Page 12 - CII Artha Magazine 1

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.