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For more than a week now, people across the country have been protesting against the government's Citizenship Amendment Act and National Registry of Citizens. What had begun as a student-led movement is today seeing mass support from people across the economic, religious, and age spectrum. In today's post we try to look at a factor which is less relevant in the larger scheme of things, but still important to look at, which is the impact of the protests on consumer spending, tourism, and broader investor interest, and consequently its impact on the Indian economy.
It helps to have an example in close proximity, Hong Kong, which faced economic stress after their recent peaceful protests. Consumer discretionary spend was the first victim there, with a drop of almost 10% expected. With a good proportion of the Indian middle class either participating in or directly affected by the protest, the impact on discretionary spend can be significant in India as well. The overlap with the Christmas and New Year season which drives a significant proportion of the discretionary spend is likely to hit the space more.
Another area that can see stress is tourism in India. With many states facing protests followed by adverse action by the Indian state, many countries including the US and UK have issued warnings against travel in India. Fear domestically will lead to lower domestic travel as well. While the most direct impact of this will be on the hotels and airline space, the income of locals in key tourist destinations across India will be hurt as well, something that could have extremely negative consequences for the Northeast which depends strongly on this source of income.
The third source of distress will most likely not manifest itself in the short-run but will be a key factor in the long run. External investors looking at India see it as a stable, secular democracy with a good growth runway. In light of the recent events, a few of these factors will be seen under a different lens, which could impact how investments flow into the country long term. Numerous top international publications have already begun running front-page stories on the events. The longer the protests run, and the more severe the action from the state, the worse the impact of this factor would be.
In an already softening economy, the combination of these three factors could severely dent future economic growth. And while the government would be largely focussed on the social and political consequences of its actions it would do well to keep the economic consequences at the back of their mind as well.
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Zapp 5: (Day's 5 top stories in 3 lines or less)
1. Sensex remained fairly flat after a strong rally. The index was up 7 points to reach 41,681.
2. Fitch cut India's GDP growth forecast to 4.6% in FY20 down from its earlier 5.6% estimate. Moody's estimate stood at 4.9% with ADB at 5.1%. RBI has guided 5.0% growth.
3. Private telecom players losing atleast 1.5cr each day per state due to internet shutdown. India has been leading in government-sanctioned internet shutdowns. J&K has had a shutdown for more than 3 months now.
4. DoT seeks 1.72 lakh crores from GAIL. The DoT is also seeking 1.25 lah crores from Powergrid. GAIL mentioned it owes no amount other than what has been paid; Powergrid also quoted a significantly lower figure.
5. Donald Trump officially launched the Space Force which will become the sixth arm of the United States armed forces.