Revival may face structural roadblock despite stimulus

Growth revival in India may take longer with a number of structural issues that need to be addressed, according to industry experts and insiders.

The big concern is the high leverage of companies and ample brownfield companies available for sale at National Company Law Tribunal (NCLT) may not spur private investment in a hurry, according to experts. Close to 2,000 companies are referred to NCLT for sale or liquidation. The government spending may not be enough, which is forcing the industry to demand a stimulus package along with tax breaks.

Finance minister last week said the government would frontload Rs 70,000 crore recapitalisation programme so that banks have more money to lend and announced sops for the auto sector. She also asked all banks to extend repo linked loans and faster one-time resolution with the small and medium scale enterprises.

Rajnish Kumar, Chairman of State Bank of India, which controls close to 25% of the total bank credit in India, is upbeat about the finance minister's announcement.

"SBI is seeing demand for credit from the oil sector, pipelines, LNG, city gas projects, renewable energy and road projects," he said. "Bank recapitalisation at one go will provide a big impetus to credit growth and honest decision-making will not be questioned, a major mojo for a cleaner and better economy. Aadhaar-enabled KYC, MSME classification, deepening of bond markets, funding to HFCs will further augment the feel-good factor," he said.

But credit growth is struggling at just over 11%, according to data from the Reserve Bank of India. It is not just industrial loans that are not picking pace, even the retail loans are slowing down as job losses are on the rise.

"Home loans disbursement count is 20% lower than Q4 FY18 and auto loan disbursement has witnessed a slowdown in the latest quarter with a decline of 13% over the last quarter. Finance minister's announcements should provide a fillip to both these sectors that are facing a slowdown," said Sathya Kalyanasundaram, India Country Head and Managing Director, Experian India, a credit bureau which collects all the data on loans.

However, industry veterans are hopeful that the tide will turn.

"Transmission of lower repo rates, addressing delayed payments and ensuring that bank officials are confident about lending are strategically targeted towards raising investments. Creation of shelf of infrastructure projects and the announcement of a long-term financial institution will have wide positive ramification for the economy, " said Uday Kotak, president-designate of the Confederation of Indian Industry (CII) and Kotak Mahindra bank founder and chief executive officer.

The finance minister also spoke of pumping in Rs 100 lakh crore in infrastructure. "But the government is not talking about the revival of existing power sector plants where investments have gone in. In some cases if the power purchase agreements were in place the plants would be operational, while in others coal linkages are an issue," said an industry veteran who has invested in one of the ultra mega power plants (UMPPs). Of the 16 UMPPs envisaged by the government, only Mundra UMPP of Tata Power and Sasan UMPP is operational despite 12 special purpose vehicles in place.

"Some of the constraints to economic growth include the moderate capacity utilisation levels, cost of land acquisition and a weak outlook for farm incomes. The measures should help address some of the constraints to growth, Funds allocated already in the Budget may be spent faster as well. Based on the pace at which implementation of these announcements takes place, we could expect a modest boost to growth in H2 FY2020. Aditi Nayar, vice-president and principal economist, Icra.

Industry veterans are hopeful that the macro impact of the package can be significant. "It is indeed commendable that all these multi-sectoral steps were carried out without the pressure on the fiscal deficit," said Vikram Kirloskar, President, CII.