India economics:Feedback from macro meetings

Conclusion

    We met policymakers in Delhi last week to understand the government’sthought process with regard to the macro economic outlook and the wayforward. The key theme which was common across the different meetingswas that the government is in an active mode to improve the growth outlookwith a focus on energizing the investment cycle.

    Four Key Takeaways:

    Robust pipeline of foreign investments: Our meeting with Invest Indiaunder the DIPP indicated that the expected pipeline of foreign investmentsover the next few years is robust at about US$80bn. The sectoral investmentpatterns also look interesting with investments expected in infrastructure,construction, automobiles, logistics and railways - station redevelopment. Theaim of Invest India is to be a facilitator of foreign investments and they arealso working on creating a common workplace where a foreign investor canseek approval from all different nodal agencies.

    NHAI confident on executing Bharat Mala: The government’s ambitiousBharat Mala Programme, which involves building 83,677km of roads over thenext 5years, includes 34800km to be executed by NHAI. In this regard, in ourmeeting, we understood that NHAI is confident of executing the project in thesaid timeline. The financing of the project will be a mix of governmentfinancing and use of innovative methods such as asset recycling i.e. the tolloperate transfer by NHAI. On the ToT, the NHAI will likely use this as amechanism to stream regular revenues by building a pipeline and biddingthem at regular intervals. It was also indicated that work on the Bharatmalahad started some months prior to the announcement and thus detailed projectreports for a majority of the project have been prepared.

    Steps to revitalize capex cycle: The government has recognized the needto revitalize capex cycle, and the announcement of the PSU bankrecapitalization was a step in that direction. While emphasis on governmentcapex spending will continue especially with the infrastructure relatedspending, the government is also focusing on what is holding back privatecapex and thus is looking to address that in a systematic manner, withimproving financing conditions (such as bank recap) as one of the steps. Thegovernment will likely focus on the medium and small scale industry, housing,infrastructure, textiles as key focus areas.

    Fiscal prudence to continue: The indication from the government officials isthat the fiscal policy stance will be aligned towards maintaining the fiscaldeficit target for the current financial year at 3.2% of GDP. The governmentexpects that indirect tax collection (mainly GST) to be revenue neutral at thefederal level, and is hopeful of some greater buoyancy from direct tax front.