Editorial 1: GDP growth estimated to cross 7%, what’s in it for the markets?
Recent Context:
- Recently, the government on Wednesday announced 6.1% growth in gross domestic product (GDP) for the fourth quarter ended March 2023, raising the growth estimate for the full year 2022-23 to 7.2%
- It is significant growth in the amid of the continuing war in Ukraine and persisting global concerns over inflation and slowdown — even as the United States Congress races to pass legislation to suspend the debt ceiling, and factory activity in China declines
The Current Market situation:
- The Sensex, which usually follows Wall Street, fell to 62,428.54; the NSE Nifty lost 0.25% to fall to 18,487.75 on Thursday.
- Indian markets are up by only 2.6% so far in the calendar year 2023, while the Dow Jones at the New York Stock Exchange is down 0.68%.
- The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) rose to a 31-month high to 58.7 in May from 57.2 in April.
- The increase was on account of the remarkable strength demonstrated in demanding conditions leading macro indicators like GST collections, FPI inflows, PMI data, credit growth, and strong Q4 GDP numbers suggest a resilient economy.
- However, the macro numbers have failed to improve sentiment as global concerns remain, an analyst said.
The possible Global factors for the economic growth:
- US DEBT CEILING:
- Recently, in USA, House of Representatives passed the debt ceiling bill in a bipartisan vote on Wednesday night; the Senate must now move quickly to beat the Monday (June 5) deadline to avert default on the country’s $31.4 trillion debt.
- Despite the progress in Congress, however, bulls have faced difficulties. This suggests concerns over the potential impact of the deferral of the federal debt limit for two years allowing the government to borrow without restrictions to pay its bills on global financial markets.
- Investors are cautious, anticipating inflationary pressures in the US after the deal on the debt ceiling. With the US 10-year bond yield rising, the market is looking at the trajectory of US interest rates,
- CHINA FACTORY ACTIVITY:
- The decline in Chinese factory activity could lead to apprehensions among investors regarding the overall health of the global economy
- The decline in May was faster than expected on weakening demand, putting pressure on policymakers to shore up a patchy economic recovery and pulling down Asian financial markets. China’s official manufacturing PMI fell to a five-month low of 48.8. China’s decline will have ramifications on emerging economies like India
- Returning of FBI
- Foreign portfolio investment (FPI) flows into India reached a nine-month high of Rs 48,330 crore (around $ 5.85 billion) in May.
- Sustained buying by FPIs lifted the indices by more than 2% in May. India is among the best performing markets, while others, both developed and emerging, are struggling. FPIs have been buying across sectors automobiles, capital goods, health care, oil & gas, telecom, and financial services, particularly banking.
- While FPI flows are likely to continue supporting the market, there is no scope for a sharp rally since valuations are not favourable at record levels. There is concern that rising valuations might nudge domestic institutions to sell, thereby neutralising the buying by FPIs.
- Also, the FPI “hot money” can exit faster than it enters. FPIs had pulled out more than Rs 2 lakh crore between January and June 2022, upsetting the calculations of Indian investors.
- Outlook on markets
- Based on several pointers to a resilient economy, market experts are willing invest in India’s upcoming manufacturing potential. Many feel that the markets, though not cheap, are reasonably valued and could hit new highs in the coming months.
- it is manufacturing that can push economic growth significantly as Manufacturing has far more potential than services to provide a growth to the economy.
- India’s wage inflation has been among the lowest over the last 10 years, and that provides major cost competitiveness.
Conclusion:
- It is important to see that market has witnessed strong inflows and performed well over the last one month. It has also witnessed broader participation
- However other experts said that GDP growth data are historical and the markets are forward-looking, so it is wrong to expect an immediate reaction to these number and sectors whose growth is aligned to the global economy may witness a lag, others that are more domestic in nature and driven by local factors will do better.
Editorial 2: Why India and China are stronger as partners
Context:
- Global events in the past and current scenario such as Ukraine crisis, the Covid-19 pandemic, and interest rate hikes in the United States, affected the world economic situation and it is not optimistic in general.
- Instabilities and uncertainties bring about fragility in its recovery, and all countries are faced with the test of how to stabilise growth. In this context, the recent robust economic performances of China and India have attracted much attention.
Economic position of India:
- India has become the fifth-largest economy in the world. The United Nations Conference on Trade and Development’s ‘World Investment Report 2022’ shows that in 2021, India ranked seventh among the top 20 recipients of foreign direct investment.
- India’s digital economy is growing rapidly with more than 82,000 start-ups and 107 unicorn companies.
- The ‘2022-2023 Indian Economic Survey Report’ predicts that India will become one of the fastest-growing economies in the world in the fiscal years of 2023 and 2024.
Economic position of China:
- Meanwhile, China’s economy achieved a comprehensive rebound with the first-quarter GDP growing by 4.5 per cent year-on-year.
- Market vitality recovered with the SME Development Index (calculated based on a survey of 3,000 small and medium-sized enterprises) reaching 89.3 points between January and March.
- The manufacturing Purchasing Managers’ Index and the non-manufacturing Business Activity Index continued to stand above the boom-and-bust line, and expectations for private enterprises rose on a gradual basis.
Both nations can play significant role in mutual economic growth and global development:
- Both nations are the most populous developing countries and the top two developing economies in the world.
- The two countries account for more than 35 per cent of the world’s total population and more than 20 per cent of the world’s total economic output.
- China and India have a decisive impact on human development, and the strong economic growth of the two countries has a vital role to play in the global economic recovery.
- China and India have also made important contributions to world poverty alleviation.
- Over the past more than 40 years of reform and opening up, the Chinese government has lifted more than 800 million people out of poverty.
- From fiscal year 2006 to 2021, a total of 410 million people in India have been lifted out of poverty. According to the forecast of the International Monetary Fund, the contribution of China and India to world economic growth this year will be over 50.3 per cent.
A strengthen relation between India-China will help in global growth
- Emerging economies like China and India have become important engines for the recovery of global economic growth.
- both China and India are in a critical period of achieving modernisation.
- Therefore, bilateral relations from a strategic and long-term perspective, respect and learn from each other, contribute to each other’s success, pursue a new path of living in harmony, peaceful development and common revitalisation between neighbouring major countries, so as to boost our respective national rejuvenation and inject stability and positive energy into world peace and development.
Conclusion:
- The year 2023 marks a high point in India’s diplomacy, with its presidency of the Shanghai Cooperation Organisation (SCO) and the G20.
- China is willing to communicate and cooperate with India to strengthen global economic governance, safeguard the common interests of developing countries and international equity and justice.
- Therefore, by strengthening practical cooperation in various fields, China and India will surely bring a stronger impetus to the recovery and growth of the world economy