Bharat Economy: Finance Minister Nirmala
Sitharaman said that India is on the track to reach the USD 5 trillion GDP target by 2025. There is no slump. Government has taken a host of steps to arrest the slowdown complementing the monetary easing pursued by the central bank. Growth is essential to reduce poverty. Rural and agricultural growth is important to bring more people above the poverty line. Subsidy should be reduced. People should take up more entrepreneurship ventures that will lead to generation of wealth and employment.
It is commendable the government is aware of the problems of economic slowdown and investment being negligible. An environment of mistrust between the government and entrepreneurs of big, medium and small enterprises is hurting the economy. Trust needs to be restored. All losses should not be seen as frauds. And with the perception of fraud by entrepreneurs, they and their families should not be harassed, punished and jailed until independent financial consultant organisation concludes that there was genuine foul-play. It is good that 46 offences under The Companies Act have been decriminalised.
Lending is an art and science with perception, experience, domain knowledge of industry and sector. Currently, losses are being viewed as frauds despite entrepreneurs losing their own capital. 99% of start-ups have burnt their capital and debts. Still they are facing CBI investigation.
PSU: Several public sector undertakings have been incurring losses. Some PSUs were sold. Some are to be sold, even at a price which is lower than that of the cost of putting new units. Overseas enterprises are taking over from the backdoor through local businessmen. Some PSUs were sold to private sectors. They have been minting gold for them. With all highly educated, talented and trained people, governments have not been making profit. Private entrepreneurs / businessmen have made loss making PSUs profitable. Due to mainly ambitious diversification and expansion or external factors, and not because of their glamorous living, some entrepreneurs/businessmen get into trouble. When they start making losses, they are put into fraudulent category without proper investigation by independent agency of experts to find the real reasons behind the losses. Now, government is planning to sell BPCL (Bharat Petroleum Corporation Limited) and host a of other PSUs. Interestingly, Saudi Armaco, a Saudi Arabia oil giant which is government-owned, has evinced interest in BPCL.
Real Estate: Government should extend soft loan scheme and moratorium for three years to the ailing real estate sector. Proposed Alternative Investment Fund of Rs. 25000 crore would not be very helpful as there are many conditionality attached.
NBFCs and NBHFCs with an asset size of Rs. 500 crore or more can now be admitted for insolvency proceedings.
Public Sector Banking: 12 banks are going to be amalgamated to four entities. Many economists are of the view that this will affect the efficiency of services to the public. If some officers become difficult, customer services can get affected. Many banks give choice to the public and motivate administrators and bankers to compete among themselves.
Telecom: Several units of many sectors have fallen in the category of distressed assets. Now, all units except Jio face risk. Jio has got all the powers. No one can compete with Jio.
Incumbents like Vodafone-Idea and Airtel had taken licenses agreeing to pay hefty license fees. The Supreme Court has ordered them to pay around Rs. 90000 crore for dues with penalty within three months. In 1999, the government gave a relief package to the telecom operators who, due to financial stress, were not in a position to pay fee for licence that came along with 4.4 MHz of spectrum that they got through auction. They were migrated from a fixed licence fee to a revenue share regime under which they had to pay a percentage of adjusted gross revenue (AGR) as annual fee. But the incumbents did not pay the licence fee. Telcos face another Rs. 22000 crore burden for one time spectrum charge. This is the amount which Department of Telecommunications has charged the operators for holding excess spectrum — beyond 4.4 Mhz —which is referred to as one-time spectrum charge (OTSC). Here again, the maximum — around Rs. 12,623 crore — is owed by the two incumbents, Airtel and Vodafone-Idea. Kumar Mangalam Birla of Idea is planning to put his company into insolvency. Vodafone’s CEO has threatened to close its operation in India. All have increased tariffs. Jio has also raised tariffs.
The telecom operators collectively have debts of over ` 4 lakh crore. The government has provided the telcos a two-year moratorium (from spectrum payment) as a relief measure, but they have to pay up the other dues as per Supreme Court’s ruling. It may be noted that once in the past the government had reduced the spectrum fees of the telecos following a fall in revenue. Thus, the likelihood of Bharat not enjoying the benefits of a competitive telecom sector rises.
Access of funds from banks: Corporate/MSMEs have been complaining that it has become a herculean task to access funds from banks. Bankers are also wary of lending. There is gap in their perception and subsequently perception of investigating agencies.
However, Finance Minister Sitharaman has said that state-run banks have disbursed Rs. 1.23 trillion to corporates in October 2019, Rs. 19627 to NBFCs, Rs. 40504 crore to farm, Rs. 37210 crore to MSMEs and others, totaling to Rs. 2.5 trillion.
Trust deficit: Both businesses and governments do have trust deficit. Each regulator is working in a manner which makes a businessman unable to do business in India. Kiran Mazumder Shaw asked, “Just how many show-cause notices are being sent by SEBI?” So no one is animated to do business anymore. SEBI mandates India Inc. to disclose every loan default beyond 30 days within 24 hours. This will further affect the operation of the company. Market capitalisation will fall sharply. Business operations will be difficult.
Cover story: Global economy is on the path of slowdown due to various factors – global trade wars, rising trade barriers, nationalistic approach to protect employment, slow industries and economic growth. World Bank has downsized the global growth to 2.6% in 2019, 0.3% points below its previous forecast. Growth is projected to rise to 2.7% in 2020 and then to 2.8% in 2021. The USA GDP growth will slow to 2.2% in 2019 from 3% in 2018. It will be 2% in 2020 and 1.9% in 2021.
India’s GDP growth has slumped to 5% in the first quarter of 2019-20, the lowest in 6 years. Almost all sectors have been ailing due to factors which can be cured with proper policies, perception and trust. Government must clear all dues of private sector to avoid their defaults and ensure their smooth running.
China had a trade surplus of USD 419 billion in 2018 vis-à-vis USA. USA’s overall trade deficit in goods stood at USD 891 billion in 2018, whereas the overall U.S. trade gap in goods and services widened to USD 621 billion in 2018. US President Trump does not believe that trade war would lead to depression.
Bharat is not competitive globally. Bharat has one of the biggest costs of land, labour, capital, and electricity. Productivity is low. Inadequate infrastructure, high cost of fund, difficulties to access fund, etc. push up the costs of production. Chinese businessmen and industrialists pay interest at the rate of 5.5% maximum while Bharatwasi entrepreneurs pay at 12% to 17% with front charges and other charges and penal interest etc.
Bharatwasis hope and trust that Prime Minister Narendra Modi along with his dedicated Council of Ministers and team of officials will navigate Bharat to an economy size of Rs. 5 trillion by 2025, an economy that will be sustainable and inclusive. This can be done by generating trust and motivating all to work with devotion righteously for the welfare of all.
Dr. H.P. Kanoria
Editor in chief
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