Mumbai, India's real <keyword id="44910" type="General" weightage="20" keywordseo="gdp-growth" source="Orion">GDP growth</keyword> will moderate to 6.5 per cent in FY25, mainly due to global headwinds, <keyword id="6355975" type="General" weightage="20" keywordseo="axis-bank" source="Orion">Axis Bank</keyword>'s chief economist <keyword id="926117" type="General" weightage="20" keywordseo="neelkanth-mishra" source="Orion">Neelkanth Mishra</keyword> said on Monday. India's GDP is 7 per cent lower than what it would have been if the pre-pandemic GDP growth trend had continued, Mishra added. It can be noted that last Friday, the Reserve Bank sharply upped its FY24 growth estimate to 7 per cent from the earlier 6.5 per cent. Mishra also pegged the FY24 growth at 7 per cent with upside risks. For FY25, he expects a moderation in the real GDP growth to 6.5 per cent, Mishra said, attributing the same to an intensification of global headwinds in the near future. He said the <keyword id="4644154" type="General" weightage="20" keywordseo="domestic-activity" source="Orion">domestic activity</keyword> is resilient, and the global growth is already proving to be a drag, and added that the same is likely to worsen going ahead. Mishra explained that in the US, the largest economy in the world, the growth is being boosted by fiscal deficit and predicted the long-feared recession to be a reality. "Recession in the US is delayed, not deferred," he said, terming the situation around the fiscal deficit in the US as his biggest concern. The chief economist said he is alarmed by the lack of discussion on this critical aspect, stating that the US fiscal challenges are underappreciated. The US has adopted a pro-cyclical policy stance rather than being the more prudent counter-cyclical one adopted by countries like India, Mishra said. The world has to get used to the "policy inversion" in the US, and the scarcity in dollars, Mishra said, adding that the latter will impact even a country like India. He said while India could easily fund USD 70 billion of a current account deficit, funding even USD 30-40 billion will now get hard. The general elections in India will not lead to much of a change in the policy direction, Mishra said, adding that if he were a corporate, he would decide to start investing soonest because of the demand. He pointed to power generation - coal-based and renewable - as one of the investment areas and added that capital expenditure is already happening in many areas. The Reserve Bank is unlikely to cut its repo rate through 2024 on the volatile food inflation, he said, adding that the headline number will cool down in the year. The government is likely to cut the fiscal deficit by 0.70 per cent each in FY25 and FY26 to meet its stated target of getting the number down to 4.5 per cent, he noted. Foreign rating agencies are unlikely to upgrade the country's rating even if the fiscal gap narrows, he said, adding that there is a need for a lowering in the high debt-to-GDP ratio.

GDP growth will moderate to 6.5% in FY25 on global headwinds: Axis Bank

<img class="gwt-Image" src="/photo/27957650.cms" /> <keyword id="6361649" type="CITY" weightage="40" keywordseo="Goldman-Sachs">Goldman Sachs</keyword> has Modi-fied its view of the <keyword id="6356076" type="UNKNOWN" weightage="40" keywordseo="indian-economy">Indian economy</keyword>. <keyword id="46431" type="CITY" weightage="40" keywordseo="India-Inc">India Inc</keyword> is rubbing its hands in unabashed glee. Two weeks ago, the benchmark stock indices hit their alltime high levels. Brokerage houses are goading clients to invest lest they miss the bus. 
 All this is based on hopes that the BJP-led NDA will emerge victorious in the 2014 polls and that <keyword id="6354477" type="PERSON" weightage="40" keywordseo="Narendra-Modi">Narendra Modi</keyword>, superlatively described by <keyword id="140092" type="POSITION" weightage="40" keywordseo="investment-banker">investment banker</keyword> CLSA as the ‘greatest hope’ for the Indian <keyword id="35199" type="UNKNOWN" weightage="40" keywordseo="stock-markets">stock markets</keyword>, will become the <keyword id="71" type="POSITION" weightage="40" keywordseo="Prime-Minister">prime minister</keyword>. The groundswell of support for the BJP in the recent state elections has reinforced these expectations. 
 The <keyword id="6484188" type="CITY" weightage="40" keywordseo="Sensex">Sensex</keyword> surged 330 points after the state election results, unmasking the political stance of the investor community. The <keyword id="6355302" type="ORGANIZATION" weightage="40" keywordseo="Rupee">rupee</keyword> appreciated sharply against the dollar and bond yields climbed down. In its report, Goldman Sachs asserts, “The BJP and Mr Modi, in particular, have been focused on infrastructure and capital spending in the past, and a BJP-led government may be beneficial for the investment demand pick-up.” Many others concur with the assessment. This is what’s driving the markets now. 
 
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 Are these expectations running ahead of the ground reality? Can the election results really make a difference to the fundamentals that drive stock prices? How should investors play the stock markets, both in the run-up to the elections and afterwards? Our cover story this week attempts to answer these questions and tell you how to handle your equity <keyword id="6362476" type="ORGANIZATION" weightage="40" keywordseo="investments">investments</keyword> in this election year. 
 
Great expectations 
 Barely five months from now, India will elect the 16th <keyword id="6355187" type="ORGANIZATION" weightage="40" keywordseo="Lok-Sabha">Lok Sabha</keyword>. Given the backdrop of the slowdown, these elections assume greater significance. It is not surprising to hear the growing demand for a change in government. Says Chandresh Nigam, managing director and CEO, Axis Mutual Fund: “The stock markets seem to have a singular expectation for now—the formation of a stable government after the elections.” Not everyone is convinced that India’s economic problems will be cured in a new political environment. There are also voices arguing that investors are reading too much into the political developments. They say that elections do not impact the markets much, and that the outcome should not matter to a long-term equity investor. Neelkanth Mishra, India equity strategist, <keyword id="48085" type="CITY" weightage="40" keywordseo="Credit-Suisse">Credit Suisse</keyword>, argues that elections are overhyped and while the outcome is likely to drive volatility due to the expectations, it may have a limited near-term impact on the <keyword id="34412" type="ORGANIZATION" weightage="40" keywordseo="economy">economy</keyword> and corporate earnings. 
 
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	&#xa0;</div> “Even though it may seem intuitive that election outcomes drive <keyword id="35050" type="CITY" weightage="40" keywordseo="gdp">GDP</keyword> growth and market performance, our research suggests almost no correlation between the extent of government fragmentation at the Centre and economic growth during its tenure” (see table). Besides, it may be too optimistic to expect that the policy actions taken by the new government will have an immediate impact. “Our analysis of past reforms suggests that it takes 6-8 years, on an average, for any intention of the <keyword id="6357307" type="ORGANIZATION" weightage="40" keywordseo="Central-Government">Central government</keyword> to translate into jobs or meaningful economic growth,” asserts Mishra. 
 
However, markets don’t wait for events to happen and discount them early on. 
 
However, sentiments can carry the markets only so far. So, while the current positive mood will play a pivotal role and drive the markets in the near term, the rally will not be sustainable without the fundamentals matching the expectations. Only an improvement in the investment cycle can revive the economy. Sonal Varma and Aman Mohunta of Nomura point out, “The state elections are likely to boost sentiment, but they should not have any immediate impact on the fundamental outlook. India’s economic growth is bottoming out, but weak domestic demand amid tighter fiscal and monetary policies is likely to prevent any meaningful take-off.” 
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 As far as the macro indicators go, the economy is still going through the motions. Even though the September quarter saw a marginal improvement in the GDP growth over the previous quarter, it is still near its 10-year low. The government has managed to control the current account deficit primarily by restricting <keyword id="18712" type="ENTERTAINMENT" weightage="40" keywordseo="Gold">gold</keyword> imports. It is expected to remain around 4% of the GDP in 2014, down from a high of 4.9% in October. 
 The other data paints a worrying picture. Industrial production declined by 1.8% in October, as against the 2% growth registered in September. <keyword id="22195" type="COMPANY" weightage="40" keywordseo="Inflation">Inflation</keyword> continues to rage, with November data showing a disturbing 7.52% spike in the WPI along with a surge in the CPI to 11.24%. The RBI has not hiked rates this time, but if <keyword id="101998" type="UNKNOWN" weightage="40" keywordseo="high-inflation">high inflation</keyword> persists, it will be left with no option. 
 
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 Another argument against fixation on a particular leadership is the historical continuity in reforms. In the past, reforms have come through irrespective of the party in power. For instance, some major economic reforms happened when the much-hated Third Front was in power (see page 16). For all its perceived shortcomings, even the incumbent <keyword id="26374" type="ORGANIZATION" weightage="40" keywordseo="UPA-government">UPA government</keyword> has pressed through some desirable reforms, such as the hike in diesel prices, as well as some key reforms in the <keyword id="6354432" type="UNKNOWN" weightage="40" keywordseo="pension">pension</keyword> and <keyword id="35450" type="COMPANY" weightage="40" keywordseo="insurance">insurance</keyword> space. 
 Experts agree that a stable government is more important than the party that comes to power. Nandkumar Surti, managing director and CEO, <keyword id="63460" type="CITY" weightage="40" keywordseo="JP-Morgan">JP Morgan</keyword> Asset Management, says, “The importance of the election outcome, in the long run, depends solely on the type of government that comes to power. As long as we have a stable and strong government that implements reforms for economic growth, we will witness an upsurge in the economic climate of the country.” 
 
How can expectations be derailed? 
 Even so, several factors could thwart the expectations of a sweeping change. Despite the anti-incumbency wave, which was visible in the state elections, it may not actually turn out to be a clear victory for the BJP. As Nomura points out, “State election outcomes are not always a reliable indicator of the general election prospects. Even if antiincumbency proves to be a core theme in the 2014 general election, it does not follow, of course, that the BJP would necessarily be the main beneficiary.” For instance, the newly formed <keyword id="6354944" type="ORGANIZATION" weightage="40" keywordseo="Aam-Aadmi-Party">Aam Aadmi Party</keyword> has already demonstrated its ability to take away a chunk of the anti-incumbency votes that would have otherwise gone to the BJP. 
 
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	&#xa0;</div> Also, even if the BJP secures the highest number of seats in the Lok Sabha elections, it may still have to depend on its coalition partners to form a government. A rainbow government may not be able to implement some of the controversial, but desirable, reform measures; this was the trouble that plagued the incumbent UPA no end. Dipen Shah, senior vice-president, private client group research, <keyword id="66607" type="CITY" weightage="40" keywordseo="Kotak-securities">Kotak Securities</keyword>, says, “Only a clear mandate and a stable coalition will be able to take definite steps to provide the required impetus to the economy.” 
 
If there is a stable government after elections, it will take away a lot of uncertainty associated with the economy and support any recovery in the future. Of course, this is assuming that the ruling party will earnestly take up the cause at all. It remains to be seen whether the incoming party will have the resolve to take tough decisions, including those on diesel price decontrol, removal of subsidies, etc. 
 
External risks could also play spoilsport. First is the threat of a downgrade of the Indian economy by global ratings agencies. S&amp;P already has a ‘negative’ long-term outlook on India, the only one of the three rating agencies with this view. It has now warned of the possibility of a further downgrade in case of a hung Parliament or failure of the incoming government to push through key reforms. This would give government bonds ‘junk’ status, which can have very serious, negative implications for the economy. 
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 A rating downgrade would not only cause a flight of <keyword id="136566" type="UNKNOWN" weightage="40" keywordseo="foreign-capital">foreign capital</keyword> but also push up the overseas borrowing costs of Indian companies. If the present government decides to do away with its fiscal consolidation efforts in favour of more populist, welfare-oriented measures to win over voters, India may move closer to a ratings downgrade. A Uturn on the diesel price hikes, for instance, may appeal to <keyword id="1009187" type="UNKNOWN" weightage="40" keywordseo="the-middle">the middle</keyword> class, but will be frowned upon by rating agencies. 
 The second threat is from the winding down of the <keyword id="117388" type="ORGANIZATION" weightage="40" keywordseo="US-Fed">US Fed</keyword>’s asset purchase programme. We saw how initial news of the tapering impacted the rupee between May and August this year. Now that it is official, the rupee may go through another bout of volatility. Along with these known external risks, the unknown uncertainties surrounding the domestic political developments could derail the expectations. In short, the market’s enthusiasm over the BJP coming to power may well be misplaced. 
 
What you should do 
 Whatever the outcome, it is a given that the stock markets will be heavily influenced by political developments till the elections and afterwards as well (see graphic). We would caution investors to temper their expectations and not be carried away with the upbeat mood. As Nomura cautions, “We think that chasing the rally is not prudent, as it remains to be seen how the incumbent party will react to its poor showing in the state elections.” Investors may remain hopeful, but should avoid giving in to the euphoria. If those hopes are not realised, the market reaction may be adverse, opines Pankaj Pandey, head of research, <keyword id="46909" type="CITY" weightage="40" keywordseo="ICICI-securities">ICICI Securities</keyword>. What then should be your stock strategy? 
 
Do not wait for election outcome 
 Some investors may be planning to stay out of the market till the elections are done with and clarity emerges. This may not be the best approach. As mentioned earlier, the markets don’t wait for events to happen. They would have already taken a course by the time the results are out. Surti insists, “The risk-reward equation is quite favourable right now and this is an opportune time for investors to start allocating to <keyword id="45369" type="CITY" weightage="40" keywordseo="equities">equities</keyword> in their portfolios.” This is not to suggest that investors should jump headlong into the markets now; they should merely take a measured exposure, instead of avoiding <keyword id="6354298" type="ORGANIZATION" weightage="40" keywordseo="stocks">stocks</keyword> altogether. 
 As Pandey suggests, “Investors can remain light on stocks for the time being and invest in a staggered manner in the coming months.” However, be prepared for higher volatility as the markets are likely to be on tenterhooks till the results are out. Investing in equity <keyword id="6357979" type="ORGANIZATION" weightage="40" keywordseo="mutual-funds">mutual funds</keyword> through the <keyword id="35471" type="ORGANIZATION" weightage="40" keywordseo="SIP">SIP</keyword> route is the ideal way to deal with this volatility. 
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Gain exposure to cyclicals 
 A few stocks shot up after the state poll results (see table). It would be too early to view this as a clear trend. Most economic indicators show that there is a long way to go for a turnaround in the investment cycle. However, you should catch hold of certain investment themes that are likely to play out in the event of an economic recovery and possible pick-up in investments. Besides, it is time that investors gradually lowered their exposure to overvalued defensive stocks and started adding cyclicals to their portfolio over the coming months. Many stocks in the capital goods, banking and auto sectors are available at cheap valuations. It is now a good entry point for those looking to invest for the next 3-5 years or more. Nomura asserts, “We expect market gains to be led by high-beta domestic cyclicals (banks and industrials, mainly) and expect defensives (<keyword id="34523" type="CITY" weightage="40" keywordseo="fmcg">FMCG</keyword>, pharma, telecom and IT services) to underperform.” It believes the banking sector will benefit the most from a new regime. Shah believes, “The new government is likely to focus on boosting investments, which could help in reviving the economy. In that event, select companies in the capital goods and infrastructure segments would do well.” 
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Do not let go of defensives 
 
While defensive sectors are expected to underperform, don’t exit these sectors completely. Any turnaround in the economy will take some time to fructify. “We do not expect a pick-up in the investment cycle in the next two to three years,” insists Mishra. This means shifting completely in favour of economy-sensitives may not be a good strategy at this point. However, Mishra expects income growth at the bottom of the income pyramid to stay robust, which bodes well for the consumption sector. Defensives (consumer staples and pharma) and export themes (IT services) remain a good play given the struggling economy and weak currency. Shah says, “Investors should have a mix of defensives and economy-sensitives in their portfolios.” However, investors should avoid defensive stocks quoting at high valuations. 
 
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Stock Strategy For An Election Year

<ul><li><keyword id="129243" type="PERSON" weightage="20" keywordseo="Nirmala-Sitharaman">Nirmala Sitharaman</keyword>'s budget said that it would increase the number of free-floating shares, the ones that are available to public including foreign portfolio investors.</li><li>The budget proposal said that amount of mandatory free float will be increased to 35% of all shares of a company from the current 25%.</li><li>This would mean promoters of companies will have to sell shares worth ₹3.7 trillion, according to Credit Suisse's Neelkanth Mishra.</li><li>Such high quantities of shares on sale will drive down stock prices before they stabilise. </li></ul> Nirmala Sitharaman's latest budget said that it would increase the number of free-floating shares, the ones that are available to public including foreign portfolio investors. The budget proposal said that amount of mandatory free float will be increased to 35% of all shares of a company from the current 25%. This would mean promoters of companies will have to sell shares worth ₹3.7 trillion, according to Neelkanth Mishra, co-head of Asia Pacific strategy at global investment bank Credit Suisse. "This transition may cause some volatility in the equity markets — nearly Rs 3.7 trillion of equity would need to be sold by promoters — but a reasonable time-frame to reach this threshold should minimise that," <a href="https://indianexpress.com/article/opinion/columns/opening-a-window-fiscal-deficit-target-union-budget-2019-5819761/" data-type="tilCustomLink" target="_blank">he said in a opinion piece</a>. Some of the fear is already visible in the market. Sensex lost nearly 400 points on Friday after the budget was revealed. The first hour of trade on Monday saw deeper cuts on the benchmark index. While a number of factors are at play, the market seems to be wary of the short term impact of the various budget provisions. The upside The government's move to increase the free float is aimed at getting more foreign investors into India. "The theoretical maximum that foreigners can buy affects the weight a country has. The “Foreign Inclusion Factor” for India, which is amongst the lowest in the world, should increase meaningfully once this change is implemented. A higher weight in the benchmarks means greater equity portfolio flows to the country," Mishra explained. Assets of foreign portfolio investors-- those investing in shares and bonds-- <a href="https://www.thehindubusinessline.com/opinion/columns/quality-of-fpi-inflows-is-improving/article28273906.ece" data-type="tilCustomLink" target="_blank">increased by over </a>₹3 trillion between February and May 2019. Word of caution However, India has to wary not to overheat the market with fleeting foreign capital. When a strong gush of dollars enter any country, it leads to higher inflation. Similarly, the hot money tends to leave the country at the first sign of any trouble, leading to a huge crash. SEE ALSO: <a href="https://www.businessinsider.in/kotak-mahindra-bank-share-price-top-losers-on-the-nifty-after-rbi-fine-on-uday-kotak/articleshow/69721330.cms" data-type="tilCustomLink" target="_blank">Kotak Mahindra Bank has lost nearly half a billion dollars in market cap after the billionaire promoter was fined by the RBI</a>

Owners of Indian companies may have to sell ₹3.7 trillion worth shares to meet the budget mandate-- and that may drive down stocks rapidly

(Eds: Minor edit in header) New Delhi, Jun 26 () The advisory council to the 15th Finance Commission has discussed the impact of restrictions imposed due to the COVID-19 pandemic on tax revenue and possibilities for establishing a debt consolidation road map. In the virtual meetings with the Finance Commission on June 25-26, the Advisory Council felt that the impact of the pandemic on the economy and on the fiscal positions of the Union and state governments is still highly uncertain. "The advisory council also discussed the adverse implications of constraints in the economy on tax revenue collections of the union and state governments. While noting that tax collections can be considerably affected by the pandemic, some members of the council indicated the impact of the pandemic on tax collections may also be asymmetric," an official statement said. Data released last month showed the central government's fiscal deficit surged to 78 per cent of Budget estimates to Rs 2.79 lakh crore in April as tax revenues slumped on account of the nationwide lockdown. The Budget for 2020-21 had projected the fiscal deficit at Rs 7.96 lakh crore, or 3.5 per cent of GDP. The advisory council also discussed implications on the deficits and debt of the general government along with constraints and possibilities for establishing a path for consolidation of public debt, post the pandemic. "On the expenditure side, governments will have substantial expenditure burden on account of health, support to poor and other economic agent," the members said. The nationwide lockdown imposed to curb the spread of pandemic has severely impacted the economic activity. The meeting was chaired by 15th Finance Commission Chairman N K Singh, and attended by all members and senior officials of the Commission. From the advisory council, Chief Economic Advisor Krishnamurthy Subramanian, Sajjid Z Chinoy, Prachi Mishra, Neelkanth Mishra and Omkar Goswami and special invitee Rathin Roy attended the meeting on June 25. While Arvind Virmani, D K Srivastava, M Govinda Rao and Sudipto Mundle from the advisory council, along with Shankar Acharya and Pronab Sen, attended the meeting on June 26. "Many analysts and think-tanks have reduced their GDP growth projections for 2020-21. Due to ongoing social distancing measures in place and local level restrictions in many places, supply chains are not yet fully restored, which affects recovery process," it said. JD MKJ MKJ

FinComm's advisory council discusses possibility of debt consolidation road map post COVID-19

Mumbai, Dec 17 () India missed the bus by not turning gains of lower inflation into low interest rates, which is pricking the economy on the growth front, a member of the economic advisory council to PM (EAC-PM) said on Tuesday.
Efforts should be mounted to lower the interest rate burdens for borrowers, and RBI's pause had a "terrible" effect of costs for a third of borrowers going up by 0.25 per cent, Neelkanth Mishra, who is also the India strategist for Swiss brokerage Credit Suisse, said.
The comments from Mishra, who is a part-time member of the Prime Minister's advisory council, come at a time when GDP growth has slid to a six-year low of 4.5 per cent for the September quarter and there have been a rash of downward cuts by analysts.
"The origin of this (economic growth slowdown) is our inability to follow through on our success in controlling inflation through lower interest rates," Mishra said, speaking at the India Economic Conclave organised by the Times Network here.
He said inflation used to average over 7 per cent for over 60 years, and has come down 3.7 per cent over the last three-four years.
Mishra said it is not possible for the nominal GDP to grow at 14-15 per cent in order to help push up the real growth rates higher, which is the number after adjusting for inflation.
He said merely solving the troubles in the financial sector will not help the situation, and bringing down the effective rate of interest paid by borrowers is the need of the hour and expressed his displeasure at RBI.
"Because of the no cut response (by RBI) last week, the interest rates for nearly a third of the Indian financial system have gone up 0.25 per cent. In a slowing economy, I think that is terrible," he said.
Apart from interest rates, India also needs to look at the capacity of banks to fuel the credit growth, he said, pointing out that the state-run lenders who were used to writing fat loan cheques may not be able to do so.
Meanwhile, speaking at the same event, fellow member on the PM's panel and head of Kotak AMC Nilesh Shah said India needs to Encourage entrepreneurship, provide them enough capital at reasonable cost and enforce the rule of law for bettering its economic prospects. AA MKJ

Inability to turn benign inflation into low interest rates hurting growth: EAC-PM

NEW DELHI: The <keyword id="6354977" type="ORGANIZATION" weightage="20" keywordseo="Supreme-Court">Supreme Court</keyword> on Monday ask<keyword id="12163" type="COMPANY" weightage="20" keywordseo="Ed">ed</keyword> the Enforcement Directorate (ED) to attach Indian properties of <keyword id="63460" type="CITY" weightage="20" keywordseo="JP-Morgan">JP Morgan</keyword>, which engaged in transaction with the now defunct <keyword id="6357201" type="PERSON" weightage="20" keywordseo="amrapali">Amrapali</keyword> Group to allegedly siphon off home buyers money in violation of the Foreign Exchange Management Act (FEMA) and FDI norms. ED said it has prima facie found that there was violation of FEMA norms by the US-based JP Morgan and a complaint in this regard has been lodged. As per the Share Subscription Agreement, JP Morgan had invested Rs 85 crore on October 20, 2010 to have a preferential claim on profits in the ratio of 75 per cent to JP Morgan and 25 per cent to promoters of Amrapali Homes Project Private Limited and Ultra Home. Later, the same number of shares were bought back from JP Morgan for Rs 140 crore by two companies M/s Neelkanth and M/s Rudraksha, owned by a peon and an office boy of Amrapali's statutory auditor Anil Mittal. A bench of Justices Arun Mishra and U U Lalit was told by ED joint director Rajeshwar Singh, who is supervising the probe against JP Morgan, that the MNC remitted the money back to the USA. "They (JP Morgan) have lot of properties in India. We want you to attach their office or corporate properties of like amount. Then they will come running to us and we will see to it," the bench said. Singh said that now the adjudication process against the firm has begun as per the law. The bench also allowed the ED to take into custody defunct group's chairman and managing director Anil Kumar Sharma and other two directors Shiv Priya and Ajay Kumar, who are behind bars on the top court's order for interrogation under alleged money laundering offences. It said that the ED can take them into custody immediately and once interrogation is over, they can be put back into jail here.

SC orders ED to attach corporate properties of JP Morgan for violation of FEMA in Amrapali case

New Delhi, Apr 24 () The economic advisory panel of the 15th Finance Commission has suggested that the government should look to support small enterprises and avert bankruptcies in the financial sector as part of the fiscal response to deal with the coronavirus crisis. At its two-day meeting held via video conferencing, the members of the Advisory Council felt that the shortfall in tax and other revenues will be large due to subdued economic activity and hence the fiscal response to the crisis should be much more nuanced. "It is important not just to look at the size of fiscal response but also carefully at its design... The Advisory Council also felt that the magnitude of the impact of these developments on public finances is uncertain, but will certainly be significant. "Governments will have substantial expenditure burden on account of health, support to poor and other economic agents," an official statement issued after the meeting said. The council felt that the COVID-19 pandemic and the national lockdown would slow down domestic activity and impact cash flows of financial institutions and businesses, besides loss of global demand for Indian products because of a steep global recession. "All of them were unanimous to suggest that the projections of real GDP growth made before March 2020 need to be relooked into entirely, and, revised downwards considerably. "Once the lockdown of the economy is released, the recovery can only be excepted to be gradual, depending on the ability of the workforce to get back to work soon, restoration of supplies of intermediates and cash flows and, of course, the demand for output. Therefore, the full magnitude of the economic impact of Covid will only be clear only over a course of time," the statement said. Among the suggestions made to the commission, the council members said small scale enterprises were cash-starved even prior to the onset of the pandemic. "As their activity levels and cash flows are affected, it is important that a support mechanism be devised to help them overcome this problem," it said. Also, non-banking financial companies are affected by the slowdown and in order to avoid bankruptcies and deepening of NPAs in the financial sector, measures should be appropriately designed. Measures like partial loan guarantee may help. The Reserve Bank of India will have a key role in ensuring that financial institutions are well-capitalised, the council members suggested. Also the finances of the central and state governments need to be watched carefully in the wake of increased spending to fight the pandemic. "As we move ahead, we need to think of options for financing the additional deficit. It is important to ensure that the State governments get access to adequate funds to undertake their fight against the pandemic," it added. Besides the healthcare cost, the government is also faced with the additional burden of giving booster or stimulus to sectors and industries hit by the nationwide lockdown. The lockdown that began on March 25 was last week extended till May 3. Late last month, the government had announced a Rs 1.7 lakh crore stimulus package comprising free foodgrains and cooking gas to poor and cash dole to poor women and elderly. A second package, aimed at industries, is said to be in the works and will likely be announced shortly. Several international agencies including IMF and the World Bank have cut India's growth forecast over concerns about the fallout of the COVID-19 pandemic. The International Monetary Fund (IMF) has slashed India's GDP growth projection to 1.9 per cent in 2020 from 5.8 per cent estimated in January, as the global economy hits the worst recession since the Great Depression in the 1930s due to the raging coronavirus pandemic. Similarly, the World Bank has estimated India's economy to grow between 1.5 to 2.8 per cent in the 2020-21 -- the worst growth performance since the 1991 liberalisation. Fitch has projected India's GDP to grow at 0.8 per cent this fiscal, while S&amp;P pegs it at 1.8 per cent and Moody's at 2.5 per cent in 2020. These growth estimates compare to an estimated 5 per cent growth rate in 2019-20 fiscal that ended on March 31. India's economy also grew by 5 per cent in 2019 calendar year. The council also felt that it is likely that different states may come out of the severity of the impact of the pandemic in different stages. Hence, the revival of activity in different states will be at varied pace, the statement said. The meeting, chaired by 15th Finance Commission Chairman N K Singh, was attended by all members of the commission. The Economic Advisory Council members are Sajjid Chinoy, Prachi Mishra, Neelkanth Mishra, Omkar Goswami, Arvind Virmani, Indira Rajaraman, D K Srivastava, M Govinda Rao, Sudipto Mundle and Krishnamurthy Subramanian. JD ABMABM

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