Economic
Highlights
New Delhi, 19
December 2022
Inflation
Falls, Demand Low
PSUs LEAD
CAPEX, PVTs LAGGARD
By Shivaji
Sarkar
The
government having fallen short of funds presents fresh demand for Rs 4.4 lakh
crore involving a fresh outgo of a little under Rs 3.3 trillion (lakh crore) to
defray high subsidy costs of fertiliser, food and fuel (FFF).Though prices
slump, demand remains low, capex is led by PSUs and private remains laggards.
The Union Budget
was for expenditure of Rs 39,44,909 in 2022-23, an increase of 4.6 percent over
the previous year. The total expenditure for 2021-22 has been 8.2 percent over
the budget estimates. The government is apologetic on the fiscal deficit and
insists it would remain within the projected limit, 6.4 percent of GDP.
The Centre
has raised revenues of Rs 32,000 crore from dividends from PSUS and Rs 30000 crore
is acquired from disinvestments. With the shrinkage of PSUs, this income, both
dividends and sales would gradually be non-existent. Private partners are also
reneging as they find profits elusive. Deficits may actually go up.
Fertiliser
gets the biggest chunk of Rs 1.09 lakh crore – Rs 23000 crore for P&K -
phosphatic and potassic and over Rs 86000 crore for urea. Free Food dole gets
additional Rs 60,000 crore for PM Garib Kalyan Anna Yojana until December but
may be extended as 2023 holds elections to nine States. The programme is
politically sensitive and may continue longer.
Another
sensitive area, rural development gets Rs 45000 crore with an additional Rs
28775 crore for MGNREGA, though Finance Minister Nirmala Sitharaman says fewer
coming for it and Rs 28775 crore for other heads.The petroleum oil marketing
companies (OMC) get Rs 25000 crore for LPG subsidy for the poor, the Ujjwala
scheme.
Various
infra, particularly road and rail, projects get Rs 39.4 lakh crore, largely
through debts.World Bank has cautioned on debt financing the infra in difficult
times if it does not boost effective demand. The exercise meant for higher GDP growth
has Reserve Bank of India repeatedly cuttingit to 6.3 percentand 6.8 percent by
the IMF.
There are
some silver linings as retail consumer inflation falls to 5.88 percent and
dramatically wholesale index falls to 5.85 percent. The WPI has been declining
since August as the RBI pepped up repo rates. Deceleration in food prices is
largely responsible for the lower-than-expected inflation. Food contributes 39
percent to consumer index. November was the 19th month when food at
6 percent was beyond the RBI toleration limit. Fuel, clothing and footwear are
still beyond the limit.
The consumer
demand has yet not risen. It eluded even the festive Dussehra and Diwali
season. It led to 4 percent contraction in the Index for Industrial
Production(IIP) due to 5.7 percent contraction in manufacturing. Mining grew,
mainly due to 524 million tonnes spudding of coal, by 2.5 percent and
electricity 2.5 percent. Higher electricity prices hurt. Overall consumer
demand is still in a grey zone far behind the pre-Covid19 level, February 2020.
In such
situation, increasing the capital expenditure may become elusive. Rightly,
Chief Economic Advisor AnanthaNageswaran has called upon the private sector to
play a greater role, andensure that capital cost is not driven up too much. It
is a difficult proposition.The
central PSUs with annual target of Rs 6.62 trillion remain the major spender
that boost the economy. It has achieved 43 percent of the target so far.
The RBI in its study on capital expenditure says a total
of 361 companies, which did not avail of any financing from the banks/FIs for
capex projects, raised an amount of Rs47,824 crore through ECBs/FCCBs/RDBs and
27 other companies raised Rs3,410 crore for their capex needs through domestic
equity issues under the IPO route. Overall, investment plans of 791 projects
were made during 2021-22 aggregating to Rs1,94,548 crore as against 576
projects in 2020-21 with investment intentions of Rs1,16,603 crore, which
remained comparatively lower than the levels seen since 2016-17.
The investment climate in terms of number of new
project announcements remained weak during 2019-20 and deteriorated further in
2020-21 due to Covid-19. Subsequently, with resumption of business activities
and improved demand sentiments, the new capex project announcements showed some
signs of revival. During 2021-22, 28 banks and FIs, which were actively
involved in project finance, reported 403 projects, significantly higher than
220 projects reported during 2020-21 as well as 320 projects reported during
2019-20, mainly due to increase in small ticket projects. Though envisaged
total project cost of Rs1,43,314 crore almost doubled as compared to the record
low of Rs75,558 crore in 2020-21 on the back of Covid-19 induced lockdown and related
restrictions, it remained lower than the pre-Covid levels.
A Crisil
study finds that a full-fledged revival in capital expenditure in the coming
fiscal will push overall credit growth to over 15 percent in 2024. This is not
commensurate with demand and buoyant full-fledged capex revival. RBI data shows
that as on October 21, bank credit grew 17.9 percent year-on-year. Private
investments will pick up if there are profit possibilities.
The new
Indian economy may have patches of problematic developments and the private
sector may not rev up the economy. The hurried approach at privatisation
hopefully would not become a critical block for the government. Still a large
chunk of public sector remains, the flagbearer of the Indian economy. As their
role shrinks, the country could slip into myriad problems. The private sector
depends more on public financing and debt mechanism. It simply means bank loans
and huge write offs. Since around 2012, the banks have written off about Rs 20
lakh crore bad corporate debts. Meanwhile, debts of some large houses have
spiralled and RBI refuses to name them though smaller borrowers are named and
shamed.
The private
players owe NHAI between Rs 31000 crore and 50000 crore for highway
constructions. Similar default in other areas is not unknown. The NHAI also
says that not more than one-third of the toll collections reach it. Toll
collections is at Rs 40,000 crore, says Transport Minister Nitin Gadkari. It
had to cancel a long stretch of road construction owing to failure of high
monetisation plans. The country is on an uneven patch and has to ensure how a
non-PSU economy remains responsive.---INFA
(Copyright,
India News & Feature Alliance)
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