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Dear Readers,

Bharat: The decades-old dispute over Ram Janmabhumi was resolved by the Supreme Court verdict on December 9, 2019. Both majority and minority communities will now live in peace. Abrogation of Article 370 in Jammu and Kashmir by Modi Ji was also a landmark decision of Modi Government in the history of Bharat.

Bharat economy: Modi government has been taking several measures to boost economic growth and employment despite slowdown of the global economy, global trade war, fear psychosis of the industrialists, low consumption, and increasing unemployment. Moody’s Investors Service cut India’s sovereign credit rating outlook to ‘negative’ from ‘stable’. The agency attributes the reason to lower government and policy effectiveness in dealing with long-standing economic and institutional weaknesses.

Total bank credit growth is below 9% level, substantially lower from 12.5% a year back. There is surplus liquidity with the bank. Deposits are growing. The cuts in repo rates have not translated into commensurate drop in interest rates signaling a breakdown in rate transmission. Takers are not there, and investors are adverse to the risk of debts. All want to clear debts instead of facing criminal charges. Lenders i.e. bankers and financial institutions are also scared to lend. As a result, investment is at a multi-year low affecting growth and employment. The RBI and government need to revise their circular in regard to stressed assets. Slowdown of any sector or any unit needs time to recover. Support should be given instead of being considered as defaulter.

Government differs with Moody’s Assessment of Bharat’s Economy. Finance Minister said India continued to be amongst the world’s fastest growing major economy and its relative standing remains unaffected. Its fundamentals remain robust. There is impressive 27% jump in FDI in June quarter pointing to the country being an investment destination.

India has decided not to join the Regional Comprehensive Economic Partnership (RCEP) till its key concerns are addressed. It wants to quickly address problems of surge in imports from China, dairy products from Australia and New Zealand as local industries and dairy industries and cattle growers are on the brink of extinction. While increasing trade amongst countries is good, at the same time local industries, agriculture and other sectors must be protected for providing the sustainable and inclusive growth. Policies of RCEP should be sound, benefitting people. India has sought the opening of service markets and investments. Prime Minister Narendra Modi has emphasised meaningful market access for all parties.

Government is concerned about the economic growth. Industrial output in August shrank by 1.1% and further by 4.3% in September. Output of the eight core infrastructure industries dropped by 5.2% in September, the most severe decline at least since April 2005. Exports too, dropped 6.6% in September.

Employment: India’s young population in the age group of 21-40 represents over 40% of the total population. Parents spend substantial money on education. Unemployment causes pressure on parents, makes the youth depressed, leading to a waste of human capital. UNICEF chief has warned that India is among the South Asian countries where lack of 21st century skills can emerge as a major concern for the youth to find employment and has urged the Indian government to take initiatives that can pave the way for a better future for the youth. Smriti Irani, Minister for Women and Child Development said that India will start skilling its youth between 10 and 24 years of age. The initiative supported by UNICEF, aims to engage over 300 million youngsters in education, skill training or employment over next 10 years.

Steel and mining sectors: 329 mines are to be auctioned, spread over 10 states. Metal prices are in a down-cycle. Steel industries face import of cheap steel from China. Government is not fetching good prices for mines. Government should come with a formula of basic price of steel vis-a-vis raw materials and output of mines.

NBFCs: The RBI is closely monitoring the top 50 NBFCs representing roughly 75% of the assets size of this sector. Some have overseas funding. Government is considering a proposal to open a special debt resolution window for stressed entities. RBI has revised its guidelines on the liquidity risk management framework for NBFCs. RBI’s liquidity framework guidelines for NBFCs will be effective from December 1, 2020. However, it will increase the cost of funds to NBFCs as earning on liquidity are lower than what would be given for fund mobilisation. The RBI has to consider this aspect. Payment defaults and delays by Infrastructure Leasing and Financial Service and Dewan Housing Corporation could have been sorted out in a practical way rather than the stringent action taken leading to the crisis. Measures by RBI to control should be pragmatic and functional.

The capital to risk weighted asset ratio of NBFCs at the sectoral level is 19.3% against the minimum requirement of 15%. We have good NBFCs.

Real estate: The real estate sector is the second largest employer of educated, skilled, semi-skilled and unskilled, after agriculture. It is in organised and unorganised sectors. It is being developed by multi-national, multi-domestic, medium, small, self-employed entrepreneurs. The central government and state governments are also developing housing estates to meet the demands of medium income and lower income groups.

Real estate sector in India is expected to reach USD1 trillion by 2030. By 2025, it will contribute to 13% of the country’s GDP.

Despite increasing population and emergence of nuclear families, there has been slack demand. Reality sector has been reeling due to multiple factors. Large built up space in housing, even in the affordable housing and commercial segments are lying unsold. It is estimated that there is USD 63 billion of stalled residential projects across the country. Developers who have invested their capital and borrowed funds are unable to serve their debts. The rate of interest on borrowing fund is very high. Many are facing bankruptcy proceeding.

The Finance Minister’s revised scheme to set up an Alternative Investment Fund (AIF) with a total initial corpus of Rs. 25,000 crore to help completion of RERA-registered stalled housing projects (with positive net worth) including NPA assets will have limited impact on this sector. Sales have dropped across the country. Due to the lack of basic infrastructure connectivity and poor social development, there is poor sale in the suburbs. About 5 lakhs units installed projects launched since 2008 not seen any construction activity in the past year and failed to get buyer. These projects have blocked the fund of the developers and banks, financial institutions and NBFCs. Government’s proposed alternative investment fund (AIF) worth Rs. 25000 crore is expected to provide financial support to these stalled projects across the country. Projects which are under liquidation phase are excluded. Housing unit up to 200 sq. mt. (carpet area) and city wise pricing up to Rs. 2 crore is entitled to benefit from this scheme.

May The Almighty bless us with the wisdom to come up with practical solutions to address the economy’s structural problems so that India can once again surge ahead.