Improved Asset Quality:

 SCBs‘ GNPA ratio declined from 9.1% in March 2019 to 8.2% in March
2020 and further to 7.5% in September 2020.
 The improvement was driven by lower slippages which declined to 0.74%
in September 2020 and resolution of a few large accounts through the
IBC.
 PCR of SCBs improved to 66.2% in end-March 2020 and further rose to
72.4% by end-September 2020.
 With substantial increase in provisioning, the net NPA ratio of SCBs
moderated to 2.8% in March 2020 and further to 2.2% in September 2020.
 The reduction in NPAs during the year was largely driven by write-offs.
 As of end-August, around 40% of outstanding loans of the financial
system availed moratorium.
 The GNPA ratios of banks would have been higher in the range of 0.1-
0.66% at the end of September 2020, had RBI not allowed banks to delay
recognizing stressed loan accounts as NPAs.
2. Stronger Capital: CRAR ratio strengthened from 14.3% in March 2019 to 14.7%
in March 2020 and further to 15.8% in September 2020, partly aided by
recapitalisation of PSBs and capital raising from the market by both public and
private sector banks.

3. Improvement in Margins and Net Profit: Net profits of SCBs turned around in
2019-20 after losses in the previous two years. In H1:2020-21, their financial
performance was shored up by the moratorium, standstill in asset classification
and ploughing back of dividends.

Page 26 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

(in Rs crore)
Public Sector Private Sector PNB –Half
All SCBs
Banks Banks Yearly
Parameter 2019 2020 2019 2020 2019 2020 Sep‟19 Sep‟20
Operating
1,49,603 1,74,390 1,26,526 1,61,684 3,05,019 3,72,595 10448 10955
Profit
Net Profit -66,608 -26,015 27,621 19,111 -23,397 10,911 1967 929
(NIM %) 2.33 2.37 3.26 3.42 2.7 2.8 2.53 2.85

4. Recovery: The recovery process gained traction with the resolution of large
accounts through IBC; SARFAESI channel also aided the process of recovery.

NPAs of SCBs Recovered through Various Channels (Amt in Rs crore)

2018-19 2019-20
No. of No. of
Recovery Amount Amount Col. (4) as % Amount Amount Col. (8) as %
cases cases
Channel involved recovered of Col. (3) involved recovered of Col. (7)
referred referred
1 2 3 4 5 6 7 8 9
Lok
40,87,555 53,484 2,750 5.1 59,86,790 67,801 4,211 6.2
Adalats
DRTs 51,679 2,68,413 10,552 3.9 40,818 2,45,570 10,018 4.1
SARFAESI
2,35,437 2,58,642 38,905 15 1,05,523 1,96,582 52,563 26.7
Act
IBC 1,152 1,45,457 66,440 45.7 1,953 2,32,478 1,05,773 45.5
Total 43,75,823 7,25,996 1,18,647 16.3 61,35,084 7,42,431 1,72,565 23.2
During 2019-20, asset sales by SCBs to ARCs declined which could probably be
due to SCBs opting for other resolution channels such as IBC and SARFAESI.
The acquisition cost of ARCs as a proportion to the book value of assets declined
suggesting lower realizable value of the assets.

5. Balance Sheet Analysis: The consolidated balance sheet of SCBs has grown in
H1:2020-21 after a deceleration in 2019-20 on account of subdued economic
activity, deleveraging of corporate balance sheets and muted business sentiment
impacting credit supply.
 During 2020-21 so far, deposits with PSBs grew at a higher pace than
usual, partly reflecting perception of their safe haven status.
 Subdued credit growth and relatively robust deposit growth for most part
of the year resulted in a decline in borrowing requirements of banks,
except for PVBs.
 Term deposits which contribute almost 60% of total deposits moderated.
Term deposit growth of PVBs decelerated sharply even as it quadrupled in
PSBs.

Page 27 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

(Amt in Rs crore)
SCBs PNB
Parameter Mar‟2019 Mar‟2020 YoY% Sep‟2019 Sep‟2020 YoY %
CASA Deposits 51,55,476 56,34,946 9.3% 429373 459477 7.01%
Term Deposits 77,31,167 83,40,149 7.9% 625916 610270 -2.50%
Total Deposits 1,28,86,643 1,39,75,095 8.4% 1055289 1069747 1.37%
41.57% 44.10%
CASA Ratio (%) 40.0% 40.3% (Domestic) (Domestic)

6. Flow of funds to the commercial sector: Subdued credit demand conditions

were reflected in a sharp moderation in flow of credit to the commercial sector in
2019-20, from both bank and non-bank sources.
 The flow of funds to commercial sector has been higher during 2020-21 so
far. Flows from banks, domestic non-bank sources: private placements;
commercial paper (CP) issuances; and credit by HFCs – have picked up,
compensating for lower flows from foreign sources like ECB/FCCB and
short-term credit from abroad.
 Banks preferred to park funds in safer G-Secs to partially offset the impact
of low lending.
7. Sectoral Bank Credit: The deceleration in credit growth during 2019-20 and
2020-21 so far (up to September) was spread across sectors but was
pronounced in the case of industry and services partly reflecting elevated levels
of sectoral NPAs.
 Low credit demand, coupled with corporate deleveraging, also played a
role. The pick-up in resolution and decline in slippages helped alleviate
stress in large accounts.
 NPAs in the MSME sector were contained by the facility to restructure
their loans.
 Slowdown in credit to NBFCs was partly offset by banks‘ investment in
their debt papers, incentivised by targeted long-term repo operations
(TLTRO) scheme of the RBI.
(Amt in Rs lakh crore)
Sectoral Credit Mar’19 Mar’20 Sep’20 Sep’20 (% YoY) Sep'20 (% YTD)
Gross bank Credit 95.26 100.98 100.63 5.1% -0.3%
Agri & Allied 12.17 12.39 12.91 6.6% 4.2%
Industry 32.93 32.52 31.30 -1.4% -3.8%
Services 26.02 27.54 26.89 4.3% -2.4%
Retail Loans 23.04 26.59 27.27 10.4% 2.6%
(Amt in Rs crore)

Agri. & allied Total RAM Domestic Gross

As on Sep‟20 Retail MSME
sectors Advances Advances
PNB 130158 121969 124350 376477 697341
Page 28 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

YoY Growth
3.9 1.6 12.4 5.7 0.5
%

8. The consolidated balance sheet of NBFCs decelerated in 2019-20 due to near

stagnant growth in loans and advances although some improvement became
visible in H1:2020-21; notwithstanding a marginal deterioration in asset quality,
the NBFC sector remains resilient with strong capital buffers.

9. Other Key findings:

 In recent years, SCBs have been reorienting their loan book away from
the industrial sector and towards retail loans in view of lower delinquency
rates of the latter. However, the growing share of unsecured credit
card loans of SCBs (up from 3.1% to 5.2% within a span of 5 years)
does not augur well for their risk profile.
 The aggressive credit growth of PVBs to services and retail
segments in the last few years – which surpassed 30% mark in 2018-
19 – came down sharply, even as PSBs managed to hold on to market
shares in the retail segment.
 Lending to MSMEs under TReDS: During 2019-20, the number and
amount of invoices uploaded and financed through the Trade Receivables
Discounting System (TReDS) platform almost doubled, however, the
success rate was marginally lower.
(Amt in Rs crore)
Invoices Uploaded Invoices Financed
Year
Invoices Amount Invoices Amount
2018-19 2,51,695 6,699.57 2,32,098 5,854.48
2019-20 5,30,077 13,088.27 4,77,969 11,165.86
 Operational risk has emerged as a major source of risk. Although
around 80% of the frauds involving amount of ‗more than Rs 1 lakh‘ were
reported by PSBs, their share in total reporting (both number of cases as
well as amounts involved) declined in 2019-20.
 The share of special mention accounts (SMA-0) witnessed a sharp rise in
September 2020. This may be an initial sign of stress after lifting of
moratorium on August 31, 2020. However, the share of other categories
of SMAs i.e., SMA-1 and SMA-2 remained at a relatively lower level.

Takeaways
Going forward, with gradual rollback of policy measures, deterioration in asset quality
may pose challenges, although build-up of buffers like COVID-19 provisions and capital
raising from market may help alleviate the stress.

Impact of merger on Indian Banking System is given in Annexure.

Page 29 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

ANNEXURE
Impact of Mergers on Indian Banking System: Ten public sector banks were merged
into four banks with effect from April 1, 2020 with the objective of creating next
generation banks with strong national and global presence.
 The merged entities can now reap benefits of synergy, especially in the
case of branch network presence across regions.
 For example, United Bank of India, which had a large presence in the
eastern region, will now benefit from the more diversified branch network
of Punjab National Bank which had vast network in northern and central
region before the merger.
 Similarly, Indian Bank – with concentrated presence in the southern part of
the country – can now expand its reach in central and eastern parts due to
its alliance with Allahabad Bank.
 Mergers helped improve the capital position of constituent banks due to
pooling of resources for various operations and other scale economies.
 Although it is difficult to isolate the impact of mergers from other forces
acting concomitantly, the improvement in provisions helped in containing
the net NPA ratios.
 The consolidation may have also helped improve the operating profit per
employee across banks.

Page 30 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

*************

Page 31 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

RBI Financial Stability Report- Dec-2020 & Comparative Position of

SCBs, PSBs & PVBs vis-à-vis our Bank on Key Parameters

Financial Stability Report (FSR) is published by RBI semi-annually. Recently,

the RBI has released the 22nd Issue of Financial Stability Report (FSR), which
reflects the assessment of risks to financial stability, and the resilience of the
financial system in the context of contemporaneous issues relating to
development and regulation of the financial sector. Highlights of FSR-
January‟2021 are given below:

A. FINANCIAL INSTITUTIONS: PERFORMANCE AND RISKS

1. Credit Deposit Growth: Bank credit growth of SCBs had declined YOY by
5.0% in Sept‟20. On the other hand, deposit growth has remained robust at
10.3%, reflecting precautionary saving in the face of high uncertainty.

Credit Growth (YOY %) Deposits Growth (YOY %)

Banks
Sept’19 Mar’20 Sept’20 Sept’19 Mar’20 Sept’20
PSBs 4.8 3.0 4.6 6.6 6.9 9.6
PVBs 16.5 11.3 7.1 19.0 11.1 10.4
All 8.7 5.9 5.0 10.2 8.6 10.3
SCBs

2. Earnings: On the earnings front, SCB‟s Net Interest Income (NII) grew at a
much higher clip of 16.2 % in Sep‟20. SCBs‟ Earnings before Provisions and
Taxes (EBPT) grew by 17.6 %.

Components of Profit (YoY Variation %)

SCBs
Parameter
Sep’19 Sep’20
NII 13.0 16.2
Operating Expenses 12.4 4.1
EBPT (Operating Profit) 19.8 17.6
Provisions -19.9 1.0

Banks PSBs PVBs All SCBs

NIM (%)
2.7 3.8 3.1
Sep’20

Page 32 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

3. Profitability Ratios: Return on assets (RoA) and return on equity (RoE) for
SCBs have improved across all bank groups.

ROA % ROE %
Banks
Sept’19 Mar’20 Sep’20 Sept’19 Mar’20 Sep’20
PSBs -0.1 -0.2 0.3 -1.2 -3.5 4.2
PVBs 1.0 0.7 1.3 9.1 6.7 11.4
All 0.4 0.2 0.7 4.3 2.0 8.1
SCBs

 Asset Quality: Gross non-performing assets (GNPA) and Net NPA (NNPA)
ratios of SCBs, which were edging down from September 2019 levels, fell
further to 7.5 % and 2.1 %, respectively, by September 2020. Provision
coverage ratio (PCR) improved substantially to 72.4 % from 66.2 % over
this period

GNPA % NNPA % PCR % *

Banks
Sept’19 Mar’20 Sep’20 Sept’19 Mar’20 Sep’20 Sept’19 Mar’20 Sep’20
PSBs 12.7 11.3 9.7 5.1 4.1 2.9 61.7 64.8 70.5
PVBs 3.9 4.2 4.6 1.6 1.4 1.0 58.5 67.5 78.3
All
9.3 8.5 7.5 3.7 3.0 2.1 61.6 65.4 72.4
SCBs
*PCR without Technical write-off

4. Capital Adequacy: Capital to risk-weighted assets ratios (CRARs) improved

by 110 bps over March 2020 levels to 15.8 % in September 2020

CRAR %
Banks
Sept’19 Mar’20 Sep’20
PSBs 13.5 13.1 13.5
PVBs 16.6 16.7 18.2
All SCBs 15.1 14.8 15.8
PNB 2.0 - 12.3 12.8

5. Sectoral Asset Quality: Sectorally, asset quality improved noticeably in the

case of industry, agriculture and services in September 2020 over March
2020, with a decline in GNPA and stressed advances ratios. In the case of
retail advances, however, the GNPA ratio declined only marginally and
stressed advances remained flat.

Page 33 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Sector-wise GNPA Ratio (%)

SCBs
Sector Sep’19 Sep’20
Agriculture 10.1 9.6
Industry 17.3 12.4
Services 6.3 6.9
Retail 1.8 1.7

GNPA Ratio of Major Sub-sectors within Industry

SCBs
S.No. Industry
Sep’19 Sep’20
1 Mining & Quarrying 3.3 15.6
2 Food Processing 5.8 13.0
3 Textiles 6.5 11.7
4 Paper & paper products 3.0 10.1
Chemical & Chemical
1.6 6.3
5 Products
Rubber, plastic & their
7.6 10.1
6 products
Cement & Cement
2.3 8.2
7 Products
Basic Metal & Metal
2.5 12.6
8 Products
9 Engineering 4.9 19.4
10 Vehicles & Vehicle parts 1.4 8.3
11 Gems & Jewellery 2.4 24.1
12 Construction 7.8 21.5
13 Infrastructure 3.2 11.9
14 Electricity - 11.2

6. Credit Quality of Large Borrowers: Large borrowers in the aggregate loan

portfolios and GNPAs of SCBs sustained its downward trajectory, declining
to 50.5 % and 73.5 % respectively in the quarter ending September 2020.
 The share of restructured standard advances increased, indicating that
large borrowers have commenced availing restructuring benefits
extended for COVID-19 stressed borrowers.
 The proportion of substandard and doubtful advances contracted while
that of loss assets increased, reflecting ageing of the NPA portfolio.
 The top 100 large borrowers accounted for 17 % and 33.7 % of SCBs‟
gross advances and large borrower loans, respectively.

Page 34 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Although this represented a decline vis-à-vis March 2020, the share

continued to remain above pre-COVID levels, indicating persisting credit
concentration. However, the share of the top 100 borrowers‟ in SCBs‟
GNPA pool declined to 8.8 %.
 Large advances in the SMA- 0 category registered a quantum jump
(155.6 %) over the previous quarter, portending slippages in the ensuing
quarters. SMA-2 ratios of large borrowers increased for PVBs and FBs,
while declining for PSBs.
Growth in SMAs & NPAs of Large Borrowers in Sep’20
S.No. Parameter Sep’19 Sep’20
1 SMA-0 -26.1 155.6
2 SMA-1 36.3 19.5
3 SMA-2 31.3 2.4
4 Standard Restructured -8.7 2.2
5 NPA -3.7 -3.5
6 Total Stressed Advances -4.0 -3.0

7. Macro-stress tests & Projections: Macro-stress tests for credit risk show
that SCBs’ GNPA ratio may increase from 7.5 % in September 2020 to
13.5 % by September 2021 under the baseline scenario.
 If the macroeconomic environment deteriorates, the ratio may escalate
to 14.8 % under the severe stress scenario.
 Stress tests also indicate that at the individual bank level, several banks
may fall below the regulatory minimum if stress aggravates to the severe
scenario.
 The need of the hour is for banks is to assess their respective stress
situations and follow it up with measures to raise capital proactively.
 CRAR may fall from 15.6 % in September 2020 to 14.0 % in September
2021 under the baseline scenario and to 12.5 % under the severe stress
scenario.
 Common Equity Tier I (CET 1) capital ratio of SCBs may decline from
12.4 % in September 2020 to 10.8 % under the baseline scenario and to
9.7 % under the severe stress scenario in September 2021.

GNPA ratio (%)

Bank Sep’20 (Actual) Sep’21 (Projected) Very Severe Stress Scenario

PSBs 9.7 16.2 17.6
PVBs 4.6 7.9 8.8
All SCBs 7.5 13.5 14.8

Page 35 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Macroeconomic Scenario Assumption for H2:FY20-21 and H1:FY21-22

CAB - Current Account Balance

Baseline Medium Stress Severe Stress

H2:20- H1:21- H2:20-21 H1:21-22 H2:20-21 H1:21-
21 22 22
Real GDP 0.0 14.2 -2.1 9.4 -7.6 3.8
Growth
CPI 6.3 4.9 7.3 7.2 9.9 9.9
Inflation
WALR 9.6 9.4 9.9 10.1 10.7 11.0
Export-to- 10.7 11.7 9.8 9.6 7.3 7.1
GDP Ratio
CAB-to-GDP 1.3 0.6 0.7 -0.7 -0.8 -2.3
Ratio

8. NBFCs: NBFCs were adversely impacted by COVID-related stress due to

their underlying business models.
 On the supply side, the sources of funds dried up, more so for the small
and mid-sized NBFCs, on account of reduced risk appetite of banks for
low rated and unrated exposures.
 The situation was worsened by the unprecedented redemption pressure
overshadowing the mutual fund industry, resulting in a spike in spreads.
 On the demand side, it became difficult for NBFCs to find creditworthy
projects and borrowers to lend to as a result of the pandemic induced
stress.

B. OVERALL ASSESSMENT OF SYSTEMIC RISKS

 In the latest systemic risk survey, the institutional risks, which comprise
asset quality deterioration, additional capital requirements, level of credit
growth and cyber risk, were rated as ‘high’.
 All other major risk groups, viz., global risks, macroeconomic risks and
financial market risks were perceived as being „medium’ in magnitude.

C. GLOBAL AND DOMESTIC MACRO-FINANCIAL RISKS

 Even as the positive news on vaccine development has underpinned

optimism on the outlook, hopes have been marred by the adverse
developments across Europe, the US and some other countries.
 On the domestic front, while policy measures have ensured the smooth
functioning of markets and financial institutions. Movements in certain
Page 36 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Segments of the financial markets are not in sync with the developments
in the real sector.
 Aggregate banking sector credit remained subdued, pointing to vestiges
of risk aversion even as aggregate demand in the economy is mending
and reviving.

D. FINANCIAL SECTOR: REGULATION AND DEVELOPMENT

 The Reserve Bank, other financial sector regulators and the government
have undertaken extraordinary measures to mitigate the impact of the
pandemic.
 Several innovative measures were rolled out to ease balance sheet stress
for borrowers and lending institutions.
 Alongside these pandemic induced actions, the pace of ongoing efforts to
address systemic gaps and to develop and strengthen various parts of
the financial system, did not slow down.

Outlook
 India‟s banking system faced the pandemic with relatively sound capital
and liquidity buffers built assiduously in the aftermath of the global
financial crisis and buttressed by regulatory and prudential measures.
 With stress tests pointing to a deterioration in asset quality of banks,
early identification of impairment and aggressive capitalisation is
imperative for supporting credit growth across various sectors alongside
pre-emptive strategies for dealing with potential NPAs.
 Domestically, corporate funding has been cushioned by policy measures
and the loan moratorium announced in the face of the pandemic, but
stresses would be visible with a lag.
 Policy measures by the regulators and the government have ensured the
smooth functioning of domestic markets and financial institutions.
Managing market volatility amidst rising spillovers has become
challenging especially when the movements in certain segments of the
financial markets are not in sync with developments in the real sector.

Takeaways

Deposits for Public Sector Banks (PSBs) grew at a higher pace than
usual despite their lower deposit rates and amid stress on a few private
banks. However, PSBs will be most impacted in case of a severe stress
scenario with their GNPA ratio rising to 17.6% compared to 8.8% projected
for private sector banks and 6.5% for foreign banks.

Page 37 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Going forward, the cushions in banks‟ balance sheets will have to contend
with the rollback of regulatory forbearances announced in the wake of the
pandemic. Capital and asset quality ratios of SCBs will be tested as the true
economic value of portfolios of banks and other financial intermediaries is
impacted by the disruption caused by the pandemic.

In the non-bank space, the dominant positions occupied by mutual funds

and insurance companies needs to be assessed against the fact that non-
banking financial companies and housing finance companies remain the
largest borrowers, with systemic implications. Meanwhile, shrinking of the
inter-bank market has reduced the risk of bank failure due to contagion
effects.

GNPA ratio of SCBs may worsen under various stress scenarios and capital
ratios may be eroded, highlighting the need for proactive provisioning and
building up adequate capital to withstand the imminent asset quality
deterioration.

************

Page 38 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Gist of World Bank “Global Economic Prospects” - January 2021

World Bank has recently released the Global Economic Prospects for January 2021.
The gist of the Report is given below:

 The Global economy is emerging from the collapse triggered by the pandemic,
the recovery is projected to be subdued.

 Global economic output is expected to expand 4% in 2021 but still remain

more than 5% below its pre-pandemic trend. Moreover, there is a material risk
that setbacks in containing the pandemic or other adverse events derail the
recovery.

 Growth in emerging market and developing economies (EMDEs) is

envisioned to firm to 5% in 2021, but EMDE output is also expected to remain
well below its pre-pandemic projection.

 The pandemic has exacerbated the risks associated with a decade-long wave of
global debt accumulation. Debt levels have reached historic highs, making the
global economy particularly vulnerable to financial market stress.

 The pandemic is likely to steepen the long-expected slowdown in potential

growth over the next decade, undermining prospects for poverty reduction.

 The heightened level of uncertainty around the global outlook highlights policy
makers‘ role in raising the likelihood of better growth outcomes while warding off
worse ones.

 Limiting the spread of the virus, providing relief for vulnerable populations, and
overcoming vaccine-related challenges are key immediate priorities.

 With weak fiscal positions severely constraining government support measures in

many countries, an emphasis on ambitious reforms is needed to rekindle robust,
sustainable and equitable growth.

 Global cooperation is critical in addressing many of these challenges. In

particular, the global community needs to act rapidly and forcefully to make sure
the ongoing debt wave does not end with a string of debt crises in EMDEs, as
was the case with earlier waves of debt accumulation.
1) Global Outlook:
 Following a collapse last year caused by the COVID-19 pandemic, global
economic output is expected to expand 4% in 2021 but still remain more than 5
% below pre-pandemic projections.

Page 39 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Global growth is projected to moderate to 3.8% in 2022, weighed down by

the pandemic‘s lasting damage to potential growth.
 In particular, the impact of the pandemic on investment and human capital is
expected to erode growth prospects in emerging market and developing
economies (EMDEs) and set back key development goals.
 The global recovery, which has been dampened in the near term by a
resurgence of COVID-19 cases, is expected to strengthen over the forecast
horizon as confidence, consumption, and trade gradually improve,
supported by ongoing vaccination.
 Downside risks to this baseline predominate, including the possibility of a further
increase in the spread of the virus, delays in vaccine procurement and
distribution, more severe and longer-lasting effects on potential output from the
pandemic, and financial stress triggered by high debt levels and weak growth.
 Limiting the spread of the virus, providing relief for vulnerable populations, and
overcoming vaccine-related challenges are key immediate policy priorities.
 The crisis abates, policy makers need to balance the risks from large and
growing debt loads with those from slowing the economy through premature
fiscal tightening.
 To confront the adverse legacies of the pandemic, it will be critical to foster
resilience by safeguarding health and education, prioritizing investments in
digital technologies and green infrastructure, improving governance, and
enhancing debt transparency.
 Global cooperation will be key in addressing many of these challenges.

2) Regional Outlook:

 After a sharp slowdown to 0.9% in 2020, output in East Asia and Pacific (EAP)
is projected to expand 7.4% in 2021, to a level still around 3% below pre-
pandemic projections.
 China is expected to recover strongly, the rest of EAP is only expected to
return to a level around 7.5% below pre-pandemic projections in 2022, with
significant cross-country differences.
 The pandemic is expected to leave lasting economic scars on the region and
dampen potential growth and incomes.
 Key downside risks to the outlook include the possibility of renewed outbreaks
and delayed rollout of vaccines; heightened financial stress amplified by elevated
debt levels; and the possibility of more severe and longer-lasting effects from the
pandemic, including persistent policy uncertainty and subdued investment amid
lingering trade tensions.

Page 40 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

3) GLOBAL ECONOMY - Heading into a Decade of Disappointments?:

 The COVID-19 pandemic has caused major disruptions in the global economy.
 Economic activity has been hit by reduced personal interaction, owing both to
official restrictions and private decisions; uncertainty about the post-pandemic
economic landscape and policies has discouraged investment; disruptions to
education have slowed human capital accumulation; and concerns about the
viability of global value chains and the course of the pandemic have weighed on
international trade and tourism.
 As with previous economic crises, the pandemic is expected to leave long-lasting
adverse effects on global economic activity and per capita incomes.
 It is likely to steepen the slowdown in the growth of global potential output—the
level of output the global economy can sustain at full employment and capacity
utilization—that had earlier been projected for the decade just begun.
 If history is any guide, unless there are substantial and effective reforms, the
global economy is heading for a decade of disappointing growth outcomes.
 Especially given weak fiscal positions and elevated debt, institutional reforms to
spur growth are particularly important.
 A comprehensive policy effort is needed to rekindle robust, sustainable, and
equitable growth.
 A package of reforms to increase investment in human and physical capital and
raise female labor force participation could help avert the expected impact of the
pandemic on potential growth in emerging market and developing economies
(EMDEs) over the next decade.
 In the past, the growth dividends from reform efforts were recognized and
anticipated by investors in upgrades to their long-term growth expectations.

4) ASSET PUCHASES IN EMERGING MARKETS Unconventional Policies,

Unconventional Times :

 Central banks in some emerging market and developing economies (EMDEs)

have employed asset purchase programs, in many cases for the first time, in
response to pandemic-induced financial market pressures.
 These programs, along with spillovers from accommodative monetary policies in
advanced economies, appear to have helped stabilize EMDE financial markets.
 However, the governing framework, scale, and duration of these programs have
been less transparent than in advanced economies, and the effects on inflation
and output in EMDEs remain uncertain.
 In EMDEs where asset purchases continue to expand and are perceived to
finance unsustainable fiscal deficits, these programs risk eroding hard-won
central bank operational independence and de-anchoring inflation expectations.

Page 41 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Ensuring that asset purchase programs are conducted with credible

commitments to central bank mandates and with transparency regarding their
objectives and scale can support their effectiveness.

In India, growth is expected to recover to 5.4% in 2021, as the rebound from a low base is
offset by muted private investment growth given financial sector weaknesses. The
pandemic will likely lower potential growth, including through eroding human capital and
investment growth. In the financial sector, nonperforming loans were already at high
levels before the pandemic and the economic downturn may lead to further insolvencies
among financial and nonfinancial corporations. Indeed, the ratio of gross nonperforming
loans to assets of commercial banks in India could be as high as 15% by March 2021
(Reserve Bank of India 2020).

Way Forward

i. Following the devastating health and economic crisis caused by COVID-19, the
global economy appears to be emerging from one of its deepest recessions
and beginning a subdued recovery.
ii. Governments, households, and firms all need to embrace a changed economic
landscape. While protecting the most vulnerable, successful policies will be
needed that allow capital, labor, skills, and innovation to shift to new purposes in
order to build a greener, stronger post-COVID economic environment.
iii. Some countries already moving toward this type of dynamism and resilience, will
need to redouble their efforts. For others, change is especially critical now, when
fiscal positions are severely stretched by the pandemic and other drivers of long-
term growth have weakened.
iv. Investment, in particular, collapsed in 2020 in many emerging market and
developing economies, following a decade of persistent weakness. Investment
growth is expected to resume in 2021, but, despite an uplift from advances in
digital technology, not add enough to reverse the large 2020 decline.
v. The experience of past crises raises a further concern—without urgent course
correction, investment could remain feeble for years to come.
vi. To counter the investment headwind, there needs to be a major push to improve
business environments, increase labor and product market flexibility, and
strengthen transparency and governance.
vii. These can re-kindle investment and help allocate it more effectively, but
unsustainable debt burdens are a major obstacle.
viii. Already at record levels before the pandemic, both domestic and external debt
burdens have become much heavier due to the devastating contraction in
incomes across emerging market and developing economies.

Page 42 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

ix. To address the external debt burden, a comprehensive set of policy interventions
is needed:

 Broader participation by all private and official bilateral creditors in existing

debt service relief efforts; deep debt reduction for countries in debt
distress to increase the attractiveness for investment.
 Better debt transparency practices that overcome secrecy and restrictions
in debt contracts.
 Legislative reforms to expedite the restructuring of private sector debt
 Enhanced sequencing of these processes, which may involve countries
running arrears with creditors as they work with international financial
institutions to achieve debt sustainability.
x. Complicating the debt sustainability problem is the possibility that contingent
liabilities from soaring private debt may be added to already high public debt.
xi. During the pandemic, many governments have supported lending to firms to
address liquidity constraints, including loan guarantees, payment moratoria, and
regulatory forbearance.
xii. These interventions highlight the challenge of balancing efforts to increase the
availability of credit while maintaining proper regulatory standards to mitigate
financial risks.
xiii. As the health and economic crisis abates, these policies need to be reassessed
periodically to ensure asset quality transparency and avoid undermining bank
capitalization.
xiv. Policymakers also need to enhance supervisory assessments of loan quality and
improve resolution and recovery regimes to address the potential challenges
associated with elevated corporate debt levels.
xv. With non-performing loans likely to rise, more rapid bankruptcy and domestic
debt resolution processes will be important in allowing assets to be relieved of
litigation and repurposed for new uses. Adding new investment to productive
existing assets will be vital for sustainable development.
xvi. In both the external and internal debt resolution processes, transparency is
critical to bolster accountability, make future investment and debt more
productive, and support the economic recoveries that are crucial for poverty
reduction.
xvii. Left unaddressed, the problem of unsustainable debt, and restructurings that do
too little, will delay vital recoveries, especially in the poorest countries.
xviii. Mounting climate and environmental challenges add to the urgency of policy
action, including on debt reduction and an improved investment framework.
xix. As countries formulate policies for recovery, they have a chance to embark on a
greener, smarter, and more equitable development path.

Page 43 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

xx. Investing in green infrastructure projects, phasing out fossil fuel subsidies, and
offering incentives for environmentally sustainable technologies can buttress
long-term growth, lower carbon output, create jobs, and help adapt to the effects
of climate change.

xxi. Making the right investments now is vital both to support the recovery when it is
urgently needed and foster resilience. Our response to the pandemic crisis today
will shape our common future for years to come. We should seize the opportunity
to lay the foundations for a durable, equitable, and sustainable global economy.

Page 44 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Highlights of Fitch Global Economic Outlook: December 2020

Fitch has released a Report titled “Global Economic Outlook: December 2020”.
The highlights of the report alongwith outlook for India is summarized below:

Highlights

1. Vaccine Rollout Provides Path to Recovery

 The Covid-19 pandemic still dominates the global economic
outlook heading into 2021, with the second wave of the virus
prompting renewed national lockdowns in Europe and tighter
restrictions in the US.
 But vaccine rollout raises the prospect of sure-footed economic
recovery.
2. Forecasts Revised Up
 World GDP in 2020 is expected to fall by 3.7% compared to earlier
estimate of 4.4% contraction. World GDP growth forecast for 2021
has been revised upwards to 5.3% from 5.2%.
 The revision reflects a stronger-than-expected recovery in third
quarter.

3. More Policy Support Likely in Near Term

 Further policy support is likely to be extended in the near term as
policy makers seek to provide the private sector with a „bridge‟ to
the other side of the health crisis.

4. Forecast Highlights
 Expected stronger growth in both the US and China next year is
largely offset by weaker growth in Europe.
 The upward revision to 4% in 2022 from 3.6% implies a
significantly faster recovery from the trough than that which
followed the global financial crisis (GFC).
Page 45 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 USA: US GDP is forecasted to fall by 3.5% in 2020 led by a

stronger-than anticipated recovery in 3Q20 followed by high-
frequency data.
 Eurozone: GDP is expected to fall by 7.6% this year against 9%
decline estimated in September.
o The winter lockdowns will weigh on annual growth in 2021,
which has been revised down to 4.7% from 5.5%.
o For 2022, Fitch has forecasted Eurozone growth at 4.4%.
o The recent tightening of restrictions in Europe (France, UK,
Germany Spain and Italy) in the face of the surge in new
virus cases is delivering a severe setback to the service
sector.
o GDP is expected to decline in fourth quarter in all of these
countries.
 China: China is one of the few countries to face a downward
revision to 2020 GDP and the only one with positive growth rate of
2.3% in 2020 (from 2.7% earlier).
o GDP in 3Q20 is at +4.9% YoY.
o Recovery is becoming fully fledged, with consumer spending
picking up and an improved global outlook.
o Fitch has lifted its 2021 forecast for China to 8.0% from
7.7%.
o GDP in China is now more than 3% above pre-virus levels
and growing swiftly, helped by on-balance- sheet fiscal
easing and a pick-up in credit growth.
 Emerging Markets (EM) excluding China: EM excl. China GDP
contraction is expected at 4.7% compared to 5.7% earlier.
o This reflects upward revisions to India, Russia, Brazil Mexico
and Turkey.
o Korea‟s forecast has also been revised up, partly reflecting
the relative success there and in other parts of East Asia in
containing the virus in 2020.
o The EM excl. China forecast for 2021 is at 5.0% (from 5.2%
earlier) partly reflecting less powerful base effects.
Fitch has revised up growth in 2022 by 0.1pp to 3.8%.

o This reflects a cautious view on the vaccine rollout in EM

and less aggressive macro policy support.

Page 46 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

5. Powerful Impact from Policy Easing

 Fitch‟s estimates for the US and Asia-Pacific countries suggest a
very large impact from fiscal easing.
I. Aggregate household disposable income levels have held up
very well relative to GDP.
o In Europe, household sector disposable income dipped
only modestly in 1H20 despite precipitous falls in
nominal GDP.
o In the US, aggregate household income has accelerated,
rising by 4.6% YoY in October.
o This reflects huge transfers to the household sector,
including one-off pandemic stimulus payments,
increases in the generosity of unemployment insurance,
and paycheck protection loans to sole proprietors.
II. Short-time working schemes were very successful in
preventing a sharp rise in unemployment in Europe.
o It is expected that European unemployment will rise in
2021 and 2022 as furlough schemes are unwound, but
the peaks will be lower than feared.
III. There is little evidence of a surge in small business failures, a
major worry at the height of the crisis.
o Bankruptcy filings in the US and the UK are
significantly lower year to date.
o Furlough schemes have doubtless helped, but sovereign
credit guarantees and business lending facilities have
played a big role.
o Forbearance has also been important
o The surge in bank lending to corporates in 2Q20 was
striking, and a clear sign that the tightening in credit
supply that typically amplifies the effects of a downturn
had been avoided at the peak of the crisis.
6. Policy Support expected to be extended
 Immunisation will not alleviate the pressure on health systems in
the immediate months ahead, raising the risk of a further
tightening or delayed easing in mobility restrictions.
 Macro policy will remain very supportive in the near term.
 The ECB is likely to scale up and extend its asset purchase
programme before year-end and the Fed is increasingly talking
about raising the pace of asset purchases.

Page 47 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 It is anticipated that a further $1 trillion (nearly 5% of GDP) in

fiscal stimulus measures in the US in early 2021 and the recent
UK Government‟s measures through its furlough programme.

7. Key Downside Risk/Upside Risk

 The key downside risk to the forecast relates to potential delays in
the vaccine rollout.
 The risk is that 2021 continues to be characterised by repeated
„circuit-breaker‟ lockdowns, unrelenting pressure on health
systems and extensive voluntary social distancing.
 A sharp rise in small business failures and faster-than-anticipated
increases in European unemployment are also key risks.
 Upside risks stem from a faster vaccine rollout than assumed and
a quicker end to social distancing.
 High savings rates could also see some unlocking of pent-up
household demand if confidence returns more quickly than
anticipated.
Outlook for India

 The Indian economy staged a sharper rebound in 3Q20 from the

coronavirus-induced recession than earlier expected.
 GDP fell by 7.5% YoY (estimated in September GEO: –9.6%), up from –
23.9% in 2Q20.
 The rebound in activity was especially sharp in the manufacturing sector
where output reached its pre-pandemic level in 3Q20, and the
manufacturing PMI hints at further gains.
 Manufacturing is buoyed by strong demand for particularly autos and
pharmaceutical products.
 The rebound in the services sector was more muted amid continued social
distancing.
 It is expected that India’s GDP will contract by 9.4% in FY21, followed by a
growth of 11% (unchanged by Fitch) and 6.3%, respectively, in the following
years.
 The coronavirus recession has nevertheless inflicted severe economic
scarring.
o The need is to repair balance sheets.
o Increased caution about long-term planning and firm closures will
limit investment demand.
o Increased financial sector weakness amid deteriorating asset quality
will hold back credit provision.

Page 48 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

o The failure of another bank in recent weeks the third failure in the
past 16 months underlines the challenges in the financial sector.
 Consumer prices have continued to accelerate in recent months, buoyed by
lingering supply disruptions.
 This has deterred the Reserve Bank of India (RBI) from resuming its easing
cycle.
 Inflation has now peaked and should start to decelerate rapidly on
favourable base effects and an easing of supply disruptions.
 This should provide room for the RBI to cut interest rates in 2021.

ANNEXURE

Page 49 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

***********

Page 50 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Bank Credit & Deposit Growth and

Sectoral Deployment Of Bank Credit- January 2021

Bank Credit & Deposits (Rs. Lakh crore)

Indicators 14.02.20 27.03.20 29.01.21 12.02.21 YoY (%) YTD (%) Fortnightly (%)
Deposits 132.3 135.7 148.0 147.8 11.8% 8.9% -0.1%
Advances 100.4 103.7 107.0 107.0 6.6% 3.2% 0.0%
Business 232.7 239.4 255.0 254.8 9.5% 6.4% -0.1%
 Bank credit grew by 6.6% YoY to Rs 107 lakh crore while deposits increased by
11.8% to Rs 147.8 lakh crore in the fortnight ended February 12‘2021.
 In the fortnight ended February 14, 2020, bank credit stood at Rs 100.4 lakh
crore and deposits at Rs 132.3 lakh crore.
 In the previous fortnight ended January 29, 2021, growth in bank credit was
5.93%, while deposits rose by 11.06%.

Sectoral Credit
RBI has recently released the monthly statistics on Sectoral Deployment of Bank Credit
for January 2021.
Amt. in Rs lakh Crore
Particulars 31.01.20 27.03.20 18.12.20 29.01.21 YoY (%) YTD (%) Monthly (%)
Gross Bank Credit 89.79 92.63 93.41 94.97 5.8% 2.5% 1.7%
Agriculture 11.53 11.58 12.46 12.68 9.9% 9.5% 1.8%
Industry 28.18 29.05 27.60 27.82 -1.3% -4.2% 0.8%
Services 24.32 25.95 25.79 26.37 8.4% 1.6% 2.2%
Personal Loans 24.97 25.54 26.63 27.24 9.1% 6.7% 2.3%
Source: RBI

Sectoral deployment of bank credit for January 2021 shows that:

 On a YoY basis, non-food bank credit growth stood at 5.7% in January 2021 as
compared to 8.5% in January 2020.
 Continuing its uptrend, credit growth to agriculture and allied activities
accelerated to 9.9% in January 2021 from 6.5% in January 2020.
 Credit to industry contracted by 1.3% in January 2021 as compared to 2.5%
growth in January 2020 mainly due to contraction in credit to large industries by
2.5% (2.8% growth in January 2020).
 Credit to medium industries registered a robust growth of 19.1% in January 2021
as compared to 2.8% a year ago and credit to micro & small industries registered
a growth of 0.9% in January 2021 as compared to 0.5% a year ago.
 Credit growth to the services sector decelerated moderately to 8.4% in January
2021 from 8.9% in January 2020. However, credit to ‗transport operators‘ and
‗trade‘ continued to perform well during the month, registering accelerated
growth.
Page 51 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Personal loans growth decelerated to 9.1% in January 2021 from 16.9% in

January 2020.

Details of sectoral credit are provided in Annexure.

Page 52 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

ANNEXURE
RBI Deployment of Gross Bank Credit by Major Sectors At the end of January 2021 (₹ Crore)
Outstanding as on Growth (%)
Jan
2020 2021 Jan Jan 2021
Item
2020 2021 /Mar
Jan 31 Mar 27 Jan 29 YoY YoY 2020
YTD
I. Gross Bank Credit (II + III) 8978800 9263132 9497150 8.5 5.8 2.5
II. Food Credit 78664 51590 86817 11.3 10.4 68.3
III. Non-food Credit (1 to 4) 8900136 9211542 9410333 8.5 5.7 2.2
1. Agriculture and Allied Activities 1153386 1157795 1267714 6.5 9.9 9.5
2. Industry (Micro and Small, Medium and Large ) 2817524 2905151 2781575 2.5 -1.3 -4.3
1
2.1. Micro and Small 373050 385834 376297 0.5 0.9 -2.5
2.2. Medium 106813 101588 127227 2.8 19.1 25.2
2.3. Large 2337661 2417729 2278051 2.8 -2.5 -5.8
3. Services 2431976 2594947 2636628 8.9 8.4 1.6
3.1.Transport Operators 139160 140142 151553 8.1 8.9 8.1
3.2.Computer Software 18775 20050 18731 -0.4 -0.2 -6.6
3.3. Tourism, Hotels and Restaurants 45395 45978 49413 17.4 8.9 7.5
3.4. Shipping 6682 6557 7183 -10.9 7.5 9.5
3.5. Aviation 5581 6429 12280 -60.5 120.0 91.0
3.6. Professional Services 172206 176997 129080 1.9 -25.0 -27.1
3.7. Trade 519547 552391 600957 4.8 15.7 8.8
3.7.1. Wholesale Trade (other than food procurement) 237341 263396 298232 8.6 25.7 13.2
3.7.2. Retail Trade 282207 288995 302725 1.7 7.3 4.8
3.8. Commercial Real Estate 227266 229770 233671 14.7 2.8 1.7
2
3.9. Non-Banking Financial Companies (NBFCs) of which, 831186 904785 885852 35.8 6.6 -2.1
3.9.1. Housing Finance Companies (HFCs) 149684 216532 150390 14.9 0.5 -30.5
3.9.2. Public Financial Institutions (PFIs) 28325 39789 71109 15.2 151.0 78.7
3
3.10. Other Services 466179 511847 547910 -15.4 17.5 7.0
4. Personal Loans 2497250 2553649 2724415 16.9 9.1 6.7
4.1. Consumer Durables 6453 9299 7397 41.3 14.6 -20.4
4.2. Housing (Including Priority Sector Housing) 1316473 1338961 1417538 17.5 7.7 5.9
4.3. Advances against Fixed Deposits (Including FCNR (B),
NRNR Deposits etc.) 67240 79494 67176 -2.2 -0.1 -15.5
4.4. Advances to Individuals against share, bonds, etc. 5185 5334 4163 -11.2 -19.7 -22.0
4.5. Credit Card Outstanding 110864 108097 116361 31.6 5.0 7.6
4.6. Education 67038 65744 64364 -3.1 -4.0 -2.1
4.7. Vehicle Loans 220240 220610 235882 9.8 7.1 6.9
4.8. Loans against gold jewellery 18596 26192 43141 20.4 132.0 64.7
4.9. Other Personal Loans 685162 699919 768392 20.7 12.1 9.8
5. Priority Sector (Memo)
4
5.1. Agriculture and Allied Activities 1125885 1133726 1246880 3.7 10.7 10.0
5
5.2. Micro and Small Enterprises 1079522 1078702 1148502 6.1 6.4 6.5
6
5.3. Medium Enterprises 127608 132360 163182 9.3 27.9 23.3
5.4. Housing 463249 459573 470361 5.0 1.5 2.3
5.5. Educational Loans 53335 50335 50014 -6.5 -6.2 -0.6
5.6. Renewable Energy 875 1037 1282 -26.9 46.4 23.6
5.7. Social Infrastructure 997 997 1971 -1.7 97.7 97.6
7
5.8. Export Credit 13508 16575 17151 -22.2 27.0 3.5
5.9. Others 14055 12852 14765 -23.5 5.0 14.9
5.10. Weaker Sections including net PSLC- SF/MF 735960 725267 766466 12.8 4.1 5.7
Source: RBI

Page 53 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

CURRENT ECONOMIC SCENARIO

A. Global Economy
Global economic activity remained besieged by the COVID-19 pandemic, more recently
by the second wave that has forced re-clamping of lockdowns across Europe and a
resurgence of infections in the US. This is casting a shadow on the strong rebound of
economic activity in Q3:2020.
The International Monetary Fund (IMF) placed global growth in 2020 at (-)4.4%,
followed by a recovery in 2021 to 5.2% which is, nonetheless, insufficient to lift output
above the 2019 level in most advanced and emerging market and developing
economies (EMDEs), excluding China. Optimism about global growth in 2021, on the
back of vaccine roll-out, is now tempered by the realisation that production and
distribution constraints will allow only a gradual move towards mass vaccination.

B. India‟s GDP
As per data released by CSO, GDP for Q3 FY21 grew by 0.4% as compared to a
contraction of 7.3% in the previous quarter (Q2 FY‘21) and 3.3% growth in Q3 FY20.
Also, Real Gross Value Added (GVA) at basic prices (which captures what accrues to
the producer/service provider before a product or service is sold) in Q3 FY21 grew by
1% in comparison to a contraction of 7.3% in Q2 FY21 and 3.4% growth in Q3 FY‘20.
 Investments, as reflected by gross fixed capital formation, grew by 2.6% in Q3,
after a contraction by 6.8% in Q2.
 On the demand side, expenditure trends show government and private
consumption expenditure continued to contract in Q3FY21, similar to contraction
in Q2FY21.
 Private consumption contracted by 2.4% in Q3 compared to a contraction of
11.3% in Q2. However, the pace of decline has significantly moderated.
 Government final consumption expenditure contracted by 1.1% in Q3, after a
contraction of 24% in Q2.
 A little push to GDP comes from restocking as evident from ‗change in stocks‘
which grew by 7% in Q3FY21 compared to 3.7% in Q2FY21.
 Sector-wise, agricultural sector remained resilient and grew by 3.9% in Q3FY21
compared to a growth of 3% in Q2FY21.
 In Q3, manufacturing, construction and financial, real estate and professional
services staged a return to growth for the first time in the year after two bad
quarters. Manufacturing GVA grew by 1.6% in Q3 after dipping by 35.9% and
1.5% in the first two quarters. Electricity and other public utilities grew by 7.3%
against a growth of 4.4% in Q2.
 Construction saw the sharpest recovery with GVA rising by 6.2% in Q3 after
falling 49.4% and 7.2% in the first two quarters.

Page 54 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Financial services sector grew by 6.6% in Q3 compared to a contraction of 9.5%

in Q2.
 Mining contracted by 5.9% in Q3 compared to a contraction of 7.6% in Q2.
 Services pertaining to trade, hotels, transport and communication remained in
trouble, with its GVA declining by 7.7% in Q3, though it fared better than the
contraction of 47.6% and 15.3% in Q1 and Q2 respectively.
 Public administration segment contracted by 1.5% in Q3 against a contraction of
9.3% in Q2.

As per the 2nd advance estimates, the contraction in real Gross Domestic Product
(GDP) during 2020-21 is estimated at 8% as compared to a growth of 4% in 2019-20.
Also, a decline of real Gross Value Added (GVA) at Basic Prices for FY21 is estimated
at 6.5%.
 For FY21, GDP is estimated to contract by 8%, which is a marginal contraction than
the forecast of 7.7% contraction in the first advance estimates released at the end of
January.
 Real GDP or GDP at Constant Prices in 2020-21 is likely to attain a level of Rs.134
lakh crore, as against the Estimate of GDP for 2019-20 at Rs 145.7 lakh crore.
 Latest data shows a sharper contraction in Q1FY21 at 24.4% compared to the
earlier estimate of 23.9%, whereas the second quarter contraction has been revised
to 7.3% from the earlier 7.5%.
 For FY21, only two sectors are expected to record positive growth in GVA —
agriculture (3%) and electricity, gas, water & other utilities (1.8%).
 Overall GVA is expected to contract 6.5% in the year, led by an 18% dip in trade,
hotels and other services, a 10.3% decline in construction, 9.2% contraction in
mining and 8.4% contraction in manufacturing GVA.

Outlook: India is now one of the few major economies to post growth in the last quarter
of calendar year 2020, with improvement in its performance attributed to a drop in
Covid-19 infections. Growth of 0.4% in GDP during Q3FY21 can be termed as a return
to ‘the pre-pandemic times of positive growth rates’ and a reflection of a ‘further
strengthening of V-shaped recovery that began in Q2’. Growth was primarily supported
by agriculture, manufacturing, construction, financial & real estate sectors and
investment.

Despite growth returning in the third quarter, the second advance estimate expects
FY21 GDP to contract by 8% as compared to first advance estimate of a decline of
7.7%. This indicates that despite GDP returning to the positive territory in Q3FY21, the
recovery is likely to be slower than anticipated earlier. Investment recorded its first
growth since December 2019 and going forward, is expected to be the growth driver
boosted by capex spending. Though the policy will continue to keep supporting growth,
recovery will also hinge on revival in private consumption and private investment.

Page 55 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

C. Index of Industrial Production (IIP)

Index of Industrial Production (IIP) growth turned positive to 1% in December 2020 after
a contraction in November 2020 by 2.1%. The IIP grew by 0.4% in December 2019.
 IIP turned positive in December 2020, primarily led by positive growth in
manufacturing (1.55%) and electricity (5.12%) sectors, whereas mining remained
in contraction for the third consecutive month.
 Mining output contracted by 4.8% in December 2020, as compared to a
contraction of 6.7% in November 2020.
 Among use-based goods, growth was led by all segments expect primary goods
as under:
o Consumer durables output grew 4.9% in December compared to a
contraction of 3.4% in November.
o Consumer non-durables output grew by 2% in December, compared to a
contraction of 1.3% in November 2020.
o Capital goods, Intermediate goods and Infrastructure & construction goods
have registered a flat growth in December 2020.
o Primary goods output contracted by 0.3% in December compared to a
contraction of 2.3% in November.
Outlook: Industrial output in December 2020 benefitted from a favourable base effect
and was broad-based across the sectors. However, the growth of 1% in IIP remains
mild. The disaggregated data (usage-wise) is quite encouraging, with only primary
goods reporting a YoY contraction in December 2020. It is encouraging that the growth
in IIP can also be attributed to manufacturing which has shown a positive growth in
December 2020, after a temporary contraction in November 2020. This ushers in
positive outlook for IIP growth going ahead.

D. Inflation
 CPI: Retail inflation declined to a 16-month low of 4.06% in January 2021
from 4.59% in the previous month of December 2020. CPI inflation stood
at 7.59% in January 2020.
o Retail inflation as measured by CPI has stayed within the RBI‘s
Monetary Policy Committee‘s target range of 4% (+/-2)% for the
second straight month in January.
o A sharp drop in food inflation brought down retail inflation to lowest
in 16 months at 4.06% in January 2021. This was mainly led by
vegetable prices, which slumped by 15.84% in January 2021.
o However, there has been increase in other components of CPI like
Clothing and footwear which increased to 3.82% in January from
3.49% in December.

Page 56 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

o RBI has said that with larger-than-anticipated deflation in vegetable

prices in December bringing down headline inflation closer to the
target, it is likely that the food inflation trajectory will shape the
near-term outlook.

RBI Projection Q4FY21 H1 FY22 Q3FY22

CPI Inflation 5.2% 5.2-5.0% 4.3%

Outlook: The growth-inflation dynamics seem to be improving for the economy, with
industrial output posting mild expansion in December and retail inflation declining to a
16-month low in January. CPI inflation is mainly influenced by food prices since food
items have more than 45% weight in the index and a strong base effect in vegetable
prices will keep food inflation low over the next six to nine months.
 WPI: Wholesale inflation measured by WPI rose to highest in 11 months
at 2.03% in January 2021, compared to 1.22% in the previous month i.e.
December 2020 and 3.52% in January last year.
o WPI jumped to the highest to 2.03% in December 2020 since
February 2020 (2.26%) as prices of manufactured products rose,
despite contraction in prices of primary articles for the second
straight month. Manufactured products inflation increased to 5.13%
in January from 4.24% in December 2020.
o Prices of primary articles declined by 2.24% in January as
compared to 1.61% decline in December.
o Fuel and power prices declined by 4.78% in January against a
decline of 8.72% in December.
Outlook: WPI inflation is moving contrary to the CPI inflation as manufactured goods
inflation has increased sharply in January 2021 since unlocking of the economy. This
may augur well for the industry in terms of restoring the pricing power. Going ahead,
with exceptionally low base related to the crash in fuel prices in January-March 2020
quarter, alongwith with ongoing hardening of crude oil & other commodity prices, WPI
inflation is set to record large upticks over the course of the next few months.
E. Trade
 India's trade deficit in goods narrowed to $14.54 billion in January 2021 as
exports grew faster than imports. The merchandise trade deficit stood at
$15.3 billion in January 2020.
 The merchandise exports rose 6.16% in January 2021 YoY to $27.45
billion, while imports were grew by 2.03% to $42 billion.
 However, cumulative value of exports during April-January this fiscal
dipped by 13.58 % to $228.25 billion, while imports declined by 25.92% to
$300.26 billion.
 On the other hand, imports in January 2021 stood at $41.99 billion, which
is an increase of 2.03% in dollar terms over imports of $41.15 billion in
January 2020.
Page 57 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 Cumulative value of imports for the period April-January 2020-21 was

$300.26 billion as against $405.33 billion during the period April-January
2019-20, registering a negative growth of (-) 25.92%.
 Oil imports are down 27.7% at $9.40 billion. Non-oil imports up 15.8% at
$38.50 billion. Gold imports up 154.7% at $4.04 billion.
F. Output of 8- Core Sector Industries
 India‘s eight core infrastructure sectors grew by a marginal 0.1% YoY in
January 2021 against 0.2% growth in December 2020, indicating a slow
pickup in the pandemic-hit economy. The core sector had expanded 2.2%
in January 2020.
 Only 3 out of 8 components of the core sector grew in January.
 Fertiliser, steel and electricity grew 2.7%, 2.6% and 5.1%, respectively.
 Crude oil, natural gas, petroleum refinery products and cement output
continued contraction in January while coal output declined after a gap of
five months.
 During April-January 2020-21, the core sector output shrank 8.8% against
a growth rate of 0.8% in the same period last fiscal.
Components of Core Sector
Sector (Growth %) Weight Jan-20 Oct-20 Nov-20 Dec-20 Jan-21
Coal 10.33 8 11.7 3.3 2.2 -1.8
Crude Oil 8.98 -5.3 -6.2 -4.9 -3.6 -4.6
Natural Gas 6.88 -9 -8.6 -9.3 -7.2 -2
Refinery Products 28.04 1.9 -17 -4.8 -2.8 -2.6
Fertilizers 2.63 -0.1 6.3 1.6 -2.9 2.7
Steel 17.92 1.6 5.9 -0.5 2.6 2.6
Cement 5.37 5.1 3.2 -7.3 -7.2 -5.9
Electricity 19.85 3.2 11.2 3.5 5.1 5.1
Overall Core index 100.00 2.2 -0.5 -1.4 0.2 0.1

Outlook: This anaemic growth in core sector is a concern as it has a weight of nearly
40% in the IIP (Index of Industrial Production) and reflects physical production that has
now declined by 8.8% for the year.

G. Fiscal Deficit (April-Jan‟2021)

 India's fiscal deficit in April 2020 - January 2021 stood at ₹12.34 trillion ($167
billion), or 66.8% of the revised budgeted target for the whole fiscal year.
 Net tax receipts were ₹11.02 trillion, while total expenditure was ₹25.17 trillion,
the data showed.
 Total expenditure is now 73% of revised estimate. Most important thing is
capital expenditure is now over 82%. This means there is more investment by
the Government which is a good sign for the economy.
Page 58 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

 On Feb. 1 2021, the government revised its fiscal deficit target for the current
year to 9.5% of GDP, instead of its original target of 3.5% of GDP as the
coronavirus pandemic lead to lower tax collection and higher spending.
 On the receipt front, total collection is around 80% of the RE. Net tax revenue
has touched over ₹11.01-lakh crore which is 82% of RE.

H. PMI
 Manufacturing PMI edged down to 57.5 in February 2021 from a
three-month high of 57.7 in January 2021, still signaling a strong month of
expansion in the manufacturing sector. Output and new orders continued to
grow at solid rates, while employment continued to decline.
 Services PMI declined to 52.3 in December 2020 from 53.7 in the previous
month.
 It pointed to third straight month of expansion in the services sector, but the
weakest rate in the current sequence, as both output and new orders growth
eased to three-month lows, due to the negative impact of COVID-19 on
demand.
Looking ahead, business sentiment weakened, as optimism was curbed by uncertainty
surrounding the COVID-19 pandemic, rupee depreciation and inflationary pressures.

I. Market Indicators
 Nifty 50: Nifty50 on 1st March 2021 topped the 14,750 level and formed an
Inside Bar on the daily chart. There was no follow-through to the long bearish
candle on 26th Feb 2020. The 50-pack index took support from a rising 50-day
moving average and at 50% retracement of 13,596-15,431 rally. Besides, the
index broke below minor swing low of 14,613, before seeing recovery.
 G sec yield: India 10-year bond yield fell 0.32 per cent to 6.20 after trading in
6.19-6.23 range.
 Forex Reserves: India‘s foreign exchange reserves increased by USD 169
million to USD 583.865 billion in the week ended February 19, 2021. The
increase in reserves was due to a rise in the foreign currency assets (FCAs), a
major component of the overall reserves. FCA rose by USD 1.155 billion to
USD 542.106 billion.
 USD/INR: The rupee dropped by 8 paise to close at 73.55 against the US dollar
on 1 Mar‘21, extending its falling streak to a third day due to a spike in global
crude oil prices and strong American currency.
 Oil Prices: Oil prices were up on 1st Mar‘21 on rising optimism about COVID-
19 vaccinations, a U.S. economic stimulus package and growing factory activity
in Europe despite coronavirus restrictions. Brent crude rose 51 cents, or 0.8%,
at $64.93 a barrel by 11:29 a.m. EST (1629 GMT), and U.S. West Texas
Intermediate (WTI) crude gained 28 cents, or 0.5%, to $61.78 a barrel. The
three major supportive factors are the prevalent vaccine rollouts, the optimism
Page 59 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

about economic growth and the view that the oil balance will get tighter as a
result of the first two points.
 FIIs and DIIs: Foreign Portfolio Investors (FPIs) were buyers of domestic
stocks to the tune of Rs 125 crore. DIIs were net sellers to the tune of Rs
194.88 crore, data suggests.

Page 60 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Gist of IMF World Economic Outlook Update

Policy Support and Vaccines Expected to Lift Activity - January 2021

International Monetary Fund (IMF) has recently released the World Economic Outlook
Update for January 2021. The gist of the Report is given below:
Key Highlights
 Recent vaccine approvals have raised hopes of a turnaround in the pandemic
later this year. Renewed waves and new variants of the virus pose concerns for
the outlook.
Overview of the World Economic Outlook Projections
Estimates Projections
2019
2020 2021 2022
Global Economy 2.8 -3.5 5.5 4.2
Advance Economies 1.6 -4.9 4.3 3.1
United States 2.2 -3.4 5.1 2.5
Euro Area 1.3 -7.2 4.2 3.6
United Kingdom 1.4 -10.0 4.5 5.0
Emerging Economies 3.6 -2.4 6.3 5.0
China 6.0 2.3 8.1 5.6
India 4.2 -8.0 11.5 6.8

 The global growth contraction for 2020 is estimated at -3.5 %, 0.9 % point
higher than projected in the previous forecast (reflecting stronger than
expected momentum).
 The strength of the recovery is projected to vary significantly across countries,
depending on access to medical interventions, effectiveness of policy support,
exposure to cross-country spillovers, and structural characteristics entering the
crisis.
 Policy actions should ensure an emphasis on advancing key imperatives of
raising potential output, ensuring participatory growth that benefits all, and
accelerating the transition to lower carbon dependence.
 Strong multilateral cooperation including bolstering funding for the COVAX facility
to accelerate access to vaccines for all countries, ensuring universal distribution
of vaccines, and facilitating access to therapeutics at affordable prices for all.
 Where sovereign debt is unsustainable, eligible countries should work with
creditors to restructure their debt under the Common Framework agreed by the
G20.
 Major central banks are assumed to maintain their current policy rate settings
throughout the forecast horizon to the end of 2022.
 Financial conditions are expected to remain broadly at current levels for
advanced economies while gradually improving for emerging market and
developing economies.Within this latter group, differentiation between
investment-grade sovereigns (who have been able to issue external debt in large
Page 61 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

amounts in 2020) and high-yield borrowers (many of whom are constrained in

their ability to take on additional debt and until recently have not accessed
international markets during the pandemic) is expected to subside as the
recovery takes hold.
 Reflecting the projected global recovery, oil prices are expected to rise in 2021
just over 20 percent from the low base for 2020, but will still remain well below
their average for 2019.
 Non-oil commodity prices are also expected to increase with those of metals, in
particular, projected to accelerate strongly in 2021.
Emerging market economies
 Emerging market economies should maintain fiscal and monetary support
where debt sustainability is not at risk and where inflation expectations are well
anchored.
 Where emerging market central banks continue to deploy asset purchase
programs, the objectives should be clearly communicated in particular, their
consistency with price stability mandates.
 Beyond policy space considerations, strategies for macroeconomic and financial
stability including exchange rate policies will vary according to the structure of
individual economies and the types of shocks they confront during recovery.
 In countries with deep financial markets and low balance sheet mismatches,
exchange rate flexibility can effectively absorb shocks and limit resource
misallocation.
 Third quarter GDP outturns mostly surprised on the upside (Australia, euro
area, India, Japan, Korea, New Zealand,Turkey, United States) or were in line
with expectations elsewhere (China, Mexico).
 Notable revisions to the forecast include the one for India 2.7 % points for
2021 (earlier projection for 2021 is 8.8% was against 11.5% current
projection), reflecting carryover from a stronger-than-expected recovery in 2020
after lockdowns were eased.

Global Growth Set to Strengthen in the Second Half of 2021

o Consistent with recovery in global activity, global trade volumes are
forecast to grow about 8 % in 2021, before moderating to 6 % in 2022.
o Services trade is expected to recover more slowly than merchandise
volumes, however, which is consistent with subdued cross-border tourism
and business travel until transmission declines everywhere.
o Even with the anticipated recovery in 2021–22, output gaps are not
expected to close until after 2022.
 Inflation:
o Consistent with persistent negative output gaps, inflation is expected to
remain subdued during 2021–22.

Page 62 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

o In advanced economies it is projected to remain generally below central

bank targets at 1.5 %. Among emerging market and developing
economies inflation is projected just over 4 %, which is lower than the
historical average of the group.
Risk to the Outlook:
 On the upside:
o Favorable news on vaccine manufacture (including on those under
development in emerging market economies), distribution, and
effectiveness of therapies could increase expectations of a faster end to
the pandemic than assumed in the baseline, boosting confidence among
firms and households. This would generate stronger consumption,
investment, and employment recoveries, with firms hiring and expanding
capacity in anticipation of rising demand.
 On the downside:
o Growth could turn out weaker than in the baseline if the virus surge
(including from new variants) proves difficult to contain, infections and
deaths mount rapidly before vaccines are widely available, and voluntary
distancing or lockdowns prove stronger than anticipated.
o Slower-than-anticipated progress on medical interventions could dampen
hopes of a relatively quick exit from the pandemic and weaken confidence.
Policy to Strengthen the Economy
o Aggressive and swift monetary, fiscal, and financial sector policies have
helped prevent worse outcomes.
o In some cases, transfers to households quickly boosted consumer
spending in particular for those with liquidity constraints.
o Transfers to firms, together with credit guarantees and funding-for-lending
programs, have prevented bankruptcies that might otherwise have
occurred.
o Policies to address inequality: These efforts can be complemented with
investment in retraining and reskilling programs to improve reemployment
prospects for displaced workers, strengthening social assistance as
needed (for example, conditional cash transfers and medical payments for
low-income households), and expanding social insurance (relaxing
eligibility criteria for unemployment benefits, extending the coverage of
paid family and sick leave) all of which would help address the uneven
labor market impact of the crisis and curb rising inequality.
o Debt restructuring may be unavoidable for some countries: While
temporary liquidity relief can help mitigate the lack of policy space, for
some countries it may not be enough in situations where sovereign debt is
unsustainable.

Page 63 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

o In such instances, eligible countries should work with creditors to

restructure their debt under the new Common Framework agreed by the
G20.
o More generally, improving the international debt architecture to support
orderly debt restructuring would benefit not only these countries but the
system as a whole.
Achieving a Resilient, Equitable Post-Pandemic Economy
 Addressing crisis legacies: Once the crisis fades, policymakers must prioritize
efforts to address its likely enduring legacies some of them an intensification of
preexisting trends including slow productivity growth, rising inequality, higher
absolute numbers of people in poverty, higher debt, and a setback in human
capital accumulation.
 Synchronized responses to amplify policy effectiveness: A synchronized
public investment push by the largest economies with fiscal space to do so can
enhance effectiveness of individual actions and boost cross-border spillovers
through trade linkages. Emphasizing green infrastructure and digitalization to
raise productivity growth, synchronized spending would lift medium-term global
output significantly more than if countries spent the same amount individually.
 Closer multilateral cooperation: Beyond addressing issues arising directly from
the pandemic, countries should also work closely to redouble climate change
mitigation efforts. Moreover, closer multilateral cooperation will be needed to
resolve economic issues underlying trade and technology tensions as well as
gaps in the rules-based multilateral trading system.

Page 64 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

Contemporary Indian Economic Snapshot

1. GDP at Market Price in the New Series:

GDP at Constant Market Prices based on the New Series (in %)

Q1’ Q2’ Q3’ Q4’ FY’20 Q1’ Q2’ Q3’ FY’21
st
20 20 20 20 (1 R.E.) 21 21 21 (2nd A.E.)
5.2 4.4 4.1 3.1 4.0 -24.4 -7.3 0.4 -8.0

GVA Growth at Constant Prices (in %)

Agriculture Industry Services GVA Growth (%)
Q1 Q2 Q3 FY’21 Q1 Q2 Q3 FY’21 Q1 Q2 Q3 FY’21 Q1 Q2 Q3 FY’21
(2nd (2nd (2nd (2nd
FY’21 FY’21 FY’21 FY’21 FY’21 FY’21 FY’21 FY’21 FY’21 FY’21 FY’21 FY’21
A.E.) A.E.) A.E.) A.E.)
3.3 3.0 3.9 3.0 -35.9 -3.0 2.7 -8.2 -21.4 -11.3 -1.0 -8.1 -22.4 -7.3 1.0 -6.5

2. Fiscal Deficit:
Fiscal Deficit
Apr’20-Jan’21
FY’19 FY’20
(FY’21)
Rs 12.34 lakh crore
3.8% 4.6%
(66.8%)

3. Industrial Growth (IIP):

IIP (Sector-wise)
Mining Manufacturing Electricity General
(14.37%) (77.63%) (7.99%) (100%)
Growth 2019 2020 2019 2020 2019 2020 2019 2020
Oct -8.0 -1.3 -5.7 4.1 -12.2 11.2 -6.6 4.2
Nov 1.9 -6.7 3.0 -2.0 -5.0 3.5 2.1 -2.1
Dec 5.7 -4.8 -0.3 1.6 -0.1 5.1 0.4 1.0

IIP (Use-based classification)

Component Weight Dec’19 Sep’20 Oct’20 Nov’20 Dec’20
Primary Goods 34.05% 2.4 -1.5 -3.2 -2.3 -0.3
Capital Goods 8.22% -18.3 -1.2 3.5 -7.4 0.6
Intermediate Goods 17.22% 13.1 -0.4 2.1 -2.6 0.4
Infrastructure/ Construction Goods 12.34% 0.2 4.0 9.9 1.7 0.9
Consumer Durables 12.84% -5.6 5.3 18.0 -3.4 4.9
Consumer Non- Durables 15.33% -3.2 2.4 7.1 -1.3 2.0

Page 65 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

4. Core sector:

Sector (Growth Weight in Jan-20 Oct-20 Nov-20 Dec-20 Jan-21

%) Core Sector
Coal 10.33 8 11.7 3.3 2.2 -1.8
Crude Oil 8.98 -5.3 -6.2 -4.9 -3.6 -4.6
Natural Gas 6.88 -9 -8.6 -9.3 -7.2 -2
Refinery Products 28.04 1.9 -17 -4.8 -2.8 -2.6
Fertilizers 2.63 -0.1 6.3 1.6 -2.9 2.7
Steel 17.92 1.6 5.9 -0.5 2.6 2.6
Cement 5.37 5.1 3.2 -7.3 -7.2 -5.9
Electricity 19.85 3.2 11.2 3.5 5.1 5.1
Overall index 100.00 2.2 -0.5 -1.4 0.2 0.1

5. Inflation based on Wholesale Price Index (WPI)- Base Revised from 2004-05 to 2011-12:
WPI
Manufactured
Inflation All Commodities Primary Articles Fuel & Power
Products
(%)
Weights 100% 22.62% 13.15% 64.23%
FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21
Nov 0.58 2.29 7.61 3.80 -10.17 -7.01 -0.84 3.23
Dec 2.93 1.22 11.61 -1.61 2.27 -8.72 -0.25 4.24
Jan 3.52 2.03 10.01 -2.24 5.44 -4.78 0.59 5.13

6. Inflation rate based on Consumer Price Index (CPI):

Inflation
Rural Urban Combined
(%)
2019 2020 2019 2020 2019 2020
Nov 5.27 7.20 5.76 6.73 5.54 6.93
Dec 7.40 4.07 7.46 5.19 7.35 4.59
Jan 7.73 3.23 7.39 5.06 7.59 4.06

Components of CPI

Food and Pan, tobacco Clothing and

Housing Fuel & Light Miscellaneous
beverages and intoxicants footwear
Weight 45.86% 2.38% 6.53% 10.07% 6.84% 28.32%
FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21

Nov 8.73 8.76 3.26 10.42 1.30 3.36 4.49 3.19 -1.93 1.62 3.67 7.01
Dec 12.16 3.87 3.37 10.74 1.50 3.49 4.30 3.21 0.70 2.99 4.17 6.60
Jan 11.72 2.67 3.68 10.87 1.91 3.82 4.20 3.25 3.66 3.87 4.75 6.49

Page 66 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

7. Purchasing Managers’ Index (PMI):

As on Manufacturing Services Composite

Feb’20 54.5 57.5 57.6
Mar’20 51.8 49.3 50.6
Apr’20 27.4 5.4 7.2
May’20 30.8 12.6 14.8
June’20 47.2 33.7 37.8
July’20 46.0 34.2 37.2
Aug’20 52.0 41.8 46.0
Sep’20 56.8 49.8 54.6
Oct’20 58.9 54.1 58.0
Nov’20 56.3 53.7 56.3
Dec’20 56.4 52.3 54.9
Jan’21 57.7 52.8 55.8
Feb’21 57.5 - -

8. Current Account Deficit (CAD):

arter Quarter CAD (as % of GDP)  India’s current account surplus moderated to US$ 15.5 billion
FY’18 1.9 (2.4% of GDP) in Q2 of 2020-21 from US$ 19.2 billion (3.8% of
Q1 FY’19 2.4 GDP) in Q1 of 2020-21; a deficit of US$ 7.6 billion (1.1% of GDP)
Q2 FY’19 2.9 was recorded a year ago [i.e. Q2 of 2019-20].
Q3 FY’19 2.5  The narrowing of the current account surplus in Q2 of 2020-21 was
Q4 FY’19 0.7 on account of a rise in the merchandise trade deficit to US$ 14.8
Q1 FY’20 2.1 billion from US$ 10.8 billion in the preceding quarter.
Q2 FY’20 1.1  Net services receipts increased both sequentially and on a year-on-
Q3 FY’20 0.2 year basis, primarily on the back of higher net earnings from
Q4 FY’20 0.1 (Surplus) computer services.
Q1 FY’21 3.8 (Surplus)  Private transfer receipts, mainly representing remittances by
Q2 FY’21 2.4 (Surplus) Indians employed overseas, declined on a y-o-y basis but improved
sequentially by 12% to US$ 20.4 billion in Q2 2020-21.

Page 67 of 68
 STRATEGIC MANAGEMENT AND ECONOMIC ADVISORY DIVISION

9. Trade Deficit:

Export Growth Import Growth (%) Trade Deficit

(%) (in US$) (in Bn$)
(in US$) Total Oil Non-oil
Jan’20 -1.66 -0.75 15.27 -6.72 15.30
Feb’20 2.91 2.48 14.26 -1.60 9.85
Mar’20 -34.57 -28.72 -15.00 -33.78 9.76
Apr’20 -60.28 -58.65 -59.03 -58.50 6.76
May’20 -36.47 -51.05 -71.98 -43.13 3.15
June’20 -12.41 -47.59 -55.29 -44.69 0.79 (Surplus)
July’20 -10.21 -28.40 -31.97 -27.26 4.83
Aug’20 -12.66 -26.04 -41.62 -21.10 6.77
Sep’20 5.99 -19.60 -35.88 -14.43 2.72
Oct’20 -5.12 -11.53 -38.52 -2.24 8.71
Nov’20 -8.74 -13.32 -43.36 -1.2 9.87
Dec’20 0.14 7.56 -10.61 14.30 15.44
Jan’21 6.16 2.03 -27.72 15.79 14.54

10. Exchange Rate, G Sec, Banking and Liquidity:

Systemic Liquidity
USD vs INR 10 Yr G- sec Yield (%)
(Rs. Crore)
Rate/Amt. 73.54 6.20 6,43,579 (Surplus)
As on 01.03.2021 01.03.2021 01.03.2021

Page 68 of 68