Economy Analysis

Indian Economy
 
India has emerged as the fastest growing major economy in the world and is expected to be one of
the top three economic powers in the world over the next 10-15 years, backed by its robust
democracy and strong partnerships. India's real gross domestic product (GDP) is expected to grow by
11% in 2021-22 on the back of nationwide vaccine drive to prevent the coronavirus outbreak,
the Economic Survey 2020-21 predicted. As per the survey, the economy is expected to contract by
7.7% 2020-21. The Economic Survey 2020-21 also predicted "V-shaped" economic recovery for the
nation, spurred by COVID-19 vaccination programme.

The Gross Domestic Product (GDP) contracted by a record 23.9 per cent in April-June and by 7.5 per
cent in the second quarter. For the full fiscal year 2020-21, the survey projected a contraction of 7.7
per cent. Real GDP or GDP at Constant Prices (2011-12) in the year 2020-21 is likely to attain a level
of Rs 134.40 lakh crore, as against the Provisional Estimate of GDP for the year 2019-20 of Rs 145.66
lakh crore. The growth in real GDP during 2020-21 is estimated at -7.7 per cent as compared to the
growth rate of 4.2 per cent in 2019-20.With an improvement in the economic scenario, there have
been investments across various sectors of the economy. In 2020, the total deal value in India stood
at ~US$ 80 billion across 1,268 transactions. Some of the important recent developments in Indian
economy are as follows:

 India’s overall exports from April 2020 to November 2020 were estimated at US$ 304.25
billion, (a 14.03% decrease over the same period last year). Overall imports from April 2020
to November 2020 were estimated at US$ 290.66 billion, (a 29.96% decrease over the same
period last year).
 Gross tax revenue stood at Rs. 7.21 trillion (US$ 98.50 billion) in the first six months of FY21.
 FDI inflows in India stood at US$ 39.93 billion between April 2020 and September 2020, 10%
higher than the first six months of 2019-20 (US$ 36.05 billion).
 India’s Index of Industrial Production (IIP) for October 2020 stood at 128.5, against 123.2 for
September 2020.
 Consumer Food Price Index (CFPI) – combined inflation was 9.43% in November 2020,
against 11.07% in October 2020.
 Consumer Price Index (CPI) – combined inflation was 6.93% in November 2020, against
7.61% in October 2020.
 Inflation: CPI inflation fell to a 14-month low of 4.6% in December 2020
For the first time in nine months, CPI inflation at 4.6% in December 2020, was within the
RBI’s inflation target range. Consumer food inflation moderated to a 16-month low of 3.4% in
December 2020.Inflation in fuel and light increased to a nine-month high of 3.0% due to a hike
in the price of domestic LPG.Health services inflation increased to a 15-month high of 6.0% in
December 2020 from 5.6% in November 2020. Vegetable prices contracted by (-)10.4% in
December 2020 as compared to 15.5% in November 2020 led by a sharp contraction in the
prices of onions at a 22-month high level of (-)46.5% in December 2020.

Tax and Non-Tax Revenues

Central government tax revenues have contracted in two successive years in FY20 and FY21
(estimated). Usually, inflation ensures that tax revenues grow in absolute terms year after
year. In the long history of tax revenues from the 1950s, govt.’s gross tax revenues have fallen
in absolute terms in two successive years’ way back in FY53 and FY54. The role of financing
central government expenditure is primarily that of centre’s tax revenues with non-tax
revenues and non-debt capital receipts playing only a supplementary role.

As per the Comptroller General of Accounts (CGA), gross central taxes during April-November
FY21 contracted by (-)12.6% as compared to a low growth of 0.8% during April-November FY20
(Chart 4). Both direct and indirect taxes contracted on a y-o-y basis during the first eight
months of FY21 with direct taxes showing a much steeper decline.

Direct tax revenues contracted by (-)24.4% during April-November FY21 as compared to a

growth of 2.7% in the corresponding period of FY20.

Indirect taxes (comprising union excise duties, service tax, customs duty, CGST, UTGST, IGST5
and GST compensation cess) showed a contraction of (-)2.4% during April-November FY21 as
compared to (-)0.9% during the corresponding period of the previous year.

Growth in central gross tax revenues during April-November (y-o-y, in %)

Govt.’s non-tax revenues showed a contraction of (-)46.6% during the first eight months of
FY21 as compared to a growth of 67.8% during the corresponding period of FY20.
Expenditures: Revenue and Capital

Govt.’s total expenditure during April-November FY21 grew by 4.7% as compared to a growth
of 12.8% during the corresponding period of FY20. Revenue expenditure grew by 3.7% during
April-November FY21, much lower as compared to 13.0% during the corresponding period of
FY20. After contracting up till October 2020, govt.’s capital expenditure showed a growth of
12.8% during April-November FY21 as compared to 11.7% in the corresponding period of
previous year.

Growth in Government expenditures during April-November (y-o-y, in %)

Demand conditions in both industrial and services sectors moderated sharply in November
2020. In the agricultural sector, however, demand conditions showed some improvement
during the month. Agriculture sector is estimated to see a growth of 3.4 per cent in 2020-21.
However, it will be lower than 4 per cent growth recorded in 2019-20. In the current fiscal,
manufacturing sector is likely to see a contraction 9.4 per cent whereas growth was almost flat
at 0.03 per cent in the year-ago period.

Industrial growth indicators (annual, quarterly and monthly growth rates, y-o-y)
Monetary Policy

After having aggressively lowered the repo rate by 115 basis points between February and May
2020, the RBI has retained the repo rate at 4.0% till date as CPI inflation has remained elevated
(Chart 24). As per the RBI, the factors that were responsible for keeping CPI inflation above the
upper limit of the inflation target range include supply side disruptions, elevated taxes on petroleum
products by both center and states, a sharp increase in international commodity prices and high
retail margins.

Movements in the repo rate and 10-year government bond yield

In RBI’s assessment, the arrival of winter crops, particularly vegetable crops, and gradual restoration
of supply side issues may lead to a moderation in CPI inflation in the coming months. In addition,
bumper kharif arrivals and a favorable rabi sowing is expected to keep prices of cereals under check.

Interest rates

As per the data released by the RBI on 15 January 2021, interest rates offered by commercial banks
on term deposits with a maturity of more than one year averaged 5.20% for the second consecutive
month in December 2020 (ranging from 4.90% to 5.50%).

The MCLR has fallen gradually from 7.74% in January 2020 to 6.84% in December 2020, a fall of only
90 basis points. On the contrary, interest rate on term deposits with a maturity of more than one
year fell by 233 basis points during the same period.

The average yield on 10-year government bond remained at 5.89% in December 2020 for the second
consecutive month. Despite RBI’s continued interventions, benchmark bonds yields remained at the
same level on average. Further, the spread between benchmark bond yield and the repo rate
continued to be sticky at around 196 basis points on average during April 2020 to December 2020 as
compared to an average of 134 basis points during the corresponding period of previous year

FDI and FPI

Net FDI inflows increased to US$5.7 billion in November 2020 from US$4.6 billion in October 2020
(Chart 26). Gross FDI inflows were at US$10.2 billion in November 2020, increasing from US$6.8
billion in October 2020.
 Net FDI and FPI inflows (US$ billion)
Foreign Portfolio investments (FPIs) recorded its highest monthly net inflows amounting to US$9.4
billion in November 2020 as compared to US$2.9 billion in October 2020.

CAB : Current account posted a surplus of 2.4% of GDP in 2QFY21

Developments in merchandise trade

CAB

Current account recorded a surplus for the second consecutive quarter at 2.4% of GDP in 2QFY21 as
compared to 3.8% in 1QFY21 . Net merchandise trade deficit was at 2.3% of GDP in 2QFY21,
marginally higher than 2.1% in 1QFY21 (Table 5). Merchandise exports relative to GDP improved to a
six quarter high of 11.9% in 2QFY21 from 10.4% in 1QFY21. Merchandise imports relative to GDP
were at 14.2% in 2QFY21 as compared to 12.6% in 1QFY21. Net invisible receipts fell to 4.8% of GDP
in 2QFY21 from 6.0% in 1QFY21 reflecting the moderation in net service exports to 3.3% of GDP.
Global Economy

The World Bank (Global Economic Prospects, January 2021) estimated a global contraction of (-)3.6%
in 2020. GDP contraction is estimated to be sharper at (-)5.4% for AEs (due to the occurrence of
second wave of COVID) as compared to (-)2.6% for EMDEs (due to a faster than expected recovery in
China)

Global Growth Projection (%)

In the US, a contraction of (-)3.6% is estimated for 2020 followed by a growth of 3.5% in 2021.
Activity is expected to strengthen in the second half of 2020 and firm further in 2021 as improved
COVID management, aided by ongoing vaccination is likely to ease the pandemic-control measures.

A contraction of (-)7.4% in 2020 is estimated for the Euro area due to the resurgence of COVID in
many member countries. Growth is expected to recover to 3.6% in 2021 helped by an initial vaccine
roll-out, and rising external demand, particularly from China.

India is estimated to contract by (-)9.6% reflecting a sharp fall in household spending and private
investment. The pandemic disproportionately affected activity in the services sector. Growth is
forecasted to recover to 5.4% in 2021 as rebound from a low base is offset by subdued private
investment growth given financial sector weaknesses.

China is estimated to grow by 2.0% in 2020 enabled by effective control of the pandemic and public
investment led stimulus. Growth is projected to increase sharply to 7.9% in 2021.

Global crude price increased to a 10-month high of US$48.7/bbl. in December 2020

Global Crude & Coal Prices

Average global crude price10 increased to a 10-month high of US$48.7/bbl. in December 2020 due
to the OPEC+ agreement on supply cuts and buoyant demand from Asia. Global crude price averaged
US$43.6/bbl. in 3QFY21, increasing from US$42.0/bbl. in 2QFY21. Average global coal price
increased sharply to a 21-month high of US$84.1/mt. in December 2020. This was due to a strong
Asian demand owing to the region’s economic recovery and the winter season, and tight global
supplies brought about by China’s import of non-Australian coal12

Global trade volumes are projected to contract by (-)10.3% in 2020. A modest rebound to 3.9% is
projected for 2021 due to a weak recovery in investment as also in international travel and tourism.
Except for Brazil, all economies are projected to show a contraction in their export volumes in 2020.
Countries that are expected to show a contraction of above (-)10% include South Africa, Japan, US,
UK, Germany and India.

Export volumes of goods and services (% change)

As growth improves, export volumes are projected to recover in 2021 and 2022. However,
uncertainty relating to the ratification of UK–EU Withdrawal Agreement may lead to an adverse
impact on UK’s export performance. A growth of (-)10.7% projected for India’s export volumes in
2020 is the lowest since at least 2003

Forecast of Indian economy

The Indian economy is expected to now emerge from the COVID induced recession. India witnessed
an unprecedented contraction in its real GDP at (-)23.9% and (-)7.5% in 1Q and 2Q of FY21
respectively. India's GDP is expected to reach US$ 5 trillion by FY25 and achieve upper-middle
income status on the back of digitization, globalization, favourable demographics, and reforms. India
is also focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy
from non-fossil sources by 2030, which is currently 30%, and have plans to increase its renewable
energy capacity from to 175 gigawatt (GW) by 2022.

Many financial services firm such as Nomura has projected India to be the fastest-growing Asian
economy in 2021, with an estimate of 9.9% GDP growth, adding that the near-term risks of a
resurgent pandemic are unlikely to derail growth. DBS Bank projected gross domestic product (GDP)
growth at 7.6% in 2021, among the fastest in the region after a 7.4% contraction in 2020. In its global
economic analysis report, V(accine)-Shaped Recovery, investment bank Goldman Sachs reiterated its
projections for India’s GDP growth for 2021 at 10%, the highest among major economies around the
world. It expects India’s GDP to have shrunk almost 9% in in calendar year 2020.

India is expected to be the third largest consumer economy as its consumption may triple to US$ 4
trillion by 2025, owing to shift in consumer behavior and expenditure pattern. A strong recovery is
expected in FY22 both because of base effects and policy initiatives.
 Industry Analysis( Healthcare & Diagnostics)

 Industry characteristics

With the rapid growth of the Indian economy in recent times and the changing demography and
socio-economic mix of the Indian population, there has been an immense change to the healthcare
requirements in the country. Over the years, the public and private sectors have helped in
addressing the health needs of the country, paving way for India’s progress on key health indicators
like life expectancy and infant mortality. Diagnostics is one of the primers of the whole spectrum of
healthcare delivery system, paving path for enriched healthcare experience to masses.

Technology is changing the landscape of almost every industry vertical. There has been a lot of start-
up activity across various verticals in the health sector as well. The volume growth in e-commerce
transactions is driven by ease of use, convenience: door step delivery, convenience: online
payment /COD and multiple choice options. The healthcare segment is relatively untapped e-
commerce segment and has tremendous potential in terms of revenue growth and overcoming the
challenges of this industry. A number of players have come up in the market and offer e-commerce
solutions on access, affordability, cost comparison, information database and much more to this
sector.

Since there are no established regulations that authorizes minimum standards in terms of quality,
technology, infrastructure and qualification of personnel for setting up and running a diagnostic lab,
the diagnostics sector is swarmed with a gamut of small labs to bridge the gap between the supply
and demand. As per research, the unorganized players with varying standards and practices are
dominating 88-90 per cent of the diagnostics industry.

The Indian Diagnostic services market is segmented on the basis of diagnostic tests and diagnostics
laboratories. On the basis of diagnostic tests, the Indian Diagnostic Services market is segmented
into:

A) Pathology Tests
B) Radiology Tests

On the basis of diagnostic laboratories, the Indian Diagnostic Services market is segmented into:

A) Diagnostic Laboratories
B) Polyclinics and Independent Diagnostic Laboratories
C) Online Diagnostic Laboratories

Pathology contributes the highest market share followed by the imaging segment. Among the
various segments of the pathology market, Clinical Biochemistry holds the highest market shares
followed by haematology & others.

 Industry life cycle analysis including identification of the stage with proper
justification

The market is highly fragmented with only four major PAN-India level players. It is still at its’ growing
stage. However, the unorganized sector dominates the market’s revenue currently. The highest
penetration of the labs is in Tier I cities, which is also the place for their reference labs. Digitalisation
in the chain of diagnostics has helped remove mistakes from the time the samples have been
collected to the last process of delivering the report to the customer. The major drivers for this
market include the high elderly population and the shift from non-communicable to communicable
diseases in India. Radiology test market has evolved over time with the advancement in the existing
technology of imaging machines such as PET-scan which added more clarity in the diagnosis of the
patient’s disease. Whereas for pathology, the segment has gained dominance in the market owing to
the fact that it is the preferred line of diagnosis for the majority of diseases prevalent in India
including infectious diseases.

 Industry competitiveness analysis

ers with larger players acquiring smaller players helping the organized sector grow. It also facilitates
a larger reach and more comprehensive test menus. There are majorly four PAN-India players which
are well established in the market, they include Dr. Lal Pathlabs, Thyrocare Technologies, Metropolis
Healthcare and SRL Diagnostics. These labs give utmost focus on research and development in order
to introduce new and less invasive tests.

 Investment potential in this industry

 Growth of 3D printing, which allows radiologists and clinicians to bring to life body parts
and tumors which were previously available only as flat diagrams, will help revolutionize
the market. India is set to increase its public health spending to 2.5% of its GDP by 2025
which would help cut down on out of pocket expenditure on healthcare services. This
would be a major boost to the diagnostic sector of the industry.