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Dear Readers,

Bharatwasi have celebrated Republic Day on 26th January and worshiped Mother Saraswati for getting wisdom and knowledge.

Indian Economy: The GDP growth rate has dropped to 4.5% in Q2FY20 due to many factors including stringent, impractical rules and regulations of former

RBI Governor Raghuram Rajan, flaws in demonetisation and GST, criminalisation of income tax laws, corporate tax, suspicion of industrialists’ and businessmen’s  failures as frauds, severe investigation and predetermined punishment to officials and bankers, feeling of apprehension, deep trust deficit between government and industry and existing excess capacity due to lack of demand.

Government’s general debt is at around 70% of GDP. The IMF forecasts for India’s growth rate stand revised at 4.8% for 2019, 5.8% for 2020 and 6.5% for 2021. It said that growth slump in India is temporary. Global growth was estimated at 2.9% in 2019. It is projected at 3.3% for 2020 and 3.4% for 2021.

Gita Gopinath, Chief Economist, IMF, said India’s slow growth is a drag on the world. She added that the slowdown has been on account of the “stress in the non-bank financial sector and weak rural income growth”. Fitch has also projected India’s GDP to grow at 4.6% in 2019-20, 5.6% in 2020-21 and 6.5% in 2021-22. The country is passing through a critical time. Tax revenues fell short by Rs. 1.65 trillion last year. The deficit is likely to be larger this year at Rs. 2.6 to 3 trillion. The disinvestment programme did not quite take off in the current fiscal. The government is depending on dividend from the RBI.

China vs. India: China is a USD 14 trillion plus economy against India’s USD 2.7 trillion. Lending rates in China are far lower than that of India. In China project finance is available at 5-6 % whereas it is 12% to 14% in India. In case of one day default in India, penalty rate and higher rate of interest is imposed. It blunts India’s global competitiveness.

Positive actions: Power generation is likely to be declared as manufacturing for paying corporate tax of 15%. Government is likely to fund around USD 2.8 billion expenditure via off budget borrowings in 2020-21. It will increase spending on rural welfare and expenditure. Real deficit may touch 4.5% of GDP instead of targeted deficit of 3.5% of GDP. The above fund should be spent for rural wealth creation and projects like rain water harvesting, ponds, wells, minor irrigation projects, pisciculture, cattle and poultry, horticulture, floriculture, rural housing, etc. The government should not squander the wealth of the country as warned by Holy Veda.

Investments and Make in India: The world’s richest person Jeff Bezos of Amazon announced a fresh investment of USD 1 billion.  Amazon has been pushing out a number of domestic self-employed retailers. Its losses are being questioned.

Infrastructure: The country has a huge infrastructure gap. Private sector has suffered due to unprecedented delays in approvals and clearances and also because of adherence to multiple cumbersome rules and regulations pertaining to land acquisition. This has multiplied cost of projects. On top of that, RBI’s controversial one-day default rule has further complicated matters. So far, actions taken by government are not enough to revive the investments and speed up even stalled projects.

Real estate sector:  Real estate sector is passing through credit crunch/credit squeeze. Large inventory of unsold built-up area has been worsening the woes of this sector. Cost of construction is also very high due to shortage of labour. There’s 28% GST on cement.

Positive action to boost economy: (a) To sell stocks of PSUs in excess of 51% instead of selling units or come for public issues at discount of 15% of the market price. (b) Through modification and amendment in IT, boost consumption and investment – exempt IT up to Rs. 5 lakh, to do away with all deductions except Rs. 5 lakh deposit in PF and payment of insurance premium, tax 10% taxable income after exempt limit and deduction of Rs. 5 lakh at 10% up to Rs. 15 lakh and above that 20%, private trust income to be taxed at 20% flat and corporate at 25%, Dividend distribution at 15%, no tax on dividends to the recipient irrespective of individuals or trust or associations or person. Tax on long term and short term should be removed to boost investment in IPO & stock market. CSR of 2% should be freed from income tax. Chief Justice of India SA Bobde said that excessive tax results in social injustice.

The Holy Vedas, “O Leader! Do not tax the people heavily. Do not create an army of idle people. Don’t engage in populist measures squandering the wealth of the nation.”

Steel sector: It has witnessed both a period of recession and boom. During good times from 2004 to 2010, it had large capacity enhancement from 28.5 million tonne to more than 100 million tonne by 2010. It would be around 137.98 million tonne in 2018-19. Consumption of steel was estimated at around 97.4 million tonne.

Large investments comprising capital and debt were made. Debts and repayment could not be served. But many steel units have been put in insolvency process. Some were sold. Promoters received severe punishment as their units had become defaulters, in fact many of these defaults have been equated to frauds.

Large units like Bhusan Steel, Essar Steel, Electro Steel, Monnet Ispat, Jaiswal Neco, Visa Steel were taken over by TISCO, Vedanta, Mittal and others at less than 40% to 50% of the capital investment. These could have been revived through restructuring of debts. The sector had started reviving after imposition of dumping duties and minimum tariff import prices. The sector is heavily debt burdened.

The government’s policies have impacted the industry from time to time. Cancellations of mines of coal and iron ore have been impacting industrial economic viability. Cancellation of mine blocks have also caused social crisis of livelihood of millions. Ban on mining has not only affected the families depending on mining but also the families depending on the ancillaries of the mining industry. Promoters had lost their investment and debts in the mining sector without recourse resulting in defaults, which have been treated as frauds.

Despite the woes of industry, excess capacity, low demand, government has planned to increase capacity to 300 million tonne. Based on this, bankers would sanction loans. That would again be treated as frauds. Consumption of steel is increasing at 6-9% every year. With the pace of increasing consumption total steel consumption would be to less than 200 million tonne. Thus, targeting a production 300 million tonne by 2030-31 will result in over-capacity resulting in 20 to 25% less capacity utilisation. This will impact economic viability of a unit. With the global trade war heating up, developed countries are increasingly becoming protectionist. The US has imposed restrictions on imports of aluminium and other metals from India.

Steel import is a major threat to the industry. Import of finished steel has increased by 17% against a fall of 23.4% in export. Falling prices due to excess capacity in China is a matter of concern. GST is 18%, making steel more costly. Domestic steel products are 15-20% costlier than China’s products due to low productivity and high input costs.

Global steel price has declined due to weak demand despite increase in iron ore price globally by 56%. Indian steel sector is having large debts, falling demand due to disruption in the real estate and infrastructure sectors, high input costs, low quality coke, and cheap imports from China, South Korea and other countries. The country needs to develop efficient indigenous steel producing technologies. Capital/debt need to be made available at interest rates between 9% and 10%. In China, the fund is available at 5% to 6%.

Leaders and authorities of Bharat would apply their knowledge and wisdom to frame policy instead of swayed away by populist measures and policies.