Page 18 - CII Artha Magazine 1
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The monthly trends also show   B. LAGGARDS  Faster-than-expected   t a time when private

 that public spending is   normalisation of the US   investment is not   Trends in State-wise Capital Expenditure  MAHARASHTRA
 progressing at a rapid clip. As   Consumption demand   monetary stimulus   forthcoming in a big way, it has   MAJORITY OF       Q2FY20   Q2FY21   Q2FY22   % change Q2FY22 w.r.t Q2FY20
 per the latest data available on   continues to move at   become imperative for the       Q2FY20   Q2FY21   Q2FY22   % change Q2FY22 w.r.t Q2FY20  STATES RECORD AN   SHOWS WEAKNESS
 CGA, capital spending for   snail’s pace  During the COVID-19   government to energise public   INCREASE IN THEIR          (In crore)      (In %)  IN CAPEX SPENDING
 April-November FY22 stood   pandemic, the US Federal   investment to bring the          (In crore)      (In %)  CAPEX SPENDING   Punjab   19,533.9   20,020.0   21,638.6    10.8  IN Q2FY22 AS
 at Rs 2.73 lakh crore, which is   The disaggregated picture   Reserve brought short-term   IMPACT OF THE
 13.5 per cent higher in   from the demand side shows   interest rates to near-zero   economy back on track. And   Punjab  474.7  472.0  2,866.7  503.9  IN Q2FY22  Uttar Pradesh   72,652.5   65,304.8   79,731.3    9.7
 year-on-year terms and   that private final consumption   and restarted large-scale   while the Centre has resolved   Telangana  3,592.2  3,935.5  10,920.1  204.0  PANDEMIC PERSISTS
 represents 49.4 per cent of   expenditure (PFCE) continues   bond purchases, referred to   to increase its capital   Gujarat   33,621.0   31,967.3   35,740.6    6.3
 the budgeted spend for the   to move at snail’s pace and   as Quantitative Easing (QE). It   expenditure significantly in   Andhra Pradesh  1,249.8  3,426.7  2,105.3  68.4  The maximum rise in revenue   West Bengal   47,608.5   37,646.1   50,120.3    5.3
 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,   need to complement the   Chhattisgarh  1,348.5  1,969.4  2,230.9  65.4  witnessed in Kerala, a   Chhattisgarh   17,454.8   14,785.5   18,269.1    4.7
 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  capital investment for   Rajasthan  4,469.1  3,825.3  7,214.2  61.4  increase in Q2FY22 over the   Karnataka   40,620.8   31,926.5   42,299.7    4.1
 progress so far has been good,   the previous quarter as   in the US.   sustainable economic growth.  At the individual level,   Q2FY20. Similarly, revenue   Rajasthan   44,021.6   44,986.6   45,594.2    3.6
 to achieve the budgeted capital   impact of a favourable base   majority of states, around 70   Gujarat  4,138.0  5,606.1  6,376.6  54.1  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   Kerala  2,232.4  2,731.2  3,156.6  41.4  and Andhra Pradesh is also up   Jharkhand   15,056.0   14,285.4   15,192.5    0.9
 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   the section looks at the   capital expenditure in the   Madhya Pradesh  7,514.7  5,205.1  10,042.2  33.6  by over 20 per cent during   Madhya Pradesh   37,931.4   34,131.7   38,244.0    0.8
 extent to which states are

 government needs to be


 by 13.5 per cent in the first
 the comparable period.
 merchandise exports have
 services, Construction &
 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   responding to the incentives   second quarter of FY22 from   Karnataka  7,941.3  9,324.3  10,333.5  30.1  Maharashtra   76,666.9   74,381.6   77,297.6    0.8
 the pre-pandemic levels in
 However, encouragingly,
 do so is to expedite the
 given by the Centre to



 Products and Chemicals &
 continues to do the
 of US$299.7 billion between
 start tapering its bond
 second quarter of this fiscal
                                         8,422.6
                              9,395.4
            Uttarakhand
                                                    8,677.4
                                                               -7.6
 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   improve their capital   Q2FY20.   Tamil Nadu  1,01,038.3  1,09,942.4  1,29,988.0  28.7  REVENUE
 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   we have considered 21 Indian   Among the states, Tamil Nadu   EXPENDITURE   Odisha   24,368.6   20,459.5   22,310.1    -8.4
 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   states which account for   has topped the list in capex   Uttarakhand   1,209.4   871.6   1,470.9    21.6  ALSO FORMS A   Bihar   34,998.1   30,087.0   28,793.9    -17.7
 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   around 94 per cent capex of   spending with an outlay of Rs   HIGH PROPORTION
 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   all states combined in FY21.  1,29,988 crore in Q2FY22 as   Uttar Pradesh   12,548.6   4,791.2   14,069.0    12.1  OF SPENDING   Source: CAG & CII Research Analysis
 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.   against Rs 1,01,038 crore in the   Odisha   3,109.5   2,090.4   3,396.4    9.2  KITTY OF STATES  Some of the states, which


 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,   While the resource shortfall   second quarter of FY20. This is   were relatively unscathed by
 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   may have constrained the   followed by Uttar Pradesh (Rs   Maharashtra   7,807.4   3,958.3   7,565.5    -3.1  Trends in Capital Expenditure of the Top 5 States Affected the Most by COVID-19  the pandemic, have also
 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,   14,069 crore), Telangana (Rs   While analysing the extent   evidenced a decline in their
 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   10,920 crore) and Karnataka   Bihar   3,313.7   2,056.6   3,156.2    -4.8  to which the pandemic has   Capital expenditure   Q2FY20   Q2FY21   Q2FY22   % change Q2FY22 w.r.t Q2FY20  capex during Q2FY22 vis-a-vis
 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   (Rs 10,333 crore).   impacted capital spending,          (In crore)      (In %)  Q2FY20 which could be
 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   Himachal Pradesh   1,160.2   625.3   912.0    -21.4  it was found that Maha-  attributed to a general
 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   However, when estimated in   West Bengal   5,036.5   2,122.9   2,705.1    -46.3  rashtra, which was among   Maharashtra   7,807.4  3,958.3  7,565.5  -3.1  resource shortfall in the state.
 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,   growth terms over the   the top five COVID-19 hit   Kerala    2,232.4  2,731.2  3,156.6  41.4  However, the sharpest rise in
 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   pre-pandemic period of   Jharkhand   3,065.1   946.3   1,322.9    -56.8  states and badly affected by
 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   the second wave, witnessed   capex is also seen in some of
 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.  Q2FY20, Punjab has witnessed   Karnataka    7,941.3  9,324.3  10,333.5  30.1  the states where the pandemic
 Notwithstanding, the   and analyse their performance   cent in the similar period in   this period.  the sharpest rise in capex   Haryana  6,010.1  -2,051.8  -570.4  -109.5  a sharp decline in capex
 deceleration in growth noted   below:  2019-20.  Highways, Housing & Urban   fiscal.   straight month in November   (503.9 per cent) during   allocation in Q2FY22 as   Tamil Nadu     1,01,038.3   1,09,942.4   1,29,988.0   28.7  has made a limited impact.
 in the second quarter, it is   Affairs and Railways have so far   2021 despite strong demand   High global commodity   Q2FY22 followed by Telangana   Source: CAG & CII Research Analysis  compared to Q2FY20.
 seen higher cumulative   in the local market. This was   prices pressurise   states from spending as much   However, such a high   Andhra Pradesh     1,249.8   3,426.7   2,105.3   68.4  To conclude, capex spending
 spending during the year as   the lowest sales in seven   corporate margins  as projected in their budgets,   (204 per cent) and Andhra   degree of correlation   remains a critical ingredient for
 compared to last year.  years for passenger vehicles.   numbers show that   Pradesh (68 per cent).   between the COVID-19   Source: CAG & CII Research Analysis  supporting the growth



 Global commodity prices   considerable importance has   However, a few states such as   Trends in State-wise Revenue Expenditure  impact and state spending   recovery process. While the
 There are many factors   have inched higher in the   indeed been accorded to   Haryana, West Bengal,   has not been seen in other
 Private capex, too, has   attributable for the grave   current year driven by an   capital spending for meeting   Jharkhand, Bihar and       Q2FY20   Q2FY21   Q2FY22   % change Q2FY22 w.r.t Q2FY20  Trends in Capital Expenditure of the Bottom 5 States Relatively Unaffected by COVID-19  central government, on its
 started showing signs of   semiconductor shortages   uptick in demand while supply   the spending priorities of   Maharashtra have shown a   pandemic affected states.   part, is pushing capital spend-
 recovery as per CMIE’s   being felt currently worldwide.   has struggled to keep pace. In   states. As compared to   decline in capex during this          (In crore)      (In %)  Capital expenditure   Q2FY20   Q2FY21   Q2FY22   % change Q2FY22 w.r.t Q2FY20  ing, states are also contributing
 capex data  From the supply side, there   2021, commodity markets   Q2FY20, at the aggregate   period.  Kerala  28,646.5  25,833.1  37,047.5  29.3         (In crore)      (In %)  by putting up a decent
 are factors such as temporary   have been impacted by   level, states saw their capex   performance so far. Going
 As per CMIE’s capex data,   factory closures due to the   rise by 23.7 in Q2FY22 which   While the big picture shows   Tamil Nadu   6,48,989.3   7,35,969.5   7,84,692.6    20.9  Himachal Pradesh   1,160.2  625.3  912.0  -21.4  forward, with the threat of
 private capital expenditure   pandemic and disruptions in   adverse weather conditions,   is much higher than the 13.6   the preponderance of capital   omicron virus looming large, it
 (measured by the value of   supply as storms halted   with droughts in some parts   per cent rise in revenue   spending in total expenditure   Andhra Pradesh   38,313.1   42,246.3   46,041.4    20.2  Jharkhand   3,065.1  946.3  1,322.9  -56.8  will be interesting to see if this
 ongoing projects) stood at Rs   production facilities in the US   of the world affecting a few   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   many states have reported a   Telangana   28,211.4   25,459.8   32,287.1    14.4  Punjab   474.7  472.0  2,866.7  503.9  positive trend stays intact in
 third quarter- higher than the   factors include huge backlog   reducing hydroelectricity   period. A slower rise in   sizeable rise in revenue   the remaining quarters of the
 Rs 69.27 lakh crore print seen   of demand for chips due to   supply while floods in other   revenue expenditure has   expenditure in Q2FY22 from   Himachal Pradesh   7,857.5   7,851.4   8,939.6    13.8  Telangana   3,592.2  3,935.5  10,920.1  204.0  current fiscal as well.
 in the same period in FY21 and   the release of pent-up demand   areas has impacted the supply   helped to contain the rise in   Uttarakhand   1,209.4  871.6  1,470.9  21.6
 Rs 69.39 lakh crore seen in the   amongst others.   of certain metals and coal.  total expenditure to 14.9 per   the pre-pandemic period as   Haryana  20,714.0  17,762.7  23,222.0  12.1
 pre-pandemic period of FY20.   cent in Q2FY22 over Q2FY20.  well.  Source: CAG & CII Research Analysis
 17  ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  18
                                                                                           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
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