Page 10 - CII Artha Magazine 1

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
horizon
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
policy.
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
laggards:
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
09 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 10
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
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.