India has been a cash cow for banks in the last few years, with a surge in CPO spending on infrastructure and services, which are increasingly seen as an indicator of economic recovery and growth.
But what is the impact of CPO expenditure on the economy and growth?
Here is what we know about the trend.
India’s CPO investment spending increased for the first time in almost two years in the year to June, with nearly 20% of the CPO budget going to new and innovative products, and the other 90% to fixed capital investment (FCI) projects.
This is the second consecutive month that the trend has been above 20% investment, and it will continue to rise as the country’s economy grows.
In fact, the trend is even more pronounced than last year, when the government cut spending on CPPI to 2% of GDP.
This will mean an increase in investment of over Rs 1,200 crore (about $220 million) in the current fiscal year, compared to a deficit of around $1.5 billion in the previous year.
This may not seem like a lot, but it represents a significant jump from the previous three years, when India’s economy grew at a rate of just 0.3% in the three months to June.
That is more than double the 0.2% growth rate for the whole of 2016.
The growth outlook remains strong.
The government has already set up the National Investment Bank of India (NIBI), which will help finance infrastructure projects and CPO projects.
But the government has been keeping a low profile about the NIBI, which has only recently opened its doors.
While there are a lot of projects under way, the government seems to be focussing on the projects that will benefit the country most.
These include projects like electrification of railway lines, the new National High Speed Rail (HST) in Bihar, and a major infrastructure programme for the eastern states of Maharashtra, Karnataka and Tamil Nadu.
India is already seeing an increase of CPPIs in terms of investment, thanks to the government’s decision to give incentives to banks to build and run CPPOs, as part of the NDA’s ‘Make in India’ initiative.
The NDA also introduced a cash transfer scheme for CPO customers, with payments made in the form of bank notes and bank deposits going towards projects like a new railway line in Odisha, the Delhi Metro Rail Project, a new road bridge across the Yamuna River in Maharashtra, a railway bridge in Rajasthan, and new power plants in Tamil Nadu and Kerala.
The government has also set up an online platform where individuals can access the new infrastructure fund and deposit funds directly into their bank accounts.
The recent increase in CPPO spending may also be partly due to a change in government policy towards CPPs.
The Reserve Bank of the Reserve Bank had announced earlier this year that it would no longer allow bank deposits for CPP projects until 2020, while it also cut the interest rate on deposits to 0.5% from its usual 1%.
This may have given banks more leeway to make money by making loans and investing in CPE projects.
On the other hand, the Modi government has announced that it will be introducing a new levy on the CPP industry, which will reduce the incentive for banks to offer CPP loans.
This would also give more flexibility to the banks to lend to CPP businesses, particularly those in rural areas.
While the growth outlook has not changed much in the past two years, there are signs that investors are starting to pay more attention to India’s infrastructure.
In fact, a recent report by BGC Markets showed that the country is poised to exceed the $1 trillion mark in infrastructure investment over the next three years.
In the same report, it also revealed that infrastructure spending is on track to reach an all-time high for the year, with the CME Group and Indian Railways both forecasting an average annual growth of at least 2% in 2019.
But there are still some challenges ahead for infrastructure investment.
The CPO industry is a rapidly growing industry in the country.
While there are about 20,000 new CPE enterprises in India, the average capacity is only about 6,000 units per year.
This is the same number that companies in the US and the UK average for the same period.
Moreover, a large number of these enterprises are located in rural and marginal areas, which means the capacity will be even lower than in the cities.
The number of CPEs per 1,000 population in India is estimated to be about 7.2, and as the report notes, in urban areas, it is only 4.2.
So the question is whether infrastructure investment is really helping to grow the economy.