Page 12 - CII ARTHA India’s Growth Prospects
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Domestic Trends



        cent in 2022-23.           as it is among the most                                                                                                                                                                                                                      Furthermore, as seen in the   share in new project
        Construction services, on the   labour-intensive sectors.                                                              Investment                                                                                                                                       graph below, private sector   announcements from 65.0 per
        other hand, is estimated to   Financial, real estate, and   Outlook                                                                                                                                                                                                     has always had a higher share   cent in Q2 FY24 to 87.6 per
        spearhead growth with a    professional services are                                                                                                                                                                                                                    in new project             cent in Q3 FY24, while that of
        double-digit surge of 10.7 per   expected to maintain a strong                                                                                                                                                                                                          announcements than the     the government fell steeply
        cent in 2023-24, supported by   performance, projecting 8.9   Indian economy has proved to be resilient in the face                                                                                                                                                     government. The recent     from high of 35.1 per cent in
        a robust performance in the   per cent growth compared to   of external headwinds. Domestic demand is gathering        Analysis                                                                                                                                         quarter witnessed a sharp   Q2 FY24 to 12.4 per cent in
        first half of the year, The   7.1 per cent in 2022-23.    strength, aided by lowering of inflation levels. Further,                                                                                                                                                     uptick in private sector’s   Q3 FY24.
        strong growth in construction   Public administration and   with government continuing to tread on the path of
        augurs well for employment   defence are also expected to   fiscal consolidation with emphasis maintained on
                                   perform well in 2023-24.       spurring public capital expenditure, should provide an
                                                                  additional buffer for growth. Private investment is
                                                                  slowly but steadily improving too, with early signs of
                        Sectoral Growth Rate (y-o-y%)             crowding in of private investment noticed, as indicated          ew project
                                                                  by the latest round of CII's Business Outlook Survey         N   announcements in the     NEW PROJECT
                           Agiculture  1.8  4                     for Q3 2023-24.                                              third quarter of the current   ANNOUNCEMENTS
                      Mining & Quarrying  4.6  8.1                                                                             fiscal (Q3FY24) slumped on   POST A MARGINAL
                         Manufacturing  1.3  6.5                  There are a few niggling concerns on the horizon             an annual basis, while marginal   GROWTH IN Q3 FY24,
                         Utility Services      8.3 9              which are worth mentioning. Headline inflation,              growth was recorded in       ON A SEQUENTIAL
                                                                                                                               comparison to the previous
                          Construction           10 10.7          though, has come off its recent high, remains above the      quarter. The overall new     BASIS
          Trade, Hotels, Transport & Communication     14         RBI’s target of 4 per cent, pushed mainly by high food       project announcements in
 ndia’s real GDP is estimated   While the real GDP is   6.3 8.9   inflation. In addition, there are also concerns about        Q3FY24 stood at Rs 2.21 lakh   There has also been a
 to grow at an impressive   estimated to record a   Financial, Real Estate & Prof Services  7.1  weak consumption which has a lion share in overall   crore, a tad higher than Rs   noticeable improvement in
 rate of 7.3 per cent in the   marginal increase growth   Public Administration & Defence  7.2 7.7  GDP, rural consumption which has been impacted by   2.01 lakh crore in the   capacity utilization of some
 fiscal year 2023-24 as per the   compared to the previous        erratic monsoon. That said, there are a few nascent          previous quarter, while the   sectors, especially the                                                                                                                       from CMIE, the new projects
 first advance estimates of   year, nominal GDP is   2022-23  2023-24 (FAE)  signs of recovery, such as pick-up noted in two-wheel-  level was less than even half of   manufacturing sector.  This                                                                                                        announced under the sector
 national income, slightly   expected to slow down to 8.9         er sales and rural FMCG sales as per the                     Rs 9.66 lakh crore recorded   evidence gets strengthened by                                                                                                                 mainly comprised of chemical
 higher than the 7.2 per cent   per cent growth in 2023-24   Note: FAE is First Advance Estimates                              in the corresponding quarter   results of various surveys                                                                                                                   products, metal products and
 recorded in the previous year.   compared to the substantial   Source: MoSPI  recent data.                                    last year.                 conducted by CII, to gauge                                                                                                                       transport equipment. Other
 The first half of 2022-23   16.1 per cent seen in the                                                                                                    the on-ground recovery. As                                                                                                                       sectors attracting higher level
 witnessed robust economic   previous year. This                  In conclusion, India's economic performance in               The sequential growth in new   per the latest round of the                                                                                       At the sectoral level,     of new investments include
 activity, boasting an average   deceleration is attributed to a   2023-24 reflects resilience and growth across various       project announcements was   CII-Business Outlook Survey   between 75-100 per cent   range of 75-100 per cent,                                    manufacturing sector, despite   services (other than financial)
 real GDP growth of 7.7 per   sharp decrease in the GDP   INVESTMENT   Government frontloading of   sectors, with challenges and uncertainties calling for   led by the private sector,   conducted in the month of   during Q3FY24. In an   which is noteworthy as             weak external demand,      and electricity. Within
 cent. However, the second   deflator which is estimated   EMERGES AS A KEY   capital expenditure has fuelled   strategic measures to ensure sustained economic   which grew by 48 per cent   December 2023, 45 per cent   encouraging sign, in the last   capacity utilization needs to   attracted higher investments   services, transport services
 half of 2023-24 is expected to   increase by at 1.6 per cent in   GROWTH CATALYST   investment growth which   recovery.       on-quarter. On the other   of the respondents felt that   two surveys too, majority of   be maintained between 75-80                             in Q3FY24. As per the data   did well.
 experience a marginal   2023-24, significantly lower   WHILE PRIVATE   registered a healthy pace of                           hand, the new project      capacity utilization in their   the respondents expect their   per cent to fuel fresh
 decrease, projecting a growth   than 8.9 per cent reported in   CONSUMPTION TRAILS  9.1 per cent in H1 of 2023-24             announcements by the       company would range        capacity utilization to be in   investments in the economy.

 rate of 6.9 per cent.  the previous year.  and expected to increase                                                           government plummeted both
                                   further to 11.1 per cent in                                                                 on sequential as well as an
                                   H2. States, too, have played a                                                              annual basis during the period.
        On the demand side,        supportive role in increasing         Expenditure Components of GDP (y-o-y%)                                                  16             Trend in New Project Announcements (Rs lakh crore)
        investment remains a critical   capex with a robust 52 per                                                             Encouragingly, the high                                                    14.50
 of favourable government   driver of growth, with private   cent surge in H1 of 2023-24           11.4                        frequency investment              14
 Overall, high GDP growth is   policies, a significant   consumption lagging behind.   by 17 select states.  10.3              indicators have remained
 expected to be contributed   improvement from 1.3 per   Private consumption,                                                  healthy in the year so far.       12
 by non-agriculture sector,   cent reported in the  contributing 57 per cent to   Exports have emerged as a   7.5              Moreover, data on net fixed       10           9.42                 9.66
 This remarkable growth   The agriculture sector is   especially the industry   previous year.  GDP, is expected to grow at   big drag on growth, projecting   assets of 2000+ odd
 performance is underpinned   experiencing a marked   segment. Mining and quarrying   only 4.4 per cent in 2023-24,   a growth of only 1.4 per cent   4.4  4.1  companies extracted from   8  6.81        12.79   7.35
 by robust performance of   slowdown, estimated to grow   is expected to do well with a   The services sector, while   trailing the 7.5 per cent   in 2023-24 on the back of   CMIE Prowess database   6  6.49  5.66
 high-frequency indicators.   at a meagre rate of 1.8 per   growth rate of 8.1 per cent in   displaying healthy growth, has   recorded in the previous year   weak external demand, a   0.1  showcase an increasing trend   4.56  8.24
 Strong growth in GST and   cent in 2023-24 compared to   2023-24 compared to 4.6 per   moderated slightly compared   due to weak rural demand   sharp decline from the 13.6   in H1 FY24, reaching its   4  4.76  4.02  6.09   2.21
 direct tax collections,   4 per cent in 2022-23. The   cent in the previous year.   to the previous year. Trade,   resulting from subdued   per cent growth in the   PFCE  GFCE  GFCF  highest value in seven   2.94    2.01
 increased airline and train   weak growth in the   Utility services are also   hotels, transport, and   agriculture growth coupled   previous year. Imports are   quarters. The continuous   2  1.62  2.93  2.05  1.64  1.42  1.70  1.31  1.93
 passenger traffic, credit   agriculture is attributed to   expected to record robust   communication sector, in   with high food inflation.   also estimated to moderate in   2022-23  2023-24 (FAE)  uptick in value of net fixed   0  1.26  0.71  0.27
 expansion, manufacturing PMI   erratic monsoon that dragged   growth at 8.3 per cent along   particular, exhibit notable   Government consumption,   2023-24, recording a growth   assets reflects that companies   Q3 FY22  Q4 FY22  Q1 FY23  Q2 FY23  Q3 FY23  Q4 FY23  Q1 FY24  Q2 FY24  Q3 FY24
 growth and moderation in the   down kharif production by   with manufacturing sector   moderation, with estimated   however, is projected to grow   of 13.2 per cent compared to   Note: PFCE is Private Final Consumption Expenditure, GFCE is Government  are more and more in favour   Government  Private Sector  Total investments
                                                                    Final Consumption Expenditure and GFCF is Gross Fixed Capital Formation
 gross NPAs ratio, collectively   4.6 per cent from previous   recording a steady 6.5 per   growth of 6.3 per cent in   at 4.1 per cent in 2023-24   17.1 per cent in 2022-23.  Source: MoSPI  of investing, despite the
 bode well for high growth of   fiscal and risks to rabi   cent growth, supported by   2023-24 compared to 14 per   compared to an anaemic 0.1   uncertain economic               Source: CII Research analysis based on CMIE Capex database
 the economy.  production from low water   lower input costs and a slew   per cent in 2022-23.                                 landscape.
 reservoir levels.

        12   ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                                                                                                                               ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  13
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             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
 hydrogen.
 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.
 hydrogen.
 •  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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