Page 17 - CII ARTHA India’s Growth Prospects

Domestic Trends State of States

Corporate Analysis of

Performance State Finances

W ith growth on the outstanding liabilities of states
remain high. But overall, the
upswing, the Indian
A midst the uncertainty in cent as compared to 106 per economy today stands out as going is good.
cent in the previous quarter
the global environment
and lagged impact of as a slight rise in input prices a symbol of resilience and This perception is largely
progress amidst global
monetary tightening due to various supply-side turmoil. To fast-track the based on the study of the
undertaken by RBI, the bottlenecks because of witnessed in the previous two 8.2 per cent in Q3 FY24 as country’s exemplar Budgets of 19 major states
corporate results have ongoing geopolitical quarters, however in sync compared to 9.5 per cent in
continued to maintain their a developments might have with the trend observed in the previous quarter but was performance and facilitate and Union territories, which
healthy trajectory of their impacted margins. the last fiscal. higher than 6.2 per cent in growth on a sustained basis, a account for over 90 per cent
corporate performance in the the same quarter last year. strong partnership and of our national GDP and
third quarter of the current It is interesting to note that Additionally, a PAT Margin for support of states is crucial. provide a fair assessment of
fiscal year. this trend is in complete the same set of companies This would also entail that the fiscal position of states.
divergence to what was under analysis moderated to states are made robust and
EARLY TRENDS FOR Q3 financially strong. It is in this Trends in
FY24 SIGNAL A context that an analysis and
RECOVERY IN TOPLINE, Corporate Performance Snapshot study of state finances Fiscal Deficit
WHILE PROFIT MARGIN 70.0 12.0 becomes important.
MODERATES 60.0 10.0 It is heartening to note that

50.0 the fiscal health of the states STATES EXPECTED
The aggregate performance of 40.0 8.2 8.0 has shown a marked TO REMAIN FISCALLY Fiscal Deficit & Revenue Deficit of States (as % of GSDP)
India’s corporates in Q3 FY24 30.0 6.0 improvement after the sharp PRUDENT IN FY24
has been ambivalent. 20.0 4.0 deterioration of finances 4.1
Contrary to the second 10.0 2.6 experienced during the

quarter of the fiscal, the 0.0 2.0 Covid-19 pandemic. In fact, The analysis of the fiscal 2.8 2.8 3.1
quarter ending December the rapid strides the country situation of the states
2023 witnessed increased -10.0 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q3 FY23 Q4 FY23 Q1 FY24 Q2 FY24 Q3 FY24 0.0 indicates that fiscal deficit fell 1.9
sales on back of a robust has taken towards economic from 4.1 per cent of GDP in
festive demand, while the Net Sales (y-o-y%) PAT Margin (%) (rhs) recovery has brought in 2020-21 to 2.8 per cent of
profit margins posted a buoyancy in revenue GDP in 2022-23 which is 0.4 0.3
Note: Includes analysis of 682 non-financial listed companies
moderation. As per the early Source: CII Research Analysis based on CMIE Prowess database collections and improved the under the 3.5 per cent limit 0.1
trends, the analysis of states’ fiscal performance at specified by the fiscal 2020-21 2021-22 2022-23 (PA) 2023-24 (BE)
corporate results of over 680 the aggregate level. Besides, responsibility legislation and is Fiscal Deficit Revenue Deficit
non-financial listed companies the states, aided by the Note: PA is Provisional Accounts and BE is Budget Estimates
from CMIE Prowess database, Outlook Centre, have also improved lower than what the states Source: RBI
an uptick in net sales growth the quality of the deficit by had provisioned under the
was reported to the tune of The outlook for corporate profitability containing the revenue deficit budget and revised estimates
2.7 per cent in Q3 FY24 as remains positive with input prices cost optimization measures and a buoyant while budgeting strong capital for FY23. States continue to Nevertheless, at the over the mandated levels for
demand, while uncertainties in global
against a contraction in maintaining a steady trend. Positive economic environment and ongoing outlays to provide the be fiscally prudent in 2023-24 disaggregated level, some FY23. Many of the individual
previous two quarters. Cost much-needed impetus to as well though they propose states such as Bihar (9.2 per state governments face severe
optimization measures tailwinds will emanate from relatively lower geopolitical developments can act as investment and growth. No to incur somewhat higher cent of GSDP), Himachal cash flow mismatches as they
headwinds. The trend of government
commodity prices and a dip in domestic
undertaken by companies in inflation. However, a swift pickup in rural doubt, there are deviations in expenditure which has led to Pradesh (6.4 per cent), Punjab find themselves constrained
certain sectors may have also demand is awaited. Moreover, the expenditure ahead of the general terms of robust fiscal the budgeting of slightly (4.9 per cent), Rajasthan (4.3 by the ceiling on net
elections in 2024 will also affect the
contributed to the sales performance of corporates in the next growth in infrastructure related sectors. management at the level of higher deficit of 3.1 per cent per cent), West Bengal (4.0 borrowing imposed by the
boost. Concurrently, net quarter is expected to be supported by individual states where the of GDP which is still below per cent), among others have Centre.
profits moderated to 36 per the Centre’s limit for the year.
primary deficit and recorded fiscal deficits well

16 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 17
QUARTERLY JOURNAL OF ECONOMICS
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