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Dear Readers
Introduction: Bharatvasis celebrated the birthday of Lord Rama and his brothers Bharat, Shatrughna and Laxman on 30th Global Economy and India: The International Monetary Fund (IMF), in its World Economic Outlook, has cut its global growth rate estimate for 2023 to 2.8% from 2.9%.The US economy growth has slowed down to 1.1% in Q1 of 2024. The World Bank and Asian Development Bank (ADB) have forecast India’s economic growth rate for FY24 to be 6.3% and 6.4% respectively. IMF has also revised India’s Gross Domestic Product (GDP) growth forecast for FY24, lowering it to 5.9%.
Defence Exports: Defence Exports have reached all-time high of `15,920 crore in FY23 which is a good sign.
CAD and Exports: Despite uncertainty worldwide, India exported a record of USD 447 bn worth of goods in FY23, up by 6% from the previous year. Goods imports rose over 16.5% to touch USD 714 bn widening the goods trade deficit to highest ever mark of USD267 bn against previous year that of USD191 bn.
Service exports grew 27% has an offsetting high trade deficit, but it will not suffice. IT service exports is helping the country, but global uncertainty is likely to impact IT service exports. Weak global macro conditions and a banking crisis in the US have already forced India’s top 4 tech firms – TCS. Infosys, HCL and Wipro – to reduce their hiring by 66% in FY23 compared to FY22.
Inflation: RBI is of the view that 6% existing inflation can have adverse effect on India’s growth. There is no barrier on the rate hike by RBI. Inflation is caused mainly by food prices. Many economists and some members of internal committee of RBI are of the view that rate hike will not control inflation, rather it will increase the cost of production. Renowned economist Nicholas Kaldor argued that monetary policy is not an effective tool to control inflation that is caused by supply side
factors particularly arising from agricultural factors. There is a risk to farm outputs from rain failures. In some parts of the country due to heavy rains in June – July there may be flood damaging the crops causing price rise. Ashima Goyal, member of RBI Monetary Policy Committee (MPC), says there is no need to raise the interest rate now.
Debt: Wealth and job creators are adverse to debts. Even the big and few conglomerates are trimming their debts. They are not making any new investments. Lenders are not considering external factors which are affecting the businesses temporarily. They have been declaring the stressed accounts as frauds without giving the borrowers a chance to explain theirsituation and work out a mutually acceptable solution. This is equivalent to ignoring the fundamental tenets of natural justice. Almost all the borrowers have made the submission of making the entirepayment at the cost of their revival, but lenders are not ready to give them the time. The lenders are willing to take a haircut of as high as 70–80%, but they are not willing to give the borrowers a chance to tide over their problems and repay. Sacrificing the public fund for their own safety and protecting their own image is more important to them.
As per data from Ministry of Statistics and Programme Implementation, which monitors infrastructure projects worth ` 150 crore and above, 354 infrastructure projects have seen cost overruns of around ` 4.55 lakh crore. 821 projects are delayed. The pandemic had delayed implementation of many of these projects. Dues unpaid by the government agencies in many cases are having a chain impact on borrowers who are unable to repay their lenders.
Supreme Court had given the order virtually leading the credit freeze for the borrowers even from financial and capital markets. The classification of borrowers’ accounts as fraud is like a death knell for the borrowers and their families. They have to face criminal proceedings. This acts as a huge discouragement for young entrepreneurs who after witnessing what is happening to the present lot of entrepreneurs will prefer not to start their own ventures or would move away to other countries to pursue their dreams. A Natural justice and fundamental rights says borrowers must be heard and given a chance to explain by the joint lenders forum and other formal authorised agencies. Principle of natural justice calls for providing assistance to a sick enterprise to get treatment so that it can become healthy again. Alternative platforms like Lok Adalat can be established before declaring an account as fraud and settle the matter without reporting to the Debt Recovery Tribunal. It will save national wealth also from being wasted. Lenders should refrain from taking unilateral action and exercising authoritarian power. State Bank of India has filed a petition in the Supreme Court seeking some clarification on its March 27 judgment which held that banks are bound to give an opportunity of personal hearing before classifying a loan account fraudulent as per the RBI’s July 1, 2016, circular. 90% of the stressed cases are being referred to the Insolvency and Bankruptcy Code (IBC) and stretch well beyond the 270 day deadline for resolution resulting in abysmally low recoveries which lead to colossal wastage of national wealth and employment.
IBC: Finance Ministry says there are over lakh cases pending with Debt Recovery Tribunal. Rational is bank should consider plight of the borrowers due to external factors which leads to loading the borrowers with exorbitant rate of interest of up to 18 – 20% and so many other charges forgetting natural justice to help a sick enterprise even temporarily as treatment is being given to a sick person who may become healthy again.
Conclusion: India has become the world’s most populous nation overtaking China. India’s population at present is 1.4286 billion (ahead of China’s 1.4257 billion). India needs to care for its rising population and provide employment. To meet this end, capital investment is absolutely needed both by private and government. Populist government expenditure must be curbed and private sector must be provided a conducive and predictable framework so that they feel encouraged to invest. Wealth and job creators’ interest needs to be protected. Temporary delay and default should not be termed as fraud. Lenders have to be practical and bold to assess the external factors, not loading exorbitant interest and other charges with mind and heart for natural justice as the Supreme Court has directed.
At the ET Awards function for Corporate Excellence, FM Nirmala Sitharaman said to fuel economic growth and to create jobs, private capital investment is essential. Manufacturing sector needs to be pushed as it is vital. The service sector alone cannot lift growth and create jobs. To boost investment the term ‘related party transaction’ also needs a thorough review and to be redefined.