Bharat’s economy – Turnaround from recovery to growth

The Union Government, on 12th November, 2020, has given its approval to introduce the Production-Linked Incentive (PLI) Scheme in the following 10 key sectors for enhancing Bharat’s manufacturing capabilities and enhancing exports – Atmanirbhar Bharat.

Priority Sectors Implementing Ministry/Department Approved financial outlay over a five-year period

(Rs. in crore)

1.

Advance Chemistry Cell (ACC) battery NITI Aayog and Department of Heavy Industries 18100

2.

Electronic/ Technology products Ministry of Electronics and Information Technology 5000

3. 

Automobiles and auto components Department of Heavy Industries 57042

4. 

Pharmaceuticals drugs Department of Pharmaceuticals 15000

5. 

Telecom and networking products Department of Telecom 12195

6. 

Textile Products: MMF segment and technical textiles Ministry of Textiles 10683

7. 

Food products Ministry of Food Processing Industries 10900

8. 

High efficiency solar PV modules Ministry of New and Renewable Energy 4500

9. 

White goods (ACs & LED) Department for Promotion of Industry and Internal Trade 6238

10. 

Specialty steel Ministry of Steel 6322
Total 145980

The above will be in addition to the already notified PLI schemes in the following sectors:

No. Sectors Implementing

Ministry/Department

Financial outlays

(Rs. in crore)

1. 

Mobile manufacturing and specified electronic components MEITY 40951

2. 

Critical key starting materials/ Drug intermediaries and active pharmaceutical ingredients Department of Pharmaceuticals 6940

3. 

Manufacturing of medical devices. 3420
Total 51311

The PLI scheme with overall funding support of around Rs. 2 lakh crores will be implemented by the concerned ministries/ departments mentioned above. The final proposals of PLI for individual sectors will be appraised by the Expenditure Finance Committee (EFC) and approved by the Cabinet. 

The PLI scheme is expected to make Bharatiya manufacturers in the sectors mentioned above to become globally competitive, attract investment in the areas of core competency and cutting-edge technology; ensure efficiencies; create economies of scale; enhance exports and make Bharat an integral part of the global supply chain.

Bharat’s economy has witnessed its sharpest ever contraction in GDP by 24.5% during the quarter April-June, 2020 and is expected to have marginally improved its performance in July-Sept, 2020 by arresting the negative growth to 8.6% as per the recent estimates of RBI. 

Outcome of Atmanirbhar Bharat

The major outcomes of the stimulus package under Atmanirbhar Bharat in various phases post COVID as announced by the Finance Minister on 12th November, 2020 are as under- 

  • Under the ECLG (Emergency Credit Line Guarantee) Scheme, Rs. 2.05 lakh crore has been sanctioned to 61 lakh borrowers with total disbursals made at Rs. 1.52 lakh crore. 
  • Bank credit YoY growth improved by 5.1%, electricity consumption has also increased YoY 12% and daily freight tonnage increased YoY 20% as of October 23, 2020.
  • GST collections for October, 2020 grossed Rs.1.05 Lakh crores -10% YoY.
  • FDI inflows April- August, 2020 at USD 35.37 Billion – 13% rise YoY.
  • Forex reserves at record high of USD. 568 Billion.
  • Composite Purchase Managers index (PMI) rose to 58.9 in October, 2020 Vs 54.6 in September, 2020, registering strongest increase in output in close to nine years.

RBI predicts a strong likelihood of Bharat’s economy returning to positive growth in Q3: 2020-21, ahead by a quarter of the earlier forecast. Sensing the recovery of Bharat’s economy, Moody’s revised Bharat’s 2020 GDP forecast to -8.9% from -9.6% (negative growth), and raised 2021 forecast to 8.6% from 8.1% (positive growth).

Challenges Ahead

However, the above positive forecast can be attained only when the current momentum is sustained which is a challenging one since the economy that is on the path of recovery will require additional stimulus on an ongoing basis to cross the negative growth and enter the positive growth zone.

It may be pertinent to note that Bharat’s GDP growth has been steadily declining since 2015-16 and registered 3.1% growth in January-March 2020 quarter which is the lowest growth rate in the last 44 quarters. Consumer spending in Bharat has declined for the first time in more than four decades in 2017-18. Unemployment rose to 6.1% in 2017-18 which was the highest in the last four and half decades.

Therefore, Bharat has been witnessing a decline in overall demand in the economy and increase in unemployment much before the Covid-19 and for the economy to come back to the growth trajectory it needs a sustained demand pick up. 

Shift from Supply side to Demand side focus

The above policy measures under stimulus package announced by the government in various phases so far are mostly on the supply side of the economy. There is much scope for the government to boost the demand in the economy by taking the initiative to revive the stalled and delayed central infrastructure projects in the major sectors like- roads, railways, power, irrigation etc.

As many as 412 central government sponsored infrastructure projects (out of total 1683 projects), each worth Rs. 150 crore or more, have been hit by cost overruns of over Rs. 4.01 lakh crore till June, 2020 owing to delays and other reasons, according to the Ministry of Statistics and Programme Implementation that monitors these projects and submits the status report to the parliament on quarterly basis.

Expenditure incurred on these 1683 projects till June, 2020 is around Rs.11.1 lakh crore which is 45.3% of the anticipated cost of the projects. Needless to say that revival of some of the major projects in this list that are nearing completion, or of strategic importance will certainly have a positive and multiplier effect in propelling the demand in the economy by providing employment, boosting the demand for steel, cement, construction equipment and other related sectors.

Unless the banking sector sets its house in order by cleaning up its asset portfolio (which is a difficult task under the current circumstances), it is unlikely that the incremental lending to infrastructure sector will pick up significantly. The government, it appears, is constrained by its adherence to fiscal deficit targets and unwilling to relax the same fearing the country’s rating being downgraded which will impact the FDI and FII inflows.

On the other side RBI is more than comfortably sitting on a cushion of USD 568 Billion forex reserves. Therefore, the need of the hour is to infuse a significant quantum of funds in central infrastructure projects by RBI and the government from the massive forex reserves through a proper channel and by designing the appropriate financial instruments. 

Let us hope the government and the monetary policy authority will look into this and take appropriate policy measure which is the much needed and long overdue.  

Reference-

  1. https://pib.gov.in/PressReleseDetail.aspx?PRID=1671912).
  2. https://www.cmie.com/kommon/bin/sr.php?kall=warticle&dt=2020-08-24%2013:28:31&msec=403
  3. https://www.rbi.org.in/scripts/WSSViewDetail.aspx?TYPE=Section&PARAM1=2.

(Featured image source: Sunday guardian)


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About the Author

Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 14 years of teaching, research and consulting. 100 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 20 short stories and 27 articles published in Telugu. Email id: [email protected]