World Economy: Since April 2019, global investment banks including HSBC, Barclays, Citigroup, Deutsche Bank and Societe Generale have cut almost 30,000 jobs due to falling interest rates, weak trading volumes and automation. Job cuts are not restricted to banks alone. Global slowdown is taking a heavy toll on other sectors as well. Tesco, one of the largest chain stores, is also planning to cut 4,500 jobs.
Banks have to cut costs and protect profits. Debts are piling up, and banks’ interest earnings are falling sharply. After prolonged phase of easy money, the banking model, in certain parts of the world, has started turning upside down. Banks in Denmark and Switzerland recently offered clients with lots of cash negative interest rate, i.e. instead of earning interest, those savers will pay the banks for holding their deposits. Nations that are on the verge of entering a recession or are already in a recession, are pushing interest rates down in the hopes that it will encourage people to borrow and spend. Jyske Bank, a Danish bank, has launched the world’s first negative interest rate mortgage – handing out loans to homeowners where the charge is minus 0.5% a year. In some countries, including Japan, yields have been pushed so low that they are now in negative territory.
The global trade war is affecting exports across economies. Chinese economy is directly impacted by the trade war. Debt-filled excessive investment for growth is generating problems. How to service debts in view of falling production and prices?
The US President Trump has said that India and
China are no longer developing nations. They are taking advantage of the tag from the WTO. He asserted that he will not let it happen anymore as the USA is getting disadvantaged.
The world’s leading markets face recession. China’s industrial growth in July 2019 stood at a 17-year low. Its economic growth is at 6.2%, a 30-year low in the second quarter of 2019. Rapid and forceful stimulus may be needed, even at risk of more debts.
GDP growth should be driven by agriculture, mining, harnessing natural resources without exploiting them, revival of manufacturing, and services. Depending on FDI will not add to permanent growth. Joseph E. Stiglitz, a Nobel Laureate in Economics, had written in his book “Globalisation and its Discontents” that the global economy would be concentrated in few global corporate giants. US President Trump has perhaps realised this. He is working on this issue.
Indian Economy: Due to economic slowdown, rural distress, high registration charges, slowdown of manufacturing, Non-Banking Finance Companies’ liquidity crunch, demand crunch in auto sector, there is huge loss of both urban and rural employment. The slowdown has engulfed all sectors, and every day reports about job cuts are streaming in. The Finance Minister has questioned authenticity of such reports, but that will not help. The government must come out of this denial mode and come up with sector-specific solutions. For example, allowing NBFCs access to steady flow of liquidity will also boost financing of housing sector and logistics. However, the economy needs a number of structural reforms. The business sentiment is down because India is hardly competitive in terms of crucial factors like land, labour, electricity cost, freight cost, taxes, etc.
After realising that the economy has been damaged by various rules and regulations and tax laws, some corrective measures are being intended to be taken. The SEBI is planning to relax the registration procedures for foreign portfolio investors and ease the norms in the buyback of shares by listed companies. It may benefit companies, which have subsidiary non-banking finance and housing finance companies. But tax of 20% is on buyback shares as introduced in this budget. The government is looking to amend the Mines and Minerals (Development and Regulation) Act to cut down the development time for captive coal blocks, which at present, takes 3-4 years to obtain various clearances.
Smart cities are not the solution for housing scarcity. Lessons should be learnt from the tale of two smart cities - Toronto and Barcelona. In India, more than 15 lakh built-up houses are lying unsold. The number of unsold units in India’s top 30 cities stands at an all-time high of 12.76 lakh. On a pan-India basis, it will take an average 42 months to clear this inventory. 2.5 lakh units worth ` 1.5 lakh crore were launched in and before 2011 across seven major cities and are yet to be completed One or two developers are in prison. Some assets have become stressed and are under insolvency process. Need is there, but liquidity is a major problem. Housing colonies should be built by co-operatives or Government Housing Board at the affordable prices with easy access to financing. Registration fees should be reduced to 5%. There must not be GST for affordable housing. Affordable houses in rural India should be built. Non-banking finance companies and housing finance companies need to be strengthened with liquidity by allowing them to accept deposits and to become banks to provide finance to customers for boosting infrastructural activities.
Saudi Aramco, Saudi Arabia’s giant oil company whose earnings stood at USD 111 billion last year, is to take a 20% stake in Mukesh Ambani conglomerate Reliance Industries’ refining and petrochemical divisions valued at USD 75 billion. This deal will help Reliance Group is to reduce debts and become a zero net debt company by 2021.
Agriculture: Agriculture’s contribution to GDP has declined to around 13% while 60% of population is still dependent on agriculture, directly or indirectly, for their livelihood. At the time of independence, its share of to GDP was a little over 50% while nearly three-fourth of the population was dependent on agriculture for their livelihoods. Dependent percentage has reduced, but the population of farmers has trebled. Holding of land has further fragmented. Many have migrated to cities and became wage-earners. Massive water harvesting, canals, irrigation, flood and drought control are needed. Dole cannot be the solution. Senior citizens’ condition is pathetic. Their younger family members, many of them having migrated to cities and towns, are not looking after the aged. Dole should be given to them only.
Millions of people are hungry and are without access to quality public health and education.
Infrastructure: India requires investment worth Rs. 50 trillion in infrastructure by 2022 for inclusive and sustainable development. Infrastructure and construction have the second largest share in FDI inflows. Due to several factors, investment is negligible. Overall there are large numbers of stalled projects covering roads, real estate, social projects, healthcare, education, and what not. Many projects are bleeding, many are stressed. So far, the government’s actions have been ineffective.
Bharat needs investment, productivity, saving, consumption, export, realistic rules and regulation and policy to feed her 130 crore population. To achieve this, it is imperative to curb populist measures and propaganda, decriminalise commercial and corporate activities, ensure arrest only after judicial trial, and regain the trust of the business community. It has to be understood that all businesses have in-built risks and at times when the economic conditions are down, bank loans and capital of entrepreneurs can get eaten away by losses, and it is not fraud. The tag of a fraud should only be imposed after proper investigation.
On Bharat’s Independence Day on August 15, Prime Minister applauded India Inc. as wealth creators for the first time in six years. He said that wealth creators should not be eyed with suspicion. They are the Nation’s wealth and should be respected. Wealth creation is a great national service. Only when wealth is created, wealth will be distributed. His declaration from the ramparts of the Red Fort will certainly instill confidence among entrepreneurs, start-ups and India Inc. He said that Rs 100 crore will be spent on developing infrastructure, which will help India to become a USD 5 trillion economy. Let us all create wealth righteously, selflessly, fearlessly with devotion for the welfare for humanity.
Realising that it would be difficult to achieve
USD 5 trillion economy and recover the damages done to the economy, the Finance Minister announced some measures like (a) withdrawal of surcharge on FPI and angel tax on startups, (b) immediate capital infusion into banks, (c) one time settlement policy to resolve loan to MSME, (d) pass rate cut by banks to borrowers, (e) mechanism to protect bonafide decisions by bankers, (f) support to NBFCs and Housing Finance Companies, (g) faster refund of GST, (h) high level monitoring of delayed payments by government and PSUs, (i) BS-IV to remain operational entire life, (j) CSR violations not to be treated as criminal offence, and (k) lifting ban on purchase of petrol/diesel vehicles by government department.
Government needs to consider relief to tax payers so that they can save, invest and consume. The government needs to stop their wasteful expenses, cut doles, reduce publicity, and promote living life with simplicity and austerity.
Industrialists, even big business houses like Mukesh Ambani, are selling their part of stakes in business. What is the future of Bharat? Will Bharat be economically governed by global businessmen? The British had come to India and got permission to trade by Moghul ruler. The British then went on to rule Bharat. The country got independence due to freedom fighters led by Gandhiji, Netaji and many others who sacrificed their lives for their motherland. Are we now creating a situation where instead of being ruled by a nation power, our choices will get dictated by foreign corporations? We cannot afford to give away our economic independence by allowing global giant corporations to create oligopolies in the Indian market and dictate terms. It is high time to acknowledge the contribution of home-grown industrialists and we need to nurture and support more entrepreneurs so that they can steer India forward.
May Bharat Mata give wisdom to Bharatwasis.