Indian Economy : News,Discussions & Updates

FM Sitharaman hits back at critics, says India must focus on manufacturing​

Finance Minister Nirmala Sitharaman has defended the government's focus on manufacturing, saying it is crucial to strengthen the sector.

Speaking at the Federation of Indian Chambers of Commerce and Industry's annual convention at the national capital on December 16, she seemingly rejected former Reserve Bank of India (RBI) governor Raghuram Rajan's criticism of the government's manufacturing-focussed policies. She, however, did not take his name.

"If there are voices suggesting that India should not focus on manufacturing, but it should focus only on services, I am sorry, no," Sitharaman said.

"We should be focussing on manufacturing, we should be focussing on newer areas of services, no doubt. The service sector, particularly the IT-driven service sector, has already made a big impact to the extent that today 60 percent of our GDP is being contributed by them. But it is necessary for us to strengthen our manufacturing," she said.

Earlier this week, a newspaper column co-authored by Raghuram Rajan titled 'Where have all the jobs gone?' said data suggested India may be the only developing country which is seeing people returning to agriculture - an "alarming indictment of our efforts at job creation".
"Minister Chandrasekharji wrote in these pages that eight lakh jobs will be created over the next five years by the government's flagship Production Linked Incentives (PLI) scheme. Given that such subsidies are being directed into capital intensive industries, this is arguably an optimistic number. Furthermore, the estimated cost in government subsidies will be Rs 2 lakh crores, amounting to Rs 25 lakhs per job created. By any account, this is an enormous subsidy per job," Rajan and his co-authors wrote.

As per the statistics ministry's latest national accounts data, the manufacturing sector contracted by 4.3 percent in July-September, while the services sector grew 9 percent.

Rajan has voiced his concerns over the money the government is spending on the PLI schemes even prior to the newspaper column.

In a conversation with students of his alma mater, Indian Institute of Management, Ahmedabad, in late October, Rajan had said the money the government was spending on manufacturing sector subsidies could result in more jobs if spent on services.

"Rather than manufacturing chips, which is a very capital-intensive and low-labour-intensive business, could we instead design chips, which is a very high-value-added business where we have the potential because of our smart engineers and management people," Rajan had said on October 26.

The former RBI governor has also come under criticism from members of the ruling Bharatiya Janata Party for joining Congress leader Rahul Gandhi's Bharat Jodo Yatra.

Sitharaman on Friday called on the industry to take cues from startups in the manufacturing space, which were taking the lead in innovation.

"They (startups) are doing all the innovation. I would (ask) the industry to keep a close watch on the innovations coming out of the startups. If you are ready to adopt, commercialise, scale up the innovation coming out of the startups, I think both you and the startups will benefit. Together, India can benefit out of it," the finance minister said.

India overtakes China in late-stage funding; closing in on early, growth stages: Elevation Capital​

India is emerging as a primary beneficiary of China’s crackdown on new-age tech with the value of the venture capital investments in the country surpassing or nearly matching its neighbour across stages. In terms of absolute funding, India overtook China in late-stage funding in 2021 and is beginning to surpass China in the early and growth stages, as per a report by venture capital firm Elevation Capital.

“India is leveraging an interesting dichotomy playing out between the US and China. In the first half of the decade, China took market share from the US, and India remained constant. In the second half of the decade, with China’s percentage of global funding dropping, the US took back the market share and the market share for India increased as well,” the report said.

With ample global liquidity and a riskier outlook on China, India is becoming a lucrative investment for global venture capitalists. In the last four quarters (Q4’21 to Q3’22), venture capital investors infused a total of $32 billion across stages into Indian start-ups in comparison to $31 billion in China. The decline (in China) was primarily driven by late-stage funding drying up in the country, which dropped as much as 82 per cent in the first two quarters of 2022 as against 50 per cent in India. As per the report, companies such as Byte Dance and Shein are trading at significant discounts to their previous valuations while average investment cheque size has also witnessed a drop across all funding stages.

On a year-on-year basis, India increased its market share from 2016-2021 by more than 2.5x. India’s share of late-stage funding globally has increased to approximately 10.5 per cent in 2022 from 5.7 per cent in 2019.

In early-stage investments, while the US has seen a 44 per cent decline from Q2-21 to Q2-22, India and China have remained relatively stable. General sentiment on India’s early-stage ecosystem continues to remain bullish.

In 2021, for the first time, India outpaced China in new unicorn creation with 47 companies achieving $1 billion valuation or above against 42 unicorns in China. India has seen emergence of 21 new unicorns so far in 2022 while the China number stands at 7. At the current rate, India is on a path to outpace China by 2024/2025 in global unicorn share.

A total of $120 billion was invested in India in the last 10 years, 50 per cent which was just in the last 2.5 years. While the average 2-year funding was in the range of $1.6 billion at the beginning of the decade, it has reached an average of $26 billion in the last 2 years.

The report predicts that India is strongly positioned to navigate this downturn compared to its peers with inflation at a lower rate than many peers in the G-20 (7 per cent in India as compared to 81 per cent in Argentina, 10 per cent in UK and 8.3 per cent in US as of Nov 30, 2022) and with Indian rupee outperformed most peers by high forex reserves.

India's data centre industry's capacity to double by 2024, says Jones Lang LaSalle​

India’s data centre industry is expected to close the year with a robust demand growth, with estimated absorption in the range of 150-170MW. This growth can be attributed to the delivery of pre-committed supply to hyperscale cloud service providers (CSPs), according to a report by property consultant Jones Lang LaSalle (JLL), The 2022 story: Indian real estate’s rise from the lows.

Colocation operators are scaling up construction to meet their delivery targets. Some operators are retrofitting existing buildings to reduce the time of delivery, the study said.

It added that supply has been mostly concentrated in Mumbai due to submarine cable connectivity, power availability and a large user market. As 2022 comes to an end, the supply is expected to exceed 2021 levels by a healthy margin.

“The Indian data centre industry is expected to add 681 MW capacity by the end of 2024 leading to a doubling of capacity to 1,318 MW which will need 7.8 million sq ft of real estate space. Mumbai is expected to account for 57 percent of the new supply followed by Chennai at 25 percent. Increasing digitisation is expected to save costs and make organisations resilient in times of uncertainty which will be one of the key drivers of data centres’ growth in India. The impact of 5G rollout, personal data protection legislation and investment incentives is expected to drive multi-year growth of Indian data centres,” said Rachit Mohan, Head of Data Centre Advisory, India, JLL.

"Public service cloud providers continue to see double-digit demand growth driven by the increasing use of digital services by BFSI, manufacturing, public sector, media, gaming, etc. In turn, this is expected to drive increasing demand for the data centre industry,” he added.
BFSI is short for Banking, Financial Services and Insurance.

Climate change and sustainability objectives

Like other industries, data centres have experienced global disruptions, both man-made and natural, the report said.

It added that climate change has been at the doorstep with a sharp rise in temperatures leading to unprecedented drought-like conditions in Europe. On the other hand, some countries have faced high rainfall, posing an operational challenge for existing data centres.

This, coupled with supply chain disruption caused by the geopolitical crisis involving Russia and Ukraine, has added to the complications.

The disruption in the supply of of sources of power generation like crude oil and gas has led to a rethink among data centre players in setting up capacities. The impact of these outages, especially due to sustainability issues, is likely to result in a shift of data centre operations to other locations.

India, with its vast geographical resources, thrust on renewable energy, increasing submarine cable connectivity and cost competitiveness is likely to emerge as an alternative data centre hub.

Future trends

The report said the 5G network is likely to increase data download speeds in India 10 times; a proliferation of smart devices will contribute to the explosive data growth, it said.

5G is projected to account for almost 40% of India’s mobile subscriptions – 500 million – by the end of 2027 with average data usage of 50 GB per month

Supply chain disruptions and a shortage of skilled manpower are likely to push up construction costs. The global geopolitical crisis has adversely impacted the availability and prices of key energy inputs required for production and logistics, leading to inflation across the value chain.

Supply chain disruption has also led to a shortage of hardware required for the functioning of data centres, the report said.

Even so, increasing digitisation will drive data consumption exponentially. According to the report, digital payments volume jumped by 64% to 72 billion transactions in FY 2021-22 from 44 billion in FY 2020-21.

Over-the-top (OTT) video streaming market saw a sharp rise in its paid subscriber base to an estimated 70-80 million in 2021 from 14 million in 2018—5X growth in three years. 5G-driven growth is expected in online gaming, augmented reality and digital commerce.

Current account deficit widens to a 9-year high at 4.4% of GDP​

India's current account deficit (CAD) surged to an all-time high of $36.4 billion in July-September, data released on December 29 by the Reserve Bank of India (RBI) showed.

The latest CAD figure is double the $18.2 billion posted in April-June and nearly four times of what it was in the second quarter of FY22.

The previous record for the highest CAD was $31.77 billion, posted in the third quarter of 2012-13.

For 2021-22 as a whole, the CAD was $38.77 billion.

"Underlying the current account deficit in Q2:2022-23 was the widening of the merchandise trade deficit to $83.5 billion from $63.0 billion in Q1:2022-23 and an increase in net outgo under investment income," the RBI said in a statement.

"While it was expected that India's current account deficit would widen to an all time high in July-September, the size of the deficit exceeded even the upper end of our forecast range of $31-34 billion," noted Aditi Nayar, chief economist at ICRA.
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