Dear Readers,

Prime Minister Narendra Modi has started his second innings with a massive mandate. Bharatwasi have reposed their faith in him. Many feel that as a tea boy he had experienced poverty and therefore, he will boost growth, which has steeply fallen to 5.8% in Q4FY19. This is below China’s 6.4%. He will focus on investment, unemployment, farmers' distress and poverty alleviation.

Investment: Private investment is negligible. Public sector investment is almost negligible except in railways. Several PSUs are bleeding. Government is imbibed in disinvestment. The Interim Budget 2019-20 and other policies have failed to boost investment. Confidence/faith of promoters/entrepreneurs/big corporate houses is shattered from inside, though they are trying to project a brave face. Capacity utilisation in almost all sectors is varying from 30% to 80%. All sectors are heavily burdened with heavy debts. All industrialists, fearing such debts as death trap, are trying to strip themselves of debts as far as possible by selling parts of assets. Earnings of several in the fourth quarter have been very poor or negative.

Some enthusiastic industrialists, while not considering investments in Greenfield projects, are busy buying stressed assets at rock bottom prices. Foreigners are also buying stressed assets at low prices. Start-ups are failing as they are starving for funds. Inbound FDI (equity) in 2018-19 stood at USD 44.36 billion, marginally lower than last year. Businessmen are also fearsome of being arrested on the basis of presumptions without proper investigation.

Exports as a percentage of GDP in 2018-19 is below than what it was in 2013-14. Bharat’s products are not globally competitive due to poor productivity and high wages.

Unemployment is rising due to various factors like negligible investments, stalling of infrastructure, real estate projects, ailing power sector due to non-supply of coal, non-availability of finance. All sectors are anaemic to growth and investments.

NBFC:  Non-Banking Financial Sector is under pressure and is facing an image crisis after IL&FS’s default. With this stigma, flow of funds from various sources has dried up, even at higher cost. Troubles have started due to various changing and varied rules and circulars of the Reserve Bank of India. Due to Bankruptcy Law, real estates and other assets and availability of stressed assets, valuations of good assets held by NBFC have depreciated. This has caused depreciated value of even premium assets of NBFC affecting assets liability mismatch for the time being. NBFCs have enough assets to match liability, but selling off good assets, majority at less value would not fetch premium value.

RBI’s proposals such as mandatory investments in Government bonds and maintenance of cash will further affect their margin greatly as NBFCs borrow at high cost and are not allowed to accept deposits from public. RBI should relax many norms and regulations for their efficient working and contributing immensely to growth and employment.

The rule of one-day default had created havoc even to good companies. It has put companies in a fix. If a healthy person becomes sick for a day or few days, he will not be forced to remain sick. One day default could be for many reasons which do not forecast the health of a company. The Supreme Court quashed the circular of RBI issued on February 12, 2018 in regard to one day default. RBI has come out with a new circular with new guidelines for resolution of bad loans. It now allows bankers to classify an account as a default only after 30 days of the borrower not having serviced the loan. More importantly, now it gives banks greater discretion to deal with stressed assets. Taking the defaulter to the insolvency court is voluntary. Earlier, banks had to refer the case under Insolvency & Bankruptcy Code if a resolution failed within the 180-day deadline. Banks will now have to think of a plan after a default and a further 180 days to execute the plan. After 180 days, if a resolution plan does not take shape, banks have to make additional provisions of 20% on the outstanding and then another 15% additional provisioning (i.e. a total of additional 35%) of outstanding if the timeline crosses 365 days of default. From now, it applies to accounts worth Rs. 2000 crore and above and for accounts worth Rs. 1500-2000 crore it will be effective from 1st January 2020. This framework is silent for cases below Rs. 1500 crore. BE had voiced earlier issues against the RBI circular of February 12, 2018 as it would create chaos and havoc to the enterprises. Revised rules are still not practical and realistic. Banks need to be more supportive of the enterprises and should ideally help them in dealing with difficult times, especially when the enterprise is a victim of circumstances. Banks should assist with reasonable rate of interest on simple basis and additional charges as penalty etc. The principle should be not to overload a sick enterprise, rather it should be to lessen its burden. Stringent rules have disrupted the industrial activities and growth resulting in unemployment. Sustained industrial growth can contribute towards reducing poverty. We must not forget that Bharat’s manufacturing sector needs to provide more than 7 million jobs every year.

Farmers’ distress: Allied agri activities like cattle rearing, dairy and water management, agri-technical training are essential to address farmers’ distress. Simple dole will not be beneficial. It breeds vices e.g. indulgence on alcohol. Production, distribution and consumption should be banned. Mandi tax should be removed, so that farmers can sell at the best prices and will be safe from terrorism of government procuring agencies.

Silos need to be built at distance of 100 to 150 km all over Bharat. Farmers should be able to store their products in storages and modern granaries and storehouses so that wastage of food-grains can be minimised. The can sell their products when they need money and or when the prices are high. This model is working successfully in USA since several decades. Most of farmers have small holding. There are many landless. Government should build cattle sheds, where farmers can keep their cattles. Government should also give free cattles to villagers and make it compulsory to keep cattles in such sheds, so that they cannot sell cattle and waste proceeds.

Taxation: Government may not like to give tax relief to industrial sector and more to business enterprises. It should consider creating a “Stressed/Recession/Emergency Reserve” to which 10% to 20% of the profit is transferred before computing taxable income. This money can be invested suitably in Government bonds which can be encashed in times of stress, recession and external factors causing the losses. Tax terrorism must be stopped to create a healthy peaceful existence of businessmen, especially start-ups. Corporate tax rates need rationalization. Income tax rates and slabs need to be reviewed to encourage consumption.

GST: There should be three slabs. One Nation and One Tax principle should be adopted by removing CGST, SGST etc. At present, consuming states are benefited and not manufacturing states. Tax collection can be shared like Income Tax. High slab of 28% should be applicable to alcohol.

Law of nature is change Mightiest corporates globally had fallen and have been falling. Global competition, innovations, government policies, undue delay in government’s approval and other several factors lead to death of units. Profits and losses are cyclical. Based on presumption, arrest is not justified. Law of jurisdiction is that let not an innocent be punished.

Bharatwasi look at their rulers and businessmen with faith and consider them as instruments of God, discharging their duties and responsibility by hard work with devotion righteously, fearlessly, sincerely, selflessly for sustainable and inclusive growth with harmony and peace for all, without creating terrorism of any sort, and factionalism based on religion, caste, rich and poor etc. Policy-makers therefore should give due respect to the businessmen and entrepreneurs and not suspect their motives unnecessarily. CII President Vikram Kirloskar said “New Government will be more careful before taking any disruptive decisions”. Modiji called for ‘Sabka Vishwas’. Better trust will mean lesser regulations. Businessmen will respond to it.


Dr. H.P. Kanoria

Editor in chief     



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