The Budget Proposals, The Economy and the Cement Industry

The policy-makers’ dream of an economy is a wonderful and improbable combination of low inflation, high growth and jobs for all, with people coming out in droves from below the poverty line, and the icing on the cake in such an utopian scenario would be a low fiscal deficit of 3.4 per cent. What more can a finance minister dream of? In other words, if a budget is presented which aims to achieve all this and more, there are bound to be inconsistencies, and there are going to be questions. A veteran leader of the two wheeler industry who is known for plain speaking, was recently quoted as saying that governments can remain in a state of happiness, but "reality is reality"; he also went on to add rather caustically that in a situation where there is no demand and no private investments, will growth come from the heaven?

Talking about the economy, and the slowdown which engulfs us, the first step to finding a solution is to acknowledge that there exists a problem – and unfortunately the problem starts from there. Amazingly, a large number of stakeholders seem to be of the view that our economy can, and is actually chugging along just fine, even though all its constituents, all the sectors are limping. Perhaps the answer to the question as to why this budget saw no need to offer a stimulus package to prime the economy, can be found in this misplaced and smug confidence. In fact, ET recently ran a small piece on why the budget had no booster dose for the sluggish economy, enumerating the reasons why such an intervention was not deemed necessary, and the reasons were that (believe it or not) the country is the fastest growing nation in the world, and that global confidence in the Indian economy has been improving, and the long/medium term growth prospects of the economy are bright!

Not only that there were no booster injected to propel the economy (which were badly needed), but also the nations book of accounts were left with major inconsistencies which border on "creative accounting" in respect of fiscal deficit. Take this for a sample: FY19 actuals/revised estimates form the basis for FY20 Budget, and there is a huge gap of Rs 1.7 trillion in revenue shortfall last year which has not been taken note of in this budget. This itself is a shortfall of 0.9 per cent of GDP. There are other examples such as food corporations burgeoning receivables, etc., and one is left wondering if the true fiscal deficit as planned is 3.4 per cent or 4.3 per cent. There seems to be a thin line between fiscal discipline and fiscal profligacy. It is a greatly under-reported fact that the venerable CAG has stated that the officially reported fiscal deficit of 3.5 per cent is a gross understatement of the actuals, (the CAG says it should read as an unbelievably high 5.85 per cent) and one can safely extrapolate that for FY 19, the reported fiscal deficit would be an even grosser understatement. All this can only mean one of two things for the current year, and that is either a huge jump in revenue receipts or a huge potential cut in expenditure (read infrastructure). And given the state of the economy and slowing trend of revenue collections, I can leave the unsuspecting readers to their imaginations to determine which it will be.

With this situation unravelling in the background, remember that one-third of India’s cement making capacity is unutilised, underlining the already visible trend of slowing activity in the housing sector and infrastructure development. If housing doesn’t pick up, and on top of that government’s infra spending gets hit due to inadequate budgeting, there is not much hope for the cement industry in the short run.