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Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa, 2014). He is founder of Sterling Newspapers Pvt. Ltd. which was acquired by the Indian Express groupMore From The Author >>
India’s Infra Push
The pessimism is ill-founded. Banks have started lending to corporates after a long freeze caused by bloated NPAs, a legacy of the UPA government
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The Narendra Modi government is betting big on infrastructure to boost the economy’s growth trajectory to the level last seen in 2014-18.
India’s GDP rose 7.3 per cent in 2014-15, 8.2 per cent in 2015-16, 7.1 per cent in 2016-17 and 7.2 per cent in 2017-18. The annual average growth rate for the government’s first four years in office was 7.45 per cent. Thereafter growth dipped to 6.1 per cent in 2018-19 and four per cent in 2019-20.
Two Covid pandemic years followed. The GDP growth between 2020-21 and 2021-22 was virtually flat. In 2022-23, GDP growth is likely to recover with estimates ranging between 6.8 per cent and 7 per cent.
Thus for the first nine years of the Modi government, the average annual GDP growth rate works out to an underwhelming 5.25 per cent. Strip out the two Covid years with combined near-zero growth and the average annual GDP growth in seven of the nine Modi years rises to a more respectable 6.7 per cent.
However, with trade disruptions hampering export growth, prospects for the tenth year of the Modi government pose a challenge. Growth is expected to dip to a little above six per cent in 2023-24. According to the World Bank, India will however still remain the world’s fastest growing major economy. The Washington-based institution estimates real Indian GDP growth in 2023-24 at 6.2 per cent.
That’s cold comfort for the Modi government in an election year. The key to giving the economy a steroid boost is increasing investment in infrastructure and manufacturing. By raising capex in the Union Budget to over Rs 13 lakh crore in 2023-24 – an increase of 30 per cent over the previous fiscal – the government has signalled its determination to use infrastructure and manufacturing to get the annual growth curve back nearer 7.5 per cent.
If the private sector steps up investment in capex to match the government’s expenditure, the target is achievable. And yet, private industry has been slow to take up the challenge.
Modi didn’t mince words during a recent webinar with leading CEOs: “Today, I would call on the private sector to increase their investments just like the government so that the country gets maximum benefit from it.”
The banking sector was not spared. Modi asked it to lend more proactively so that MSMEs could expand manufacturing operations: “One crore and 20 lakh MSMEs have received huge help from the government during the pandemic. In this year’s Budget, the MSME sector has also got additional collateral-free guaranteed credit of Rs 2 lakh crore. Now, it is very important that our banks reach out to them and provide them adequate finance.”
The worry in the private sector is that recession in the West caused by the Russia-Ukraine war will further dampen demand for manufactured products. The signs are already visible with monthly merchandise exports slowing from last year’s highs.
Layoffs at global firms ranging from Microsoft to IBM have had a sobering effect on Indian industry. While the Sensex is holding up well, the Indian tech sector, which relies on foreign companies’ IT budgets, is still around 15 per cent off its mid-2021 sectoral high.
Help could lie nearer home. The PM Gati Shakti scheme has shown promise. Highway construction is speeding along with an average of 37 km of roads being built per day.
Road Transport and Highways Minister Nitin Gadkari believes infrastructure will help boost growth across sectors. Booming passenger car production and rising aviation traffic point to an economy poised to return to a high growth momentum.
Addressing a two-day summit on February 17-18, 2023, Gadkari said: “Without infrastructure, there can be no industry, and without industry there can be no capital investment, and without capital investment there can be no employment potential. World-class infrastructure is the way to achieve a $5 trillion economy. We are the fastest growing economy in the world. By the end of 2024, our road infrastructure will be equal to US road infrastructure. Our logistics cost is 16 per cent, in China it is 8-10 per cent, in European countries and the US it is 12 per cent. Our target is to reduce logistics cost to around 9 per cent. To achieve this, we are planning big highways that save fuel and time. Toll income from our highways is presently Rs 40,000 crore a year and by 2024 it will be Rs 1.4 lakh crore. We have successfully begun to monetise our roads.”
Not everyone is optimistic about India’s growth prospects. Bloomberg columnist Andy Mukherjee wrote in Business Standard with a funereal air: “Borrowing costs have risen to a point where higher mortgage payments could be affecting household budgets. At least one external member of the RBI’s monetary-policy committee is uncomfortable: economic growth appears to be ‘very fragile’, says Jayanth Rama Varma, a finance professor at the Indian Institute of Management in Ahmedabad.
“The government of Prime Minister Narendra Modi will have to rely on public spending to prevent this fragile growth from cracking. But it faces resource constraints. New Delhi is hoping to save money on food and fertiliser subsidies. Yet, climate change is an additional complication, with heat waves threatening what’s expected to be a record wheat harvest. Consumer-staple firms are betting on an improvement in farm incomes and rural demand. If that fails to materialise, farmers will be less than receptive to higher market rates for fertilisers. Nor is it realistic to hope New Delhi will raise resources by stepping up privatisation in an election year.”
The pessimism is ill-founded. Banks have started lending to corporates after a long freeze caused by bloated NPAs, a legacy of the UPA government. It has taken over seven years to clean up bank balance sheets. Credit growth for corporates was up 8.7 per cent y-on-y in January 2023. While the private sector remains cautious, the spate of MoUs signed by large business houses at recent investment summits in Uttar Pradesh, Andhra Pradesh, Maharashtra, Madhya Pradesh, Odisha and Chhattisgarh, promise a surge in investment in core sectors like cement, steel and power.
If the private sector steps fully up to the plate, India could still beat growth estimates in 2023-24 by a wide margin.
The writer is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa 2014). He is founder of Sterling Newspapers Pvt Ltd., which was acquired by the Indian Express Group