Page 10 - CII Artha Magazine 1
P. 10

Policy Focus

 Reforms to enhance   countercyclical   Low relative food prices are   A HEALTHY  Government  1.  Through the creation of   The Parliament had passed                                                                             would help break the silos
 opportunities are in   macroeconomic policy has to   essential for sustained growth   FINANCIAL SECTOR   institutional structures   a Bill to establish a                                                                        under which the Ministries
                                                                                                                                                                                                                                  currently operate and
 education, skilling,   smoothen shocks. Indian   in populous countries where   REMAINS A   such as the Development   National Bank for                                                                                           facilitate greater
 food has a large share in the
 policy has the degrees of
 infrastructure, institutions,   freedom to do so.  consumption basket.   PREREQUISITE FOR   Financial Institution (DFI)   Financing Infrastructure                                                                               inter-ministerial/multiple
 empowerment, improvements   Therefore, a rise in   RAMPING UP GROWTH  Focus on  for long term funding;  and Development                                                                                                          agency co-ordination so that
 in governance and including at   Monetary transmission to   agricultural productivity has   2.  Monetizing unused and   (NaBFID) in March 2021,                                                                                  infrastructure projects do
 the third tier—many   output is effective, while   to precede a growth surge. A   underutilized assets   which is a new DFI to                                                                                                   not suffer from delays.
 initiatives have been taken in   higher government debt and   jump in food inflation   provisioning and capital   through the asset   facilitate flow of long-term
                                                                                          funds for Infrastructure
 these areas. Central and state   interest payment burden limit   contributed to halting India’s   buffers are high and their   Infrastructure  monetization pipeline; and   projects.The establishment
 governments have large assets   fiscal demand stimulus. Fiscal   high growth phase in the   boards are stronger and more   3.  Increasing the share of   of the NaBFID, a
 independent. Government
 deficits cannot expand
 2000s. By the mid-2010s,
 built up over the plan years   beyond a point. Reforms to   however, India seems to have   warranties are a healthier way   capital expenditure in   professionally managed
 that are utilized poorly. This   improve the supply-side are   entered a period of   to finance small enterprises,   Central and State budgets.   development finance
 dormant wealth is being   agricultural surpluses. There is   allowing private banks to also   institution, is a major step
 creatively monetized to   evidence of rising productivity   participate. The bankruptcy   would Open  These three broad means   towards infrastructure
 restructure the fisc towards   FISCAL & MONETARY   and diversification to   code was an essential reform.   being deployed by the   financing and is expected
 infrastructure, health and   POLICY   horticulture, aquaculture etc   government to raise   to take final shape by this                                                                                                          Ensuring that no stone is left
 education expenditure that   COORDINATION IS   that have multiple crop cycles.  The modern development   finance are discussed in   year-end. As per the                                                                         unturned in its quest for
 finance institution being set
 has higher growth spillovers   CRITICAL FOR AIDING   India’s dependence on oil   up, on the lines of the   up Pathways  detail in the subsequent   budget document, a sum of                                                     reforms, the government has
 and improves productivity.   GROWTH RECOVERY  imports makes it vulnerable   successful Chinese and   paragraphs:  Rs. 20,000 crore would be                                                                                      now turned to privatization
 Other advantages are it can   to oil price shocks. But shale   German Development banks,   set aside to capitalize this                                                                                                          of non-strategic PSUs and                s the year 2021 draws   of localised lockdowns at the   9.2 per cent in the current   3.  Strong investment
 create opportunities for   oil, which has a more elastic   will help with infrastructure   1.  Setting up of National   institution. The aim is to   2.  National Monetisation   3.  Rising share of capex in                    would redeploy the                       to a close, it is an   state level rather than a   fiscal, which is broadly in-line   spending aided by
                                                                                                                                                                                                                                  proceeds in areas such as
 private business, if the   feasible, however. This is the   supply response and climate   financing, leverage many   Bank for Financing   have a lending portfolio of   Pipeline (NMP)  budgets                                  education & healthcare and               opportune time to      nation-wide lockdown of the   with our expectations.     robust government’s
 allocation of risk is correctly   monetary-fiscal coordination   change related efforts to   opportunities in green   for Growth  Infrastructure and   at least Rs. 5 lakh crore for                                             other physical infrastructure        analyse the performance of   previous year.                                         capex spending
 done and regulation   required in Indian conditions.   develop green alternatives   finance, as well as revive the   Development   this DFI in the next three   The Rs. 6 trillion National   The third leg of the Budget        both in urban & rural areas.         key economic indicators in   Going forward, CII expects   In the first half       4.  Strong capital market
                                                                                                                                                                                                                                                                                                                             (April-September FY22),
 corporate bond market.
 reduces the power of the
 After Covid-19 demand and
 strengthened, while reducing   supply shocks, advanced   OPEC lobby. This change in   Ongoing improvements in   (NaBFID)  years.               Monetisation Pipeline for   announcement relating to an                           In this context, the                 the current year and the likely   India’s GDP to rebound to 9.5   growth has topped 13.7 per   fund-raising that has
                                                                                                                                                                                                                                                                       trends in the next year.
 current financing   economies have begun to talk   the political economy of oil   corporate governance are                                     public sector assets, which   increase in the share of capital                    successful privatization of Air      As regards our economic    per cent in 2021-22, after   cent which is expected to   helped repair the risk
 requirements and limiting   of the necessity of   pricing has the potential to   also critical for successful                                  would involve the unlocking of   expenditure in Central and                       India marks a momentous              performance, the first half of   contracting by 7.3 per cent in   moderate to 5.6 per cent in   capital that was lost
                                                                                                                                                                                                                                                                                                                                                           during the pandemic
                                                                                                                                                                                                                                  event and sends out a clear
 debt increase.  monetary-fiscal coordination;   relax a major constraint for   corporate bond markets.                                         proposed value of more than   State budgets is also growing                       message to the markets and           the current year was roiled   the previous fiscal. We expect a   the second half
 in India these justifications   India, despite the current   Multiple participant sets make   he infrastructure sector   Infrastructure Pipeline (NIP).    12 ministries and 20 asset   apace. The recent release of an   Gati Shakti is aimed at   global investors that the   by the deadly second wave of   further strengthening of the key   (October-March FY22) as per   5.  Reforms momentum
                                                                                                                                                                                                       creating an integrated
                                                                                                                                                classes, will bolster the
                                                                                                                                                                                                                                                                                                  levers of the economy, as the
                                                                                                                                                                           additional tranche of Central
                                                                                                                                                                                                                                                                                                                             the first advance estimates of
 Monetary-  were held earlier also.  shortages and spikes. OPEC   equity markets less volatile.  T has emerged as a high   The NIP, announced in   The government has   fund-starved infrastructure   government’s resource raising   funds due to the States,   framework for infrastructure   present government has the   the corona pandemic which   government has stepped up   GDP. The waning of the   staying intact
                                                                                                                                                                                                                                                                       proved to be a major
 itself does not like excessive
                                   December 2019, comprises
                                                                                                                                                                                                                                  political will to bite the
                                                                                                                                                                                                                                                                                                  public investment which, in the
                                                                                                                                                ability which would be used
                                                                                                                                                                                                                                                                                                                             favourable base effect along
        priority of the government in
                                                                                                                                                                                                       development, which would
                                                                                                                                                                           amounting to Rs. 95,082 crore,
 Fiscal   Relief from   spikes since they encourage   The sheer size and diversity   policy making and is a   8,200 projects, is for a five-year   appointed veteran banker   sector. As per the National   for financing infrastructure.   from the divisible tax pool, is   help to facilitate multimodal   reform bullet. The sale of   roadblock for the economy   process, would crowd in private   with supply-side disruptions   Likely headwinds on the
                                                                 Mr K V Kamath as the
                                                                                          Bank for Financing
                                                                                                                                                                                                                                                                       just recovering from the
 of a US$2.0 trillion economy
 substitution away from oil.
                                                                                                                                                                                                                                  Central Electronics Ltd
                                                                                                                                                                                                                                                                                                                             and the likely impact of the
                                                                                                                                                                                                                                                                                                  investment to rekindle a new
                                                                                                                                                                                                       connectivity across various
                                   period between FY2019 and
                                                                                                                                                This is another key platform
                                                                                                                                                                           anticipated to provide state
        touchstone for the grand
                                                                                                                                                                                                                                                                       aftermath of the first wave.
 coordination  constraints  Moreover, oil efficiency is   creates much more depth and   vision to help India emerge as   FY2025, covering diverse   new chairperson of the   Infrastructure and   for generating revenue for the   governments with the   economic hubs, providing   (CEL) is another welcome   However, the economic   demand cycle in the economy.   omicron variant is expected   1.  Possible third wave due
 resilience and the ability to
 rising steadily so that higher
                                                                                          Development (NaBFID)
                                                                 National Bank for
                                                                                                                                                                                                                                                                                                                                                           to the new mutant of
                                                                                                                                                                                                                                  news. More such big- ticket
                                                                                                                                                                                                                                                                                                                             to impinge on growth in the
                                                                                                                                                                                                       manufacturers faster access
                                                                                                                                                government for funding NIP.
                                                                                                                                                                                                                                                                       impact emanating from the
                                                                                                                                                                           requisite funds to help them
                                   projects in roads, rail, ports,
 oil prices have less impact on
 absorb shocks, with the
        a US$5 trillion economy. The
                                                                                          Act 2021, the institution
                                                                                                                                                                                                                                                                                                                                                           the virus, though
                                                                 Financing Infrastructure
                                                                                                                                                                                                                                  LIC, BPCL, Shipping
                                                                                                                                                                                                                                                                                                  estimates released by CSO, real
                                                                                                                                                                                                       international markets. This
                                                                                                                                                proposed to be co-terminus
 If continuing improvement in   Higher growth is feasible also   prices.  appropriate countercyclical   bouquet of bold and holistic   airports, power among others.  and Development   would have one MD and   Hence, the period for NMP is   frontload their much needed   to domestic and   privatization of PSUs such as   second wave was much   As per the first advance   second-half of the year.  uncertainty still persists
                                                                                                                                                                                                                                                                       milder than the first wave,
                                                                                                                                                                           capital expenditure and meet
                                                                                                                                                                                                                                                                                                                                                           with respect to its
 supply conditions reduce   since the major constraints   The financial sector has   announcements made during   Raising funds   (NaBFID) for a duration   not more than three   with balance period under NIP.   their share in joint infra   would serve to reduce our   Corporation of India, BEML,   largely due to the imposition   GDP is expected to grow by   Further, in 2022-23, we   impact as compared to
 costs of doing business and   that aborted such cycles in   developed to a stage where it   India thus has reached the   Budget 2021-22 and the   of three years. As per   DMDs.  The monetization pipeline   projects.   logistics costs, currently   among others are on the                                              expect GDP growth to          the second wave
 inflation, then monetary   the past are waning. Among   can avoid the problems that   stage where it can make   speedy follow-up action has   for   latest news, the Finance   would entail leasing out of   Now that the identification of   estimated at 13-14 per cent   anvil.                                          come at around 8.0-8.5
 policy can keep real interest   these constraints are   come from government   major contributions to global   set the ball rolling on   Ministry will also soon   brownfield projects and   projects under NIP is   of gross domestic product                                                                              per cent, with the          2.  High energy prices
 rates below growth rates. This   commodity price shocks and   dominance and discretion as   growth. Its demographic   crystallizing infrastructure   infrastructural   start the process for the   facilities – airports, coal mines,   underway and the asset   (GDP), compared to 6-8 per   The latest set of reforms     following drivers and         could inflate our import
                                                                                                                                                                                                                                  take India’s policy making at
 is the snowball effect that   other supply-side bottlenecks,   well as those from excess   profile, added to openness,   development in the country.    appointment of managing   highway stretches, even urban   monetization to finance   cent in more competitive                                                                                      bill and pressurise
 reduces debt ratios. It has   financial inadequacies and   market volatility and   transparent rule of law and   This section would dwell into   development  director (MD) and deputy   tracts, stadia and hotels –to   infrastructure development is   economies, and help improve   an inflection point from             Likely drivers of growth      margins
 been used to justify more   macroeconomic volatility.  exclusion. There is more   democracy can make it an   some of these   managing directors   investors over the next four   in place, the government needs   our international   where the country would                                                                                           3.  As inflation starts to
                                                                                                                                                                                                                                  take off to a new trajectory
 government borrowing in   diversity and institutional   innovation hub that helps find   announcements which are                               years. Already, the government   to build on these initiatives   competitiveness.  of inclusive growth with                                                                  1.  Increased coverage of     impinge upon growth,
 advanced economies for   RAISING   deepening. PSBs remain   solutions to global problems.  meant to ensure that projects   Recognizing that the fund   (DMDs) of the newly set   has put up six properties of   and make sure that any last   infrastructure development                                                      vaccination which would     there is a risk of the
 Covid-19 stimulus and   essential for many   allocation made under NIP   up development finance                                                BSNL and MTNL for bidding   mile glitches are removed, and   The Gati Shakti National   as the fulcrum. With                                                                   help to mitigate the impact   Central Bank moving
 protection spending.  While   AGRICULTURAL   development tasks, but they   take off and get going.    was inadequate, other means   institution, to catalyse   through auction. It is hoped   projects are set to take off the   Master Plan is expected to   infrastructure having a                                         of the pandemic on the      away from its
 this combination often holds   PRODUCTIVITY IS THE   are now doing risk-based   (Note: The above article has been   The Government’s elusive   for raising capital to finance   investment in the   that asset monetization would   ground. The Rs 100 trillion   deploy a geo-spatial digital   multiplier impact on rest of   economic activity by      accommodative stance
 in emerging markets, high   KEY TO ARRESTING   sustainable lending. Net NPAs   pre-printed from Hindu Business Line   the National Infrastructure   eventually reach smaller towns   Gati Shakti project, announced   platform that will provide   the sectors of the economy,                                                reducing the probability of
 volatility in growth and real   FOOD INFLATION  have fallen to low levels, they   dated November 15, 2021)  pursuit of stepping up   Pipeline become inevitable.     and even to the hinterland and   by the Prime Minister, is a step   real-time information on   a buoyant infra sector is                                 severe disease            4.  Lacklustre pick-up in
 interest rates limits its   have made good recoveries,   investment in infrastructure   The government proposed   Mr. KV Kamath, Chairperson, National Bank for  ensure seamless execution of   in this direction.  infrastructure projects   expected to catalyse a sound                                                  2.  Continued robust          key contact-intensive
 benefits. Therefore,   led to the allocation of Rs.   the following three ways to   Financing Infrastructure and Development (NaBFID)          projects.                                              across 16 ministries. This   and solid growth recovery                                                                  performance of exports of   sectors such as travel &
        111 lakh crore (US$1.4     do this in the Budget 2021-22.                                                                                                                                                                 process.                                                                                     goods and services          tourism is likely to
        trillion), under the National                                                                                                                                                                                                                                                                                                                      impact jobs creation
                                                                                           QUARTERLY JOURNAL OF ECONOMICS
 DECEMBER 2021                                                                                       DECEMBER 2021
 The monthly trends also show   B. LAGGARDS  Faster-than-expected
 that public spending is   normalisation of the US
 progressing at a rapid clip. As   Consumption demand   monetary stimulus
 per the latest data available on   continues to move at
 CGA, capital spending for   snail’s pace  During the COVID-19
 April-November FY22 stood   pandemic, the US Federal
 at Rs 2.73 lakh crore, which is   The disaggregated picture   Reserve brought short-term
 13.5 per cent higher in   from the demand side shows   interest rates to near-zero
 year-on-year terms and   that private final consumption   and restarted large-scale
 represents 49.4 per cent of   expenditure (PFCE) continues   bond purchases, referred to
 the budgeted spend for the   to move at snail’s pace and   as Quantitative Easing (QE). It
 current fiscal. Notably, it is 28.0   trails pre-pandemic levels. It   helped in sharply bringing
 per cent higher than the same   grew at a slower rate of 8.6   down the borrowing costs,
 period in the pre-pandemic   per cent in the Q2FY22 as   which cushioned the
 year of 2019-20. While the   compared to 19.3 per cent in   economic recovery process
 progress so far has been good,   the previous quarter as   in the US.
 to achieve the budgeted capital   impact of a favourable base
 expenditure of Rs 5.5 lakh   effect waned. With this, the   However, in his recent
 TAKING STOCK   heartening to note that the   A. DRIVERS OF GROWTH  crore, the capex push by the   Sectors such as Transport   In absolute terms, the   consumption spending grew   remarks, the Federal Reserve
 by 13.5 per cent in the first
 government needs to be
 services, Construction &
 merchandise exports have
 Chair Jerome Powell has
 real GDP in absolute terms at
 OF THE YEAR   Rs 35.7 lakh crore in the   Public investment   sustained. One of the ways to   Real Estate, Metals & Metals   reached a cumulative value   half of the current fiscal.   indicated that the Fed will
 However, encouragingly,
 do so is to expedite the
 Products and Chemicals &
 of US$299.7 billion between
 continues to do the
 start tapering its bond
 second quarter of this fiscal
 has crossed the pre-pandemic   heavy lifting as the key   projects delineated under the   Chemical Products, where   April-December 2021,   private consumption is now   purchases soon in order to
 at 96 per cent of the
 National Infrastructure
 The GDP print during   levels of Rs 35.6 lakh crore   demand-side driver of   Pipeline (NIP), which are   sustained demand recovery is   which amounts to 75 per   pre-pandemic level.   keep inflation in check.  This is
 visible, are driving the recovery in
 the economy
 Q1FY22 showed that the   seen in the second quarter of   nearing completion.  private investment and account   cent of the US$400 billion   likely to have repercussions on
 export target set up by the
 economy expanded by an   2019-20.   An analysis of the second   for nearly 62 per cent of total   government.   Supply-chain bottlenecks   interest rates globally, thus
 impressive 20.1 per cent -   quarter of this fiscal shows   Encouragingly, capital spending   private investment spending by   stifling growth impulses  affecting foreign inflows to
 testifying that the green   From supply-side basis, real   that public investment has   by the government across key   end of third quarter.  Industrial sectors such as   emerging economies like India.
 shoots of economic recovery   gross value added (GVA)   continued to do the heavy   infrastructure sectors has   engineering goods,   Supply-side bottlenecks   However, compared to 2013,
 are slowly but surely   stood at 8.5 per cent in   lifting as it bounced back to   remained healthy at Rs 1.81   Healthy exports also   petroleum products and   especially related to coal and   the Fed is being more cautious
 becoming visible. However,   Q2FY22 as compared to 18.8   the pre-pandemic levels in   lakh crore in the period   remain an enabler for   organic & inorganic   global shortage of   in normalisation this time,
 growth for the second quarter   per cent in the previous   Q2FY22. Gross fixed capital   April-November FY22 which   growth in the current fiscal    chemicals have driven the   semiconductors in the   prioritising economic recovery
 of the current fiscal (Q2FY22)   quarter.  formation (GFCF) was up   translates into a healthy 61.7   bulk of the rise in export   automobile sector affected   even as inflation remains above
 moderated to 8.4 per cent,   11.0 per cent in the second   per cent growth in   Global recovery, helped by   growth in this fiscal so far.   the growth of the industrial   the target. The impact of Fed
 which is primarily attributed   Having taken stock of the   quarter, largely supported by   year-on-year terms over  the   rapid pace of vaccination, has   Encouragingly, the   sector, especially the MSMEs.    taper will not be akin to the
 central spending, taking
 to waning of a favourable base   economy, we now bucket the   growth to 28.3 per cent in   comparable period last year.   boosted India’s external   labour-intensive sector like   This got mirrored in the   2013 taper tantrum episode,
 of last year.   movers and shakers of growth   demand. Consequently, exports   gems & jewellery has also   passenger vehicle sales   given India’s strong external
 into the two broad heads of   the first half of the current   Out of the key infra sectors,   have emerged as a critical   seen robust growth during   declining in double digits by   fundamentals, especially on the
 DRIVERS and LAGGARDS   fiscal as compared to 8.6 per   Shipping, Road Transport &   driver of growth in the current   18.6 per cent for the third   external front.
 Notwithstanding, the   and analyse their performance   cent in the similar period in   this period.
 deceleration in growth noted   below:  2019-20.  Highways, Housing & Urban   fiscal.   straight month in November
 in the second quarter, it is   Affairs and Railways have so far   2021 despite strong demand   High global commodity
 seen higher cumulative   in the local market. This was   prices pressurise
 spending during the year as   the lowest sales in seven   corporate margins
 compared to last year.  years for passenger vehicles.
 Global commodity prices
 There are many factors   have inched higher in the
 Private capex, too, has   attributable for the grave   current year driven by an
 started showing signs of   semiconductor shortages
 recovery as per CMIE’s   being felt currently worldwide.   uptick in demand while supply
 capex data  From the supply side, there   has struggled to keep pace. In
 2021, commodity markets
 are factors such as temporary   have been impacted by
 As per CMIE’s capex data,   factory closures due to the
 private capital expenditure   pandemic and disruptions in   adverse weather conditions,
 (measured by the value of   supply as storms halted   with droughts in some parts
 ongoing projects) stood at Rs   production facilities in the US   of the world affecting a few
 71.7 lakh crore at the end of   and Japan.  The demand-side   agricultural commodities and
 third quarter- higher than the   factors include huge backlog   reducing hydroelectricity
 Rs 69.27 lakh crore print seen   of demand for chips due to   supply while floods in other
 in the same period in FY21 and   the release of pent-up demand   areas has impacted the supply
 Rs 69.39 lakh crore seen in the   amongst others.   of certain metals and coal.
 pre-pandemic period of FY20.
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