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For a growth-led Union Budget, government needs to continue spending on infrastructure, says Seshagiri Rao of JSW Steel

While the Indian economy has recovered much from the initial lockdown days, growth in the coming months will depend on government expenditure, said the JSW Steel Jt MD and Group CFO

January 21, 2021 / 06:25 PM IST
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Finance Minister Nirmala Sitharaman should continue the government's focus on infrastructure spending to make the upcoming Union Budget a growth-oriented one, said Seshagiri Rao, Jt MD and Group CFO, JSW Steel.

"The economy is on the path of recovery, post the COVID-19 disruption. If we have to accelerate this process and grow in the next financial year, the budget should be growth oriented," added Rao.

In other words, there should be a huge thrust on government expenditure, with focus on infrastructure. The government, added the senior executive, should 'front-load' the spend in the first few months of the new financial year to fuel the growth rate.

While India's GDP growth rate contracted in the second quarter at 7.5 percent, it was still a smart recovery from the first quarter performance, when it was down nearly 24 percent. Some of the industries, including steel, have continued to show signs of recovery, and some companies have even touched pre-COVID-19 levels.

JSW Steel for instance, recorded a 2 percent increase in its production in the third quarter ending December 31, 2020, compared to a year ago. Its capacity utilisation improved from 86 percent in the second quarter, to 91 percent in the third.

There are three reasons, Rao explained, behind this 'substantial good recovery' from the April-May period.

  1. Excellent financial condition and enough liquidity in the system, with foreign inflows of over $100 billion. Rupee depreciation was halted and that contributed to some extent in moderating inflation. Interest rates too have come down.

  2. Second reason is the targeted fiscal stimuli. Though it may have been moderate compared to what others expected, or to what other governments have done, the Indian government was still successful in targeting the stimuli at the more vulnerable parts of the economy.

  3. Government expenditure, with focus on national infrastructure pipeline has been robust. About 70 percent of the Rs 20 lakh crore investment needed in infrastructure has to be done by governments at the Centre and states. There is revival in government expend. That also brought back the recovery quickly.

More of this is needed from the Budget to ensure the growth momentum doesn't falter. Even as the government expenditure should continue, said Rao, the tax structure has to be simplified to improve the ease-of-doing-business quotient. Though the Finance Minister reduced corporate taxes in 2019, the structure - companies have to choose between old and new regime - makes it complex. "There should be some simplification of this tax system," said the JSW Steel Jt MD and Group CFO.

Financing, even though there is liquidity in the system, the industry needs a push, especially when it comes to long term, or patient capital.

"For instance, if JSW Energy (a unit of JSW Group) wants to set up a renewable energy project and wants to raise money for 10 years. It may not be possible to raise the money in the Indian market. If you have to raise it overseas, there are many conditions," said Rao.

Instead, the government should encourage, through tax incentives, for savings that otherwise are used to invest in gold or sit idle, to be invested in bonds. "This is how savings can be used and bond market can be brought on part with the equity market," Rao noted.

On the steel industry, the JSW Steel senior executive said the government should do away with duty on import of raw materials that are not found in India. "That is the only way we can compete with companies from other countries that don't levy duty on import of raw materials," said Rao.

Raw materials such as anthracite coal, metallurgical coke, coking coal, and graphite electrode are imported by steel makers in India.
Prince Mathews Thomas heads the corporate bureau of Moneycontrol. He has been covering the business world for 16 years, having worked in The Hindu Business Line, Forbes India, Dow Jones Newswires, The Economic Times, Business Standard and The Week. A Chevening scholar, Prince has also authored The Consolidators, a book on second generation entrepreneurs.
first published: Jan 21, 2021 06:25 pm

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