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Focus Story

 A Resilient Indian  private investment upcycle.   was enabled by a rebalancing   remittances buttressed the   A confluence of the factors
                                                               current account and
                                                                                          listed above has helped India
        The previous decade’s
                                   of government expenditure.
                                                               prevented it from widening
        corporate and banking
                                   Union government capital
                                                                                          weather these turbulent
                                   expenditure has risen more
        sectors’ balance sheet
                                                                                          times. For an extensive
 Economy amidst  clean-up exercise has meant   than 5.8X between FY14 and   STRUCTURAL REFORMS   elaboration of these factors,
        that credit and investment are
                                   FY25 without disturbing the
                                                                                          one may read “The Indian
        poised for take-off this
                                                                                          Economy: A Review” ,
                                   fiscal discipline of the
                                                                IMPLEMENTED IN THE
        decade, as is evident in the
                                                                                          published by the Ministry of
                                   government. In the Interim
                                                                LAST DECADE HAVE
        data – investment as a share
                                   Union Budget 2024-25, the
 a Turbulent  of GDP has steadily gone up   government reaffirmed its   BOOSTED INDIA’S   Role of the
                                                                PRODUCTIVE CAPACITY
        from a low of 27.3 per cent in
                                   commitment to the fiscal
                                   glide path of reducing the
        FY21 to 29.8 per cent in
                                                                                          Private Sector
        FY24, while bank credit
                                   fiscal deficit to less than 4.5
 Global Scenario  growth maintained its   per cent by FY26. This   Just as the reforms of the   in Amrit Kaal
                                                               previous decade, such as the
                                   adjustment was facilitated by
        double-digit momentum in
                                   the outcome of important
        FY24. The Insolvency and
                                                               IBC and the GST, have begun
                                   revenue generation initiatives,
                                                               to pay dividends now, the
        Bankruptcy Code (IBC),
        implemented in 2016, is
                                   the Goods and Services Tax
        helping in speedier resolution   such as the introduction of   development and rapid   The private sector has a
                                                               deployment of India’s DPI or
                                                                                          critical role to play in our
        of bad debt and improving the   (GST) regime in 2017. The   India Stack are expected to   journey through Amrit Kaal to
        credit repayment culture.   GST has stabilised as a vital   fully bear fruit in the coming   becoming a developed
        Additionally, the government’s   revenue source for central   years. Examples of innovation   economy by 2047. Listed
 T he First Advance   the aftermath of the   emphasis on capital formation   and state governments –   based on DPI include the   below are a few key
                                                               Open Network for Digital
                                   gross GST collections have
        has begun to crowd in private
 Estimates (FAEs) of
 pandemic are well-known.

 National Income 2023-24   Smart lockdowns, a rapid   capex. As per Axis Bank   grown by 11.6 per cent on a   Commerce, which is
 state that India’s real GDP is   nationwide vaccination   Research, capital expenditure   year-on-basis in April-January   democratising e-commerce,
 estimated to grow by 7.3 per   campaign, and fiscal policy   by private non-financial   FY24. The buoyancy of the   the Account Aggregator   PRIVATE SECTOR HAS
 cent in FY24. Various   targeted at poor and   companies has grown by 23   GST is currently greater than   framework that has the   A KEY ROLE TO PLAY
 high-frequency indicators   low-income households saved   per cent in FY23 and 10 per   1, indicating a widening tax   potential to revolutionise   IN SECURING INDIA’S
 (HFIs) indicate that the   lives, while a calibrated   cent in H1 FY24. The PLI   base and increasing   investing and credit, and the   ASCENT AS A
 economy is well on track to   monetary policy provided   scheme has also incentivised   compliance. Apart from being   Digital Document Execution   DEVELOPED
 achieve this growth. This will   adequate liquidity to MSMEs   manufacturers to increase   an important source of   platform of National   ECONOMY BY 2047
 mark three successive years   and saved livelihoods.   investment, production and   revenue, the GST has also   E-Governance Services
 of growth of over 7 per cent.   Additionally, the considerable   exports. Under the scheme,   helped unify India’s states into   Limited, an Information Utility
 The RBI’s MPC forecasts the   expansion in government   746 applications were   a single market, thereby   set up under the IBC that   First, central to India's
 Indian economy to grow by 7   capex provided the impetus   A key growth driver of   CAGR of 5.3 per cent   approved till the end of   generating incentives for firms   rapidly completes the loan   economic resilience is the

 per cent in FY25. If achieved,   to investment as a growth   national income is private   between FY12 and FY20.   December 2023, with 176   to scale up while also   documentation of a   delicate balance between
 it would mark four years of   driver, while proactive   consumption. The share of   Additionally, the government’s   MSMEs being direct   reducing logistics costs.  beneficiary. These digital   labour and technology. India
 economic growth at or over   inflation management by the   private final consumption   emphasis on the creation of   beneficiaries. The scheme   pillars have underpinned the   boasts a vast pool of skilled

 7 per cent since the   government and the RBI   expenditure (PFCE) in GDP   digital public infrastructure   witnessed over Rs 1.07 lakh   External shocks have been   growth of the Indian fintech   and semi-skilled labour, which
 pandemic. These numbers are   ensured that inflationary   at current prices has seen a   (DPI) has been increasing the   crore of investment, leading   the flavour of the season. As   industry. India is among the   serves as a competitive

 impressive as they come   pressures did not surge.   gradual increase from 56.2   economic potential of   to production/sales of Rs 8.7   the world was recovering   fastest-growing fintech   advantage in sectors such as
 against the backdrop of a   However, equal importance   per cent in FY12 to 60.9 per   businesses and individuals.  lakh crore and employment   from the pandemic, successive   markets in the World, hailing   manufacturing, services, and
 slowing global economy and   must be accorded to the   cent in FY24. The resilience in   generation of over 7 lakh.  geopolitical conflicts have   as the third-largest growing   agriculture.  Several looming

 geopolitical hostilities and   reforms and initiatives   private consumption   increased uncertainty and   fintech economy after the   transitions of the times we
 attest to India’s resilience.  undertaken over the six   has been primarily   A SLEW OF   CAPEX THRUST OF   strained global supply chains.   USA and the UK . 1  are in will decide how this

 years before the   on account of   GOVERNMENT EFFORTS   THE GOVERNMENT   Additionally, monetary   balance pans out. These
 INDIA'S RESILIENCE   pandemic struck.   the large   HAVE LAID A SOLID   HAS CUSHIONED   tightening by central banks   Economic growth has also   include the advent of
                                   also affected external demand.
                                                               generated jobs - the
 HAS HELPED IT TO   These measures have   domestic   FOUNDATION FOR A   ECONOMIC GROWTH   While India’s merchandise   unemployment rate has   automation, artificial
 EMERGE AS A 'SWEET   laid the foundation   consumer base   PRIVATE INVESTMENT   TO A LARGE EXTENT  exports were affected, its   declined considerably from   intelligence (AI), climate
                                                                                          transition-related job losses,
 SPOT' AMIDST   for the economy’s   and the robust   UPCYCLE  external sector remained   the peaks during Covid times.   etc. These raise concerns
 GLOBAL FLUX  higher potential, the   increase in per   remarkably resilient. The   The labour force participation   about job displacement and

 fruits of which we
 are beginning to see   capita Gross   The strength in private   In the aftermath of the   increase in India’s services   rate has increased, especially   inequality. It is imperative to

 What factors contributed to   today.  Income (GNI)   consumption is also helping   pandemic, the government   exports, enabled by, inter alia,   that of women. The   view technology as a
 investment. The government
 this resilience? Measures to   which grew at a   has reduced compliance   recognised the need for a   the proliferation of Global   employability of India’s youth   complement rather than a

 limit output contraction in   counter-cyclical fiscal policy   Capability Centres (GCCs),   has also increased, as shown   substitute for labour.
 burdens, simplified laws, and   that generated productive   countered the widening in   in the 11th edition of the
 opened up various sectors to   assets. It implemented a   merchandise trade deficit.   CII-Wheebox India Skills
 V. Anantha Nageswaran  private participation, thereby   thrust on public capex that   Additionally, record inward   Report.
 Chief Economic Advisor to the Government of India  laying a solid foundation for a
                                                                                           QUARTERLY JOURNAL OF ECONOMICS
 FEBRUARY 2024                                                                                        FEBRUARY 2024
 according to Niti Aayog and   are hesitant to   under Article 6 of the Paris   consider implementing a
 RMI. The move encourages   finance/refinance large-scale   Agreement. It will help   nationwide policy mandating
 manufacturers and project   green hydrogen projects.  create a marketplace for   the use of Green M15 fuel i.e.
 developers to invest in green   •  The production cost of   Indian green fuels like green   mixing 15 per cent green
 hydrogen and its derivatives   various green fuel   hydrogen and its   methanol with petrol, in
 like green ammonia and   technologies, such as green   derivatives, green methanol,   transportation and other
 methanol, putting India among   hydrogen and its   and SAF, among others, in   applicable sectors, supported
 those leading countries, such   derivatives, is higher.   the international market.  by incentives for producers
 as the United States and the   However, grey hydrogen,   •  There’s a need for speeding   and consumers to adopt this
 European Union, which have   alongside various grey   up strategic interventions   fuel. This could be a pivotal
 allocated public funding for   manufacturing methods, has   for the Green Hydrogen   step in India's journey
 green hydrogen.  towards a greener and more
 historically benefited from   Transition Program by
 subsidies. Without a robust   offering incentives for both   sustainable future.
 Establishing a market for green   and liquid global carbon   green hydrogen production   •  To ensure widespread
 ammonia and methanol is a   market, pricing the value of   and electrolyser   availability of Green M15 fuel,
 global issue. In India,   carbon and embedded   manufacturing. These   there’s a need for investment
 forward-thinking standards by   emissions in the production   initiatives will catalyze   in the necessary
 the Bureau of Indian Standards,   and usage of grey hydrogen   industry growth.  infrastructure for its
 such as blending DME with   becomes challenging. This is   production, distribution, and
 LPG and methanol with diesel,   why, initially, green   •  The cost of renewable   storage.
 are significant steps towards   hydrogen seems more   energy can be further
 integrating green fuels.  reduced through energy   •  Campaigns should be
 expensive than grey   surplus banking provisions,   launched to educate the
 especially for sectors   public and other stakeholders
 •  The cost of funding remains   mandated to use green   about the benefits of using
 a persistent bottleneck,   hydrogen.   Green M15 fuel and address
 presenting a considerable   •  The government should   misconceptions.
 challenge for project   implement targeted
 developers, impacting the   incentives to boost the   By adopting these
 optimization of capital   export of green molecules.   recommendations, India can
 expenditure and project   It will help establish India as   make significant strides towards
 execution.  energy self-reliance,
 a global leader in   environmental sustainability, and
 renewable energy.
 Suggestions  •  A mechanism should be   economic growth.

 developed to facilitate   Conclusion
 Challenges  To address the challenges, we   low-cost financing and
 provide benefits like
 suggest that the government
 take several steps to provide a   accelerated depreciation   This is the time to take
 Despite government efforts   much-needed boost to the   for green hydrogen   immediate action to overcome
 to promote green hydrogen   industry, such as:  infrastructure investments.  all the bottlenecks on the road
 and its derivatives, the sector   •  The government should   towards leading the global
 is still in its infancy, and   •  As in the initial days of   expand the FAME India   transition to sustainable energy.
 acknowledging and addressing   renewable energy, the   (Faster Adoption and   With right policies in place and
 the hurdles that impede our   government mandated its   Manufacturing of (Hybrid   the development of a market for
 full potential in this critical   usage through Renewable   &) Electric Vehicles in India)   green methanol and ammonia,
 sector is essential. Among the   Purchase Obligation (RPO).   Scheme to include green   India can unlock the full
 various challenges are -  potential of green hydrogen and
 Similarly, we suggest that a   methanol vehicles in it. It   its derivatives. Moreover, it will
 •  There isn’t much existing   quota should be mandated   will not only boost the   provide a much-needed boost
 demand and a developed   for the use of green   market but also provide   for the production, distribution,
 market ecosystem for   hydrogen in sectors like   support to the green   and usage of green hydrogen and
 green hydrogen and its   fertilizers, chemicals, steel,   hydrogen ecosystem in the   its derivatives across sectors.
 derivatives like green   and power generation.   country.  Such initiatives will not only help
 ammonia and methanol, not   Creating demand through   •  There’s a need for funding   India in achieving targeted
 only in India but also   policy will spur sectoral   and support for research   climate goals but also position it
 globally, compared to other   growth and reduce the   and development in the   as a leader in the green energy
 conventional fuels.   production cost of green   areas of green hydrogen   revolution.
 •  Project developers face   and methanol-based
 difficulty in getting final   •  Leveraging its international   technologies. It will further
 offtake agreements signed.  relations, the government   help enhance efficiency and
 should expedite the signing   reduce costs.
 •  In the absence of advance
 offtake contracts, lenders   of bilateral agreements   •  The government should
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