S&P Hikes GDP Projections For India From 6% To 6.4%

• (00:00) A Small Appeal
• (00:42) Stories Of The Day
• (01:40) S&P hikes GDP projections for India from 6% to 6.4%, cuts back for next year.
• (05:28) Oil & Gas companies spend only 2.5% of their investments on clean energy
• (08:42) Can you think like the tax man and anticipate surprises? Insights from a veteran tax expert.
• (13:00) Indians get red carpet in south east Asia, Malaysia offers visa free too.

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

---

S&P Hikes GDP Growth

The good news. S&P Global Ratings on Friday hiked India's gross domestic product (GDP) growth rate forecast for 2023-24 (FY24) to 6.4 percent from 6 percent earlier. 

The not so good news. For the next year, GDP growth projections have been cut by 50 basis points (bps) to 6.4 per cent.

The rest of the news. This was mostly expected and projected by others as well, about next year I mean.

In its "Economic Outlook Asia-Pacific Q1 2024: Emerging Markets Lead The Way", the agency on Monday said it was revising its projection upward as robust domestic momentum seems to have offset headwinds from high food inflation and weak exports."

"Overall, growth this year and next is on track to be the strongest in emerging market economies with solid domestic demand: India, Indonesia, Malaysia, and the Philippines," it said.

Back home it does expect subdued global growth, a higher base effect and the lagged impact of interest rate hikes to bite.

“Still, we expect growth to slow in the second half of the financial year. As a result, we have lowered our outlook for growth in fiscal 2025 to 6.4 per cent from 6.9 per cent." S&P said.

According to S&P,  fixed investment in India has recovered more than private consumer spending. However, the agency's projection is lower than the central bank's 6.5 per cent. 

If you are looking a little further out, yes, the year after that, things should be better again.

For 2025-26, S&P is retaining India's GDP growth projection unchanged at 6.9 per cent.

S&P Global on Monday said, "In India, there was a transitory spike in food inflation in the July-September quarter, but it appears to have had little effect on underlying inflation dynamics. Still, headline inflation remains above the RBI's target of 4 per cent, suggesting it will be a while before the rate cycle turns."

The report also predicts repo rate will be unchanged at 6.5 per cent at the end of FY24.  And would drop after that. 

The report further added that the Asia-Pacific region is expected to report healthy growth this year.

Markets, Gold and Oil

Gold prices climbed to a six-month peak on Monday, supported by a weaker U.S. dollar and on bets that the Federal Reserve is done with its interest rate hike cycle, while the focus shifted to U.S. inflation data due later this week, Reuters reported.

The dollar index (.DXY) edged down 0.1% against its rivals, not far from a more than two-month low level touched last week, making gold less expensive for other currency holders. Lower interest rates diminish the opportunity cost of holding non-interest-bearing gold, Reuters reported. 

Put differently, you can make money betting on gold which might appreciate rather than bonds if interest rates are low.

Meanwhile, oil continued to fall for a fourth day. Global benchmark Brent dropped below $80 a barrel after falling in each of the last five weeks, the longest such run since the end of 2021, Bloomberg reported. 

The Organization of Petroleum Exporting Countries pushed back an important meeting to decide on supply policy by four days to Nov. 30 amid a dispute over quotas. 

Energy Industry Aint Investing

Just as world leaders prepare to converge at the COP28 climate summit from 30th November Thursday in Dubai, a new report has said the fossil-fuel industry isn’t investing enough in decarbonization.

Despite earning average annual revenues of $3.5 trillion since 2018, oil-and-gas companies are spending just 2.5% of their investment on clean energy, which is about 1% of the global clean-energy spend, according to the International Energy Agency, reported the Wall Street Journal. 

Not just that, some 60% of that 2.5% comes from just four companies out of thousands of producers.

To break down the total energy investment figures.

The current estimate is $2.8 trillion in the current year, with around $1.8 trillion on clean energy and $1 trillion on oil, gas and coal. 

In its net-zero scenario, the IEA forecasts annual fossil fuel investment dropping by $500 billion to 2030 and clean-energy investment increasing by more than $2 trillion.

But the IEA says while investments in oil and gas are still needed to ensure security of supply even in a net-zero scenario, “the $1 trillion currently spent each year is double what it is required in 2030 to meet demand.”

So while the investment in clean energy is way low, the investment in fossil fuel is twice as much of what is estimated to be required.

The IEA estimated about half of the industry’s capital expenditures should go toward clean energy projects by 2030 to be on track for the Paris climate agreement target. 

Cutting emissions from oil-and-gas companies’ operations and energy usage is actually “one of the cheapest options to reduce GHG [greenhouse gases] emissions generally,” the IEA said. 

It estimated producing, transporting and processing oil and gas generate nearly 15% of global energy-related emissions and said tackling methane leaks should be a top priority, as it can be done very cost-effectively and is about half of total operational emissions.

The good news is that overall clean-energy investment worldwide has increased by 40% since 2020, led by solar PV, wind power and electric vehicles, the WSJ said.

Since we spoke of COP28 in Dubai, India’s Prime Minister Narendra Modi will attend the U.N. climate conference (COP28) in Dubai, underlying the country's commitment to the issue of climate change, the government said in a statement. He will be in the UAE for two days from Nov. 30 to Dec. 1.

MEanwhile, US President Joe Biden and China’s Xi Jinping are not likely to be there at the summit. Together they represent the world’s two largest emitters.

Thinking Like The Tax Man Is Challenging

It can happen that a tax liability, even if partly met, can wipe out your business. Dinesh Kanabar, veteran tax man and founder of Dhruva Advisors in Mumbai, says he is seeing it happen more often.

Dinesh Kanabar is an entrepreneur and international tax expert. He is founder and CEO of Dhruva Advisors, one of the largest tax and regulatory boutiques 

The solution in some ways, he says, is that boards of companies should be more alert to tax implications of their moves and the financial and other risks of it.

This is not the same as just doing due diligence for market penetration or success.

I spoke with Kanabar on a range of tax linked issues but principally focussed on how taxation systems apply in a world where a lot of manufacturing is moving or desired to be moved to India.

As supply chains become more complex, so does the tax and tariff regime governing all of it. Taking on China can be tough but understanding what’s on offer is obviously a good place to start. In this extract of the conversation the full version of which appeared on TCR Weekend Edition, I asked Kanabar if he could think like the tax man and anticipate what could come.

----

Indians Get Red Carpet In South East Asia

Malaysia will scrap entry visa requirements for citizens of China and India visiting the nation beginning Dec. 1, according to Prime Minister Anwar Ibrahim.

Chinese and Indian nationals may stay for up to 30 days visa-free, Anwar said in a speech at his People’s Justice Party’s annual congress in Putrajaya on Sunday. This would be subject to security screening, he added, reported news wires.

Malaysia joins Thailand and Sri Lanka who offer visa free travel to Indians and reports suggest Vietnam might  join the list. At which part the major southeast Asian tourism destinations in 5 to 6 hours flying time of India will be visa free, except for Singapore right now.

Meanwhile, neighbour Thailand is also set to introduce a 10-year investor visa in its eastern economic corridor ( EEC). 

The EEC, which covers three provinces east of the capital, Bangkok, is a centrepiece of government efforts to boost growth and encourage investment, particularly in high-tech industries, the Business Standard reported.

Companies investing in modern, environmentally friendly industries can bring in employees, specialists, executives, and professionals, who will get an EEC work permit, a flat income tax rate of 17% and a 10-year visa.

Thailand earlier waived tourist visa requirements for Indian travellers till May next year. India is the fifth largest source of foreign tourists in Thailand 

There are several trends here.

First of course is that Indians are back to visiting south east Asia in large numbers, post Covid19.

Second, Thailand seems to have recognised that many Indians are heading out for business and longer term reasons as well, apart from just tourism reasons or weddings, which I will come to in a moment.

Thailand appears to be saying, if Dubai can attract hundreds of thousands of wealthy Indians to set up a base, so can we.

And the answer is Thailand definitely has a few things going for it too, offering near first world living conditions and healthcare systems at not first world prices.

Moreover, Thailand is quite likely responding to anticipated or present demand rather than creating it.

Now to come to tourism, both Malaysia and Thailand have recognised, long before yesterday, that they have good resort and tourism options to offer at a lower cost with similar air fares.

If you were in Delhi and debating whether to go to Goa in December, chances are a resort in Thailand in Malaysia of similar proportions or maybe even better would be cheaper to go to. And likely have better surrounding infrastructure than the now increasingly congested Goa.

Indians spend close to $1 billion a month on overseas travel now, a figure higher than pre-Covid levels, according to RBI outward remittances data.

And some 20 million Indians travelled outwards last year, a figure that could evidently go higher if for example visa restrictions were eased. Of course, this figure is still below the pre-pandemic average of 25 million annually.

But there have been other shifts. Visas to Europe for example have been difficult to get, the US has long wait lists for fresh applicants and those who forgot to renew in the pandemic.

In contrast, to go back where we started, visas to Thailand, Malaysia among others are now not even needed, at least for now.

All these countries also need tourism as they go all out to recover from the pandemic induced loss of business. Thailand wants to get back to its 40 million annual tourism mark hit before Covid.

It's also interesting that they are obviously relying on technology to eliminate or track visitors at a pace or level where the pre-screening done while issuing visas is not required or can be done away with. Possibly as an experiment but an important one.

Countries like Singapore issue visas in 3-4 days and you still have to apply ahead but Singapore has now automated its entry which means you can now scan your passport, get your photograph and fingerprints taken by a machine and you are through. By the way, even Canada has automated entry now.

Interestingly, the Prime Minister in his weekly radio address wondered why Indians have lavish weddings overseas. And if that could change.

Yes it could but if you take away the vanity party, something which is really an individual desire, I would argue that Indian resorts would find it difficult to match price and logistics.

So the problem has to be addressed on the supply side and not the demand side. It’s difficult for people to book a resort and wedding affair in Goa at lets say Rs 40,000 a night when a similar resort room in Thailand might be available at half the price. And air fares would only be marginally different. 

By the way, Thailand is also attracting travellers from India to play golf.

That’s it from me, have a great day ahead and see you tomorrow.