19

Dear readers, 

We celebrated the New Year. We also celebrated the birthday of Sri Sri Paramahansa Yogananda and Swami Vivekananda on January 5 and January 12, respectively, who have been inspiring all globally through spirituality.

Bharat Economy:  The Union Government Finance Minister claims that the Indian economy has witnessed a V-shaped recovery despite Covid–19. According to her there is an overall growth in all sectors. The government expects the GDP to contract by 7.7 % in this fiscal year. However, the reality may be different. The government’s own estimates show that the viral manufacturing sector may shrink by 9.4%.

Some large companies are doing well. Agriculture has witnessed some growth. But farmers are agitating against the new farm laws. Unemployment level as estimated by CMIE is close to 10%, highest in recent years. Both private and public sectors investments are negligible. Hospitality and other service sectors, NBFCs, small firms and MSMEs are continuing to suffer. There is increase in liquidity, but few are lending due to fear psychosis about limited or no returns.

Financial Sector: Banks are having sufficient liquidity. They can have abundance of capital by issue of equity as there is flow of liquidity from retail and small investors and FII pouring into the stock market. NPA illusion needs to be done away with. There are cyclical ups and downs in manufacturing and other sectors due to several external factors. Steel sector is booming, which was two years back suffering losses. Many steel plants were sold out with a big haircut by banks.

Infrastructure industry and the construction sector have been having a slowdown for the last three years. Covid–19 has aggravated the sector resulting in severe cash flow crunch. It has virtually come to a standstill as the migrant workers returned to their homes. Due to this, NBFCs have been affected. Their added concern is the RBI’s regulation for moratorium on the repayment by the borrowers to NBFCs but no moratorium on the loans that NBFCs need to repay to their lenders. There are other factors like land issue, delayed payment by authorities and the Government, which have affected the cash flow and payment to their lenders. It is a short-lived effect. Lenders to NBFCs should understand this fact. People who are involved in these sectors are coming out of it. Mining sector has also been affected due to non-availability of migrant workers. Equipment required in the mining, infrastructure and other sectors are lying idle affecting the payment to the financiers, i.e. NBFCs and this, in turn, has slowed down NBFCs’ repayments to their lenders. It is the time factor. As the economy improves, the payments to their lenders will be cleared. The regulators and banking sectors should not take steps, which affect the reputation of these borrowers who are in difficulty due to external factors. A more business-like approach on part of the lenders is needed now for suitable resolution. Regular and effective continuation of the business is essential for the growth of the economy and survival of small and medium contractors and of small and medium borrowers of retail business and home loans. Assets are abundantly more than the liabilities.

The government is considering a proposal to create a bank to help fund infrastructure projects like port, road and power. The new entity, likely to be part of the budget announcement in February, may have an equity capital of Rs. 1 trillion (USD 13.7 billion).The existing India Infrastructure Finance Company, which has Rs. 2000 crore corpus will be merged with bank. This is a welcome correction to the government’s earlier policy of universal banking where the commercial banks with dependence on short and medium-term deposits and little expertise in evaluating and monitoring long-term infrastructure projects were drawn into infrastructure finance. 

Financial Sector: Borrowers have not been getting loan restructured even after lapse of several months. Loan amounts keep mounting due to compound high rate of interest.

The business of NBFCs has contracted by 32% year-to-year in the second quarter due to Covid-19. Long term debt to NBFCs has declined from 49.1% as on March 2018 to 40.8 % in the end of December 2019. The government needs to support NBFCs, both medium and small, and not haunt them or impose too many regulations for prospective business decisions. With the incipient recovery of the economy, NBFCs' borrowers will make repayment of their debts, facilitating their lender NBFCs to make payment to their lenders. NBFCs boost the economy by extending loans for housing , retail, business, education, social sectors, mining and equipment.

State governments and local administration should carry out the necessary reforms for implementation of projects. All clearances and approvals should be given in a time-bound manner, all outstanding payments must be made urgently and all arbitration awards must be honoured without prolonging the process needlessly through litigations. Some of the laws and regulations are so cumbersome and stringent that they dissuade overseas and domestic investors from investing and carrying out the business there. All these concerns need to be addressed fast so that infrastructure projects which create mass employment can take off in a big way.

Ease of doing business: Multiple clearances are required for setting up a new business in the country. It takes months, even years to get the approvals. By that time, the cost of the projects goes haywire resulting in the rise in material and interest costs at compound rate. Almost all the states have opened one window clearance but those are largely and greatly ineffective. Even after starting a business enterprise, entrepreneurs have to face a number of external storms. They invest their hard earned money including mobilised money from relatives and friends and 60-70% money is borrowed from banks or financial institutions. If the business sustains losses due to the historical cyclical effects temporarily, it does not mean it has become non-performing. Even a healthy man can become sick. He revives after proper treatment. Short-term affected units will also revive. But, if it is viewed with fraud and penalised, it may be a loss to the economy. 

To become a USD 5 trillion economy well before 2030, the country needs to develop infrastructure – healthcare, education, skill formation, urban and rural housing, as well as better physical infrastructure. All signs indicate that infrastructure investment has been declining. India needs rapid structural reform. The government should consider having a body along with an appellate body like the BIFR, so that ailing units whose worth has been wiped out by 50%, can approach the newly constituted body for restructuring of the loan. This will also give strength to bank.

Budget: In a meeting with the Prime Minister, sixteen economists have asked for the rationalising of personal and corporate income tax, GST simplification & reduction in rates, tapping saving and re-capitalising public sector banks.

Rationalisation of taxes and especially of the GST will give more money in hands of people to save and also to spend, boosting the economy. During a period of three years or so, there have been about 800 circulars and notifications; the law is still very confusing. In the services sector like hospitality and banking correspondence are having GST rate of 28%. Banking correspondence is giving service even to the rural sector.

 It is expected that the fiscal deficit would be 6.1% of GDP in FY21, not 3.5% as targeted earlier.

Social media: Business and social disputes are being uploaded in social media like YouTube etc. causing damage to business enterprises and wealth creators and generators. This tarnishes the image and goodwill. There needs to be stringent remedial measures here.

World Covid-19: The world is faced with extraordinary uncertainty about the depth and duration of this crisis, and it has been the worst economic fallout since the Great Depression. 

In pursuit of the message of Lord Krishna and disciple Arjuna on the battlefield of Mahabharata, “work righteously and selflessly with devotion” and the message of Swami Vivekananda, “work hard and hard till the goal is not reached”. Globally, Bharatwasis will work with devotion for Bharatmata and her children with their resolve further strengthened on the auspicious occasion of the Republic Day on January 26.