Friday, June 9, 2023

Back on Track


By Satish Singh

To provide relief to the public and businessmen affected by the second wave of Corona pandemic, the government has taken several measures, under which the system of giving loans to the traders, measures to increase liquidity in the market, efforts have been made to speed up the process of vaccination etc. Due to adoption of these measures, the economy seems to be getting back on track. Further, the central government has recently approved the release of a package of Rs.23,123 crore to deal with the third wave of the corona pandemic, under which the central government will give Rs.15,000 crore, while the state governments will contribute Rs.8,123 crore.

Due to the opening of the lockdown in a phased manner, economic activities have started increasing in the country. In the month of June, the total volume of e-way bills jumped 37.1 percent on a monthly basis, while it increased by 26 percent on a yearly basis. On this basis, speculations are being made that the Goods and Services Tax (GST) collection may increase in the coming months. The Finance Ministry has said in its report that the tax collection of the Central Government in the first two months of FY 2021 has been satisfactory. The central government is increasing the expenditure for the repair and expansion of roads and railways, so that economic activities can be accelerated.

Non-Banking Financial Companies (NBFCs) are in a better position on the liquidity front than they were a year ago. Because of this, NBFCs are giving loans without much difficulty. Financial institutions, which are not banks, but accept deposits and provide credit facilities like banks, are called NBFCs. NBFCs do not include only financial companies. The companies involved in this do business of investment and insurance, chit funds, banking, stock broking, alternative investments etc. The total number of NBFCs registered with the Reserve Bank of India as on January 31, 2021 was 9507 and its total asset size was about 14 percent of scheduled commercial banks. Today NBFCs are playing an important role in providing deposit and credit facilities to the low-income group households and Micro, Small and Medium Enterprises (MSMEs). They are also providing credit facilities in those areas where banks do not have access. To those who fail to get loans from banks, they provide loans on easy terms. The percentage of loans given by them being NPA is very less.

According to the data released by the Ministry of Commerce and Industry, exports in the month of June grew 48.34 percent or $32.5 billion on year-on-year basis due to increase in global demand for petroleum products, engineering products, gems etc. This is about 30 percent higher than in June 2020, as sectors such as iron ore, rice, cotton, handloom products, marine products, pharmaceuticals etc. have been registering growth since the beginning of the current financial year.

The country’s commodity imports almost doubled to $41.87 billion in June as compared to the same period last year and increased by about 2.05 percent as compared to June 2019. The overall trade deficit is narrowing due to increase in exports and less gold imports in the months of May and June. It remained at a three-quarter low of $31 billion in the first quarter of FY 2021-22. The trade deficit is expected to remain low in the current financial year with the states opening the lockdown in a phased manner and accelerating economic activity.

Non-petroleum and non-gems exports grew 29 percent to $25.65 billion in June. On the same lines, non-oil and non-gold imports have also increased in June 2021. This indicates a pick-up in economic activity and an improvement in demand. India’s goods and services exports are estimated to grow 32 percent year-on-year to $49.85 billion in June. Total imports grew by about 74 percent year-on-year to $52.18 billion. It is noteworthy that the overall global demand continues to be good. That is why the factories are operating at half their capacity despite partial lockdown in various parts of the country. However, India can do even better in exports in the current financial year due to the reduction in daily cases of infection and economic activity being restored.

Debt liability of listed non-financial Public Sector Undertakings (PSUs) has come down for the first time in last 5 years. The gains on account of higher metal and energy prices helped these companies reduce their debt liabilities. The consolidated net debt liability of these state-owned companies declined by 6.4 percent to Rs.6.83 lakh crore at the end of March this year from Rs.7.3 lakh crore at the end of March 2020. Integrated net debt versus equity of non-bank and non-NBFC central PSUs improved to 0.75 times in FY21 from 0.77 times in FY20. The improvement in debt ratio was fueled by both reduction in gross debt and higher income.

Only four companies, which include National Thermal Power Corporation (NTPC), Power Grid Corporation, ONGC and Indian Oil, have taken nearly 80 percent of the loans of PSUs. The consolidated net debt liability of these four PSUs declined by 2.3 percent year-on-year to Rs 5.6 lakh crore. The reduction in debt liabilities was mainly driven by profits from metal companies such as Steel Authority of India and Hindustan Copper and oil companies such as Indian Oil and Bharat Petroleum Corporation Ltd. SAIL’s total debt liabilities declined by 31 per cent to around Rs.35,500 crore during the last fiscal from Rs.52,200 crore at the end of FY20. Indian Oil’s gross debt declined by 14 percent to Rs.1.09 lakh crore in the last fiscal, from Rs.1.26 lakh crore a year ago. Similarly, Bharat Petroleum Corporation Limited’s gross debt liability declined by 23 percent year-on-year to around Rs.48,000 crore at the end of last fiscal, from around Rs.62,000 crore a year ago.

Companies such as Indian Oil, BPCL, HPCL, ONGC, NTPC, SAIL and NMDC saw the biggest jump in earnings, while oil companies benefited from inventory gains and metal producers despite lower sales and revenue in the last fiscal.  This led to an increase in their profits in FY21. These PSUs also benefited from the fall in interest rates like other companies last year, recording a 18.4 percent year-on-year decline in their interest cost in FY21.

It can be said that the risk of corona virus infection is not over yet. Therefore, preventive measures are being taken across the country. The pace of vaccination has accelerated & the government is still trying to accelerate it further. Efforts are also being made to strengthen the health infrastructure. With the corrective measures taken, economic activity is expected to further strengthen in the coming months.

(Author is Chief Manager at State Bank of India, Mumbai.The views expressed are personal opinion of the author. He can be reached at [email protected] and [email protected].)

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