Road to Revival: More stimuli soon to lift economy, says DEA secy

Another round of economic stimulus, probably with a much higher budgetary expenditure component than the one announced earlier this month, may be around the corner, along with a concerted push via assorted incentives to capital and infrastructure spending by government and public-sector companies. A two-pronged strategy aimed at boosting both the aggregate demand and capital availability for investors simultaneously, is what the policy-makers are employing to revive the badly bruised economy, going by the remarks made by a senior official at an industry event on Wednesday.

The package in the offing would consist of production-linked incentive (PLI) schemes for “a seven-eight more sectors”, economic affairs secretary Tarun Bajaj said. He also hinted at more steps to catalyse the flow of foreign capital into the hands of private investors, including permission for listing of Indian companies on foreign bourses. Implementation of the privatisation policy would be fast-tracked, with Cabinet nod for the so-called “strategic-sectors list” likely soon.

Speaking at the CII’s ‘financial market summit’ via video conferencing, Bajaj also said invest vehicles like InvITs and REITs were gaining traction, a development that indicates easier unlocking of equity gains and efficient deleveraging of balance sheets by various investors in infrastructure sectors.

Stating that norms for the listing of India companies directly on foreign bourses were “almost final”, the secretary added: “We are seeing positive signs on FPI inflows and assets under management of mutual funds.” While the government in March opened up a part of sovereign bond market to overseas investors, Bajaj said the government was working with the RBI for the country’s inclusion in global bond indices, a step that could accelerate inflows of foreign capital.

Referring to additional government capital expenditure of `37,000 crore announced by finance minister Nirmala Sitharaman on October 12, Bajaj said: “We are looking at what has been the (budget) expenditure so far this year and what is the extra requirement by various sectors. We have actually mentioned to the departments to push capital expenditure given its multiplier effect. If more funds are needed, we will be providing for the same in the revised estimates. The challenge now is to ensure that the departments/units responsible for infrastructure spending actually spend the funds.”

Also, Bajaj said that the government was augmenting the efforts to find more financial resources, even as it tends to avoid prohibitive fiscal costs. He said: “Monetisation of assets is also gaining a lot of traction. The fifth bundle of the toll-operate-transfer (TPT) assents offered by the road ministry has received a good response at the first meeting with the potential bidders. Similarly, the railways has got encouraging response to their PPP models where the (running of) trains and the railway stations would be given to private hands. Similarly, we have been able (to transfer) six airports to the private hands. And now the Airport Authority of India and the ministry of civil aviation are ready with the next tranche of six airports (for transfer to the private sector).

FE had earlier reported that the stimulus package would include PLI schemes for more sectors, including steel, textiles and food processing, more incentives for infrastructure and construction sectors given their high labour content and an employment guarantee scheme for the urban poor on the lines of the popular rural scheme.

The Niti Aayog has favoured the launch of PLI in sectors, including textiles, food processing, battery cell making, electronic/tech products, telecom & networking, auto and components, white goods, capital goods and specialty chemicals. Funds for PLI schemes, which must be operational for a maximum of 5 years, can be hiked at 10% a year, it suggested. The government has already launched the PLI schemes for three sectors — electronics, pharma and medical devices.

The stimuli announced so far have an estimated budgetary cost of `2.4 lakh crore. The spending curbs on departments for the April-December period is estimated to result in savings of nearly `4 lakh crore. The government still has considerable room for unveiling another round/s of stimulus, without altering the estimated budget size for the year or the enhanced gross borrowing limit of `12 lakh crore.

Global rating agency Moody’s has recently written that India’s fiscal support through the two rounds of stimulus so far to fight the Covid-19 pandemic stood at just 1.2% of its gross domestic product, way below the average of about 2.5% for similar-rated peers. “Notwithstanding the fiscal prudence of the measures, the small scale of the stimulus highlights limited budgetary firepower to support the economy during a very sharp contraction, a credit negative,” the agency said in a statement.

The recent enhancement of the capex budget (Rs 25,000 crore for the Centre and Rs 12,000 crore to states for capex) is despite the fact that the Centre’s budgetary capex declined 1.3% on year in April-August, as it applied the brakes on spending since July. The capex growth rate, envisaged for the year, after the latest revision is 30% on year. The Centre’s budget estimate for capex in FY21 is Rs 4.12 lakh crore. An acceleration in spending can now be expected; the Centre will require to accelerate capex over 50% on-year in H2 to achieve the revised investment target for FY21, not an easy task.

Data reviewed by FE for ten states showed that their combined capex declined 19% on year in April-July of FY21.

Large central public sector entities – companies and undertakings – achieved 30% of their capital expenditure (capex) target for FY21 in the first half of the financial year, by spending almost Rs 1.5 lakh crore. Earlier this week, Sitharaman asked a clutch of CPSEs to front load capex and achieve 75% of their annual target by end-December.