Loading …… “MH@$1TE”

20 August 2022

Loading …… “MH@$1TE”

- Dhananjay Deshmukh, Mumbai

India is world’s 6^th largest economy (very closely behind the UK- by some USD15 bn). India's economy grew 8.7 % in 2021-22 against a 6.6 % contraction in the previous year. In its third monetary policy of 2022-23, the Reserve Bank retained its GDP growth forecast at 7.2 % for the current fiscal, but cautioned against negative spillovers of geopolitical tensions and a slowdown in the global economy. Recently the Chief Economic Adviser (CEA) of India, Sh V A Nageswaran had said that India would become a $5 trillion economy by 2026-27, and USD 10 trillion by 2033-34.  As of now, India is a USD 3.3 trillion economy, then at 10% growth every year, Indian economy can reach the coveted mark of USD 5 trillion in 2027 (1 Trillion =1000 Billion =1 Lakh Cr,  USD 1TR=INR 79 Lakh Cr, apprx. At 1 USD=79 INR). 

In order to make it happen, the growth engines of India shall have to deliver. The growth engines of the economy are the states of Maharashtra (USD 455 Bn) , Uttar Pradesh (USD 294 Bn) , Tamil Nadu (USD 280 Bn), Karnataka (USD 275 Bn) and Gujarat (USD 260 Bn ) .

Five states — Maharashtra, Tamil Nadu, Karnataka, Uttar Pradesh and Gujarat — constituted approximately 40% of the country’s nominal GDP in FY22.

What is Gross State Domestic Product (GSDP)?

GSDP is the sum total of value added by different economic sectors (Agriculture, Industry & Services) produced within the boundaries of the state calculated without duplication during a year. It is one of the measures of economic growth for a state's economy.

Maharashtra’s Economy

Maharashtra is the richest state in India. It is the third highest urban population state in the country where 45 percent of the population lives in cities. The state capital Mumbai is also known as the economic capital of the country. The Gross State Domestic Product (GSDP) of Maharashtra for 2022-23 (at current prices) is projected to be Rs 35.81 lakh crore. This is a growth of 12% over the revised estimate of GSDP for 2021-22 (Rs 31.97 lakh crore). In 2021-22, GSDP is estimated to grow by 18% over the previous year (at current prices).

At the prevailing rate of 1 USD= 79 INR, the GSDP of Maharashtra can be pegged at USD 455 bn in 2022-23 vs USD 405 bn in 2012-22, a simple annual growth of 12.3%.

Some other important stats of Maharashtra’s economy–

• Expenditure (excluding debt repayment) in 2022-23 is estimated to be Rs 4,95,405 crore, a 9% increase over the revised estimates of 2021-22 (Rs 4,53,547 crore). In addition, debt of Rs 53,003 crore will be repaid by the state in 2022-23. In 2021-22, expenditure (excluding debt repayment) is estimated to be 4% higher than the budget estimate.
• Receipts (excluding borrowings) for 2022-23 are estimated to be Rs 4,05,806 crore, an increase of 11% over the revised estimates of 2021-22 (Rs 3,64,465 crore). In 2021-22, receipts (excluding borrowings) are estimated to fall short of the budget estimate by Rs 6,854 crore (a decrease of 2%).
• Fiscal deficit for 2022-23 is targeted at Rs 89,598 crore (2.50% of GSDP). In 2021-22, as per the revised estimates, fiscal deficit is expected to be 2.79% of GSDP, higher than the budget estimate of 2.24% of GSDP.
• Revenue deficit in 2022-23 is estimated to be Rs 24,353 crore, which is 0.68% of the GSDP. In 2021-22, Maharashtra is estimated to observe a revenue deficit of 0.96% of GSDP, higher than the budget estimate of 0.34% of GSDP.

In March 2022, the then state government (MVA) had announced a five-point Special program for accelerating economic growth, called “Panchsutri of Development”. Under this program, about Rs. 4 lakh crores would be spent over next three years in five sectors – (i) agriculture, (ii) health, (iii) human resource, (iv) transport, and (v) industry. This may get amended by the existing government.

Key Sectors

The key strengths of Maharashtra from the economic perspective are - Manufacturing, international trade, Mass Media, aerospace, technology, petroleum, fashion, apparel, and tourism. But overall, Maharashtra still remains an services-oriented economy, as some 60% is estimated to coming from there, the manufacturing sector is estimated to contribute 24% while the balance 16% being contributed by the agriculture sector.

“MH@1TE”

So, in order to achieve the tag of 1TE i.e., USD 1 Trillion Economy – which someday it will eventually; point is how fast and how better the state manages to reach. While it is a no rat race- but as the state like Uttar Pradesh is leaving no stones unturned, it becomes imperative for an industrious state like Maharashtra to pull up the socks.

It was then…

In 2018, the then chief minister of Maharashtra Sh Devendra Fadnavis had stated that his government was working towards to make the state the first trillion-dollar economy by 2025, five years early, by investing in infrastructure, agriculture and services and by leveraging foreign investments in various sectors. At that time Maharashtra's economy was at USD 400 billion and at the growth rate prevailing at that time, it was destined to become trillion-dollar economy by 2030, however Sh Fadnavis had asserted that he would like to achieve that milestone 5 years early.

The Road Ahead

By the simple linear projections, the state would have achieved the coveted mark of 1TE by 2030. The Corona pandemic and subsequent lockdown inflicted a heavy toll on the state’s economy. The pandemic-induced restrictions caused a -7.6% contraction in the economic growth in 2020-21 (compared to 5.0% of the previous fiscal). However, Maharashtra economy shrugged off the Covid blues as the state's economy bounced back grew by a steep 12.1% in 2021-22.

Thus, the state economy is recovering albeit in a structured manner. In order to achieve the target of 1TE, it would need to gather pace and steam. In short, it will have to bolster the topline (without too much damage to the bottom line). This is usually achieved via organic and inorganic growth (“front loading”).

Organic Growth Engines

Organic growth being the steady and linear growth with sustained efforts. While agriculture will remain the backbone, the state machinery will have to be efficient in terms of water management, loan advances and recoveries. This will enhance the health of the balance sheet – if not the topline (and ultimately, a healthy balance sheet attracts more equity in the financial markets).

Typically, services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. Thus, the growth of the services sector will be completely market linked - global and local and as usual IT, BFSI will be the nucleus.

The growth engines within this segment could be bringing newer segments of IT to the state – such as artificial intelligence (AI) and support for AI (rudimentary to complex). For example, AI in governance via blockchain could not only enhance efficiency of the workforce, but also add a lot of white-collar jobs created due to demand for imaging and storage. Another segment could image annotation. Image annotation is one of the most important stages in the development of computer vision & image recognition applications, which involves recognizing, obtaining, describing, and interpreting results from digital images or videos. Computer vision is widely used in AI applications such as autonomous vehicles, medical imaging, or security. Therefore, image annotation plays a crucial role in AI/ML development in many sectors. Majority of users of IA are located out of India; thus, it offers good export potential (it is already present in some southern states of India).

Such jobs could be located in smaller districts of the state – like Amravati or Ahmednagar which are known for educational infrastructure, and will be part of the “Samruddhi Mahamarg” – a super communication express way.

New age Fintech could also prove to be a “bigcog” in the growth wheel. Cross Border payments (foreign remittances) systems could be the one. To begin with, as per a UN report, some 18 mln Indians live outside the country. Making it one of the highest population of expats!

Dekho Maharashtra…

After the covid pandemic, one sectors which saw the mad rush was tourism. Maharashtra has many touristic attractions - the state has over 300+ fort sites, 17000 kms of western ghats that has thriving wild life and sanctuaries, and 700+ km of coastline! In addition, Maharashtra is home to 32+ GI tagged products (some of them are Bhivapuri Chilli, Nagpuri Orange, Bananas and Bharit Brinjal of Jalgaon, Ratnagiri Kokum, Kolhapuri Chappal, Solapuri Chadar, Paithani of Yeola and of course the Puneri Pagadi)! Rope them in the tourism necklace of Maharashtra!!

An optimal tourism package (for indulgence or need based) of nature, wildlife, spiritual, art, eco+agri, scitech, sports can be prepared to attract retail and institutional tourists (MICE). A coastal expressway (along the coastline) in future will be an added bonus.

Be the Unicorn hub!

Once a company crosses the USD 1 billion mark, it becomes part of a rare and exclusive club: The Unicorn Club. India is now home to 100+ unicorns, mostly in fintech or services. In all there are 50 unicorns are said to be headquartered in Maharashtra (almost 50%). Till February 2022, out of the 44 companies that achieved the unicorn status in 2022, 11 are based in Maharashtra. Can we see some decacorns in Maharashtra (valued above USD 10 bn) by 2025? Possibly!!

This trend can be enhanced by providing better policy support and working experience.

Manufacturing – the “king”..

Maharashtra is a leading industrial state in India, its key industries including electronics, information technology, automotive, engineering, food processing, plastics, textiles, pharmaceuticals, petrochemicals and heavy chemicals. All these industries are well‑positioned to attract FDI. Maharashtra’s economy has a great potential for further growth given the continuing synergy expected between its major industrial cities and Mumbai, the state capital which has long been India’s centre for financial and commercial activities. Pune, Thane, Nashik, Nagpur and Solapur are Maharashtra’s major business and industrial centre.

Semiconductors will show the "path"

There is no count of electrical and electronic devices (or machines or equipment’s having them) one uses in daily life. From an individual to a business to industry – these devices galore and hence the need for control and automation, which needs circuitry and hence integrated circuits, which eventually needs semiconductors (Read my post of July 2020, "Trend Spotting-Chip and Best"). While the demand for semiconductors is rising exponentially, the supply had been limited to very few from Taiwan or China, which has ramifications on costs as well as growth strategies.

Rising to the occasion the government of Maharashtra recently pitched aggressively to Vedanta &Taiwan’s Foxconn to take forward ‘$22bn semiconductor unit in Maharashtra. If everything goes well, then the Unit is expected to generate around 2 lakh jobs & is likely to come up in Talegaon, Pune due to its industrial infrastructure and supply of skilled manpower (Read my post of June 2020 “MakeMaharashtra Great Again, economically”).

Like the signaling devices, this setup will give positive signal to the global investors and will contribute heavily to the state’s GSDP within 5 years of its setup. Plus, it has a good multiplier effect – in terms of ancillary/auxiliary units (like in automotive), upstream and downstream products – including key elements of satellites and communications systems, so that Maharashtra can participate in India’s rising prowess in the international space market.

Retain+ Attract CAPEX - Have Capital Goods Companies...

Maharashtra under previous chief minister Sh Devendra Fadnavis had planned many mega infrastructure projects – like, Samruddhi Mahamarg, Coastal Road, and then around 300+ km network of metro rails. All these projects need steel, cement and machineries. While states do have steel and cement units, the key for metro such as rolling stock (coaches) aren’t made in Maharashtra. Should they be made in Maharashtra, it will not only reduce time to market, but also the costs paid to these makers will add to the state’s kitty (as of now it goes out of the state).

Inorganic Growth creators

Inorganic growth or “front loading” would come via aggressive financial management which would include stimuli from the centre (a state is eligible to borrow 3 to 5% of its GSDP (5% was amended in April 2021 in view of Covid situation)). In addition, the state can continue to attract trusted foreign funding agencies for high capex infrastructure projects.

Make good of Central Push - Create newer Success stories

Central government’s “One district One product” programme offers to help districts reach their full potential, foster economic and socio-cultural growth, and create employment opportunities, especially, in rural areas. It aims to do this by identifying, promoting and branding a product from one district. The initiative plans to accomplish this by scaling manufacturing, supporting local businesses, finding potential foreign customers and so on, thus helping to achieve the ‘Atmanirbahar Bharat’ vision.

Soft toys, food products (including gluten free), handcrafted products, textiles are some of the categories in which ODOP has been successful. There are several districts having Adivasi population who enable handcrafted products, honey and millet production. In addition, the Aspirational Districts programme aims to quickly and effectively transform 100+ most under-developed districts across the country.

Time to recharge the “Magnet”...

Alongside the national “Make In India” Initiative (MIII) launched by PM Modi’s central government in September 2014, the Maharashtra state government introduced its “Magnetic Maharashtra” campaign to promote business development and attract FDI. it was refurbished in 2020, however, it will need serious impetus and a “no-nonsensical result oriented” approach.

Enhanced Capacity Utilisation..

As per FICCI, India’s average capacity utilisation in the manufacturing sector is 77%. This can be bettered in Maharashtra by better energy availability (including solar).

Pillars of the growth..

Maharashtra is the second‑most‑populous state in India with a population approaching 125 million (comparable to Japan and more than Guangdong, China’s most‑populous province), accounting for more than 9% of India’s total population. Maharashtra’s population is higher than each of the 10 ASEAN countries except Indonesia, the world’s fourth‑most‑populated country.

• According to the Census 2011, the latest nationwide population survey that India has conducted, 60% of Maharashtra’s population was of working age (aged 15 49), providing an abundant supply of labour for manufacturing.
• With 45% of the population living in urban areas, Maharashtra can ensure a good supply of young workers to fill its industrial parks.
• Being one of the richest states in India, Maharashtra also attracts millions of migrants from other Indian states who are an important source of manufacturing labour.
• Maharashtra’s literary rate of 82.3% is higher than the national average (73%), and the state has a good supply of well‑educated labour for technician and engineering positions.
• A favourable industrial policy and the availability of a large talent pool have made Maharashtra the country’s manufacturing hub. Moreover, the State has a large consumer base and ranks high in the purchasing power index.
• The state has a well-developed social, physical, and industrial infrastructure. Apart from 16 airports, the state has two major and 48 minor ports. It also has a well-developed power supply grid. Maharashtra's infrastructure sector has grown significantly over the last decade, with a substantial rise in the number of industrial clusters and public private partnership (PPP) projects.
• There were 10,785 start-ups in the state at the end of October 2021.
• Maharashtra is ranked second on the Niti Aayog’s Innovation Index 2020.

Rise with new “Sunrisers…”

The Drone economy is here for real. It can not only add to efficiency, but can also enhance effectiveness and offer cost savings by better productivity in Agri and allied sectors. Money saved is money earned, and it reflects positively on the balance sheet!! Newage tech companies in gaming, education, fintech and healthcare can engage the populous in a better manner, and also offer financial muscles and raises a state’s equity globally.

“Digital Retail” will be a game changer. A recent Nasscom report suggests that the Indian retail market will grow by about $700 billion to $1.5 trillion by 2030, and a hybrid of offline- and online-enabled sales model can account for over 90% of this addition to the market. This is reflected in the rapid adoption of digital technologies by local kirana stores, big retail chains and other entrepreneurs.

In view of this government of India developed Open Network for Digital Commerce (ONDC), a network based on open protocol to enable local commerce across segments, such as mobility, grocery, food order and delivery, hotel booking and travel, among others, to be discovered and engaged by any network-enabled application. The platform aims to create new opportunities, curb digital monopolies and by supporting micro, small and medium enterprises and small traders and help them get on online platforms.

Ride High on Green Resources

India has massive renewable energy potential that has yet to be fully exploited. It is also a large developing economy with huge energy demand growth.

Solar energy sector offers massive opportunities. A total of $14.5 billion was invested in India's' renewable energy, up by 125% compared with financial year 2020-21 and 72% higher than in the pre-pandemic period of the 2019-20 financial year. Similar opportunities exists in other green fuel segments - production of green hydrogen, ethanol based fuel, storages (batters) for EVs and EVs.

Base for growth - Domestic Consumption + Strong FDI..

Like Indian economy, Maharashtra too is consumption led economy with inherent strengths.  According to the Department for Promotion of Industry and Internal Trade (DPIIT), between October 2019-December 2021, FDI inflow in Maharashtra stood at US$ 33,419 million, accounting for ~26% of the total FDI inflow in India. During Magnetic Maharashtra 2.0 in June 2020, the state attracted investment proposals of Rs. 1.13 lakh crore (US$ 15.23 billion) with expected employment >2.50 lakh.

Total exports from the state stood at US$ 65.96 billion in FY22 (until February 2022). Maharashtra exported key items such as pearls, precious and semi-precious stones, gold and other precious metal jewellery, iron & steel and Drug Formulation.

Ecosystem is Crucial

Offering supportive ecosystem is essential for the success of any sector. Maharashtra has got the elements of ecosystems- manpower, talent, land, resources, experience, brand equity and political stability. However, as for the new age businesses, some amends would be needed as the states of Karnataka, Gujarat, and Meghalaya have emerged as best performers among Indian states in the DPIIT’s (Department of Promotion of Industry and Internal Trade) start-up rankings of 2021.

Key to Success

In order to achieve the coveted 1TE tag by 2028-30, the state of Maharashtra will have to adopt multi-pronged strategy - restore its image of a “business-minded state”, promote as a “pro-investor” approach, attract maximum FDIs by aggressive policy and pitching overseas – via dedicated Maharashtra Days in the potential investors- from the GCC, Europe, NA and the ASEAN region.

In addition, on the execution side - one would need to make “better and optimal” use of its borrowing capacity (after all it reflects the intrinsic strength).

Conclusions..

With the return of a “pro-business” government, under the joint leadership of Sh Eknath Shinde and Sh Devendra Fadnavis, the state of Maharashtra can afford to look to reclaim its lost glory – in the economic world!

Several state governments (Uttar Pradesh, Tamil Nadu, Gujarat) are already reaching out to external consultants to advise the state on how to acquire the coveted “1TE” tag as soon as possible.  While the state machinery will be ably advised through professionals, it is imperative that those blueprints are validated before accepted, planned and executed with a strong control.

In order to achieve the magical “1TE’ mark by 2028-30, manufacturing/industries will have to contribute the most, and with highest pace and continuously - may be in double digit, towards 20%. For that detailed frameworks for each element of the sector will be needed.

The size of the state’s economy in 2022 was around USD 455 billion. If the target of USD 1 trillion is to be achieved in eight years, Maharashtra will have to move ahead with a growth rate of around 10%. At present, the percentage of agriculture sector in the state’s GSDP is 16%, manufacturing is 24% and the service sector is 60%.

In 2021-22, the 12.1% growth in the GSDP was attributed to largely services sector which grew by 13.5%, followed by industries 11.9% and agriculture 4.4 %. While the growth had more to do with the “V Shaped” recovery we had on the back of Covid pandemic, it will need to sustain in the coming years in order to reach to the magical USD 1TE mark by 2030.

The agriculture sector will have to increase the output by about two times, which could be challenging. On the other hand, the service sector will also have to increase its output by two times, although possible but it could be tricky on a higher base. Thus, the industries/manufacturing sector would have to grow at 12-15% consistently, so that it could breach the 250 bn mark handsomely by 2030.

In the next few months, the Shinde Fadnavis government will focus more to restore the sanctity of the brand Maharashtra (business friendly and liberal, strong, stable, growth) by resuming major infra projects like bullet trains, metro rails. It may also bring in the SA led multibillion petrochemical complex. The state leadership may also want to enhance the "blue economy" (economic benefits coming through coastal area and the sea).

On one side they will have to ensure the political stability, on the other hand they will need to build blocks for attracting real big-ticket investments in the state – like semiconductor, hyperloop and real mega equipment makers like Alstom, Titagarh Wagons and ICF who make metro rolling stocks (coaches). Mind you, the “MetroKranti” in India is here to stay for a while, so make the most of it. These makers will need 3-5 years to set the shop rolling, so it’s good to begin now! If done, most of the capex (and its multiplier effect) will stay in the state itself- which will be a bonus.

Sh. Fadnavis has always been high on expenditure led mega infrastructure projects - like the Marathwada water grid, river connectivity and many others can offer a good “multiplier effect” (The multiplier effect occurs when an initial injection into the circular flow causes a bigger final increase in real national income. This injection of demand might come for example from an investment or government spending).

The state of Maharashtra appears better poised to reap the benefits of a real “Double-Engine” governance. So people, let’s fasten our seatbelts, and witness the rise of a 1TE!

Jay Bharat.

Jay Maharashtra.

- Dhananjay M. Deshmukh, Mumbai

(Author is an independent market research and business consulting professional. Views are personal. Data presented is collected via online secondary research).