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Negative impact of demonetisation on economy transitory: Rating agencies

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Demonetisation

By Venkatachari Jagannathan 

Chennai, Nov 1 : The adverse impact of demonetisation on the Indian economy would be transitory, according to global and domestic credit rating agencies.

However, the current slowdown could partially be attributed to implementation of the Goods and Services Tax (GST) introduced in July, they say.

“While the aim of demonetisation to curb the use of black money was in line with the government’s broader reform agenda, the cash crunch it caused contributed to significantly lower real GDP (gross domestic product) growth in the March quarter,” Thomas Rookmaaker, Director, Sovereigns and Supranationals Group at Fitch Ratings, told IANS.

“This negative impact on growth seems transitory, just like the effect on growth, because of GST implementation in the July quarter,” he added.

According to analysts at the rating agencies, economic growth in India would accelerate again in the second half of the year.

“Demonetisation was a major structural change that the Indian economy underwent, which led to disruption on the demand and supply side and thereby the overall economy,” Kavita Chacko, Senior Economist, CARE Ratings, told IANS.

Chacko said economic performance, as seen from the quarterly GDP growth, saw a sharp deterioration since the third quarter (October-December) in 2016-17.

“GDP growth (year-on-year) fell from seven per cent in Q3FY17 to 6.1 per cent in Q4FY17 and further declined to 5.7 per cent in Q1FY18, the slowest pace of growth in five years,” she said.

This slowdown in the economy could partly be attributed to the disruptions caused by demonetisation. GST implementations too had contributed to the economic weakness, Chacko added.

Asked whether demonetisation has achieved its objective of curbing black money, Rookmaaker answered in the negative.

“The fact that 99 per cent of the bank notes have found their way back to the RBI (Reserve Bank of India) seems to suggest that demonetisation was not very effective in rooting out black money and reducing the informal sector,” Rookmaaker said.

“Implementation of the GST may actually be more effective in formalising informal business, as it seems to help draw small firms into the tax net,” he added.

According to Rookmaaker, the bounce back is likely to happen in the second half of the year. “It is still uncertain how long the drag on growth from demonetisation and GST implementation will persist. But our baseline scenario is that growth will accelerate again in the second half of the year. This seems to be supported by a sharp and fairly broad-based recovery in industrial production in August,” Rookmaaker said.

India’s sovereign credit profile would benefit from an improvement in government finances, which currently stand out as a major weakness compared with its peers, Rookmaaker said.

Read more…Diwali was dim for fashion industry reeling under demonetisation, GST

Other rating agencies say that except for two sectors, there would be no long-term impact of demonetisation. “We believe there is no lasting impact in most sectors, barring real estate and the gems and jewellery sector,” Abhishek Dangra, Director in the Corporate Ratings Group, Standard & Poor’s (S&P) Global Ratings, told IANS.

He said the companies in these two sectors, which traditionally relied significantly on cash transactions, had been forced now to make structural changes owing to policy level changes that limit high value cash transactions.

“Companies in the automobiles and consumer durable sectors have a high — and an increasing degree of — financing penetration, muting the impact of demonetisation, despite initial disruption. We expect demand/supply and the commodity price environment to have a greater impact on most sectors,” Dangra added.

Saswata Guha, Director, Financial Institutions, at Fitch, said that the increase in liquidity with the banks had not been fully taken advantage of.

“I think the benefit to the banking sector in terms of heightened liquidity post-demonetisation was pretty clear. While funds are gradually finding way into the broader financial system (like asset management, insurance), the impact is still quite benign on banks from a liquidity perspective since credit growth remains pretty weak,” Guha told IANS.

IANS

Business

‘Economic recovery from next year itself’, says FM Nirmala Sitharaman

India can see a proper recovery next year on the back of positivity and confidence due to Covid-19 vaccines, Union finance minister Nirmala Sitharaman said on Friday, arguing that steady growth and capacity expansion in the past two months had pulled the economy out of its pandemic trough.

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Nirmala Sitharaman

India can see a proper recovery next year on the back of positivity and confidence due to Covid-19 vaccines, Union finance minister Nirmala Sitharaman said on Friday, arguing that steady growth and capacity expansion in the past two months had pulled the economy out of its pandemic trough.

Speaking at the 18th Hindustan Times Leadership Summit, Sitharaman also defended the Centre’s controversial farm reform laws, said she is not worried about food inflation and hailed the spirit of cooperation that steers the running of the GST Council.

The finance minister’s comments came days after UK became the first country in the world to approve a vaccine made by Pfizer-BioNTech, with the United States and European Union expected to grant regulatory clearances later this month to stave off a disease that has killed 1.5 million worldwide.

So far, four vaccine candidates – including one that is being manufactured in India — have declared encouraging late-stage trial results. Hours before the summit, Prime Minister Narendra Modi announced that India is set to get a vaccine within weeks.

“The vaccine coming brings in a certain positivity. A vaccine efficiently delivered…will only bring in confidence among the people, both the workers, employers and also people who are engaged in some or the other economic activity,” Sitharaman said at the 18th Hindustan Times Leadership Summit.

“The vaccine will bring in optimism and positivity. With the vaccine, economic activity will get traction.”

With 2020-21 being seen as when large numbers of Indians will get inoculated, with frontline workers and vulnerable populations prioritised, the finance minister also pointed towards the importance of logistics and distribution networks. She refused to specify how much money would be set aside for Covid-19 immunisation in next year’s Union budget.

“We don’t know what will be the details which come with the vaccine. Will it be one dose or two doses? Will it be two doses with two or three weeks in between? Will two doses be sufficient? Unless we get all these details, I really cannot work towards a number.”

At the HT Summit two weeks ago, Serum Institute of India CEO Adar Poonawalla had said that the Oxford-AstraZeneca vaccine which is being manufactured in India — could become available for the general public by April-May next year and is likely to cost around Rs 500-600 for a dose.

Sitharaman acknowledged that the current situation in the country was drastically different from when she presented the budget in February but added that the government had steered the country through the pandemic with a judicious mixture of fiscal and monetary measures.

The finance minister also touched upon the recovery in the second quarter of 2020-21, when the economy shrank by 7.5, outperforming most expectations and registering is a sharp improvement from the 23.9% contraction in the previous quarter.

Sitharaman attributed this showing to an expansion in the core sectors and said that just pent-up demand and the festive season could not have driven this recovery alone. She also pointed to revenue from the Goods and Services Tax (GST) exceeding Rs 1 lakh crore for the second consecutive month in November, as a clear indication that economic activity was returning to normal.

“Recovery is consistently happening in the last two months…you hear core sector industries, cement, iron and steel, integrated plants are all going in for expansion, not just in one unit but across the country, you’re hearing of expansion,” she said.

“There is an indication that additional demand coming in. It is not pent up or festival demand. It is likely to sustain.”

Sitharaman contested the assumption that private sector investment continued to be weak, and said core sector expansion couldn’t happen without additional private buy in.

“Banks are also seeing industry approach for additional expansion-related funding requests. You are seeing expansion in capacities and it cannot be without private investment,” she said, adding that one may have to wait for a month to see if credit is also equally expanding.

When asked about inflation – hours after the Reserve Bank of India held rates, indicating inflationary anxieties – Sitharaman said she was not worried by what she termed as seasonal fluctuations.

“There are seasonal ups and downs in prices and the commodities about which we are seeing clear hike in prices are largely seasonal. If you take foodgrains and edible commodities, there are seasonal fluctuations. The government, through inter-ministerial group, has been very frequently looking at changes and taking conscious calls to fill in any supply level shortages through imports and logistical constraints are getting sorted.”

“This blip in inflation, particularly of food items, will ease out.” Hours before, RBI governor Shaktikanta Das said retail inflation is likely to remain elevated and pegged it at 6.8% for the third quarter.

Sitharaman defended the government’s relief measures for the middle class, and said 300 million people received cash transfers during the pandemic lockdown period but acknowledged that the fiscal deficit will certainly be higher than the 3.5% of GDP target set in the 2020 Union budget.

“What has given me most strength is that people of India, given the challenges and difficulties, have still kept going and today, that’s the reason for the revival… It’s the virus and related matters were more of a worry than the economy,” she added.

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Health

Haryana Minister Anil Vij, who was part of vaccine trial, tests positive for COVID-19

Vij, a Bharatiya Janata Party (BJP) leader, had volunteered to be part of the third phase trial of Covaxin, which started in Haryana on November 20. He was administered a trial dose. However, it’s not immediately clear whether he was administered the vaccine candidate during the trial or a placebo.

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Anil Vij

Haryana health minister Anil Vij said on Saturday he has tested positive for the coronavirus disease (Covid-19) and has been admitted to a hospital.

“I have been tested Corona positive. I am admitted in Civil Hospital Ambala Cantt. All those who have come in close contact to me are advised to get themselves tested for corona,” he tweeted.

Vij, a Bharatiya Janata Party (BJP) leader, volunteered to be a part of the third phase trial of Covaxin, which started in Haryana on November 20. He was administered a trial dose.

However, it’s not immediately clear whether he was administered the vaccine candidate during the trial or a placebo.

Also, the antibodies against the infection build up only after a specific number of days pass after the second dose of the vaccine is taken, since it is a two-dose vaccine, according to a health ministry official who did not want to be named.

The official said this was not solely in the context of Vij, who got just one dose — of either the vaccine or a placebo.

Vij’s media coordinator, Vijender, Chauhan said the minister was in Chandigarh on Friday afternoon and had reported fatigue later. “He got tested himself today morning and the result is positive. The staff will be tested today itself,” Chauhan said.

Bharat Biotech had said that phase 3 trials would involve a total of 26,000 people and be conducted at 25 centres across the country. “After successful completion of the interim analysis from the phase 1 and 2 clinical trials of Covaxin, Bharat Biotech received Drug Controller General of India (DCGI) approval for phase 3 clinical trials in 26,000 participants in over 25 centres across India,” the company had said in a statement. This will be India’s first phase 3 efficacy study for a Covid-19 vaccine, and the largest such trial ever conducted in the country, the statement added.

According to top officials of the National Institute of Cholera and Enteric Diseases (ICMR-NICED) in Kolkata, the results of the phase-III trial of the indigenously developed coronavirus vaccine candidate, Covaxin, will be available in November 2021. The interim report may be available by May 2021 at the earliest, they added.

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This antiviral drug blocks Covid virus within 24 hrs: Study

The scientists infected ferrets with SARS-CoV-2, and initiated treatment with MK-4482/EIDD-2801 when the animals started to shed virus from the nose.

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remdesivir antiviral drug

Treating novel coronavirus infection in ferrets with the antiviral drug Molnupiravir completely suppressed virus transmission among the mammals within 24 hours, reports a new study which may lead to a new therapeutic to curb the Covid-19 pandemic.

The researchers, including those from the Georgia State University in the US, originally discovered that the drug — also known as MK-4482/EIDD-2801 — is potent against influenza viruses.

In the study, published in the journal Nature Microbiology, the scientists repurposed MK-4482/EIDD-2801 against the novel coronavirus, and used a ferret model to test the effect of the drug in halting virus spread.

“This is the first demonstration of an orally available drug to rapidly block SARS-CoV-2 transmission. MK-4482/EIDD-2801 could be game-changing,” said Richard Plemper, a co-author of the study from Georgia State University.

Until mass vaccination is available, the scientists believe interrupting widespread community transmission of SARS-CoV-2 is paramount to managing the pandemic.

“We noted early on that MK-4482/EIDD-2801 has broad-spectrum activity against respiratory RNA viruses and that treating infected animals by mouth with the drug lowers the amount of shed viral particles by several orders of magnitude, dramatically reducing transmission,” said Plemper. “These properties made MK-4482/EIDD-2801 a powerful candidate for pharmacologic control of Covid-19,” he added.

The scientists infected ferrets with SARS-CoV-2, and initiated treatment with MK-4482/EIDD-2801 when the animals started to shed virus from the nose.

“When we co-housed those infected and then treated source animals with untreated contact ferrets in the same cage, none of the contacts became infected,” said Josef Wolf another co-author of the study. By comparison, all contacts of source ferrets that had received placebo became infected, the study noted.

If these ferret-based results translate to humans in further studies, the scientists believe Covid-19 patients treated with the drug could become non-infectious within 24 hours after the beginning of treatment.

They noted that the drug is currently in advanced phase II/III clinical trials against SARS-CoV-2 infection to check for its effectiveness in curbing the transmission of the virus.

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