Pakistan: GDP grows at 2.09% in 3QFY24

National Accounts Committee (NAC) has released GDP estimates for 3QFY24 which have shown a growth of over 2.09% as compared to a decline of 0.42% recorded in 3QFY23. NAC has also released provisional numbers for full year FY24, suggesting growth rate of 2.38%, largely in line with market expectation of 2.5%.

Sector wise, in 3QFY24, agriculture has registered a growth of 3.94%, industry 3.84% and services 0.83%.

All the constituents of agriculture have contributed positively including important crops (up 2.89% due to wheat), other crops (up 1.14%), cotton ginning (up 61.75%) and livestock (up 4.20%).

Despite negative growth of construction industry (down 15.75%), industrial growth of +3.84% is attributable to mining & quarrying (up 0.63%), large-scale manufacturing (up 1.47%), and electricity, gas and water supply (up 37.3%).

The overall growth in services was positive 0.83% in 3QFY24 albeit having mixed trend in its constituents i.e. wholesale & retail trade (up 0.38%), transport & storage (up 0.91%), information & communication (down 5.92%), finance & insurance activities (down 7.11%), public administration & social security (down 6.38%) and education (10.38%).

NAC has revised upward the 1QFY24 and 2QFY24 GDP growth to 2.71% and 1.79% from earlier estimates of 2.50% and 1.0%, respectively.

This takes 9MFY24 average GDP growth to 2.2% which was in line with the market expectations and higher than Bloomberg survey of 1.8%.

State Bank of Pakistan (SBP) estimates that GDP growth for FY24 is in the range of 2-3% in its half year report released on May 14, 2024.

The IMF, in its country report in May 2024, projected a growth rate of 2.0% for FY24, and the World Bank, in its Apriel 2024 update, projected a GDP growth rate of 1.8% for FY24.

 

 

Iran, India cooperation in agriculture

According to Mehr News Agency, Iranian and Indian officials have agreed to form a joint committee for cooperation in agriculture between the two countries within the next three months.

The consensus was reached in a meeting between Iran's Deputy Agriculture Minister Mohammad Mehdi Borumandi and Secretary of India's Agriculture and Farmers Welfare Ministry Manoj Ahuja in New Delhi.

Borumandi, traveled to New Delhi to hold talks on the agricultural cooperation between Iran and India and met with his Indian counterpart to review the latest status of bilateral cooperation in the field of agriculture.

The officials also agreed to hold the first joint working group on agricultural cooperation between the two countries in the near future.

In the meeting, Borumandi stressed Iran's readiness for cooperation in various fields including horticultural products, medicinal plants, combating plant pests, agricultural technologies, exchange of professors and experts, and cooperation between research institutions of the two countries.

He considered the removal of tariff barriers on agricultural trade as a necessity for the future expansion of relations.

Manoj Ahuja, for his part, highlighted the cultural and geographical affinities between the two nations and expressed his country's readiness to develop agricultural relations with Iran.

Welcoming the fields proposed by the Iranian side for cooperation, the Indian official announced that the ban on the exports of kiwi to India, which had been temporarily prohibited since last year due to quarantine considerations, has been lifted.

The trade between Iran and India reached US$510 million in the first quarter of the current year, according to the data released by India’s Ministry of Commerce and Industry.

According to the report, agricultural products and especially rice had the largest share in India’s exports to Iran. Rice accounted for 63% of the total volume of exports, while fruits with US$15 million, and tea with US$10 million ranked second and third.

 

India: Implications of scraping 2000 rupee note

India will withdraw its highest denomination currency note from circulation, the central bank said on Friday. The 2000 rupee note, introduced in 2016, will remain legal tender but citizens have been asked to deposit or exchange these notes by September 30, 2023.

The decision is reminiscent of a shock move in 2016 when the Narenda Modi-led government had withdrawn 86% of the economy's currency in circulation overnight.

This time, however, the move is expected to be less disruptive as a lower value of notes is being withdrawn over a longer period of time, according to analysts and economists.

When 2000-rupee notes were introduced in 2016 they were intended to replenish the Indian economy's currency in circulation quickly after demonetization.

However, the central bank has frequently said that it wants to reduce high value notes in circulation and had stopped printing 2000 rupee notes over the past four years.

"This denomination is not commonly used for transactions," the Reserve Bank of India said in its communication while explaining the decision to withdraw these notes.

While the government and the central bank did not specify the reason for the timing of the move, analysts point out that it comes ahead of state and general elections in the country when cash usage typically spikes.

"Making such a move ahead of the general elections is a wise decision," said Rupa Rege Nitsure, group chief economist at L&T Finance Holdings. "People who have been using these notes as a store of value may face inconvenience," she said.

The value of 2000 rupee notes in circulation is 3.62 trillion Indian rupees (US$44.27 billion). This is about 10.8% of the currency in circulation.

"This withdrawal will not create any big disruption, as the notes of smaller quantity are available in sufficient quantity," said Nitsure. "Also in the past 6-7 years, the scope of digital transactions and e-commerce has expanded significantly."

But small businesses and cash-oriented sectors such as agriculture and construction could see inconvenience in the near term, said Yuvika Singhal, economist at QuantEco Research.

To the extent that people holding these notes chose to make purchases with them rather than deposit them in bank accounts, there could be some spurt in discretionary purchases such as gold, said Singhal.

As the government has asked people to deposit or exchange the notes for smaller denominations by September 30, bank deposits will rise. This comes at a time when deposit growth is lagging bank credit growth.

This will ease the pressure on deposit rate hikes, said Karthik Srinivasan, group head - financial sector ratings at rating agency ICRA Ltd.

"Since all the 2000 rupee notes will come back in the banking system, we will see a reduction in cash in circulation and that will in turn help improve banking system liquidity," said Madhavi Arora, economist at Emkay Global Financial Services.

Improved banking system liquidity and an inflow of deposits into banks could mean that short-term interest rates in the market drop as these funds get invested in shorter-term government securities, said Srinivasan.

Pakistan: Unlocking Economic Potential

This year Pakistan celebrated Independence Day (August 14), when the clouds of imminent default were getting thicker. Despite having complete faith in the economic resilience of Pakistan, people are worried about the ballooning ‘confidence deficit. They believe that breaching current account deficit as well as budget deficit is possible but overcoming confidence deficit may take years.

The brighter side of the story is that International Monetary Fund (IMF) is likely to release promised branch of about US$1.2 billion. This will pave the way for the inflow of foreign exchange from friendly countries and other multilateral lenders. At present the biggest support is coming from overseas Pakistanis who are sending around US$2.5 billion every month.

In last financial year, exports of textiles and clothing touched record high level. Now it is the responsibility of the policy planners to ensure there is no dip in export of textiles and clothing. The chances are bright because Pakistan is likely to get certain concessions under GSP Plus system.

It is my estimate that Pakistan is capable of earning more than US$50 billion per annum from export of textiles and clothing. However, to achieve this, Pakistani farmers have to double indigenous production of cotton to take textiles and clothing exports to the next level.

Since Pakistan’s exports of textiles and clothing are concentrated in United States and European countries, improvement in quality standards can boost ‘Unit Price Realization’ significantly. However, the target can only be achieved by ensuring uninterrupted supply of electricity and gas to the manufacturers at affordable cost.

A cursory look at the reasons of burgeoning current account deficit shows that import bill on energy products and edible oil are the two culprits. While boosting of oil and gas may take some time, shortfall of edible oil can be overcome by focusing cultivation oil seeds that include cotton, sunflower and canola. Nearly 50% reduction in the prices of palm oil is likely to reduce import bill of edible oil significantly. Similarly, crude oil prices are on the downwards trajectory.

This year Pakistan has been forced to import wheat due to its production below the target. Some analysts are of the view that if 20% wheat that goes stale before reaching the market can be saved, the country may not need to import the staple food, but extra foreign exchange would be earned by exporting the saved quantity.

Analysts fear that a significant quantity of wheat is smuggled to the neighboring countries. Pakistan can earn substantial foreign exchange if wheat and other food items are exported through the official channel.

Having reached at the consensus that Pakistan has to produce exportable surplus, supporting policies have to be evolved and implemented. These include operating fertilizer plants at or above name plate capacity. It is necessary to bring it at record that as against an installed capacity capable of 7 million tons urea annually, the country produced around 6 million tons. An additional one million tons of urea can be produced by supply ‘full required’ quantity of gas to urea plants.

At the prevailing global prices of urea, Pakistan can earn significantly foreign exchange by exporting urea, part of this may be used to import LNG or meeting the difference in cost of generation when furnace oil is used.

At stated earlier saving the wheat from going stale or containing smuggling its smuggling is possible. Government has to ensure construction of modern storage silos capable of storing up to 50 million tons to store wheat, rice and maize.

The central bank has already announced an incentive ladden plan for the construction of silos. It is necessary to share the news that warehouses have issued warehouse house receipts worth PKR100 billion electronically. However, this is only tip of the iceberg. Now it is the responsibility of the Government of Pakistan, central bank and commercial banks to convince the farmers to store their produce at the modern silos.

It is often said that indigenous production of oil and gas is constantly doing down. This process can be decelerated by drilling more exploratory and production wells. Along with this refineries operating in the country have to be up gradated to produce higher distillates.

This year Pakistan has once again faced floods, which has once again highlighted the need for the construction of dams. It is known to all and sundry that Pakistan is capable of producing more than 40,000MW electricity from hydel plants.

A lot of time has been wasted in finding justifications for some disputed dams. Analysts are of the view that Pakistan should establish ‘run of the river, type hydel power generation units. These are not only low cost but can be constructed within shorter span of time.

The added advantage is that cost of electricity produced from hydel facilities is one tenth of the cost of electricity produced at thermal plants. These hydel power plants can be constructed closer to the point of consumption. There will be no need to construct long transmission lines and transmission. The additional advantage is reduction in the transmission and distribution (T&D) losses.   

 

 

 

Indian agriculture to face investment crunch

Repeal of agriculture laws in India aimed at deregulating produce markets will starve its vast farm sector of much-needed private investment and saddle the government with budget-sapping subsidies for years.

Late last year, the government headed by Prime Minister Narendra Modi introduced three laws meant to open up agriculture markets to companies and attract private investment, triggering India's longest-running protest by farmers who said the reforms would allow corporations to exploit them.

With an eye on a critical election in populous Uttar Pradesh state early next year, Modi agreed to rescind the laws in November, hoping to smooth relations with the powerful farm lobby which sustains nearly half the country's 1.3 billion people and accounts for about 15% of the US$2.7 trillion economy.

But by shelving the most ambitious overhaul in decades, Modi's backtracking now seemingly rules out much-needed upgrades of the creaky post-harvest supply chain to cut wastage, spur crop diversification, and boost farmers' incomes.

"This is not good for agriculture, this is not good for India," said Gautam Chikermane, a senior economist and vice president at New Delhi-based Observer Research Foundation.

"All incentives to shift towards a more efficient, market-linked system (in agriculture) have been smothered."

The u-turn does allay farmers' fears of losing the minimum price system for basic crops, which growers say guarantees India's grain self-sufficiency.

"It appears the government realized that there's merit in the farmers' argument that opening up the sector would make them vulnerable to large companies, hammer commodities prices and hit farmers' income," said Devinder Sharma, a farm policy expert who has supported the growers' movement.

But the grueling year-long standoff also means no political party will attempt any similar reforms for at least a quarter-century, Chikermane said.

And, in the absence of private investment, "inefficiencies in the system will continue to deliver wastage and food will continue to rot," he warned.

India ranks 101 out of 116 countries on the Global Hunger Index, with malnutrition accounting for 68% of child deaths.

Yet it wastes around 67 million tons of food every year, worth about US$12.25 billion - nearly five times that of most large economies - according to various studies.

Inadequate cold-chain storage, shortages of refrigerated trucks and insufficient food processing facilities are the main causes of waste.

The farm laws promised to allow private traders, retailers and food processors to buy directly from farmers, bypassing more than 7,000 government-regulated wholesale markets where middlemen's commissions and market fees add to consumer costs.

Ending the rule that food must flow through the approved markets would have encouraged private participation in the supply chain, giving both Indian and global companies incentives to invest in the sector, traders and economists said.

"The agriculture laws would have removed the biggest impediment to large-scale purchases of farm goods by big corporations," said Harish Galipelli, Director at ILA Commodities India, which trades farm goods. "And that would have encouraged corporations to bring investment to revamp and modernize the whole food supply chain."

Galipelli's firm will now have to re-evaluate its plans.

"We have had plans to scale up our business," said Galipelli. "We would have expanded had the laws stayed."

Other firms specializing in warehousing, food processing and trading are also expected to review their expansion strategies, he said.

Poor post-harvest handling of produce also causes prices of perishables to yo-yo in India. Only three months ago, farmers dumped tomatoes on the road as prices crashed, but now consumers are paying a steep 100 rupees (US$1.34) a kilogram.

The laws would have helped the $34 billion food processing sector grow exponentially, according to the Confederation of Indian Industry (CII), an industry group.

Demand for fruits and vegetables would have gone up. And that would have cut surplus rice and wheat output, slicing bulging stocks of the staples worth billions of dollars in state warehouses, economists said.

"Crop diversification would also have helped rein in subsidy spending and narrow the fiscal deficit," said Sandip Das, a New Delhi-based researcher and farm policy analyst.

Food Corporation of India (FCI), the state crop procurement agency, racked up a record US$51.83 billion in debt by last fiscal year, alarming policymakers and inflating the country's food subsidy bill to a record US$70.16 billion in the year to March 2021.

However, while the federal government now has limited scope for change, local authorities "can opt for reforms provided they have the political will to do so," said Bidisha Ganguly, an economist at CII.

Similarly, venture capital-funded startups have also expressed interest in India's agriculture sector.

"Agritech, if it is allowed to take root, has the potential to enable a better handshake of farmers and consumers through their technological platforms," Chikermane said.