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Dear Readers,

Bharat: On 15th August, 2020, we Bharatwasis celebrated Independence Day with commitment to reinvent Swadeshi through the realization of the Atmanirbhar Bharat campaign so that most of the products and services are produced domestically and the country grows with speed, employing millions of people and thereby providing them opportunities for a good life.

On August 5, Prime Minister Narendra Modi laid down the foundation stone of temple in Ayodhya, marking Sri Lord Rama’s Janmabhoomi (birth place). Lord Vishnu, the universe Supreme Lord, had incarnated as Lord Rama in human form to establish righteousness, truth, ideals for family, rulers and all and by embracing all irrespective of castes or economic status. He is seated in the hearts of all. It was a day of joy and celebration for many Hindus worldwide and many others.

Most of the rating agencies predicted deterioration of India’s GDP. India’s economy has contracted by 25% suggesting a growth deceleration. Hospitality, aviation, health, transport and manufacturing sectors have been affected adversely.

The revenue shortfall will widen the fiscal deficit. Government should reduce the rate of GST and taxes so that people have more money in their hands to create demand.

Financial sector & NBFCs: Prime Minister Modi has discussed with bankers and officials for credit flow and steps for revival of the economy. Former RBI Governor Raghuram Rajan has suggested that relief, repair and reforms should be priority of policy makers. He said that the stressed assets should not be put up for auction fetching bottom out price even for potentially viable assets, but find ways with the existing management to revive the ventures through suitable measures. Bankruptcy laws should not be suspended as opined by the former RBI Governor and Deputy Governor, Raghuram Rajan and Viral Acharya, respectively. Acharya has, in fact, suggested two sets of Asset Management Companies (AMCs) tasked with the clean-up act. The existing private AMCs can take care of those corporations which only need debt restructuring. Acharya has suggested the setting up of a national AMC for assets like surplus power plants that need to be held off the market till demand revives to adequate level. Such demarcation of roles between two sets of AMCs can take the burden off the National Company Law Tribunal (NCLT) which will have its hands full once it opens to new cases.

Banks & financial creditors should find reasonable resolution to tackle the private sector one for restructuring debts and a National Asset Management Company for managing assets till demand doesn’t recover.

Hospitality: Covid-19 has greatly affected the viability of the hospitality sector, especially, virgin units and greenfield projects. The Finance Minister Nirmala Sitharaman has been working with the RBI officials to extend moratorium to hospitality sector. The government and the RBI should consider on a case to case basis for extending relief. They should ignore divergent views of different sets of persons. GST rates need to be lowered so that with limited funds in the hands of the middle class, they can still use it in the hospitality sector. The sector has a potential revenue loss of $ 10 billion and job losses of 5 to 7 million. It has contributed 9% to the country’s GDP.

Wealth creators: The golden gooses, which were laying golden eggs, were killed. How golden eggs are expected? Rajnish Kumar, Chairman, State Bank of India said that government and corporates need to invest more for recovery and have loan restructuring with banks. It is good that banks should restructure loans in their wisdom. But expectations for investment from corporate sectors appear to be very bleak.

RBI Monetary Policy: The RBI’s monetary policy committee (MPC) kept repo rate unchanged at 4%, reverse repo rate unchanged at 3.35%, and maintained an accommodative stance.

As stimulus measures, the RBI has recognised the need for continued support for restructuring of MSMEs till March 31, 2021. The restructuring window now stands expanded now beyond the MSMEs. It does not cover NBFCs. It is essential to cover NBFCs, as they provide finance to medium/small contractors/MSMEs/self employed. They are blood line of finance. By providing a window under the prudential framework, the lenders can implement a resolution plan to eligible corporates without changes in the ownership and to personal loans by retaining the ‘standard’ classification of the loan subject to specific conditions- (i) Covid-19 related stressed assets, (ii) not in default for more than 30 days with any lending institution as on March 1, 2020, and (iii) accounts to remain standard till date of invocation. It can be invoked anytime till December 31, 2020. It has to be implemented within 180 days from the date of invocation. (iv) Lenders need to have additional provisions of 10% on the post-resolution debt. (v) Need of validations by rating agencies or expert committee for large expenses. The RBI is constituting an expert committee under the Chairmanship of K.V. Kamath to make recommendations for financial parameters for resolution plans for each sector.

However, the conditions laid down for this one-time restructuring are too stringent. It appears that hardly anyone will be eligible. A person / an organisation cannot open an account in a bank if he has taken facility from another bank. There is fear of inflation. Rise in prices of agri-products add to inflation. But there is enough stock of grains which are getting damaged. When demand, both domestic and external, is so poor, how there can be inflation?

World: The European Union leaders have agreed to a stimulus of 750 billion euros (USD 884 billion) to rescue their economies. The USA’s economy shrank 32.9% in Q2 2020, its biggest decline since 1940s. Unemployment has surged to 14.7%.

India-China: After the flaring up of the border dispute, India is not being aggressive, though it has taken a host of measures to reduce its trade and investment links with China. India is the second largest shareholder in Asian Infrastructure Investment Bank (AIIB). India’s investment is USD 8.4 billion for 83,673 shares, whereas China owns 297,804 shares with USD 29.8 billion capital subscription. In 2016, India became a founder member of the AIIB along with 57 countries. India has to keep vigil so that the control of AIIB does not go 100% into the hands of China.

Conclusion: There is uncertainty in predicting the outlook. Both domestic and external demands are under stress. But at the same time, cost is rising due to severe supply chain disruptions. This is partly the reason behind a rise in food inflation. Agri-prices are rising even when there is enough stock of foodgrains. The government’s spending remains weak. The GDP growth rate had fallen to 3.1% in the quarter ended on March 31, 2020. The Indian economy is headed for a major contraction in the April-June quarter. Banks will consider pricing in lending regional disparities, start-ups, innovations, etc.

May God bless all Bharatwasis and their leaders to have the strength, wisdom and foresight to overcome the dual challenges of the impact of Covid-19 and the falling economy and employment. Let hungry stomachs have food so that they may grow strong and make the country strong.