Prime Minister Mr. Narendra Modi has ascended to power in the second term with fullmajority independent of allies of the BJP. The triumph of BJP holds out a greatopportunity for accelerated development and reform. The opportunity comes with someserious challenges too. The government has to come to grips with critical economic issuesto fulfill India's potential. The nation looks to Modi to turn India into a global power.
The pre-eminent challenge for Modi Government is to resurrect India's economy withmessianic zeal going for bolder reforms and actions. The new Finance Minister Ms.Nirmala Sitharaman (the first woman to head the Finance Ministry since Indira Gandhi 50years ago) embodies a key figure in the government to fulfill the expectations ofaspirational Indians. She has a tough task on her hands as the prospects for a quickeconomic recovery depend partly on the Banks which are struggling with bad loans cloggingtheir balance sheets. The major question is will the new government usherpro-market policies encouraging investment by liberalizing labour and land laws relyingon innovative strategies and state craft !
The government has to contend with realignment of exchange rate having regard to theraging global trade war and rising protectionism. Economic growth is being hotly debatedas an area of major concern. In the 4th quarter of fiscal 2019 it was at itslowest in 5 years. This is also throwing in its wake the major problem of joblosses. (One million Indians enter the workforce every month). Automobile sector iscurrently going through the worst slowdown in 2 decades. There are no signs of abatingwith most indicators of domestic demand flashing red. Thecoreinflationisatitslowestlevelinnearly 2 years which again reflects weakness inconsumption demand.
Investment's the key
Fresh investments in the country are at a 15-year low. Global economic uncertaintiesare rising. Therefore it comes as no surprise that multilateral institutions such asIMF ADB as also the RBI have pared down India's growth forecast in their recentpronouncements. In this background the economists have to study if there is a biggerproblem of a structural slowdown in the Indian economy. The Centre and the RBI have tocraft their fiscal and monetary policies conducive to uplifting the investment and raisingthe growth rate to 9% every year for 5 years to achieving India's dream of becoming a $ 5trillion economy.
A Notable Reform
In the Finance sector a notable featureI is that Indians are switching to digitalpaymentsindroves.Thedigitalpayments take-off really feels like a revolution. In thisconnection it bears mention that whereas demonetization' in November16 caused economic ripples it gave digital payments a galvanic boost. The value ofdigital transactions has risen more than 50 - fold in the past 2 years. Besides thesystem increases financial inclusion and cuts tax evasion from unreported cash deals. Theglobal technical giants are also evincing keen interest in the new payments service.
On the infrastructure front a major emerging problem is serious water crisis. It iseasy to blame the country's water woes on nature the monsoon. It's no less a legacy ofpoor management and under-investment. The Union Govt. is seized of the problem and hasformed a new Jalshakti' (Water) Ministry which aims at tackling water issues with aholistic and integrated perspective on the subject.
Global Scenario Trade War
President Trump's never-ending tariff threats are serving to dampen businessconfidence. British govt. under the new Prime Minister Boris Johnson appears to begetting ready for a No-Deal Brexit whereby Britain may decide to leave the EU's CustomsUnion without a replacement agreement. The Bank of England has lowered its growth forecastdue to increased Brexit worries and a slowing global economy. Manufacturing activity inthe Euro zone has also contracted at its steepest rate since late 2012.
Railways Steam Ahead The Company's Outlook
In the Union Budget there is sizable uptake in allocation to expand the railinfrastructure construction of new lines gauge conversion track renewals andprocurement of rolling stock. The future demand for railway wagons is expected to berobust (36% y-o-y jump). Texmaco will be a major beneficiary due to rising wagonprocurement. Apart from wagon building your company is playing a significant role ininfrastructure projects of railways through its rail EPC divisions - Kalindee Rail Nirmanand Bright Power. Importantly railways have set a target to electrify its entirebroad-gauge network by 2021 22. The electrification drive will be covering 28000 kmin the next three financial years entailing an expenditure of 6 -7 billion USD to befinanced by ADB loan. Besides in FY '20 budgetary support from the government has risensignificantly. This offers a great business opportunity for your company.
The whole intent of introduction of the mega GST legislation by the government was tosmoothen the tax regime and make it flawless. Unfortunately in the case of railwayrolling stock it is severely hurting the industry due to blockage of cash flow owing to aninverted GST structure. The wagon industry employing more than one lakh people directlyand indirectly is in great distress due to patently ill-conceived GST structure. Whereasthe rolling stock supplied to Indian Railways attracts 5% output GST most of the inputsthat go into the manufacture of railway rolling stock such as Steel etc. are charged18% GST. This results in huge continuing accumulation of unutilized tax credit in thehands of rolling stock manufacturers rendering severe liquidity crunch impacting theoperations.
The industry has made earnest representation to the Government to remove the anomalythrough a cash and cost neutral simple solution whereby the GST structure will be alignedthroughout the value chain and will be a win-win situation for both the Railways and thewagon industry.
Major Foundry Acquisition
Your company has the largest and most modern State-of-the-Art Steel Foundry havingcapacity of 30000 MT per year. It has built strong credentials overseas and 50% of itsproduction is catering to export to developed markets. Considering the projected wagondemand and the company's captive requirement it was necessary to add to the capacity ofsteel casting. I am happy to inform that the company has succeeded in acquiring a majorsteel casting facility Simplex' at Urla in the State of Chhattisgarh in April'19.It will substantially contribute to the performance of the Steel Foundry Division with itsenhanced capacity of 40000 / 45000 MT per year.
Your Company is looking at several new opportunities of manufacturing high end nicheproducts in collaboration with leading foreign companies especially in the field ofsignalling like Electronic Interlocking TPWS etc. which essentially will be backwardintegration contributing to our EPC Business. This will take your Company to a differentlevel of technology enabling your Company to serve Indian Railways' growth moreeffectively.
Finally I commend the dedication and devotion with which our workmen staff andofficers have been serving the company in the present trying times.