Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

India offers new manufacturing units an effective corporate tax rate of 17%, a completely flexible labour market (with new employees taken on fixed-term contracts that needn't be renewed upon expiry), and production-linked incentives to encourage export-oriented industry, which will induce a strong investment revival. Base effects will help growth (with real GDP likely growing over 12% YoY) in FY2021/22 and inflation (likely falling below 4% YoY in Apr-Jun 2021), allowing further RBI rate cuts that help strengthen growth, with privatization (including large-ticket strategic sales) substantially boosting the fiscal balance.  Real GDP growth should average 10% annually in the decade ahead. Stay Overweight India, as growth will boost EPS and hence improve valuations.The  BoP current account surplus (2.1% of GDP in Jan-Sep 2020, after the latest surplus for the Jul-Sep 2020 quarter of 2.4% of GDP) provides ample room to boost domestic demand in 2021 without significantly affecting the external balances. Although the fiscal deficit soared by 40.3% YoY in April-September (the first half of FY2020/21) while the economy was largely shut down and revenues slumped, public expenditure also was restrained (declining 0.6% YoY in Apr-Sep20, and still up only 4.7% YoY in Apr-Nov20 after a good recovery in Oct-Nov20). In October 2020, gross tax revenue expanded 16.9% YoY, accelerating to 23% YoY in November 2020, and the fiscal deficit for April-November 2020 was up a more modest 33.1% YoY. Despite the improved revenue in the second half of the fiscal year, there will be scant room for fiscal manoeuvre in FY2021/22. But this year's economic reforms will provide a massive medium-term boost to the economy. The most significant are the labour reforms, which have simplified 44 codes into four simple ones (easing compliance) and allowed all new employees to be taken on fixed-term contracts. This neatly gets around the biggest problem in India's labour market (the difficulty of firing workers, which inhibits hiring), and makes India's labour market incredibly flexible. When combined with a corporate tax rate of 17% for new manufacturing units (as low as any in Asia), and production-linked incentives (PLI) for specific export-oriented sectors, India is likely to attract large inflows of FDI and domestic investment into manufacturing in 2021, as global value chains also begin shifting to India (as ASEAN and India already have an FTA, as does India have with neighbours Bangladesh, Sri Lanka and Nepal). Real GDP growth is likely to be +3% YoY in the current quarter, +7% in Jan-Mar 2021, +25% YoY in Apr-Jun 2021 (still leaving that quarter's GDP 4% below Apr-Jun 2019), 10% YoY in Jul-Sep 2021, and 8% YoY in Oct21-Mar22 -- enabling real GDP to grow over 12.5% YoY in FY2021/22. This year's structural reforms (including a diluted version of the farm reforms) will provide a medium-term boost to productivity and employment across a broad swathe of the economy, enabling real GDP to sustainably move toward 10% annual growth for the decade.  Stay Overweight India, despite the seemingly stretched valuations (which will result in a short-term correction early in 2021).

India offers new manufacturing units an effective corporate tax rate of 17%, a completely flexible labour market (with new employees taken on fixed-term contracts that needn't be renewed upon expiry), and production-linked incentives to encourage export-oriented industry, which will induce a strong investment revival. Base effects will help growth (with real GDP likely growing over 12% YoY) in FY2021/22 and inflation (likely falling below 4% YoY in Apr-Jun 2021), allowing further RBI rate cuts that help strengthen growth, with privatization (including large-ticket strategic sales) substantially boosting the fiscal balance.  Real GDP growth should average 10% annually in the decade ahead. Stay Overweight India, as growth will boost EPS and hence improve valuations.The  BoP current account surplus (2.1% of GDP in Jan-Sep 2020, after the latest surplus for the Jul-Sep 2020 quarter of 2.4% of GDP) provides ample room to boost domestic demand in 2021 without significantly affecting the external balances. Although the fiscal deficit soared by 40.3% YoY in April-September (the first half of FY2020/21) while the economy was largely shut down and revenues slumped, public expenditure also was restrained (declining 0.6% YoY in Apr-Sep20, and still up only 4.7% YoY in Apr-Nov20 after a good recovery in Oct-Nov20). In October 2020, gross tax revenue expanded 16.9% YoY, accelerating to 23% YoY in November 2020, and the fiscal deficit for April-November 2020 was up a more modest 33.1% YoY. Despite the improved revenue in the second half of the fiscal year, there will be scant room for fiscal manoeuvre in FY2021/22. But this year's economic reforms will provide a massive medium-term boost to the economy. The most significant are the labour reforms, which have simplified 44 codes into four simple ones (easing compliance) and allowed all new employees to be taken on fixed-term contracts. This neatly gets around the biggest problem in India's labour market (the difficulty of firing workers, which inhibits hiring), and makes India's labour market incredibly flexible. When combined with a corporate tax rate of 17% for new manufacturing units (as low as any in Asia), and production-linked incentives (PLI) for specific export-oriented sectors, India is likely to attract large inflows of FDI and domestic investment into manufacturing in 2021, as global value chains also begin shifting to India (as ASEAN and India already have an FTA, as does India have with neighbours Bangladesh, Sri Lanka and Nepal). Real GDP growth is likely to be +3% YoY in the current quarter, +7% in Jan-Mar 2021, +25% YoY in Apr-Jun 2021 (still leaving that quarter's GDP 4% below Apr-Jun 2019), 10% YoY in Jul-Sep 2021, and 8% YoY in Oct21-Mar22 -- enabling real GDP to grow over 12.5% YoY in FY2021/22. This year's structural reforms (including a diluted version of the farm reforms) will provide a medium-term boost to productivity and employment across a broad swathe of the economy, enabling real GDP to sustainably move toward 10% annual growth for the decade.  Stay Overweight India, despite the seemingly stretched valuations (which will result in a short-term correction early in 2021). 

India's 2020 Reforms Will Usher in a Decade of Spectacular Growth from 2021 On

India has bucked the global trend by growing its total government spending by only 0.4% YoY in April-October 2020. But the economic recovery caused tax revenue to rise 16.9% YoY in October 2020, and the fiscal deficit should consequently decline steadily in the second half of the fiscal year, helping to crowd-in private investment. As supply disruptions ease, CPI inflation should edge below 6% YoY by January 2021, allowing a 50bp reduction in the policy rate to further kick-start a spectacular economic recovery in 2021 (calendar year) to about 15% real GDP growth. India's real GDP contracted 7.5% YoY in July-September 2020, but will likely need to be revised up because the key Services sectors (including public administration, defence, finance and professional services) were reported to have contracted more in July-September than in the "locked-down" quarter of April-June. On the demand side, government consumption spending declined a severe 22.2% YoY in real terms, private consumption declined 11.3% YoY, and investment spending fell 7.4% YoY, but real net exports added 3.5 percentage points to GDP. Notably, nominal exports of goods and services increased during the quarter (and yet the Services contribution to the output side was sharply negative, suggesting serious measurement errors in the latter). But the overall decline in government spending was a notable restraint on GDP during the quarter. Fiscal restraint has meant that India's total government spending (nominal) in April-October 2020 was up just 0.4% YoY. In October 2020, strong gross tax revenue (+16.9% YoY) enabled the fiscal deficit to decline 43% YoY. As the accelerating economy boosts tax revenues in the months ahead, the fiscal deficit will moderate steadily further, allowing some room for even this extraordinarily fiscally-conservative government to ease the reins on government spending. More importantly, as the supply disruptions from transportation bottlenecks ease, we expect CPI inflation to moderate to below 6% YoY by January 2021, allowing a 50bp reduction in policy rates by March 2021 -- thereby kick-starting a strong economic recovery to 8% YoY in Jan-Mar 2021, around 30% YoY in the next quarter and over 10% YoY in the rest of FY2021/22.

India has bucked the global trend by growing its total government spending by only 0.4% YoY in April-October 2020. But the economic recovery caused tax revenue to rise 16.9% YoY in October 2020, and the fiscal deficit should consequently decline steadily in the second half of the fiscal year, helping to crowd-in private investment. As supply disruptions ease, CPI inflation should edge below 6% YoY by January 2021, allowing a 50bp reduction in the policy rate to further kick-start a spectacular economic recovery in 2021 (calendar year) to about 15% real GDP growth. India's real GDP contracted 7.5% YoY in July-September 2020, but will likely need to be revised up because the key Services sectors (including public administration, defence, finance and professional services) were reported to have contracted more in July-September than in the "locked-down" quarter of April-June. On the demand side, government consumption spending declined a severe 22.2% YoY in real terms, private consumption declined 11.3% YoY, and investment spending fell 7.4% YoY, but real net exports added 3.5 percentage points to GDP. Notably, nominal exports of goods and services increased during the quarter (and yet the Services contribution to the output side was sharply negative, suggesting serious measurement errors in the latter). But the overall decline in government spending was a notable restraint on GDP during the quarter. Fiscal restraint has meant that India's total government spending (nominal) in April-October 2020 was up just 0.4% YoY. In October 2020, strong gross tax revenue (+16.9% YoY) enabled the fiscal deficit to decline 43% YoY. As the accelerating economy boosts tax revenues in the months ahead, the fiscal deficit will moderate steadily further, allowing some room for even this extraordinarily fiscally-conservative government to ease the reins on government spending. More importantly, as the supply disruptions from transportation bottlenecks ease, we expect CPI inflation to moderate to below 6% YoY by January 2021, allowing a 50bp reduction in policy rates by March 2021 -- thereby kick-starting a strong economic recovery to 8% YoY in Jan-Mar 2021, around 30% YoY in the next quarter and over 10% YoY in the rest of FY2021/22. 

Economic Recovery Is Gaining Momentum, but Monetary Stimulus Would Help

Deputy Chief Economist

Sharmila Whelan

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

If the performance of India’s stock market is anything to judge by the pandemic lasted just a month and the economic fallout of the March nationwide lockdown was negligible. The question is the stock market’s unbound euphoria justified? No. The immediate (and the worst of the) economic shock is behind and that is a relief but the medium-term fallout or so called scarring to the economy, the depths of which is yet the be revealed, warrants caution.

If the performance of India’s stock market is anything to judge by the pandemic lasted just a month and the economic fallout of the March nationwide lockdown was negligible. The question is the stock market’s unbound euphoria justified? No. The immediate (and the worst of the) economic shock is behind and that is a relief but the medium-term fallout or so called scarring to the economy, the depths of which is yet the be revealed, warrants caution.

Exports (+6% YoY) and industrial output (+0.2% YoY) resumed growing in September 2020, GST revenues were up 4% YoY that month and accelerated to 10% YoY growth in October 2020. We expect real GDP to expand 3% YoY in Oct-Dec 2020 and accelerate to 8% YoY in Jan-Mar 2021 (aided by a low-base effect, especially for March 2020); so real GDP will contract about 3% in FY2020/21 (much better than the IMF estimate of -10.5%) and expand over 10% in 2021/22 . With WPI inflation extremely low (as fuel prices are down YoY) and CPI inflation high (because of supply disruptions), corporate profitability is likely to be improving after the collapse in March-July. We recommend being Overweight India equities.  
India's exports grew 6% YoY in September 2020, and the long industrial recession ended in September, with industrial output expanding 0.2% YoY led by good growth in consumer non-durables (+4.1% YoY) and consumer durables (+2.8% YoY), and modest growth in infrastructure goods (+0.7% YoY). Reflecting the strength of farm incomes (and the positive impact of the on-going reforms to agricultural pricing and distribution), tractor sales expanded 31.2% YoY in 3Q 2020. Responding to the labour reforms, the pace of relocation of manufacturing FDI from China to India is gaining pace, with notable new investments from German and Japanese companies -- likely to gain further momentum in the period ahead. That GST revenues were up 4% YoY in September and 10% YoY in October 2020 is clinching evidence of the acceleration in economic activity. The "stimulus 3.0" announced on 12 November will boost employment and exports, and provide a modest spur to additional bank lending. 
Reflecting the relative sluggishness of domestic demand (with bank credit growing an anaemic 5.1% YoY in October 2020), imports declined far more than exports (even in April-August 2020), and the current account surplus widened from 0.1% of GDP in Jan-Mar 2020 to 3.9% of GDP in Apr-Jun 2020. Although imports contracted less in Jul-Sep 2020, the still-low trade deficit that quarter will ensure a current account surplus of 3.5% of GDP for 3Q 2020 (calendar year) and a full-year current account surplus of over 2% of GDP (close to the all-time high of FY2003/04). Given the healthy external balance, there is ample room for the RBI to ease monetary policy further. The high headline CPI inflation rate remains the main impediment. Over the next 2 months, the easing of Covid-19 infections across the country (with current new case numbers less than half the mid-September peak) will allow the RBI to cut the policy interest rate a further 100bp to an all-time low by March 2021. That should ensure an acceleration of real GDP to 8% YoY in Jan-Mar2021, and to over 10% growth in FY2021/22.

Exports (+6% YoY) and industrial output (+0.2% YoY) resumed growing in September 2020, GST revenues were up 4% YoY that month and accelerated to 10% YoY growth in October 2020. We expect real GDP to expand 3% YoY in Oct-Dec 2020 and accelerate to 8% YoY in Jan-Mar 2021 (aided by a low-base effect, especially for March 2020); so real GDP will contract about 3% in FY2020/21 (much better than the IMF estimate of -10.5%) and expand over 10% in 2021/22 . With WPI inflation extremely low (as fuel prices are down YoY) and CPI inflation high (because of supply disruptions), corporate profitability is likely to be improving after the collapse in March-July. We recommend being Overweight India equities.  
India's exports grew 6% YoY in September 2020, and the long industrial recession ended in September, with industrial output expanding 0.2% YoY led by good growth in consumer non-durables (+4.1% YoY) and consumer durables (+2.8% YoY), and modest growth in infrastructure goods (+0.7% YoY). Reflecting the strength of farm incomes (and the positive impact of the on-going reforms to agricultural pricing and distribution), tractor sales expanded 31.2% YoY in 3Q 2020. Responding to the labour reforms, the pace of relocation of manufacturing FDI from China to India is gaining pace, with notable new investments from German and Japanese companies -- likely to gain further momentum in the period ahead. That GST revenues were up 4% YoY in September and 10% YoY in October 2020 is clinching evidence of the acceleration in economic activity. The "stimulus 3.0" announced on 12 November will boost employment and exports, and provide a modest spur to additional bank lending. 
Reflecting the relative sluggishness of domestic demand (with bank credit growing an anaemic 5.1% YoY in October 2020), imports declined far more than exports (even in April-August 2020), and the current account surplus widened from 0.1% of GDP in Jan-Mar 2020 to 3.9% of GDP in Apr-Jun 2020. Although imports contracted less in Jul-Sep 2020, the still-low trade deficit that quarter will ensure a current account surplus of 3.5% of GDP for 3Q 2020 (calendar year) and a full-year current account surplus of over 2% of GDP (close to the all-time high of FY2003/04). Given the healthy external balance, there is ample room for the RBI to ease monetary policy further. The high headline CPI inflation rate remains the main impediment. Over the next 2 months, the easing of Covid-19 infections across the country (with current new case numbers less than half the mid-September peak) will allow the RBI to cut the policy interest rate a further 100bp to an all-time low by March 2021. That should ensure an acceleration of real GDP to 8% YoY in Jan-Mar2021, and to over 10% growth in FY2021/22.    

India: Strengthening Recovery Will Defy the IMF's Pessimism on FY2020/21 Growth

India is between a rock and a hard place. The pandemic still rages and yet as a middle-income developing country it simply cannot afford another national lockdown. The economy, which was slowing well before the current crisis, has been severely hit. A quick economic recovery is not in the cards and the next investment-led business cycle upswing has been further delayed. Rising banking-sector NPLs and a burgeoning budget deficit pose additional downside risks. However, the government’s latest labour market and agriculture sector reforms have laid the foundations for a strong and resilient recovery, when it does take root.

India is between a rock and a hard place. The pandemic still rages and yet as a middle-income developing country it simply cannot afford another national lockdown. The economy, which was slowing well before the current crisis, has been severely hit. A quick economic recovery is not in the cards and the next investment-led business cycle upswing has been further delayed. Rising banking-sector NPLs and a burgeoning budget deficit pose additional downside risks. However, the government’s latest labour market and agriculture sector reforms have laid the foundations for a strong and resilient recovery, when it does take root.

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India Treasury (INDIA GOVT)

India's 2020 Reforms Will Usher in a Decade of Spectacular Growth from 2021 On

17% corporate tax rate, an ultra-flexible labour market and performance-linked incentives to exporters will give a big fillip to investment & boost...

Prasenjit K. Basu

Economic Recovery Is Gaining Momentum, but Monetary Stimulus Would Help

Total govt spending rose just 0.4%YoY in Apr-Oct 2020. But in Oct20, tax revenue surged 17%YoY. The falling fiscal deficit will crowd in private...

Prasenjit K. Basu

India - Market Gets Ahead of Itself

If the performance of India’s stock market is anything to judge by the pandemic lasted just a month and the economic fallout was negligible such....

Sharmila Whelan

India: Strengthening Recovery Will Defy the IMF's Pessimism on FY2020/21 Growth

September exports (+6% YoY) and industrial output (+.2% YoY) suggest recovery, and October GST revenue (+10% YoY) an acceleration. CA surplus...

Prasenjit K. Basu

India - Pushing Ahead with Reforms

India is between a rock and a hard place. However, the government’s latest labour market and agriculture reforms have laid the foundations for a...

Sharmila Whelan

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