Happy New Year. We have celebrated Merry Christmas and New Year. Three sages from the East, came to Mother Mary, bearing gifts for the Divine Child. The saintly child lying in the mother’s lap welcomed the saints who said the child would bring divine love to this world.
The 12th edition of the World Confluence of Humanity, Power & Spirituality was graced by a galaxy of politicians, religious heads, philosophers, enlightened persons, eminent writers, scholars and entrepreneurs. The youth had comprised a large segment of the audience. There was thunderous applaud to addresses, which advocated imbibing humanity, harmony, honesty, peace, love, co-operation, unity, sincerity and hard work with devotion, fearlessly, selflessly, righteously actions aimed at the creation and generation of wealth for the welfare of all and protection of Mother Earth for sustainable and inclusive growth of the nation and the world.
Bharat / Indian Economy: Finance Minister Nirmala Sitharaman has promised to boost the economy. The Q2 FY20 GDP growth rate stood at 4.5%, the lowest in the last 26 quarters. The current slowdown is also largely a result of the process of cleaning up non-performing assets from the banking sector and the criminal actions and prosecution of businessmen/ industrialists and bankers and others, even in cases of natural business failures by painting them in colours of fraud. All dues resulting from failures for sake of protection of banks officials have been being referred to CBI.
The slowdown in consumption has set off a vicious cycle slowing down the GDP growth further. Pumping in money for consumption can, at the most, have a short-lived effect which will create an army of idle people. An empty mind is devil workshop. Without economic activity, jobs will not be created, people will hardly have disposable income, thus there will be no spurt in consumption, and without consumption demand there will be no investment towards creation of additional production capacity. Crunch in fund supply to the NBFCs, NBHFCs resulting from the failures of IL&FS, DHFCs has reduced their lending greatly for consumer durables, housing, educational loans, auto financing and equipment financing etc. It is better to pump funds to business/ banks/NBFCs daring risks.
Cost of funds for NBFCs rose by 120 basis points in the past one year. NBFC’s loan sanctions have fallen by 34% in Q2FY20. It has fallen to Rs. 1.90 lakh crore as on end of September from Rs. 2.9 lakh crore during the same period last year. Tax exemption and facility for issuance of NCDs to the retail market, public deposits and conversion to banks have been sought.
Under the partial credit guarantee (PCG) scheme for NBFCs, 17 proposals worth a total Rs. 7657 crore have got the approval within two days of the cabinet deciding to lower the ratings threshold from AA to BBB+ for asset pools. Proposals amounting to about Rs. 20,000 crore are expected to be approved in the next two weeks. To revive the sector, government has advised banks to buy out the loan portfolios of NBFCs. Banks are very shy in sanctioning and disbursing funds.
Business loss of stakeholders’ money and debts: History tells that there have been ups and downs, boom and recession. But all financial failures should not be equated to frauds. For safety, the banks refer all cases to CBI. There are many industrialists presently, who were billionaires few years back, and are now not even millionaires. They have lost their fortune and inherited wealth in their passion to start new ventures. Many have become paupers like once the Prime Minister now a melon-seller (Robert Browning). Due to external reasons, many manufacturing units have closed down. In a few cases, lenders have realised almost 80% to 90% of their claims in process of bankruptcy proceedings. On exclusion of penal interest and high rate of interest, realisations were more than due. Despite these facts, entrepreneurs come continuously under the scanner of investigating agencies. This can do irreparable harm to the spirit of entrepreneurship.
Wipe-out of stakeholders’ money and debts needs proper investigations by independent financial experts before being termed as a fraud. Losses mount during slowdown of economy or recession and global competition. A few industrialists have voiced to this effect. On August 15, Independence Day, Prime Minister Narendra Modi said that businessmen are wealth creators. They should not be viewed with suspicion.
Tata Sons Chairman, N. Chandrasekaran, said that “We have had excesses. I am not blaming anyone. NPAs have accumulated in front of our eyes. The slowdown is real, but I am optimistic. Government needs to simplify rules. We need supervision, not suspicion. We have had successes and failures. Government may synthesise all information and inputs. It is in business to fall, get up and run again, aiming for success. We need aspirations to achieve USD 5 trillion economy”. Anil Agarwal of Vedanta said that government should change their policies.
Debts should be converted into equity. Experts of a particular unit should be appointed to run the business in stress so that national assets continue to remain useful and be a source of employment. Finding buyers for distressed assets makes more sense when the business is a going concern. Entrepreneurs should be rewarded for risk appetites instead of imposing criminal charges on them.
India’s trade: India’s November trade deficit has narrowed to USD 12.12 billion. Merchandise exports and imports declined by 0.34% and 12.71%. Imports have fallen due to slowing of economy and steep fall in prices of various products. India has to be competitive for global business. Environment of faith and trust need to be created. Multiplicity of rules and regulation make it hard to conduct business. It is like chaining a person and asking him to swim.
GST: Government is working towards increasing consumption to boost the economy. Any increase in GST rates at this stage will severely affect consumption. Amit Mitra, Finance Minister, West Bengal requested Union Finance Minister Sitharaman to desist from hiking GST rates, imposing of new cess and pruning the exempt category. Focus should be on stopping evasion. GST structure and rules and regulation are so complex that common business persons could not understand without expert’s advices. Cess and hiked GST will further lead to complication and evasion. In service sector, majority of services are at 18% GST. Service sector may not have much leakage, yet the GST Council is considering to increase the rate. Such a move would be self-defeating.
The GST Council headed by union finance minister decided to increase the rate of tax from 12% to 28% on union & states run lotteries. However, the decision to increase tax rate on woven and unwoven bags to 18% from 12% makes little sense. The woven and unwoven bags are being manufactured mainly by cottage industries by employing women in majority. This will affect sales and employment of women.
Infrastructure: FM Sitharaman said that government has been working on its five year ` 100 lakh crore investment plan for infrastructure projects.
In power sector, with a generation of 1561 terawatt-hour (TWh), India is the third largest producer and the third largest consumer of electricity in the world. India ranked 4th in wind power, 5th in solar power and 5th in renewable power installed capacity as of 2018. Capacity utilisation of thermal power is expected to fall by 48% by 2022 as non-thermal power generation increases.
Demand growth has also declined to 1.2% in eight months of FY20 as against an increase of 6.4% in April-Nov FY19. The lower demand is from household, agriculture and industrial segments. High tariff in many states has attributed to mounting lossesto industries. What is particularly worrying is the fact that the fall in India’s power demand by 4.3% in November from a year ago, represents the fourth straight month of decline. When demand for a critical input like electricity is on the decline for 4 straight months, it indicates serious structural bottlenecks in the economy. Our policy-makers need to take note of this alarming signal.
Coal is being imported from Indonesia and other countries. Imported coal is becoming costly draining the foreign reserve. Allotment of coal to power sector has not been adequate and not in time. Quality of coal is also a major issue. Coal India has a huge stock pile whereas several thermal power plants are being shut down for want of coal. 43 out of 85 coal blocks were allotted after 2015. These are yet to receive clearances.
State DISCOMs have been unwilling to sign long-term PPAs. How will the power projects that were set up with high costs serve the cost of capital? The expected practical amendment to the Mega Power Policy will yield significant benefits to the banking and power sectors.
The government is preparing a ‘rent a roof’ policy for supporting its target of generating 40 gigawatts (GW) of power through solar roof top projects by 2022.
Hydro projects, wind power and solar power are also facing the brunt of uncertainties. During 2016-17, the country’s installed gas-based power capacity was operating at load factor of 22.86%. What a colossal waste of national wealth! Who all are responsible?
India has a surplus power generation capacity, but lacks adequate distribution infrastructure. Prime Minister Modi’s vision was to have “Light for all – No darkness”. But despite policies and efforts by his government, it is not happening. Frequent load shedding is still dominating. Quality of power is poor. Many states have higher tariffs compared to even neighbouring states.
The problem started with the sharp growth in capacity addition and in turn, increasing generation that has created mismatch between supply and demand.
All above problems have created large stressed assets to the extent of Rs. 5 lakh crore. Let Bharatwasi awake, arise and take actions to save National assets being wasted.