Bharat: Bharatwasis had celebrated the birthday of Lord Krishna, an incarnation of Lord Vishnu in August. Lord Vishnu incarnated as Krishna to establish the principle of righteousness, discipline, just work, and honest living with faith in the cosmic entity. He said to Arjuna, his disciple in the Kurukshetra battlefield, to be free from pride and delusion and do his duty with the best of ability for the welfare of the universe and society without greed and attachment. Gopi Radha was an embodiment of love and devotion to the cosmic entity, i.e., Lord Krishna. Bharatwasis also celebrated her birthday with devotion.
The country mourned the demise of Bharat Ratna Pranab Mukherjee, former President of India. He had served as finance minister, defence minister and foreign affairs minister before becoming the President of India. He was a great humanist, brilliant economist, scholar, administrator and politician. He had a unique memory for data, financial data, procedure rules, and constitutional laws.
Bharat economy: It is continuing to weaken in real terms. It suffered its steepest contraction at 23.9% in the first quarter (April-June) 2020-21. Even before the COVID-19 pandemic, the industry was already suffering and to a large extent RBI’s actions in 2017-18 were responsible for that. The one-day default norm had a catastrophic effect. Most sectors have been badly hit.
Foreign inflows have helped the rupee appreciate against the US dollar. India’s foreign exchange reserve has improved substantially in the last few months. Import in terms of value is less as the price of oil continues to be low. Presently, stock market is not the barometer of economy. The market value appears not to be realistic. The continued accommodative policies of central banks in developed economies and the subsequent inflow of money into our stock markets have been largely responsible for this bull run.
Global and domestic rating agencies have sharply cut their forecast for India’s economic growth for the financial year 2021.
Revival of economy: The Supreme Court, India’s apex court has directed banks not to tag any loan as default. It is also reviewing a public interest litigation (PIL) demanding waiver of interest on EMIs during moratorium and also waiver of panel interest and interest on interest. Loan moratorium can be extended to two years with deferment of EMIs. The finance minister has also asked banks to recast stressed loans hit by pandemic by September 15 with six months loan moratorium. The finance minister also exhorted the lenders to proactively respond to the needs of the borrowers.
Banks are fearsome for a righteous decision in their perception. It may be perceived differently by the investigating agency. Immunity need to be given till final court decision.
The K.V. Kamath panel appointed by the Reserve Bank of India has identified 26 sectors which were hurt the most by lockdown since end-March and has suggested detailed guidelines to restructure loans of stressed companies in those sectors by classifying these segments as mild, moderate and severe. Power, real estate, and construction sectors are in the severe category. The rest of the sectors are in the middle category. Within the moratorium period of two years, large part of them will come to normal. MSMEs needs more support than the large units, which also need to support. The MSMEs are dependent on the large ones. It is beneficial for all to be back in health. Debt-equity ratio for corporate used to be 3.8 : 1 historically. Roughly ` 4 to 4.5 trillion of loans needs to be recast. Time is of essence for deciding resolution. Selective loan recast could serve India well. The RBI Board has accepted the recommendation made by the panel under K.V. Kamath. It has specified different parameters for different sectors as criteria for being eligible for resolution.
GST: The union government has advised state governments to adopt options of borrowing to make up for their GST shortfall. The government has assured to stand by its commitment of supplementing compensation. The government is saddled with empty coffers and the need to increase spending to boost demand. Realistically, government should lower the GST rates on consumable commodities and hospitality sector to boost demand and thereby, improve collections through higher volumes. At last, the Union government has committed to compensate the states for their entire ` 2.35 lakh crore GST shortfall in 2020-21 irrespective of the reason for the fall in revenue, which is either due to GST implementation issues or because of the pandemic. However, the Centre has offered two options for giving this compensation, One is an amount of for ` 97,000 crore where it would be the states who would have to borrow from the market and for which states would not have to pay either principal or interest. The loan will be repaid from the compensation cess that the states levy on luxury goods and sin products such as liquor, cigarettes, aerated water, automobiles, coal and tobacco products. The other option is borrowing the larger amount of ` 2.35 lakh crore from the market, but for this they will have to bear significant interest costs. The argument given for this arrangement is that the state governments have not yet breached their borrowing limits, meanwhile the Centre has already stretched itself in terms of its borrowings. Centre borrowing from market to compensate the states will have higher impact on the market and push up the G-sec rate which becomes the benchmark rates for other borrowings including that by state governments and also for private sector. However, non-NDA state governments have rejected the two options presented by the Centre.
Aviation: Aviation enterprises have not been in good health. In the course of six decades, many enterprises had become defunct globally. Most enterprises have lost their own capital and debts (loans). In India, some have been facing court cases and CBI enquiries. The national airline, Air India, has been incurring heavy losses which have accumulated over ` 65,000 crore. Out of passion, entrepreneurs have been launching aviation enterprises. Indigo has also been incurring losses overall. Outside India, Virgin Atlantic got court approval for USD 1.6 billion rescue plan. In India, rather than a rescue plan, an enterprise is termed as wilful defaulter with charges of diversion of funds.
Hospitality: This sector has high fixed cost structure. Enterprises which have started operation in the last three to four years have been hit hard as they are unable to serve high cost of interest and make repayments. COVID-19 pandemic has affected this sector badly. Many are facing the risk of permanent closures. Employment of millions is at risk. Hotels suffered steep contraction of 47%.
NBFCs: NBFCs are being asked to finance loans given to their clients. They should get their borrowings refinanced by banks, otherwise it will lead to cash flow mismatch. Merger between banks and large NBFCs need to be allowed. It has happened in the past and there are several success stories from such mergers. NBFCs are usually not allowed to accept deposits. They largely depend on the banks for their funding requirements. They are not receiving the repayments from their customers. They need to be extended moratorium by their lending banks as well. NBFCs also need to be allowed to avail the one-time restructuring window as they are to offer the restructuring option to their stressed borrowers as well. They need regular access to funding as they serve the credit needs of MSMEs, millions of entrepreneurs, retailers, start-ups and self-employed individuals and thus promote financial inclusion. NBFCs should have been included in the panel of Kamath.
Renewable energy: Renewable energy is in the need of effective solutions for growth’s survival. The First World Solar Technology Summit of International Solar Alliance (IAS) will be hosted by India.
As on April 30, 2020, the installed renewal energy capacity stood at 87.26 GW of which solar was 34.81 GW, wind was 37.74 GW, biomass was 9.86 GW and hydro power was 4.68 GW. Power generation from renewable energy sources reached 127.01 billion units (BU) in FY 2020.
Many solar projects, which had come before 2016, are stressed today. They had high cost of capital. Power purchase agreements by state governments and Discoms have been cancelled. In some cases, the purchase agreements were revised downwards by 50% causing great loss and servicing the loans taken for such projects has become a challenge. Hydro, wind power and solar power projects are also facing the brunt of uncertainties. As of February 2017, the country’s 25,329 MW of installed gas-based power capacity was operating at a suboptimal plant load factor (PLF) of 22%. Despite potential gas reserve, gas production is not being harnessed effectively. Last year, Rajnish Kumar, Chairman of State Bank of India, had said that there is no future of gas-based power plants in the country and SBI may have to write-off its investments in the sector.
The government is preparing a ‘rent a roof’ policy for supporting its target of generating 40 GW of power through solar roof top projects by 2022.
As part of its Paris Agreement commitments, the government has set an ambitious target of 175 GW of renewable energy capacity by 2022. These include 100 GW of solar capacity addition and 60 GW of wind power capacity. Government plans to establish renewable energy capacity of 500 GW by 2030.
Prime Minister Narendra Modi promised to tap solar energy to substantially power the economy. Solar energy will lead to self-reliance for energy – he said while inaugurating a 750 MW photovoltaic project at Rewa, Madhya Pradesh, one of Asia’s largest solar park. For the first time, the cost of solar power was less than thermal power. Tariff for 25 years contract will be ` 3.32 per unit. He called upon the entrepreneurs to ‘Make in India’ and be ‘Atmanirbhar’ for solar power equipment.
As reported, there are several adversaries in growth of a solar power. Discoms are reluctant to sign power supply agreement (PSAs) with solar projects. They are thereby threatening to disrupt the country’s solar power project. They had cancelled valid agreements and have not renewed even for lower rates. Huge payment is outstanding to the solar power suppliers. Delay and more delay is the governing principle of Discom.
Industrial sectors are being supplied power at very high rates by the public undertakings ranging from ` 6 to ` 7.40, while they are purchasing at a tariff of ` 2.50-3.50 per unit. How will the industrial sector compete globally then?
PM KUSUM scheme targets 3.5 million solar pumps across the country (of which 1.5 million would be grid-connected) as well as installation of small solar plants (up to 2MW) on the edge of the farms, on barren/ fallow land, supported by subsidies.
Conclusion: For the economy to recover post its steepest fall, Bharatwasis have to discharge their duties and responsibilities honestly and fearlessly. Delinquency in discharging responsibility is tantamount to relative corruption according to the messages of enlightened persons and scriptures. The time being crucial and critical for economic growth, severely affected sectors like hospitality, healthcare, NBFCs, realty, aviation, and power need restructuring of their loans along with moratorium of repayment and simple rate of interest of 8% from the date of default for 3 years to 7 years.