Page 15 - CII Artha Magazine 1

State of States
The monthly trends also show B. LAGGARDS Faster-than-expected t a time when private
that public spending is normalisation of the US Global Commodity Prices (Index, 2016=100) A investment is not
progressing at a rapid clip. As Consumption demand monetary stimulus forthcoming in a big way, it has Overall Expenditure Incurred by States
per the latest data available on continues to move at become imperative for the
CGA, capital spending for snail’s pace During the COVID-19 240.0 237.4 government to energise public Q2FY20 Q2FY21 Q2FY22 % change Q2FY22 w.r.t Q2FY20
April-November FY22 stood pandemic, the US Federal investment to bring the (In crore) (In %)
at Rs 2.73 lakh crore, which is The disaggregated picture Reserve brought short-term 180.0
13.5 per cent higher in from the demand side shows interest rates to near-zero 115.2 179.5 economy back on track. And Capital expenditure 1,77,259.4 1,61,848.7 2,19,261.5 23.7
year-on-year terms and that private final consumption and restarted large-scale 120.0 while the Centre has resolved
represents 49.4 per cent of expenditure (PFCE) continues bond purchases, referred to 60.0 to increase its capital Revenue expenditure 12,46,661.4 12,83,527.2 14,16,139.5 13.6
the budgeted spend for the to move at snail’s pace and as Quantitative Easing (QE). It 0.0 52.8 expenditure significantly in Total expenditure 14,23,920.4 14,45,375.9 16,35,401.0 14.9 The maximum rise in revenue
current fiscal. Notably, it is 28.0 trails pre-pandemic levels. It helped in sharply bringing FY22, it is the states which expenditure has been
per cent higher than the same grew at a slower rate of 8.6 down the borrowing costs, Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 need to complement the Source: CAG & CII Research Analysis witnessed in Kerala, a
period in the pre-pandemic per cent in the Q2FY22 as which cushioned the Centre and augment their whopping 29.3 per cent
year of 2019-20. While the compared to 19.3 per cent in economic recovery process Fuel (Energy) Base Metals capital investment for increase in Q2FY22 over the
progress so far has been good, the previous quarter as in the US. Source: IMF Commodity Research sustainable economic growth. At the individual level, Q2FY20. Similarly, revenue
to achieve the budgeted capital impact of a favourable base majority of states, around 70 expenditure of Tamil Nadu
expenditure of Rs 5.5 lakh effect waned. With this, the However, in his recent It is against this backdrop that per cent, have encouragingly and Andhra Pradesh is also up
recorded an increase in their
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 High prices of commodities retail inflation measured by in the previous quarter. Going current fiscal and firming up the section looks at the capital expenditure in the by over 20 per cent during
extent to which states are

by 13.5 per cent in the first

government needs to be

the comparable period.
services, Construction &
merchandise exports have
to around 5.4 per cent in
Chair Jerome Powell has
the Consumer Price Index
forward, if commodity prices
real GDP in absolute terms at
and energy have led to a
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 sharp decline in corporate (CPI) moderated to 5.08 per continue to remain elevated, 2022-23. Inflationary responding to the incentives second quarter of FY22 from
the pre-pandemic levels in
do so is to expedite the
However, encouragingly,
given by the Centre to

Products and Chemicals &
of US$299.7 billion between
continues to do the
start tapering its bond
pressures in the next fiscal
there is a likelihood of the
cent in Q2FY22 from 5.59
second quarter of this fiscal
margins across sectors. As per
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 CMIE’s Prowess data, of a per cent in Q1FY22. The headline print inching north in are expected to accelerate improve their capital Q2FY20.
National Infrastructure
at 96 per cent of the
investment. For our analysis,

sustained demand recovery is

The GDP print during levels of Rs 35.6 lakh crore demand-side driver of Pipeline (NIP), which are visible, are driving the recovery in which amounts to 75 per pre-pandemic level. keep inflation in check. This is balanced panel of 1560 moderation in retail inflation the coming quarters. In the due to the following reasons: we have considered 21 Indian Among the states, Tamil Nadu
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 manufacturing firms, in was driven by a sharp first half of the current fiscal, states which account for has topped the list in capex
economy expanded by an 2019-20. An analysis of the second for nearly 62 per cent of total export target set up by the Supply-chain bottlenecks interest rates globally, thus Q2FY22, the net margin slowdown seen in food & the CPI inflation moderated 1. Imminent pass-through of around 94 per cent capex of spending with an outlay of Rs

government.
impressive 20.1 per cent - quarter of this fiscal shows Encouragingly, capital spending private investment spending by stifling growth impulses affecting foreign inflows to moderated to 10.9 per cent beverages inflation in Q2. to 5.33 per cent as compared higher input costs (mainly all states combined in FY21. 1,29,988 crore in Q2FY22 as
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. from 11.1 per cent in the Encouragingly, it has now slid to 6.74 per cent in the same commodity prices) by against Rs 1,01,038 crore in the

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, previous quarter. Going below the 5.00 per cent mark, period last year, broadly on producers to consumers While the resource shortfall second quarter of FY20. This is
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 forward, if commodity prices with the reading standing at account of the fluctuating (WPI inflation has may have constrained the followed by Uttar Pradesh (Rs
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, remain elevated, there is a 4.91 per cent in November as food prices. averaged 8.5 per cent over 14,069 crore), Telangana (Rs
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 compared with 4.48 per cent the last 12 months) 10,920 crore) and Karnataka
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 likelihood of a moderation in in October. Core CPI inflation CAPEX SPENDING BY (Rs 10,333 crore).
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 the pace of growth. meanwhile remains 2. Tariff hike by all three STATES RISING AT A
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 telecom players by at least SHARP PACE IN However, when estimated in
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, Rising commodity prices Despite a moderation in the elevated as pricing power 20 per cent Q2FY22 COMPARED TO growth terms over the
of last year. movers and shakers of growth the first half of the current demand. Consequently, exports gems & jewellery has also passenger vehicle sales given India’s strong external pose a significant upside headline number, inflation in comes back pre-pandemic period of
into the two broad heads of Out of the key infra sectors, have emerged as a critical declining in double digits by fundamentals, especially on the risks to inflation as well the fuel & light sub-category THE PRE-PANDEMIC
DRIVERS and LAGGARDS fiscal as compared to 8.6 per Shipping, Road Transport & driver of growth in the current seen robust growth during 18.6 per cent for the third external front. Nonetheless, core inflation Going forward, even as PERIOD Q2FY20, Punjab has witnessed
Notwithstanding, the and analyse their performance cent in the similar period in this period. has climbed to 12.98 per cent domestic macroeconomic the sharpest rise in capex
deceleration in growth noted below: 2019-20. Highways, Housing & Urban fiscal. straight month in November Even as growth impulses are in the second quarter as (headline inflation minus food (503.9 per cent) during
in the second quarter, it is Affairs and Railways have so far 2021 despite strong demand High global commodity getting firmly entrenched, compared to 10.81 per cent & fuel) remains elevated and configurations are improving, Q2FY22 followed by Telangana
seen higher cumulative in the local market. This was prices pressurise sticky at 6.42 per cent in the risks from global develop- states from spending as much
spending during the year as the lowest sales in seven corporate margins Q2FY22 as compared to 6.32 ments are rising and warrant as projected in their budgets, (204 per cent) and Andhra
compared to last year. years for passenger vehicles. per cent in the previous a close watch as they could numbers show that Pradesh (68 per cent).

Global commodity prices have a negative impact on the considerable importance has However, a few states such as
There are many factors have inched higher in the CPI Inflation Trajectory (y-o-y%) quarter. To be sure, the jump indeed been accorded to Haryana, West Bengal,
Private capex, too, has attributable for the grave current year driven by an in core inflation in the second recovery that is currently capital spending for meeting Jharkhand, Bihar and
started showing signs of semiconductor shortages uptick in demand while supply quarter is the highest as underway in India. Global the spending priorities of Maharashtra have shown a
recovery as per CMIE’s being felt currently worldwide. has struggled to keep pace. In 6.2 compared to the same period semiconductor shortages, states. As compared to decline in capex during this
capex data From the supply side, there 2021, commodity markets 5.2 5.4 in FY21 and FY20. The elevated commodity prices, Q2FY20, at the aggregate period.
are factors such as temporary have been impacted by increase in the second and potential global financial level, states saw their capex
As per CMIE’s capex data, factory closures due to the quarter was attributed to the market volatility are key rise by 23.7 in Q2FY22 which While the big picture shows
private capital expenditure pandemic and disruptions in adverse weather conditions, elevated commodity prices downside risks to domestic is much higher than the 13.6 the preponderance of capital
(measured by the value of supply as storms halted with droughts in some parts growth prospects, along with per cent rise in revenue spending in total expenditure
ongoing projects) stood at Rs production facilities in the US of the world affecting a few along with supply chain the emergence of Omicron expenditure during the same of states, at the individual level,
71.7 lakh crore at the end of and Japan. The demand-side agricultural commodities and FY21 FY22 (F) FY23 (F) disruptions. and renewed surges of many states have reported a
third quarter- higher than the factors include huge backlog reducing hydroelectricity period. A slower rise in sizeable rise in revenue
Rs 69.27 lakh crore print seen of demand for chips due to supply while floods in other Note: F is forecast Going forward, we expect COVID-19 infections in a revenue expenditure has expenditure in Q2FY22 from
in the same period in FY21 and the release of pent-up demand areas has impacted the supply Source: MoSPI CPI inflation to average number of countries. helped to contain the rise in
Rs 69.39 lakh crore seen in the amongst others. of certain metals and coal. around 5.2 per cent in the total expenditure to 14.9 per the pre-pandemic period as
pre-pandemic period of FY20. cent in Q2FY22 over Q2FY20. well.
15 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 16
QUARTERLY JOURNAL OF ECONOMICS
QUARTERLY JOURNAL OF ECONOMICS
DECEMBER 2021 DECEMBER 2021
B. Deepening the supported CAS (conditional
Component Value Chain access system) for set top
across the entire boxes.
ecosystem
Similarly, a global innovation
The domestic electronics challenge for designing of
industry is characterised by semiconductors and chip sets
lack of a component for educational tablets for the
ecosystem which leads to its masses could be encouraged.
dependence on imports. High
dependency on imported Besides, the next focus should
inputs raises cost and impedes be on maximizing domestic
competitiveness. A right mix value addition and promoting
of policy realignment coupled Design in India, besides Make
with new targets is required. in India. For this, the
know-how available with
The government has, no doubt Government owned R&D
announced the PLI scheme for laboratories should be made
components. However, the 5-6 freely accessible to industry,
per cent incentive on outsourced R&D needs to be
incremental sales, envisaged incentivized on the lines of
under the scheme, is not In-house R&D, Technology
enough to achieve scale in this Acquisition Fund be created
sector and accordingly would for liberal assistance in filing
discourage manufacturers patents and a Guarantee Fund
from indigenizing production. be created to help R&D
Hence, the government should houses to raise working
review the scheme by capital.
expanding the incentive from
the present 5-6 per cent and D. Other Suggestions
widen the eligibility criteria. A
revamped PLI would facilitate Similarly, the government
scale economies from should also look at other
domestic production and also options such as leveraging
encourage SMEs to strengthen upcoming FTAs (UK & the
the supply chain and reduce EU) towards enhancing
our dependence on imports. exports, incentivizing
manufacture of products not
C. Encouraging Design-led currently produced in India,
Manufacturing facilitating EoDB, among
others.
For ensuring that the industry
remains competitive (by To conclude, a robust policy
facilitating domestic IP environment would help the
creation), even after the PLI & country to realise the huge
other benefits expire, a push opportunity awaiting India to
to R&D is most essential. For emerge as a global hub for
this, the government should electronics and meet the
explore innovative solutions targets envisioned in the NPE
for the sector such as a model 2019.
based on the Government led
domestic manufacturers