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Global economy

Overview: The global economic growth was estimated at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.

The challenges of 2022 translated into moderated spending, disrupted trade and increased energy costs.

Global inflation was 8.7% in 2022, among the highest in decades. US consumer prices increased about 6.5% in 2022, the highest in four decades. The Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result is that the world ended in 2022 concerned that the following year would be slower.

The global equities, bonds, and crypto assets reported an aggregated value drawdown of USD26 Tn from peak, equivalent to 26% of the global gross domestic product (GDP). In 2022, there was a concurrently unique decline in bond and equity markets; 2022 was the only year when the S&P 500 and 10-year US treasuries delivered negative returns of more than 10%.

Gross FDI inflows equity, reinvested earnings and other capital – declined 8.4% to USD 55.3 Bn in April-December. The decline was even sharper in the case of

FDI inflows as equity: these fell

15% to USD 36.75 Bn between April and December 2022. Global trade expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023).

The S&P GSCI TR (Global benchmark for commodity performance) fell from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There was a decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realisations. Brent crude oil dropped from a peak of around USD 120 per barrel in June 2022 to USD 80 per barrel at the end of the calendar year following the enhanced availability of low-cost Russian oil.

Regional growth (%)	2022	2021
World output	3.2	6.1
Advanced economies	2.5	5
Emerging and developing economies	3.8	6.3

Performance of major economies

United States: Reported GDP growth of 2.1% compared to 5.9% in 2021

China: GDP growth was 3% in 2022 compared to 8.1% in 2021

United Kingdom: GDP grew by 4.1% in 2022 compared to 7.6% in 2021

Japan: GDP grew 1.7% in 2022 compared to 1.6% in 2021

Germany: GDP grew 1.8% compared to 2.6% in 2021

(Source: PWC report, EY report, IMF data, OECD data)

Outlook

The global economy is expected to grow 2.8% in 2023, influenced by the ongoing Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally to 7%. Despite these challenges, there are positive elements within the global economic landscape. The largest economies like China, US, European Union, India, Japan, UK, and South Korea are not in a recession. Approximately 70% of the global economy demonstrates resilience, with no major financial distress observed in large emerging economies. The energy shock in Europe did not result in a recession, and significant developments, including Chinas progressive departure from its strict zero-Covid policy and the resolution of the European energy crisis, fostered optimism for an improved global trade performance. Despite high inflation, the US economy demonstrated robust consumer demand in 2022. Driven by these positive factors, global inflation is likely to be still relatively high at 4.9% in 2024. Interestingly, even as the global economy is projected to grow less than 3% for the next five years, India and China are projected to account for half the global growth (Source: IMF).

Indian economy

Overview: Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, inflation, cautious government and a sluggish equity market. Indias economic growth is estimated at 7.2% in FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-largest global economy.

India surpassed China to become the worlds most populous nation (Source: IMF, World Bank)

Growth of the Indian economy

	FY 2019-20	FY 2020-21	FY 2021-22	FY 2022-23
Real GDP growth(%)	3.7	(6.6%)	8.7	7.2

Growth of the Indian economy quarter by quarter, FY 2022-23

	Q1	Q2	Q3	Q4
	FY 2022-23	FY 2022-23	FY 2022-23	FY2022-23
Real GDP growth (%)	13.1	6.3	4.4	6.1

(Source: Budget FY24; Economy Projections, RBI projections)

According to the India Meteorological Department, the year 2022 delivered 8% higher rainfall over the long-period average. Due to unseasonal rains, Indias wheat harvest was expected to fall to around 102 Mn metric tons (MMT) in FY 2022-23 from 107 MMT in the preceding year. Rice production at 132 Mn metric tons (MMT) was almost at par with the previous year. Pulses acreage grew to 31 Mn hectares from 28 Mn hectares. Due to a renewed focus, oilseeds area increased 7.31% from 102.36 Lakh hectares in FY 2021-22 to 109.84 Lakh hectares in FY 2022-23. Indias auto industry grew 21% in FY 2022-23; passenger vehicle (UVs, cars and vans) retail sales touched a record 3.9 Mn units in FY 2022-23, crossing 3.2 Mn units in FY 2018-19. The commercial vehicles segment grew 33%. Two-wheeler sales fell to a seven-year low; the three-wheeler category grew 84%.

Till the end of Q3FY 2022-23, total gross non-performing assets (NPAs) of the banking system fell to 4.5% from 6.5% a year ago. Gross NPA for FY 2022-23 was expected to be 4.2% and a further drop is predicted to 3.8% in FY2023-24.

As Indias domestic demand remained steady amidst a global slowdown, import growth in FY 2022-23 was estimated at 16.5% to USD 714 Bn as against USD 613 Bn in FY 2021-22. Indias merchandise exports were up 6% to USD 447 Bn in FY 2022-23. Indias total exports

(merchandise and services) in FY 2022-23 grew 14% to a record of USD 775 Bn in FY 2022-23 and is expected to touch USD 900 Bn in FY 2023-24. Till Q3 FY 2022-23, Indias current account deficit, a crucial indicator of the countrys balance of payments position, decreased to USD 18.2 Bn, or 2.2% of GDP. Indias fiscal deficit was estimated in nominal terms at ~ H17.55 Lakh crore and 6.4% of GDP for the year ending March 31, 2023. (Source: Ministry of Trade & Commerce) Indias headline foreign direct investment (FDI) numbers rose from USD 74.01 Bn in 2021 to a record USD 84.8 Bn in FY 2021-22, a 14% Y-o-Y increase, till Q3FY 2022-23. India recorded a robust USD 36.75 Bn of FDI. In FY 2022-23, the government was estimated to have addressed 77% of its disinvestment target ( 50,000 crore against a target of 65,000 crore).

Indias foreign exchange reserves, which had witnessed three consecutive years of growth, experienced a decline of approximately USD 70 Bn in 2022, primarily influenced by rising inflation and interest rates. Starting from USD 606.47 Bn on April 1, 2022, reserves decreased to USD 578.44 Bn by March 31, 2023. The Indian currency also weakened during this period, with the exchange rate weakening from 75.91 to a US dollar to 82.34 by March 31, 2023, driven by a stronger dollar and increasing current account deficit. Despite these factors, India continued to attract investable capital.

The countrys retail inflation, measured by the consumer price index (CPI), eased to 5.66% in March 2023. Inflation data on the Wholesale

Price Index, WPI (calculates the overall price of goods before retail) eased to 1.3% during the period. In 2022, CPI hit its highest of 7.79% in April; WPI reached its highest of 15.88% in May 2022. By the close of the year under review, inflation had begun trending down and in April 2023 declined below 5%, its lowest in months. Indias total industrial output for FY 2022-23, as measured by the Index of Industrial Production or IIP, grew 5.1% year-on-year as against a growth of 11.4% in FY 2021-22. India moved up in the Ease of Doing Business (EoDB) rankings from 100^th in 2017 to 63^rd in 2022. As of March 2023, Indias unemployment rate was 7.8%.

In FY 2022-23, total receipts (other than borrowings) were estimated at 6.5% higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by 11.1% Y-o-Y in FY 2022-23. The total gross collection for FY

2022-23 was 18.10 Lakh crore, an average of 1.51 Lakh a month and up 22% from FY 2021-22, Indias monthly goods and services tax (GST) collections hit the second highest ever in March 2023 to 1.6 Lakh crore. For 2022–23, the government collected 16.61 Lakh crore in direct taxes, according to data from the Finance Ministry. This amount was 17.6% more than what was collected in the previous fiscal.

Per capita income almost doubled in nine years to 172,000 during the year under review, a rise of 15.8% over the previous year. Indias GDP per capita was USD 2,320 (March 2023), close to the magic figure of USD 2500 when consumption spikes across countries. Despite headline inflation, private consumption in India witnessed continued momentum and was estimated to have grown 7.3% in FY 2022-23.

Outlook: There are green shoots of economic revival, marked by an increase in rural growth during the last quarter and appreciable decline in consumer price index inflation to less than 5% in April 2023. India is expected to grow around 6-6.5% (as per various sources) in FY 2023-24, catalysed in no small measure by the governments 35% capital expenditure growth by the government. The growth could also be driven by broad-based credit expansion, better capacity utilisation and improving trade deficit. Headline and core inflation could trend down.

Private sector investments could revive. What provides optimism is that even as the global structural shifts are creating a wider berth for Indias exports, the country is making its largest infrastructure investment. This unprecedented investment is expected to translate into a robust building block that, going ahead, moderates logistics costs, facilitates a quicker transfer of products and empowers the country to become increasingly competitive. This can benefit Indias exports in general, benefiting several sectors. The construction of national highways in FY 2022-23 was 10,993 Km; the Ministry of Road Transport and Highways awarded highway contracts of 12,375 km in the last financial year (Source: IMF).

The global landscape favours India: Europe is moving towards a probable recession, the US economy is slowing, Chinas GDP growth forecast of 4.4% is less than Indias GDP estimate of 6.8% and America and Europe are experiencing its highest inflation in 40 years.

Indias production-linked incentive appears to catalyse the downstream sectors. Inflation is steady. India is at the cusp of making significant investments in renewable energy and other sectors and emerging as a suitable industrial supplement to China. India is poised to outpace Germany and Japan and emerge as the third-largest economy by the end of the decade. The outlook for private business investment remains positive despite an increase in interest rates. India is less exposed to Chinese economic weakness, with much less direct trade with China than many Asian peers. Broad-based credit growth, improving capacity utilisation, governments thrust on capital spending and infrastructure should bolster investment activity. According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. The downside risks are protracted geopolitical tensions, tightening global financial conditions, and slowing external demand.

Union Budget FY 2023-24 provisions

The Budget 2022-23 sought to lay the foundation for the future of the Indian economy by raising capital investment outlay by 33% to 10 Lakh Crore, equivalent to 3.3% of GDP and almost three times the 2019-20 outlay, through various projects like PM Gatishakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments. An outlay of 5.94 Lakh Crore was made to the Ministry of Defence (13.18% of the total Budget outlay). An announcement of nearly 20,000 Crore was made for the PM Gati Shakti National Master Plan to catalyse the infrastructure sector.

An outlay of 1.97 Lakh Crore was announced for Production Linked Incentive schemes across 13 sectors. The Indian government intends to accelerate road construction in FY24 by 16-21% to 12,000-12,500 km. The overall road construction project pipeline remains robust at 55,000 km across various execution stages. These realities indicate that a structural shift is underway that could strengthen Indias positioning as a long-term provider of manufactured products and its emergence as a credible global supplier of goods and services.

Indian construction industry overview

The Indian construction industry is subdivided into commercial, residential and industrial construction segments. Infrastructure industry is a crucial driver of the Indian economy including power, bridges, dams, highways and urban infrastructure development.

Industrial construction

The construction industry in India is expected to grow by 12.8% to reach H40,982 Bn in 2022. Despite near-term challenges in certain construction sectors, medium to long term growth story in India remains intact. The growth momentum is expected to continue over the forecast period, recording a CAGR of 10.8% during 2022-2026. The construction output in the country is expected to reach 61,721.3 Bn by 2026. Moreover, the industry will be backed by investments in the renewable energy sector aligned with the governments aim to enhance renewable energy capacity from 145.2GW in 2021 to 175GW in 2022 and 500GW by 2030; with an estimated investment of 20-22 Tn. Besides, support for construction activity will be generated by the governments focus on improving the ease of doing business in India. Technology driven urban planning is expected to enhance the living standards through programmes like the Smart City Mission. The Indian government launched the PM Gati Shakti Master Plan for the construction of expressways to facilitate faster transportation. The pace of National Highways construction increased consistently between FY 2014-15 and FY 2021-22 on account of systematic push through corridor-based National Highway development approach. In FY 2014-15, the speed of National Highway construction stood at 12 Km per day which increased to 29 Km per day in FY 2021-22. The government targeted to construct a record 18,000 Km of highways in FY 2022-23 at a pace of 50 Km per day. Indias road network is expected to be the same as United States by the end of 2024. This is a result of governments push for the construction of road network, prompt and timely execution of various projects and fundraising efforts. The government is looking to reduce the logistics cost from 16% to 9% by the end of 2024. The government is aiming to reduce the cost of resources and the quality of construction by trying to minimise the use of steel and adopting substitutes.

(Source: Times now news, PIB)

Residential construction

According to industry reports, Indias real estate market is expected to reach 13 Lakh Crore by 2023.

A favourable economic outlook is expected to further contribute to the markets improvement backed by other factors including the emergence of first-time homebuyers, growing number of high net worth individuals investing in luxury properties, a lower interest rate and many others. Despite rising construction costs and a record hike in the repo rate in 2022, the real estate sector witnessed a considerable upswing. After a period of economic stagnation, the real estate industry experienced a comprehensive recovery in 2022 throughout Tier I, II and III cities. Rising household income, rapid urbanisation, growing nuclear families and increased push towards affordable housing will play a crucial role to drive the growth of the sector.

The luxury segment has been the growth driver for real estate in 2022 and the trend is expected to continue in 2023. A growing demand for bigger houses and high-end properties priced at 2.5 Crore and above, trend of work from home and hybrid working models is further catalyzing the demand in this segment. Indian real estate sector received USD 5.2 Bn of institutional investments across 47 deals in 2022, with an average transaction size of USD 105 Mn. (46% higher compared to 2021) According to ICRA, home sales in the first half of FY 2022-23 witnessed a 49% y-o-y growth, recording the highest number of sales in past ten years. As per ICRA, the share of premium and luxury units in the overall home sales has constantly enhanced post-pandemic, due to which marginal increase in the price factor has not been able to derail growth in Indias residential real estate segment. As per industry estimates, affordable housing supply reduced to 21% of the 2.65 Lakh units launched in the top 7 cities in the first nine months of 2022 while the share of apartments priced over 1.5 Crore has doubled in the total housing sales in the first half of 2022. The Indian government intends to constantly support the affordable housing segment and aims to reinforce the existing financial system to offer liquidity to expand real estate projects. Revolutionary government schemes like Smart City Mission, Pradhanmantri Awas Yojana and Atmanirbhar Bharat 3.0 package is expected to improve the living standards through advanced technology-driven urban planning. (Source: Hindu.com, Mint, Times of India)

Commercial construction

The commercial real estate sector is segmented into office space, hotels, resorts, malls, restaurants, healthcare facilities and others. The outlook of Indias commercial real estate seems positive with the growth of industrial real estate. Inspiring confidence in domestic homebuyers and international investors, the Indian commercial realty market has not only stabilised macroeconomic forces but also significantly mitigated the outflow of foreign exchange from the country. Commercial properties not only provide lucrative rental returns over extended timeframes but also become force multipliers by stimulating the growth of auxiliary and allied economic services in the ecosystem.

Indian e-commerce logistics market is expected to grow at a CAGR of 8% between 2022-2027 on account of seamless investments in warehousing. In spite of growth momentum, commercial leasing activity is expected to grow at a healthy 10-15%in FY 2022-23. The commercial leasing space is expected to touch 28-30 Mn sq ft at this growth rate in FY 2022-23 on account of the improvement in demand as more and more employers are going back to working from office. The office sector continued to be the front runner for institutional investments in 2022 attracting USD 1,860 Mn spread across seven deals. Bengaluru accounted for the highest share of institutional office sector investments at 38%. During

2022, commercial office assets accounted for a major part of private equity investments, accounting for nearly 45% of the investment pie. Commercial office is the most preferred investment product in India which absorbs around a third of the total office demand in the Asia Pacific region. The growth in office real estate investment trusts will leading to the continuation of the trend as domestic investor participation increases.

(Source: Economic Times, Mordor Intelligence, Business Standard, Mint)

Industrial development in Gujarat

Gujarat is among the major industrialised states in India with the second highest number of factories in Tamil Nadu. The State contributes 8% of the countrys gross domestic product and 18% of industrial output. Gujarat has received a cumulative FDI worth USD 51.19 Bn between 2003 to August 2022. The Government of Gujarat implemented ‘Gujarat Sustainable Vision 2030 which provides responsibility to several major departments to sketch the outline for fulfilling Sustainable Development

Goals in the State.

Advantages

High economic growth and industrial development

One of the most industrially developed states, contributing about a quarter of Indias goods export. At current prices, Gujarats state gross domestic product is estimated at USD 288.73 Bn in FY 2022-23, a growth of 13.3% y-o-y.

Reforms and policies

The state Government has developed policies in almost major sectors like industry, power, ports, roads, agriculture and minerals. The Government developed the electric vehicles (EV) policy on June, 2022, with the goal to support 20,000 electric four wheelers, 70, 000 electric three wheelers and 1,10,000 electric two wheelers over the next four years.

The Government of Gujarat allowed net metering for rooftop solar systems having a capacity of 1 KW and up to 1MW.

Supporting infrastructure

Gujarat possesses 46 ports, 18 domestic airports and one international airport with an extensive road and railways network. The State has a 2,200 km grid that supplies gas to industrial areas.

Rich labour pool

Gujarat possesses state-of-the-art educational infrastructure with leading institutes in management, fashion, design, infrastructure planning and pharmaceuticals. The state Government started various initiatives to develop the culture of innovation in the education sector.

The State developed industrial training institutes in each districts to train manpower for the shopfloor level.

Key government policies and objectives

IT/ITes Policy 2022-27: The policy aims to develop the IT ecosystem of Gujarat with globally benchmarked IT infrastructure, attain highly skilled manpower and innovation in transforming technologies.

Biotechnology Policy 2022-27: To develop opportunities for growth with a capacity to offer a range of solutions for sectorial challenges in areas of health, agriculture, environment, energy and industrial processes.

Solar Power Policy 2021: To encourage green and clean power generation in the state through solar energy and moderate energy cost. Startup-Policy 2016-2021: To provide investments worth USD 1 Bn to at least 2000 start-ups, develop at least 50 incubators and 1 Mn sq. ft. of incubation space.

New Industrial Policy 2020: To reinforce the states manufacturing ecosystem and support the ‘up and coming sectors of Indias changing business environment.

Major industrial infrastructure sectors of Gujarat

Roads

The length of the National Highways in Gujarat stood at 7,283 Km as on January, 2023.

Around 25.18 Lakh people are transported by the Gujarat State Road Transport Corporation every day.

Airports

Gujarat possesses ten domestic airports (the highest in any State) and one international airport. The Cabinet Committee on

Economic Affairs (CCEA) sanctioned the proposal for the Phase-I development of a new greenfield airport in Dholera, Gujarat at an evaluated cost of 1,305 Crore.

Railways

The total length of railway lines in Gujarat stood at 5.32 thousand Km by the end of fiscal year 2021.

The Government of India sanctioned the construction of the Ahmedabad Metro with a length of 36 Km at a cost of 10, 773 Crore (USD 1.61 Bn). The first phase of the project was completed in December 2020.

The State allocated 15 Bn (USD 205 Mn) for the development of the Ahmedabad–Mumbai bullet train in 2022. The bullet train corridor will cover a length of 508.17 Km and includes 12 stations in Gujarat, Maharashtra and the union territories of Dadra and Nagar Haveli.(Source: IBEF)

Ports

Gujarat was Indias first state to implement privatisation of ports. The state has been pioneering the public-private partnerships in the port sector.

The state has the longest coastline in India which is 1,600 Km long which adds to its large external trade potential. The small ports of Gujarat account for 70% share of the cargo handled by all small ports in the country.

The Gujarat International Maritime Arbitration Centre focused on resolving maritime and shipping disputes that can help resolve commercial and financial conflicts.

(Source: IBEF)

Agriculture and allied sector

Gujarat contributes the largest share of total investments in Indias food processing sector. Cotton, groundnut, bajra, paddy, maize, jowar, sesamum, castor and tur. (Pigeon pea), along with fodder and vegetables, are the key kharif crops of the state.

The states area under kharif cultivation stood at 8.6 Mn hectares. The Governments Kisan Suryodaya Yojana is aimed to provide 16 hours of power supply to the farmers. The state government of Gujarat allocated a budget of 3500 Crore for installing transmission infrastructure under this scheme by 2023.

Textile sector

Gujarat contributed 37% of Indias total cotton, 50% of Indias man-made fiber, 30% of Indias woven fabric and 25% of Indias technical textiles in 2022 Gujarat remained the largest producer of synthetic fabric in 2022. Around 90% of Indias weaving machinery manufacturers are established in Gujarat.

(Source: Indian textile journal.com)

Energy and petrochemicals

Gujarat possesses among the most developed gas pipeline network in the country, including 47% of total domestic gas connections.

Gujarat is considered as the hub of Indias chemical and petrochemicals manufacturing. The state possesses eight chemical clusters, 14 industrial estates and three SEZs, which are mainly dedicated to the chemicals and petrochemicals industry. Gujarat is known as the petroleum capital of India. Petroleum product exports from Gujarat stood at USD 36, 842.98 Mn in FY 2022.

With an ambitious target of over 60,000 MW by 2030, Gujarat holds the promise for a lot of action in the coming years.

As of August 31, 2022, Gujarat had a total installed power generation capacity of 44,930.44 MW, comprising 29,204.20 MW under private utilities, 8,452.61 MW (state utilities) and 7,273.63 MW (central utilities).

Telecom

The Gujarat governments Telecom Infrastructure Policy 2022 will help provide permissions to entities engaged in the laying of telecom infrastructure, including optical fibre network and installation of mobile towers. The policy is also expected to help in the roll out of 5G network and take broadband internet connectivity across the state, where 512 villages still have no telecom connectivity. (Source: Indian Express.com)

Gems and jewellery

Gujarat is the worlds largest producer of processed diamonds, accounting for 72% of the worlds processed diamond share and 80% of Indias diamond exports. The state possesses the highest labour productivity in the jewellery sector, with key jewellery clusters at Ahmedabad, Surat and Rajkot. The 4,000 Crore industry in the port city of Gujarat is losing its sheen due to the unprecedented economic shock. Various manufacturers had to shut down or reduce production on account of the rising prices of rough diamond since the depreciation of the domestic currency vis-?-vis the US dollar. Surats diamond industry is estimated to have an annual turnover of 90,000 Crore. It has around eight

Lakh workers and has processed 14 of the 15 types of diamonds available in the world.

Pharmaceuticals

With one-third of pharmaceutical production, 30% of Indian pharma exports and more than 5000 licensed manufacturers, Gujarats pharmaceutical industry is poised for robust growth, major capacity expansion and play a crucial role in the global consolidation process. The pharma turnover of the state has increased from 14 Crore in 1961 to

96,236 Crore in 2021. The number of manufacturing units has also gone up to more than 5,000 in 2021 from 108 units in 1961. Because of the adoption of e-governance, the issuance of annual additional product licenses reached 25,000 in 2021 from 246 in 1961. Export of drug formulations from Gujarat reached USD 2,824.55 Mn in FY 2021-22. (Source: pharma biz.com, IBEF)

Industry development in Uttar Pradesh

Uttar Pradesh is Indias most populated state and shares its borders with Nepal on the north, the Indian states of Uttarakhand and Himachal Pradesh on the northwest, Haryana, Delhi and Rajasthan on the west, Madhya Pradesh on the south, Chhattisgarh and Jharkhand on the southeast and Bihar on the east. At current prices, the gross state domestic product (GSDP) of Uttar Pradesh is estimated to be 20.48 Tn (USD 248.66 Bn) in FY 2022-23. FDI inflows in Uttar Pradesh stood at USD 995.40 Mn between October 2019 to June 2022.

Advantages

Geographic advantage: Uttar Pradesh is well connected with nine neighbouring states and other parts of India through its 48 national highways. The State has the biggest railway network with the length of 40 Kms.

Hub of IT/ITeS services: The State has evolved as a major destination for IT & ITeS industries, comprising software, captive business process outsourcing (BPO) and electronics.

Semi-conductor hub: The state emerged as a semiconductor hub with the offices and R&D centres of various key players located in Noida.

Rich labour: The State possesses a large quantum of skilled labour on account of its vast population, creating an ideal environment for knowledge based sectors.

Policies: The State has well-documented sector specific policies for IT and biotech. The State ranked second in executing the Business Reform Action Plan in 2019. (Source: ibef.com)

Key government policies and objectives

Data centre policy 2021: The State aims to start at least three advanced private data centre parks. The policy aims to build a 250 MW data centre industry with an investment of

20,000 Crore.

Mukhyamantri Matsya Sampada Yojna and Nishadraj Boat Subsidy Yojna 2022-23: An introductory provision of 4 Crore in the Union budget 2022-23 was announced to enhance fish production in the state and improve the income of fishermen.

Start-up policy 2020: The policy aims to improve the Startup ranking of Uttar Pradesh and start at least 100 incubators by offering at least 1 Mn square feet space for start-ups.

Electronics manufacturing policy 2020: Three electronics manufacturing clusters were developed in the state which offered

0.4 Mn employment opportunities within the State.

Electric vehicle manufacturing policy 2019: The policy aims to create a sustainable environment for electric vehicles manufacturing and battery management from production to disposal stage.

Opportunities

Housing demand

India is witnessing a surge in housing demand as a result of growing urbanisation, increase in nuclear families, growing aspirations and growing number of first time home buyers. Future housing demand is expected to be influenced by various factors comprising a strong economic recovery, low mortgage rates, stagnating home prices and increased income levels.

Government policies

The Government has been supporting the sector through various policy initiatives like Pradhan Mantri Avas Yojana (PMAY) and Housing for all schemes strengthening the demand for housing in the country.

Threats

Regulatory hurdles

Changes in the regulatory environment and government policies may hamper the real estate sector in various ways. There are substantial procedural delays with relation to site acquisition, land usage, project launches and construction approvals. These factors can affect the profitability of the companies operating in the sector.

Natural calamities

The incidences of natural calamities and an unforeseen incident like

Covid-19 can affect the performance of the sector.

Company overview

PSP Projects Limited is a diversified construction company that offers construction and allied services in India. The Company provides services to public and private sector businesses with regards to end to end construction projects. The Company was incorporated in August 2008 and has completed 205 projects since its inception. The Company has an order book of 5052 Crore as on March 31, 2023. The Company has a robust presence in Gujarat and has expanded its reach in Maharashtra, Karnataka, Uttar Pradesh, Rajasthan and Delhi.

Key strengths

Project completion track record: The Company possesses a robust track record of timely project completion through experienced project management competence, active promoter engagement and increased competitiveness. The number of completed projects was 22 in FY 2022-23 as against 21 in FY 2018-19.

Strong order book:The Company possesses a strong order book of 5,052 Crore in FY 2022-23 from Rs.2,978 Crore in FY 2018-19.

Long-standing customer engagement: The Company aims to create longstanding relationships with clients by providing good quality products and services. Plenty of the prestigious clients are engaged with the Company for the last five years.

One-stop solution: The Company provides one-stop solution towards all kinds of construction related problems, offering a broad range of client services that encompasses design, construction and fit-out.

Experienced team: The promoters multi- decade old experiences in the construction sector provide the impetus for innovation and design improvements. The promoter is extensively supported by an executive team of knowledgeable professionals across various functions ranging from designing, engineering, finance, marketing and human resources.

Strong financial performance: Over the years, the Company has successfully expanded its footprint backed by its robust financial performance. The Company sustained a solid profitability margin while recording a robust growth in revenues and profits.

Category-wise performance

Industrial: The Company concentrates on the construction of industrial buildings for manufacturing and processing facilities, food processing plants, pharmaceutical plants and engineering units etc. The Company possesses immense experience towards operating industrial projects that serves distinctive needs of various sectors. The Company has a history of providing manufacturing and processing services for customers like Nestle, MRF, Torrent, Nirma, Intas, Cadila, Claris, KHS Inductotherm etc.

Institutional: The Companys institutional projects comprise buildings for hospitals, healthcare facilities, educational institutions, shopping centres, hotels and corporate offices etc. Various remarkable institutional projects comprise of the Surat Diamond Bourse, Palladium Mall, BSE Brokers Forum at GIFT, Maruti Hospital, Zydus Hospital, GCS Medical College, Hospital and Research Center and the CIMS Hospital.

Government: The business concentrates on selected and prestigious government projects. For example: the Company completed high-profile government projects comprising - The Kashi Vishwanath Corridor, Varanasi, construction and interior of Swarnim Sankul 01 and 02, Gujarat Vidhansabha renovation projects related to Ahmedabads Sabarmati Riverfront Development project and the interior of Hotel Leela Gandhinagar.

Government residential: The Company is engaged in the construction of several prestigious government residential projects comprising the design-build of reasonably priced tall residential buildings and commercial units under various state and central government schemes. Residential: Additionally, the Company focuses on residential projects in the form of townships, group housing and independent homes for private real estate clients are frequently constructed as part of residential developments.

Outlook, FY 2022-23

The Company intends to consistently focus on EPC projects and precast manufacturing. At PSP, we plan to improve our operational capability through systematic checks of advanced construction technologies. Deepening client engagements and optimisation of the project mix are the key focus areas of the Company. The Company is expected to increase its initiatives towards reinforcing customer-centric approach and providing quality customer experience. The Company is expected to focus on winning large projects across a mix of all sectors.

Deepening the geographic presence beyond Gujarat will be in focus. The human resources will be reinforced through capacity building measures, knowledge and skill enhancement initiatives. The Companys growth momentum will be extended by growing technological adaptability, deepened customer relationships, winning projects across sectors and retaining a skilled talent pool. The Company is also catalyzing growth opportunities by establishing and concentrating on manufacturing pre-cast concrete at the plant. The Company is encouraging the use of pre-cast concrete element to enhance operating efficiency, reduce the reliance on labourers, moderate safety issues, allow quicker delivery and deliver improved work quality.

Standalone financial overview

	FY 2021-22	FY 2022-23	VARIATION %
Revenue from operations	1,74,875.88	1,92,664.91	10.17
Other income	2,125.54	2,709.56	27.48
Total income	1,77,001.42	1,95,374.47	10.38
Cost of construction material consumed	49,538.50	59,941.76	21.00
Changes in inventories of work-in-progress	457.22	(2,207.15)	(582.21)
Construction expenses	89,132.40	1,00,470.38	12.72
Employee benefits expense	7,233.92	9,345.15	29.19
Finance costs	2,639.62	3,195.94	21.08
Depreciation and amortisation expense	3,205.28	4,000.52	24.81
Other expenses	2,862.63	2,613.56	(8.70)
Total expenses	1,55,070.07	1,77,360.16	14.37
Profit before exceptional item and tax	21,931.35	18,014.31	(17.86)

Revenue from operations

During the year ended March 31, 2023, your Company registered revenues from operations of Rs.1,92,664.91 Lakhs as against Rs.1, 74,875.88 Lakhs in FY 2021-2022, an increase of 10.17%.

Other income

Other income for the year ended March 31, 2023, stood at Rs.2,709.56 Lakhs as compared to Rs.2,125.54 Lakhs in FY 2021-22, an increase of 27.48%. It primarily constitutes interest income on fixed deposits, interest income from Subsidiary & Joint venture, Dividend income, Interest on mobilisation advance and other net gains. The increase is mainly on account of increase in interest on fixed deposits.

Cost and expenses

Cost of construction material consumed and changes in inventories of finished goods, work-in-Progress

There was an increase of 21 % in the cost of construction material consumed in accordance with an increase in revenue from operations and a decrease of (582.21%) in the changes in inventories of finished goods and work-in-progress because of a subsequent accumulation and work execution stage.

Employee benefit expenses

The employee benefit expenses for

FY 2022-23 were Rs.9,345.15 Lakhs, an increase from Rs.7,233.92 Lakhs in FY2021-22. The increase was due to an increase in headcount and managerial remuneration.

Other expenses

Other expenses decreased by (8.70%) in FY 2022-23 compared to the previous financial year. The other expenses mainly comprised rent, rates and taxes, insurance, repairs and maintenance, traveling and conveyance, legal & professional expenses, donation etc.

Depreciation

Depreciation was Rs.4,000.52 Lakhs in FY 2022-23 compared to Rs.3,205.28 Lakhs in FY 2021-22, an increase of 24.81% from the previous financial year. The increase in depreciation mainly on account of new addition in property, plant and equipment during the year.

Finance costs

Significant increase in finance cost by 21.08% in FY 2022-23 as compared to the previous financial year was due to an increase in borrowings and in interest on term loans, working capital loans, mobilisation advance, increase in bank guarantee charges and other borrowing costs. The finance cost comprised interest on term loans, working capital loan, interest on mobilisation advances, bank guarantee charges and other borrowing costs.

EBITDA margins

The EBITDA margin stood at 11.68% in FY 2022-23 compared to 14.67 % in FY 2021-22.

Tax expenses

Tax expense in FY 2022-23 was Rs.4,712.49 Lakhs compared to Rs.5,690.93 Lakhs in FY 2021-22.

Profit after tax

During the year under review, the profit after tax stood at Rs.13,301.82 Lakhs compared to Rs.16,240.42 Lakhs in FY 2021-22 mainly on account of exceptional high profit margin in FY 2021-22, as large sized projects were in the finishing stage.

Net worth

The net worth of the Company increased from Rs.68,471.52 Lakhs as on March 31, 2022 to Rs. 79,982.54 Lakhs as on March 31, 2023, an increase of 16.81%. The increase was mainly due to profit made during FY

2022-23.

Consolidated financial overview

Revenue from operations

Revenue from operations increased to Rs.1,93,780.60 Lakhs in FY 2022-23 compared to Rs.1,74,806.33 Lakhs in 2021-22.

Cost and expenses

There was an increase of 21.68 % in the cost of construction material consumed in accordance with an increase in revenue from operations and a decrease of (692.79%) in the changes in inventories of Finished Goods and Work-in-Progress because of a subsequent accumulation and work execution stage.

Employee benefit

The employee benefit expenses increased to Rs.9,345.15 Lakhs in FY 2022-23 from Rs.7,233.92 Lakhs in FY 2021-22 due to an increase in headcount and managerial remuneration during the year.

Profit after tax

The profit after tax stood at Rs.13,464.12 Lakhs in FY 2022-23 compared to Rs.16,627.47 Lakhs in FY 2021-22.

Net worth

The net worth increased from Rs.68,695.93 Lakhs as on March 31, 2022, to Rs.80,099.25 Lakhs as on March 31, 2023, an increase of 16.60% due to profits made during FY 2022-23.

Total borrowings

The total borrowings of the Group increased from Rs.9.965.69 Lakhs as on March 31, 2022, to Rs.14,498.13 Lakhs as on March 31, 2023

Key Financial Ratios (Standalone)

Sr. No.		Ratios		Numerator		Denominator		FY 2022- 23		FY 2021-22		(%) CHANGE		Reason for variance
1		Current ratio (times)		Current Assets		Current Liabilities		1.39		1.45		(4.14%)
2		Debt equity ratio (times)		Total Borrowings		Total Equity		0.18		0.15		20%		Increased mainly on account of increase in team loan and working capital borrowings during the financial year.
3		Debt service coverage ratio (times		Earnings for debt service (i)		Debt service (ii)		7.92		24.84		(68.10%)		Decreased mainly on account of increase in term loan and working capital borrowings during the year.
4		Return on equity ratio (%)		Net Profit After Tax		Average Total Equity		17.92%		26.56%		(32.53%)		Decrease mainly on account of exceptional high profit margin in previous year, as large sized projects were in the finishing stage.
5		Inventory turnover ratio (times)		Cost of Goods Sold		Average Inventory		4.97		5.89		(15.62%)
6		Trade receivable turnover ratio (times)		Revenue from Operations		Average Trade Receivables		5.17		6.55		( 21.07%)		Decreased mainly on account of increase in trade receivables as compared to previous year.
7		Trade payables turnover ratio (times)		Cost of Goods Sold+ Construction Expenses		Average Trade Payable		5.06		5.41		(6.47%)
8		Net capital turnover ratio (times)		Revenue from Operations		Average Working Capital		6.28		7.02		(10.54%)
9	Net profit ratio (%)		Net Profit After Tax		Revenue from Operations		6.9%		9.29%		(25.73%)		Decrease mainly on account of exceptional high profit margin in previous year as large sized projects were in the finishing stage.
10	Return on capital employed (%)		Earning Before Interest & Taxes		Average Capital Employed (Total Equity + Long term Borrowings)		24.03%		36.12%		(33.48%)		Decrease mainly on account of exceptional high profit margin in previous year as large sized projects were in the finishing stage.
11	Return on investment (%)		Interest income on Fixed Deposits		Average Investment in Fixed Deposits		5.51%		4.59%		20.04%		Increased mainly on account of high rate of interest and overall base of fixed deposits.
12	EBITDA/ turnover		Earnings Before Interest, Tax, Depreciation and Amortisation		Turnover		0.12		0.15		(20.38%)		Decrease mainly on account of exceptional high profit margin in previous year as large sized projects were in the finishing stage.
13	Interest coverage ratio		Earning Before Interest & Taxes		Interest cost		7.33		12.48		(41.23%)		Decreased mainly on account of increase in term loan and working capital borrowings during the financial year.
14	Operating profit margin (%)		Earnings Before Interest & Taxes		Revenue from Operation		9.60%		12.84%		(25.19%)		Decrease mainly on account of exceptional high profit margin in previous year as large sized projects were in the finishing stage.

(i) Earning for debt service = Net profit after tax+ Non-cash operating expenses (depreciation and amortisation, ECL, provision for loss on loan)+ Interest on term loan+ other adjustments like loss on write off/sale of property, plant and equipment, reversal of impairment of loan, provision for loss on impairment of investment (ii) Debt services = Interest on term loan + Principal repayment of long-term borrowings during the year

Risk and mitigation
Economic risk: Economic slowdown might hamper the Companys business operations.	Currency risk: Volatile currency movements in forex market might negatively impact the Companys earnings.
Mitigation: The Company periodically evaluates the economic environment to identify any prominent economic and construction market downturn. Early evaluation enables the Company to take the essential steps before an economic slowdown begins. Its dependence on any segment or area is reduced by the broad offers and global presence, which reduces the effects of slowdown.	Mitigation: The Company has minimal impact of currency fluctuations as the Companys operations are concentrated at domestic level.
Competition risk: Growing competition might moderate the number of projects awarded.	Financing risk: Reduced debt servicing capacity and increased finance costs might hamper the Companys business.
Mitigation: The Company receives new contracts on account of increased expertise, robust brand recall client relationships and other government agencies as well as its long standing relationships with its clients.	Mitigation: The Company can handle its current debt because of good working capital strategy, prompt debtor management, healthy profitability margin and consistent cash flow.
Competence risk: Inability to provide high quality construction on time might hamper the Companys image.	Human resource risk: The Companys success might be affected by its inability to attract and retain experienced employees.
Mitigation: The Company possesses adequate experience in the construction industry and derives new insights from recent projects. This helps the Company to recognise problems and undertake measures to ascertain timely delivery.	Mitigation: The Companys HR policy aims to recruit the best candidates and retain them through continuous learning experience, promoting a positive work environment and developing a culture of personal growth.
	Further, the Companys policy aims to recruit the finest personnel and retain them by offering for continuous learning, a positive work environment and personal growth.

Technology risks: Failure to adopt new technologies might hamper the Companys growth

Mitigation: The Company undertakes significant advancements in the safety, effectiveness and productivity of large-scale construction projects through advanced construction technologies. Utilising advanced technology enables the Company to provide improved quality work at a reduced cost.

Human resource management

At PSP Projects, we believe that employees are the strength of the organisation. We have developed a well-defined HR policy to drive the employees to perform on the organisational vision by providing talent development, and constantly improving on employee engagement. Strengthening its HR processes and practices helped the Company to perform the expanded set of rolls for its employees and workers. With the implementation of darwin box technology, the Company has achieved automation for most of its HR processes and practices such as hiring employees, segregating employees based on various factors such as department level, payment days, payment details etc. leading to increase in its efficiency and response time of HR function.

Most of the employee records are now being digitally maintained. Learning is an important part of its talent development initiative. Training programs are organised for the productivity improvement of the new recruits through various formats, including instructor led training, e-learning and on-the-job simulations within the first week of joining. The Company provides a healthy work environment and maintains dialogue with every person to sustain employee engagement. The Company encourages employee participation in various socioeconomic activities to help the less privileged. As on March

31, 2023, employee strength of the Company stood at 1836. The Company believes in the importance of better management of industrial relations for achieving the organizational goal. It also complies with the regulations that govern industrial relations. The industrial relations of the Company in FY 2022-23 were amicable.

Information technology

The Companys technology backbone has been more than just an enabler; it has become the symbol of a modern corporate mindset. The System Application and Products (SAP) system adopted by the Company provides the timely sharing of details of construction work with the management, improving project visibility.

The SAP HANA database management system developed by SAP SE installed by the Company allows a real-time data processing to analyse business operations. The SAP HANA database system helps the Company to develop intelligent and live solutions for quick decision-making on a single data copy and support next generation transactional processing with advanced analytics. Work assessment utilising this technology enhances ability to shift plans or keep the existing plans in place.

The strengthened security measures adopted by the Company in the backdrop of heightened cybersecurity risks globally has enabled it to keep data safe from security threats. The Company will continue to invest in building security over cyber-attacks. The Companys auditors conducted the Companys IT General Controls (ITGC) audit and found the controls to be satisfactory. The Company is using a web and mobile based NCR management tool to seamlessly track progress of NCRs and provides accurate quality assurance at all its sites.

The Company has implemented a web based daily labour report portal in place of earlier manual processes. This transformation has helped the Company in maintaining the labour data such as man hours, shift timings etc. digitally, which can be easily tracked and checked any time by different departments across the organisation. This has made the reconciliation process very easy, which results in saving of time and efforts of the employees. Moreover, this system requires less human intervention leading to data accuracy as the manipulation of data becomes very difficult.

The Company implemented inventory management software to track and trace the assets at project sites on a real-time basis leading to improved asset utilisation at site by proper allocation. The adoption of a GPS-based vehicle tracking system helps the Company locate and monitor vehicles efficiently

Internal control and its adequacy

Internal financial controls mean the policies and procedures adopted by the Company to ensure the following:

Orderly and efficient conduct of its business, including adherence to Companys policies, Safeguarding of assets Prevention and detection of frauds and errors Accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. The Company has a well-placed, proper and adequate internal control system, which ensures that all assets are safeguarded and protected and that the transactions are authorised, recorded and reported correctly. The

Companys internal financial control framework is commensurate with the size and operations of the business and is in line with the requirements of the Companies Act, 2013.

The management approved, adopted and implemented policy documents/standard operating procedures which assists the various departments of the Company in ensuring accountability, accuracy, controls and transparency within the organisation. The internal audit plan was approved by Audit Committee in the first meeting of each financial year. The audit plan includes a combination of audit of internal control systems and operational audits. Audit of internal control system focuses on the adequacy of internal controls in the Company and the reporting system in various functional areas like purchase, sales, accounts, human resource, admin, contracts and other departments. The Company does not have a separate internal audit department, but the internal auditor conducts internal audit on quarterly basis with the support of the process owners and reports summary of key issues and response from the process owners along with action taken report on the issues highlighted in the previous report to the Audit committee. The Audit committee reviews the audit observations, management responses to the same and suggests corrective actions, if necessary. It maintains a constant dialog with the auditors to ensure that internal control systems are operating effectively.

Cautionary statement

The Management Discussion and Analysis report, containing your Companys objectives, projections, estimates and expectations, may constitute certain statements, which are forward-looking within the meaning of applicable laws and regulations. The statements in this Management Discussion and Analysis Report could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operation include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in the governmental regulations, tax regimes, economic developments within India and globally and other incidental factors.