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Indian traders unite against Amazon CEO, call him 'Economic Terrorist'

Jeff Bezos was in India to announce the investment of $1 billion to digitize small businesses

17 Jan 2020

Amazon

Amazon CEO Jeff Bezos was greeted with more than less of a lukewarm response on his two-day visit to India to announce the investment of $1 billion to digitize small and medium businesses where he said that in the 21st century, “the most important alliance is going to be the alliance between India and the United States.”

However, not impressed with Amazon’s intervention, small business owners took to the streets with demonstrations being planned across 300 cities said Sumit Agarwal, National Secretary of the Confederation of All India Traders (CAIT).

 

 

 

 

 

Protests against the retail giant were held in Delhi, Jharkhand, Madhya Pradesh, Pune, Patna, Ahmednagar, Jammu, Chattisgarh and Mumbai among other places. Armed with posters that read “Jeff Bezos Go Back” and “Amazon Go Back” protesters complained that Amazon had used its reputation and global presence to undercut small business on price by offering steep discounts to large sellers, something that small business aren’t in a position to do.

The Competition Commission of India, India’s anti-trust regulator too opened an investigation into Amazon and Flipkart alleging them of predatory pricing, the exclusive launch of products like mobile phones, saying they use their market dominance to price inventory ‘below cost’ giving a trying time to business who in turn find it difficult to compete with such prices.

India is a country of neighborhood or ‘kirana’ stores from where the people of India have been shopping. These ‘mom and pop’ outlets are now increasingly seeing digitization with most of the stores accepting debit cards and online wallet payments to serve customers better. However, with a massive online presence and ease of shopping, websites like Amazon and Flipkart pull customers towards them with low prices, choice and quick delivery.

Amazon claims it has done a lot to empower retailers in India, creating over 60,000 jobs and investing around $5 billion, working with more than half a million sellers in the market place, reports BBC. During this visit, Bezos announced that Amazon would look to export goods worth $10 billion from India by 2025.

However, Commerce Minister Piyush Goyal seemingly did not approve of Bezos intentions. A day after Bezos’ announcement, Goyal said, “They may have put in a billion dollars, but if they make a loss of a billion dollars every year, then they jolly well will have to finance those billion dollars. So, it is not as if they are doing a favour to India when they invest a billion dollars.”

Trade bodies hailed Goyal’s mega snub, with members of trade organizations asking the retail giant to follow the laws or exit from the market. However, P Chidambaram, former Finance Minister took a sarcastic dig at Goyal saying that the Commerce Minister should snub Google CEO Sundar Pichai and Microsoft CEO Satya Nadella next to make India a $5 trillion economy.

 

 


Related:

Global funds staying away from India, Modi magic failing?
Inflation and Oil: What ails India’s economy?
India goes on strike against anti-people policies of the Modi Govt.

Indian traders unite against Amazon CEO, call him 'Economic Terrorist'

Jeff Bezos was in India to announce the investment of $1 billion to digitize small businesses

Amazon

Amazon CEO Jeff Bezos was greeted with more than less of a lukewarm response on his two-day visit to India to announce the investment of $1 billion to digitize small and medium businesses where he said that in the 21st century, “the most important alliance is going to be the alliance between India and the United States.”

However, not impressed with Amazon’s intervention, small business owners took to the streets with demonstrations being planned across 300 cities said Sumit Agarwal, National Secretary of the Confederation of All India Traders (CAIT).

 

 

 

 

 

Protests against the retail giant were held in Delhi, Jharkhand, Madhya Pradesh, Pune, Patna, Ahmednagar, Jammu, Chattisgarh and Mumbai among other places. Armed with posters that read “Jeff Bezos Go Back” and “Amazon Go Back” protesters complained that Amazon had used its reputation and global presence to undercut small business on price by offering steep discounts to large sellers, something that small business aren’t in a position to do.

The Competition Commission of India, India’s anti-trust regulator too opened an investigation into Amazon and Flipkart alleging them of predatory pricing, the exclusive launch of products like mobile phones, saying they use their market dominance to price inventory ‘below cost’ giving a trying time to business who in turn find it difficult to compete with such prices.

India is a country of neighborhood or ‘kirana’ stores from where the people of India have been shopping. These ‘mom and pop’ outlets are now increasingly seeing digitization with most of the stores accepting debit cards and online wallet payments to serve customers better. However, with a massive online presence and ease of shopping, websites like Amazon and Flipkart pull customers towards them with low prices, choice and quick delivery.

Amazon claims it has done a lot to empower retailers in India, creating over 60,000 jobs and investing around $5 billion, working with more than half a million sellers in the market place, reports BBC. During this visit, Bezos announced that Amazon would look to export goods worth $10 billion from India by 2025.

However, Commerce Minister Piyush Goyal seemingly did not approve of Bezos intentions. A day after Bezos’ announcement, Goyal said, “They may have put in a billion dollars, but if they make a loss of a billion dollars every year, then they jolly well will have to finance those billion dollars. So, it is not as if they are doing a favour to India when they invest a billion dollars.”

Trade bodies hailed Goyal’s mega snub, with members of trade organizations asking the retail giant to follow the laws or exit from the market. However, P Chidambaram, former Finance Minister took a sarcastic dig at Goyal saying that the Commerce Minister should snub Google CEO Sundar Pichai and Microsoft CEO Satya Nadella next to make India a $5 trillion economy.

 

 


Related:

Global funds staying away from India, Modi magic failing?
Inflation and Oil: What ails India’s economy?
India goes on strike against anti-people policies of the Modi Govt.

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Inflation and Oil: What ails India’s economy?

Will 2020 prove to be a better year for India’s economy?

10 Jan 2020

IndiaImage Courtesy: thehansindia.com

Mudhol’s Vittal Tolamatti is laughing his way to the bank, crying tears of joy after he earned a whopping Rs. 92.8 lakh growing onions on his 24 acres of land in the quarter of October – December, reported the Deccan Herald.

But Tolamatti seems to be the lucky one. A Reuters poll of economists has predicted that rising vegetable prices may have had pushed retail inflation to its highest at 6.20% in December for a third straight month, exceeding the Reserve Bank of India’s medium-term target of 4%.

Onion prices went through the roof, soaring tenfold, contributing to the surge in food inflation that has been spiking since March. Products like vegetables, eggs, meat and fish pushed the retail inflation higher.

The National Sample Survey (NSS) recorded a 3.8 percent fall in per capital consumption expenditure for the country, with the decline in rural areas being close to 10 percent; potentially pushing more people towards destitution and undernourishment.

India has been suffering from ‘stagflation’ or ‘recession – inflation’ witnessing a slow economic growth and a high rate of joblessness with unemployment rate being at 7.7 percent in December 2019.

The output of primary goods that include the industries of agriculture, fishing, mining and forestry fell by 6 percent, consumer durables declined by 18 percent, construction and infrastructure output declined by 9.2 percent and the production of capital goods (buildings, machinery, equipment, tools & vehicles) fell by 21.9 percent. However, the output of intermediate goods (partly finished goods used as inputs in the production of other goods) increased by 22.2 percent.

The current inflation, experts say, is caused by the decline in output of several commodities relative to the shrinking purchasing power in the hands of the people, who are spending more money on food items, leaving them with less to spend on industrial and other commodities thus enhancing the already soaring demand deficiency in such sectors.

Now, after the tensions between the United States of India and Iran, the already suffering economy could suffer a shock from the outside, weakening the already shaky economy.

India meets more than 80 percent of its crude oil requirements, importing 4.5 million barrels of oil per day; and since the killing of General Qassem Soleimani lead to an increase in the hike of petrol prices. Currently, petrol and diesel prices are at around Rs. 75.69 and Rs. 68.68 a liter in Delhi respectively.

Higher crude oil prices and the unstable situation means India will have to pay more for insurance of the oil tankers that come to Indian shores. Experts estimate that for every $10 rise in crude oil prices, India will have to end up paying an extra $1.5 billion every month. This will push retail inflation in the country by 0.4 percent transport runs on fuel.

In 208-19, India’s import bill was around $140 billion, the current food inflation and any further increase in oil prices could only end up stoking inflation at a time when the economic growth is at an 11-year low of 5.8 percent.

However, experts believe that India will not face a crude oil shortage if tensions escalate because many countries like Venezuela, Saudi Arabia and other Mediterranean and Middle East countries can ensure supplies to the nation.

With the current economic downturn, India is facing a risk of slipping back into the ‘fragile five’, making it dependent on outside investment to fund economic growth. Slower growth in the construction sector means lesser employment opportunities and lower income. Not only the decline in exports, but also the lower imports due to lower consumption pose a worrying scenario.

Stressed loans have exceeded 12 percent of total lending, food inflation has spiked, core industries – automotive, retail and manufacturing have contracted, consumer expenditure is dwindling and the GDP growth is in the doldrums. Will this turn for the better in 2020? Only time will tell.

(Information sources – Economic Times, India Today, Newsclick)

Related:

Is Harsh Goenka scared of criticizing the Modi government?
Engineers and graduates apply for gov’t sanitation worker jobs!
‘There Are Very Strong Concerns About The Indian Economy’

Inflation and Oil: What ails India’s economy?

Will 2020 prove to be a better year for India’s economy?

IndiaImage Courtesy: thehansindia.com

Mudhol’s Vittal Tolamatti is laughing his way to the bank, crying tears of joy after he earned a whopping Rs. 92.8 lakh growing onions on his 24 acres of land in the quarter of October – December, reported the Deccan Herald.

But Tolamatti seems to be the lucky one. A Reuters poll of economists has predicted that rising vegetable prices may have had pushed retail inflation to its highest at 6.20% in December for a third straight month, exceeding the Reserve Bank of India’s medium-term target of 4%.

Onion prices went through the roof, soaring tenfold, contributing to the surge in food inflation that has been spiking since March. Products like vegetables, eggs, meat and fish pushed the retail inflation higher.

The National Sample Survey (NSS) recorded a 3.8 percent fall in per capital consumption expenditure for the country, with the decline in rural areas being close to 10 percent; potentially pushing more people towards destitution and undernourishment.

India has been suffering from ‘stagflation’ or ‘recession – inflation’ witnessing a slow economic growth and a high rate of joblessness with unemployment rate being at 7.7 percent in December 2019.

The output of primary goods that include the industries of agriculture, fishing, mining and forestry fell by 6 percent, consumer durables declined by 18 percent, construction and infrastructure output declined by 9.2 percent and the production of capital goods (buildings, machinery, equipment, tools & vehicles) fell by 21.9 percent. However, the output of intermediate goods (partly finished goods used as inputs in the production of other goods) increased by 22.2 percent.

The current inflation, experts say, is caused by the decline in output of several commodities relative to the shrinking purchasing power in the hands of the people, who are spending more money on food items, leaving them with less to spend on industrial and other commodities thus enhancing the already soaring demand deficiency in such sectors.

Now, after the tensions between the United States of India and Iran, the already suffering economy could suffer a shock from the outside, weakening the already shaky economy.

India meets more than 80 percent of its crude oil requirements, importing 4.5 million barrels of oil per day; and since the killing of General Qassem Soleimani lead to an increase in the hike of petrol prices. Currently, petrol and diesel prices are at around Rs. 75.69 and Rs. 68.68 a liter in Delhi respectively.

Higher crude oil prices and the unstable situation means India will have to pay more for insurance of the oil tankers that come to Indian shores. Experts estimate that for every $10 rise in crude oil prices, India will have to end up paying an extra $1.5 billion every month. This will push retail inflation in the country by 0.4 percent transport runs on fuel.

In 208-19, India’s import bill was around $140 billion, the current food inflation and any further increase in oil prices could only end up stoking inflation at a time when the economic growth is at an 11-year low of 5.8 percent.

However, experts believe that India will not face a crude oil shortage if tensions escalate because many countries like Venezuela, Saudi Arabia and other Mediterranean and Middle East countries can ensure supplies to the nation.

With the current economic downturn, India is facing a risk of slipping back into the ‘fragile five’, making it dependent on outside investment to fund economic growth. Slower growth in the construction sector means lesser employment opportunities and lower income. Not only the decline in exports, but also the lower imports due to lower consumption pose a worrying scenario.

Stressed loans have exceeded 12 percent of total lending, food inflation has spiked, core industries – automotive, retail and manufacturing have contracted, consumer expenditure is dwindling and the GDP growth is in the doldrums. Will this turn for the better in 2020? Only time will tell.

(Information sources – Economic Times, India Today, Newsclick)

Related:

Is Harsh Goenka scared of criticizing the Modi government?
Engineers and graduates apply for gov’t sanitation worker jobs!
‘There Are Very Strong Concerns About The Indian Economy’

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Priyanka Gandhi slams EPFO’s decision to cut interest rates

If the decision comes through, it could adversely impact the retirement corpus of over 8 crore professionals

08 Jan 2020

Priyanka GandhiImage Courtesy: indiatvnews.com

Amidst reports that the Employees’ Provident Fund Organization (EPFO) is looking to reduce its interest rate leading to lower returns for salaried people, Congress leader Priyanka Gandhi Vadra issued a statement saying that when the unrest in the country grows, it must be understood that the government is slyly planning to shock the people with some drastic decision which isn’t in their favour.

She made the statement on Twitter, sharing an article that reported the EPFO’s decision to reduce the interest rate on provident funds by 15 – 20 basis points this fiscal.

https://twitter.com/priyankagandhi/status/1214531792901787648

If the EPFO, which comes under the Ministry of Labour, goes ahead with the decision of rate cuts, more than 8 crore EPFO shareholders will get less interest than before. This decision of the rate cut comes against the backdrop of the economic downturn, lower yields for debt market instruments, government securities and fixed deposits.

First of all, every employee must keep in mind to tender an official resignation and make sure it is accepted by their employer, before joining a new firm. In the case of Suresh Kumar, who spoke to ET Now and did not follow a proper procedure while switching jobs, accessing his EPF became a nightmare. As per EPFO rules, unless an employee exits his job, he can neither transfer nor withdraw his EPF.

Even partial withdrawals from the EPF were not allowed to Suresh and he could not access his EPF passbook as the account was linked to the mobile number provided by his previous company. Updating EPFO details meant contacting his previous employer. He did so and the previous company asked him to pay one month’s salary in lieu of his one month notice period to access his EPF. It must be kept in mind to always give personal email ids and contact numbers to avoid any such circumstance.

The EPF currently offers a rate of return of 8.65 percent per annum which is one of the best ways to steadily build a retirement corpus. While some think the rate cut is a good move as it is allows more take-home salary thus aiding more spending and boosting consumption, industry experts say it can be a detrimental move in the long run.

They say while the earlier generation placed a little more focus on saving, the millennial generation, if finds it unable to meet their demands, do not hesitate to borrow putting them at risk of financial turbulences. Also, the shift from the joint family system towards single family structures makes it very important to ensure financial security at the time of retirement.

Financial experts feel that though putting more money in the hands of the people will solve short term problems by boosting consumption, it would be wise to switch back to making higher contributions to their EPF accounts, helping them save more for future needs.

The Economic Times also explained that contribution towards PF qualified for tax benefits. Lesser contributions towards the PF meant much lesser tax benefits. For example, if annual contributions towards PF fall by Rs. 7,200, then for someone paying tax at the highest slab – 31.2 percent, he / she will save nearly Rs. 2,250 lesser tax.

Government officials had told Livemint in June that there was “no logic to penalize the working class” by lowering their yield.

While the EPF ensures a good amount on retirement, if the proposal to cut contribution rates goes through, experts advise professionals to explore alternative investment avenues like equity mutual funds and public provident funds (PPF) to create a retirement corpus.

Related:

Why Small Businesses That Employ 111 Million Fall Into Debt Trap
Modi no reformer, manages economy incompetently: Western investors warned

Priyanka Gandhi slams EPFO’s decision to cut interest rates

If the decision comes through, it could adversely impact the retirement corpus of over 8 crore professionals

Priyanka GandhiImage Courtesy: indiatvnews.com

Amidst reports that the Employees’ Provident Fund Organization (EPFO) is looking to reduce its interest rate leading to lower returns for salaried people, Congress leader Priyanka Gandhi Vadra issued a statement saying that when the unrest in the country grows, it must be understood that the government is slyly planning to shock the people with some drastic decision which isn’t in their favour.

She made the statement on Twitter, sharing an article that reported the EPFO’s decision to reduce the interest rate on provident funds by 15 – 20 basis points this fiscal.

https://twitter.com/priyankagandhi/status/1214531792901787648

If the EPFO, which comes under the Ministry of Labour, goes ahead with the decision of rate cuts, more than 8 crore EPFO shareholders will get less interest than before. This decision of the rate cut comes against the backdrop of the economic downturn, lower yields for debt market instruments, government securities and fixed deposits.

First of all, every employee must keep in mind to tender an official resignation and make sure it is accepted by their employer, before joining a new firm. In the case of Suresh Kumar, who spoke to ET Now and did not follow a proper procedure while switching jobs, accessing his EPF became a nightmare. As per EPFO rules, unless an employee exits his job, he can neither transfer nor withdraw his EPF.

Even partial withdrawals from the EPF were not allowed to Suresh and he could not access his EPF passbook as the account was linked to the mobile number provided by his previous company. Updating EPFO details meant contacting his previous employer. He did so and the previous company asked him to pay one month’s salary in lieu of his one month notice period to access his EPF. It must be kept in mind to always give personal email ids and contact numbers to avoid any such circumstance.

The EPF currently offers a rate of return of 8.65 percent per annum which is one of the best ways to steadily build a retirement corpus. While some think the rate cut is a good move as it is allows more take-home salary thus aiding more spending and boosting consumption, industry experts say it can be a detrimental move in the long run.

They say while the earlier generation placed a little more focus on saving, the millennial generation, if finds it unable to meet their demands, do not hesitate to borrow putting them at risk of financial turbulences. Also, the shift from the joint family system towards single family structures makes it very important to ensure financial security at the time of retirement.

Financial experts feel that though putting more money in the hands of the people will solve short term problems by boosting consumption, it would be wise to switch back to making higher contributions to their EPF accounts, helping them save more for future needs.

The Economic Times also explained that contribution towards PF qualified for tax benefits. Lesser contributions towards the PF meant much lesser tax benefits. For example, if annual contributions towards PF fall by Rs. 7,200, then for someone paying tax at the highest slab – 31.2 percent, he / she will save nearly Rs. 2,250 lesser tax.

Government officials had told Livemint in June that there was “no logic to penalize the working class” by lowering their yield.

While the EPF ensures a good amount on retirement, if the proposal to cut contribution rates goes through, experts advise professionals to explore alternative investment avenues like equity mutual funds and public provident funds (PPF) to create a retirement corpus.

Related:

Why Small Businesses That Employ 111 Million Fall Into Debt Trap
Modi no reformer, manages economy incompetently: Western investors warned

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Karnataka Bank reports fraud of Rs. 40 crore

Hanung toys and Textiles Ltd was stated to be a non-performing asset and wilfully defaulting company

09 Dec 2019

FraudImage Courtesy: dailykiran.com

Last week, Karnataka Bank, reported a fraud of Rs. 40.39 crore in the credit facilities to Hanung Toys and Textiles Ltd, on account of diversion of funds, which has been declared a non-performing borrowing account, the Deccan Herald reported.

Hanung Toys and Textiles Ltd dealing with the bank since 2008 had availed various credit facilities under consortium arrangement since 2008 where Karnataka Bank was one of the member banks.

The company owes Rs. 2,300 crore to a consortium of 15 lenders led by state-own Punjab National Bank, which alone has an exposure of Rs. 599 crore.

"On the basis of forensic auditor's report submitted to the consortium, some of the member banks have reported to the Reserve Bank of India (RBI) regarding fraud in the borrowing account.

"In line with the Consortium decision, Karnataka Bank has reported to RBI a fraud amounting to Rs 40.39 crore in the credit facilities extended earlier to the borrowing account, on account of diversion of funds," Karnataka Bank said.

The bank said that Hanung Toys and Textiles had been classified as a non-performing asset (NPA) in July 2015 and had been fully provided for and as such, no negative impact on the bank's profitability at present.

Several other banks too have declared Hanung Toys and Textiles Ltd to be a wilful defaulter.

Hanung Toys and Textiles Limited

Hanung Toys is promoted by Ashok Kumar Bansal. He has been an IKEA supplier for 15 years and his company had been in the news for a hefty order worth Rs. 600 crore by the Swedish retailer in 2007.

Its toy manufacturing units are set up in the Noida Special Economic Zone (SEZ) and its production units include facilities in Roorkee, Bhiwandi and Noida set up to make toys and home furnishings.

In 2018, PNB had taken Hanung Toys and Textiles Ltd to the bankruptcy courts for unpaid loans. The PNB-led consortium of lenders had collectively loaned the amount to the toy-maker around three years ago in debt restructuring for around 1,800 crore.

In November 2019, authorities detained Ashok Kumar Bansal and his wife Anju Bansal, who were on their way back from Dubai, at the Delhi Airport following a lookout notice issued by the Punjab National Bank.

The Free Press Journal reported that a corporate debt restructuring plan crafted by the company four years ago failed to take off as Ashok Bansal, the Chairman couldn’t bring in his share of equity which stood at Rs. 82 crore which led to an increase in outstanding dues to Rs. 2,300 crore.

Wilful defaulter

In November 2019, the Reserve Bank of India (RBI) released a list of top 30 wilful defaulters in response to an RTI application filed by The Wire. The application came in four years after the Supreme Court had directed the RBI to disclose a list of wilful defaulters in India. While MehulChoksi’sGitanjali Gems stood at the top with a default amount of Rs. 5,044 crore, Hanung Toys and Textiles showed a default amount worth Rs. 949 crore.

The corporate debt restructuring (CDR) cell in 2015 had pointed out that according to data, every three cases approved for debt repair under the CDR mechanism had failed and exited the cell. In July that year, Hanung Toys and Textiles Ltd had exited the cell after failing to implement the CDR package.

The reasons for this, sources told Livemint were that failures occurred mostly due to the promoter’s inability to bring in his share of contribution apart (as was in the case of Ashok Bansal) from the company’s inability to meet business projections.

Karnataka Bank fraud list

Apart from the recent fraud reported by the bank in the case of wilful defaulting by Hanung Toys and Textiles Ltd, the bank in November had reported a fraud of Rs. 13.36 crore on account of diversion of funds, in the working capital facility extended to SRS Finance Ltd.

In 2018, it had reported a fraud totaling Rs. 86.47 crore in loans extended under consortium agreements to MehulChoksi’sGitanjali Gems. In a BSE filing it said, “The bank has reported a fraud to Reserve Bank of India amounting to Rs86.47 crore in the fund based working capital facilities extended to Gitanjali Gems Limited on account of non-realization of exports bills and diversion of funds.”

This year, the RBI had slapped a fine of Rs. 4 crore on the bank for violating regulatory norms. The charge was levied due to the failure of the bank with regards to the delay in implementation of four of the Swift related operational controls.

In July this year, the bank launched a web tool named VASOOL SO-Ft (VASOOL SO FAST) to digitalise the NPA recovery process.

The bank has reported a 5.3 percent year-on-year decline in its net profit at Rs. 105.91 crore for the quarter that ended in Sept 30, 2019. Even with the regulatory disclosures on bad loans, the bank was working to keep its NPAs below five percent. CEO & MD MAhabalaeshwara MS had told Business Standard last year, "There was actually no pain in the sense that we have exposure to some corporates through the consortium. With the change in NPA recognition norm, we had to recognise a few of those accounts as NPA because of default by these groups on loans from other banks. We took this opportunity to clean up our balance sheet and make adequate provisions.”

This year, the percentage of its NPAs rose to 4.78 percent against 4.66 percent in the same quarter last year, with values standing at Rs. 2,594.27 crore this year against Rs. 2,371.62 crore last year.

NPAs haunting Indian banks

In response to an RTI application filed by CNN-News 18, the Indian banking system, in the past three years has lost Rs. 1.76 lakh crore for writing off non-performing loans to 525 defaulters, with each of the defaulters owing Rs. 100 crore or more.

The responses to the RTI showed that there had been a constant increase in the amount written off by commercial banks since 2014 – 15 with the sharpest upsurge in 2017 and 2018, post demonetization.

In 2015, loans to the tune of Rs. 40,798 crore were written off. This number increased to Rs. 69,976 crore in 2016, Rs. 127,797 crore in 2017 and Rs. 217,121 lakh crore in 2018.

Newsclick reports that the write-offs are in accordance with an RBI directive that had asked the scheduled commercial banks to come clear on the amount to be written off and set the accounts straight. These write offs simply meant the uncollectible debt.

The State Bank of India (SBI) had written off the highest amounts of such bad loans, followed by PNB, IDBI, Bank of India, Corporation Bank, Bank of Baroda, Central Bank of India, Axis Bank and ICICI Bank.

After the Punjab and Maharashtra Cooperative Bank (PMC) Bank scam worth over Rs. 6,000 crore rocked the country, political interference has emerged as one of the main obstructions in clearing up sheets and restoring the health of banks. Though the RBI has taken steps in the right direction – taking wilful defaulters to insolvency courts, will it actually be able to pull up big ticket defaulters like Hanung Toys or Gitanjali Gems by staying autonomous and out of the unholy nexus between the government and the corporates?

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Karnataka Bank reports fraud of Rs. 40 crore

Hanung toys and Textiles Ltd was stated to be a non-performing asset and wilfully defaulting company

FraudImage Courtesy: dailykiran.com

Last week, Karnataka Bank, reported a fraud of Rs. 40.39 crore in the credit facilities to Hanung Toys and Textiles Ltd, on account of diversion of funds, which has been declared a non-performing borrowing account, the Deccan Herald reported.

Hanung Toys and Textiles Ltd dealing with the bank since 2008 had availed various credit facilities under consortium arrangement since 2008 where Karnataka Bank was one of the member banks.

The company owes Rs. 2,300 crore to a consortium of 15 lenders led by state-own Punjab National Bank, which alone has an exposure of Rs. 599 crore.

"On the basis of forensic auditor's report submitted to the consortium, some of the member banks have reported to the Reserve Bank of India (RBI) regarding fraud in the borrowing account.

"In line with the Consortium decision, Karnataka Bank has reported to RBI a fraud amounting to Rs 40.39 crore in the credit facilities extended earlier to the borrowing account, on account of diversion of funds," Karnataka Bank said.

The bank said that Hanung Toys and Textiles had been classified as a non-performing asset (NPA) in July 2015 and had been fully provided for and as such, no negative impact on the bank's profitability at present.

Several other banks too have declared Hanung Toys and Textiles Ltd to be a wilful defaulter.

Hanung Toys and Textiles Limited

Hanung Toys is promoted by Ashok Kumar Bansal. He has been an IKEA supplier for 15 years and his company had been in the news for a hefty order worth Rs. 600 crore by the Swedish retailer in 2007.

Its toy manufacturing units are set up in the Noida Special Economic Zone (SEZ) and its production units include facilities in Roorkee, Bhiwandi and Noida set up to make toys and home furnishings.

In 2018, PNB had taken Hanung Toys and Textiles Ltd to the bankruptcy courts for unpaid loans. The PNB-led consortium of lenders had collectively loaned the amount to the toy-maker around three years ago in debt restructuring for around 1,800 crore.

In November 2019, authorities detained Ashok Kumar Bansal and his wife Anju Bansal, who were on their way back from Dubai, at the Delhi Airport following a lookout notice issued by the Punjab National Bank.

The Free Press Journal reported that a corporate debt restructuring plan crafted by the company four years ago failed to take off as Ashok Bansal, the Chairman couldn’t bring in his share of equity which stood at Rs. 82 crore which led to an increase in outstanding dues to Rs. 2,300 crore.

Wilful defaulter

In November 2019, the Reserve Bank of India (RBI) released a list of top 30 wilful defaulters in response to an RTI application filed by The Wire. The application came in four years after the Supreme Court had directed the RBI to disclose a list of wilful defaulters in India. While MehulChoksi’sGitanjali Gems stood at the top with a default amount of Rs. 5,044 crore, Hanung Toys and Textiles showed a default amount worth Rs. 949 crore.

The corporate debt restructuring (CDR) cell in 2015 had pointed out that according to data, every three cases approved for debt repair under the CDR mechanism had failed and exited the cell. In July that year, Hanung Toys and Textiles Ltd had exited the cell after failing to implement the CDR package.

The reasons for this, sources told Livemint were that failures occurred mostly due to the promoter’s inability to bring in his share of contribution apart (as was in the case of Ashok Bansal) from the company’s inability to meet business projections.

Karnataka Bank fraud list

Apart from the recent fraud reported by the bank in the case of wilful defaulting by Hanung Toys and Textiles Ltd, the bank in November had reported a fraud of Rs. 13.36 crore on account of diversion of funds, in the working capital facility extended to SRS Finance Ltd.

In 2018, it had reported a fraud totaling Rs. 86.47 crore in loans extended under consortium agreements to MehulChoksi’sGitanjali Gems. In a BSE filing it said, “The bank has reported a fraud to Reserve Bank of India amounting to Rs86.47 crore in the fund based working capital facilities extended to Gitanjali Gems Limited on account of non-realization of exports bills and diversion of funds.”

This year, the RBI had slapped a fine of Rs. 4 crore on the bank for violating regulatory norms. The charge was levied due to the failure of the bank with regards to the delay in implementation of four of the Swift related operational controls.

In July this year, the bank launched a web tool named VASOOL SO-Ft (VASOOL SO FAST) to digitalise the NPA recovery process.

The bank has reported a 5.3 percent year-on-year decline in its net profit at Rs. 105.91 crore for the quarter that ended in Sept 30, 2019. Even with the regulatory disclosures on bad loans, the bank was working to keep its NPAs below five percent. CEO & MD MAhabalaeshwara MS had told Business Standard last year, "There was actually no pain in the sense that we have exposure to some corporates through the consortium. With the change in NPA recognition norm, we had to recognise a few of those accounts as NPA because of default by these groups on loans from other banks. We took this opportunity to clean up our balance sheet and make adequate provisions.”

This year, the percentage of its NPAs rose to 4.78 percent against 4.66 percent in the same quarter last year, with values standing at Rs. 2,594.27 crore this year against Rs. 2,371.62 crore last year.

NPAs haunting Indian banks

In response to an RTI application filed by CNN-News 18, the Indian banking system, in the past three years has lost Rs. 1.76 lakh crore for writing off non-performing loans to 525 defaulters, with each of the defaulters owing Rs. 100 crore or more.

The responses to the RTI showed that there had been a constant increase in the amount written off by commercial banks since 2014 – 15 with the sharpest upsurge in 2017 and 2018, post demonetization.

In 2015, loans to the tune of Rs. 40,798 crore were written off. This number increased to Rs. 69,976 crore in 2016, Rs. 127,797 crore in 2017 and Rs. 217,121 lakh crore in 2018.

Newsclick reports that the write-offs are in accordance with an RBI directive that had asked the scheduled commercial banks to come clear on the amount to be written off and set the accounts straight. These write offs simply meant the uncollectible debt.

The State Bank of India (SBI) had written off the highest amounts of such bad loans, followed by PNB, IDBI, Bank of India, Corporation Bank, Bank of Baroda, Central Bank of India, Axis Bank and ICICI Bank.

After the Punjab and Maharashtra Cooperative Bank (PMC) Bank scam worth over Rs. 6,000 crore rocked the country, political interference has emerged as one of the main obstructions in clearing up sheets and restoring the health of banks. Though the RBI has taken steps in the right direction – taking wilful defaulters to insolvency courts, will it actually be able to pull up big ticket defaulters like Hanung Toys or Gitanjali Gems by staying autonomous and out of the unholy nexus between the government and the corporates?

Related:

Banks merger 'reflects' Modi's pro-corporate slant: Public sector units deserve to die

Liquidity crisis in India’s shadow banking sector is a wake-up call for government and regulators

Top 12 Corporate NPAs Cost Exchequer Twice As Much As Farm Loan Waivers

RBI denies social media rumours about closure of 9 commercial banks

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BPCL Divestment: Who Benefits?

Finance Minister Nirmala Sitaraman's recent announcement on divesting two state-run companies, Air India and BPCL has created a furore.

20 Nov 2019

Finance Minister Nirmala Sitaraman's recent announcement on divesting two state-run companies, Air India and BPCL has created a furore. The decision would help the government meet its divestment target of Rs 1 lakh crore in the current fiscal year. With the Reliance Industries expected to play a role in the deal, the question arises that will Reliance become the ultimate beneficiary of the deal? 

Courtesy: News Click

BPCL Divestment: Who Benefits?

Finance Minister Nirmala Sitaraman's recent announcement on divesting two state-run companies, Air India and BPCL has created a furore.

Finance Minister Nirmala Sitaraman's recent announcement on divesting two state-run companies, Air India and BPCL has created a furore. The decision would help the government meet its divestment target of Rs 1 lakh crore in the current fiscal year. With the Reliance Industries expected to play a role in the deal, the question arises that will Reliance become the ultimate beneficiary of the deal? 

Courtesy: News Click

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75,000 BSNL Staff Opt For VRS, Unions Blame Management for ‘Fear Psychosis’

The employees’ fronts have urged the BSNL management to engage trade unions for “constructive discussions and feedback, instead of VRS Mela.

13 Nov 2019

BSNL

File Photo.

New Delhi: Within just a week after the rolling out of the scheme on November 4, as many as 70,000 employees of the state-owned telecom company, BSNL, have opted for voluntary retirement, BSNL Chairman and MD, P K Purwar, told news agency PTI. As of November 12, the number of employees opting to retire crossed the 75,000 mark, Newsclick has learnt.

Meanwhile, another BSNL contractual employee in Kerala reportedly committed suicide on Tuesday due to non-payment of salaries, taking the total number of such deaths to eight so far.

BSNL had set an internal target of 77,000 employees opting for the Voluntary Retirement Scheme (VRS), which is open till December 3. As per the industry sources, the target will be achieved in the next two to three days.

Though the BSNL management is reportedly set to save crores in wage bills, the unexpected response among the executives and employees for the early retirement presents a worrisome picture of the road ahead for the corporation.

Foremost among these worries is the continuity of business as the workforce will be hit severely by the scheme. The current manpower strength of the state-owned corporation stands at nearly 1.60 lakh as of date. With almost half of them set to be relieved from duty by January next year, as per the schedule of the scheme, how the telephone exchanges to be manned and operations to be carried out remains a concern that is yet to be addressed by the government.

In a letter dated November 11 to BSNL’s Chairman and MD, Sanchar Nigam Executives Association shared similar apprehensions, urging the management to “engage the trade unions for constructive discussions and feedback, instead of VRS Mela.”

“More than 17,000 exchanges in the rural areas are loss-making and maintained by the BSNL employees. After VRS, it cannot be maintained by BSNL. It will be closed down before 31.01.2020 as we will not be able to maintain those exchanges.” the letter said.

According to the employees’ front, the scheme will also lead to increased work pressure over the remaining workforce which will have adverse effects over the telecom company’s day-to-day working.

Another equally disturbing concern is the outsourcing of jobs as a solution to addressing workforce shortage. In the wake of the apprehensions raised by the All Unions and Associations of BSNL (AUAB) to the management in a meeting held on November 7, the company is exploring the options on the table, one of which is outsourcing.

“Functions such as plant maintenance and running of rural exchanges may see some impact due to the absence of manpower after the VRS. We are taking care of this through an outsourcing model,” The Times of India quoted Purwar as saying.

However, as per the employees’ front, outsourcing of all the works may not be feasible and economical. Also, it leads to the worsening of the working environment for employees.

Abhimanyu P, General Secretary of the BSNL Employees Union has termed it a scheme to eventually “privatise” BSNL and MTNL, the state-owned sister telecom companies.

“Reducing manpower, cutting employees cost, restoring the operational profits, the objective behind all these measures is to privatise the corporation…In the name of restructuring, the resources will be sold off to the corporate patrons,” Abhimanyu told Newsclick.

With rumours such as retirement age to be changed to 58 from 60 and BSNL to shut down its operations any time soon, the management has created a “fear psychosis” among the employees which is the reason behind the unexpected response among the executives opting for an early retirement.

“The salaries of November have still not been disbursed,” he added, “and the message that it sends to the employees is that if you stay, this is how things are going to be.”

Speaking of salaries, one must not forget that over a lakh contract workers of BSNL across the country have not been paid for last 10 months. As many as eight cases have been reported where the temporary workers, owing to the non-payment of the salaries, have killed themselves. To them, the Modi government’s announced rescue package brings nothing, neither revival nor an end to their struggle.

Courtesy: NewsClick

75,000 BSNL Staff Opt For VRS, Unions Blame Management for ‘Fear Psychosis’

The employees’ fronts have urged the BSNL management to engage trade unions for “constructive discussions and feedback, instead of VRS Mela.

BSNL

File Photo.

New Delhi: Within just a week after the rolling out of the scheme on November 4, as many as 70,000 employees of the state-owned telecom company, BSNL, have opted for voluntary retirement, BSNL Chairman and MD, P K Purwar, told news agency PTI. As of November 12, the number of employees opting to retire crossed the 75,000 mark, Newsclick has learnt.

Meanwhile, another BSNL contractual employee in Kerala reportedly committed suicide on Tuesday due to non-payment of salaries, taking the total number of such deaths to eight so far.

BSNL had set an internal target of 77,000 employees opting for the Voluntary Retirement Scheme (VRS), which is open till December 3. As per the industry sources, the target will be achieved in the next two to three days.

Though the BSNL management is reportedly set to save crores in wage bills, the unexpected response among the executives and employees for the early retirement presents a worrisome picture of the road ahead for the corporation.

Foremost among these worries is the continuity of business as the workforce will be hit severely by the scheme. The current manpower strength of the state-owned corporation stands at nearly 1.60 lakh as of date. With almost half of them set to be relieved from duty by January next year, as per the schedule of the scheme, how the telephone exchanges to be manned and operations to be carried out remains a concern that is yet to be addressed by the government.

In a letter dated November 11 to BSNL’s Chairman and MD, Sanchar Nigam Executives Association shared similar apprehensions, urging the management to “engage the trade unions for constructive discussions and feedback, instead of VRS Mela.”

“More than 17,000 exchanges in the rural areas are loss-making and maintained by the BSNL employees. After VRS, it cannot be maintained by BSNL. It will be closed down before 31.01.2020 as we will not be able to maintain those exchanges.” the letter said.

According to the employees’ front, the scheme will also lead to increased work pressure over the remaining workforce which will have adverse effects over the telecom company’s day-to-day working.

Another equally disturbing concern is the outsourcing of jobs as a solution to addressing workforce shortage. In the wake of the apprehensions raised by the All Unions and Associations of BSNL (AUAB) to the management in a meeting held on November 7, the company is exploring the options on the table, one of which is outsourcing.

“Functions such as plant maintenance and running of rural exchanges may see some impact due to the absence of manpower after the VRS. We are taking care of this through an outsourcing model,” The Times of India quoted Purwar as saying.

However, as per the employees’ front, outsourcing of all the works may not be feasible and economical. Also, it leads to the worsening of the working environment for employees.

Abhimanyu P, General Secretary of the BSNL Employees Union has termed it a scheme to eventually “privatise” BSNL and MTNL, the state-owned sister telecom companies.

“Reducing manpower, cutting employees cost, restoring the operational profits, the objective behind all these measures is to privatise the corporation…In the name of restructuring, the resources will be sold off to the corporate patrons,” Abhimanyu told Newsclick.

With rumours such as retirement age to be changed to 58 from 60 and BSNL to shut down its operations any time soon, the management has created a “fear psychosis” among the employees which is the reason behind the unexpected response among the executives opting for an early retirement.

“The salaries of November have still not been disbursed,” he added, “and the message that it sends to the employees is that if you stay, this is how things are going to be.”

Speaking of salaries, one must not forget that over a lakh contract workers of BSNL across the country have not been paid for last 10 months. As many as eight cases have been reported where the temporary workers, owing to the non-payment of the salaries, have killed themselves. To them, the Modi government’s announced rescue package brings nothing, neither revival nor an end to their struggle.

Courtesy: NewsClick

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‘There Are Very Strong Concerns About The Indian Economy’

Bengaluru: Joseph Stiglitz, 76, gently placed his walking stick beside the sofa and a stack of papers on the table as he settled in to savour some South Indian breakfast. He was in the city to deliver a lecture organised by a university.

05 Nov 2019


We can celebrate that companies in the gig economy make it easier for people to enter the labour force, but clearly part of their business model is exploitation and circumvention of existing regulation, says Joseph Stiglitz, 76, economist and 2001 Nobel Prize winner in economics.

It has been almost three decades since India liberalised and integrated with the global economy. It was the seventh largest economy in the world by gross domestic product (GDP) in 2018. But this growth has slowed, and is expected to shrink further in 2019-20, according to multiple global institutions. 

“The data that I have seen reinforces very strong concerns [about the economy],” Stiglitz told IndiaSpend in the course of an interview. “I do not know anybody who is not in the government who is not worried.” Governments tend to “suppress data when it is on shaky grounds”, he added.
While India has been able to benefit from globalisation, there is a view that is “not an uncommon view but an unpleasant one”, that in a regulated market like India foreign players “have a disadvantage because the insiders know how to play the game”.

Stiglitz won the 2001 Nobel Prize in economics for his analyses of markets with asymmetric information. He was a member of the Council of Economic Advisers in the US from 1993-95, during the Bill Clinton administration, and its chairperson from 1995-97. Between 1997 and 2000, he served as chief economist and senior vice-president of the World Bank.

Stiglitz has authored multiple books on economics including People, Power, and Profits: Progressive Capitalism for an Age of Discontent; Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump; and The Price of Inequality: How Today's Divided Society Endangers Our Future. In 2011, he was among Time magazine’s 100 most influential people in the world. He is a professor in the department of economics at Columbia University and founder and president of the Initiative for Policy Dialogue, a think-tank on international development based at the university.

In this interview, Stiglitz explains the impact of globalisation in the last two decades, and of populism, the rise of the gig economy, and the problem of inequality in India and the world. Edited excerpts:

How has globalisation changed in the last couple of decades, particularly with the rise of protectionism and populism and what impact have you seen on emerging economies like India?
Twenty years ago the common wisdom was that trade would benefit all. It was a contested view in both the [global] North and South. While it was held by a lot of elites, it was not universally held. Many developing countries only liberalised with the threat of the International Monetary Fund as a condition of getting aid in the structural adjustment programme.

I wrote papers in the early 1980s pointing out that [global markets] are not perfect risk markets and trade can make everybody worse off. Trade exposes countries to risk without risk insurance, producers of risky products may contract production that might hurt people in other parts of the economy, and similarly, many people in all countries could be worse off.

It was meant to be a warning against naive globalisation. Although it [paper] did not ask people to not go ahead with globalisation, but it says that those people who think that everyone will be better off have not proved the case. Under certain assumptions, it would make some better off while others would be worse off. The gainers could compensate the losers, but they never did. The other problem is the assumption that markets are perfect, which was not true.

When I wrote this nobody in the policy world paid any attention to it, even when I was in the White House and the World Bank. Eventually (by the time I wrote Globalisation and Its Discontents), there were examples of jobs being destroyed and not as many being created. It showed that we had to learn to manage globalisation better. It was not that globalisation was necessarily bad, but it was not good either.

India has gained a lot with its integration into the global economy (US and western Europe), including the technology sector, modernisation, [new] universities, etc. Though it is not so clear that better managed policies with respect to importing cheap Chinese manufactured goods would have led to a robust manufacturing sector [in India]. 

Young people seem to have found opportunities in the gig economy through cab aggregators like Uber and Ola, and other food delivery applications in India, often working long hours with inadequate benefits. In California, new legislation has made it harder for gig economy companies to treat their workers as contractors instead of employees. Similarly in India, there have been protests demanding labour benefits for workers in the gig economy. How do you assess the gig economy globally and its effect on economies like India?
At one level you can celebrate that they make it easier for people to enter the labour force, but clearly part of their business model is exploitation and circumvention of existing regulation, most of which have a good purpose.

In New York [city] there was a study on the wages paid to the taxi cab drivers on [such] platforms which said that they received $6 per hour which was below the minimum wage and a livable wage. This is also a dangerous wage because of the increased number of hours that a person would have to drive. New York city has passed a law that tripled the wage to about $18.

Knowing where your cab is and being able to call them has efficiency gains, but this could have been done even if it was regulated by taxi cabs. I think there are efficiencies that the gig economy can bring, but the business model is driven by exploitation and circumvention. We have to maintain the advantages the model offers but at the same time restore more bargaining power and regulate the bad aspects.

While you have maintained that “GDP is not a good measure of wellbeing”, India’s GDP growth has been revised downwards by multiple agencies. Further, there are issues of data suppression. Abhijit Banerjee, one of the 2019 Nobel Prize winners, believes that the “Indian economy is on shaky ground”. Would you agree?
One of the problems when there seems to be data suppression is that you cannot precisely know what the state of the economy is. But usually governments suppress data when they are on shaky grounds. They will suppress data when there is weak growth.
There are a number of indicators like consumption which are, to say the least, worrisome. It is hard to have a robust economy when the basic data for consumption and investment are weak, as they are [in India]. So, the data that I have seen reinforces very strong concerns [about the economy]. I do not know anybody who is not in the government who is not worried.

The pre-tax national income of the top 10% in India increased by nearly 23 percentage points to 56.1%, while that of the bottom 50% declined nearly 8 percentage points to 14.7% over 25 years to 2015, according to the World Inequality Database. The nine richest Indians now own wealth equivalent to the bottom 50% of the country. Why is there an increasing accumulation of wealth globally, and what are the solutions?
There are many dimensions to this problem. The people at the top figure out ways of not paying taxes, so their wealth multiplies in a way ordinary people’s cannot. The largest Foreign Direct Investment source for India for a long time has been Mauritius, which is a tax haven. A lot of the wealth [in India] has to do with special deals in telecom or defence, where the government gives a license or contract. It becomes difficult to know if the price is competitive.

In the US, real estate developers get zoning variances that allow them to do things others do not (through political connections). Two of the richest contributors to the Republican party were people who run gambling establishments globally. Gambling is a part of the money laundering industry.

Even in China, a lot of billionaires are part of the real estate industry with connections to local party officials and have access to land. In a natural resource economy, getting favourable access to it brings wealth. But there are also people like Jack Ma of Alibaba who have been really entrepreneurial.

In India, wealth was created in telecom and there is a very strong view that players did not do so in a regular and competitive way. I knew some of the [multinational] companies that wanted to play by the rules, and they said that it was just not possible. They had the technology and expertise but they said that India was a “dirty place”.

Was it the corruption and bureaucratic red tape? Are there solutions?
They could manage the red tape. It was a combination of corruption and thuggishness, although I never got a clear view of the nexus between outright thuggishness and corruption. But they left. These were honest and brilliant people [US companies], who would have brought talent.
It was not an uncommon view but an unpleasant one, which was that in a highly regulated country with big players, outsiders have a disadvantage because the insiders know how to play the game.

The solutions are that with the right government you establish rules of transparency, oversight, independent procurement agencies, independent corruption agencies. Singapore and Hong Kong have managed it to a good extent.

How does the rise of populism and majoritarian governments worldwide perpetuate the problem of inequality? And what changes do you observe in democratic institutions in India and the US, particularly in the role of civil society?
When people see unfair outcomes they get disillusioned with the system. Things can go a couple of ways. You could get a demagogue like [Donald] Trump who knows how to exploit the discontent but not cure the problem, [which can] make things worse. Then you have the other side where you have reform movements (which is hopefully happening in the Democratic party) where policies are being put in place for more competition, stringent ethics, oversight, among others.

The central governments of India and the US have taken measures to detain illegal migrants. Amit Shah, India’s home minister, has talked about a nation-wide expansion of the National Register of Citizens while the US is planning to take DNA samples from asylum seekers and other migrants. What is the fallout of such measures?
When things are not going well, people always want to blame somebody else. This may be foreign trade [for example]. But we made that trade [deal]. India may make the excuse that the US forced it to sign, but the US cannot make that excuse because we were the ones who wrote the deal.

Immigation is not the source of the problem in the US. The parts of the country with a lot of immigration love their immigrants. We could not function without our immigrants. It is a problem in the country where immigrants do not want to go, and where there is emigration and not immigration. The issue is that [in these parts] societies are collapsing as there is no economic opportunity, reduced life expectancy, and issues of drug overdose, alcoholism and [high rates of] suicide. This is the problem, not immigation.

(Paliath is an analyst with IndiaSpend.)

Courtesy: India Spend

‘There Are Very Strong Concerns About The Indian Economy’

Bengaluru: Joseph Stiglitz, 76, gently placed his walking stick beside the sofa and a stack of papers on the table as he settled in to savour some South Indian breakfast. He was in the city to deliver a lecture organised by a university.


We can celebrate that companies in the gig economy make it easier for people to enter the labour force, but clearly part of their business model is exploitation and circumvention of existing regulation, says Joseph Stiglitz, 76, economist and 2001 Nobel Prize winner in economics.

It has been almost three decades since India liberalised and integrated with the global economy. It was the seventh largest economy in the world by gross domestic product (GDP) in 2018. But this growth has slowed, and is expected to shrink further in 2019-20, according to multiple global institutions. 

“The data that I have seen reinforces very strong concerns [about the economy],” Stiglitz told IndiaSpend in the course of an interview. “I do not know anybody who is not in the government who is not worried.” Governments tend to “suppress data when it is on shaky grounds”, he added.
While India has been able to benefit from globalisation, there is a view that is “not an uncommon view but an unpleasant one”, that in a regulated market like India foreign players “have a disadvantage because the insiders know how to play the game”.

Stiglitz won the 2001 Nobel Prize in economics for his analyses of markets with asymmetric information. He was a member of the Council of Economic Advisers in the US from 1993-95, during the Bill Clinton administration, and its chairperson from 1995-97. Between 1997 and 2000, he served as chief economist and senior vice-president of the World Bank.

Stiglitz has authored multiple books on economics including People, Power, and Profits: Progressive Capitalism for an Age of Discontent; Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump; and The Price of Inequality: How Today's Divided Society Endangers Our Future. In 2011, he was among Time magazine’s 100 most influential people in the world. He is a professor in the department of economics at Columbia University and founder and president of the Initiative for Policy Dialogue, a think-tank on international development based at the university.

In this interview, Stiglitz explains the impact of globalisation in the last two decades, and of populism, the rise of the gig economy, and the problem of inequality in India and the world. Edited excerpts:

How has globalisation changed in the last couple of decades, particularly with the rise of protectionism and populism and what impact have you seen on emerging economies like India?
Twenty years ago the common wisdom was that trade would benefit all. It was a contested view in both the [global] North and South. While it was held by a lot of elites, it was not universally held. Many developing countries only liberalised with the threat of the International Monetary Fund as a condition of getting aid in the structural adjustment programme.

I wrote papers in the early 1980s pointing out that [global markets] are not perfect risk markets and trade can make everybody worse off. Trade exposes countries to risk without risk insurance, producers of risky products may contract production that might hurt people in other parts of the economy, and similarly, many people in all countries could be worse off.

It was meant to be a warning against naive globalisation. Although it [paper] did not ask people to not go ahead with globalisation, but it says that those people who think that everyone will be better off have not proved the case. Under certain assumptions, it would make some better off while others would be worse off. The gainers could compensate the losers, but they never did. The other problem is the assumption that markets are perfect, which was not true.

When I wrote this nobody in the policy world paid any attention to it, even when I was in the White House and the World Bank. Eventually (by the time I wrote Globalisation and Its Discontents), there were examples of jobs being destroyed and not as many being created. It showed that we had to learn to manage globalisation better. It was not that globalisation was necessarily bad, but it was not good either.

India has gained a lot with its integration into the global economy (US and western Europe), including the technology sector, modernisation, [new] universities, etc. Though it is not so clear that better managed policies with respect to importing cheap Chinese manufactured goods would have led to a robust manufacturing sector [in India]. 

Young people seem to have found opportunities in the gig economy through cab aggregators like Uber and Ola, and other food delivery applications in India, often working long hours with inadequate benefits. In California, new legislation has made it harder for gig economy companies to treat their workers as contractors instead of employees. Similarly in India, there have been protests demanding labour benefits for workers in the gig economy. How do you assess the gig economy globally and its effect on economies like India?
At one level you can celebrate that they make it easier for people to enter the labour force, but clearly part of their business model is exploitation and circumvention of existing regulation, most of which have a good purpose.

In New York [city] there was a study on the wages paid to the taxi cab drivers on [such] platforms which said that they received $6 per hour which was below the minimum wage and a livable wage. This is also a dangerous wage because of the increased number of hours that a person would have to drive. New York city has passed a law that tripled the wage to about $18.

Knowing where your cab is and being able to call them has efficiency gains, but this could have been done even if it was regulated by taxi cabs. I think there are efficiencies that the gig economy can bring, but the business model is driven by exploitation and circumvention. We have to maintain the advantages the model offers but at the same time restore more bargaining power and regulate the bad aspects.

While you have maintained that “GDP is not a good measure of wellbeing”, India’s GDP growth has been revised downwards by multiple agencies. Further, there are issues of data suppression. Abhijit Banerjee, one of the 2019 Nobel Prize winners, believes that the “Indian economy is on shaky ground”. Would you agree?
One of the problems when there seems to be data suppression is that you cannot precisely know what the state of the economy is. But usually governments suppress data when they are on shaky grounds. They will suppress data when there is weak growth.
There are a number of indicators like consumption which are, to say the least, worrisome. It is hard to have a robust economy when the basic data for consumption and investment are weak, as they are [in India]. So, the data that I have seen reinforces very strong concerns [about the economy]. I do not know anybody who is not in the government who is not worried.

The pre-tax national income of the top 10% in India increased by nearly 23 percentage points to 56.1%, while that of the bottom 50% declined nearly 8 percentage points to 14.7% over 25 years to 2015, according to the World Inequality Database. The nine richest Indians now own wealth equivalent to the bottom 50% of the country. Why is there an increasing accumulation of wealth globally, and what are the solutions?
There are many dimensions to this problem. The people at the top figure out ways of not paying taxes, so their wealth multiplies in a way ordinary people’s cannot. The largest Foreign Direct Investment source for India for a long time has been Mauritius, which is a tax haven. A lot of the wealth [in India] has to do with special deals in telecom or defence, where the government gives a license or contract. It becomes difficult to know if the price is competitive.

In the US, real estate developers get zoning variances that allow them to do things others do not (through political connections). Two of the richest contributors to the Republican party were people who run gambling establishments globally. Gambling is a part of the money laundering industry.

Even in China, a lot of billionaires are part of the real estate industry with connections to local party officials and have access to land. In a natural resource economy, getting favourable access to it brings wealth. But there are also people like Jack Ma of Alibaba who have been really entrepreneurial.

In India, wealth was created in telecom and there is a very strong view that players did not do so in a regular and competitive way. I knew some of the [multinational] companies that wanted to play by the rules, and they said that it was just not possible. They had the technology and expertise but they said that India was a “dirty place”.

Was it the corruption and bureaucratic red tape? Are there solutions?
They could manage the red tape. It was a combination of corruption and thuggishness, although I never got a clear view of the nexus between outright thuggishness and corruption. But they left. These were honest and brilliant people [US companies], who would have brought talent.
It was not an uncommon view but an unpleasant one, which was that in a highly regulated country with big players, outsiders have a disadvantage because the insiders know how to play the game.

The solutions are that with the right government you establish rules of transparency, oversight, independent procurement agencies, independent corruption agencies. Singapore and Hong Kong have managed it to a good extent.

How does the rise of populism and majoritarian governments worldwide perpetuate the problem of inequality? And what changes do you observe in democratic institutions in India and the US, particularly in the role of civil society?
When people see unfair outcomes they get disillusioned with the system. Things can go a couple of ways. You could get a demagogue like [Donald] Trump who knows how to exploit the discontent but not cure the problem, [which can] make things worse. Then you have the other side where you have reform movements (which is hopefully happening in the Democratic party) where policies are being put in place for more competition, stringent ethics, oversight, among others.

The central governments of India and the US have taken measures to detain illegal migrants. Amit Shah, India’s home minister, has talked about a nation-wide expansion of the National Register of Citizens while the US is planning to take DNA samples from asylum seekers and other migrants. What is the fallout of such measures?
When things are not going well, people always want to blame somebody else. This may be foreign trade [for example]. But we made that trade [deal]. India may make the excuse that the US forced it to sign, but the US cannot make that excuse because we were the ones who wrote the deal.

Immigation is not the source of the problem in the US. The parts of the country with a lot of immigration love their immigrants. We could not function without our immigrants. It is a problem in the country where immigrants do not want to go, and where there is emigration and not immigration. The issue is that [in these parts] societies are collapsing as there is no economic opportunity, reduced life expectancy, and issues of drug overdose, alcoholism and [high rates of] suicide. This is the problem, not immigation.

(Paliath is an analyst with IndiaSpend.)

Courtesy: India Spend

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India is losing its economic way: Growth is significantly lower, debt and distress are growing

30 Oct 2019

Excerpts from the transcript of Raghuram Rajan’s lecture at the Watson Institute for International and Public Affairs, Brown University, U.S., on October 16:
 

rajan

We are in a very worrisome place in India today. Growth has slowed considerably, the fiscal deficit is large, leaving little room to do something about growth, and there’s rising debt levels in many areas in the Indian economy, some of that distressed. India’s an economy which for 25 years has been growing at 7 percent; what we see today is much slower growth, and if we are to believe Arvind Subramanian’s work, perhaps even lower than the headline numbers that we see.

 

We were growing really fast before the Great Recession and then 2009 was a year of very poor growth, we started climbing little bit after it but since then, since about 2012, we’ve had a steady upward movement in growth going back to the pre-2000, pre-financial crisis growth rates and then since about early. And then since about mid-2016 we’ve seen a steady deceleration and now the latest numbers were 5 percent for the last quarter.

Investment has been falling steadily in the Indian economy ever since probably the global financial crisis, but it’s been falling steadily actually from a few years after that. Consumption has been relatively strong and holding up, but more recently consumption has also been falling. Most recently, consumption is falling rapidly.

Commercial vehicles are a good proxy for industrial demand and cars are good proxy for urban demand. You see all of them tanking; tanking to the extent of 30-40 percent levels of negative growth. A lot of it is because of a shortfall in credit availability to households as well as households themselves postponing consumption.

When you look at the trade balance – what you see is that in the years of strong growth, India’s exports were growing, in fact growing faster than GDP. Exports rose as a share of GDP. Over the last so many years, they have been growing slower than GDP growth and therefore falling as a fraction of GDP. This is true when you even take out oil – that’s the numbers on the right-hand side are non-oil exports and you see that has been falling.

The fiscal is also a source for concern. India’s fiscal deficit to GDP is officially 7 percent; that’s the sum of the state government’s fiscal deficit and the Central government’s fiscal deficit. But the reality is, this fiscal deficit conceals a lot. The headline number conceals a lot.

What is less noted, but something that the Auditor General has pointed out in India is, there’s a lot of borrowing which is going off-balance and which is not being counted in the fiscal deficit. For example, the Food Corporation of India is essentially a department of the government. The Food Corporations borrowing should be thought of as part of the fiscal deficit but is off-balance and you can see that’s skyrocketing over the last couple of years from about 0.7 percent of GDP to 1.1. Point four percentage points of GDP are buried in food corporation of India’s borrowing.

Similarly, the National Highway Authority of India – you see borrowing there go up from 0.2 percent of GDP to 0.7 percent of GDP; another 0.5 percentage points of GDP. Now, add these, you get one percentage point of GDP that is not counted in the fiscal deficit but is actually part of the fiscal deficit.

The rising non-performing assets means that banks need recapitalisations. You’re seeing the non-bank financial companies – they are in trouble and they may need some state support. You’ve got rising healthcare commitments. We have a whole new healthcare programe, Ayushman Bharat, which is being rolled out. As it rolls out, it will require more resource.

These are all contingent liabilities. We don’t account for them well in the budget, but they hit future budgets. Contingent liabilities are rising which leads respectable investment banks like JP Morgan to put the actual fiscal deficit as somewhere between nine and ten percent of the GDP. That’s a large number.

It’s especially large in India because we brought inflation down. In the past when inflation was available as the inflation tax, you could inflate away your debt and that helped make your finances look a lot healthier. Today, with inflation so low, it’s much harder to do that. You actually cannot inflate away your debt that easily, and therefore that’s a source of concern. Our fiscal is tighter than the similar numbers would be in the past.

Now, let me go on to debt and distress. One of the worrying things about the recent environment is that household savings are falling.

Households are saving less. Indian households are natural savers and the fact that they are saving less should be one source of concern. Why aren’t they saving more? Because after all, Asian economies grew on the basis of strong savings invested well. Savings are falling over the last few years, but increasingly, you’re seeing that also reflected in higher debt levels.

Household debt levels are increasing by about nine to ten percentage points of GDP over the last four or five years. Households are borrowing much more and saving less. That’s not a good combination. That means, they did not have a whole lot of debt earlier, so they started from a low base but they’ve borrowing quite rapidly and that has to be an additional source of concern.

You can see emerging signs of distress. For example on the corporate side, if you look at credit rating companies, credit rating companies will give you ratios of the number of credit upgrades to credit downgrades and so the lower this number is, the more stress your corporate sector has. This level of stress is at a six-year high.

In other words, the upgrades to downgrade ratio is at a six-year low. We’re as bad as we were at that point where we were starting to grow again. So, stress is piling up in the system probably as a result of ‘low demand slow earnings growth’ and difficulties in serving the servicing debt.

Let me talk a little bit about what the roots of the problem are. We’ve really had no significant continued reforms in India to propel economic growth since 2004. That is the year the NDA that under Atal Bihari Vajpayee lost the election.

We had first reforming Congress government in the early 1990s, followed by a number of coalitions followed by the BJP government. That 15-year period from the early 1990s to 2004 was a period of significant reforms where we cut down our tires, become a more real open economy and even did some privatizations under the budget by the Government. That was also a period where growth was not that strong, but it created the environment for really strong growth.

The problem with the Vajpayee government was that, even by the end of its term, we still hadn’t got to the spectacular growth we saw in the next three or four years afterwards. At least the experience of growth amongst the broader people was not that strong, and so the Vajpayee government’s campaign for re-election in 2004, which was based on India Rising simply didn’t catch hold and they lost narrowly to the Congress.

Congress came in with a coalition government which had the communists in it and really could not continue the reforms that the NDA had started, because simply there wasn’t that much consensus within the coalition partners. Nevertheless, there was an explosion in investment, and what you can see here is the rise in new projects announced as we go into three-four-five, just before the financial crisis you have a substantial explosion in projects announced. Strong growth and many of these projects were completed on time. There was strong infrastructure investment and strong growth.

The collateral effect of that sprung growth was, it put a lot of pressure on resource allocation, including the institutions to allocate resource: A lot more need for land, lot more need for iron ore, a lot more need for coal, lot more need for spectrum. One of the consequences of the strong growth was a series of corruption scandals which came to light in UPA to the second term of the UPA government.

The UPA got what it thought was a boost at the end of its first term to a massive farm loan waiver. My suspicion is, populist measures were an important factor in their re-election and so when UPA 2 came into power. Further reforms were stymied despite their ability to do further reforms by the fact that they really believed it was not from growth, but from these populist policies, that they had gotten re-elected, and the emphasis was much more on populist policies in UPA.

The net effect was right through UPA 1 and UPA 2, they were relatively few of the growth enhancing liberalising reforms, especially because in UPA 2 even the reforms they wanted to do like the goods and services tax (GST) were stymied by opposition protests which grew louder and louder as some of these corruption scandals came to light. So, UPA 2 was essentially a period where we didn’t have significant growth enhancing reforms – we had a lot more spending, especially on distribution of stuff such as food security, and inflation started going through the roof.

Inflation started going through roof in part because of strong demand but in part also because we saw increasing supply bottlenecks being created in the economy. Because land acquisition got much harder, many of the bureaucrats, because of corruption scandals, became much less willing to put out for fear that they would be held up by investigative authorities.

The bankers who were really quite willing to lend in the phase before the financial crisis when projects were doing really well, now became a little more risk-averse also for fear that if loan went bad, they get hauled up by the investigative authorities. So, essentially, the economy started slowing down considerably post-financial crisis. Macro-stability was a great concern at this time and India had basically all the bats – high levels of inflation, high physical deficits and not-so-strong growth.

At which point there was a course correction in the Congress government. It started the process of fiscal consolidation. Chidambaram came back to the finance ministry.

India was one of the fragile five that time and we lost capital very quickly. The government listened at that time and transformed to focus much more on macro stability: Bring the fiscal deficit down, try and enhance growth, try to whatever reforms were possible. At that time, I think the Reserve Bank of India also joined in to bring down inflation into making that a focus.

Move forward from the UPA 2- to Modi One. As it came in, it started implementing some important reforms on the macro side, on the sectoral side, and to some extent, on the household and populace side. We brought inflation down in India from the double-digit levels.

Unfortunately, it has been a mixed bag. It has been a mixed bag because, on the one hand, we haven’t been able to revive investment. We haven’t brought investment back. A lot of the promoters who started projects in the past are now highly stressed with high levels of debt. They simply cannot start new projects and banks are anyway not interested in lending to them.

Even old projects haven’t been brought down significantly. The reason they are stalled is because promoters have lost interest. Now, one of the successes of both the old UPA government as well as the NDA government was essentially giving the RBI a free hand to bring down inflation. That has been a success.

Inflation is low and has stayed low for a considerable period of time. The RBI also undertook a series of reforms- for example, opening up branching, licensing, improving retail electronic payments. We now have a state-of-the-art payment system of retail payments called the Universal Payment Interface which actually is better than many places in the world. These were all small level reforms.

But one of the big concerns was, as projects initiated fell, there were also a whole lot of old projects which were stalled and getting into distress.

Bad loans started building up in bank balance sheets. That’s what you see here. The NPAs of public sector banks started rising. The problem with banks when they start seeing bad loans is there’s a temptation hide them, to push them under the carpet, especially if the bank CEO has a short horizon.

Now, the classic way of dealing with this is: force them to recognise, force them to start dealing with these loans and working them out with the promoter so that they can be put on track. In the meantime, recapitalize the banks so that they have enough capital to make few loans where lending is necessary. Now, bank recapitalization has been halting. The government has taken some measures but typically been a little behind the curve.

What the government did which was very important was pass the Insolvency and Bankruptcy Act. One of the problems in India in the past is, some of you in India know is that it’s very hard for a lender to recover money from a borrower because there’s no way of essentially forcing the borrower to pay up. We had a bunch of Acts passed. But every time we had an act passed, it worked initially. The Insolvency and Bankruptcy Act was an attempt to try and force the borrower to repay their lenders and not have the lenders go from pillar to post in trying to look for their money. Initially it worked in putting the fear of God in borrowers and forcing them to repay.

More recently, however, it seems as if it’s going the way of the old Acts. The promoters have figured out how to end-run the banks, and the judiciary has also intervened in a way as to make it longer and longer and possibly impossible. So, unless we do something about the Insolvency and Bankruptcy code, it will go the same way as the older reforms. It will be essentially gamed to ineffectiveness.

What also has happened in India and the financial sector is that, we’ve had the public sector banks getting into trouble. Because they got into trouble, their lending started slowing down significantly. The private banks and non-bank financial companies have lent much more.

The private banks have been relatively careful about their loans. A lot of their loans are retail loans. The non-bank financial companies were also generally careful about retail loans, but one source of lending has been a lot more problematic for them – which is they lend to developers who built out some of these projects.

Those developers have gotten into trouble because of the slowdown in the retail sector and as a result, the non-bank financial companies also had incipient loan losses on their balance sheet. This came to a head when a big non-bank financial company IL&FS essentially imploded in September 2018, and as a result of that, non-bank financial companies found it hard to get credit. A lot of them have gotten into deep trouble since because not only do they have little access credit, but they have loans building up on their asset side which are going from bad to worse.
So, this is broadly legacy problems piling up. We’re not able to clean up the projects that are stuck, we’re not able to clean up the banks fully but that process is underway, non-bank financial companies have filled the breach but are also starting to get into a little bit of trouble.

Two big actions also happened over this time which created significantly more problems for the system. The first is, out of the blue, India demonetised 87.5 percent of the currency. Now, essentially what happened was the government said that Rs 500 note and Rs 1,000 note are no longer valid. What happens when you demonetised 87.5 percent of the currency? Basically, people don’t have currency to do transactions. Some of it was replaced; but it was replaced slowly. It took 3-4 months to replace it entirely.

In that period, the informal sector basically didn’t have money to do its transactions. These are people who don’t use credit cards, don’t have checks and essentially a whole lot of them got into trouble. It’s hard to measure the damage that was done to the informal sector because we really don’t collect statistics of them, but the anecdotal evidence is, a lot of people went out of business and there are actual studies which show it now that especially new rural areas.

Real estate is one sector that is especially focused in cash and this sector was weakening. With demonetisation, it got into trouble. That also spilled over to the developers who had built this real estate and then further to the non-bank financial companies. Measures of how much the set back growths vary from 2 to 3 percent of GDP for a couple of quarters to 2 to 3 percent of GDP on an annual basis.

This is all using stuff we can measure. What is harder is to think about the stuff we can’t measure. If you look at employment numbers, for example, put out by the Centre for Monitoring Indian Economy (CMIE), unemployment went up significantly possibly close to demonetising.

The second big blow was the Goods and Services Tax. Demonetisation was introduced without substantial preparation. I say substantial because we know there wasn’t enough currency printed to replace the currency that was taken out. You had to print it full speed for the next four months. Typically, you don’t do such things. You typically when you demonetise, have the money ready to roll out on the day you demonetise. That was not done suggesting the timing was chosen for other reasons than everybody was fully prepared.

That leads to the next issue which is, we had the rollout of the Goods and Services Tax. This is a wonderful concept. Demonetisation was misguided in concept. It was not a thing which either affected its aims — which was to bring down black money or what became a later aim which substantially increased the level of electronic payments or substantially formalise the economy. What it did was, create a lot of pain in a very short period of time especially for the poorer informal segments of the economy. It was brilliant politically though, because the government won the UP election. It was sold politically very well but it was not an economically well-thought-out idea.

The goods and services tax was the next big reform and it is something that the UPA government has been pushing and gone through because the BJP had opposed it then. The BJP took it on and to its credit managed to push it through as a constitutional amendment. It was a sound concept but again, initiated without enough preparation. The computers weren’t ready for the volume of transactions which means right off the bat you had to say “Don’t do this. Don’t do that. We are going to simplify the forms”.

There is a lot of back-and-forth which essentially undercut compliance, and the constant fiddling with the rates, I would presume, also created uncertainty. One could argue that some of the recent fall in demand, for cars for example, is because people are still trying to figure out. Are they going to reduce the tax? The goods and services tax on this from 28 percent in order to enhance demand? If so, I don’t want to buy now, I want to wait till they’ve reduced it.

The issue of trade and investment has been a focus of the Modi government, a good and necessary focus. However, what trade and investment needs really is an increase in the ease of doing business because, ultimately, you get more trade if you have more efficient firms who are able to produce both for the domestic economy and internationally. Here again, what one would want for is a slashing in some of the old regulations that holdback firms and focusing on improving the ease of doing business.

There’s been some attention but largely focused on the World Bank indicators of the ease of doing business rather than the actual conditions in India on what prevents businesses from working easily. So, as a result, we haven’t got that significant boost so far in business opening because in fact it may not have become that much easier for businesses to operate in India. One of the recent concerns has been on tariffs and taxes.

If you want more trade, you should bring down your tax, because today the way trade happens is through global supply chains moving goods back and forth. In order to move goods back and forth across borders, you need low and stable tariffs. Instead, what we have is high in fluctuating tariffs in certain areas; not all areas but certain areas. And that becomes a concern for business.

What will the tariff be next month? If in fact I open a business here, India is not part of any significant global supply chains and that makes it a problem if India wants to increase its exports. Similarly, taxes, the recent cut in corporate taxes is beneficial in attracting firms to India, but what firms worry about is not just the level but the changes. Is this going to change? Am I assured that when I put my investment in India, it will stay at 15 to 17 percent?

Unfortunately, in India, we have a history of going back and forth, some of which was reflected in the recent budget in taxes on foreign investors. So, we need to have a process where if we stabilise rules and regulations and taxes and tariffs, if we want to attract new companies into India.
That is one reason why if you look at the level of foreign direct investment, despite the emphasis on ‘Make in India’, you see in the last four years the level of foreign direct investment hasn’t changed very much. We get about $40 billion. In comparison, Brazil gets $90 billion in FDI.

We are starting to assemble more cell phones in India, and this has gone up. If you look at the cell phone imports, they have come down significantly and that’s not because we are buying fewer cell phones, but because we’re importing that. And if you look at exports, that have gone up. So, India is starting to export cell phones that it assembles in India.

The problem, however, is, it’s largely just assembly because one of the counter parts to the increasing cell phones is the fact that you look at electronic components, we’re importing far more. In other words, we are doing assembly now that’s not to be sneezed at we did do assembly before and doing assembly today is a good thing but it’s not value-added assembly. It’s basically importing the components and putting them together.

China is moving out of textiles. Who is taking its place? India has moved up from about 3 percent of world exports in textiles to 3.3 percent. But it’s over a period of nearly 20 years. On the other hand, if you look at Bangladesh, it’s gone from 2.6 to 6.4 percent. If you look at Vietnam, it’s gone from 0.9 to 6.2. So, Vietnam and Bangladesh are absorbing the textile market while we have plenty of people to work and we’re not getting any of the textile market. That suggests we are still not seen as an export friendly place. Our businesses are not doing as well as they should.

When a country grows richer, the taxes actually go up because people move into higher tax brackets and can pay more and especially with all the reforms this government has done, we should see higher taxes instead real taxes actually have actually fallen as have nominal taxes of this period. So, that’s something of concern, basically, signs of deep malaise: Growth is significantly lower, the fiscal space is narrowing, debt and distress is growing, India is losing its economic way. The reason is, we are centralising power without a persuasive economic vision, and if we do this, we risk wasting the demographic dividend.

Courtesy: Counter View

India is losing its economic way: Growth is significantly lower, debt and distress are growing

Excerpts from the transcript of Raghuram Rajan’s lecture at the Watson Institute for International and Public Affairs, Brown University, U.S., on October 16:
 

rajan

We are in a very worrisome place in India today. Growth has slowed considerably, the fiscal deficit is large, leaving little room to do something about growth, and there’s rising debt levels in many areas in the Indian economy, some of that distressed. India’s an economy which for 25 years has been growing at 7 percent; what we see today is much slower growth, and if we are to believe Arvind Subramanian’s work, perhaps even lower than the headline numbers that we see.

 

We were growing really fast before the Great Recession and then 2009 was a year of very poor growth, we started climbing little bit after it but since then, since about 2012, we’ve had a steady upward movement in growth going back to the pre-2000, pre-financial crisis growth rates and then since about early. And then since about mid-2016 we’ve seen a steady deceleration and now the latest numbers were 5 percent for the last quarter.

Investment has been falling steadily in the Indian economy ever since probably the global financial crisis, but it’s been falling steadily actually from a few years after that. Consumption has been relatively strong and holding up, but more recently consumption has also been falling. Most recently, consumption is falling rapidly.

Commercial vehicles are a good proxy for industrial demand and cars are good proxy for urban demand. You see all of them tanking; tanking to the extent of 30-40 percent levels of negative growth. A lot of it is because of a shortfall in credit availability to households as well as households themselves postponing consumption.

When you look at the trade balance – what you see is that in the years of strong growth, India’s exports were growing, in fact growing faster than GDP. Exports rose as a share of GDP. Over the last so many years, they have been growing slower than GDP growth and therefore falling as a fraction of GDP. This is true when you even take out oil – that’s the numbers on the right-hand side are non-oil exports and you see that has been falling.

The fiscal is also a source for concern. India’s fiscal deficit to GDP is officially 7 percent; that’s the sum of the state government’s fiscal deficit and the Central government’s fiscal deficit. But the reality is, this fiscal deficit conceals a lot. The headline number conceals a lot.

What is less noted, but something that the Auditor General has pointed out in India is, there’s a lot of borrowing which is going off-balance and which is not being counted in the fiscal deficit. For example, the Food Corporation of India is essentially a department of the government. The Food Corporations borrowing should be thought of as part of the fiscal deficit but is off-balance and you can see that’s skyrocketing over the last couple of years from about 0.7 percent of GDP to 1.1. Point four percentage points of GDP are buried in food corporation of India’s borrowing.

Similarly, the National Highway Authority of India – you see borrowing there go up from 0.2 percent of GDP to 0.7 percent of GDP; another 0.5 percentage points of GDP. Now, add these, you get one percentage point of GDP that is not counted in the fiscal deficit but is actually part of the fiscal deficit.

The rising non-performing assets means that banks need recapitalisations. You’re seeing the non-bank financial companies – they are in trouble and they may need some state support. You’ve got rising healthcare commitments. We have a whole new healthcare programe, Ayushman Bharat, which is being rolled out. As it rolls out, it will require more resource.

These are all contingent liabilities. We don’t account for them well in the budget, but they hit future budgets. Contingent liabilities are rising which leads respectable investment banks like JP Morgan to put the actual fiscal deficit as somewhere between nine and ten percent of the GDP. That’s a large number.

It’s especially large in India because we brought inflation down. In the past when inflation was available as the inflation tax, you could inflate away your debt and that helped make your finances look a lot healthier. Today, with inflation so low, it’s much harder to do that. You actually cannot inflate away your debt that easily, and therefore that’s a source of concern. Our fiscal is tighter than the similar numbers would be in the past.

Now, let me go on to debt and distress. One of the worrying things about the recent environment is that household savings are falling.

Households are saving less. Indian households are natural savers and the fact that they are saving less should be one source of concern. Why aren’t they saving more? Because after all, Asian economies grew on the basis of strong savings invested well. Savings are falling over the last few years, but increasingly, you’re seeing that also reflected in higher debt levels.

Household debt levels are increasing by about nine to ten percentage points of GDP over the last four or five years. Households are borrowing much more and saving less. That’s not a good combination. That means, they did not have a whole lot of debt earlier, so they started from a low base but they’ve borrowing quite rapidly and that has to be an additional source of concern.

You can see emerging signs of distress. For example on the corporate side, if you look at credit rating companies, credit rating companies will give you ratios of the number of credit upgrades to credit downgrades and so the lower this number is, the more stress your corporate sector has. This level of stress is at a six-year high.

In other words, the upgrades to downgrade ratio is at a six-year low. We’re as bad as we were at that point where we were starting to grow again. So, stress is piling up in the system probably as a result of ‘low demand slow earnings growth’ and difficulties in serving the servicing debt.

Let me talk a little bit about what the roots of the problem are. We’ve really had no significant continued reforms in India to propel economic growth since 2004. That is the year the NDA that under Atal Bihari Vajpayee lost the election.

We had first reforming Congress government in the early 1990s, followed by a number of coalitions followed by the BJP government. That 15-year period from the early 1990s to 2004 was a period of significant reforms where we cut down our tires, become a more real open economy and even did some privatizations under the budget by the Government. That was also a period where growth was not that strong, but it created the environment for really strong growth.

The problem with the Vajpayee government was that, even by the end of its term, we still hadn’t got to the spectacular growth we saw in the next three or four years afterwards. At least the experience of growth amongst the broader people was not that strong, and so the Vajpayee government’s campaign for re-election in 2004, which was based on India Rising simply didn’t catch hold and they lost narrowly to the Congress.

Congress came in with a coalition government which had the communists in it and really could not continue the reforms that the NDA had started, because simply there wasn’t that much consensus within the coalition partners. Nevertheless, there was an explosion in investment, and what you can see here is the rise in new projects announced as we go into three-four-five, just before the financial crisis you have a substantial explosion in projects announced. Strong growth and many of these projects were completed on time. There was strong infrastructure investment and strong growth.

The collateral effect of that sprung growth was, it put a lot of pressure on resource allocation, including the institutions to allocate resource: A lot more need for land, lot more need for iron ore, a lot more need for coal, lot more need for spectrum. One of the consequences of the strong growth was a series of corruption scandals which came to light in UPA to the second term of the UPA government.

The UPA got what it thought was a boost at the end of its first term to a massive farm loan waiver. My suspicion is, populist measures were an important factor in their re-election and so when UPA 2 came into power. Further reforms were stymied despite their ability to do further reforms by the fact that they really believed it was not from growth, but from these populist policies, that they had gotten re-elected, and the emphasis was much more on populist policies in UPA.

The net effect was right through UPA 1 and UPA 2, they were relatively few of the growth enhancing liberalising reforms, especially because in UPA 2 even the reforms they wanted to do like the goods and services tax (GST) were stymied by opposition protests which grew louder and louder as some of these corruption scandals came to light. So, UPA 2 was essentially a period where we didn’t have significant growth enhancing reforms – we had a lot more spending, especially on distribution of stuff such as food security, and inflation started going through the roof.

Inflation started going through roof in part because of strong demand but in part also because we saw increasing supply bottlenecks being created in the economy. Because land acquisition got much harder, many of the bureaucrats, because of corruption scandals, became much less willing to put out for fear that they would be held up by investigative authorities.

The bankers who were really quite willing to lend in the phase before the financial crisis when projects were doing really well, now became a little more risk-averse also for fear that if loan went bad, they get hauled up by the investigative authorities. So, essentially, the economy started slowing down considerably post-financial crisis. Macro-stability was a great concern at this time and India had basically all the bats – high levels of inflation, high physical deficits and not-so-strong growth.

At which point there was a course correction in the Congress government. It started the process of fiscal consolidation. Chidambaram came back to the finance ministry.

India was one of the fragile five that time and we lost capital very quickly. The government listened at that time and transformed to focus much more on macro stability: Bring the fiscal deficit down, try and enhance growth, try to whatever reforms were possible. At that time, I think the Reserve Bank of India also joined in to bring down inflation into making that a focus.

Move forward from the UPA 2- to Modi One. As it came in, it started implementing some important reforms on the macro side, on the sectoral side, and to some extent, on the household and populace side. We brought inflation down in India from the double-digit levels.

Unfortunately, it has been a mixed bag. It has been a mixed bag because, on the one hand, we haven’t been able to revive investment. We haven’t brought investment back. A lot of the promoters who started projects in the past are now highly stressed with high levels of debt. They simply cannot start new projects and banks are anyway not interested in lending to them.

Even old projects haven’t been brought down significantly. The reason they are stalled is because promoters have lost interest. Now, one of the successes of both the old UPA government as well as the NDA government was essentially giving the RBI a free hand to bring down inflation. That has been a success.

Inflation is low and has stayed low for a considerable period of time. The RBI also undertook a series of reforms- for example, opening up branching, licensing, improving retail electronic payments. We now have a state-of-the-art payment system of retail payments called the Universal Payment Interface which actually is better than many places in the world. These were all small level reforms.

But one of the big concerns was, as projects initiated fell, there were also a whole lot of old projects which were stalled and getting into distress.

Bad loans started building up in bank balance sheets. That’s what you see here. The NPAs of public sector banks started rising. The problem with banks when they start seeing bad loans is there’s a temptation hide them, to push them under the carpet, especially if the bank CEO has a short horizon.

Now, the classic way of dealing with this is: force them to recognise, force them to start dealing with these loans and working them out with the promoter so that they can be put on track. In the meantime, recapitalize the banks so that they have enough capital to make few loans where lending is necessary. Now, bank recapitalization has been halting. The government has taken some measures but typically been a little behind the curve.

What the government did which was very important was pass the Insolvency and Bankruptcy Act. One of the problems in India in the past is, some of you in India know is that it’s very hard for a lender to recover money from a borrower because there’s no way of essentially forcing the borrower to pay up. We had a bunch of Acts passed. But every time we had an act passed, it worked initially. The Insolvency and Bankruptcy Act was an attempt to try and force the borrower to repay their lenders and not have the lenders go from pillar to post in trying to look for their money. Initially it worked in putting the fear of God in borrowers and forcing them to repay.

More recently, however, it seems as if it’s going the way of the old Acts. The promoters have figured out how to end-run the banks, and the judiciary has also intervened in a way as to make it longer and longer and possibly impossible. So, unless we do something about the Insolvency and Bankruptcy code, it will go the same way as the older reforms. It will be essentially gamed to ineffectiveness.

What also has happened in India and the financial sector is that, we’ve had the public sector banks getting into trouble. Because they got into trouble, their lending started slowing down significantly. The private banks and non-bank financial companies have lent much more.

The private banks have been relatively careful about their loans. A lot of their loans are retail loans. The non-bank financial companies were also generally careful about retail loans, but one source of lending has been a lot more problematic for them – which is they lend to developers who built out some of these projects.

Those developers have gotten into trouble because of the slowdown in the retail sector and as a result, the non-bank financial companies also had incipient loan losses on their balance sheet. This came to a head when a big non-bank financial company IL&FS essentially imploded in September 2018, and as a result of that, non-bank financial companies found it hard to get credit. A lot of them have gotten into deep trouble since because not only do they have little access credit, but they have loans building up on their asset side which are going from bad to worse.
So, this is broadly legacy problems piling up. We’re not able to clean up the projects that are stuck, we’re not able to clean up the banks fully but that process is underway, non-bank financial companies have filled the breach but are also starting to get into a little bit of trouble.

Two big actions also happened over this time which created significantly more problems for the system. The first is, out of the blue, India demonetised 87.5 percent of the currency. Now, essentially what happened was the government said that Rs 500 note and Rs 1,000 note are no longer valid. What happens when you demonetised 87.5 percent of the currency? Basically, people don’t have currency to do transactions. Some of it was replaced; but it was replaced slowly. It took 3-4 months to replace it entirely.

In that period, the informal sector basically didn’t have money to do its transactions. These are people who don’t use credit cards, don’t have checks and essentially a whole lot of them got into trouble. It’s hard to measure the damage that was done to the informal sector because we really don’t collect statistics of them, but the anecdotal evidence is, a lot of people went out of business and there are actual studies which show it now that especially new rural areas.

Real estate is one sector that is especially focused in cash and this sector was weakening. With demonetisation, it got into trouble. That also spilled over to the developers who had built this real estate and then further to the non-bank financial companies. Measures of how much the set back growths vary from 2 to 3 percent of GDP for a couple of quarters to 2 to 3 percent of GDP on an annual basis.

This is all using stuff we can measure. What is harder is to think about the stuff we can’t measure. If you look at employment numbers, for example, put out by the Centre for Monitoring Indian Economy (CMIE), unemployment went up significantly possibly close to demonetising.

The second big blow was the Goods and Services Tax. Demonetisation was introduced without substantial preparation. I say substantial because we know there wasn’t enough currency printed to replace the currency that was taken out. You had to print it full speed for the next four months. Typically, you don’t do such things. You typically when you demonetise, have the money ready to roll out on the day you demonetise. That was not done suggesting the timing was chosen for other reasons than everybody was fully prepared.

That leads to the next issue which is, we had the rollout of the Goods and Services Tax. This is a wonderful concept. Demonetisation was misguided in concept. It was not a thing which either affected its aims — which was to bring down black money or what became a later aim which substantially increased the level of electronic payments or substantially formalise the economy. What it did was, create a lot of pain in a very short period of time especially for the poorer informal segments of the economy. It was brilliant politically though, because the government won the UP election. It was sold politically very well but it was not an economically well-thought-out idea.

The goods and services tax was the next big reform and it is something that the UPA government has been pushing and gone through because the BJP had opposed it then. The BJP took it on and to its credit managed to push it through as a constitutional amendment. It was a sound concept but again, initiated without enough preparation. The computers weren’t ready for the volume of transactions which means right off the bat you had to say “Don’t do this. Don’t do that. We are going to simplify the forms”.

There is a lot of back-and-forth which essentially undercut compliance, and the constant fiddling with the rates, I would presume, also created uncertainty. One could argue that some of the recent fall in demand, for cars for example, is because people are still trying to figure out. Are they going to reduce the tax? The goods and services tax on this from 28 percent in order to enhance demand? If so, I don’t want to buy now, I want to wait till they’ve reduced it.

The issue of trade and investment has been a focus of the Modi government, a good and necessary focus. However, what trade and investment needs really is an increase in the ease of doing business because, ultimately, you get more trade if you have more efficient firms who are able to produce both for the domestic economy and internationally. Here again, what one would want for is a slashing in some of the old regulations that holdback firms and focusing on improving the ease of doing business.

There’s been some attention but largely focused on the World Bank indicators of the ease of doing business rather than the actual conditions in India on what prevents businesses from working easily. So, as a result, we haven’t got that significant boost so far in business opening because in fact it may not have become that much easier for businesses to operate in India. One of the recent concerns has been on tariffs and taxes.

If you want more trade, you should bring down your tax, because today the way trade happens is through global supply chains moving goods back and forth. In order to move goods back and forth across borders, you need low and stable tariffs. Instead, what we have is high in fluctuating tariffs in certain areas; not all areas but certain areas. And that becomes a concern for business.

What will the tariff be next month? If in fact I open a business here, India is not part of any significant global supply chains and that makes it a problem if India wants to increase its exports. Similarly, taxes, the recent cut in corporate taxes is beneficial in attracting firms to India, but what firms worry about is not just the level but the changes. Is this going to change? Am I assured that when I put my investment in India, it will stay at 15 to 17 percent?

Unfortunately, in India, we have a history of going back and forth, some of which was reflected in the recent budget in taxes on foreign investors. So, we need to have a process where if we stabilise rules and regulations and taxes and tariffs, if we want to attract new companies into India.
That is one reason why if you look at the level of foreign direct investment, despite the emphasis on ‘Make in India’, you see in the last four years the level of foreign direct investment hasn’t changed very much. We get about $40 billion. In comparison, Brazil gets $90 billion in FDI.

We are starting to assemble more cell phones in India, and this has gone up. If you look at the cell phone imports, they have come down significantly and that’s not because we are buying fewer cell phones, but because we’re importing that. And if you look at exports, that have gone up. So, India is starting to export cell phones that it assembles in India.

The problem, however, is, it’s largely just assembly because one of the counter parts to the increasing cell phones is the fact that you look at electronic components, we’re importing far more. In other words, we are doing assembly now that’s not to be sneezed at we did do assembly before and doing assembly today is a good thing but it’s not value-added assembly. It’s basically importing the components and putting them together.

China is moving out of textiles. Who is taking its place? India has moved up from about 3 percent of world exports in textiles to 3.3 percent. But it’s over a period of nearly 20 years. On the other hand, if you look at Bangladesh, it’s gone from 2.6 to 6.4 percent. If you look at Vietnam, it’s gone from 0.9 to 6.2. So, Vietnam and Bangladesh are absorbing the textile market while we have plenty of people to work and we’re not getting any of the textile market. That suggests we are still not seen as an export friendly place. Our businesses are not doing as well as they should.

When a country grows richer, the taxes actually go up because people move into higher tax brackets and can pay more and especially with all the reforms this government has done, we should see higher taxes instead real taxes actually have actually fallen as have nominal taxes of this period. So, that’s something of concern, basically, signs of deep malaise: Growth is significantly lower, the fiscal space is narrowing, debt and distress is growing, India is losing its economic way. The reason is, we are centralising power without a persuasive economic vision, and if we do this, we risk wasting the demographic dividend.

Courtesy: Counter View

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Lockdown hits valley economy, trade bodies peg loss at INR 10,000 crore

29 Oct 2019

The state completes 85 days of shutdown on Monday, main markets continue to be shut



Image Courtesy: india today

Sheikh Ashiq, President of the Kashmir Chamber of Commerce and Industry (KCCI) confirmed to the Press Trust of India (PTI) that the running business losses for Kashmir have crossed INR 10,000 crore and all sectors have been severely hit. It has been nearly three months now and yet the people are not doing business because of the prevailing situation. There has been some activity in the recent weeks, but the feedback that we are getting is that the business is dull," MrAshiq said.

The shutdown in Kashmir, following the abrogation of Article 370, entered its 85th day on Monday, October 28, has not only left business crippled but has also rendered thousands jobless with main markets and factories continuing to remain shut.

Ashiq said that the figure was a preliminary estimate and the KCCI would come out with a white paper revealing the exact losses and the permanent damage to the economy. Explaining how the internet shutdown has permanently harmed the IT sector, he said that IT firms in the valley working with American and European companies have not been able to provide their services due to the internet blockade, which have led these international clients to switch to other areas.

He also said that around 50,000 to 60,000 carpet weavers have been rendered jobless. These weavers would generally receive orders online by July and August which would be completed and ready-to-be delivered by Christmas and New Year. This year they received no orders.

Apart from the tourism industry, the worst hit is the INR 10,000 crore fruit industry where apple growers became reluctant to do business and came under heavy threat from militants.

Speaking to The Telegraph, Mohammad Shafi, vice-president of Jammu and Kashmir’s largest industrial estate, said that he is planning to sell a part of his ancestral orchard to avoid bankruptcy.Shafi who also owns a rice mill and an animal bone mill said that most of the workers in his factory had left and that his interest payments were mounting.

The growers have been able to export only a third of their around 20 lakh tonnes of apples, hamstrung by militant attacks on non-local people —mostly those involved in the apple trade — that resulted in five deaths.The KCCI President also said that development projects worth INR 2,000 crore had come to a halt because of the workforce leaving the state.

Not only this, the KCCI President said that notwithstanding the business loss, they would have to face other problems like GST and online returns. This, not because they missed deadlines, but due to the clampdown in the Valley. Now, they have no system to cut back on their losses and the government has not taken up any responsibility to help.

Three prominent members of trade bodies, Mubeen Shah, former Chairman of the J&K Joint Chamber of Commerce and Industry; Yasin Khan, President of Kashmir Economic Alliance; and ShakeelQalandar, former President of Federation of Chamber of Industries Kashmir, that had been detained under the draconian Public Safety Act, have still not been released.

Even though the shops and markets do open for some hours during the morning and evening, they are shut for most hours of the day in a way of a silent protest against the government’s clampdown.

While the government claims that the abrogation of the special status will usher in a new era for the state, for now it feels like it has ushered in more dystopia than development.

Related:
We Will Not Survive This Disaster: Kashmiri Entrepreneurs As Lockdown
‘No outsiders in Kashmir’: Militants target non-locals, gun down apple traders and migrant labourers
Kashmir: Apples Caught in a Siege, Growers Willing to ‘Sacrifice’ Harvest
Kashmir will ‘Disobey’: Citizens choose silence as their strongest weapon of resilience
 

Lockdown hits valley economy, trade bodies peg loss at INR 10,000 crore

The state completes 85 days of shutdown on Monday, main markets continue to be shut



Image Courtesy: india today

Sheikh Ashiq, President of the Kashmir Chamber of Commerce and Industry (KCCI) confirmed to the Press Trust of India (PTI) that the running business losses for Kashmir have crossed INR 10,000 crore and all sectors have been severely hit. It has been nearly three months now and yet the people are not doing business because of the prevailing situation. There has been some activity in the recent weeks, but the feedback that we are getting is that the business is dull," MrAshiq said.

The shutdown in Kashmir, following the abrogation of Article 370, entered its 85th day on Monday, October 28, has not only left business crippled but has also rendered thousands jobless with main markets and factories continuing to remain shut.

Ashiq said that the figure was a preliminary estimate and the KCCI would come out with a white paper revealing the exact losses and the permanent damage to the economy. Explaining how the internet shutdown has permanently harmed the IT sector, he said that IT firms in the valley working with American and European companies have not been able to provide their services due to the internet blockade, which have led these international clients to switch to other areas.

He also said that around 50,000 to 60,000 carpet weavers have been rendered jobless. These weavers would generally receive orders online by July and August which would be completed and ready-to-be delivered by Christmas and New Year. This year they received no orders.

Apart from the tourism industry, the worst hit is the INR 10,000 crore fruit industry where apple growers became reluctant to do business and came under heavy threat from militants.

Speaking to The Telegraph, Mohammad Shafi, vice-president of Jammu and Kashmir’s largest industrial estate, said that he is planning to sell a part of his ancestral orchard to avoid bankruptcy.Shafi who also owns a rice mill and an animal bone mill said that most of the workers in his factory had left and that his interest payments were mounting.

The growers have been able to export only a third of their around 20 lakh tonnes of apples, hamstrung by militant attacks on non-local people —mostly those involved in the apple trade — that resulted in five deaths.The KCCI President also said that development projects worth INR 2,000 crore had come to a halt because of the workforce leaving the state.

Not only this, the KCCI President said that notwithstanding the business loss, they would have to face other problems like GST and online returns. This, not because they missed deadlines, but due to the clampdown in the Valley. Now, they have no system to cut back on their losses and the government has not taken up any responsibility to help.

Three prominent members of trade bodies, Mubeen Shah, former Chairman of the J&K Joint Chamber of Commerce and Industry; Yasin Khan, President of Kashmir Economic Alliance; and ShakeelQalandar, former President of Federation of Chamber of Industries Kashmir, that had been detained under the draconian Public Safety Act, have still not been released.

Even though the shops and markets do open for some hours during the morning and evening, they are shut for most hours of the day in a way of a silent protest against the government’s clampdown.

While the government claims that the abrogation of the special status will usher in a new era for the state, for now it feels like it has ushered in more dystopia than development.

Related:
We Will Not Survive This Disaster: Kashmiri Entrepreneurs As Lockdown
‘No outsiders in Kashmir’: Militants target non-locals, gun down apple traders and migrant labourers
Kashmir: Apples Caught in a Siege, Growers Willing to ‘Sacrifice’ Harvest
Kashmir will ‘Disobey’: Citizens choose silence as their strongest weapon of resilience
 

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Modi no reformer, manages economy incompetently: Western investors warned

26 Oct 2019

In a sharp rejoinder to “Western businesspeople”, who are said to be still inclined to “defend” Prime Minister Narendra Modi by claiming that Modi may be “bad for democracy his pro-business philosophy is good for the economy”, the powerful British periodical “The Economist” has declared, “But that argument no longer washes. India’s economy is incompetently managed and doing badly.”




According to “The Economist”, India’s growth falling from 8% in the middle of last year to 5% year-on-year in the most recent quarter “might not sound too bad”, as “other emerging economies are also suffering”. However, it warns, “The slowdown looks less like a dip than a prolonged cold shower.”

 

The top periodical says, “Some banks and many other lenders are in crisis, with a $200bn mountain of bad debts. In the six months ending in September, the total flow of financing to businesses fell by 88%.” It adds, “Five successive rate cuts by the Reserve Bank of India … have failed to pull down commercial lending rates, and in any case firms are not investing.”
 

“The Economist” continues, “Consumer demand has levelled off or fallen… Sales of cars and motorbikes have tumbled by 20% or more. And with the combined fiscal deficit of the federal government and the states already approaching 9% of GDP, and tax receipts falling well below expectations, there is little scope for stimulus.”

Admitting that in 2014 the Modi government inherited an economy “with plenty of problems”, it insists, “But it did too little about them. The latest downturn continues that disappointing pattern. With the exception of a steep cut in corporate taxes earlier this month, to 25%, which brings India into line with other countries in the region, the official response has been scattershot and timid.”
 
Instead of getting to grips with the economy, Modi will stop posing as a reformer and fully embrace his alter ego, as a chest-thumping Hindu nationalist
Pointing towards “an unusual paucity of expertise” in the Modi government and “conflicting views in his circle”, at a time when “competing interest groups vie for his ear”, the periodical advises Modi to “recruit an economic team that is based on competence and experience rather than affinity for the Bharatiya Janata Party’s Hindu-nationalist ideology.”

Recommending privatization of state-owned banks as part of a “broader" privatisation programme that could give the government "the money it needs to succour demand”, even as making use of “levers such as the national rural-employment scheme to get money to the distressed hinterland”, “The Economist” sounds a worry: “The fear is that, instead of getting to grips with the economy, Modi will stop posing as a reformer and fully embrace his alter ego, as a chest-thumping Hindu nationalist.”

Recalling steps like abolition of special status to Jammu and Kashmir, “India’s only Muslim-majority state” and threat to “expand to the rest of the country his scheme to hunt down supposed foreign interlopers in Assam”, “The Economist” warns, ““In the face of India’s growing economic problems, focus on communal grievances seems even more reprehensible.”

Courtesy: Counter View

Modi no reformer, manages economy incompetently: Western investors warned

In a sharp rejoinder to “Western businesspeople”, who are said to be still inclined to “defend” Prime Minister Narendra Modi by claiming that Modi may be “bad for democracy his pro-business philosophy is good for the economy”, the powerful British periodical “The Economist” has declared, “But that argument no longer washes. India’s economy is incompetently managed and doing badly.”




According to “The Economist”, India’s growth falling from 8% in the middle of last year to 5% year-on-year in the most recent quarter “might not sound too bad”, as “other emerging economies are also suffering”. However, it warns, “The slowdown looks less like a dip than a prolonged cold shower.”

 

The top periodical says, “Some banks and many other lenders are in crisis, with a $200bn mountain of bad debts. In the six months ending in September, the total flow of financing to businesses fell by 88%.” It adds, “Five successive rate cuts by the Reserve Bank of India … have failed to pull down commercial lending rates, and in any case firms are not investing.”
 

“The Economist” continues, “Consumer demand has levelled off or fallen… Sales of cars and motorbikes have tumbled by 20% or more. And with the combined fiscal deficit of the federal government and the states already approaching 9% of GDP, and tax receipts falling well below expectations, there is little scope for stimulus.”

Admitting that in 2014 the Modi government inherited an economy “with plenty of problems”, it insists, “But it did too little about them. The latest downturn continues that disappointing pattern. With the exception of a steep cut in corporate taxes earlier this month, to 25%, which brings India into line with other countries in the region, the official response has been scattershot and timid.”
 
Instead of getting to grips with the economy, Modi will stop posing as a reformer and fully embrace his alter ego, as a chest-thumping Hindu nationalist
Pointing towards “an unusual paucity of expertise” in the Modi government and “conflicting views in his circle”, at a time when “competing interest groups vie for his ear”, the periodical advises Modi to “recruit an economic team that is based on competence and experience rather than affinity for the Bharatiya Janata Party’s Hindu-nationalist ideology.”

Recommending privatization of state-owned banks as part of a “broader" privatisation programme that could give the government "the money it needs to succour demand”, even as making use of “levers such as the national rural-employment scheme to get money to the distressed hinterland”, “The Economist” sounds a worry: “The fear is that, instead of getting to grips with the economy, Modi will stop posing as a reformer and fully embrace his alter ego, as a chest-thumping Hindu nationalist.”

Recalling steps like abolition of special status to Jammu and Kashmir, “India’s only Muslim-majority state” and threat to “expand to the rest of the country his scheme to hunt down supposed foreign interlopers in Assam”, “The Economist” warns, ““In the face of India’s growing economic problems, focus on communal grievances seems even more reprehensible.”

Courtesy: Counter View

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