MFA: Strategic opportunities for foreign exporters
India’s economy is expected to contract by 7% in the fiscal year 2020-21 (April-March), the worst since tracking began in 1950-51. While the performance of the Indian economy was already losing momentum before the start of the covid-19 coronavirus pandemic, the economy’s exceptionally poor performance was largely due to the 68-day lockdown imposed by the Indian government on March 25, 2020 to contain the spread of the virus infection, followed by further restrictions on economic and tourist activities of varying intensity.
Along with the easing of restrictions, the growth of economic indicators was also clearly correlated, from an initial drop of almost 24% in the 1st quarter (April–June 2020), until finally in the 3rd quarter (October–December 2020) the trajectory of the gross domestic product reached (GDP) to positive figures with a value of +0.4%.
In May 2020, Indian Prime Minister Narendra Modi presented a package of measures to help the Indian economy, through which the government mobilizes funds in the amount of 10% of GDP. The huge volume of funds also includes central bank measures to support liquidity and state guarantees for bank loans. The Prime Minister further announced the “Mission of Self-sufficient India”, a program of import substitution by domestic production. The government has renewed its reform course, it is determined to privatize large state-owned companies, to open the economy more to private capital and foreign investors.
Thanks to government measures, small and medium-sized enterprises should be able to obtain the necessary bank loans better. The volume of budget funds doubled in 2021 compared to the previous year. The aim of the measure is also to help the development of healthcare, coal mining, civil aviation, but also, for example, the defense industry.
Post-COVID-19 opportunities
Civil aviation industry
The civil aviation industry has been one of the hardest hit sectors of the economy from the start, and has been hit hard by transport restrictions, INR volatility and oil prices. The government at least partially tried to mitigate the damage by resuming domestic air transport and a system of tariff concessions for the purchase of new aircraft. Tariff concessions are also valid for components, with the aim of supporting the domestic manufacturing industry in the field of civil aviation.
Other tools for carriers are tax credits and incentives for aircraft financing. India has announced the privatization of 6-10 airports by 2021, which not only wants to get funds for the state budget, to save on airport management and operation, but also to bring greater efficiency and competitiveness to the market. Up to USD 1.83 billion is expected to be gradually invested in the modernization and development of these airports.
However, the privatization also concerns the national airline Air India, which was cleared of other non-profitable assets as part of the process with the aim of making the affected sector even more attractive to suitable investors. The expansion of the network of regional airports provides opportunities not only for manufacturers of medium-sized propeller aircraft with a shorter landing path, but also for manufacturers of radars and telecommunications equipment.
In September 2020, the Government of India approved USD 14.73 million for the modernization and development of Jagdalpur, Ambikapur and Bilaspur airports in Chhattisgarh under the UDAN Regional Connectivity Development Programme. The government has also approved 78 new routes to improve connectivity to remote and regional areas of the country, including seaplane routes.
Mining, mining and oil industry
In order to increase the transparency and development of the mining sector, the Indian government has adopted a new National Mineral Policy to support the sector with several incentives, which can also mean an opportunity for Czech exporters and investors. Thus, for the first time in history, it opened the coal mining sector to private companies, at the same time increased the share of direct foreign investment to 100% and also supported the privatization process by auctioning 38 coal blocks, which it offered for commercial mining in the first phase. Coal and its mining have certainly not had the last word in India.
According to allcountrylist, the sector is important not only from the point of view of maintaining employment, but also from the point of view of the outlook for energy needs in the future. Although India is the 3rd largest producer of coal and has the 5th largest coal reserves in the world, the extraction of which is also facilitated by the surface extraction of this mineral, the subsurface mining method is increasingly used, where Czech companies with experience in monitoring people and wireless communication systems.
However, there are many more opportunities in the sector, for example in the supply of mining machines and mining equipment, mine transport systems, transport containers or mine signaling. In this robust sector, there is also a demand for excavators, loaders, trucks, tankers, stone crushers or mining excavators. Public tenders for coal gasification, carbonization and hydrogenation extraction technologies are also published at regular intervals.
India supports the gas industry through programs such as PAHAL, which makes it easier for end customers to access natural gas, which is distributed in pressure vessels in India, through direct subsidies. This program is now extended to 100 more districts. A giant infrastructure project in the form of construction of a gas pipeline to the Union Territory of Ladakh was announced along with the announcement of the 2020/21 budget. In accordance with the National Monetization Program and the opening of the market to private investors, the government announced the entry permit of an independent operator for gas transportation.
Privatization in the oil industry sector is also related to the monetization of the assets of the state-owned giant GAIL or the decision to suspend investments by the state-owned Bharat Petroleum (BPCL), as the first of the steps leading to privatization. A special program for the use of hydrogen from renewable energy sources called the Hydrogen Energy Mission was also proposed for the year 2021/22.
Defense industry
Despite the pressure on the national budget due to lower revenues, the defense budget for 2021/22 increased by 1.4% to reach around USD 65 billion, which represents around 1.77% of GDP. Despite only a modest increase in the overall defense sector budget, capital spending rose by a full 19%. These include investment activities, such as the purchase of new weapons, aircraft, warships and other military equipment, for which a total of 18.5 billion USD has been earmarked.
The main beneficiaries are the Army, Navy and Air Force staffs, which have been authorized $2 billion in emergency purchases since June 2020 to fill equipment and ammunition shortfalls. The largest expenditures are planned by the Indian Air Force, which in 2021 expects extensive modernization of aircraft, air systems, as well as the purchase of S-400 air defense systems.
The Navy, on the other hand, will spend the allocated funds on strengthening the war fleet, i.e. on ships and submarines. Even within the defense industry, the Indian government supports the connection with the Self-sufficient India program and plans to open this sector not only to private players, but also to foreign manufacturers of original equipment with the aim of supporting production in India and technology transfer.
Healthcare and pharmaceutical industry
The increase in government spending on health is an unprecedented 137%, with $30.7 billion released in the 2021/22 budget year, up from $12.95 billion in 2020/21. Despite the success in the form of its own development of two purely Indian vaccines (Covishield from Astra Zeneca and Covaxin from Bharat Biotech), India will pump billion USD into the development of another 2 vaccines in 2021. The state will subsidize the vaccination itself with billion. USD, so both doses are available to end users after paying a fee of approx. 80 CZK.
The Self-Sufficiency India Program announced by Prime Minister Narendra Modi with the aim of promoting domestic production is also reflected in the development of the health sector, through the National Health Strategy and also the India Self-Sufficiency Health Program, for which USD 8.7 billion has been earmarked over the next 6 years. In order to support virus research, India will establish 4 regional centers of excellence, as well as 15 chirocenters and 2 mobile hospitals.
Modeled on the British NHS, there are plans to establish a National Institute of Health and strengthen the role of the National Center for Disease Control (NCDC), its 5 regional branches and 20 metropolitan health surveillance units. Apart from equipping the hospitals that India will select for setting up intensive care units in 602 districts and 12 central institutions, the government’s plans also focus on research, development and strengthening India’s position in multilateral groupings focused on the health sector.
In order to help the pharmaceutical industry, which supplies up to 20% of generic drugs worldwide, the government decided to establish a special fund to support the production of active substances for drugs. Until now, the Indian pharmaceutical industry was largely dependent on supplies from China. Funds in the amount of USD billion will be used over a period of 8 years for the development of manufacturing infrastructure and incentives for Indian manufacturers of active ingredients.
Embassy of the Czech Republic in Delhi
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