October , 2019
15:35 pm

Dr. H. P. Kanoria

Dear Readers,

Bharat economy: Nobel laureate Abhijit Banerjee said Bharat’s economy is in a very bad shape. In a way, inflation can keep the economy lubricated and growing. It also keeps the labour demand up. Economy is in demand deficit. Government should lower its equity below 50% in public sector banks as part of the efforts required to remove the fear psychosis that has gripped the banking sector. He believes that higher taxes on businesses could help the government to spend more on welfare measures and to bridge its fiscal deficits.

Banks: Market capitalisation of PSU banks has reduced by 60-70% due to publicity of banks’ balance sheet clearing process. Banks could have restructured the loans. It could have come out with public issue by mobilising substantial capital and reducing government equity holding.

Investment: Investment by the private sector has been negligible due to fear psychosis and the spree of debt reduction. No businessman is in a mood for expansion or new venture. Corporate tax cut will help corporates to reduce their debts. Reduction in individual taxes and GST rates is what is needed now to boost the demand and investment. Government needs to invest in projects for creation of capital and generation of wealth. This will generate employment and lead to sustainable and inclusive growth. Expenditure on welfare measures should be oriented to this mission instead of handing out doles. Investment must generate domestic revenue for social projects, too.

To allay doubts and fears of businessmen and start-ups, the government is considering  doing away with jail term over 40 sections of the 66 of Companies Act where compounding is permitted.

It will benefit 8 lakh out of 11 lakh registered companies which have a turnover of up to Rs. 2 crore and paid up capital of up to Rs. 50 lakh crore. On August 15, the day of independence, Prime Minister Narendra Modi gave a call to respect wealth creators. The ghost of tax terrorism is also affecting investment by both domestic and overseas businessmen.

Power sector: Over Rs. 5 lakh crore investments in power plants have become stressed due to coal shortage. The commercial mining auction of coal blocks was stopped. Government has to realise that this is an emergency. Union Power Minister R. K. Singh asked states to honour power contracts and make speedy payments. There is a need of certainty of honouring contracts and payments. What is the point of spending in Industrial Conclaves for inviting businessmen to invest, while charging heavily for power? Almost all states charge 70% more over the tariffs being paid to power companies.

Global trade: India and the United States of America are having trade negotiations at full speed. In 2018-19, India’s exports to the US stood at USD 52.4 billion, while imports were USD 35.5 billion. The US-China trade war is intensifying. India can strengthen its manufacturing industry for global competition and thereby increase its export to the USA. Investors will come to India if proper treatment is given. Apple has started its first iPhone assembling plant in India, shifting it from China following the trade war. Bankruptcy Laws, Labour Laws and other laws need further simplification. Income Tax, GST and Corporate Laws should be decriminalised.

In a recent meeting with PM Modi, Chinese President agreed to take sincere steps to address India’s concerns over the ballooning trade deficit in China’s favour. The leaders have decided to establish a high level trade dialogue mechanism to enhance trade, commercial relations, and mutual investment.

GDP Growth: The International Rating Agency Moody’s Investor Service in its latest report has cut India’s gross domestic product (GDP) growth forecast to 5.8% for the current fiscal year (FY 20) from 6.8% in FY 19. World Bank has also reduced the GDP growth rate of India to 6.1% for this fiscal (from previous 7% forecast).

Financial Sector: S&P Global Ratings said that the government’s systematical support to financial sector is important to tide over the rising risk of contagion. The failure of any large non-banking financial company (NBFC) or housing finance company (HFC) may deliver a solvency shock to lenders. It will also drain the credit available to different sectors, especially home buyers, small and medium contractors, MSMEs and other small businesses. Government support and swift actions are essential for maintaining system stability. Confidence among the public need to be built. NBFCs and HFCs should be allowed to accept public deposits, to convert into banks and to issue debenture and equity.

Insurance: India’s insurance sector is the 15th largest in the world in terms of premium volumes. Owing to rising awareness and increasing population, innovative products and a proliferation of distribution channels, the industry is expected to reach newer heights by 2020. Overall insurance penetration, which is measured as the ratio of insurance premium paid and GDP of the country, has increased from 2.7% in 2001 to 3.69% in 2017. It is below 6.13% of the rest of world and 5.62% of emerging Asian Economies.

In India, there are 24 life insurance and 33 non-life insurance companies. There are two reinsurance companies. The market share of private sector companies in non-life insurance market rose from 13.12% in FY 2003 to 55.7% in FY 2020 (up to April 2019). In life insurance segment, private sector had a market share of 25.29% in business in FY 2019.

As of FY 2019 (up to November 2018), there were 23 companies in life insurance sector. Life Insurance Corporation of India (LICI) is the only public sector in life insurance. It is the market leader in life insurance sector. Government has allowed 49% foreign direct investment in insurance sector. Pradhan Mantri Suraksha Bima Yojana (PMSBY) and National Health Protection scheme as a part of Ayushman Bharat have increased the business. The insurance sector is a colossal one. It is growing at a speedy rate of 15-20% annually. It provides long term funds for infrastructure and capital market. Insurance companies in public sector do not settle the claims in time. Thousands of claims are in legal disputes. Plight of family of the insured persons has to be emphathised with. In third party motor accident claims, settlements have not been settled for years. If settled, the amount is not reasonable.

Life insurance companies have to give a yield of around 7% on premium paid.

It is a pity that the government levies service tax on insurance premium. It makes insurance coverage costlier for the common people (aam aadmi). Higher premium affects growth. Higher allowance, say Rs. 5 lakh of premium, should be allowed as exemption for Income Tax calculations. The premiums so paid will channelise to investment of insurance companies. Investment should be allowed to social sectors, real estates, infrastructure, NBFCs, HFCs also.

Bharatwasi pray with devotion to Lord Ganesha, Mother Lakshmi, and Lord Narayana and seek their blessings for sustainable and inclusive growth for all so as to rise above dire poverty line.


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