Tag Archives: PPP

White knight wanted after black money battle

There are very few events etched in the memories of an entire generation. For the Americans, it was the 9/11 attack and the Lehman brothers collapse. For Indians, it was the Kargil skirmish, the 26/11 terror attack and, now, demonetisation.
This bold and moral move by the PM has had its share of execution challenges, the consequences of which are grave. At just about the time when the green shoots, as reported in this column, began to stabilise, the land beneath them was scorched. Real estate, consumer goods, jewellery and the informal business segment of the country have been victims of a frontal attack. Businesses have reported a loss of 30-40 per cent in revenues. The momentum of money has ground to a halt. Banks have run out of money to dispense. Fortunately, the government is course-correcting rapidly. It is ready to launch an extension of the ´Voluntary Disclosure Income Scheme´, where a tax of 50 per cent would give unaccounted money a holy dip with another 25 per cent of the money being subject to a zero interest bearing bond for four years, thus allowing the offender to circulate 25 per cent of his declaration in an official form. This would effectively cost the declarer 57 per cent. The challenge is that there are several ´start-up gangs´ that have reinvented the art of conversion at a lower cost of 25 per cent. So although the money remains tainted, legal tender is received in place of the obsolete notes. This would dampen the response to such conversion.

Unless we are able to increase the number of tax-paying individuals from the current 30 million to at least 45 million, the effectiveness of the demonetisation exercise may remain in question. The country, however, has improved its image by portraying a robust financial system that has been able to withstand such staggering logistics.

That said, real estate has suffered a big blow. According to a report by PropEquity, housing prices in 42 major cities across India could drop by up to 30 per cent over six to twelve months, wiping out over Rs 8 lakh crore worth of market value of residential properties sold and unsold by developers since 2008. The bigger casualty is employment, which is likely to suffer a setback.

This may be one of the stiffest challenges that the Modi Government will face. Our CW issue with Minister for Skill Development and Entrepreneurship Rajiv Pratap Rudy has already highlighted the fact that improvement in skills for 35 million workers was a prerequisite for desired growth. However, demonetisation has severely hit the informal sector, which will need to undertake some costs to come into the formal economy. Targeting benefits to reach the right segments would require precision and agility on the part of the government.

On the brighter side, interest rates are set to come down. Income tax rates, too, will ease up
The cycle of low rents and high interest is likely to turn with interest rates softening up and rents hardening. Public spending will continue to drive economic sentiment. Private-sector spending will defer all plans but overseas investments with a stronger dollar may rise if the Fed rates remain easy. But there is a fear that the Federal Reserve may increase the rates and just as $3.18 billion fled the country in November alone (the steepest selling in equity and bonds by foreign institutions in the past three years), such a trigger may depress our outlook.
As the government brings in more money to be accounted for in a formalised manner by curbing black money, it needs to set benchmarks for the use of this money, especially the money managed and run by it. Only 15 of the 74 loss-making PSUs have been asked to shut shop so far. With more and more digital mechanisms in place in the government, it needs to relook at its hiring policies and shed some weight by moving experienced bureaucrats into management positions of SPVs, which are JVs under the PPP mode.

The fight against black money will also need to provide a balm for those wounded as part of collateral damage, to keep up the spirit of the population that is supporting this moral battle.
We need a ´white´ knight!

The tide is turning

There is finally good news on the economic front.
Projects commissioned in the country reached a record high of Rs 4.6 lakh crore in FY2016, according to CMIE. This is the highest-ever commissioning of projects in a year and represents a 12 per cent increase over Rs 4 lakh crore in FY2015. The stock of projects on hand is also huge – total outstanding projects are worth Rs 159 lakh crore. Of these, Rs 92 lakh crore worth of projects are estimated to be under implementation.

FDI increased by 27.5 per cent to $42 billion during April-February FY2016 as against $32.96 billion during the corresponding period of the previous year. Indirect tax collections moved up by 31.1 per cent to Rs 7.11 lakh crore in FY2016 over FY2015, indicating an improvement in demand. Transmission companies are recording a 20-25 per cent surge in their order books. And, initiatives like UDAY and DISCOM reforms are firing the power sector.

Among other patches that have started to see green shoots are the solar sector, railways and coal production. Commercial vehicle (CV) sales, which were languishing till a few quarters ago, have veered into positive territory, especially in the medium and heavy segment. In FY2015-16, the overall CV industry did well to post 11.51 per cent year-on-year growth with sales of 685,704.

Even consumption of products used for construction or industrial purposes are indicating an uptick: Bitumen (up by 16.9 per cent), petroleum coke (up by 42.9 per cent) and furnace oil (up by 39.4 per cent). Further indicators include sales of medium and heavy commercial vehicles (up 29.9 per cent in 2015-16), cement production (13.5 per cent increase year-on-year in February) and electricity generation (9.2 per cent growth in February).

Government spending has contributed to this spurt. In 2015-16, a total of 6,029 km of national highways were built, which was not just an all-time high but a substantial jump over the 4,340 km, 3,950 km and 5,732 km that were constructed in the preceding three fiscal years. In the past three to four months of 2016, construction equipment too has been witnessing growth over the previous corresponding years. The green shoots are evidently here. And, with the prospect of a good monsoon after two bad years, the time seems set for an overall improvement in the economic scenario in the construction and infrastructure space. Real estate will still take time as the buoyancy in the economy will take some time to percolate.

A revival in PPP also indicates an improvement in the confidence of the business sector. For India’s infrastructure building plans, a huge contribution has been envisaged from the private sector. A total of about 1,200 projects in different segments of the infrastructure sector, with investments worth about Rs 7 lakh crore, are being carried out under PPP mode throughout India, according to an ASSOCHAM study. Of these, there are about 650 projects worth over Rs 4.5 lakh crore with about 67 per cent share in roads and bridges; followed by over 100 projects in the ports sector (12 per cent) with an investment worth over Rs 80,700 crore; over 150 projects in energy (6 per cent) with investments worth over Rs 41,000 crore; investments worth over Rs 30,000 crore in SEZ (5 per cent); as well as projects in water sanitation (2.6 per cent), and others. Almost 73 per cent of total investments worth over Rs 3.3 lakh crore (rest are either terminated or information is not available on them) attracted by the infrastructure sector in various segments under construction in the PPP mode are concentrated in roads and bridges. Currently, there are about 480 investment projects under construction in the PPP mode in various other segments: SEZ, ports, energy, water sanitation, airports, tourism, healthcare, cold chain and others.

The stage is set for a revival and, with the indulgence of the rain gods, the clouds on the horizon are signalling good tidings – at last!