Indian Macros ‘Charm’
By Shivaji Sarkar
Developments and statistics about India’s growth are interesting. Various contrary figures indicate a queer pitch. While global financial services group Nomura upgrades India’s rating over “strong macro”, start-ups see 72 per cent funding fall in January-September, top 75 Indian brands see 4 per cent dip in value even as India Inc. is worried over the staggering growth in illicit trade.
Not less interesting are the stock market figures. As number of IPOs, new equities hit multi-year high on good valuations and pricing, Mumbai Sensex continues its selling spree on cues, losing over 2200 points in less than a week. Like Nomura, Morgan Stanley and Goldman Sachs also upgraded India to “overweight” from neutral ‘on the back of strong macro-economic fundamentals’. Nomura, however, says there could be some cyclical slowdown in the next few months. Still there is “long-term structural attractiveness of India”. The jargon is not easy to comprehend.
Amid these, Abu Dhabi’s International Holding Company (IHC) exits two energy companies— Adani Green Energy and Adani Energy Solutions, earlier was known Adani Transmission. The IHC is selling the stakes of Rs 7700 crore it invested in these two companies. It will clock a loss of Rs 1831 crore in Adani Green and Rs 2545 crore in Adani Energy. It also has stake of Rs 9934 crore in Adani Enterprises.
A Federation of Indian Chambers of Commerce & Industry (FICCI) report on India’s illicit flows of 5 per cent of GDP based on data from United Nations Office on drugs & Crime (UNDOC) and Global Financial Integrity by Ford Foundation has caused jitters among the Indian businesses. Prior to this, a UNDOC report of 2011, was the most widely quoted figure for the extent of money-laundering as the International Monetary Fund’s consensus range of between 2.5 per cent of global GDP or $1.6 trillion announced in 1998. The UNDOC analysis suggests that all criminal proceeds then were likely to have amounted to some 3.6 per cent of the GDP (2.3 – 5.5per cent) or around $2.1 trillion in 2009.
The FICCI report says, ”Trade-based money laundering in India soared to a whopping $674.9 billion for the 10-year period from 2009 to 2018, which reflects the magnitude of illicit trade that has emerged as a major threat to the country’s economy and security”.
“Based on UNDOC estimates, when the Indian economy surpassed the $3 trillion mark in 2021, the quantum of money laundering in the country can be estimated at $159 billion which is around 5 per cent of the GDP. This accentuates the magnitude of the problem driven by the rise in illicit markets (trade, illegal drugs, arms etc.) and non-market actors.”
It cites recent data provided by the Directorate of Revenue Intelligence (DRI) to illustrate India’s substantial trade gap due to mis-invoicing and highlights the growing illicit trade. Smuggling in India report 2021-22 identified 437 instances of duty evasion totalling Rs3,924 crore, which was a 40 per cent jump from the corresponding figure of Rs 2,810 crore in 2020-21.
Currently India’s illicit trade gap as estimated by Global Financial Integrity (GFI) is 20 per cent, or about $300 billion when the country’s economy reaches the $5 trillion-dollar mark. FICCI has flagged this as a major concern as its study shows that illicit trade is directly linked with organised crime and terrorism. The study also cites the examples of various countries worldwide in this regard. “The convergence of trade-based money laundering with terrorism raises significant concerns for our national security,” the report observes.
Counterfeiting and illicit goods in India pose significant risks, including financial risks, public health threats in the case of fake pharma products and intellectual property issues as well, the report points out.
The Global Organised Crime Index (2021) shows low prevalence of organised crime actors, in India but the criminal network has significant influence, with a score of six which is higher than the average score of five for 122 countries.
Though it is not clear whether such activities are impacting start-up fundings or not, it has been observed that the dearth in the availability of easy money has stranded many start-up ventures. It has fallen by 72 per cent to $ 6.6 billion between January and September, according to Tracxn market research company. Earlier the start-ups had garnered $23 billion. Many cash strapped companies have laid off employees.
Similarly, a study by leading data, insights and consulting company Kantar reveals that 75 Indian brands valuation declined by 4 per cent to $79 billion this year. This is in addition to the losses of value of “100 most valuable global brands” in 2022-2023. The overseas contribution for the top 30 Indian brands accounts for 31 per cent of branded value, compared with 47 per cent for Japan, 59 per cent of UK, and 85 per cent for France.
As the US interest rates firm up, the foreign portfolio investors are selling Indian equities leading to a continuous fall in the Sensex. The US bond yields have become lucrative. The US Fed decision has helped it get back global investments and causing fund crunch for countries like India. A high inflationary Indian economy, with oil and dollar price surging, grapples to keep its level.
It is no wonder that in such scenario initial public offerings are doing well and reaching a multi-year high. So far 166 companies have launched IPOs compared to 164 in 2022-23. Even the large companies have floated many IPOs. In terms of money raised, so far this year it could get Rs 30,090 crore or a quarter of Rs 1.1 lakh crore raised in 2021-22, when large offers such as from Paytm, Zomato, Star Health and Nykas hit the market.
However, the largest IPO in the country, Life Insurance Corporation (LIC), failed to meet investors’ expectations. The LIC launched for Rs 940 still is below 31 per cent its sale value. Possibly, the discussion about selling of its stakes did not help it. The US rate hikes have also turned away many foreign investors. The foreign funds selling led to net outflow of Rs 18000 crore in less than a month.
The FICCI report cites recent data provided by the Directorate of Revenue Intelligence (DRI) to illustrate India’s substantial trade gap due to mis-invoicing and highlights the growing illicit trade. Smuggling in India report 2021-22 identified 437 instances of duty evasion totalling Rs 3,924 crore, which was a 40 per cent jump from the corresponding figure of Rs2,810 crore in 2020-21.
This is not to say India lacks the strength as Nomura and Morgan Stanley point out. However, to strike a continuous growth and gains, India has to gird up and move beyond mere projections. — INFA