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The swift economic rebound in India following the gradual lifting of the nationwide lockdown has been quite encouraging. The contraction of gross domestic product (GDP) in the second quarter was much smaller than analysts predicted. Besides agriculture, manufacturing surprised us with positive growth. Leading indicators point to further acceleration in activity, with the technical recession marked by two successive negative GDP prints left well behind.

While the government proactively initiated a slew of measures to contain the spread of the covid pandemic, fiscal stimulus measures (even if relatively moderate) aimed at the rural, agricultural and micro, small and medium enterprise sectors, coupled with an accommodative monetary policy, have helped the economy recover speedily. Structural reforms such as India’s new labour codes, production-linked incentives, the front-loading of government expenditure on infrastructure, an expeditious release of government dues, and a lowering of income tax rates will help resurrect the manufacturing sector.

In line with its revival, steel consumption grew a healthy 12% in the third quarter of 2020-21 from a year earlier. Crude steel production also rose. As the steel industry is vital to infrastructure and heavily dependent on imported coking coal, it is looking forward to the removal of customs duty on coking coal in the budget. Customs duty on steel grade limestone, dolomite, refractory material and electrodes should also be slashed to zero. It is also important to create a level-playing field by levying on imports sufficient duties to balance the taxes—such as mining levies and electricity duty—paid by Indian producers.

India’s steel industry has endured disabilities in the form of high costs on logistics, energy and finance, as also inequitable trade because of free-trade agreements, and complicated compliance procedures, etc., all of which dent its competitiveness. The government should incorporate provisions in the budget to mitigate their impact.

For instance, a new tariff policy should be implemented, as several state governments levy unreasonably high power tariffs on industry, besides imposing a cross-subsidy. The composition of Indian exports are majorly raw input materials, while imports are value-added finished products. This anomaly should be corrected. The Centre should disincentivize the exports of raw materials and intermediate products, and encourage value addition within India to substitute imports and also export value-added products. Raising long-tenor funds at competitive rates from local banks for large infrastructure/core sector projects is difficult. The industry is further constrained by regulatory restrictions on raising finance from foreign sources and inflexible provisions for the sourcing of funds from the bond market.

The non-performing assets (NPAs) of the Indian banking system are still at elevated levels. The Insolvency and Bankruptcy Code (IBC) is dramatically changing India’s credit culture, but it is still a work-in-progress, due to prolonged litigations. As the invocation of the IBC is temporarily on hold, there is some relief on NPA reporting in the banking system. Before we see a surge of bad loans again, the budget should consider recapitalizing banks or the creation of a ‘bad bank’ to house NPAs, pending resolution. As regards approvals and compliances, a ‘One nation and One Window’ initiative should be implemented on priority to bring all central, state and local agencies together. This will facilitate clearances and reduce the cost of compliance.

An independent and systemic evaluation report, ESG Analysis on 50 Listed Companies, based on a study carried out by National Stock Exchange Ltd on the performance of environment, social and governance (ESG) parameters for 2018-19, revealed that Indian companies scored higher on policy disclosure and governance relative to social and environmental measures. The study further elaborated that the high score on policy disclosures and governance was driven by mandatory regulatory compliance. As the ESG framework is one of the key dashboards for businesses to drive performance, it is essential to bring out in the budget voluntary guidelines to be followed on environmental and social metrics. This will enable more companies to achieve better scores.

Finally, we have to build world-class infrastructure to help reduce the cost of logistics. The government announcement of a national infrastructure pipeline of 102 trillion envisages the participation of the private sector in achieving this goal. The availability of long-term finance, however, is a major bottleneck. The budget should consider setting up a development finance institution (DFI) for credit enhancement and to help the private sector raise long-term funding. It should also extend tax incentives for investment in debt instruments, aimed at facilitating the intermediation of financial savings, to such a DFI for it to lend money for long-gestation core sector and infrastructure sector projects in the country.

M.V. S. Seshagiri Rao is joint managing director & group CFO, JSW Steel

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