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- Vaccine and medical supply shortages coupled with intermittent lockdowns resembling those seen only during the onset of the pandemic have conspired to keep confidence in the Indian economy muted
- In April, 12,554 companies were, reportedly, set up compared with just 3,209 in the corresponding month last year when the nationwide lockdown was in place
- A rise in company registrations certainly signals an intent to invest. However, this does not necessarily indicate growing sentiment that the economy is set for an immediate rebound
The scale of the humanitarian crisis unfolding in India has prompted the World Bank to downward-revise India’s forecasted Gross Domestic Product (GDP) growth for the current fiscal to 8.3 per cent, nearly two full percentage points down from its April forecast of 10.1 per cent.
The latest revision in line with the more recent ones made public by ratings agencies, with most economists in agreement that the second COVID-19 wave has blighted what appeared to be – based on the NSO’s latest Q1 economic data – something of a gradual recovery. CRISIL was the latest to acknowledge this when, earlier this week, it cut its GDP growth forecast to 9.5 per cent from the 11 per cent it had projected earlier.
“The second COVID-19 wave has thrown cold water over the Indian economy that was beginning to warm up after the most severe contraction since Independence. The rash of afflictions that followed forced states to lock down, hurting consumer and business confidence yet again,” the CRISIL report noted.
Vaccine and medical supply shortages coupled with intermittent lockdowns resembling those seen only during the onset of the pandemic have conspired to keep confidence in the Indian economy muted. The latest economic data revealed by the NSO seems to confirm this.
However, company registration data for the month of April 2021 seems to indicate sustained confidence in the resilience potential of the economy. In April, 12,554 companies were, reportedly, set up compared with just 3,209 in the corresponding month last year when the nationwide lockdown was in place.
What’s more, the 17,324 new firms registered in March (up from the 5,788 registered in March last year) was the highest since January 2013 – this despite the fresh restrictions on mobility and business activity brought on by the second wave. Registrations in the first two months of the year also exceeded the double-digit threshold.
Geographically, there wasn’t much of a change in trend with more affluent states like Maharashtra, Delhi, Karnataka, Uttar Pradesh, Telangana and Tamil accounting for 60 per cent of all new company registrations in April.
But, interestingly, it was the services sector – one which has suffered disproportionately as a result of the second COVID-19 wave and subsequent restrictions – that accounted for 63 per cent of all new companies registered. The agriculture and allied services segment, it is also worth noting, accounted for 7 per cent of all new companies – a sector that, cumulatively, accounts for roughly 4 per cent of India’s total 1.35 million active companies.
What’s behind the apparent contradiction?
A rise in company registrations certainly signals an intent to invest. However, this does not necessarily indicate growing sentiment that the economy is set for an immediate rebound. High-frequency economic indicators along with the continued uncertainty in the business climate suggest that such a recovery is not on the Indian economy’s immediate horoscope.
But the elevated level of entrepreneurial activity may, at least to some extent, be the result of a fresh wave of confidence in internet and digital companies – many of which have emerged in the face of new challenges in catering to a public forced to acclimatise to spending disproportionate amounts of time shuttered indoors.
But given that company registrations, barring a period of slow growth during the first wave of infections, were already growing steadily, some analysts have also pointed to the Finance Ministry’s decision to slash the corporate tax rate in the 2019-20 Union Budget as a possible reason.
To boost what was already a sputtering economy at the time, Finance Minister Nirmala Sitharaman, in September 2019, slashed the base corporate tax rate from 30 per cent to 22 per cent, triggering an immediate stock market rally that saw the Sensex spike by 4.5 per cent.
Additionally, it was also announced that manufacturing firms would benefit from a lowered tax rate of 15 per cent if they were shown to be up and running by March 31, 2023. That concession was also afforded to companies formed to purchase ill businesses – properties of which there is no dearth of in the current economic climate.
Originally Appeared Here