OPINION, P6 NATION, P3 NATION, P5 K GANGULY & A GULATI EDITORIAL EYE ON THE TARGET INDIA GROWTH Punjab must switch from supply-driven to demand-driven farming Budget FY23 must give capex a boost, govt must act to spur private sector investment Goyal assures full support to IT firms in pushing growth, exports to $1 trn Overall macro situation on recovery mode but facing stagflation: Basu PUNE, MONDAY, JANUARY 17, 2022 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOL. NO XII 296, 12 PAGES, `6.00 P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E ● COVID-19 Centre unlikely to go on a spending spree Budget to grow less than 10%, capex focus to remain IN THE NEWS IOC to spend `7,000 crore on new CGD areas INDIAN OIL SAID on Sunday that it plans to spend over `7,000 crore on the nine geographical areas (GAs) it bagged in the first tranche of the 11th round of auction for city gas distribution, reports fe Bureau in New Delhi. It said that the GAs it won constitute nearly 33% of the cumulative demand potential of the areas offered in the bidding. Modi, Xi to address WEF online Davos summit today WITH ITS ANNUAL meeting getting deferred due to Covid, the World Economic Forum's five-day online Davos summit will begin on Monday with special addresses from Prime Minister Narendra Modi and Chinese President Xi Jinping on the first day itself, reports PTI. Centre's budgetary spending 40 THE GOVERNMENT WILL likely refrain from hiking its budgetaryexpendituresharply in FY23 upon the revised estimate (RE) for this fiscal, as it’s wary of the potential cost of delaying fiscal rectitude for long afterbeing forced to go on aspendingspreeinrecentyears, sources told FE. Given the high base, any hike in budgetary spending may not be more than to 510% in FY23 upon the RE for this fiscal (the Budget size may thus remain under `40 lakh crore), although nominal GDP is expected to grow by about 12.5%,a source indicated. Nevertheless, the Centre would focus more on the quality of expenditure by continuing with its pledge to bolster budgetary capex.It will rein in revenue spending, wherever possible, without curtailing allocations for critical areas such as health and education, one of the sources said. It may also cut allocation forcertaincentrally-sponsored schemes where the outcome 35.1 23.1 21.4 19.7 34.8 26.9 30 20 BANIKINKAR PATTANAYAK New Delhi, January 16 (` lakh crore) 10 0 FY17 FY18 FY19 FY20 FY21 FY22 Source: CGA doesn’t match with the outlay. Even before the Covid outbreak, the government had to raisebudgetaryexpenditureby as much as 16.5% on year in FY20 to `26.9 lakh crore to prop up faltering growth.Then the pandemic struck,forcing it to step up expenditure by a sharp 30.5% to `35.1 lakh crore to protect lives and livelihood,despite an acute revenue shortfall.Thepaceofspending, thus, remained way above the nominal GDP growth of just 7.8% in FY20 and -3% in FY21. Of course, there hasn't really been a strict co-relation between the pace of GDP expansion and the rise in the Budgetsize–thelatterisdriven morebyimmediateexigencies. While the government has targeted a marginal expenditure cut in FY22, it could end up exceeding the Budget estimate by about `2.4 lakh crore to `37.2 lakh crore, up almost 7% from the last fiscal, driven particularly by inflated food and fertiliser subsidy, according to an Icra estimate. GiventhattheCentre’sdebt burdenisexpectedtoscalea16year peak of almost 62% of GDPattheendofthisfiscal(the general government debt hoversaround90%)fromlessthan 49% in FY20, raising expenditure sharply in FY23 on a high basewouldbecounter-productive,one of the sources said. Continued on Page 2 One year of vaccination drive: Near 158 cr doses administered GEETA NAIR Pune, January 16 AYEAR AFTER the vaccination drive took off,India has administered over 157.70 crore doses to fight the Covid pandemic. Around93%oftheadultpopulation has beenvaccinatedwith the first dose and 70%with the second dose, according to the Union health ministry. India’s vaccine drive was rolled out on January 16,2021, andthreevaccines—Covishield, Covaxin and Sputnik — are beingadministered.The100-crore mark was reached on October 21 last year and the 150-crore mark on January 7.The highest single-day vaccination of 2.5 crore vaccines was achieved on September17,2021. In the last 365 days, 91.07 croreofthefirstdosesand65.63 crore second doses have been administered. Till Sunday evening,43.10lakhprecautionary doses had been administered and 3.44 crore children in the 15-18 age group had received their vaccine. Nearly 135.61 crore of the Covid-19 vaccines administered in the countrywereSerumInstituteof India’s Covishield doses while 21 crore were Bharat Biotech's Covaxin doses. Continued on Page 2 THIRD WAVE Growth to slow down in Q4, small companies to be hit FE BUREAU New Delhi, January 16 WITH THE THIRD wave of the pandemic likely to disrupt businesses and households, economists are paring their growthestimatesforFY22.The anaemicgrowthinfactoryoutput in Novembermaybe partly the result of supply shortages and the recovery may regain momentum in March and April. But for the moment, some retracing of the demand for services, high inflation could slow demand and shave off two percentage points of growth in the March quarter. GDP in Q4 may now grow only at around 3-3.2%. Thebigconcernisthatmanufacturing margins of small firmswhichhavebeensqueezed over the last couple of years could be further hit.The larger listed companies will continue to do well as they gain market shareandpassonsomeincrease in input costs. Despatches of two-wheelersinDecemberwere subdued suggesting limited purchasingpowerwithmiddleincome households; the dull demand for tractors indicates ruralincomestoomaynotbeas robust as expected. Indeed,demand could stay weak in the next few months as 6% retail inflation leaves prices high and the rising prices of crude oil adds to price pressures. ❚ IIP at 9-month low ❚ Auto sales in the slow lane (% chg, y-o-y) 150 125 100 75 50 -0.6 25 0 -25 Jan 2021 (Retail sales; % chg, y-o-y) Passenger vehicles 75 50 25 -4.5 0 1.4 -25 -50 -8.8 -75 -10.9 2-wheelers Jan 2021 -19.9 Nov 2021 Nov 2021 Note: April & May 21 compared with Source: MoSPI April & May 2019 ❚ Services activity slows ❚ Capex remains weak (PMI services) 60 52.8 55 50 45 40 35 30 Jan 2021 (` lakh crore) 55.5 3.0 2.5 1.0 Dec 2021 ❚ MG-NREGS work demand rises 70 14.16 60 50 40 30 20 10 2 0 Apr 2020 Person days generated (cr, RHS) 7 6 25.79 5 4 3 2 1 0 Dec 2021 Source: FADA Pvt 1.2 0.5 0.0 1.7 Dec ‘20 Mar Govt 2.7 0.7 1.5 1.5 0.3 Note: Reading below 50 suggests contraction and above it indicates expansion Source: IHS Markit Persons who demanded work (cr, LHS) 2.4 2.0 3.12 FY23 BUDGET 0.6 2.1 June 2.2 0.5 0.6 1.7 1.5 2.1 Sept Dec ‘21 Source: CMIE ❚ CPI at 6-month high (% chg, y-o-y) 7 6 6 4.06 5 5 4 4 3 Jan 2021 5.59 Dec 2021 Source: MoSPI Source: Rural development ministry ❚ Oil prices moving up ❚ Mfg margins at a multi-year low Brent ($/bbl) 105 90 66.25 75 60 45 30 15 0 Jan 2, 2020 (PMI manufacturing margins) -3.5 Source: Bloomberg 84.62 -4.5 -5.5 -6.5 -7.5 Jan 12, 2022 -8.5 Dec 2020 Dec 2021 Source: HSBC REGULATION RISK FE SPECIALS MNC royalty payments continue to moderate IFFCO moves to Oracle Cloud The fertilisers maker is taking a technology-first approach to its business objectives Ten years of royalty payments ■ PERSONAL FINANCE, P9 Pre-tax preroyalty profits TCS buyback offer 10 0 -10 Net sales ■ INFRASTRUCTURE, P11 FY12 Sector ripe for investment: Centre Growth in aggregate royalty vs preroyalty pre-tax profits of 30 MNCs (%) 20 Royalty payments Retail investors with a long-term positive view on TCS and its financials should ideally hold the stocks & not take the offer Continued on Page 2 -4.9 -9.6 ■ eFE, P8 -8.9 -9.5 Should grocery retailers worry as quick commerce companies like Dunzo and Blinkit get in the ‘fast’ lane? 9.3 18.6 E-grocery delivery sprint 12.6 ■ BRANDWAGON, P10 2.4 ROYALTY PAYMENTS BY multinational corporations (MNCs) contracted by about 10% in FY21 compared to a contractioninthe pre-tax,preroyalty profits of 5%, a study by proxy advisory firm IiAS, of 30 firms, reveals. In the previousyear,royaltypayments had contracted by 9.5% while the profits — pre-tax, pre-royalty — had fallen 9%. Overthepastfewyears,royalty payments of MNCs have moderated and are now more aligned to revenues and profits. Before that, royalty payments were often little corre- lated to profits or revenues; theyoutpaced one orthe other if not both across severalyears. In 2018-19,royalty payments rose 18.6% although the pretax, pre-royalty profits had gone up by only 9.3%. The top five MNCs account fornearly80%oftheaggregate royalty paid and have dominated the conversation on royaltyforthe past severalyears. Pay-outstotheparentcompany as technical and knowhowfees,operationssupport and cost of expatriates are additional forms of charges levied on the Indian arm of global companies. 14.7 11.3 FE BUREAU New Delhi, January 16 ‘16-17 ‘17-18 ‘18-19 ‘19-20 ‘20-21 FY21 Data is normalised and rebased to FY12 YoY growth in pre-royalty pre-tax profits YoY growth in royalty MNCs step up dividends despite muted profits during COVID-19 While opportunities exist in highway sector, higher monetisation would be needed for NHAI's ordering to rise, a report has said 300 250 200 150 100 50 0 ■ SCIENCE & TECH, P7 Omicron raises risk for kids 64% 68% 56% 54% 88% 100 80 60 40 20 0 FY17 FY18 FY19 FY20 FY21 Post-tax profits Dividends (` bn), LHS Dividend payout (%), RHS Source: Annual reports, IiAS Research Most hospital-stays, however, have been short, finds UK study COVID CURBS Banks fear credit slowdown as cases surge SHRITAMA BOSE Mumbai, January 16 SUSTAINING A PICK-UP in credit growth is turning into a challenge for banks not merely because of the disruptions to businesses and households but also because of fears of asset qualityworsening.Thattopcorporatescontinuetode-leverage and that banks remain risk aversearealsoreasonswhyloan growth could slow in the comingmonths.Thefourthquarter, which is when banks book 3540% of their business for the full year, may be hurt in FY22 Outstanding loans (` cr) 1,20,00,000 1,15,00,000 y-o-y credit growth (%, RHS) 10 9.28 6.53 Deposits (` cr) y-o-y deposit growth (%, RHS) 1,65,00,000 11.48 10.28 14.0 7.5 1,57,50,000 10.5 1,10,00,000 5.0 1,50,00,000 7.00 1,05,00,000 2.5 1,42,50,000 3.50 0.0 1,35,00,000 1,00,00,000 Source: RBI Jan 1, 2021 Dec 31, 2021 amidst dampening sentiment and fresh curbs on movement, bankers told FE. According to data released Jan 1, 2021 Dec 31, 2021 0.00 by the Reserve Bank of India (RBI), non-food credit grew 9.28%year-on-year(y-o-y)duringthefortnightendedDecem- ber31,pickingupsharplyfrom the 7.51% growth seen in the previousfortnight.Thevalueof corporatebondissuancesstood at `73,145 crore in December 2021, down 17% on a y-o-y basis,asperdatafromtheSecurities and Exchange Board of India (Sebi). Loan growth had perked up during the festival months of OctoberandNovember,butthe renewed jump in Covid cases, which many are already referring to as a third wave, may set back the growth figures. Continued on Page 2 Pune