Make in India programme of the government comes in a full circle when the feasibility of import replacement was deliberated between steel and auto industry.
Various agencies are putting forward their estimates for India’s GDP growth in Q1 FY21. That the economy performed much below normal contraction level due to the pandemic and the subsequent lockdown is a foregone conclusion and there is hardly any surprise awaiting on that count. Looking forward, the Q2 is yet to exhibit a sharp U type growth path, although the government is trying its best to help and support the economy within its own limitations of rising fiscal deficit, increasing food prices and unemployment. Unlike in some other advanced countries, specifically China, where massive stimulus measures have been announced out of mounting public debt and issuance of bonds to fund the expenditure.
The falling trend in GST collections in the first four months of the current fiscal year (collections of Rs2,72.642 crore— more than 20% shortfall compared to last year) and revenue loss in customs duty due to decline in imports (both oil and non-oil) have led to a limited fiscal space for the government to enhance investment in infrastructure. It is therefore certain that apart from roadways (NHAI for national highways from market borrowing), railways (DFC, Metro from World Bank and other foreign aid), affordable housing (under credit -linked subsidy scheme), pipeline expansion (transportation of gas and petroleum products funded by oil companies), there are other critical sectors left requiring massive private investment.
Private investment is sought for airport construction, which has also become synonymous with Atmanirbhar Bharat Abhijan. Earlier six airports viz. Ahemedabad, Mangalore, Lucknow, Guwahati, Thiruvanthapuram, Jaipur were offered to Adani group for development and upgrade. The concessionaire agreement has been signed for Jaipur, Guwahati and Thiruvanthapuram. The plan is to construct and develop 100 airports (major and minor) in the country by 2024. New airports immensely contribute to mobility, networking, and communication and these being mostly on build-operate-transfer (BOT) mode of public-private partnership (PPP), would render support to the construction sector.
Interestingly, private investment is also coming via construction of houses in Tier-II and -III cities (Jhansi, Kanpur, Indore, Karnal, Panipat etc.) as developers like DLF, Emami, ATS Omaxe are turning to these cities for more open space, environment friendly ambience, lower cost of acquisition etc. The trend of urban mobility is fully catered to by construction of dwelling places in these cities, which would also go a long way in easing the pressure seven mega cities in terms of housing, commercial space and other associated urban infrastructure. The road connectivity between Tier-II & -III cities and also the mega cities assumes higher degree of optimisation.
The government has rightfully identified a number of areas that still necessitate imports. The case in point is imports of power plant equipment like pressure vessels etc. The Centre has decided to offer productivity-linked incentives and phased manufacturing for certain power plant equipment manufacturers like BHEL, NHPC and Alstom, L&T etc. Apart from a few PSUs, a host of other private entities are involved.
The unique contribution of Dedicated Freight Corridor can be summed up by visualising the country having been cordoned off by railway freight lines — East coast Corridor (1115 km), East West Corridor (1673 km), Andal Route (195 km) and North South Sub-corridor (975 km). It is known that by 2022, the Eastern Dedicated freight Corridor would successfully connect 1875 km between Ludhiana and Dankuni and would also run 1506 km between Dadri and JNVT. In addition, the railways are completing 10 port connectivity projects and five coal connectivity projects by March 2024. They are working towards 100% localisation, now that Head Hardened Rails (R-1080 grade) and Metro Rails are indigenously made available by both SAIL and JSPL. The Railways are vigorously going ahead with converting single line of 11500 km into double lines. New trains in specific medium speed routes offer scope for private investment.
Make in India programme of the government comes in a full circle when the feasibility of import replacement was deliberated between steel and auto industry. It is certain that localisation levels should be pursued across value chains in the sector in order to reduce import of steel, electronic components and parts. This implies localisation at OEMs, Tier-II and -III vendors. A very close interaction between suppliers of these items indigenously, the technology involved and the cost of production data would have to be established and study their replacement with no additional costs to the users.
With respect to the solar panels, India’s imports comprise around 80% of the total requirement and most of these are from China. The localisation of solar panels and cells has commenced and this needs to be speeded up. Wind turbine towers require only 20% import content, which also can be locally developed and the grade of steel (EN-10025, S-355) can be made locally available at some economic scale of operation.
Last week we discussed about the government’s Make In India efforts in procurement of defence equipment. The import restriction schedule starting from December is to be monitored along with development of indigenous capabilities to produce the items.
Thus, all the above areas provide good opportunities for private investment and FDI ($17 billion in April-July’20) to flow into the economy as these areas offer firm demand and little uncertainty on return on investment — the two critical factors to attract private investment.