Manufacturing slowing in September, reveals SBI Composite Index

Banks’ loan books not showing significant traction

State Bank of India on Thursday said its yearly Composite Index, which is a leading indicator of manufacturing activity in the Indian economy, for September 2016, is indicating a downward momentum and is in a ‘low growth’ phase compared to the previous month’s ‘moderate growth’ phase.

Specifically, the yearly Composite Index reading for the reporting month has come in at 50.2 (low growth), compared to the previous month’s 52.7 (moderate growth), and above the benchmark level of 50.

The Composite Index has mainly two indices — SBI Monthly Composite Index and SBI Yearly Composite Index. A consistent negative (positive) month-on-month forecast in the index will lead to negative (positive) growth rate in year-on-year index after a while.

Loan book

According to Ecowrap, a publication of the bank’s economic research department, the banking sector loan book is not showing significant traction as of now, on the back of a stagnant pipeline of projects.

“In our view, the year is likely to see 13-14 per cent credit growth, but mostly on the back of refinancing by banks on completed infrastructure projects in sectors such as power and roads where there are no risks.

“In the coming months, there may be some demand from the retail side due to festive seasons. We also believe oil companies and NBFCs may avail of credit growth in the second half of the current fiscal,” it said.

Referring to a rating round-up report for the second half of FY16, Ecowrap said the debt weighted credit ratio or the quantum of debt of firms upgraded versus downgraded was 0.2, the lowest in the last three years. This signals the trend in credit quality of corporate India. Sectors that stood out in the upgrade were in consumption-related sectors such as agricultural products, textiles, and automotive components. Poor performance by sectors in the downgrade category includes steel, electric utility, and industrial machinery.

Credit cycle to improve

According to the report, “The credit cycle will turn for the better in a gradual manner. The good thing is that a part of the slowdown in corporate credit growth in the current fiscal is because of de-leveraging by corporates and subsequent repayments.

“Retail credit growth continues to be strong. Additionally, about 48 per cent of the credit upgrades in H2 FY16 was due to better order book/healthy demand, improvement in profit margins and efficient management of working capital.”

With the Pay Commission arrears and revised salary of government employees implemented from August 2016, bank deposits showed sizeable growth in September (over 20 per cent of the incremental addition in the current fiscal is attributable to these developments. This will lead to increased consumer demand ahead of the festive season.

“We are pencilling in a 50-basis point rate cut by the RBI MPC, maybe as early as in the October policy,” said the report.

Indian electronics products to touch $75 bn by 2017: ASSOCHAM-EY study

The Indian electronic products industry in India is expected to grow at a CAGR of 10.1% to reach US$ 75 billion by 2017 from US$ 61.8 billion in 2015 with increasing penetration across consumer products especially in semi-urban and rural markets, along with government push for infrastructure development, locomotive and energy, there exists a significant opportunity for rapid expansion of this industry, adds the ASSOCHAM-EY joint study.

The electronic components industry in India was valued at US$13.5 billion in 2015, growing from US$10.8 billion in 2013 at a CAGR of 11%. The market is dominated by electromechanical components (such as PCB and connectors) which form 30% of the total demand, followed by passive components (such as resistors and capacitors) at 27% , according to an ASSOCHAM-EY study titled ‘Turning the Make in India dream into a reality for electronics and hardware industry’. 

India’s attractiveness for manufacturers is growing due to availability of low-cost labor. Rising manufacturing costs in China and Taiwan are compelling manufacturers to shift their manufacturing base to alternate markets. In 2014, the average manufacturing labor cost per hour in India was US$0.92 as compared to US$3.52 of China, noted the study.

The Indian manufacturing ecosystem for electronics and hardware industry is still at a nascent stage and faces various demand side as well as supply side challenges are limited scale of operations and local component demand due to the nascent product manufacturing in India. Component demand in India is muted due to very limited value addition as primarily last-mile assembly takes place. Norms such as safety regulations for automotive, medical and industrial sectors have driven the uptake of electronic content globally.

However, manufacturers in India do not add high electronic content in the products due to limited industry-specific standards. The current market is dominated by secondary sales and primary sales are limited due to reduced disposable income in semi-urban and rural markets. The market penetration for most of the consumer appliances and electronics is currently lagging behind global average by up to 60% in certain categories and there lies huge untapped potential in rural markets (approximately 69% of India’s households).

Although global markets are witnessing rapid consumer uptake as electronic content increases across verticals (e.g., automotive with applications around safety, connectivity, infotainment, consumer electronics, smart homes, etc.); India has a slower adoption as consumers remain highly sensitive to even a marginal increase in product prices.

Due to nascent stage of electronics manufacturing in India, scale of operations is low, resulting in reduced cost competitiveness. Traditional electronics manufacturing destinations such as China, Taiwan and South Korea have built significant capacities across manufacturing value chain (SKD assembly, CKD assembly, Semiconductor Assembly & Testing Services). In addition, emerging (Malaysia, Vietnam) destinations have also built capacities. Although labor cost is low in India, labor productivity is lower than traditional destinations.

The basic infrastructure for any industry comprises good roads, power, water, telecommunications, ports and logistics. In India, availability of these facilities is not up to the mark, even in established industrial estates. While the Government has notified Greenfield Electronic Manufacturing Clusters, they still remain un-operational due to infrastructure issues.

The lack of proper roads and sales infrastructure results in distribution challenges for companies catering to markets in small semi-urban cities, rural areas and remote villages. Additionally, from both import and export perspective, there is port congestion due to unavailability of containers and long documentation process.

Availability of relevant manpower is crucial to the development of any industry. Since the electronics manufacturing industry has high dependence on skilled manpower, especially for highly specialized activities such as electronics system design, IC design and manufacturing etc., the availability of talent with relevant skill sets assumes considerable importance.

Both SKD and CKD are labor intensive and require delicate handling and process adherence during the manufacturing process. With changing technology, the labor needs to be constantly trained. However, the current labor scenario in India poses certain challenges.

According to National Skill Development Corporation (NSDC), the incremental human resource requirement in the electronics and IT hardware sector will be 8.9 million by 2022. The lack of training centers that administer courses relevant to the job functions in electronics sector is also a concern. Moreover, the country has strict labor laws including restrictions on overtime work, employee headcount and work timings for women employees, which act as a barrier for growth in the sector.

The high cost of working capital and capex-related financing (receivables and payables) due to high interest rates is a major challenge faced by domestic manufacturers, since it increases the overall cost of finance. Additionally, there is an increase in the cost of manufacturing (conversion costs) due to inadequate availability/reliability of power, high cost of real estate, etc. The cost of borrowed capital is 12%–14% in India as compared with ~5%–7% global average. Moreover, with the frequently changing energy efficiency norms, manufacturers need to make significant investments for products with a high rating.

India’s taxation system is complex, especially where indirect taxes are concerned. Currently, the base direct tax incidence in India stands at around 30%, whereas the corresponding tariff in other Asian countries is between 16% and 25%. Although, the Government has proposed the implementation of Goods and Services Tax (GST) for a state-of the-art indirect tax system, there are concerns that the industry faces in terms of the clarity on the revenue-neutral rate, non-creditable tax on inter-state movement of goods, status of existing state incentives granted and transition from existing taxation system to GST regime.

Procedural and regulatory clearances are time consuming and complex. According to industry sources, it takes up to a year to set up a manufacturing plant in the country and a new production line could take up to six months to become fully operational.

Additionally, the refund processes and clearances to avail benefits under tax are highly cumbersome and time-consuming. Procedure to claim concessional duty on many raw materials/ parts/components used in manufacturing of electronics products has been recently simplified in the Union Budget 2016-17 by introducing the concept of self-assessment.

MSME secretary urges small companies to focus on substituting imports

Monday delivering the inaugural address at the FICCI-MSME's sixth annual MSME Summit on the theme 'Propelling MSME Growth: Ways & Means', KK Jalan, the MSME secretary said:

• Government was also planning to identify 25-30 sub-sectors in MSMEs and focus on these sectors for raising productivity and enhancing the overall landscape of MSMEs.

• He urged the MSMEs in the country to update the details of their enterprises on the MSME data bank. He added that the updated data would be used for evolving parameters for the growth of MSMEs in the country.

• He said that there was a need to carry out research in this area as it has been seen that SME credit by banks was going down. There was a need to carry out academic work in the space to understand the challenges and issues of the sector.

• He suggested that for MSMEs, a dedicated financing institute could be established like private sector NBFCs. He suggested floating of separate NBFCs for assisting micro enterprises. _"I would shy away from having some SIDBI-like institution or some state institution in this because state institutions have their own problems. Therefore, let them be in the private sector," _ he said.

• Ancillary industries contribute about 50-60% of MSME manufacturing and should be focused on, Jalan said. Substitution of imports can be a major propeller of growth of SMEs, MSME secretary K K Jalan said, singling out toys manufacturing as an example.

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Game for agri-commodities?

The Dhaanya index of the NCDEX has delivered annualised return of 19.2 per cent since January 2008, pipping most other asset classes to the post. But the high returns come with high risks

Do you know which asset class delivered the best return since the beginning of 2008? The answer is agri-commodities. While not many investors or traders would have put money in coriander or cotton seed oil cake futures, they would have made more money there than in gold or even equity.

The sharp plunge in equity markets in 2008 and the period of stagnation since 2010 have resulted in the Indian benchmark, Nifty, delivering annualised return of just 4 per cent since January 2008. Gold had its moment in the sun in the fall of 2011 but it has been a downhill ride for the yellow metal since then; resulting in yearly return of 5 per cent. Crude oil has not had it good since July 2008, delivering negative annual growth of 8 per cent. Returns from real estate have also been not much to write home about in the recent past.

However, the benchmark index of NCDEX, the Dhaanya index that is constituted with the highly-traded agri-commodities of the exchange, has delivered annualised return of 19.2 per cent since January 2008, pipping most other asset classes to the post. Some of the constituents of this index, such as rape mustard seed have given annual growth of 33 per cent since January 2008, a feat that can be matched by very few stocks.

That said, agri-commodities are not suitable for investors because there is no instrument to ride on; unlike gold where ETFs are available for investors. Agri-commodity futures traded on the commexes mainly serve the needs of the commodity producers or users of the products to help hedge their price risk. There are some arbitrageurs and traders who do operate in these exchanges but they are few in number.

While lack of avenues is a drawback, not many investors would agree to bet on rape mustard seed or jeera even if ETFs or other similar instruments were offered to them. What is it that turns off traders and investors from agri-commodities? Are their fears justified? Here we examine some of the common misgivings about agri-commodities futures to see if they are valid.

Lack of liquidity

Liquidity is a concern, but it can be surmounted by trading only on exchanges that trade higher volumes, such as NCDEX and MCX and staying away from illiquid counters.

The three largest exchanges for agri-commodities, the NCDEX, MCX (agri-commodity segment) and the NMCE together transact contracts worth ₹3,000-4,000 crore every day. This is about 2 per cent of the value of equity futures and options (F&O) traded on the national exchanges and around a tenth the value of currency derivative contracts traded on exchanges.

Liquidity in individual contracts is not too much to write home about. For instance, the top-traded contracts on the NCDEX trade roughly between ₹200 crore and ₹500 crore every day but many contracts witness less than ₹100 crore of transaction per day.

Aurobindo Gayan, Vice-President-Research, Kotak Commodities, says that there are three factors that a person must keep in mind while selecting a commodity to trade in — the volume or participation level in that commodity, the sowing and harvesting pattern and his risk appetite. He says that of the total volume of agri-commodities traded every day, roughly 40 per cent comes from the edible oil cluster — soyabean, soyaoil, crude palm oil and mustard. These are followed by sugar, cotton and other spices.

But the sowing and harvesting pattern of a commodity affects seasonal liquidity, too. For instance, soyabean is harvested between October and December in India. The users of soyabean try to buy this commodity during this period making the contract very active in this period. On the other hand, in March or April, this contract could get quite inactive.

The trader’s risk appetite also needs to be considered as the exchange charges mark-to-market margin everyday on the outstanding positions. It is best to set aside a certain sum at the outset as the draw-down or (the reduction from your capital) that you are willing to take.

Sushil Sinha, Executive Director, Karvy Comtrade, says that it is possible that an investor might be aware of the factors affecting the price of a certain commodity as the commodity is grown in the region he resides in or because he is a user and hence follows it closely. It is best to stick to such commodities where familiarity is higher.

Price manipulation

Thin liquidity on many counters that enables price rigging is one of the main drawbacks of commexes. Instances of a few players, who are privy to price-sensitive information regarding a commodity, forming a cartel to rig up the price are quite common in the Indian agri-commodity market. That is one of the reasons why the history of this segment is strewn with suspensions and outright bans of commodities. The guar gum and guar seed episodes of 2011 and 2012, where prices rocketed high in a crazy manner was mainly due to low liquidity and lack of strong players to act as counter-party.

While the market is maturing, this threat has not entirely vanished, as is evidenced by the suspension of the castor seed contracts in January and the chana futures in June this year. Threat of excessive speculation affecting the spot prices was cited as a reason for these recent suspensions, too.

The market regulator has plans to increase participation in agri-commodities by allowing domestic financial institutions, mutual funds and foreign institutional investors to participate here. Once that happens and volumes increase, this issue can be addressed. Traders can, meanwhile, mitigate this risk somewhat by staying in the more liquid counters. But the threat of the contract getting suspended, if there is a sharp one-sided movement in the commodity, continues and remains one of the greatest risks in this segment.

Fragmented spot market

The absence of a unified spot market that can provide the underlying price for anchoring the futures price is considered another drawback for the Indian agri-commodity segment. But exchanges have a process in place to ensure that spot and future prices are not entirely out of whack.

This is done through a price polling mechanism that is followed by the agri-commodity exchanges. The NCDEX follows a pretty elaborate method under which spot prices of each commodity are collected from a set of empanelled dealers and stakeholders most relevant for that commodity from various spot markets and mandis. These prices are bootstrapped (removing the outlier prices) and subject to further smoothening through statistical means to arrive at the spot price that is flashed live on the exchange.

SEBI, in a circular issued this month, has laid down rules regarding the disclosure needed to be made by exchanges regarding the methodology followed, the centres and panellists used for each commodity.

Finding a spot price to anchor commodity prices will become a lot easier once the proposed National Agriculture Market is fully operational. This is a pan-India electronic platform that will connect all the APMC mandis to create a unified spot market for agricultural produce.

NCDEX puts out live data on both the spot and future prices of contracts; this can help you select the commodity with the least variance.

Fear of government intervention

This is also not too great a concern as, over the years, the agri market has realised that it is best not to show too much interest in commodities too prone to government control.

If we consider the weights in the CPI index, for the base year of 2012, cereals and products have weights of 12 per cent in the rural basket and 6.5 per cent in the urban basket. Of the main cereals consumed in the country, rice has already been suspended from trading. While wheat and maize are traded on agri-commexes, volumes are not too high on these counters.

Of the politically sensitive pulses cluster, tur, arhar, etc, have already been suspended from trading. Trading in chana was suspended in June. Sugar continues to be vulnerable to political risk and hence, traders here need to keep a tight watch on government policies as well.

Edible oils, such as mustard, and soy refined oil have higher weights in the CPI and hence, are exposed to risk from government intervention. So, traders need to tread cautiously here as well.

Information deficit

There is a perception that commodities are a black-box with information hard to come by. But this is far from the truth. Exchanges provide a wealth of information on factors governing the price of each commodity, its price patterns and so on. Brokers also issue reports on commodities that can be quite helpful. Apart from this, investors should track the harvesting and sowing periods of a commodity, says Sushil Sinha. It is also important to follow the monsoon, on the IMD website. Most commodities are internationally traded, too, so information can be obtained from international exchanges, and research reports. Sites such as USDA (US Department of Agriculture) and the Indian Ministry of Agriculture can also be tapped.

Keeping track of mandi prices is essential at present. This can be done by following these prices on exchange websites or from the daily reports issued by brokers.

Game for risk?

To sum up, liquidity is generally low in commodity exchanges but some counters (in certain seasons) show enough liquidity to enable trading. Information is also not too hard to come by for those interested in following the market. Also, exchanges are trying to make the futures price as close as possible to the price traded on the mandis.

But the risk of sharp price movements due to price manipulation by a few insiders remains open. With SEBI at the helm, these wrongdoers could be checked, and the system cleaned up eventually. But that could take years. Meanwhile, the regulators continue to remain jumpy and continue to suspend trading in contracts with excessive price movements, leaving the users of these contracts in the lurch. This is eroding the credibility of these exchanges.

So, while agri-commodities could be an alternate avenue for making some money, it is suited only for the risk-takers.

Cost of coal must come down

This will reduce discoms’ purchase costs

PRAVEER SINHA, CEO and MD, TPDDL

Tata Power Delhi Distribution (TPDDL) is one of the private power distribution companies serving Delhi. It is a joint venture between Tata Power and the Delhi Government and supplies electricity to 7 million people in North and North-West Delhi. Business Line spoke with Praveer Sinha, CEO and MD, TPDDL, on issues such as UDAY, the Centre’s scheme for financial restructuring of state power distribution utilities and on ways of bringing down the cost of electricity.

Do you think the results of UDAY (Ujwal DISCOM Assurance Yojana) have begun impacting the power sector? What are the benefitsthat private power distribution utilities (discoms) can derive if the scheme is extended to them too?

UDAY is a very innovative scheme which primarily provides an incentive to the State discoms to improve their operations. The main feature is that their debt has been taken over by their respective state governments which in turn have issued UDAY bonds. To that extent, the discoms’ financing cost has come down.

They were earlier spending 12-15 per cent on debt financing which has now come down to 8 -10 per cent. It was expected that this benefit would enable the discoms to purchase more power.

Unfortunately, that has not happened because many State discom have only recently, in the last six months gone through the UDAY process.

This summer too the peak power supply was less than 150 million units, though people’s actual power demand must have been much higher.

Hence, my feeling is that the benefit that should have come by way of more power being purchased by the state discoms to meet the requirement of consumers has not happened fully.

Nearly 40,000 MW of generation capacity continues to remain stranded and the average plant load factor on an All India basis continues at less than 60 per cent. So, this demonstrates that demand has not gone up at the expected pace.

In the case of private discoms, instead of the respective states governments, the banks or entities such as PFC and REC can come out with bond issues.

Suppose a discom has an existing loan of ₹1000 crore at 15 per cent interest rate.

It can now take the same loan from the bond-issuing entity at 8 -10 per cent,.

This amount can be put in an escrow account and be used for repaying the original loan/ bond amount.

So, the cost of capital will go down drastically and some of that benefit can be passed on to consumers by way of lower tariffs.

NTPC’s generation costs eased in the June 2016 quarter. Have you benefited from this in the form of lower cost of power purchases?

In the last six months, there have been three increases in the cost of coal. The first is the increase in the Clean Environment Cess from ₹200 to ₹400 a tonne.

The second has been the hike in prices by Coal India by 9-19 per cent (for coal grades G6-G13) and the third has been the increase in railway freight charges.

So, the tariff (charged by the generating company to the distribution utility) has gone up by about 10 per cent on an average. The cost of power from the plants from which NTPC is supplying to us has actually gone up as per the invoices received by us in June and July 2016 vis-a-vis the invoices for January/February 2016. So, the cumulative impact on the cost of coal will get reflected in higher tariffs in the coming year.

Power purchase cost constitutes the single biggest expense item for a discom. What according to you are some of the best ways of controlling this cost?

The main source of power supply in India continues to be coal-based. So, the cost of coal has to come down. Coal India being a monopolistic supplier fixes the prices of coal on an arbitrary basis.

There is no regulator for coal while there is a regulator for power. So, there is need for some control. Secondly, there is lot of grade slippages in the quality of coal that is being supplied. Power companies are being billed for a higher quality of coal than what is being supplied.

So, until and unless grade slippages are sorted out and there is a third party to check coal quality, both at the loading end and unloading end, this challenge will continue.

From what I understand, third party sampling is being done at the coal loading end but not at the receiving (unloading) end.

Earlier grade slippages used to be in the range of 7-8 grades (each grade slippage implies a reduction of 300 kilo calories). It has come down to 5 grade slippages.

So, if the way in which coal is being supplied from the mine to the power plant is corrected, I think there can be tariff reduction by nearly 10-15 per cent. Also, there are a large number of old power plants — 30,000 MW in the state sector and 13000 MW in the central sector. They consume huge amounts of coal. So, if they are shut down and instead the high efficiency plants are allowed to operate, then that too will lead to reduction in tariff.

The discoms in Eastern and North- Eastern India are the worst performers. Why is it so?

Some of the States in Eastern and North-Eastern India have not been able to improve their collection and billing efficiency and also reduce their AT&C (aggregate technical and commercial) losses because their network is in a very dilapidated condition, there have been no technology interventions and there are issues relating to capacity building and training of manpower.

There have also been issues of general lack of governance in many of these discoms.

Apart from that, there are problems of tariff revision. Many States do not revise tariffs every year and even if revisions take place, they are not cost reflective.

Have the Delhi discoms begun compensating consumers for unscheduled power cuts as provided under the amendment to the Delhi Electricity Supply Code and Performance Standards Regulations?

The Delhi High Court in its order has said that the basis on which this order was issued was not legally correct and therefore it is being re-examined by the government and the Delhi Electricity Regulatory Commission. So, till such time nothing can be done.

How public capex can boost GDP

It can lift India’s medium-term growth potential and add to productivity

There are a number of reasons why India needs more public capex. The latest growth figures show that the economic recovery is going through a soft patch — fixed investment growth continues to fall and with ample spare capacity, high leverage and a weak global growth outlook, a recovery in private sector investments seems elusive. It is in this context that all eyes have turned to public capex to fill the void.

Big push

The government is aware of the urgency. It has made regulatory modifications to remove existing bottlenecks, such as the one-time fund infusion into stalled road projects, the revised hybrid annuity model for roads and easier exit policies for road developers, among others. Additionally, boosting public investment in new infrastructure projects is one of its key reform agendas. The focus is on various sectors, including railways, roads, renewable energy, inland waterways, ports and smart cities.

In the FY17 Budget, the Centre announced a 17 per cent increase in public capex, equating to 3.7 per cent of GDP. The government plans to more than double the pace of road construction over the next five years, raise rail investment to 5.7 per cent of GDP over FY16-20 from 2.4 per cent over the last five years, and implement port-led development projects worth ₹2.45 trillion (1.6 per cent of GDP). The total planned spending is substantial.

PSU funds

Given the size of the capex requirement, the obvious question is where the funding will come from. Historically, the majority of public capex has been funded by public sector units (PSUs), rather than the Centre. For instance, in FY15, of the 7.4 per cent of GDP in public investment, PSUs contributed 3.2 per cent and States another 2.6 per cent while the Centre’s was only 1.6 per cent. Even this year, two-thirds of envisioned infrastructure investment is to be funded off the Centre’s balance sheet via loans, equity and PSU profits. This implies that funding capacity critically relies on PSUs, rather than the Central government.

The good news here is that except the telecom and power sectors, where PSUs have high debt levels, other PSUs like those in the capital goods and infrastructure sectors have strong balance sheets and negative net debt-to-equity, which indicates that PSUs have the funding capacity. There are other sources of funding as well. The railways, for instance, have secured loans from the Life Insurance Corporation of India against a portfolio of 24 project corridors. Multilateral agencies and market borrowings are also partly funding the capex plan. As such, funding should not be a constraint.

Execution challenges

More than funding, execution has historically been a bigger challenge. Between FY08 and FY13, actual capex through internal and extra budgetary resources of PSUs was on average 17 per cent short of budgeted levels. In April-July FY17, the Central government has spent only 28.9 per cent of its budgeted capex compared with 35.6 per cent over the same period in FY16.

That said, the government did exceed its off-balance sheet capex target in FY16, which itself was 40 per cent higher than a year ago. Last year, the port sector added 94 million tonnes of capacity — the most in a single year – suggesting that execution under the current government is improving. In railways, electrical and civil contracts awarded for the dedicated freight corridor are around 80 per cent complete.

Data on road construction and awarding paints a similar story. The pick-up in project-awarding activity suggests that actual construction should gain traction in the coming quarters.

The economic impact of public capex depends on its efficiency, the quality of investment projects and the state of private capex.

A 2015 IMF study noted that about 27 per cent of the potential benefits of public investment in emerging markets are lost due to process inefficiencies. The government’s recent execution track record, curbs on corruption and strict timelines suggest that it is focused on improving efficiency.

The quality of spending is also high. Of the budgeted ₹5.6 trillion in Central government public capex, more than 50 per cent (₹3.1 trillion) is focused on building transportation infrastructure, which should help reduce logistics costs for private sector manufacturing firms. This could ‘crowd in’, rather than ‘crowd out’ private investment.

According to a 2013 RBI study, public capex (Centre) can have significant multiplier effects on GDP: 2.1x in the same year, rising to 3.84x in three years. Using this, we estimate that the budgeted public capex by the Centre and PSUs could add 0.9 percentage points to FY17 GDP growth. This may not seem huge given the focus on public capex, but with most of the spending focused on infrastructure where gestation periods are long, the full benefits will accrue only over the next two to three years.

In all, a successful launch of public capex would not only drive near-term growth, but it would also boost India’s medium-term growth potential by adding to the capital stock and productivity. Hence, even though public capex is off to a slow start, it is moving in the right direction and will build a solid foundation for sustainable growth.

Why the Paperless Office Is Finally on Its Way

The shift comes amid a steady decline in paper usage coupled with rise in tablets, mobile devices

Every year, America’s office workers print out or photocopy approximately one trillion pieces of paper. If you add in all the other paper businesses produce, the utility bills and invoices and bank statements and the like, the figure rises to 1.6 trillion. If you stacked all that paper up, it would be 18,000 times as high as Mount Everest. It would reach nearly halfway to the moon.

This is why HP Inc.’s acquisition of Samsung Electronics Co.’s printing and copying business last week makes sense. HP, says a company spokesman, has less than 5% of the market for big, high-throughput office copying machines. The company says the acquisition will incorporate Samsung’s technology in new devices, creating a big opportunity for growth.

Yet by all rights, this business shouldn’t exist. Forty years ago, at least, we were promised the paperless office. In a 1975 article in BusinessWeek, an analyst at Arthur D. Little Inc., predicted paper would be on its way out by 1980, and nearly dead by 1990.

The reality is the high-water mark for the total number of pages printed in offices was in 2007, just before the recession, says John Shane, an analyst at InfoTrends, which has tracked the printing and document creation industries for the past 25 years and who compiled the eye-popping figures cited above.

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To say we haven’t gotten the paperless office so far isn’t to say we won’t. It is always dangerous to say “this time it’s different,” but this time it just might be. For the first time in history, there is a steady decline of about 1% to 2% a year in office use of paper. Add in the dip in use during the most recent recession, and as of 2016, we are already 10% below the peak of the number of pages produced by office printing and copying in 2007.

This trend represents inroads made by everything from tech unicorns such as DocuSign Inc., the biggest player in electronic signatures, to the rise of tablets and mobile devices. More important, it represents a change that took much longer than anyone anticipated. It was delayed by the fact that business gets done in vastly more ad hoc and complicated ways than anyone appreciated.

The persistence of paper in the workplace—60% of which isn’t optional printing, says Mr. Shane—represents business processes that change slowly, if at all. It is the small- and medium-size businesses that have been the slowest to get rid of paper—in other words, to fully digitize their workflows.

There is also the fact that paper is awesome. It is the only input and display technology we have that weighs almost nothing, costs pennies, is readable in almost any light, and doesn’t require an internet connection. It is the epitome of portability and durability.

Xerox Corp. employs a team of ethnographers to study why people print, says its head of workflow automation, Andy Jones. Their research reveals “There are so many work practices and attitudes that are ingrained in how companies work,” making it surprisingly difficult for older, larger companies to change. And when Mr. Shane asked respondents why they did the 40% of printing that wasn’t absolutely necessary for their job, the most common answer was simply that they “liked paper.”

Still, companies are making genuine progress. Take Bahrns Equipment Inc., of Effingham, Ill. Tara Funneman, who has worked for 27 years in the office of the company, which sells and distributes forklifts and lawn-and-garden equipment, says when she started in 1987, they had only one “really large” computer they used once a month for five to 10 minutes. “We printed one report from Lotus 1-2-3, turned it back off and everything else was done by hand,” she says.

Nowadays, every one of Bahrns’s service technicians carries an iPad or a mobile phone, and uses software made by Reston, Va.-based Canvas Solutions Inc. The device and software together replace what used to be three-part forms filled out with pen on a clipboard, which were often incomplete, inaccurate, or illegible, and were a nightmare to input into the company’s back-office systems. Switching to Canvas three years ago has already eliminated one clerical position at the company, says Ms. Funneman.

Knowledge workers also still print out documents to mark up, edit, learn from, and collaborate on them. But, at least in part, this may be generational. One reason we are closer to the paperless office is new, digital native organizations tend not to use the stuff.

And as cloud-based collaboration tools like Microsoft Office 365 and Google Docs become the norm, the rest of us may find ourselves simply accomplishing these tasks in ways that don’t perfectly map to the way we accomplished them on paper.

History has shown the demise of paper will be gradual. The amount people print in offices may be declining 1% to 2% a year, but it is still a mind-bogglingly large market.

“I think it will take 15-20 years, when the millennials who grew up with digital photos and smartphones take over senior positions in companies, to see the transition to a paperless office,” says Loo Wee Teck, head of consumer electronics at market research firm Euromonitor. “We, the Gen Xers, are the dinosaurs hindering evolution.”