Resilience in the face of inflation and global headwinds
(Illustrations: Saurabh Singh)
Indian skies seem to have hit a purple patch this year with new carriers coming into the fray, and even a defunct one taking off. The country’s daily air passenger traffic, too, has breached the pre-Covid 4-lakh mark and shows signs of stabilising despite inflationary pressure and high air turbine fuel costs, which stood 47 per cent higher in November compared to the year before. While Jet Airways is being relaunched as Jet 2.0 following the corporate insolvency resolution process, the launch of Akasa Air will further boost the low-cost carrier model with affordable airfares. But the biggest air show has been put up by the Tata Group when they reacquired Air India from the government for ₹18,000 crore in January. With the acquisition, the Air India group has a significant presence in the sky—Air India, Vistara, Air Asia India and Air India Express—and is looking forward to a merger of all airlines by March 2024. Tata Sons, the group holding company, has already declared the merger of Air India and Vistara in November. As of October, Air India had a 9.2 per cent market share of the domestic skies with Vistara gobbling up another 9.6 per cent, according to Directorate General of Civil Aviation data—still very distant from a whopping 57.7 per cent of market leader IndiGo. But the Air India consolidation could well put up a fight down the line. Air India is also close to placing a historic order of 500 aircraft from both Airbus and Boeing. The runways, too, are gearing up. Today, the Airports Authority of India runs 137 operational airports countrywide, of which 24 are international, 103 domestic and 10 custom airports. The government plans to develop 100 more airports by 2024 (under the UDAN scheme) and expects to invest $1.83 billion in airport infrastructure by 2026. Going by the burgeoning air traffic and the sheer number of carriers raring to cater to all wallet sizes, the year 2022 has been nothing short of what a turbo-charged retro rock band Deep Purple once dubbed ‘fire in the sky’.
As binding material, cement combines with sand, water and gravel to make concrete, the soul of roads, buildings, dams, bridges, flyovers, residential and commercial blocks. With a growing population and rising income levels, cement consumption has been northbound, too, and the market is expected to grow at a CAGR of 4.8 per cent between 2022 and 2027. And considering India is the second largest cement producer with 7 per cent of the global installed capacity, the 4.8 per cent projected annual growth rate can well be considered a robust trajectory. The twin planks of rural housing and government infrastructure projects are pushing up demand in the sector as ICRA envisages a volume spike of 12 per cent year-on-year in FY22. The industry is also likely to add 80 million tonnes capacity by FY24, the highest in the last 10 years. Considering the massive allocation for infrastructure under Union Budget 2022-23, with affordable housing schemes and road projects on an upswing, the cement industry’s future looks solid. Additionally, the sector has been buoyed by two major events this year. UltraTech Cement, the largest cement manufacturer promoted by the Aditya Birla Group, declared in June that it will invest ₹12,886 crore in capacity addition, topping up 22.6 million tonnes per annum by FY25. It’s an ambitious plan and the company is clearly betting big on India’s infra roadmap. Two, in September, the Adani Group acquired Ambuja Cements and ACC for $6.5 billion from the Swiss multinational Holcim. That makes the 60-year-old Gautam Shantilal Adani the second-largest cement manufacturer with a capacity of 67.5 million metric tonnes per year. With Adani Group’s business interests in power, ports and logistics, cement is a natural fit that will add teeth to the conglomerate’s expansion plans. Alongside the domestic growth story, there is binding interest among foreign players who are expected to enter the cement sector owing to high profit margins and steady demand. The FDI inflows in the industry related to the manufacturing of cement and gypsum products touched $5.8 billion between April 2000 and March 2022.
BANKING & FINANCE
So far, Indian banks have weathered the global recession reasonably well. The banking sector is sufficiently capitalised and well-regulated. With lower credit costs and improving asset quality, banks are witnessing more robust balance sheets and higher demand reflecting in loan growth. Indian banks have been able to improve their asset quality by reducing the gross non-performing assets (GNPA) ratio from 7.4 per cent in March 2021 to a six-year low of 5.9 per cent in March 2022. Besides, higher interest rates are boosting net interest earnings and the returns on average assets are back to pre-Covid levels. On the back of a 6.5-7 per cent GDP growth rate, inflationary headwinds are much lower in India compared to many parts of the world. And a domestic orientation gives the country a leg up too. The banking sector is marked by several innovations in recent times, be it in payments or small finance banks. Government schemes, such as the Pradhan Mantri Jan Dhan Yojana and India Post Payments Bank, are coupled with innovations like digital banking and fintech. Together with the rise of non-banking financial companies (NBFCs), such measures are fuelling the credit cycle and furthering financial inclusion. Take the Unified Payments Interface (UPI), a smartphone application that enables users to transfer money between bank accounts. In November, UPI recorded 7.30 billion transactions worth $148.63 billion. But perhaps the biggest news of the year came from the country’s largest private sector player, HDFC Bank, in April when it announced that the housing finance major HDFC will be merged with it. With the merger, HDFC Bank is now looking at a larger chunk of the banking pie and is well-positioned to capture the loan growth in the banking system through a suite of offerings that cater to wholesale, SMEs and retail consumers. Rising incomes are also driving the demand for financial services—commercial banks, insurance companies, NBFCs, pension funds, mutual funds, cooperatives, payment banks. Commercial banks, however, make up 64 per cent of the total assets in the financial system.
India will need to invest $840 billion over the next 15 years in urban infrastructure to fulfil the needs of its burgeoning population, says a recent World Bank report. That works out to approximately $55 billion each year. Of course, there are not enough private players to shoulder such a huge responsibility. Only 5 per cent of the needs of Indian cities are currently being financed through private sources. In 2018, the government’s annual urban infrastructure investments stood at $16 billion. Private players clearly need to bridge the gap by more than doubling up on the government’s investments. But in every sphere, be it roads, dams, bridges, power, logistics or urban infrastructure, the government has taken the lead ensuring the country realises its $5-trillion economy dream by 2025. After all, the overall infrastructure capex is estimated to grow at a CAGR of 11.4 per cent over FY21-26 driven by spending on water supply, transport and urban infrastructure. In the process, the government used perhaps the most telling catalyst by unveiling the National Logistics Policy (NLP) on September 17. The policy attempts to lower the cost of logistics from the current 13-14 per cent and bring it on a par with the developed world. Not only will the move improve the competitiveness of Indian products in the home and international markets, by increasing efficiencies, it will encourage value addition and enterprise. The NLP is bound to complement the PM Gati Shakti or the National Master Plan, launched last year, which aims at developing integrated infrastructure to reduce logistics cost. Again, in the private sphere, even if it is muted compared to government spending, we’re witness to interesting times. In November, the Adani Group won the bid to redevelop the world’s largest slum Dharavi in Mumbai. The ₹5,069 crore project will be a challenge to pull off since it is home to 68,000 families in barely legal tenements, and innumerable cottage and home industries. The Adani Group also announced upping investments to the tune of $70 billion to become the world’s top renewable energy producer by 2030. There have been other significant developments within the Adani conglomerate in 2022, signalling sizeable infrastructure push. In January, its Mundra Port handled the largest ever container vessel to call on India, and Adani Ports cargo volume raced to 300 million metric tonnes in May. And it culminated in November when Adani Ports and Special Economic Zone received the top ranking in Moody’s Global ESG rating. Again, GMR Airports is developing three airports in partnership with National Investment and Infrastructure Fund. Or, take the case of Tata Projects, the engineering, procurement and construction (EPC) arm of Tata Sons—it is currently working on the top three infrastructure projects countrywide—Noida’s Jewar airport, the Mumbai Trans Harbour link, and the new Parliament building. Overall, the government has outlined its infrastructure priorities in 2022 and beyond, which have formed the magnet to attract core companies.
Make in India, the government’s initiative to encourage companies to develop, manufacture and assemble products made in India and incentivise such dedicated investments, is bang on target. The manufacturing sector employs roughly 17.3 million people and contributes to 17 per cent of the country’s GDP. The government intends to propel that figure to 25 per cent by 2025. A part of it has to do with China’s declining competitiveness owing to low quality of its products, trade disputes and border closures. So, as the world wakes up to a China-plus-one strategy wherein multinational companies now avoid investing only in China and diversify their businesses across alternative locations, India is emerging as a major go-to zone. Amazon has been making its Fire TV devices in Chennai, for instance. Again, in late-September, Apple began assembling its iPhone 14 models in India, the world’s second largest smartphone market. Apple’s largest contract manufacturer, Foxconn, recently signed an MoU with the government of Gujarat to set up a $20 billion semiconductor and display unit in the state. US aviation giant Boeing, too, has made clear its intention in November to invest $200 million in its India R&D centre in Bengaluru, the largest of its kind outside the US. Together with the Make in India campaign, the production-linked incentive scheme (4-6 per cent incentives on incremental sales), which was presented in the Global Economic Prospects Report of the World Bank released in January, are some of the major planks on which new business ventures in the manufacturing space can benefit. It’s not hard to see why India’s manufacturing sector grew by 210 per cent in FY22.
It has been a busy year for the automotive sector, a bellwether in many ways for economic growth and technological prowess. While two-wheelers continue to dominate the market in volume terms thanks to a youthful population and rising disposable incomes, companies are now seriously eyeing the hinterland for growth opportunities. Commercial vehicles, too, have witnessed an upswing on the back of improved logistics and infrastructure. Alongside, with the thrust on lower emissions, electric vehicles (EVs) have come into play. Retail EV sales in India soared by 185 per cent year-on-year in October. India is also among the leading heavy vehicles producers worldwide, being the largest tractor manufacturer, the second largest bus producer and third largest heavy trucks maker globally. In the passenger vehicles segment, Covid was a dampener but as the pandemic ebbed, revenge buying seems to have crept in. The segment is expected to close FY23 at a historic high of 38 lakh vehicles. In 2018, India had logged 33.8 lakh passenger car sales before the Covid lull took over. What has helped fuel this upsurge partly is the improved supply of semiconductors that had almost vanished during the pandemic. For its part, the government considers the industry to give a fillip to its Make in India narrative and, in February, shortlisted 20 carmakers under the production-linked incentive (PLI) scheme to boost clean fuel vehicles. These auto majors, including Tata Motors, Suzuki Motor Gujarat, Mahindra and Mahindra, Hyundai and Kia India, have pledged a total investment of around $5.95 billion towards the PLI scheme. Apart from a consortium approach to investments, standalone carmakers, too, are on expansion mode. Take the case of the SAIC Motor Corp-owned MG Motors, which announced plans to raise $350-500 million in private equity in India to fund its future growth, including EV foray. Or, for that matter, when Tata Motors announced in April an investment of $3.08 billion in its passenger vehicles segment over the next five years. Again, India’s largest carmaker Maruti Suzuki has announced a phased investment of ₹20,000 crore over the next five years to spruce up its Kharkhoda plant in Haryana and Hansalpur plant for EVs in Gujarat. Given the all-round ebullience, the government expects the sector to attract $8-10 billion by 2023 in both local and foreign investments as India gears up to be a leader in mobility in the years to come.
INFORMATION TECHNOLOGY (IT)
From a 7.4 per cent share of India’s GDP in FY22, the IT and offshoring sector is poised to contribute 10 per cent by 2025. With one of the largest internet user bases and cheapest internet rates, almost 76 crore Indians have access to the internet today. India has also been among the quickest to go digital. In the process, tech companies have resorted to mass retrenchment, which is also an after-effect of Covid and looming recession worldwide. But the negative news has been tempered by solid numbers that are now available. In the first half of 2022, Wipro, Infosys, TCS and HCL have actually added 105,000 new recruits. With the Digital India programme promising greater economic value and permeating every walk of life, IT services companies in the country continue to be profitable. A testament to the country’s digital prowess is its 40th rank in the Global Innovation Index 2022, which stood at 46 the year before. The National Association of Software and Services Companies (NASSCOM) estimates that the revenues of the Indian IT services sector touched $227 billion in FY22, a 15 per cent year-on-year growth. And in terms of IT spending, Gartner estimates that from $81.89 billion in 2021, by the year-end, it will touch $101.8 billion. Significant events have fuelled the growth of the industry over the last year. In January, Google announced plans to invest $1 billion in Bharti Airtel to give a fillip to India’s digital infrastructure. In August, PwC India announced that it would hire 10,000 people across cloud and digital platforms over the next five years. In the same month, Network People Services Technologies announced that it was working on a banking super app that would bring in all BFSI players on to one platform to enable seamless transactions. Alongside, in 2022, the Indian startup ecosystem saw the highest number of mergers and acquisitions with 229 deals, 9 per cent higher than in 2021 that closed with 210 deals. The Times Internet-promoted short video platform MX Taka TakTak’s merger with ShareChat’s short video platform Moj worth $600 million was the biggest deal in the startup world in this neck of the woods. And Zomato’s acquisition of Tiger Global’s quick-commerce startup Blinkit for $568 million was the second biggest acquisition. Today, India sits as the foremost global offshoring destination for IT companies with a proven track record offering both onshore and offshore services to global clients. And with the adoption of big data, Artificial Intelligence, Internet of Things among other technologies, the Indian technology sector is far more responsive to global demand, immensely reducing lead time and ensuring parallel processing at play.
With the second largest telecommunications market in the world at 1.17 billion subscribers as of August and a proactive regulatory framework, India has assured telecom services to consumers at affordable prices. With the deregulation of FDI norms in late-2021, telecom has become one of the fastest-growing sectors in the country. Between April 2000 and March 2022, the FDI inflow into the sector stood at $38.33 billion. India has a teledensity of 85.15 per cent, a phenomenal figure triggered by lower tariffs, expansive 3G and 4G coverage, the rollout of mobile number portability and a conducive regulatory environment. Mobile connectivity has got a further boost in July when the government approved the auction of IMT/5G spectrum for the deployment of 5G services within the country. According to GSMA, the association representing the interests of mobile operators worldwide, India is expected to have 1 billion smartphone devices and 920 million unique mobile subscribers by 2025, which will include 88 million 5G connections. It is also estimated that 5G will contribute $450 billion to the domestic economy between 2023 and 2040. At the 5G auctions in August, the government made a record ₹1.5 lakh crore with Reliance Jio emerging as the top bidder, spending ₹88,000 crore. At second place was Bharti Airtel with a ₹43,000 crore bid. The other two bidders, Vodafone Idea (Vi) and Adani Data Networks (ADN), bid for selective spectrum. ADN is slated to roll out a non-public network to service its own galloping businesses. The 5G play will also add teeth to the enterprise businesses of telcos as use cases in logistics, gaming, cloud computing, healthcare and automation go up manifold. Simultaneously, there is a push to develop indigenous 5G technology to reduce the dependence on imports. Even the state-owned BSNL will be rolling out 5G services across 1.35 lakh telecom towers the company has in the country, within the next 5-7 months. Union Telecom Minister Ashwini Vaishnaw recently even remarked that the government is encouraging indigenous innovation by increasing the telecom technology development fund from ₹500 crore to ₹4,000 crore per annum.
TOURISM & HOSPITALITY
After the pandemic, perhaps no other sector has remodelled itself as much as the tourism and hospitality industry. A lot has to do with demand, which now seems to be customised to the last detail. After three years of Covid-driven hibernation, global travel has picked up but the hospitality trade has been cautious. Offerings, such as contactless technologies, hygiene protocols and staycations, are here to stay and the industry is still adapting to each of these in unique ways. In a survey conducted by online travel agency Agoda this year, almost 68 per cent of Indians claimed they are likely to travel domestically. Even as searches for international flights have increased in India by 168 per cent, according to online travel portal KAYAK, post-Covid demand has been cautious. Think road trips, rural tourism, open-air excursions. In August, the Ministry of Tourism sanctioned 76 projects for $678.39 million under the Swadesh Darshan Scheme for development of tourism infrastructure countrywide. The domestic thrust has prompted the hospitality business to look at homestays and accommodation at offbeat locations. Along with such customised comforts is the focus on health and wellness. The industry offerings today must include on-premise yoga and meditation, apart from a range of wellness meals to suit the altered consumer psychography. Alongside, remote work has become the norm and many are combining business and leisure, giving birth to the all-new ‘bleisure’ segment. By the end of 2022, according to Gartner, 31 per cent of all workers globally will be fully remote or hybrid. Since hospitality destinations are being used by bleisure travellers as makeshift offices, the industry is slowly adapting to the new landscape by providing high-speed WiFi, private desks, ample electrical outlets, coffee dispensers—and anything that replicates an office-like environment. As the domestic trade keeps step with changing consumer orientation, a robust FDI inflow into the sector is a given. Between April 2000 and March 2022, total FDI inflow into tourism and hospitality has been to the tune of $16.38 billion. India stood as the third largest country in terms of total investment in hospitality and tourism in 2018, at $45.7 billion. This year, French hospitality major Accor has announced that it will add nine additional hotels to the mid-segment and economy categories in its India portfolio—bringing the total number of Accor hotels in the country to 54. Again, in May, online room booking unicorn OYO bought the Europe-based vacation rental company Direct Booker, for $5.5 million. India’s rising middle class and increasing disposable income are fuelling growth in both domestic and outbound tourism but with one caveat though—only those players will survive who have learnt to cater to the post-pandemic reality.