The budget increased capital expenditure by 35% again to Rs 7.50 lakh crore as India focused on reviving the economy through higher infrastructure investments amid disruption from the pandemic and rising inflation.
In an interview with Moneycontrol, Amish Shah, head of India research at BofA Securities, says that various reforms in the last two to three years have prepared the ground for private capex acceleration which will pick up significantly from FY24 onwards.
Edited excerpts:
What is your take on govt capex? Do you think the private sector is ready for big capex?
Gross budgetary support for capex has been robust for FY23, up 24% versus FY22RE (revised estimate) and 35% vs F22BE (budget estimate). This is robust growth, and we believe this focus to continue going forward. For private capex, as seen in the past capex cycles, whenever the government has opened up monopolies, there has been large private capex in following years, but with some lag. We believe various reforms in the last 2-3 years – city gas distribution licensing, permitting private train operations, privatisation of airports, opening up of coal mining sector, etc., – have prepared the ground for private capex acceleration. We expect private capex to pick up materially on the back of these initiatives from FY24 onwards.
One of the themes was logistics and supply chain. Do you think that it will meaningfully translate to the economy?
For Make in India to be successful, all the factors of production – land, labor, capital, etc., – will have to be solved. Transport infrastructure is one of the key factors in this. With government focus, transport infrastructure capacity added in 15 years (FY07-22) could be higher than in the past 60 years. However, logistics cost as percentage of GDP at 13% is high for India and needs to be brought down for domestic manufacturing to be competitive. With Make in India 1.0 (simplifying labour laws, land acquisition, FDI norms, etc.) and Make in India 2.0 (export incentives, production linked incentive scheme) the groundwork has already been laid out. Thus a focus on logistics and supply chain would help India to de-bottleneck and reduce logistics cost. This would help achieve our Make in India goal and can meaningfully increase the share of manufacturing GDP which has been broadly stagnant over the past few years.
Secondly, capex in logistics and supply chain will have a multiplier effect on economic growth as this could enable new businesses and provide efficiency gains.
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FY23BE only mentions Rs 65,000 crore from divestment proceeds and zero from divestment receipts from sale of government stake in PSBs (public sector banks) and FIs (financial institutions). Is it the end for strategic sales in government-owned banks? Is it worrying?
Policy on the role of public sector enterprises (PSEs) is clear. Govt wants PSEs to gradually step back from sectors that are non-strategic, while core strategic sectors would also not be reserved for PSEs to allow for increased competition and benefits of private sector efficiencies. We believe the government’s intention to bring in more efficiencies with the aim of minimum government, maximum governance will continue with divestment being a major part of it. Key transactions (divestment in BPCL, IDBI, PSBs, a general insurance company) are in various stages of development and as clarified by the secretary yesterday the government will declare them as and when they happen. So overall, we think the government has remained conservative in giving out divestment numbers but the pace will continue as planned and we see upside risks to these numbers.
Do you think that GIFT City is a game changer?
Another important financial sector reform comes with the setting up of an International Arbitration Centre for timely resolution of disputes under international jurisprudence at the GIFT City. This, coupled with tax incentives which will attract foreign players such as AIFs (alternative investment funds), insurance companies, wealth managers and leasing firms to set up shop here, could make GIFT one of the world’s leading IFSC (international financial services centre).
What was missing in this budget according to you?Given slowing consumption growth, especially in rural areas, some demand stimulus was expected. However, the Centre seems to have taken to stimulating demand by creating jobs on the back of capex push.
