Recession Predictions in Numbers

The World Economic Outlook Report published by the International Monetary Fund (IMF) on April 14, called the Coronavirus pandemic a ‘crisis like no other’. It said that a recession is looming over the world as the global economy is projected to contract sharply by 3% in 2020.
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Crux of the Matter

IMF assumes that the pandemic would fade in the second half of 2020 and as economic activities resume it projects a 5.8% growth in the global economy in 2021. The statistics predicted by the IMF are much worse than the 2008-09 financial crisis.

Since equity markets have gone down dramatically; high-yield corporate and emerging market sovereign spreads have widened significantly and portfolio flows to emerging market funds have reversed. The IMF plans to deal with this crisis in 2 phases: firstly a phase of containment and stabilization followed by the recovery phase.

Growth in the advanced economy group is being projected at –6.1% in 2020. Other regions like Latin America (–5.2%); Russia (–5.5%), the Middle East and Central Asia (–2.8%) are also expected to slow down severely and witness negative growth rates.

Elephant and Dragon Lead the Hope
Non-oil GDP would contract by 4%, and most economies like Saudi Arabia and Iran are also expected to contract. India and China are only nations that may see a positive growth rate in 2020 at 1%, which is ~5% below the previous decade’s average.

In China, even with a sharp rebound at the end of 2020 and sizeable fiscal support, the economy is projected to grow at only 1.2 % in 2020. India in the same region which was expected to grow at 5.8% in January 2020 is now predicted to grow positively with 1.9% growth rate. Both India and China are expected to recover sharply with 7.4% and 9.2% growth rate in 2021 respectively.

The GDP numbers being projected by the World Bank and IMF for India are far “too optimistic” and the country would require additional expenditure of  ₹10 lakh crore to bring the coronavirus-hit economy back on track.

Arvind Subramanian, Former Chief Economic Adviser

Even before the pandemic hit India, the economy was slow and was already fighting a major unemployment crisis. According to Centre for Monitoring of Indian Economy, the unemployment level has reached 23% in the recent weeks and now with the extended lockdown and increased economic disruption the economic losses are estimated at $234.4 billion which is 8.1% of the GDP.

With the fluidity of the situation thwarting precise forecasts, ICRA currently projects Indian GDP to contract by a range of 10-15 percent in Q1 FY21, which would translate to a bleak full-year growth band of +/-1 percent in FY21.

Aditi Nayar, Principal Economist, ICRA.

Is it Recession Yet?
From mid-January to end-March, base metal prices fell about 15%, natural gas prices declined by 38%, and crude oil prices dropped by about 65%. Futures markets indicate that oil prices will remain below $45 a barrel through 2023, approximately 25% lower than the 2019 average price, reflecting persistently weak demand. Following the dramatic decline in oil prices, the growth rate for oil-exporting countries is projected to drop to –4.4% in 2020. They are going to be severely hit whereas due to the recent OPEC+ agreement and reduced oil prices, oil-importing countries will be at a benefit.

Commodity Prices

The rapidly worsening risk sentiment has prompted a series of central bank rate cuts, liquidity support actions, and, in a number of cases, large asset purchase programs from all countries. An overall analysis of the IMF report suggests that financial conditions are serious in advanced as well as emerging market economies and this is the biggest crisis and recession of the century.

  • A recession had been typically recognized as two consecutive quarters of economic decline, as reflected by GDP. However, the National Bureau of Economic Research (NBER), which officially declares recessions, says the two consecutive quarters of decline in real GDP are not how it is defined anymore.
  • The Panic of 1785 is one of the earliest recessions to be dated ever. This recession lasted for almost 4 years, during which the business boom post-American Revolution vanished. The recession was immediately followed by the recession of ‘Cooper Panic of 1789’.
  • 2008’s recession was termed as the “Great Recession” while economists and many media houses have started referring to this (2020) recession as the “Great Lockdown”. While the 1930’s recession is called the “Great Depression”.
  • Below is the entrance of the RBI office in Delhi. The entrance is guarded by 2 Statues of a Yaksha and Yakshani each. These are mythological creatures who serve ‘Kubera – God of Wealth’. Although some people raised concerns regarding showcasing the Yakshani half-naked.

5 lakh Companies Shut Shop in China in 2020 Q1

The pandemic Coronavirus has severely damaged China as it lost nearly half a million firms due to the lockdown. Geopolitical tensions also loom over the Dragonland as US and other nations accuse it of cover-up and opaqueness in disseminating information.
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Crux of the Matter

China Losing Limbs
China, the first epicentre of Coronavirus, has faced a great deal of damage in the business and industry sector. Due to Coronavirus, 4,60,000 firms shut down operations in the first quarter of 2020. More than half of them have merely operated for 3 years. In addition, only 3.2 million new firms were opened in the first quarter which is 29% less than the previous year. 

Recovery in the manufacturing industry in China won’t be easy even though the threat of Coronavirus is relatively less there. Its industry may not pick up healthy growth because many countries are on the verge of economic crisis, resulting in a huge slump in the external demand of products. China’s overseas shipment fell 17.2% compared to last year. 

Looming Geopolitical Risks
Geopolitics is likely to alter due to the COVID-19 pandemic. The strain on US-China relations due to the US-China Trade War may exacerbate due to the Coronavirus crisis. But will the US put sanctions on China at a time when others have put a ban on the export of medical equipment, as US imports medical equipment from the latter? The US has accused China of poorly handling the critical situation of Coronavirus. Even if the US and its allies pass any resolution against China in the UN Security Council, China can simply nullify it using its veto power.

In the past when the US and its allies filed a suit at the International Court of Justice against China for building artificial islands in south china sea, China simply ignored the verdict of the International Court and continued its expansion in international water.

  • Due to manufacturing units being shut, carbon emission in China has significantly come down. In the 3 week period of February when China shut down its manufacturing units, dip in carbon emission was equal to almost 150 Million Metric Tons.
  • Shanghai Stock Exchange has seen a decrease of almost 400 points in the past 3 months.
  • In 2015 only, China had 28,01,143 factories compared to 2,74,407 factories in the US.

Vivad se Vishwas: Less Time & High Hopes of Disputed Taxpayers

On March 4, the Vivad se Vishwas Bill which aims to settle more than 4.83 lakh pending direct tax disputes in the country was passed by the Lok Sabha with certain amendments.

Crux of the Matter

After the announcement of the bill in the Union Budget 2020 and the approval of the Union Cabinet on February 12, it was tabled in the Lok Sabha on March 2 by the Finance Minister.

This bill is expected to resolve nearly 4.83 lakh direct tax cases amounting to 9.32 lakh crores which are currently pending in the various forums including India’s Income Tax Appellate Tribunal (ITAT), Commissioner (Appeals), Debt Recovery Tribunals, High Courts and the Supreme Court.

Key Details
The taxpayers willing to settle their tax disputes will be allowed a complete waiver on interest and penalty, provided they pay the entire disputed amount by March 31, 2020. After March 31, the taxpayers will have to pay 10% additional disputed tax over and above the existing tax liability. The scheme will remain open till June 30, 2020. 

In case of arrears related to disputed interest or penalty, only 25% of the disputed penalty or interest will have to be paid if the payment is done by March 31, 2020. Once the bill becomes an act, it can be available in the tax recoveries amounting to Rs.5 crores.

However, disputes relating to wealth tax, securities transaction tax (STT), commodity transaction tax (CTT) and the tax on online advertisements are not covered under this bill.

CBDT’s Clarifications
The Central Board of Direct Taxes (CBDT) issued clarifications related to this bill which says that picking and choosing issues for settlement of an appeal is not allowed. CBDT clarified that this scheme would cover Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) disputes and will not cover disputes pending before the Authority of Advance Ruling (AAR) unless it is challenged in a High Court.

If the revenue department has gone for appeal, the assessee will have to pay only 50% of the disputed tax; whereas in case of department-appealed dispute related to penalty, interest or fee, then only 12.5% of the disputed amount needs to be paid if payment is made by 31 March 202.

According to many experts, time available to the disputed parties to opt for the scheme and make payments before 31 March to avail maximum benefits seems very less.


The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance. It provides inputs for policy and planning of direct taxes in India and is also responsible for the administration of direct tax laws through the IT Department. It is a statutory authority functioning under the Central Board of Revenue Act, 1963. The Chairman and members of the CBDT are selected from the Indian Revenue Service (IRS) and are responsible for exercising supervisory control over specialized functional categories at field offices of the IT Department. More Info

Indigenous defense production target to play a major role to reach $5 trillion economy

Defense Minister

The Indian government is keen on giving a boost to defense exports and make India a $5 trillion economy by 2024. The Defence Minister has announced a massive target turnover of $26 billion by 2025 for indigenous defense aerospace and military production.

Crux of the Matter

Import-Export Balance
In a recent report by Stockholm International Peace Research Institute (SIPRI), India is the second-largest importer of arms at 9% of the global imports from 2015-19, just lagging behind Saudi Arabia that accounted for 12%. India’s major supplier Russia’s share decreases from 76% to 56% over a decade, only to be filled in by the imports from the newest defense ally, US. Imports from Israel and France also increased by 175% and 715% respectively. The spike in imports from France can be attributed to the massive Rs. 59,000 crore Rafale deal.

Despite the dependency on arms imports, India’s arms export score improved by 2 ranks. India stands at 23 among arms exporters. In recent, Myanmar, Sri Lanka, and Mauritius have been buying more arms from India.

Aiming High Exports
The primary aim of indigenous defense production remains to first cater to the needs of Indian forces. Private sectors are being encouraged to invest and participate in defense manufacturing.

The manufacturing sector has the potential to reach $1 trillion by 2025 and the government is striving to achieve the goal by implementing key flagship programmes like Make in India.

– Rajnath Singh, Defense Minister

This move will promote Research & Development and innovation to secure a place in global supply chains. To enhance interaction between all stakeholders, the government has initiated a number of structural reforms along with giving approval to more than 200 proposals worth Rs 4 lakh crore in defense manufacturing only in the last five years. The Defence Minister also put forward the government’s vision to double the size of the aeronautics industry from Rs 30,000 crore to Rs 60,000 crore by 2024 by promoting the public-private-partnership (PPP) model.

Defense public sector undertakings (PSUs) are now increasing their export portfolio to 25% of their turnover and the government is ready to provide Lines of Credit and grants to friendly foreign countries over the next five years. With the volume of investments increasing supported by major structural reforms and programs, the government is working to export defense goods and services of $5 billion in the next five years.

The government will also now act as an incubator, catalyst, and facilitator for promoting investment. It is also providing Transfer of Technology (ToT) in tie-up with DRDO at zero charges. Under which 900 agreements with private firms have already been made.

We understand that Defence R&D in the private sector will take time to establish itself. Thus, we have opened opportunities through DRDO with a zero fee for Transfer of Technology (ToT), free access to over 450 patents, access to test facilities and an upfront funding of up to Rs 10 crore.

– Rajnath Singh, Defense Minister

The government has its roadmap prepared for manufacturing of mega defense platforms including fighter aircraft, helicopters, tanks and submarines and application of artificial intelligence in national security set up.


Defence Production Policy of 2018 has set a goal of becoming among the top 5 global producers of the aerospace and defence manufacturing with an annual export target of US$5 billion by 2025. Despite having a modest internal defence industry, India is the largest arms importer in the world, with most of its high-tech, high-value equipment such as aircraft, ships, submarines, missiles, etc. coming in from Russia. India domestically produces only 45% to 50% of defence products it uses, and the rest are imported. India’s defence exports were Rs 4,682 crore (US$0.66 billion) in 2017–2018 and Rs 10,500 crores (US$1.47 billion) in 2018–2019, of 2018–2019 exports India’s 8 Defence Public Sector Undertakings (DPSU) and 41 Ordnance Factories (OF) contributed INR800 crore (7.6% of total defence exports). More Info

US Benchmark Bond at Historical Low: Coronavirus Fear or Anticipated Slowdown?


US Federal Reserve, in an emergency move, decided to slash interest rates by 50 basis points. This threw the 10-year US Treasury Bond into a spiral as its yield dipped to its historical low of 0.914%. The emergency move to calm consumer sentiments amidst fears of Coronavirus could only be a disguise to the hinted slowdown in the US economy after the yield curve inverted in 2019. Some say this is an important rejig for the markets and an opportunity for the investors to reorganize their portfolio.

Crux of the Matter

United States Federal Reserve announced an interest- rate cut of 50 basis points (1 basis point = 0.01%) or half percentage – now ranging at 1-1.25% – to match the consumer sentiments amidst the scare of Coronavirus. This emergency cut is the first big such cut since 2008 Global Recession. This rate cut coupled with bullish consumer sentiment pulled the 10-year US Treasury Bond yield below 1% for the first time in history.

What is US Treasury Bond Yield?
A Treasury Bill or Note is government-backed security that pays interest over time. The gain that a person has on holding the security for a certain period and at a certain interest rate is called yield. Treasury Bills usually mature in less than a year, whereas Treasury Notes usually mature in a period of 1 to 10 years. A Treasury Bond matures in more than 10 years. Treasury Bonds are fully-backed by the government and hence are considered the safest investment.

Why is it Important?
The yield of the 10-year Treasury Bond is used as a benchmark or even proxy for various loans and interest rates in the US. This security also acts as a barometer of the consumer confidence index. These bonds are auctioned by the government of US. When the general investor confidence in a country is high, meaning that the consumers or investors can find high returns on investment, a safe bet like the T-Bond does not appeal to them. Henceforth, the demand for the bond goes down, and so does the price.

Bond Yield and Bond Price have an inverse relationship. The decrease in bond price increases the yields. In this situation, the demand for the bond is low, and the government needs to offer a higher interest rate on the bond, thereby increasing the yield on the bond. On the other hand, when bond prices go up, the yield goes down. The bond is already in demand, and the government does not need to incentivize the investors by providing high interest on the bond. The demand for a T-Bond may start increasing because the investors do not have much confidence in other securities and consider this government-backed Bond a safe haven.

A 100 basis point or 1% change in the yield of the bond is considered significant and may be indicative of changing economic landscapes. It is important to look at the rates in the context of the historical trends so as to mitigate any risks and save the financial markets from collapsing.

The 10-year US T-Bond is analogous to benchmark security. A rise in its yield would also mean that the interest rates on business and consumer loans of similar and benchmark period would rise. This is because the 15-year mortgage loans, student loans, or other loans have the yield of 10-year T-Bond as their benchmark.

It must also be noted that the 10-year US T-bond yield was lower than the 2-year US T-Bond in 2019. Generally, the yield on the longer-term bonds must be higher than short term bonds. The 2019 phenomenon is called an inverted yield curve. Before every recession, US yield curve has inverted and many predicted that the US and the world economy might go through a slowdown in the coming times.

Unprecedented Lows in the US Economy
US economy could not contain the impact and the fear of sluggish global economy and the spread of Coronavirus. Right after the Federal Reserve announced half a percent cut in interest rates, the Dow Jones came crashing down. In the same trading session, the 10-year US Treasury Bond touched a low of 0.914%. Albeit regaining the 1% mark, the dip in the benchmark security raises the question of whether the US economy was already expecting this downfall as the negative impact of the Federal Reserve rate hike. US economy also witnessed the inversion of the yield curve in 2019 and this adds to the fear that the COVID-19 outbreak is spreading.

Ripple Effect
As the ripple effect of the 10-year T-Bond yield drop, markets across the world slowed down. Yields on Australian and South Korean short-term bonds dropped by 10 basis points. Indonesia’s 10-year bond yield dipped by 25 basis points. Indian bond market also saw an 8 bps drop. However, Indian rupee that has depreciated nearly 2.5% this year itself, is expected to remain strong with the Fed Res rate cut.

Investors See an Opportunity
As the 10-year T-Bond is seen as benchmark security, the interest rate on mortgage loans and other loans is likely to fall. If a consumer is planning to buy a home, the mortgage loan -which is one of the costliest in US – may be expected to come down if the bond yield hovers around 1%. Education Loans, which is another costliest loan in the US, could become significantly cheaper if the yield remains lower.

The rejig of Bond Yield Curve also affects the fair value of all asset classes like equity stocks, commodities, and currencies. Some investors believe that this valley in the time of the market could be an opportunity to reshuffle or upgrade the portfolio.


Yield curve is a curve showing several yields to maturity or interest rates across different contract lengths (2 month, 2 year, 20 year, etc. …) for a similar debt contract. The curve shows the relation between the (level of the) interest rate (or cost of borrowing) and the time to maturity, known as the “term”, of the debt for a given borrower in a given currency. The U.S. dollar interest rates paid on U.S. Treasury securities for various maturities are closely watched by many traders, and are commonly plotted on a graph such as the one on the right, which is informally called “the yield curve”.

The slope of the yield curve is one of the most powerful predictors of future economic growth, inflation, and recessions. One measure of the yield curve slope (i.e. the difference between 10-year Treasury bond rate and the 3-month Treasury bond rate) is included in the Financial Stress Index published by the St. Louis Fed. An inverted yield curve is often a harbinger of recession. A positively sloped yield curve is often a harbinger of inflationary growth. More Info