Page 11 - CII Artha Magazine 1
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Domestic Trends



 1.  Through the creation of   The Parliament had passed                                  would help break the silos
 institutional structures   a Bill to establish a                                         under which the Ministries          Going
 such as the Development   National Bank for                                              currently operate and
 Financial Institution (DFI)   Financing Infrastructure                                   facilitate greater
 for long term funding;  and Development                                                  inter-ministerial/multiple
                                                                                          agency co-ordination so that
 (NaBFID) in March 2021,
 2.  Monetizing unused and                                                                infrastructure projects do
 underutilized assets   which is a new DFI to                                             not suffer from delays.             For
 through the asset   facilitate flow of long-term
 monetization pipeline; and   funds for Infrastructure                                      PRIVATISATION OF
 projects.The establishment                                                                 NON-STRATEGIC
 3.  Increasing the share of   of the NaBFID, a                                             PSUS HERALDS A
 capital expenditure in   professionally managed                                            NEW ERA IN POLICY
 Central and State budgets.   development finance                                           MAKING                            Growth
 institution, is a major step
 These three broad means   towards infrastructure
 being deployed by the   financing and is expected
 government to raise   to take final shape by this                                        Ensuring that no stone is left
 finance are discussed in   year-end. As per the                                          unturned in its quest for
 detail in the subsequent   budget document, a sum of                                     reforms, the government has
 paragraphs:  Rs. 20,000 crore would be                                                   now turned to privatization
 set aside to capitalize this                                                             of non-strategic PSUs and                                       of localised lockdowns at the   9.2 per cent in the current   3.  Strong investment
 1.  Setting up of National   institution. The aim is to                                  would redeploy the                   A    s the year 2021 draws   state level rather than a   fiscal, which is broadly in-line   spending aided by
 Bank for Financing   have a lending portfolio of   2.  National Monetisation   3.  Rising share of capex in   GATI SHAKTI   proceeds in areas such as   to a close, it is an   nation-wide lockdown of the   with our expectations.  robust government’s
                                                                                                                                    opportune time to
 Infrastructure and   at least Rs. 5 lakh crore for   Pipeline (NMP)  budgets  NATIONAL MASTER   education & healthcare and    analyse the performance of   previous year.                                         capex spending
 Development   this DFI in the next three                       PLAN EXPECTED TO          other physical infrastructure        key economic indicators in                            In the first half           4.  Strong capital market
                                                                                          both in urban & rural areas.
 (NaBFID)  years.  The Rs. 6 trillion National   The third leg of the Budget   BE A GAME-CHANGER   In this context, the        the current year and the likely   Going forward, CII expects   (April-September FY22),   fund-raising that has
        Monetisation Pipeline for
                                   announcement relating to an
                                                                                                                                                                                     growth has topped 13.7 per
                                                                                                                                                          India’s GDP to rebound to 9.5
        public sector assets, which   increase in the share of capital   FOR INFRA SECTOR  successful privatization of Air     trends in the next year.   per cent in 2021-22, after   cent which is expected to   helped repair the risk
                                                                                                                               As regards our economic
        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
        proposed value of more than   State budgets is also growing                       event and sends out a clear          the current year was roiled   the previous fiscal. We expect a   the second half    during the pandemic
        12 ministries and 20 asset   apace. The recent release of an   Gati Shakti is aimed at   message to the markets and    by the deadly second wave of   further strengthening of the key   (October-March FY22) as per   5.  Reforms momentum
 he infrastructure sector   Infrastructure Pipeline (NIP).    classes, will bolster the   additional tranche of Central   creating an integrated   global investors that the   the corona pandemic which   levers of the economy, as the   the first advance estimates of   staying intact
 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   proved to be a major   government has stepped up   GDP. The waning of the
 priority of the government in   December 2019, comprises   appointed veteran banker   sector. As per the National   ability which would be used   amounting to Rs. 95,082 crore,   development, which would   political will to bite the   roadblock for the economy   public investment which, in the   favourable base effect along   Likely headwinds on the
 policy making and is a   8,200 projects, is for a five-year   Mr K V Kamath as the   Bank for Financing   for financing infrastructure.   from the divisible tax pool, is   help to facilitate multimodal   reform bullet. The sale of   just recovering from the   process, would crowd in private   with supply-side disruptions   horizon
 touchstone for the grand   period between FY2019 and   new chairperson of the   Infrastructure and   This is another key platform   anticipated to provide state   connectivity across various   Central Electronics Ltd   aftermath of the first wave.   investment to rekindle a new   and the likely impact of the   1.  Possible third wave due
                                                                                          (CEL) is another welcome
 vision to help India emerge as   FY2025, covering diverse   National Bank for   Development (NaBFID)   for generating revenue for the   governments with the   economic hubs, providing   news. More such big- ticket   However, the economic   demand cycle in the economy.   omicron variant is expected   to the new mutant of
 a US$5 trillion economy. The   projects in roads, rail, ports,   Financing Infrastructure   Act 2021, the institution   government for funding NIP.   requisite funds to help them   manufacturers faster access   privatization of PSUs such as   impact emanating from the   As per the first advance   to impinge on growth in the   the virus, though
                                                                                                                                                                                     second-half of the year.
                                                               to domestic and
 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   international markets. This   LIC, BPCL, Shipping   second wave was much   estimates released by CSO, real   uncertainty still persists
        proposed to be co-terminus
 announcements made during   Raising funds   (NaBFID) for a duration   not more than three   with balance period under NIP.   capital expenditure and meet   would serve to reduce our   Corporation of India, BEML,   milder than the first wave,   GDP is expected to grow by   Further, in 2022-23, we   with respect to its
                                                                                                                               largely due to the imposition
                                   their share in joint infra
 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          impact as compared to
 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        the second wave
 set the ball rolling on   Ministry will also soon   brownfield projects and   projects under NIP is   of gross domestic product            Trajectory of Real GDP (Rs lakh crore)   per cent, with the          2.  High energy prices
 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   74.4  75.2  79.4  following drivers and   could inflate our import
                                                                                                                                                                                     laggards:
                                                                                          take India’s policy making at
 development in the country.    appointment of managing   highway stretches, even urban   monetization to finance   cent in more competitive   an inflection point from   71.3  68.1                               bill and pressurise
 This section would dwell into   development  director (MD) and deputy   tracts, stadia and hotels –to   infrastructure development is   economies, and help improve   where the country would   59.9  Likely drivers of growth    margins
                                                               our international
 some of these   managing directors   investors over the next four   in place, the government needs   competitiveness.  take off to a new trajectory                                                             3.  As inflation starts to
 announcements which are   Recognizing that the fund   (DMDs) of the newly set   years. Already, the government   to build on these initiatives   of inclusive growth with           1.  Increased coverage of     impinge upon growth,
 meant to ensure that projects   allocation made under NIP   up development finance   has put up six properties of   and make sure that any last   The Gati Shakti National   infrastructure development   vaccination which would   there is a risk of the
        BSNL and MTNL for bidding
                                                                                                                                                                                        help to mitigate the impact
 take off and get going.    was inadequate, other means   institution, to catalyse   through auction. It is hoped   mile glitches are removed, and   Master Plan is expected to   as the fulcrum. With   of the pandemic on the   Central Bank moving
                                   projects are set to take off the
 for raising capital to finance   investment in the   that asset monetization would   ground. The Rs 100 trillion   deploy a geo-spatial digital   infrastructure having a              economic activity by       away from its
 The Government’s elusive   the National Infrastructure   eventually reach smaller towns   Gati Shakti project, announced   platform that will provide   multiplier impact on rest of   reducing the probability of   accommodative stance
 pursuit of stepping up   Pipeline become inevitable.     and even to the hinterland and   by the Prime Minister, is a step   real-time information on   the sectors of the economy,    severe disease           4.  Lacklustre pick-up in
 investment in infrastructure   The government proposed   ensure seamless execution of   in this direction.  infrastructure projects   a buoyant infra sector is   1H:FY20  2H:FY20  1H:FY21  2H:FY21  1H:FY22  2H:FY22 (E )  key contact-intensive
 led to the allocation of Rs.   the following three ways to   projects.  across 16 ministries. This   expected to catalyse a sound                                                   2.  Continued robust          sectors such as travel &
                                                                                          and solid growth recovery
 111 lakh crore (US$1.4   do this in the Budget 2021-22.                                  process.                                      Note: 2H:FY22 estimated from the full year advance estimates for the year  performance of exports of   tourism is likely to
                                                                                                                                                 Source: CSO & CII Research Analysis
                                                                                                                                                                                        goods and services
 trillion), under the National                                                                                                                                                                                     impact jobs creation
        11   ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                                                                                                                               ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  12
                                                                                                                                                                                                                  QUARTERLY JOURNAL OF ECONOMICS
             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
 do so is to expedite the
 However, encouragingly,
 Products and Chemicals &
 continues to do the
 of US$299.7 billion between
 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
 National Infrastructure
 at 96 per cent of the
 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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