India focused on the revival of the economy by investing more in infrastructure to counter rising inflation and disruption caused by the pandemic.
Interview with Moneycontrol: Amish Shah, BofA Securities’ head of India research, said that several reforms over the past two to three years have created the conditions for private capex acceleration, which will pick up substantially starting in FY24.
Here are some edited excerpts
How do you feel about govt capex Are you confident that the private sector can handle large-scale capex?
For FY23, gross budgetary support for capex was strong. It rose 24% versus FY22RE’s revised estimate and 35% over F22BE’s budget estimate. This is a strong growth rate, and we expect this to continue. Private capex has shown that there has been significant private capital investment in the years following the opening of monopolies by the government. However, there was some delay. The groundwork for private capex acceleration has been laid by a number of reforms over the past two years, including city gas distribution licensing and permitting private train operations. These reforms will be instrumental in accelerating private capex from FY24.
Logistics and supply chain were two of the main themes. Is it something you believe will have a meaningful impact on the economy?
All factors that affect production, such as labor, capital and land, must be addressed in order for Make in India to succeed. This is where transport infrastructure plays a key role. Transport infrastructure capacity could be increased in 15 years (FY07-22), if government attention is focused. This would be more than the 60-year period. India’s logistics cost at 13% of GDP is too high and must be reduced for domestic manufacturing to remain competitive. Make in India 2.0 (simplifying labour laws and land acquisition) is the first step. The foundation has been laid with Make in India 2.0 (export incentives and production-linked incentive scheme), India can focus on logistics and supply chains to reduce its logistics costs and de-bottleneck. This would enable India to achieve its Make in India goal. It could also meaningfully increase manufacturing GDP, which has been largely stagnant for the past few years.
Second, the increase in capex in logistics/supply chain will have a multiplier impact on economic growth. This could allow for new businesses to be created and efficiency gains.
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FY23BE mentions only Rs 65,000 crore in divestment proceeds, and zero from divestment receptions from the sale of government stakes in PSBs (public-sector banks) and FIs. Are strategic sales in government-owned bank’s dead? It is it alarming?
The policy on the role and responsibilities of public sector enterprises (PSEs), is clear. The government wants PSEs gradually to withdraw from non-strategic sectors. However, core strategic sectors should not be reserved for PSEs in order to increase competition and reap the benefits of efficiency improvements in the private sector. We believe that the government will continue to seek efficiency and maximum governance with divestment as a key part. The government will announce key transactions such as divestment in BPCL and IDBI, PSBs, a broader insurance company, and other important transactions as soon as they are completed, as the secretary clarified yesterday. Overall, we believe the government has been conservative in releasing divestment numbers. However, the pace of the process will continue as planned. We see upside risks to these numbers.