The economic trends of the past six years display dwindling stats and COVID-19 pandemic weighed on the already declining consumer demands and investments. However, the Government of India, to make the market bounce back, is asking Public Sector Undertakings (PSUs) to spend their 50 percent capital expenditures (CapEx) before the end of September quarter to pump investments in the economy, writes Adarsh Som of Elets News Network (ENN).
PSUs Overview & Current Economic Status
Public Sector Undertakings (PSUs) are a crucial part of the Indian economy that includes public services and enterprises providing benefit to society. PSUs are key players in uplifting the economic conditions of society in various ways like – Generation of capital in the India economy, creating job opportunities, socio-economic development of various regions across the country, and investing in the cost of production for various technologies, equipment and services. Moreover, PSUs add significant revenue to the government treasury through various modes like excise duty, customs duty, dividend, profits and other direct taxes. Hence, helping in increasing a bulk amount of resources for a sustainable planned economic growth.
According to KPMG Indian Economic Survey 2019-2020, the Indian economy registered a slowdown in 2019-20 with Gross Domestic Product (GDP) growth slumping from 6.8 percent in the year 2018-19 to five percent in the first quarter of 2019-20 to 4.5 percent in the second quarter. The report cites diminished rural demand and stress on financial sectors as the major contributors to the decelerating economy.
India’s Wholesale Price Index (WPI)-based inflation was at 1.5 percent from April to December 2019-20 which was 4.3 percent in 2018-19. The stats could be attributed to the falling demand pressure in the economy. Whereas, Consumer Price Index (CPI)-based inflation touched 3.3 percent mark in the first half of the 2019-20 fiscal year and ascended to 7.35 percent in December 2019-20 due to the food inflation. Moreover, the alterations in the rainfall pattern and unprecedented floods paid a major contribution to food inflation.
However, with regard to the rising inflation and supply-side frictions, Dr Krishnamurthy Subramanian, Chief Economic Adviser to the Government of India is of the view that the inflation will droop with the unlocking of the country’s economic activities, as per a post by the Press Trust of India (PTI). According to the government data, retail inflation rose and touched 6.93 percent which was majorly due to the rise in food prices.
An outward look on the economic scenario does induce fear that the inflation would continue to rise leading to restricting the Reserve Bank of India (RBI) to further lower the benchmark interest rates. However, on the inside, it seems that the inflation rate has not breached the RBI’s mandated limits except for the month of July. RBI’s Monetary Policy Committee headed by the RBI Governor has been given the mandate to maintain the inflation rate of four percent until March 2021 with the maximum limit of six percent and a minimum of two percent.
Further, the trends have been evident enough to display that the maximum slump in the economy was observed during April and June months. During this dark quarter for the economy, Agriculture was the only bright spot which saw a rise of 3.4 percent.
PSUs to Invest to Pump Economy
Reviewing the aforementioned economic condition, the Government of India was looking at pumping investments in the market to keep the inflation in control and revive the halted economic activities. To help the cause, the government asked the PSUs to spend their 50 percent of capital expenditure (CapEx) by the end of the September quarter. By doing so, the PSUs would pose as the drivers for economic growth and lend a hand to recover the drooping economy.
Nirmala Sitharaman, Union Finance Minister, in an online review meeting, reviewed the CapEx plan worth Rs 1.65 lakh crore of 23 Central Public Sector Enterprises (CPSEs). The minister pointed out that the PSU’s play a crucial role in India’s economic growth and can help it recover from the crisis. For this, the PSUs have to fulfil their targets and ensure the capital outlay for FY 2020-21 is spent in a proper and a timely manner.
The minister decided to call CPSEs to step for the economic recovery following a meeting with the Chairman and Managing Directors (CMDs) of the 23 CPSEs and secretaries of ministries of petroleum, power, coal, mines, and atomic energy.
While observing the estimates, it is seen that the states which together have invested Rs 4.5 lakh crore in the fiscal year 2019 and are estimated to invest Rs 5.8 lakh crore in the fiscal year 2020 have stopped their capital expenditures due to cash crunch. The cash crunch occurred as the tax revenues dwindled significantly following the onset of COVID-19 pandemic. However, in such a situation, the CPSEs need to take the baton to prevent the public expenditure from losing its share in the GDP and works on the same have already begun.
According to the International Monetary Fund (IMF) and other national and international ranking agencies, the projected drop in India’s GDP is by four to five percent in the fiscal year 2021. However, the GDP in the current fiscal year 2020 turtle paced to an 11-year low of 4.2 percent. Whereas, the Centre’s fiscal deficit is estimated to be 4.6 percent of the GDP in FY 2020 vis-a-vis the highest ever since FY 2013.
The total CapEx of CPSEs and departmental undertakings like Indian Railways, National Highways Authority of India (NHAI) together with annual CapEx budgets turned out to be Rs 4.41 lakh crore in FY 2020. The amount is 90 percent of target for the year which is Rs 4.9 lakh crore. However, this is 1.1 percent higher than the capital spending by these organisations in the past years.
Public Sector Enterprises Policy 2020
In another move to aid the economic recovery through PSUs, the Government of India has also planned to privatise four public sector enterprises in strategic sectors and state-owned firms. The Finance Minister, while announcing the last tranche of the Rs 20 lakh crore stimulus package under the Atma Nirbhar Bharat Abhiyan, opened up on the new coherent Public Sector Enterprises Policy. Under the policy, the government will bring out a list of strategic sectors wherein there will be at least one and a maximum of four PSEs apart from private firms. And, in other sectors, CPSEs will be privatised depending on the feasibility.
Adding on to the new PSE policy, the minister stated that the policy will be implemented in such a way that either the PSEs will be merged or will be brought together in a fashion that only four or lesser PSEs will be under strategic sectors. This approach will prevent the mushrooming of PSEs under the notified sectors.
PSUs Backing Atma Nirbhar Bharat Abhiyan
With the unlocking of the nation, the manufacturing processes resume the Government of India is taking effective measures to enable an uninterrupted supply chain and an organised procurement market. In line with making India self-reliant, the government is making efforts to ensure that the indigenously manufactured products are purchased locally and conditions are eased for the export to countries suffering from the COVID-19 pandemic.
And, in its move towards Atma Nirbhar Bharat, the government will be coming up with a purchase plan for the next three years. The plan will include all the high-value goods required by government departments, PSUs and other such organisations. The domestic manufacturers will be provided with the purchase plans of the largest 30 PSUs.
In the move, the Ministry of Electronics and Information Technology (MeitY) recently amended the rules which allow purchase entities to procure mobile phones only from local suppliers, irrespective of the purchase value, provided that local suppliers meet the criteria of 50 percent local content in the finished product. Prior to the amendments, local suppliers were eligible for bidding if the value of the procurement was less than Rs 50 lakh. Similarly, in the case of Indian Railways, a three-year is being formulated to transact with the Indian companies and those of the foreign manufacturers planning to shift from China to India.
Moreover, the Ministry of Defence has revised its procurement guidelines for 15 product categories in order to promote indigenously manufactured products. On similar lines, many states are already amending labour laws to restart production in factories that were shut due to the COVID-induced lockdowns.
With the work getting back on track, a major challenge that will surface is to ensure the safety of labourers. However, in an answer to this, the National Disaster Management Authority (NDMA) has issued a set of guidelines to resume industrial production with adequate precautions. As per the guidelines, even the small-scale industries will have to ensure proper testing and isolation facilities.
Towards Augmenting Economy
With realising the potential in PSUs, the Government of India has handed over the baton in the hands of PSUs to push the growth of the Indian economy and pull it out from the crisis-like situation. PSUs with their capital expenditures, privatisation under the new Public Sector Enterprises policy 2020, and amendments in their purchasing plans to encourage indigenous manufacturing can give a new boost to the dwindling Indian economy and will help realise the dream of making India self-reliant.