June , 2021
10:48 am

Dr. H. P. Kanoria

Dear Readers,

Economy: The 2nd wave of Covid-19 has greatly affected the lives of the people, GDP growth, economy and employment. The number of fatalities from COVID-19 has been significantly higher compared to the first wave, and there have been many deaths among the comparatively younger population. Government is making efforts for vaccination of the people with speed which needs to be accelerated equitably throughout the country. So far, the efforts taken are not worthy of compliments. There are flaws in vaccination programme. The number of daily vaccinations must go up to one crore from around 30 lakh presently.

Different institutions have trimmed the GDP growth of India for financial year 2022, rating agency Moody’s has announced inflation adjusted GDP growth of 9.3% in the fiscal year ending March 2022 and 7.9% in fiscal 2023. Earlier Moody’s had forecasted 13.7% growth in the current fiscal. SBI has cut its FY22 GDP growth to 7.9% from earlier projection of 10.4%. RBI has revised its FY22 growth estimate downwards to 9.5% from the earlier estimate of 10.5% despite the emergence of 2nd wave. Crisil has lowered its FY22 estimate of GDP growth to 9.5%.

Indian’s manufacturing sector growth slowed down considerably in May. Trade, Hotel, Transport, Communication and other services were greatly affected.

India forex reserves have crossed the USD 600 billion mark as imports have fallen. Government expects the fiscal deficit to be at 6.8% of 9.3% GDP for FY22, after touching 4.6% in 2019-20.

India’s trade deficit is narrowed to USD 6.32 billion in May 2021 due to rising external demand, declining imports and inflow of FPIs.

Several states have imposed lockdown to control the impact of the 2nd wave of COVID-19 pandemic. Despite slow vaccination, the localised and regional lockdowns have managed to bring down the number of new cases and deaths.

Financial Sectors: Several NBFCs have auctioned pawned gold. Banks, mostly public sector banks, will have to face problem due to financial distress of public which have been due to pandemic. Several NBFCs have been facing crisis of not getting payments from their borrowers like MSMEs, contractors specially engaged in infrastructure, real estate and housing. Moratorium by RBI in repayments by borrowers has also aggravated the crisis as NBFCs have not been given moratorium from to their lenders. This has resulted in delay in payments which is being termed as defaulted. But the intrinsic value of the assets remains intact. The problems faced due to the pandemic are only temporary, till the economy does not revive and all operations are in full swing. RBI’s new NBFCs audit norms must be more pragmatic.

Government and RBI have announced many policies aimed at releasing liquidity to various stressed sectors. These measures should help to continue the operations by the affected units. Most important is to realise that several external factors not less than 15 – 20 have created financial crisis and might have resulted in losses. A company should be allowed to run its operations in normal way just reporting day to day or weekly financial position. There is no point digging into the past just on basis of suspicion and speculation. Banks have been allowed to have greater flexibility for liquidity.

In view of the brutal 2nd wave and a likely 3rd wave, it would not be possible to augment capital easily. Even PSU banks, except SBI, are unable to augment capital. Their market capitalisation has fallen by 60-80%. RBI’s direction to augment the capital to NBFCs is not commendable.

Medium and Small Finance Firms and Micro Finance Institutions are having the real challenges as borrowers are failing repayments while lenders to these NBFCs are not getting any cushioning from their lenders.

To boost the GDP growth and to create employment, economists, high profile professionals, educationists, businessmen and experts have been suggesting various steps like printing of more money, monetisation, part use of forex reserve, moratorium with restructuring in order to safeguard all entities in all sectors. Assets need not be re-classified as stressed assets and as bad loans due to difficulty in repayment because of the pandemic situation. A restructuring of the loan account by retaining the ‘standard asset’ classification through mutual discussion between lender and borrower should be the optimum route. Large haircuts by banks should be avoided. Banks have been taking haircuts to the extent of 90%. In one company, banks have taken thirty six thousand crore; being 90% of the dues; selling potential unit at a very low price. The buyer got it (gold mine) at throw away price. Its promoters should be encouraged in case of no haircuts by lenders.

It also makes little sense to privatise the PSUs as there are limited numbers of buyers in the market now and thus the bids are low. In IBC, the original promoter should also be allowed to bid for their assets in order to realise higher value realisation as in stressed market conditions like the present one there are hardly any domestic parties. There should be no stigma around stressed enterprises as that would dent the confidence of investors. However, a handful of foreign funds have become active and are interested in picking up such enterprises at distress sale prices resulting in easy transfer of home-built entrepreneurial ventures into foreign ownership.

There are concerns over an adverse impact of India’s sovereign rating in view of the severe hit to all the sectors. It is pertinent to work fearlessly without any stigma to boost the economy and create the employment.

In view of the large buffer stock of rice and wheat, government needs to give grains to those who are below the poverty line. In this regard, the PM’s decision to provide free ration to 80 crore people till November is a good move. Food inflation can be controlled by distribution of buffer stock. Government’s various schemes to boost the economy should also include rural housing, fisheries, horticulture. Unemployment can only be reduced by various schemes and economic revival. People need to be engaged to work hard and hard till we become a global leader as call given by Swami Vivekananda.

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