Sector-specific wish lists run long, but what the finance minister offers in terms of reforms that will translate into ease of doing business will matter most
Liquidity has been a challenge for industry over the past several quarters and the govt needs to do more to address it
India Inc. will closely watch finance minister Nirmala Sitharaman when she presents the first budget of the NDA (National Democratic Alliance) 2.0 on 5 July for cues for the next capital expenditure cycle, led by structural changes and tweaks in key policy initiatives, without which the budget may well turn out to be a non-event for corporate India.
The sector-specific wish lists run long, but it’s what the finance minister can offer in terms of broader reforms that will translate into ease of doing business that matter the most. Measures such as speedier approvals for land acquisition, easing of tight liquidity conditions, and higher public spending are among key factors that will be keenly watched in the backdrop of India’s declining economic growth rate.
Growth decelerated to 5.8% in the last quarter of 2018-19 with government expenditure growth during this period slowing to 9% as tax revenues failed to pick up.
Industry watchers feel that the stage for the upcoming budget was prepared during the interim budget in February, when the government set the key result areas for itself in the next term. This includes more sops for the aspiring middle class, addressing farm distress and a renewed thrust on revival of rural demand, which has stagnated in the aftermath of demonetization and as a consequence of low food inflation, the cornerstone of both monetary and fiscal policy since the NDA took over in 2014.
“As the Modi government gears up for the next five years, it is widely expected to accelerate the pace of reforms, make the business environment more conducive to attract capital, and take additional measures to not only create jobs but also to boost the spirit of entrepreneurship," said Rahul Sharma, chief executive officer (CEO), Vedanta Ltd—formerly Vedanta Alumina Ltd—part of mining major Vedanta Resources Ltd. In some key areas the Bharatiya Janata Party (BJP)-led NDA coalition has already set the ball rolling when it announced investments of ₹100 lakh crore in infrastructure spending over the next five years. This augurs well for growth if words translate into action.
“There have been several policy initiatives which have had a role in developing the infra sector. The introduction of hybrid annuity model (HAM) has given developers an attractive model for participation in the roads segment," said Sandeep Garg, managing director and CEO, Welspun Enterprises Ltd. “One disappointment that remains is the interest rate payable to concessionaires during the operations and maintenance period, which the industry feels should be linked to the benchmark rate of State Bank of India. However, in the finalized HAM concept, the interest rate payable is higher by 3%. In our view, the spread of 3% is disappointing as it affected the risk-reward matrix. We are hopeful that the government will see the merit in our earlier proposal and tweak the interest payable," Garg said.
“Managing the banking sector’s non-performing assets along with recapitalization of state-run banks and removing roadblocks for faster resolution of the insolvency cases, while incentivizing banks to buy good quality non-banking financial company (NBFC) assets will help," said Amar Singh, head, advisory, Angel Broking. “Resolving tight liquidity issues in the financial system is a major concern," he added.
“Liquidity has been the biggest challenge for the industry to grow in the past several quarters and the government needs to do more to address the situation," said a CEO of an NBFC, requesting anonymity. “The industry is suffering because of a few errant borrowers as this has made credit sparse and expensive."
Specific suggestions to manage the situation include relaxing of sectoral caps and allowing of non-traditional sources of capital, such as insurance companies and pension funds, in long-term yield generating assets, said Nachiket Naik, head, corporate lending, Kirloskar Capital. More needs to be done to improve some sectors, especially manufacturing, by simplifying regulations and ensuring availability of land and capital, Naik added.