Internationalization of Indian Rupee-RBI’s major move to settle worldwide transactions in Indian Rupee

To promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, Reserve bank of India (RBI) puts in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR. This means that now the exports and imports will be denominated in rupees. It is expected that this move will reduce the demand for dollars and lead to a reduction in foreign currency risks and exchange rate risks due to forex fluctuations.

It can lower transaction costs of cross-border trade and investment operations by mitigating exchange rate risk but makes the simultaneous pursuit of exchange rate stability and a domestically oriented monetary policy more challenging, unless supported by large and deep domestic financial markets that could effectively absorb external shocks.

The broad framework for cross border trade transactions in INR under Foreign Exchange Management Act, 1999 (FEMA) is as delineated below:

  • Invoicing: All exports and imports under this arrangement may be denominated and invoiced in Rupee (INR).
  • Exchange Rate: Exchange rate between the currencies of the two trading partner countries may be market determined.
  • Settlement: The settlement of trade transactions under this arrangement shall take place in INR in accordance with the procedure laid down in Para 3 of this circular.

Further, in terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD[1] banks in India have been permitted to open Rupee Vostro Accounts. Accordingly, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country. To allow settlement of international trade transactions through this arrangement, it has been decided that:

  • Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.
  • Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.

At times of inflationary pressures, higher than the world average inflation rate undermines the use of the currency as an international medium of exchange and a store of value and can restrict the role of such an economy in global value chains. Thus, the primary focus of flexible inflation targeting framework on price stability augurs well for further liberalisation of the capital account and internationalisation of the rupee.

With countries facing foreign exchange shortages, use of rupees as a medium of forex would largely reduce the risk and burden associated with dollar in recent times. Along with benefits to exports it would also lower the transaction costs involved in international trade. For instance, with Russia sanctions in place, trade has almost come to a halt due to payment problems. As a result of the trade-facilitation mechanism introduced by the RBI, we see payment issues with Russia easing.

In the process of phased adoption of the same, the RBI would have to be careful in managing the stability of money supply and interest rate especially with soaring inflation in Indian economy despite the RBI’s inflation targeting policies. RBI monitors the exchange rates as a key information variable for monetary policy formulation as inflation can still alter by 10-13 per cent of the change in exchange rate. A stable and efficient domestic financial market will also help absorb the external shocks with exchange rate now being determined by market completely and capital account progressively being fully convertible.

#Intueri’s Views

Antara Mukherjee

[1] Authorised Dealer Banks

The prospects of the emerging trade ties between India and Australia

Fuelled by the complementarities of the two nations, the recent decade has seen remarkable growth in trading relations between India and Australia. The countries have witnessed an ascending growth in their two-way trade volumes, with a trade value growth from $13.6 billion in 2007 to $24.3 billion in 2020. In 2020, India was recognized as Australia’s 6th Largest Export market, after being the recipient of almost $17 billion worth of exports. Furthermore, the Indo-Australian trade pact has provided a larger impetus to boost trade, generate employment and collaborate in other socio-economic aspects.

The history of the bilateral relation

The historical ties between the two countries date back to 1788 followed by the European settlement in Australia.[1]   All trade movements from the penal colony of New South Wales were controlled by the British East India Company through Kolkata. In due time, the relationship underwent an evolution developing along with an existing economic and positive engagement, into a long-term strategic partnership. In explaining the roots of this bilateral tie, the policy document published by the Ministry of Economic Affairs, GoI, states – “The two nations have much in common, underpinned by shared values of a pluralistic, Westminster-style democracy, Commonwealth traditions, expanding economic engagement and increasing high-level interaction. The long-standing people-to-people ties, ever-increasing Indian students coming to Australia for higher education, growing tourism and sporting links have played a significant role in further strengthening bilateral relations between the two countries.” The White paper released by the Australian government on its foreign trade policy in 2017, has already identified India to be in the front rank of Australia’s international partnership. The countries share congruent security interests in terms of maintaining stability and strategic openness of the Indian Ocean.

Such similar economic, security and political interests have recently pushed the leaders of the two countries to pave way for free trade and strengthen the gains from duty-free access to goods. India and Australia have recently signed a trade pact – ‘The Economic Cooperation and Trade Agreement (IndAus ECTA)’,  which has promised to provide duty-free market access to 96% of India’s exports to Australia.

Product Profiling

The following visualizations exhibit the trade basket composition of the two countries –

Most of the exports entering India (for instance HSN Code – 210690, 220410, 220421, 220422, 220710, etc.) were subjected to a tariff rate of 150% which are to be eliminated in a phased manner. Similarly, exports from India (for instance HSN Code – 040610, 040630, 071290, 081310, 081330, 110510, etc.) were under the tariff bracket of 26%-5%. Therefore, the trade agreement would boost trade in these commodities, which will experience higher price competitiveness in domestic markets. The gain from the agreement is likely to be greater for Australia than India because of its higher rate of initial tariff barrier.

What does the Economic Cooperation and Trade Agreement (IndAus ECTA) have to offer to India?

The long-awaited pact is likely to boost bilateral trade in goods and services to $45-50 billion in the next 5-years from the current level of $27 billion.[2] As per the estimates of the Indian government, the favourable impact on employment figures would be prominent as well. It is likely to generate more than 1 million jobs, both through direct and indirect channels. Some of the Australian export goods that stand to gain from the duty-free access are coal, sheep meat, wool, wines, almonds, lentils, and certain fruits. Overall, 85% of Australian export would enter the Indian market duty-free.

Analyzing in the purview of Indian producers and consumers, while the trade pact would save the surplus for the consumers and give them access to a broader set of choices at an affordable rate- domestic producers may face steep competition from the increased price-competitiveness of the Australian exports. Though the current coverage of duty-free exports of India stands at 96%, the agreement pledges to expand the scope of the agreement to 100% in the next 5 years. Hence, domestic producers may also gain through tariff-free market penetration in the Australian market. The ultimate impact on the domestic production may be ambiguous – the direction and magnitude of which depends on how it can exploit the provisions of the agreement to remain competitive in the domestic market while maximizing its trade footprint in the newly opened foreign market.

Without the trade deal in place, Indian exports were subject to a 4-5% higher tariff rate in many labour-intensive sectors relative to its competitors like China, Thailand, and Vietnam, which already has a Free Trade Agreement (FTA) with Australia. Therefore, this trade deal would provide India with a level playing field in addition to a significant boost to its merchandise exports. India has reserved some key products under the ‘sensitive product’ category which would allow her to protect her nascent domestic sector against cheaper and better-quality Australian products. These products include dairy, wheat, rice, chickpeas, beef, iron ore, sugar, toys, apples, and others. Apart from the tariff barriers, the scope of the agreement has been expanded to include strict provisions on rules of origin. Strict rules of origin prevent any routing of products from other countries and provide for a safeguard mechanism to address any sudden surges in imports of a product. Unlike most of the other trade agreements, this has expanded the scope beyond trade barriers and included equally important provisions of non-tariff barriers and rules of origin.

The following chart shows the composition of the trade basket between India and Australia for the period 2017-2021 –

Source: DFAT, ABS[3]

Looking at the above chart, we can deduce that agricultural products, minerals, and fuels which are occupying a larger share of India’s export basket are envisaged to gain significantly through this tariff-free access.

Possible threats/areas of improvement of the pact

While there is no denying the fact that the scope of the trade deal is sufficiently broad, it is to be noted that this is just an interim agreement. However, some possible areas of pitfalls that need attention are highlighted below –

  • Since a large chunk of Australia’s agricultural exports were left out of the purview of the preferential treatment, the benefit to be accrued to the middle class of the country is not well-defined. A possible tariff cut and a consequent price reduction of these agrarian goods could have been a desirable choice made for the middle class. A strategic reduction of tariffs on these goods by a few percentage points would be a viable solution, if not zero-tariff.
  • Moreover, the Medium and Small Enterprises of India (MSEs) may witness a shrinkage in their domestic market shares with the rapid emergence of tariff-free Australian goods. Small and fragmented producers of wool, cotton, vegetables, metals, etc., may have to cut profit margins to survive in the market and compete with foreign export.
  • As the agreement has aptly internalized non-tariff barriers along with the tariff barriers, excessive preferential treatment in case of non-tariff barriers may go against the national interest. For instance, non-tariff measures like labeling requirements, certification proof, chemical content level, or hygiene requirements should only be lowered keeping in mind a scientific range and national health mandates in mind.
  • Lastly, with India’s reputation of disparate trade agreements with receiving minimum returns while giving maximum possible market advantage to its counterpart, the persistent trade imbalance may broaden even more.[4]

Recommendations and Way Forward

This interim trade pact is seen as just the beginning of the strategic partnership between the two nations. To further facilitate bilateral trade, Australia is all set to sign an even larger trade agreement with India – Comprehensive Economic Cooperation Agreement (CEPA) by the end of this year. The CEPA would add value to the  ‘IndAus ECTA’ pact by including provisions on digital trade. The ongoing global pandemic has popularized the digitalization of trade with increasing momentum. Thus, excluding digital trade from the purview of any trade agreement would ideally deem it incomplete. Apart from the CEPA, the two countries have set a long-term vision for promoting a few priority sectors. Originally released in 2018 by the Australian government, the ‘India Economic Strategy 2035’ aims to forge long-run partnerships in sectors like energy, tourism, education, health, and security.

India and Australia also share a trilateral Supply Chain Resilience Initiative (SCRI) with Japan that can be further strengthened through this trade agreement. The countries can align their efforts in capacity building, and promotion of domestic manufacturing and explore other partners to join hands in this initiative. Moreover, both the countries being active members of the QUAD (Quadrilateral Security Dialogue), can leverage the collation to generate further impetus for increasing trade relations between all the members of the QUAD. Therefore, holistic economic cooperation that not only covers international trade-related interests but also helps the countries to move towards the vision of strategic partnership encompassing various allied areas of shared interest should also be internalized as a part of long-term economic cooperation.

Implications for the corporates

Once ratified by the Australian Parliament, it is going to have a beneficial impact on Indian IT firms. The tax levied by the Australian Tax Authority (ATO) on the income of certain offshore technical services provided by IT companies shall be exempted from tax. This move is likely to enhance the profitability of Indian IT corporates and boost the volume of offshore services. [5]

Moreover, corporates taking part in exploring bilateral trade opportunities and finding ways to enhance trade footprint between countries may use the opportunity to help the exporters identify newer trade channels and take benefit of the agreement’s provision. The plethora of opportunities opened by this trade agreement can be tapped with the expertise of international trade economists and experts. Consultation on improving trade finance, trade revenue, avoiding trade barriers, and identifying investment opportunities may be availed by organizations trying to leverage the bilateral trade relation between India and Australia.

[1] Source: Ministry of Economic Affairs, Government of India

[2] Source: India, Australia sign FTA, trade likely to ‘double in 5 yrs, generate 1 mn jobs’, The Indian Express

[3] Source: Australia—Trade agreement with India boosts export opportunities, official website of Government of Australia’s export finance dept.


[5] Source: India-Australia trade pact will benefit IT firms, published on Business Line by Ashutosh Dikshit

India-UAE Comprehensive Economic Partnership Agreement (CEPA) – the impact of bilateral ties and international trade

Overview of bilateral relation

India and the United Arab Emirates (UAE) enjoy a strong bond of diplomatic, economic, and cultural ties. UAE is the third-largest trading partner of India whereas India is the second-largest trading partner of UAE. Trade volume between India and UAE stood at $53 billion during 2021-22 of which $20 billion was export value from India and imports were worth $33 billion.

The following illustration explores India’s export basket to UAE by highlighting the highest exported products and their percentage share in total trade –

Source: Observatory of Economic Complexity (OEC)

Indian nationals make up one of the largest population groups in the UAE, a major source of foreign remittance and Net Factor Income from Abroad (NFIA). UAE is home to more than 35 lakh Indian-origin people. The flow of Foreign Direct Investment (FDI) between the two countries is also immense. As per the UAE Embassy in India, the total bilateral FDI flow recorded was $67 billion from 2003 to 2021. The FDI flow from India to UAE was concentrated in sectors like coal, oil and gas, and real estate while a significant amount of UAE’s FDI flowed into India’s real estate, ceramics, and glass industries. Despite these significant bilateral ties, India and UAE were not part of any trade agreement, customs union, or regional economic cooperation. The countries imposed the Most Favored Nation (MFN) tariffs on each other.

Following are the products which were subjected to the highest tariff rates by both the countries –

                     Highest tariff products by UAE                         Highest tariff products by India     


Source: Observatory of economic complexity

The weighted averages of MFN tariffs applied by UAE and India were 3.94% and 6.59% respectively in 2021. Such high tariff rates reduced the competitiveness of the products in foreign markets and the full market potential could not be utilized. Apart from tariffs, non-tariff barriers played a pivotal role in restricting the domestic producers of each country to expand their footprints in foreign markets.

Indian products in the UAE market were subjected to the following categories of Non-tariff Measures and Barriers till 2021-

Source: World Integrated Trade Solutions (WITS)

How CEPA would benefit India?

The landmark CEPA signed between the two countries is a major boost to the bilateral relation and economic cooperation between the two countries. Negotiations for the trade deal were closed within the shortest possible duration of 88 days which shows the desire of both nations to actively participate in the mutually beneficial economic deal. Very aptly pointed out by Indian Commerce and Industry Minister, Shri Piyush Goyal, through this agreement, India may enter the “golden era of economic and trade cooperation.” As per the estimates, the free trade agreement is anticipated to increase the bilateral non-oil trade between the countries to $100 billion from the current $60 million, over the next five years.[1] Moreover, it is expected to create more than 10 lakh jobs in India by boosting the export of labor-intensive goods.[2]

Given the strong trade relationship between the two countries, signing a free trade agreement would benefit the consumers as well as producers of both countries. Under the CEPA, both countries would be able to reap the benefits of free trade as exports would be tariff-free. The consumer surplus would go up while producers would benefit through increased profit margin induced by the enhanced competitiveness of their products.

Some of the most significant benefits of this free trade agreement are listed below –

  • Enhanced market access opportunity in the Middle East and North American (MENA) region

This agreement would act as a gateway to expand India’s trade in the Gulf region. Negotiation of similar trade deals with other Gulf Cooperation Council (GCC) countries like Kuwait, Saudi Arabia, Oman, and Bahrain would be easier. Moreover, the transport and logistic infrastructure, if exploited optimally through this FTA, would provide better market access to the wider MENA region. As a result, the spillover effect or positive externality of this agreement is anticipated to be enormous.

  • Boosting India’s export and foreign reserve

Tariff often makes exports expensive in the foreign market and reduces their demand. Since the primary objective of any tariff measure is to provide a price cushion to domestic producers, it makes exports less competitive in the tariff imposing country. Through this free trade agreement, both the countries would enjoy tariff-free access to each other’s market. 90% of India’s export and 80% of the total lines of the trade from India to UAE would be subjected to free tariffs. The range of products and tariff lines would be expanded more in the upcoming five years. The foreign exchange reserve of India is envisaged to grow as export revenue starts skyrocketing.

  • Attracting investment in India

Both foreign direct investment (FDI) and foreign portfolio investment (FPI) are expected to grow. The trade deal would create a conducive environment for investors and attract more funds to the Indian market. Deep-pocketed investors of the UAE would decipher this as a sign of an optimistic business opportunity.

  • Beneficial for MSME and Startup

The partnership will help small enterprises, startups, heath-tech, edu-tech, and fintech firms of India by opening up a new market. All segments of the business including traders and farmers would gain as a new door of opportunity and investment would induce business confidence. The ease of doing business in many segments like generic medicines, gold, diamond, gems, and jewelry would improve. New avenues of digital trade have taken center stage in the agreement as governments have identified e-commerce and e-payment solutions to be of special focus.

  • Reduction in remittance fees and increase in savings

The deal is definitive to uplift the UAE-India remittance corridor. Already the remittance fees on the transaction in the UAE-India corridor are among the lowest globally (the rate stands at 5.31% while the global average stands at 6.3%). An additional five percentage point reduction, as suggested in the deal, would convert into a total of $16 billion savings, combining the two countries.[3] The increased level of transaction, following these favorable provisions, would incentivize the fintech sector.

  • Partnership in climate change

With increasing attention towards global warming and climate change-related issues, the deal has appropriately internalized some of the issues. Both countries have pledged to support each other in achieving a clean energy mission. A remarkable development of this deal is the decision to establish a joint hydrogen task force and scale-up technology through a focus on green and renewable energy generation.

  • Collaboration on defence and security-related measures

The two nations have promised to cooperate in maintaining peace and stability in the middle eastern region. They will extend all possible support to each other in defence exchange, sharing technology, training, and capacity building that may be necessary for achieving the aforementioned objective.

Thus, the vast coverage of the deal in terms of encompassing several important economic, social, trade, and political matters is commendable.

  • Possible threats from the agreement

India has a reputation for signing unequal trade deals and failing to make capital out of seemingly beneficial agreements. Some of the possible areas of threat of this agreement are as follows:

  • Despite a plethora of opportunities, there is a possibility of the Indian market being flooded by high-tech and low-priced imported goods from MENA and UAE which may ultimately hurt domestic capital-intensive industries.
  • As the FTA is evident to create a significant volume of international trade between India and UAE, other trade partners of India may be hurt due to the trade diversion. For instance, trade from China in electronic devices, equipment, and fittings (HS 85472000, HS 85479090, and HS 85471090)[4] may be diversified to UAE and reduce the trade volume between the two nations. Trade relation has a direct impact on economic and bilateral ties which may also be affected as a result of this diversification.

The deal has the potential of “opening up a myriad of opportunities for professional, entrepreneurial and overall human development”.[5] However, India needs to put enough effort into exploiting the benefits to its maximum possible extent and not let this golden opportunity turn out to be just another trade deal that benefits the partner more at the cost of reduced welfare of the country. Collaboration and cooperation between government, corporates, businesses, and consumers are necessary to ensure optimal use and implementation of all the preferential measures and clauses of the agreement.

Way Forward

With an increasing focus on economic integration and globalization, regional, bilateral, and multilateral economic cooperation is assuming immense importance. Thus, India should continue playing a proactive role in the negotiation and implementation of free and preferential trade agreements.

Following are some of the subsequent action points that India should pursue through this pact to maximize its gain and welfare –

  • Since UAE acts as a major redistribution center and most of the African exports are routed through UAE, CEPA should be seen as an opportunity to capture the African market and drive warehousing and distribution centers in the UAE for Indian exporters.
  • UAE is India’s key energy provider and has shown interest in meeting India’s energy demand through increased supply and reduced price.
  • Some areas of cooperation and partnership where the deal may be extended, and the scope of collaboration may be utilized include food security, healthcare, education, technology, and culture.
  • The huge opportunity of increasing market access in MENA and the Gulf region should not go in vain. Immediate talks and negotiations between the leaders of the country may be initiated to keep this deal moving forward.

Concluding Remarks

The blog is intended to serve a wide spectrum of audiences, with or without any prior understanding of international trade relations or international economics. Policymakers, academicians, researchers, and corporate houses interested in understanding and developing expertise in this area may find the blog a good read. For instance, an exporting and trading company may find ways to penetrate in UAE market and increase its business footprint in the Gulf region by identifying some opportunities for its product through this blog. Anyone interested in international development and trade would get to know the newly developing cordial relationship between the two countries. A policymaker or a researcher may get ideas to expand the research and discover ways to establish such agreements with other trading partners of India.

[NOTE: The purpose of this blog is to shed light on the various aspects of the India-UAE CEPA agreement. Through providing a critical review of the agreement, the blog has tried to identify some future possibilities that may be exploited by India through duty-free access into UAE, MENA, and Gulf regions. The blog identifies some areas of threat and possible ways forward for India to make the most out of the agreement.]


[1] Source: Comprehensive Economic Partnership Agreement — A game-changer? – News | Khaleej Times

[2] Source: India, UAE CEPA agreement to provide 10 lakh job opportunities; increase bilateral trade by USD 100 billion: Piyush Goyal – ThePrint

[3] Source: UAE and India CEPA deal can influence the cost of remittances too | Markets – Gulf News

[4] Source: Top Export Products from United-arab-emirates to India – Volza

[5] Source:

RBI Monetary Policy and its Impact on the Indian Economy

Background and Introduction

As the global economy continues to recover amidst the resurgence of COVID-19, the rapid spread of the Delta variant and the threats of new variants have increased uncertainties of overcoming the pandemic. This is also making policy choices difficult with multidimensional challenges of subdued employment growth, rising inflation, food insecurity and setback to human capital accumulation leaving very little room to manoeuvre. The global economy is expected to grow 5.9% in 2021 and 4.9% in 2022 (WEO[1] October 2021). The slight downward revision in global growth (from the July WEO update) is largely due to downgrade for advanced economies- a part led by supply chain disruptions and worsening pandemic dynamics for low-income developing countries.

It is broadly realized at this juncture of the pandemic reoccurrence that the principal drivers of the gaps are vaccine access and policy support. India, as one of the largest producers of vaccines in the world is expected to contribute to the global progress towards a pandemic solution. After initial hiccups, vaccinations picked up reasonably. At the current pace, India is likely to vaccinate about 40% of its population by end-2021.

India during the first and second waves of the COVID-19 have reacted with different policy measures starting from full nation-wide lockdown to localized lockdown measures with phased reopening of economic activities however, despite dynamic policy support, the aftermath of the pandemic has led to a deep and broad-based economic downturn, followed by a gradual recovery. India prior to the COVID-19 shock was already slowing with growth at 4% in FY 2019-20, reflecting a decline in private domestic demand. At the start of the pandemic Indian policymakers and authorities have undertaken several emergency measures both on fiscal as well as the monetary front. Monetary easing, liquidity, and regulatory measures for the financial sector, as well as credit and debt relief programs for borrowers were announced along with structural reforms. The first wave led to a GDP contraction of 7.3% in FY 2020-21 with contact-sensitive services, construction, mining and manufacturing being most impacted. Supply chain disruptions saw investment and employment fall sharply with private consumption down 9% and gross fixed capital formation, 10.8%. Inflationary pressures persisted from food supply shocks and supply chain disruptions. Inflation peaked at 7.6% in October 2020 but although inflation eased recently, elevated core inflation at 5.8% reflects broad-based price measures.

It thus calls for strong policy intervention by the Central Bank of India-Reserve Bank of India (RBI) in tandem with the Government’s fiscal support. The RBI has provided significant, broad-based monetary easing through interest rate cuts and accommodative forward guidance. On the back of the pandemic risks, the monetary policies adopted by the RBI until recently and its impact on the Indian economy are discussed in this paper.

Reserve Bank of India and its Monetary Policy Stance

Accommodative monetary policy by the RBI has helped ease liquidity measures giving households access to money. [2]Since the pandemic, repo and reverse repo rates were cut by 115 and 155 basis points (bps) to 4 and 3.35%, respectively, building on the pre-pandemic easing of 135 bps; the cash reserve requirement was reduced by 100 bps. The accommodative policy stance was aided by both time- and state-contingent forward guidance on policy rates and, more recently, on asset purchases, to better anchor market expectations amid unprecedented uncertainties.

Various liquidity measures resulted in a cumulative injection of over 6 percent of GDP during February 2020 – 2021 and helped avoid a broad-based liquidity crunch for both financial and nonfinancial corporates. The recent formalization and market guidance on asset purchases has helped anchor market expectations amid unprecedented uncertainties. The impact of the announcement of asset purchases on longer-term yields has been in line with that in other emerging markets. Continued asset purchases should allow market forces to be reflected in prices and to preserve central bank credibility.

As the second wave retarded momentum, the negative impact of it on growth requires continued monetary policy support while accounting for any fiscal support that ensures liquidity support reaches viable firms in vulnerable sectors. Together with this, inflationary pressures need to be monitored with implications for growth-inflation trade off.

In the most recent RBI monetary policy released in October 2021, the policy rates were left unchanged. Repo rate continued at 4% while reverse repo and MSF remained at 3.35% and 4.25% respectively. While global economic recovery momentum ebbs under the rapid spread of Delta variant in many countries, the Indian economy till now is recovering as reflected by recent data. The rebound in economic activity gained traction in August-September led by retreating of infections, easing of restrictions and a sharp pick-up in the pace of vaccination. Industrial production posted a high year-on-year growth for the fifth consecutive month in July. The manufacturing PMI at 53.7 in September remained in positive territory. Services activity gained ground with support from the pent-up demand for contact-intensive activities. The services PMI continued in the expansion zone in September at 55.2, although some sub-components moderated. High-frequency indicators for August-September – railway freight traffic; cement production; electricity demand; port cargo; e-way bills; GST and toll collections – suggest progress in the normalisation of economic activity relative to pre-pandemic levels. Headline CPI inflation at 5.3 per cent in August softened for the second consecutive month driven by easing food inflation. Core inflation, however, remained elevated and sticky.

Going forward, the inflation trajectory is set to edge down in the next quarter of the year, drawing comfort from the recent catch-up in kharif sowing and likely record production. In addition to adequate buffer stock of food grains, these factors should help in keeping cereal prices range bound. Vegetable prices, which are a major source of inflation volatility, have remained contained so far this year and are expected to remain soft, assuming no disruption from unseasonal rains. Supply side interventions by the Government in the case of pulses and edible oils are helping bridge the demand supply gap; the situation is anticipated to improve with kharif harvest arrivals. The resurgence of edible oils prices in the recent period, however, is a cause for worry. On the other side, pressures persist from crude oil prices which remain volatile over uncertainties on the global supply and demand conditions. The CPI headline momentum is moderating with the ease in food prices which, combined with favourable base effects, could bring about a substantial softening in inflation in the near-term.[3]

As domestic activity is gaining momentum, going forward rural demand is expected to maintain its buoyancy due to the above normal kharif sowing and bright rabi prospects. The significant acceleration in the pace of vaccination, the sustained lowering of new infections and the coming festival season is anticipated to support a rebound in the pent-up demand for contact intensive services, strengthening the demand for non-contact intensive services, while reinforcing urban demand. Monetary and financial conditions will continue to be  easy and supportive of growth. Capacity utilisation is improving, complementing the revival in business outlook and consumer confidence. The broad-based reforms by the government focusing on infrastructure development, asset monetisation, taxation, telecom sector and banking sector is likely to boost investor confidence, enhance capacity expansion and facilitate crowding in of private investment. The outlook for aggregate demand is progressively improving but the slack is large: output is still below pre-COVID level, and the recovery is uneven and critically dependent upon policy support.

The RBI monetary policy tone is encouraging to instil confidence for business improvement and growth while anchoring inflation within the target rate and remaining watchful of the risks- both domestic and international.

Monetary Policy Stance-Advanced Economies

According to the RBI, the total monetary support extended globally by central banks is estimated to be about US$18.0trillion as of August 2021. This support has been predominantly in the form of asset purchases, around US$11.6 trillion, followed by lending operations of US$4.4 trillion. The policy stance has remained divergent across countries with a few major AEs and EMEs maintaining an accommodative stance while the others beginning or continuing withdrawal of monetary stimulus.

Fed in its latest FOMC meeting held in September kept interest rates unchanged but remained committed to the tapering of bond purchases if the progress is as expected. Despite risks of the new Delta variant and slow jobs growth data, the Fed is hopeful that progress in vaccinations and strong policy support will improve economic activity and employment. The Fed noted Inflation being elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The ECB in review of the financial conditions and economic outlook kept the key ECB rates unaltered with moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP). The Euro-Area is witnessing an increasingly advanced rebound phase in the pandemic recovery. Output is expected to exceed pre-pandemic levels as more than 70% of the adults are fully vaccinated, the economy has reopened largely, consumer spending is rising, and production is also increasing. Inflation has edged up in the last reading mainly led by strong increase in oil prices, however, over medium-term inflation is expected to be well within the 2% target. The risks from the global spread of the Delta variant of COVID-19, however, could deter full reopening of the economy. Overall, the risks are broadly balanced as financial conditions of firms, households and the public sector  look favourable (Bank lending rates for firms and households being at historically low levels, solid bank balance sheets, etc.). The economic rebound and recovery are thus much dependent on the course of the virus and progress of vaccinations. ECB’s forward guidance is focused on sustained recovery with inflation targeting.

Thus, the multi-speed economic recovery across countries is becoming increasingly susceptible to renewed bouts of rapid spread of infections. Globally, economies have seen a perceptible slowdown of economic activity in the recent months, particularly in Asia. Inflation remains high across the world, with supply disruptions becoming more widespread. The pervading threat of the delta variant has led monetary authorities – that had earlier signalled unwinding – to be on hold, while incremental inflationary pressures have made others signal a sooner unwinding.


As the country recovers from the ‘technical recession’ caused by the pandemic, few of the other risks that may have downside effects on the Indian economy include:

  • Regional tensions between the South Asian neighbours-China, India and Pakistan. Tensions along the borders will continue to remain top priorities of the countries.
  • Intensifying of farmer protests led by the Parliament passing key farm bills have warned supply chain disruptions and logistics deterring economic recovery from the pandemic.

In the aftermath of COVID-19, risks from geopolitical shifts are likely to remain the major challenge for India. Border tensions and implications of it will also have adverse effects on the revival of the economy.

The Indian economy is picking up steam amidst the stressful global risks’ situation. Recovery although is uneven and trudging through soft patches, the step-up in vaccinations, fall in new cases/mortality rates and normalising mobility has rebuilt confidence. Domestic demand strengthening while recouping aggregate supply conditions as manufacturing and services revives is indicating economic improvement going forward. Inflation expectations are also in close alignment with the target.

The RBI in its policy meeting also announced additional measures on developmental and regulatory policies as further liquidity measures and easing financial conditions and inclusion. These included:

  • To tap the potential of MSMEs and help them overcome the aftereffects of the pandemic a three-year special long-term repo operations facility (SLTRO) which was introduced in May 2021 has been extended till December 2021.
  • To promote ways for digital economy, initiatives were undertaken to introduce

offline mode of retail digital payments especially in remote areas.

  • Deepening digital payments penetration across countries was identified to be a priority area for financial inclusion. To accelerate the pace of setting up a Payments Infrastructure Development Fund (PIDF), Geo-tagging of Payment System Touch Points is to be established. This step is envisaged to ensure a balanced spread of infrastructural acceptance across length and breadth of the country.
  • Further impetus was provided on priority sector lending by bank registered NBFCs. This, in turn, is expected to have a trickledown effect on growth of employment and economy.
  • The Committee observed that NBFCs have played an increasingly important role in encouraging financial inclusion. Thus, to further strengthen the NBFCs, emphasis was given on developing the Internal grievance redress mechanism of NBFCs.

Thus, the outlook remains overcast by the future path of the pandemic. Nonetheless, the accelerated progress in the pace of vaccination, release of pent-up demand in the upcoming festival season, boost to investment activity from the government’s focus on infrastructure and asset monetisation, and accommodative monetary and liquidity conditions provide an upside to the baseline growth path. A faster resolution of supply chain disruptions, good food grains production and effective supply management is likely to cause inflation to undershoot the baseline, contingent on the evolution of the pandemic and the efficacy of vaccines[4].

[1] World Economic Outlook, IMF, October 2021

[2] International Monetary Fund-Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for India, October 2021.

[3] RBI Monetary Policy Statement, October 2021

[4] RBI Monetary Policy Report, October 2021

Author: Antara Mukherjee

International Trade Policy of India

International trade plays an important role in enriching the economic growth of any nation. Through specialization and division of labor, trade promotes efficient utilization of scarce resources. Since trade is part of a country’s Gross National Product (GNP), it plays a pivotal role in providing employment, raising standard of living, and enabling consumers to choose from a wider set of goods and services. 

Supply Chain Resilience Initiative


Disruption of supplies from a particular country due to natural calamities, such as pandemics or man-made events, such as armed conflicts, can adversely impact the destination country’s economic activities. Even before the world could completely grasp the devastating health consequences of SARS-CoV-2, China’s desperate battle to contain the new virus forced the imposition of total lockdowns in several pockets of the country. The sudden halt in China’s economic activities had set alarm bells ringing across many international borders as supply shocks began to jolt the destination countries. As the world slowly came to terms with the true virulence of the deadly new virus, China’s economic slowdown’s adverse ripple effects made a compelling argument for the need for Supply Chain Resilience of the most affected destinations.

Supply Chain Resilience Initiative (SCRI)

Mooted initially by Japan, the Supply Chain Resilience Initiative aims to diversify a country’s supply risk across various supplying countries instead of being dependent on just one (or a few).  Japan conceptualised the SCRI as a trilateral approach to trade, with India and Australia as founding partners while keeping the doors open for ASEAN and Pacific-Rim nations for the future. This was a direct response to economies and individual companies concerned by the uncertainty of supplies from China.

How is SCRI different from Quadrilateral Security Dialogue (Quad)

The Quad is an informal alliance of four countries, namely Japan, India, Australia, and the USA. It was formed in 2007 as a direct response to increased Chinese economic and military power. Over the years, the Quad has developed into a forum for quadrilateral dialogue. This forum has not led to the creation of any concrete partnerships on economic activities. Rather, it has been used as a forum to send strong political counter-messages to China as and when convenient by the members of the Quad.

However, the SCRI was mooted strictly with the idea of facilitating trade and economic activities among the partner countries. Unlike that of the Quad, the partner countries are of the SCRI are in talks to formalize trade and economic pacts with a long-term objective of curbing China’s economic influence in the Indo-Pacific region.

Key Factors Leading to the Creation of SCRI

Supply Chain Disruption Amidst Covid-19: With assembly lines heavily dependent on China supplies, it was realised that the impact on importing countries could be crippling if the source stops production, especially for critical sectors, such as pharmaceuticals, chemicals, electronic and electrical gears.

China accounts for more than a quarter of total imports to Japan and Australia while accounting for 16% of India’s imports. The following infographics highlight the dependency of Japan, India, and Australia on Chinese supplies.

Fig. (1) 🡪 Japan’s major supplying countries by percentage of imports

Fig. (2) 🡪 India’s major supplying countries by percentage of imports

Fig. (3) 🡪 Australia’s major supplying countries by percentage of imports


The US-China Trade Tensions: The tariff sanctions imposed on each other during the US-China trade threatened all significant economies heavily reliant on international trade. More than 20% of the world’s supplies are dependent on China and the USA. The unprecedented trade war had even raised concerns that the trade would soon be restricted to two economic zones, each controlled by China and the USA. It was during the trade war that reports first surfaced about Japan tinkering with the idea of SCRI. Finally, the disruption during the pandemic proved to be the triggering point for the conception of SCRI.

Counter China’s Political Influence on the Indo-Pacific Region: China’s belligerent fixation on disputed territories has riled many countries in the Indo-Pacific region. China and Japan remain at loggerheads over claims on the Senkaku islands. The Sino-India border witnessed the worst military clash between the two sides in decades. The repatriation of Australian journalists by China and Australia’s vocal calls for investigation into the outbreak of Covid-19 have exacerbated the hostility between the two countries. Moreover, China’s expansionist approach in the South China Sea has managed to raise significant eyebrows in the face of a greater Chinese assertion.

The Objective of the SCRI

The partner countries in the SCRI seek to increase the supply chain’s resilience by restructuring supply chains away from China due to the increased security risks associated with production networks significantly embedded in, or connected to, China. As per reports, the partner countries are currently focussing on the following:

To work out a plan to build on the existing supply chain network by setting up industrial parks and onboarding ASEAN countries in the SCRI to build upon existing bilateral frameworks, namely ASEAN-Japan Economic Resilience Action Plan.

To attract FDI to turn the Indo-Pacific zone into an economic powerhouse through a trilateral pact for improving sea and air connectivity between the three countries.

To build a mutually complementary transparent trade relationship among the partner countries by incorporating a streamlined trade risk management system and a mechanism to address trade and investment barriers.

A Roadmap Towards Building a Resilient Supply Chain

A resilient and efficient supply chain can quickly adapt to the VUCA conditions across the whole spectrum of risk, which include:

Operational Risks: A resilient supply chain must respond to volatility in the supply chain with improved real-time transparency and mitigation solutions.

Tactical Risks: A resilient supply chain must adapt to an uncertain supply/demand with scenario analysis and roadmaps, risk/opportunity analysis, and sales & operations planning.

Strategic Risks: A resilient supply chain must deal with complexity by improving capacity flexibility, diversifying sourcing options, and running cost-benefit analysis on make/buy choices.

The critical decisions which would help in mitigating the above risks would be as follows:

Potential Impact of the SCRI on the Private Sector

Due to the complex and sticky nature of global supply chains, any change in the geographic concentration of private sector supply chains consumes a significant amount of time. Moreover, many global MNCs balk at the thought of shifting supply chains due to the high capital expenditure involved in the process. To expedite such a change, the SCRI must provide tangible long-term benefits to the MNCs and other private sector players to shun China and look elsewhere. It remains to be seen whether the partner countries put pen to papers incentivizing the private players enough to shift and diversify their supply chains across other geographies.

The Japanese government has given a clear message by earmarking $2.2 Billion to incentivize its big private players to move their manufacturing units out of China. This cannot be deemed as a protectionist move as the firms were not mandated to relocate to Japan. Instead, it was a nudge to those manufacturing units to move out of China and set up a base in other third-world countries to move towards a diversified and resilient supply chain.

Going by the signs, SCRI may provide a good platform for India to boost its manufacturing sector and attract more FDI, especially from Japan. However, it needs to have a proper plan to counter the competition from countries, such as Vietnam and the Philippines.

Key Challenges

Reaching a Consensus: India has objected to Japan’s proposal for the inclusion of ASEAN countries in the SCRI for now, although it has not entirely ruled out their inclusion in the future. The reasons could be as follows:

Rerouting of Goods from China: India is wary of the perceived threat of circumvention of the origin of goods from China due to differential tariffs that could lead to the rerouting of goods from China through other ASEAN nations.

India’s Protectionism: India backed out of Regional Comprehensive Economic Partnership (RCEP), the world’s biggest trade deal, due to the apprehension that reduced customs duty would increase the flood of imports and increase the subsequent trade deficit with China. Since India’s trade deficit with ASEAN is also on the rise and with its manufacturing self-reliance aspirations in the doldrums, an argument could be made that any trade deal with ASEAN may lead to imports from ASEAN supplanting the imports from China, thus further denting India’s prospect to be a manufacturing hub.

Time to Agreement: Japan’s and Australia’s strained relations with China post-Covid-19 had spurred them to pin their hopes on India as a viable supply alternative. However, the first major economy to show signs of recovery from the pandemic seems to be China, while India is still struggling to bring the pandemic under control. The resurrection of supplies from China can severely undermine the importance of the SCRI.


Fast Deal Sign-off: For the SCRI to succeed, the partner countries must reach a consensus and act fast to sign-off on agreement of critical tariffs, preferential investment rules, rules of origin, dispute settlement mechanisms, and a mutually agreed timeline for incorporating ASEAN members as part of the SCRI.

Reforming India’s Perceived Image: India’s pulling out of the RCEP trade deal is a clear signal that it is still reluctant to open its market to the outside world. India has traditionally prioritised protecting domestic industries over foreign investment. Compared with India, the ASEAN is more flexible and open in its trade practices, making it more suitable to be the world’s next supply hub. To take full advantage of the SCRI, India must take progressive steps towards cleaning up its perceived image of a protectionist country.

Streamlining India’s Manufacturing & Supply Bottlenecks: SCRI has provided India with a massive opportunity to boost its manufacturing sector and fill the shoes left void by China. But to raise the competitiveness of India’s exports, there is an immediate need to push through long-pending legislation that aims to address the structural bottlenecks w.r.t Land, Labour, Law, and Liquidity. These 4Ls continue to plague and hinder domestic competitiveness.

Collaboration for Technology-Driven Supply Chain: The partner countries must collaborate and share knowledge to adopt an automated supply chain driven by state-of-the-art technology. The full potential of a modern and efficient supply chain resilience can only be realised through technology-driven automated and transparent processes.


The Supply Chain Resilience Initiative is a unique anti-China geo-economic alliance conceptualised for the post-pandemic world. It also symbolizes the segregation of regional and supply lines along geopolitical supply lines. It is anybody’s guess whether the rise of SCRI will spur more such initiatives representing specific political alliances. But what one can be sure about is that its rise will threaten all existing regional economic partnerships.

Authored by: Sinjan Ray
Contact details:

An alumnus of IIM Kozhikode, Sinjan has a diverse experience as a consultant and strategy implementer in both the manufacturing and the service sectors. After working on new market entry initiatives during his time with the corporate strategy division of Larsen & Toubro, he went on to serve as a strategy and planning consultant for the Prime Minister’s Office. He specializes in process implementation of new initiatives and process improvement of BAU operations.


Budget Impact Highlights 2021

 The Budget 2021

 Something for Everyone


The budget 2021 was presented amidst a challenging macro environment; with the first decline in real GDP in 4 decades, the Govt in India had to walk a tight rope. Though there was no large fiscal stimulus, the absence of any tax hikes and credible fiscal math provides comfort.


Adopting an expansionary fiscal policy in a recessionary like situation, the Government hopes to meet up the private consumption and investment contraction through government spending. Taking cues from a typical macroeconomic recession, the Government has shown more resilience by keeping a counter-cyclical fiscal policy stance on both Government consumption and expenditure to support growth and minimise output gap. With nearly 54% of GDP being contributed by private consumption and 29% of GDP by investments, counter-cyclical fiscal policies directed towards public investment is of critical importance.


The Government through its reform measures would target lowering debt to GDP ratios in the upcoming year with the help of interest rate growth differential (IRGD) explaining the phenomena of debt sustainability. As for a negative IRGD, led by higher growth rates instead of lower interest rates (as in the case of advanced economies), it is anticipated that a fiscal policy stimulating growth would lower debt to GDP ratios. The series of fiscal stimulus introduced in a phased manner is expected to boost investments and revive economic activity further over medium term.


The Budget estimates being short term in nature, much of the focus remains on being watchful of the events unfolding over the next two quarters. Having a firm cushion set by high foreign exchange reserves (all time high at USD 585 billion in January 2021), the Government is well positioned to tackle its external and internal financial issues in the present contractionary condition. Let by higher foreign investments in Indian stocks and lower import bill due to drop in crude oil prices, the Government has been able to imbibe confidence in markets. In line with this, sovereign ratings remain cautious yet supportive of real GDP growth forecasts. While negative outlook currently holds for India, risks of downward revision loom over medium-term consolidation of fiscal deficit targets being more gradual than expected. Fiscal transparency, increased infrastructure spending and creation of ‘bad bank’ have been positively absorbed by the markets and rating agencies.


Thus, while the debate on the causality from growth to debt sustainability and vice versa continues to hold significance, India’s budget recognizes ease in debt and fiscal spending during a growth slowdown or an economic crisis as a way forward measure.


The key focus areas in this budget were:


Coming Clean on the Fiscal Deficit


The Government has pegged fiscal deficit at 9.5% of GDP in FY21RE (Revised Estimate). While the headline number looks scary, a large part of the rise was due to food/fertilizer subsidy, which the Government has decided to take up on its books rather than keeping it off-Budget (through the Food Corporation of India, FCI). This transparency in the fiscal math is highly appreciated and commendable.


The fiscal math of the budget does not seem aggressive on the revenue front. The tax assumptions are rather conservative and could surprise one on the upside- i) For FY21RE, the Government expects gross tax collections to contract -5.5%YoY vs. -3.2%YoY growth until Dec’20, and ii) for FY22, the tax assumptions seem reasonable at 17% YoY growth, with (1) no uptick in the tax-to-GDP ratio of 9.9%, akin to FY21RE, FY20; vs. 11% in FY19, (2) reasonable estimate of oil prices at USD 55/bbl (one barrel) and -7% contraction in excise duties (key contributor to FY21 tax collections) possibly be due to the reduction in excise duty on petrol/diesel to offset for the Agri-infra Cess of INR 2.5-4/litre imposed on petrol/diesel.


Focus on capital spending is encouraging


The Centre has walked the talk in meeting its FY21 capex target. Overall budgeted capex has inched up 31% in FY21 RE, and another +26% YoY in FY22. The quality of spending too has improved with – i) higher capex-to-GDP at 2.5% of the GDP vs. FY14-FY20 average of 1.68%, ii) share of capex in total expenditure stands the highest in more than 10+years at 16%, iii) fall in share of committed spending to 43% of total expenditure (vs. 49% in FY21 RE, and 57% avg. between FY14-20). However, on adding the IEBR component, we note, total capex growth has fall to 4.8%YoY in FY22 BE (Budgeted Estimate) (3.7% in FY21RE) against 2-digit growth in FY20 and FY19.


Asset monetization and privatization


To propel economic growth, the government has rightly focused on mobilizing funds by monetizing government-owned assets, rather than increasing direct and indirect taxes. Privatisation of 2 PSU banks and one General Insurance Company – The Government also announced further recapitalisation of INR 200bn in FY22E to support the capitalisation of PSU banks. Further, divestment of Air India; Asset monetization program for Oil and Gas pipelines of GAIL, HPCL, and IOCL to be launched; The privatization of BPCL will be completed in FY22.


Positive announcements in the financial sector


The Government has announced setting up of an ARC and an AMC to consolidate and take over the existing stressed debt of PSU banks and then manage and dispose of the assets to AIF and other potential investors for eventual value realization. While the step is in right direction and details are awaited, any meaningful gain for PSU banks will depend on swift recovery/realization of the assets under the new structure. This move should help in a) releasing management bandwidth, b) expedite the resolution process, c) bring transparency in decision making, and d) lead to a meaningful relief in asset quality of PSU banks and thus could aid them in raising external equity capital.


Other beneficiaries- Health and Rural sector


The health sector received priority, rightly so, with the outbreak of the COVID-19 pandemic. Including the allocation of the INR 350 billion under COVID-19 vaccine (which as per experts is underestimated by INR 300 billion), health spending has expanded 60% over FY20 to INR 2.23 trillion. However, this also covers areas such as nutrition, vaccination, drinking water & sanitation (driven by Jal Jeevan mission (urban), and finance commission grants for the same. Thus, core health spending still remains subdued.


According to estimates, rural spending growth has been at 10% CAGR over FY20-22 BE, against 7% aggregate spending growth, with focus on agri infrastructure creation and enhanced allocation on Rural piped drinking water scheme. Rural spending is overall budgeted to normalise in FY22 as the boost from Covid-19 related interventions fade away.


No new taxes- A sigh of relief for the consumer and the investor


There were no major tweaks in taxes which was a relief to the consumer and the investor vs. fears on the introduction of a COVID-cess and wealth tax. Nevertheless, the Government did impose a new Agriculture and infrastructure cess on items including coal, lignite and peat, edible oils, gold, silver and fertilizers, etc. although unlikely to hurt the consumer. Lastly, the government proposed to review more than 400 old customs duty exemptions in 2021-22 (by Oct’21) and has raised the custom duty rates for various items such as solar equipment and several capital goods import items. This is an effort by the Govt to promote Atmanirbhar Bharat Abhiyan (‘Make in India’ initiative) as well as boost MSMEs. Likewise, reduction of duty on raw materials and inputs required by domestic manufacturers furthers ensures the Government’s thrust on fuelling value addition to domestic production.


Thrust on Infrastructure and Logistics Spending


A lot of impetus has been laid on infrastructure spending starting with the National Logistics Policy expected to create a single window e-logistics market focusing on generating employment, skilling and making MSMEs competitive. Railways would be seen monetising freight corridor assets. Better connectivity easing trade and goods movement is estimated to play positively with neighbouring countries especially with driving economic corridors expansion. The scrappage policy is being viewed to open gates to new infrastructure for scrap yards and recycling industry. Additionally, the custom duty reduction in raw materials like copper (2.5%) and steel products (7.5%) will benefit the manufacturing sectors especially automobile OEMs. This will also reduce the cost to the consumers and thus revive the demand for automobiles. Also, the power sector has been given a push in a big way with DISCOM choices laid on customers with ‘smart’ metering as in other countries. Additionally, to attract investments, concessional corporate tax rate of 15% has been extended to new domestic companies engaged in the generation of electricity. This is expected to lower financial stress on power distribution companies increasing energy efficiency.


Reactions on the Budget


The budget analysis also captures the reaction of young people from varied spheres from students to budding industry professionals. A snippet of these have been presented here:


  • ‘The government has tried to incentivise the corporate sector to make major investments. But this supply side boost may not lead to revival of the economy if the demand in the economy remains low. Even in the face of the pandemic, the government expenditure didn’t rise substantially. Credit has been given priority over stimulus. Moreover, there has been virtually no change in the tax base (barring the few tax exemptions for senior citizens). There’s no inheritance tax in India, or proper capital gains tax. Given the pandemic, and the fiscal deficit, the economy possibly could have benefitted from a progressive wealth tax. But this was not done, again possibly, in order to incentivise the corporate sector.’


  • ‘For a year of anticipated recovery from pandemic-induced hardships, and for a nation that is the second-worst hit in the world, the budget is remarkably silent/soft on/in the areas that require the most attention. Credit has been lent a lot of more weightage than stimulus, and it appears that the FM is attempting to regenerate growth through supply-side (instead of demand-side) interventions. How much–if at all–it is going to work remains to be seen. The government also plans to levy increased/newer tariffs on the import of solar and mobile-phone equipment, which might be viewed as too protectionist for a country that attempts to rival China in terms of its trading prowess. Finally, the planned expenditure of thousands of crores on building roads and highways in four election-bound states does not help the cause of inspiring confidence in the government to do the best it can to lift Indians out of economic hardships regardless of secondary considerations.’


  • ‘There were lofty expectations from the financial budget, and it does deliver in a few sectors while falling short in others. Clearly, the health and infrastructure sectors have been major areas of focus. Allocation of 35,000 crore for Covid-19 vaccine and commitment to provide more money for vaccines is definitely a step in the right direction. Second, a substantial increase in the allocation to the health sector to the tune of 2.24 lakh crore should also be welcomed. Now coming to the infrastructure sector, the Union government has proposed setting up a Development Finance Institution to facilitate the availability of resources for funding of the national infrastructure pipeline. With an initial capex of Rs 20000 crore to set up the DFI, the infrastructure sector has received a shot in the arm. This will pave the way for the opening of more economic corridors. While the aforementioned things have been one of the positive highlights, at a time when there is massive unrest among farmers with regard to the farm bills, the Union government was expected to resort to effective measures to assuage the farmers to some extent. Alas, that was not the case and the budget for agricultural sector was the same as last year. The proposal to create an agricultural investment fund by putting a cess on petrol and diesel is a productive measure but the need of the hour is to put more money in the hands of the farmers.

Although the finance minister’s budget may have passed the market’s test as the stock markets soared by 5% but that cannot be the sole indicator of the social and economic effectiveness of the budget. Only time will tell if the Indian economy is on a path of revival.’


  • ‘As a student, since my attention is spontaneously directed towards the education budget, it specifically disappointed me in the Union Budget 2021. Whether or not I agree with the NEP, my disagreement wouldn’t affect the Government’s decision to implement the same. However, if they genuinely do wish to implement the NEP which proposes the establishment of 15000 primary educational institutions, the fact that the primary education budget has been reduced by Rs.5500 cr as compared to the previous year, in essence proves the point of the critiques of NEP. The central education budget has been cut down by 6.13%, but if we factor in the inflation and an expected growth in student strength, it will amount to more than 10% cut in real expenditure. This is indeed a bit disappointing for anyone who is a part of the student community.’


  • ‘About the selling of PSUs. Air India seemed a comparatively good investment to me. But otherwise, I did not see any reason why one would want to sell BPCL. Indian economy had thoroughly been a mixture of Public and private sectors and it is good to have big industries under the government. But eventually the government is constantly selling every PSU. This I do not find alright in some way.’

Medical Devices Industry of India

Industry overview

The medical device industry of India, consisting of a wide spectrum of components and segments, has been consistently registering a double-digit growth rate in the past few years averaging to 15.8% from 2009-16. The current market size is estimated to be USD 11 billion which is the 4th largest in Asia. With a large number of multinationals dominating the sector and Small and Medium Enterprises (SMEs) growing at an unprecedented rate, the market size is expected to reach USD 50 billion by 2025. Being a “sunrise segment” in the healthcare space under the “Make in India” initiative, the government has been undertaking several proactive policy interventions to promote the industry. An attempt has also been made to simplify the regulatory requirement and restructure the traditional inverted duty structure to enhance domestic production.

However, having said this, the sector is still caught up in the “low-level equilibrium trap”[1]. While some cities of the country attract huge amounts of medical tourists, other areas are deprived of the basic medical facilities. Similarly, the demand for low end consumables overweighs the demand for high-end and high-tech products. The demand constraint of the sector not only limits its future growth prospects but also fails to attract investors and producers. In order to encourage foreign investors,100% FDI is permitted in the sector through automatic route.

The medical device sector of the country is highly fragmented both in terms of scale and geography. Currently, there are five medical device clusters in India viz.

* Haryana (Consumables and dental equipment)

* Surat, Gujrat (Stent manufacturing)

* Delhi (Medtech innovators)

* Karnataka (Insulin pens, Medical IT, Cardiac stents and implants, PCR machines)

* Tamil Nadu (Diagnostics, Critical life support system, Ophthalmology)

Besides, four MedTech parks are being constructed around these clusters to facilitate infrastructural development and proper ecosystem for the suppliers, manufacturers, developers and medical device companies. The industry in India is segregated into five major segments:

* Consumables & Disposables

* Equipment and instruments

* Patient aid

* Implants

* Stents

[1] “Low-level equilibrium trap” concept was introduced by R. R. Nelson in context of low of per- capita income. In context of demand, it means low-level of demand is caused by low investment which in turn restricts the growth of the market and the industry continues to be “trapped” in the low equilibrium situation.

Under the new “Medical Devices Rules 2017”, medical devices are classified into the following four groups as per Global Harmonisation Task Force (GHTF)

* Class A (low risk)

* Class B (low moderate risk)

* Class C (moderate high risk)

* Class D (high risk)

India mostly specializes in the production of the first two categories which involve less innovation and technology. Class C and Class D, largely termed as Advanced Medical Devices (AMDs) involve higher degree of risk. High level of technological expertise is pre-requisite for the production of such AMDs.

Advanced Medical Devices (AMDs) – An emerging subsector

Advanced medical devices are classified to be those devices which are mostly driven by advanced technology and innovation. Manufacturing AMDs require substantial effort, manpower and intelligence devoted towards research and development. Some of the most advanced technology supported with innovations in the field of medical devices are health wearable (Apple Series 4 Watch that has an integrated ECG to monitor the wearer’s heart rhythms), 3-D printing which can be used to create implants and joints to be used during surgery, Bluetooth enabled smart inhalers etc. AMD is largely prevalent in advanced economies mainly in the West and Japan. Indian medical device market lags behind in terms of production of AMDs largely due to the lack of research and development (R&D) and innovation. Traditionally, the industry has been focusing more towards conformance and reproducibility rather than innovation and novelty. Technology based product innovation is almost rare in India. Some initiatives that may be undertaken to expand the AMD market in India include:

* Optimal utilisation of the MedTech parks and customising it as per the need of the producers and industry experts

* Targeted tax interventions, corporate tax benefits and competitive tax breaks on research and development investment can incentivize big houses

* Preferential purchase policy may encourage domestic manufacturers of AMDs by giving preference to in public procurement

* Promoting academia-industry partnership and international collaboration to stimulate research and development efforts in India

* Measures need to be taken to correct the low-level of equilibrium trap and generate sufficient demand to incentivize the investors

Regulatory Landscape

India’s Central Drugs Standard Control Organization (CDSCO) under Directorate General of Health Services, Ministry of Health and Family Welfare (MoHFW) is the responsible regulatory body of medical devices in India. Until recently, Indian regulatory system(medical device directive) only covered 15 “notified categories” and the rest of the market had been largely unregulated. However, starting from April 1, 2020, India has rolled out new regulations that notifies every medical device sold in the country.

As a part of medical device regulations in India, the government has recently launched Production Linked Incentive (PLI) Scheme which aims at promoting domestic manufacturing of medical devices and attracting foreign investors through incentives ranging from 4%-25%. Since a majority of medical devices related to cancer, radiology, anesthetic, cardio respiratory and heart are being imported, firms manufacturing these medical devices will be incentivized.


Around 70-75% of the domestic demand is met through import while around 30% is produced domestically and exported. Huge import dependence therefore remains one of the major stumbling blocks for the industry. An interesting phenomenon of two-way trade or intra-industry trade dominates the trade scenario between India and its other trading partners where the same product group is both being exported and imported. This seemingly paradoxical situation can be easily explained by variation in product quality and economies of scale. The import basket of India mostly consists of high-tech and high-end consumables whereas its export is biased towards low-end and minimum tech-embedded products. Thus, an insight into India’s trade pattern reveals its traditional production structure and technological backwardness. To achieve self-reliance, India needs to overcome this import dependency through import replacement and focus on domestic market expansion.

The sector also lacks investment dedicated towards research and development services and innovation. For India to emerge from the vicious cycle of low-end production, substantial effort and push has to be given to the private players for undertaking research activities. To overcome the dependence on import for high-end consumables, domestic production of such sophisticated equipment with the required R&Dunits needs to be promoted. Likewise, to prioritize high tech production amongst manufacturers, reliance on imports must be lowered.

The domestic market is also characterised by sporadic demand generation. Considering the highly skewed income and wealth distribution, the demand remains concentrated only within a few segments of the industry. While some cities like Bangalore and Vellore attract a huge pool of medical tourist, many other cities are deprived of basic healthcare amenities. Thus, there persists an asymmetry in the demand generation both across the country and the product groups.

Lastly, both the existing players and the potential entrants of the industry find it difficult to gain clarity on the regulatory environment of the sector. The dynamic nature of the regulatory environment could create obstacles for the companies as they might face problems in coping up with the changing requirements and registration or licensing processes.


The industry being at a very nascent stage possesses significant potential to become the growth driver of the economy. The recent policies and measures adopted by the government open up a plethora of opportunities for the manufacturers and investors. Moreover, the country’s aging population coupled with its increasing disposable income and insurance coverage is expected to generate substantial demand. An insight into the national health profile also unveils the shift of the disease pattern towards chronic diseases like diabetes, cardio-vascular diseases, lung and renal diseases which require prolonged treatment and frequent use of various sophisticated devices. Both private and public spending on healthcare have been rising at a rapid rate. According to the National Health Policy – 2017, healthcare spending by government is estimated to be 2.5 percent of GDP by 2025. Several demand as well as supply side factors continue to provide unique opportunities for the sector. Some of which are as follows-

The recent outbreak of the novel coronavirus has led investors and manufacturers to shift their focus from China which was a major supplier of Active Pharmaceutical Ingredient (API) and Personal Protective Equipment (PPE) towards other emerging nations. India, being a labour-intensive country, stands a good chance to become the next manufacturing hub with introducing incentives to attract multi-nationals from India and beyond. As China lies at an important stage of the product value spectrum, it widens opportunity for India to capture the higher end of the spectrum with its comparative advantage and investor-friendly policies.


Some of the essential factors determining the sector’s future potential and growth prospects  need re-consideration and re-orientation. Policy intervention and measures can be successful only if they are guided by proper implementation. The following measures are necessary in order to re-structure the critical parameters of the industry –

* Boosting research and development (R&D) in businesses is the need of the hour and effective academia-industry partnership is indispensable for it. Innovation lies at the heart of academia, and universities generate high-quality, intellectual property on a large scale. However, most of these innovations do not result in commercial translation. For optimal utilization of such innovations, the industry needs to join hands with the academia.

* Collaboration among the manufacturers and joint venture projects can help overcome various challenges. Seminars and events can be organized at regular intervals to bring the industry together.

* A sturdy infrastructure is a pre-requisite for the expansion of the sector. The industry needs to replace its structural backwardness and traditional technology with modern AI based capital-intensive methods.

* Insufficient domestic demand contributes to low productivity and limited market size. A thrust to the healthcare system is expected to generate substantial demand for the medical devices. Improvement of the overall healthcare structure will also attract medical tourists which would also contribute to the demand.

* The medical devices in our country are categorised into four broad risk categories with Class A being the lowest and class D being the highest risk category. Thus, policies need to be designed separately for each of the risk categories keeping in mind their special features and needs.


Medical devices sector of India is at a crossroad and needs intervention in many ways. In the recent past, a number of measures have also been undertaken to ensure sustainable and substantial growth of the sector. However, growing health concerns and stress on achieving self-reliance demand faster growth of the sector. Although many measures have been taken in the past to redress these issues and significant impetus initiatives like “Make in India” have already been implemented, more needs to be done to support the industry. Thus, the potentialities of the Indian medical device sector as a growth driver would enable India to emerge as the next medical device manufacturing hub of the world.

Authored by: Antara Mukherjee, Head of Research
Contact details:

About Intueri: Intueri Consulting is a management consulting firm with nearly 100 man-years of experience in managing organizational challenges, including managing firms and clients through some of history’s biggest crisis periods such as the 1997 Asian Financial Crisis, 9/11 led crisis, 2007-08 global financial crisis. This vast repository of organizational management experience, accrued by senior management, over decades of managing large multinational firms and clients enables Intuerito develop effective, efficient crisis management strategies and provides it with a unique perspective into events and decisions that take into consideration all important aspects of a firm, including assessment of primary, secondary and even tertiary order potential effects on the firm on account of implementation of strategies. Intueri has been helping organizations of a different scale to raise funds in a hyper-competitive ecosystem and has prepared an end to end value offering for an investor roundtable. The firm has consultants, well balanced with the domain knowledge and cross-sectoral industry analysis approach and possesses a strong network of financial advisors.

Feel free to reach out to us for a detailed discussion.

Opportunities in the Indian Pharmaceutical Sector Post COVID-19



The ongoing COVID-19 pandemic has shown the Indian pharmaceutical sector in good light recently, while at the same time, it has significantly exposed the frailties of the sector. Currently, the Indian pharmaceutical sector is in the news for good reasons as it is able to export millions of doses of hydroxychloroquine, an antimalarial which, while not conclusively tested to be able to cure the coronavirus, has had some cases of making patients recover to countries like the United States and Brazil. However, the initial outbreak of the disease in China was a crisis for this very sector, as 70% of the active pharmaceutical ingredient (API) requirement was met by imports from China2 and as supplies for APIs, which is the principal raw material for drug manufacturers stopped, there were worries about how long can the pharmaceutical sector produce at maximum capacity.

Due to this challenge that the sector faced during this crisis, various economic bodies in the country such as the NITI Aayog have mentioned that this needs to be addressed and a new policy must ensure that the manufacturing of APIs and pharmaceutical intermediates within the country should be promoted. The NITI Aayog CEO Amitabh Kant has met representatives of pharmaceutical companies to discuss reducing API dependency on China3, and according to the national president of the Bulk Drug Manufacturers’ Association, the government is looking to build API parks3. While this is an obvious opportunity for pharmaceutical companies to backward integrate and start producing APIs and intermediates, it also provides companies in other sectors such as speciality chemicals to enter this sector. For these players to enter, it would be necessary to know the numerous manufacturing steps that convert a naturally-found product into a tablet.

What is a Drug?

In pharmacological terms, the definition of a drug would be a chemical substance of known composition which evokes a biological effect when administered into a living organism5. In case of a pharmaceutical drug, that biological response would be to treat, cure or prevent a disease or alleviate the symptoms.

The major component of a drug would be the active pharmaceutical ingredient (API). This is the biologically active compound that acts on the body to produce the desired response. In some cases, a drug would have multiple APIs, such as the combination of amoxicillin and potassium clavulanate which forms a more efficient antibiotic than just amoxicillin and is sold under the trade name Augmentin6.

However, the API is not the only component of a drug. A drug also contains various other components called excipients which play other roles. There are various kinds of excipients7. Vehicles, for example, help the active ingredient reach the site of action when it cannot do so for any reason whatsoever. Binders help the different components bind while disintegrants cause the tablet to break apart under specific conditions, such as the extremely acidic conditions in the stomach. Flavours, sweeteners and coatings make the drug more palatable, with the latter causing the added benefit of protection of ingredients from moisture in the air, while colours improve the tablet’s appearance. Enterics control the rate at which the active ingredient is released. Depending on the mode of administration and nature of the disease, some of these excipients are combined with the API to form a dosage.

Drug Production Value Chain

The raw material that starts the value chain would be a compound extracted from a natural source. The earliest drugs as we would know it would often comprise of such compounds. Examples would include penicillin which is produced by moulds of various fungi of the genus Penicillium and quinine which can be extracted from the bark of the cinchona tree. However, today’s APIs are mostly produced by performing further reactions on a naturally-occurring compound to produce a more efficient compound.

The conversion to API from a naturally-occurring compound is a process that make require one or more steps. If it requires more than one step, then the product of every step apart from the final step that becomes the reactant in the following step is called an intermediate. In some cases, an intermediate can be a compound that is already synthesised in industrial quantities for other uses. For example, the anti-inflammatory drug ibuprofen was first synthesised from propionic acid8 which, while available in small quantities from natural sources, was available in large quantities through the reaction with ethylene as it is commonly used as a preservative9. The final step would see the conversion of the final intermediate into the API.

In making the final drug, it has to be ensured that every dosage, such as a tablet, should have the correct composition and the exact amount of the API. In case of tablets, this is done by making a homogenous mix of ingredients through blending and granulation10. The tablet is then made using powder compaction and are subsequently coated with a suitable coating10. In case of capsules, the powder containing the API and other excipients is encapsulated in gelatine or hypromellose11.

The final step of converting the API to form a drug dosage is something Indian pharmaceutical companies are adept in. The problems that arose during the COVID-19 crisis arose from the unavailability of APIs and intermediates. The global API market stood at $182.2 billion in 2019 and is estimated to reach $245.2 billion in 2024 at a CAGR of 6.1%12. As Indian pharma would be hopeful for more APIs and intermediates being made in India, the CAGR of the Indian market would be much higher and massive opportunities lie here for APIs and intermediates to be made in India.

Examples of drug value chains


Hydroxychloroquine is perhaps the most talked about drug in the country at this point of time. The drug that has been tested to work as a treatment for malaria, lupus and rheumatoid arthritis is now believed to be capable of treating COVID-19. As a result of this, the global hydroxychloroquine market is expected to grow at a CAGR of 33.47% from $542.36 million in 2019 to $5415.23 million in 202614. Today, India is the market leader when it comes to manufacture of the hydroxychloroquine drug, amounting to 70% of global production, with major players being Zydus, IPCA and Cipla14. However, China is the leader in the global hydroxychloroquine API production.

There are various patented processes for the synthesis of hydroxychloroquine molecule. In one of the processes, the final intermediate that is reacted to form hydroxychloroquine is 4,7-dichloroquinoline15. 4,7-dichloroquinoline can be produced in four steps from an array of readily available compounds such as benzene and acetic acid16,17,18,19. Therefore, while producing hydroxychloroquine drug is untenable for a new entrant thanks to both strong players in the Indian market and the huge number of regulations in the pharma sector, production of the final hydroxychloroquine compound or any of the intermediates such as 4,7-dichloroquinoline, 3-chloroaniline or diethyl ethoxyethylenemalonate using existing or newly developed pathways is always possible and subject to fewer regulations.


Lopinavir is an antiretroviral that is used in the treatment of HIV/AIDS. It works as a protease inhibitor. It is often used in combination with a low dose of ritonavir, another protease inhibitor and this combination is present in the World Health Organisation’s List of Essential Medicines20. Recently, this combination drug also made the news as Yusuf Khwaja Hamied, the Chairman of Cipla, is repurposing this drug to combat coronavirus21. While there are no available reports with quantitative data on lopinavir’s market size, it is safe to say that the market size will grow at a tremendous rate if it does turn out to be effective against coronavirus.

There are various resources available online which mention how lopinavir is synthesised. One of them mentions how lopinavir was developed in multiple steps using the readily available amino acid L-valine as a starting material22. Production of lopinavir compound or any of the intermediates in the process which is considered the most efficient is extremely valuable as there are plenty of buyers looking to buy it to complete the remaining steps.


Ever since it was approved for medical use in the United States in 1996, atorvastatin has been one of the biggest selling drugs in the world23. One of several statins, it is used to prevent cardiovascular disease and treat dyslipidaemia, or an abnormal amount of lipids in the blood. In 2017, this was the second most prescribed drug in the United States, with the number of prescriptions exceeding 104 million23. Sales of atorvastatin from 1996 to 2012 exceed $125 billion23, making it one of the best-selling drugs of all time. The atorvastatin API market is expected to reach $425 million in 202324. While currently United States is the market leader primarily because it is the country with the maximum demand for atorvastatin, the demand for this drug will increase in other parts of the world including developing countries due to the increased sedentary lifestyle in these places.

There are various routes possible for the synthesis of atorvastatin. One of them, which was mentioned in a research paper, uses readily available 3-fluorobenzaldehyde, isobutyric acid, an amine and an isocyanide as starting materials. The commercial method, as used by Pfizer, uses the Paal-Knorr reaction. Production of the final atorvastatin molecule or the intermediates for any of these routes or any other route which is considered the most efficient is valuable as buyers would look to use this to complete the remaining steps.


Opportunities in the Indian pharmaceutical sector with respect to active pharmaceutical ingredients (APIs) and intermediate compounds were looked at by taking the example of three highly profitable drugs and their value chains. The opportunities are certainly not limited to the examples mentioned above, and this would allow anyone looking to enter this space aspire to make a plethora of APIs and intermediates that can be used to make drugs that perform different actions on the human body.

Many companies in the speciality chemicals sector and other chemicals sectors already have the experience in synthesising large amounts of organic compounds. With a little expansion of their knowledge bank, they can enter this exciting space with assured customers in the form of drug manufacturers. This will not only help pharmaceutical production in India be protected from factors happening in other countries, but also provide many manufacturing jobs to Indian people and bring prosperity to the country.

Many drug manufacturers are also in the API production business, but the amount of API they produce is not enough to match its drug production capacity and therefore, in the current scenario, they are forced to import from countries like China. Backward integrating into the API business and further increasing the capacity of the APIs for the drugs that they are already manufacturing would be a major risk minimising tool for these pharmaceutical companies and help them maintain consistent level of production.

Given this current business environment, it is imperative that the government grabs this opportunity with both hands and helps make India the new global API and intermediates hub. It has been reported that India’s API industry was ahead of China in the 1990s, but thanks to the latter providing various benefits such as free land, cheap utilities such as water and power, and negligible financing costs, China took the lead and soon became the global leader in APIs, thereby making Indian pharmaceutical companies dependent on Chinese API manufacturers for raw material3. In order to make India the new global API hub, the API and intermediate parks will have to be set up where companies get benefits when it comes to utilities and financing. Many companies in the chemical sector are unwilling to enter this space due to the large number of regulations in the pharmaceutical sector and lack of knowledge. The government will have to ease regulations and make it easy for companies to set up an API or intermediate manufacturing plant. To address the latter problem, an economic body like the NITI Aayog can help start conversations between Indian pharmaceutical companies and chemical companies, where chemical companies can identify how their capabilities can help them enter this exciting sector.


For the examples, the processes described were taken from various chemistry websites and research articles that have been referred below. This blog does not definitively mention which process is the most feasible both financially and chemically, or which process is used by industrial players today for the synthesis of intermediates and APIs. This blog does not vouch for the chemical and financial feasibility of the processes explained, and separate research would have to be undertaken to identify what is the most efficient and profitable route to synthesise a given compound.


Authored by: Abheek Dasgupta, Associate

Contact details:

About Intueri: Intueri Consulting is a management consulting firm with nearly 100 man-years of experience in managing organizational challenges, including managing firms and clients through some of history’s biggest crisis periods such as the 1997 Asian Financial Crisis, 9/11 led crisis, 2007-08 global financial crisis. This vast repository of organizational management experience, accrued by senior management, over decades of managing large multinational firms and clients enables Intueri to develop effective, efficient crisis management strategies and provides it with a unique perspective into events and decisions that take into consideration all important aspects of a firm, including assessment of primary, secondary and even tertiary order potential effects on the firm on account of implementation of strategies. Intueri has been helping organisations enter new areas within the chemical sector in order to diversify their product mix with the help of existing players who are looking to buy something they need or to sell something that they make. The firm has consultants with extensive domain knowledge both in the chemical and pharmaceutical sector.

Fundraising action plan for startups amidst the Covid-19 induced uncertainty



Post the 2008 recession, three recently founded startups decided to brave the superlatively bearish sentiment of the economy and developed a blue ocean strategy to enable consumers to try their innovative services. Consumption was remarkably low, translating to restrictive spending and ‘wise’ usage of capital. In such a period, investors and fund houses were difficult to approach for fundraising applications. A significant portion of investors fell short of wealth and even the ones ‘open for business’ were stringent in their due diligence or demanded a higher stake in the ownership. Despite all odds, these three firms stuck to their core value proposition and kept a continuous focus on user satisfaction and strived hard to keep the ‘wow’ factor alive in their product. Post their first funding rounds in late 2008 or early 2009, they have been hunted around by the most glamourous of the fundraising community. At present, quite a few of the mightiest global financial sponsors have parked their funds with them.
Spotify, AirBnB and Uber, thus, acts as pillars of inspiration for businesses to sail through an economic collapse and raise capital during uncertain times.

The above diagram represents the journey of fundraising for an organization from foundation stage to IPO. As depicted, although revenue correlates with the accumulation in funding, the revenue curve gradually flattens with time, till the firm surfaces for an IPO. So, the Early Stage phase (primarily up to Series B phase) behaves as a chief architect of its growth.

Amidst the ongoing crisis, the number of seed deals and early-stage funding deals fell 37% to 228 in the first quarter of the year that ended March 31, as compared to the same quarter the previous year . Several deals under process have been abruptly stopped with the implementation of the “force majeure” clause.

In the first quarter of 2020, the number of Series A deals plunged to 32, the lowest level since the beginning of 2015. This compares with 42 deals struck in the October-December quarter and 60 deals recorded in the same quarter in 2019.

The number of Series B and C deals decreased to 31 in the first three months of the year from 44 in October-December and from 35 in the same period last year.

As quoted to the Economic Times, a Bengaluru based Fintech firm’s founder describes his experience to raise 5 Million USD. He says: “We were in the due diligence stage and most things were done. Suddenly, I received a joint call from both funds to understand my take on the Covid-19 virus outbreak and its impact on our startup”.

COVID-19 spread in India has pushed the banking sector to one of the darkest phases of business lending in its history. Corporate leadership across sectors, irrespective of the size of the organization, has requested an extension of the current 3- month moratorium period. In March 2020, financial sponsors such as major PE/VC firms have collaboratively issued a statement of caution for the registered startup founders in the country. The focus has shifted from growth to cost minimization, and runway extension.

A pessimistic, unfavourable scenario has thus emerged in the fundraising community and this may persist, as far as current expectations, for at least a couple of quarters ahead.

So, here we address the question of how to raise interim capital for startups in the trough cycle.

Inclusion in various schemes of RBI or the Government

The commerce minister Mr. Piyush Goyal met several industry stalwarts and venture capitalists to discuss on a startup relief package to fight the economic downturn caused by the pandemic. Businesses may need to be registered under the Department for Promotion of Industry and Internal Trade (DPIIT) to avail of the much-needed benefits. A significant portion of the Fund of Funds (FoF) corpus of Rs 10,000 crore may be provisioned for disbursement. A petition has also been filed to the government to reimburse 50% of the salaries for a month and to be offered a 20-lakh grant each.

RBI, on the other hand, has received proposals from ministry officials to release a separate bailout package for startups and MSMEs and hopefully, they might be in the rollout planning phase. The decrease in repo rate by 75 basis points shall increase the supply of capital. Although industry believes catering to demand is an arduous task in such extraordinary times.

There might be a silver lining though.

Small Industries Development Bank of India (SIDBI) has launched a Covid-19 Startups Assistance Scheme (CSAS) where government defined startups, based on the below-mentioned eligibility criteria, can receive up to INR 2 crores each for Working Capital Term Loan. Amidst the current crisis, SIDBI has pivoted from equity financing to credit financing.

Startups must scrutinize the various terms and conditions mentioned here before applying for the scheme.

Moreover, the Indian Private Equity and Venture Capital Association (IVCA), the representative body for risk capital in India, has proposed that SIDBI increase the maximum limit of loan amount up to Rs 5 crore, from the currently proposed Rs 2 crore,reduce the interest rate, and ease the criteria that currently allows only unit economics-positivestartups to be eligible to apply for CSAS, along with a longer payback duration.

The loan tenure has been provisioned for up to 36 months with a moratorium period of maximum 12 months. But the new IVCA proposal has requested for a tenure up to 48 months and moratorium period of 18 months.
Businesses may soon avail eased out policy waivers in export expenses, logistics and shipping costs, regulatory compliances and hopefully, tax reductions. These may immensely help business models extend their runway without slashing jobs or salaries.

Venture debt financing

Venture debt firms are specialised institutions catering to debt financing needs for startups. In India, Innoven Capital, Alteria Capital and Trifecta Capital occupy the lion’s share of this market with a collective deployment of 300 Million USD in 2019.

Besides runway extension and a hefty tax shield based on interest paid on debt, founders and leadership team can leverage the freedom of not having to dilute the ownership for a temporary crisis. Moreover, a deferment of EMIs may be granted if the situation worsens to an unprecedented level. Post crisis, the funds raised from equity can be restructured into a preferential arrangement to pay off the debt, easing financial distress between the lender and the lendee.

Venture debt expect a cumulative return of 12-25%, including loan interest and capital returns.

Typical loan terms seen in the industry are as follows:

• Repayment: ranging from 12 months to 48 months. Can be interest-only for a period, followed by interest plus principal, or a balloon payment (with rolled-up interest) at the end of the term.
• Interest rate: Primarily dependent on the yield curve and the MCLR plus the adjusted spread. In India, typically financing may be offered between 14% and 20%.
• Collateral: venture debt providers usually require a lien on assets of the borrower like IP or the company itself, except for equipment loans where the capital assets acquired may be used as collateral.
• Warrant coverage: the lender may request warrants over equity ranging between 5% to 20% of the total loan value. A certain percentage of the loan’s face value can be converted into equity at the per-share price of the last (or concurrent) venture financing round. The warrants are usually exercised during company acquisition or IPO listing in the exchange, yielding an ‘equity kicker’ return to the lender.
• Rights to invest: On occasion, the lender may also seek to obtain some rights to invest in the borrower’s subsequent equity round on the same terms, conditions and pricing offered to its investors in those rounds. It is expected that Convertible Debt market will significantly rise in the future.
• Covenants: borrowers face fewer operational restrictions or covenants with venture debt. Accounts receivable loans will typically include some minimum profitability or cash flow covenants.

Private placements and HNIs

Capital markets, currently, are not an attractive option to park funds for growth. So, investors such as corporate firms present in the incumbent’s value chain, HNI Investors and even Limited Partners (LP) can probably push funds into startupss and MSMEs to diversify their portfolio and leverage strategic advantages to their favour. Larger firms working with the incumbent may propose a board member position as a return value of their funds. Be it upstream or downstream, they may see the incumbent’s business model as a potential target for acquisition and would want to be at the driver seat in managing the startups.

Experienced mentorship and limited dilution are the major positive angles for the startups planning to raise funds from these investors. But the promoters should also stay beware of financial frauds and keep a strong check on legal requirements. As per regulatory compliances, funds raised from less than 200 investors qualify for private placement whereas that from more than 200 investors would push it to a crowdfunding platform and enable a separate set of compliance.


Business models that have either a component of societal welfare attached to its value proposition or solutions to help the society in the crisis are ideal for availing crowdfunding opportunities. Crowdfunding doesn’t involve complicated financial risks as an investment for retail investors generally is significantly small as compared to institutional players. Moreover, the campaign could go viral and thereby, reduce marketing and advertising expenses from the P&L statement. The campaign itself acts as a testimony to the business model.

Moreover, the promoters don’t dilute their share in the firm as the beneficiaries can be rewarded back later with various forms of rewards.

But founders also need to keep in mind the effort and time required to increase the appeal of the model as well as generate sufficient PR content in quick succession. Sensitive assets such as tech algorithms, IP, trade secrets governing the model need to be protected with trademarks, copyrights, and patents. Otherwise, the campaign runs the risk of losing its competitive advantage due to imitation.

As a rule of thumb, the promoters should also consider a 5-8% of funds raised as crowdfunding expenses as both the funding platform and payment gateways shall place their own charges.


Public source of funds over private funds:Government of India may deploy the second round of stimulus package targeted exclusively for the MSME sector and startups. There has been a global wave, across national funds, to aid startups and small businesses thrive in the current situation. In a bearish market, private investors impose extraordinarily conservative or stringent measures to fund startupsand put a strong push to focus on profitability instead of growth. In the Early Stage, even if it sounds attractive, this may be severely detrimental in the long run.

Moreover, raising funds from such schemes imperatively offer benefits beyond monetary terms. Firstly, the access to key policymakers and decision-making units of planning bodies and the cushion to stay ahead of the curve for alignment with governance procedures. Moreover, the funding may achieve a significantly lower cost of capital. It shall help to re-model the capital structure of the business for a healthy financial scorecard.

Venture debt financing over equity financing:Venture debt ensures that founders need not comply with an over-dilution as the pandemic suppresses business valuations. Venture debt can be used as a temporary bridge to maintain or improve growth models and operational scalability until the onset of a bull market. The up-cycle inevitably attracts equity financiers and a healthy business model reaps the maximum benefits then. The Cost of capital is also lower than equity financing and thus, shareholder returns don’t get affected much.

On a cautionary note, venture debt firms will look for the relevant risk as compared to the asset class, so unit economics and asset utilization shall play a critical role in the capital deployment decision.

Authored by: Rajarshi Chowdhury, Associate
Contact details:

About Intueri: Intueri Consulting is a management consulting firm with nearly 100 man-years ofexperience in managing organizational challenges, including managing firms and clients throughsome of history’s biggest crisis periods such as the 1997 Asian Financial Crisis, 9/11 led crisis, 2007-08 global financial crisis. This vast repository of organizational management experience, accrued bysenior management, over decades of managing large multinational firms and clients enables Intuerito develop effective, efficient crisis management strategies and provides it with a unique perspectiveinto events and decisions that take into consideration all important aspects of a firm, includingassessment of primary, secondary and even tertiary order potential effects on the firm on account ofimplementation of strategies.Intueri has been helping organizations of a different scale to raise funds in a hyper-competitive ecosystem and has prepared an end to end value offering for an investor roundtable. The firm has consultants, well balanced with the domain knowledge and cross-sectoral industry analysis approach and possesses a strong network of financial advisors.

Feel free to reach out to us for a detailed discussion.