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Dissecting the Indian stimulus package

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Covid-19 has taken the economy off the cliff; recent enquiry by most of the banks and economists have put a tag of 3 to 5 per cent drop in the GDP for the full year, these numbers for the moment are not improving after the stimulus but actually deteriorating. Did something go wrong in the stimulus?

Well first of all any stimulus package has two components, the monetary component, which acts on the supply side and a fiscal component, which acts on the demand side as when additional spend items from the side of the government happens due to additional cash deployed from the government, the economic activities see a fresh lease of life. But this would mean additional cash spending that can only come from additional loans taken by the government over and above the existing ones at play.

Take the US stimulus, the first tranche of $2 trillion, which is 10 per cent of GDP and it is a great way to see how the stimulus works. Half of this is actually monetary in nature, these are loans, $500 billion for large businesses and $367 billion for small businesses and $150 billion to State and local governments. This makes 5 per cent of GDP. It will strengthen the supply side. The balance 5 per cent of GDP is actually cash transfers directly to the people ($1,200 for each adult and $500 for each child).

The whole stimulus package is worth one paragraph. The fiscal action of actually spending by the government is done though cash directly to the populace who can spend. But the Indian stimulus consisting of several tranches makes it difficult to dissect what is fiscal and what is monetary and what is reallocation of existing resources.

Let us take the overall numbers of the Indian stimulus package. The overall pledge of Rs 20 lakh crore looks just the kind of stimulus that India actually needs. But the stimulus is directed to monetary release, which by the way has been tried by RBI for the past several months to stimulate supply but the transmission channels showed no traction. The total pledge by the government is a staggering Rs 11.43 lakh crore and adding Rs 40,000 crore of MGNREGS it takes the tally to Rs 11.83 lakh crore of pledges, while the balance of the Rs 20 lakh crore is reallocation of resources.

But surprisingly, the real cash outgo is just Rs 1.37 lakh crore, this is not even 1 per cent of GDP.

The real cash outflow is what really matters now. Think of the US stimulus and the immediate cash outflow was 5 per cent of the GDP as direct payments to the people; the business loans and those to the State governments also released a significant chunk of the funds immediately (at least the ones to the airlines and hospitality sector was immediate). If I tried to dissect the myriad of initiatives that got added in the tranches like the Coal evacuation initiatives, that would add another Rs 50,000 crore as a fiscal stimulus taking the tally to Rs 2.5 lakh crore.

So the 10 per cent stimulus effectively comes to less than 1 per cent of actual cash release. This is the amount that the government is going to draw additional to what it is already committed to draw this year. This is all that will change in terms of the government’s fiscal position.

Isn’t it too little and how much of that is going to the most distressed people, the migrants, who have returned to their homeland? Well, giving food to them is the right thing to do, but is it a stimulus, that is a million dollar question; most of the purported items in the stimulus appear to be reallocation of resources.

ABOUT THE AUTHOR: Procyon Mukherjee works as Chief Procurement Officer at LafargeHolcim India. The ideas presented are his personal and have no connection to the beliefs of the company where he works.

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Concrete

CCU testbeds in Tamil Nadu

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Tamil Nadu is set to host one of India’s five national carbon capture and utilisation (CCU) testbeds, aimed at reducing CO2 emissions in the cement industry as part of the country’s 2070 net-zero goal, as per a news report. The facility will be based at UltraTech Cement’s Reddipalayam plant in Ariyalur, supported by IIT Madras and BITS Pilani. Backed by the Department of Science and Technology (DST), the project will pilot an oxygen-enriched kiln capable of capturing up to two tonnes of CO2 per day for conversion into concrete products. Additional testbeds are planned in Rajasthan, Odisha, and Andhra Pradesh, involving companies like JK Cement and Dalmia Cement. Union Minister Jitendra Singh confirmed that funding approvals are underway, with full implementation expected in 2025.

Image source:https://www.heavyequipmentguide.ca/

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Concrete

JSW Cement gears up for IPO

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JSW Cement has set the price range for its upcoming initial public offering(IPO) at US$1.58 to US$1.67 per share, aiming to raise approximately US$409 million. As reported in the news, around US$91 million from the proceeds will be directed towards partially financing a new integrated cement plant in Nagaur, Rajasthan. Additionally, the company plans to utilise US$59.2 million to repay or prepay existing debts. The remaining capital will be allocated for general corporate purposes.

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Concrete

Cement industry to gain from new infrastructure spending

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As per a news report, Karan Adani, ACC Chair, has said that he expects the cement industry to benefit from the an anticipated US$2.2tn in new public infrastructure spending between 2025 and 2030. In a statement he said that ACC has crossed the 100Mt/yr cement capacity milestone in April 2025, propelling the company to get closer to its ambitious 140Mt/yr target by the 2028 financial year. The company’s capacity corresponds to 15 per cent of an all-India installed capacity of 686Mt/yr.

Image source:https://cementplantsupplier.com/cement-manufacturing/emerging-trends-in-cement-manufacturing-technology/

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