Time to invest and build capacity

As per the data released recently, the manufacturing and construction sectors grew by 1.6 per cent and 7.7 per cent, respectively, during the December quarter. However, core sector data showed growth in eight infrastructure sectors slowing down to 0.1 per cent in January from 0.2 per cent in the previous month.
Time to invest and build capacity As per the data released recently, the manufacturing and construction sectors grew by 1.6 per cent and 7.7 per cent, respectively, during the December quarter. However, core sector data showed growth in eight infrastructure sectors slowing down to 0.1 per cent in January from 0.2 per cent in the previous month.

On the GDP numbers, there was finally some good news. After staying in the negative growth zone for the first 2 quarters of 2020-21, India’s GDP recorded a positive growth in the October-December 2020 quarter. GDP contracted 24.4 per cent and 7.3 per cent in the April-June 2020 and July-Sept 2020 quarters, respectively, as per the revised data of the National Statistical Office (NSO). The resumption of economic activity, after the government lifted lockdown restrictions and boosted spending, has helped the economy expand 0.4 per cent in third quarter of 2020-21.

After contracting in the first half of 2020-21, the government’s final consumption expenditure rose in the third quarter, supporting economic recovery. For a pleasant surprise, gross fixed capital formation turned positive - signalling a turnaround in investment activity - in Oct-Dec 2020 quarter.

Mirroring the performance of GDP is the machine tools sector - one of the biggest casualties within industrial machinery segment (according to the global market research firm Interact Analysis). After declining nearly 70 per cent in the first quarter of 2020-21, the Indian machine tools industry is now confident to reach pre-Covid level of production by the middle of the calendar year 2021. Some machine tool makers are reporting capacity utilisation of about 80 per cent driven by demand from auto and non-auto sectors.

India is also likely to benefit from “China+1” strategy of many of the global majors, who are finalising their capex plans with dark clouds of Covid 19 pandemic finally clearing. With schemes like Production Linked Incentive (PLI), which was re-emphasised by the Finance Minister Nirmala Sitharaman in the budget 2021-22, India wants to corner bigger share of this foreign money. Through various PLI schemes, the government intends to spend Rs 1.97 lakh crore over the next 5 years to entice global players to invest in the Indian manufacturing sector with the government playing the role of a facilitator by offering plug-and-play infrastructure.

Despite the resource crunch, the government intends to spend 34.5 per cent more in capital expenditure (Capex) in 2021-22 compared to 2020-21. Capex of Rs 5.54 trillion will help sustain growth in the medium-to-long-run and also accelerate consumption to propel India’s growth momentum.

A record sum of Rs 1.07 trillion has been assigned for railways for capital expenditure which will have trickle-down effect on a host of engineering products industries. Similarly, if the allocated sum of Rs 3.05 trillion for discoms materialises, then it will lead to improvement of feeder separation, prepaid smart metering and upgradation of systems. This investment will improve the functioning of discoms and generate demand for power equipment sector.

Hopefully, the budget 2021-22 will lead to capacity creation for development and growth in the country.

- Pratap Padode, Editor-in-Chief, Industrial Products Finder & IPFonline.com

 


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