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Why this economic slowdown is serious

Market-based economies thrive on hope and belief of profit by private entrepreneurs. In the times of negative market sentiments, the government increases its expense to bring back hope. But the Narendra Modi government's hands are tied at the moment.

 

Narendra Modi economic slowdown
 
The economic slowdown presents a serious challenge to the Narendra Modi government as it sets a target of making India a $5 trillion economy in five years. (Photo: PTI)

HIGHLIGHTS

  • Auto sector is facing worst crisis in about 20 years
  • In real estate sector, number of unsold homes have increased
  • When government needs more money, tax collection has grown by just 1.4%
 

Suppose you inherited a farmland and a house. You grow your own food using family bank of seeds. You don't use chemical fertilisers and prepare organic manures using cow dung and similar stuff on your own. You don't buy fodder for your cattle or poultry which fulfil your milk and meat requirements. You use biogas as fuel for household energy. This means you have a self-sustained viable economy. But you are contributing nothing to country's gross domestic product (GDP) as you are not using money.

 

 

Now, consider this. Your neighbour works in a factory and earns a salary. She buys grocery from a kirana store, milk and butter from a dairy parlour, clothes from a shopping mall, dines out and watches a movie or a play on weekends, employs a help in her home and pays taxes. Her activities are the guarantee that the country's GDP clock is ticking upward.

Every single purchase by her begins a chain of purchase and sale. The kiranawallah goes to wholesale market to buy stuff for shop. The wholesale market sources its supplies from the farmers, who purchase seeds, fertilisers, tractors, diesel and employ labourers on their fields. All are paid in money. This is repeated for every single purchase by your neighbour. She ensures flow of money that defines growth of measurable GDP.

This chain of sale and purchase has shown signs of slowdown over the past few months. It is visible in almost every sector of the Indian economy. The result was worrisome for 2018-19, for which the GDP growth rate was 6.8 per cent.

 

This is the slowest growth rate of GDP since 2014-15. The previous low was 6.39 per cent in 2013-14 following which the Narendra Modi government came to power in 2014.

Recent GDP figures have only aggravated the concerns of economic slowdown. According to Central Statistics Office, India's GDP slowed to a five-quarter low of 6.6 per cent in October-December 2018.

It fell below 6 per cent mark in January-March 2018-2019. At 5.8 per cent, the March quarter growth rate pushed India behind China after seven quarters. But that rivalry is the least of the worries for Indian economy. There are ominous signs showing that slowdown is deep.

 

 

Auto sector

Automobile sector is facing its worst crisis in 20 years. Reports say around 2.30 lakh jobs have been lost in the auto sector. A large of it is being blamed on the global trend accentuated by the Brexit situation.

But what signals a deeper problem is the Society of Indian Automobile Manufacturers (SIAM) report that 300 dealerships have shut down in recent times. Sales of cars, tractors, two-wheelers have declined considerably. SIAM said about 10 lakh jobs have been hit in the auto component manufacturing industry.

 

Real estate

The health of real estate is a massive indicator of the state of Indian economy. It has links with about 250 ancillary industries -- bricks, cement, steel, furniture, electrical, paints etc -- and affects them all if there is a boom or gloom in the sector.

Reports are that the volume of unsold houses over the past one year has increased in the top cities of the countries. According to real estate research company Liases Foras, the unsold inventory currently stands at 42 months.

This means it will take three-and-a-half years for the existing unsold inventory (read flats/houses) to clear up. An efficient market maintains 8-12 months of inventory, the company said.

 

 

FMCG at slow pace

The fast-moving consumer goods (FMCG) companies have reported decline in volume growth in the April-June quarter. This has been blamed on a sluggish rural demand, which, in turn, indicates less availability of money in villages.

Reports say that the demand for FMCG in rural India was growing at 1.5 times of the urban demand. The rural demand has come down to the level of urban growth or below.

FMCG major Hindustan Lever reported volume growth of 5.5 per cent in April-June quarter compared to 12 per cent last year. Dabur posted a growth of 6 per cent against 21 per cent last year.

Britannia Industries recorded a volume growth of 6 per cent against 12 per cent in the same period last year. Asian Paints saw a volume growth slump from 12 per cent in April-June quarter last year to 9 per cent this year.

 

 

Bank's lending to MSME

At macro-level, lending by banks to industries shows a significant jump from 0.9 per cent in April-June quarter in 2018 to 6.6 per cent for the same period this year. This should reflect in job growth in industries but the employment situation is dismal.

While the labour force survey, released by the government in July, showed a record high unemployment rate of 6.1 per cent for 2017-18, recent Reserve Bank India report does not present a brighter picture. The RBI consumer confidence survey showed a drop in consumer confidence for July over pessimist situation in job creation and overall economic scenario.

 

This contradiction is explained in the details of pattern of lending by banks, which have extended credit to big industries while money flow to medium- and small-scale enterprises, which are the biggest employers.

The credit to big industries grew by 7.6 per cent during April-June compared to 0.8 per cent last year. Lending to MSME (micro, small and medium enterprises) by banks has actually slipped from 0.7 per cent in 2018 to 0.6 per cent this June quarter.

Government's hands tied

Market-based economies thrive on hope and belief of profit by private entrepreneurs. When market sulks under negative sentiments in the market, the government infuses money to bring back hope. But the central government's hands are tied.

In India, the government expenditure accounts for around 10 per cent in the economy. With the government sensing an economic slowdown, it increased expenditure by 19 per cent in 2017-18 and 13 per cent in 2018-19. This was the highest increase in government expenditure since 2008 financial meltdown.

To do a repeat, the government needs more money. But revenue collection is moderate for April-June quarter -- at Rs 4 lakh crore registering a growth of less than 1.5 per cent. To put in perspective, the gross tax collection growth for April-June 2018 was over 22 per cent. Simply put, the government does not have enough money to invest in the economy.

 

 

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Tracking India's economic slowdown: Narendra Modi govt has a herculean task ahead to pep up growth with dying private investment

Business Vivek Kaul Aug 14, 2019 15:23:27 IST

 

Editor's note: This is the third part of a multi-part series in which Firstpost’s columnists will analyse the ongoing economic slowdown and offer solutions.

 

Over the last few weeks, there has been a spurt of news articles on the economic slowdown.

Car sales are down. Two-wheeler sales are down. Even mopeds are not selling as much as they did.

The volume growth, or the number of packs sold, of Fast-Moving Consumer Goods (FMCG) companies has slowed down big time.

New investment projects are barely being announced and there has been a huge drop in the projects being completed.

 

 

Exports are stagnant and the government’s collection of taxes have been more or less flat.

 

There is more than enough evidence of the economy slowing down. In fact, as this news report points out, people are thinking twice even before buying a Rs 5 biscuit pack. The question is why. Let’s take a look at this pointwise.

 

1) The Gross Domestic Product (GDP) of an economy consists of four parts: Private consumption expenditure, investment, government expenditure and net exports (exports minus imports). In the Indian case, private consumption expenditure makes up 60 percent of the economy. In the last few years, the investment part of the economy hasn’t gone anywhere and it is consumption which has been driving the economy. Now consumption is slowing down.

 

2) Why is consumption slowing down? Between April 2014 and March 2019, the retail loans of banks went up by 120 percent. Between April 2009 and March 2014, the five-year period before the period under consideration, the retail loans of banks had grown by 80 percent, on a much lower base.

Tracking Indias economic slowdown: Narendra Modi govt has a herculean task ahead to pep up growth with dying private investment

Representational image. Reuters

Between April 2014 and March 2019, credit card outstanding went up by 204 percent whereas personal loans went up by 255 percent.

What this tells us is that borrowing financed a large part of consumption, over the last five years. Why did this happen? This happened primarily because the income in the last five years hasn’t gone up as much as it did in the period of five years before that.

The per capita income between April 2014 and March 2019 went up by 59 percent. It had gone up by 88 percent between April 2009 and March 2014. With this fall in the rate of growth of income, people borrowed more to consume and spend more.

 

3) Banks were not the only financial institutions giving retail loans. So, were the non-banking finance companies (NBFCs). Post-demonetisation in November 2016, banks had seen a huge increase in their deposits. Given that the banks were paying interest on these deposits, they needed to lend it out as well. They were not in a mood to lend to the industry, given the massive amount of bad loans they had accumulated on lending to industry. Bad loans are largely loans which haven’t been repaid in 90 days or more. What they did instead was started lending big time to the NBFCs.

 

Between March 2017 and March 2019, the banks lending to the NBFCs increased 64 percent to Rs 6.4 lakh crore. This easy lending by banks further encouraged the NBFCs to go easy on retail lending. Between March 2017 and March 2018, retail lending of the NBFCs jumped 39 percent to Rs 3.6 lakh crore.

 

4) The overall financial liabilities of the households went up by Rs 6.7 lakh crore in 2017-2018. This is a huge number.

 

5) In the recent past, several NBFCs have been in more than a spot of bother. This has led to the banks cutting down on their lending to the NBFCs. Between March 2019 and June 2019, bank lending to the NBFCs shrunk close to 1 percent. Banks are a major source of funds for the NBFCs. The Reserve Bank of India (RBI) data for the NBFCs for 2018-2019 is not currently available. But data put out by the credit bureau, CRIF High Mark, suggests that during 2018-2019, loans given by the NBFCs have fallen by 31 percent.

 

6) What about retail lending carried out by banks? Between March 2019 and June 2019, the retail lending carried out by banks increased by just 1.5 percent. If we look at the year-on-year growth in retail loans between June 2018 and June 2019, it remains strong at 16.6 percent. But the growth of just 1.5 percent between March and June this year tells us that the bulk of the growth in retail loans happened between June 2018 and March 2019 and things have slowed down since.

 

This tells us that people are becoming averse to the idea of taking on new loans to finance consumption. This was bound to happen at some point of time given that the income hasn’t been increasing at the same pace as it was in the past. Borrowing can finance only so much of consumption growth and in the process of economic growth.

 

7) There is another point that needs to be made here, which is not very obvious in the first place. In much of the western world, the thinking is that in an economic slowdown it is best to cut interest rates and let people borrow and spend more. This logic does not apply very well to countries like India. When it comes to a certain section of the population, they tend to consume more when interest rates are high. Take the elderly. When they earn a higher rate of interest on their deposits, they tend to consume more. Post-demonetisation interest rates have fallen and this clearly has had an impact on their consumption. What has not helped is that hospital and medicine inflation in 2018-2019, two figures very important for the elderly, were at 9.4 percent and 7.2 percent respectively.

 

8) A great success of the Narendra Modi government has been the ability to maintain low food inflation. The food inflation in 2018-2019 was just 0.14 percent. This basically means on the whole, food prices were flat. While this was good news for consumers, it wasn’t good news for farmers.

A major reason for flat food prices is that when it comes to many agricultural commodities, India as a country is producing more than it consumes. At the same, this excess produce is not being exported and hence, has led to stagnant food prices.

Stagnant food prices have meant flat incomes in large parts of rural India and this has now started to impact consumption.

Ultimately, consumption on its own cannot keep creating economic growth all the time. For that to happen, incomes need to keep going up at a good pace as well. For incomes to go up, there has to be economic activity and for that investment and industry need to progress.

(The writer is an economist and author of the Easy Money trilogy)

 

Read Part 1: Why Narendra Modi govt shouldn’t delay fiscal stimulus to revive struggling industries

Part 2: Country needs meaningful transition policies; simple demand and supply games won't do

Updated Date: Aug 14, 2019 15:23:27 IST

 

https://www.firstpost.com/business/tracking-indias-economic-slowdown-narendra-modi-govt-has-a-herculean-task-ahead-to-pep-up-growth-with-dying-private-investment-7163631.html

Edited by Stan AF

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Auto industry may shed 500k jobs next quarter

Tier II-III companies with a turnover of less than Rs 400 crore are bleeding the most.

By Prachi Verma, ET Bureau | Updated: Aug 18, 2019, 06.33 AM IST
NEW DELHI: India’s $57-billion auto components industry is expected to face more jobs losses over the next quarter due to the ripple down effect of slumping automobile sales. Front-end sales jobs and those related to technical, painting, welding, casting, production technology and services are primarily at risk, industry players said.

“The vehicle industry is witnessing de-growth, resulting in 100,000 job losses in the component sector over the last few months. Should this trend persist for another 3-4 months, it could lead to 1 million job losses,” Vinnie Mehta, director generalm Automotive Components Manufacturers Association of India (ACMA), told ET.
Recruitment firms Xpheno and TeamLease have pegged the job losses at more than 500,000 in the coming quarter. “The job cuts are happening around the major hubs, and by at least 10% in each of the companies,” said Rituparna Chakraborty, co-founder, TeamLease Services. The downturn in the auto sector is expected to last anywhere between six and nine months, she said.
 
Master.jpg
 
Tier II-III companies with a turnover of less than Rs 400 crore are bleeding the most. Around 5 million are employed in the sector, which exports components worth $15 billion. “Contractual employees are being laid off after unskilled & semi-skilled employees in the auto ancillary industry,” said Mehta.

The slowdown started during the festival season in September last year. “About 15% reduction in man-hours, including actual lay-offs and reduction in work days/hours, has taken place since September 2018 till date,” said Ram Venkataramani, president, ACMA and managing director at Amalgamations Group, an auto ancillary player. Another 15%, roughly 750,000 workers, may be forced to quit over the next quarter or so, he said. Amalgamations Group has laid off about 200 across functions and levels.
 
Other companies, too, have started taking protective measures. For instance, automobile components manufacturer Minda IndustriesLtd has put a freeze on fresh and replacement hiring. It has also reduced inventory and operational costs. “We are not touching the people in the company just yet,” said Nirmal Minda, chairman, Minda Industries, adding that contract workers may be the first to let go in case the situation worsens. The company has more than 20,000 employees, of which 5,000 are contract workers.

Ajay Kumar, HR head at tyre maker Continental India, said, “We closely monitor our production and process cost. Hiring is being looked at carefully as a matter of process discipline but we are continuing to hire.”
 
“The auto ancillaries sector would definitely see some impact; Apollo Tyres has been able to keep itself above troubled waters till now,” said Satish Sharma, president, Asia Pacific, Middle East and Africa, Apollo Tyres.

Bosch, Ceat, Shriram Pistons and Rings, and Lumax Industries did not respond to ET’s queries on the employment scenario.
 
 
Edited by Stan AF

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View: Its the start of a structural problem, not a temporary cyclical one

Our manufacturing is jammed at a long-term low of 15% of GDP. Domestic demand has also slowed down.

By ET CONTRIBUTORS | Updated: Aug 19, 2019, 06.20 AM

 

slowdown-.jpg

BCCL
Having ignored education for decades, we have millions of young people without the skills for tomorrow’s employment.
By Omkar Goswami

After going through three successive quarters of slowdown in India, and with the prospects of that continuing for some more, every thinking economist is asking one question: is this cyclical or structural?
In other words, is it just a series of bad quarters that will right itself soon enough with adequate monetary and credit stimulus? Or is it something more serious one that is beyond the ken of repo rate-led monetary interventions?

Whatever I have learnt over four decades of economics, and all that I see in boardrooms of companies spanning different industries, suggest that we may have got into a structural impasse. Getting out of it will need interventions that go well beyond the realms of reducing the repo rate.
 
Make More in India
Let’s start with manufacturing. At 15%, India’s share of manufacturing to GDP has remained persistently flat over a long period. Compare that with Malaysia at 22%, South Korea and Thailand at 27%, China at 29% over a much higher GDP, and even Bangladesh at 17%. It seems that ‘Made in India’ is about commissioning dreadful statues of gear-cogged lions at key cross-roads of our major cities. It has done nothing to increase manufacturing in our GDP.
There’s worse. Not only has there been no rise in the share of manufacturing, but it has also shrunk across key sectors. Over the last six months up to May 2019, textiles de-grew by 1% amonth, electrical equipment didn’t grow at all, rubber and plastic products slumped by over 3%, the output of fabricated metals as well as paper crashed by over 10% a month, and that of motor vehicles plummeted by over 5% a month. Matters have worsened in June 2019. The index of industrial production hit a four-month low with 15 of the 23 industry groups showing negative growth.

Next question: how much are we investing to create future income? Today, our gross fixed capital formation is between 31% and 28% of GDP, depending on whether it is measured in constant or current prices. There being no significant productivity increases, these rates are wholly insufficient to sustain consistent GDP growth in the region of 7.5%, let aside 8%. Compared to our capital formation of around 31% of GDP, it was over 34% in Indonesia, 44% in China, and over 31% and rising in Bangladesh. In the last two years, I have seen no additional investment proposals in any boardroom.
Now for some longer-term issues. In the last 50 years, no economically significant nation has grown rapidly without investing in the quality of its workforce — something that becomes supremely important in an era of rapid computerisation, networking and artificial intelligence. Where do we stand here? Awfully.

In 2011, the literacy rate for Indians of 18-24 years was 86%. Compare that with 97% for China in its period of highest growth, 99% for Indonesia, and 98% for Malaysia and Thailand. It is worse for women of same age group: 82% for India, 95% for China, 99% for Indonesia, and 98% for Malaysia as well as Thailand. No Southeast Asianand East Asian country has discriminated against girls in education.

We have, and continue to do so. Given this educational disparity, it isn’t surprising that India has a very low share of women in the workforce —which itself is fast declining over time. In 2005, women accounted for over 26% of the workforce. This has steadily reduced to 22% in 2018. In comparison, the share in Bangladesh in 2018 was over 30%, China 44%; Indonesia 39%, Malaysia 38%, and Thailand above 45%.

As You Sew, So Shall You Rip
On to exports. Between April 2011and June 2019, our exports have been pretty much flat — oscillating around $25 billion a month. China, with five times our GDP, exports almost eight times as much. South Korea, at 60% of our GDP, exports twice as much. Malaysia and Thailand, with less than a fifth of our GDP, export over three-quarters as much as we do. Simply put, notwithstanding IT, we have failed as an exporting nation. A persistently overvalued real exchange rate has also played its role.

The scenario is depressing. Our manufacturing is jammed at a longterm low of 15% of GDP and going through a grim phase. Domestic demand has seriously slowed down.

There is no vent through greater exports. Having ignored education for decades, we have millions of young people without the skills for tomorrow’s employment. We are persistently poor in employing women. To me, it looks like the beginning of a serious structural problem, not a temporary cyclical one.

It requires serious kick-starting with a severely constrained exchequer. So, it must go back to banking, and creating sufficient liquidity with affordable credit flows to key sectors. I can think of four: low-cost housing, roads and highways, rural infrastructure, and textiles. The first three have high employment potential while creating demand for core industries, and the fourth creates an essential product for the people. Each of these can get a fillip through specific credit flows catalysed by accommodative policies of the Reserve Bank of India.
 
These will not solve the longer-term structural problem, but may mitigate some of it, while helping a cyclical uptick. Having said that, I fear that the days of 7% growth are over. We may have to now live with 6% — heaven forbids, perhaps even lower. As you sow…

The writer is chairman, Corporate and Economic Research Group (CERG) Advisory
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.) :laugh:
 
Edited by Stan AF

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“Do not step out of home on Thursday unless it is necessary " Maharashtra Navnirman Sena (MNS)

Saw this on twitter.. and some news about Raj Thackerey being summoned by ED. 

 

@G_B_

Effects on Mah politics??

 

Edited by diga

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Raghuram Rajan: Economic slowdown ‘very worrisome’, reforms needed to boost ailing sectors

Raghuram Rajan said the government's top priority should be fixing the problems in power and non-banking financial sectors (NBFCs).

By Express Web Desk |New Delhi | Updated: August 20, 2019 7:58:23 am
  raghuram rajan, raghuram rajan rbi, raghuram rajan on economic slowdown, indian exonomy, raghuram rajan cnbc interview, indian express Former RBI governor Raghuram Rajan (Express photo by Nirmal Harindran)

Calling the recent slowdown in the economy “very worrisome”, former RBI governor Raghuram Rajan has said the government needed to come out with a new set of reforms to revitalise the ailing sectors. Rajan said the government’s top priority should be fixing the problems in power and non-banking financial sectors (NBFCs).

 

“We need a fresh set of reforms informed by view on what we want India to be and I would love for that view to be articulated at the very top (that) here is the kind of economy that we want. One-off programs here and there don’t amount to a comprehensive reform agenda for the economy,” Rajan told CNBC TV18.

The economy is fast losing its growth momentum as a result of a dip in consumption demand and slide in investment activity. Non-banking financial companies (NBFCs) are facing severe liquidity crunch in the wake of IL&FS crisis.

“What we really need is an understanding of how we are going to propel this country by the two or three percentage points greater growth that it needs and that needs fixing the immediate problems such as in the power sector, such as in the non-bank financial sector and those need to be done yesterday, not in the next six months, it is very important that those be tackled immediately,” Rajan said.

 

Rajan said the government cannot rely on sops and advocated for a new set of reforms to increase private sector investment.

“We need a new set of reforms, which energise the private sector to invest. Sops, stimulus of one kind or the other are not going to be that useful in the longer-term especially given the very tight fiscal situation that we have. Instead, bold reforms, well thought of, not jumping off the cliff, but really seriously thought out reforms in a variety of areas which energise the Indian people, energise the Indian markets and energise Indian business,” he said.

Rajan also drew attention to former chief economic advisor Arvind Subramanian’s revelations that GDP growth was overestimated by 2.5 per cent during 2011-12 and 2016-17.

“I also think that we should pay attention to some of the arguments made by the former chief economist Arvind Subramanian that in fact we may be overestimating growth with some of the new GDP data and I would suggest – I have been saying this for some time – we need fresh look from an independent group of experts at the way we compute GDP and make sure that we are not in a sense having GDP numbers that mislead and cause the wrong kinds of policy actions,” he said.

The recent crisis in the auto sector has resulted in thousands of job losses, while the fast-moving consumer goods (FMCG) companies have reported a decline in volume growth

 

https://indianexpress.com/article/business/economy/economic-slowdown-very-worrisome-reforms-needed-to-boost-ailing-sectors-raghuram-rajan-5917936/

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All is not well is the byword as Shaktikanta gives India 'Panglossian'

A mood of doom and gloom will not help anyone at this point, Shaktikanta Das said.

The share of manufacturing in India's GDP, at 15%, has long remained distressingly low for a country that aims to be among global industrial heavyweights. Auto, the sector that has the lion's share in the country's manufacturing basket, is seriously sputtering.

July auto sales came in at a 20-year low, SIAM data showed. At the current rate, total annual passenger car sales for this fiscal could fall to sales levels last seen in 2014-15.

The financial sector is still caught in the deep mess that started with the unravelling of IL&FS. The pockets of the common Indian — including the farmer — are empty, with the result that consumption, which is the mainstay of the country's GDP, is firmly stuck in the slow lane.

Investment — both private and corporate — continues to be pedestrian and is likely to remain so, cutting out the last hope for a quick, significant turnaround. Companies have delayed investment because of widespread business uncertainty, while the government can't afford to double down on its part owing to fears over a spike in deficit.

The road back to growth
The governor acknowledged all these bottlenecks — he admitted that things like the NBFC crisis and the resultant lack of liquidity for critical sectors do affect businesses as well as the economy at large.
 


RBI is closely monitoring NBFCs and housing finance companies to make sure no other collapses happen, Das said.

He put into words all of RBI's concerns over the steady fall in growth; he said a revival in growth was now the top priority that's keeping every policymaker busy.

Das sought to reassure businesses by saying liquidity will not be a deterrent for growth. RBI's endeavour is to ensure enough liquidity in the system so that the productive needs of the economy are met, he said.

So, from where does RBI see the economy getting the push it needs so badly? "Not just from monetary policy but also through transmission. So our expectation is that banks should move faster on rate cut transmission," he said.

 

https://m.economictimes.com/news/economy/policy/all-is-not-well-is-the-byword-as-shaktikanta-gives-india-panglossian/articleshow/70734905.cms

 

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https://churumuri.blog/2019/08/21/the-state-of-indias-economy-in-30-screenshots-from-just-the-last-15-days-of-the-economic-times/

 

 
Posted on 21 August 2019 by churumuri
 

The state of India’s economy in 30 screenshots from just the last 15 days of ‘The Economic Times’

 

 

img_1897.jpg?resize=768,548&ssl=1

 

 

 

img_1898.jpg?w=732&ssl=1

 

The travails of the automotive industry have got all the coverage (The Telegraph, above), but various sectors of the Indian economy are in deep slump, as Narendra Modi bloviates about making India a $5 trillion economy.

(How many zeroes in a trillion? 12, actually.)

 

 

img_1899.jpg?w=710&ssl=1

 

Eight key core sectors of the economy–including electricity, natural gas and petroleum refinery products–have had their lowest growth in 50 months, according to official data (Deccan Herald, above).

 

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In just the last two days two industry bodies, of tea and cotton (above), have bravely issued advertisements announcing the huge job losses that are on the anvil.

Britannia CEO Varun Berry‘s quote that consumers were hesitating to buy a Rs 5 biscuit packet hits the nail on the head. But the big picture is even more revealing of the state of the economy under the much-vaunted “Gujarat Model”.

 

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[Cont'd]

 

Here are 30 screenshots from the last 15 days of The Economic Times, each headline providing a peek of the oncoming truck.

***

 

 

img_1877.jpg?w=527&ssl=1

 

 

 

 

 

img_1866.jpg?w=695&ssl=1

 

img_1870.jpg?w=577&ssl=1img_1873.jpg?w=419&ssl=1

 

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img_1881.jpg?w=620&ssl=1

 

img_1884.jpg?w=555&ssl=1

 

img_1887.jpg?w=663&ssl=1

 

img_1889.jpg?w=261&ssl=1

 

img_1893.jpg?w=586&ssl=1

 

https://churumuri.blog/2019/08/21/the-state-of-indias-economy-in-30-screenshots-from-just-the-last-15-days-of-the-economic-times/

 

Edited by Stan AF

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Facing Shutdown & Job Losses, Textiles Association Issues Ad In Newspaper Begging Govt’s Attention

The Logical Indian Crew India

August 20th, 2019 / 4:32 PM / Updated 15 hours ago

 

Screenshot_9-1.jpg

 

Page 3 of The Indian Express, dated August 20, carried an advertisement by Northern India Textile Mills Association (NITMA). It was titled ‘Indian Spinning Industry Facing Biggest Crisis, Resulting in Huge Job Losses’.

This newspaper advertisement spoke about the job crisis faced by the industry, which is otherwise the biggest employer after the agriculture industry in India.

It is one of the rare occurrences when an industry body attempted to draw the government’s attention via a newspaper advertisement.

 

1-2.jpg

 

 

NITMA has called this the biggest crisis ever, befalling the Cotton and Blends spinning industry, kinds of which was seen during 2010-11. During that year, India’s cotton output had dipped to 332.25 lakh bales.

 

Citing data from Directorate General of Commercial Intelligence and Statistics (DGCI&S), the association says that there has been a 34.6% drop in the export of cotton yarn value in 2019 (April-June) as compared to the 2018 value for the same period.

Among the various challenges, taxes levied by state and centre, high-interest rates, high cost of raw materials in comparison to global prices and cheaper imports of garments and yarn from countries like Bangladesh, Sri Lanka and Indonesia, have been outlined in the advertisement by NITMA.

 

 

The advertisement further notes that about one-third of spinning capacity across India has been closed and those still running are incurring huge cash losses.

“The Indian textile industry employing over 100 million people directly and indirectly hereby seeks immediate attention of the Government of India to prevent job losses and avoid the spinning industry from becoming Non-Performing Asset (NPA),” the advertisement said.


Distress Faced By Textiles Industry

The International Cotton Advisory Committee (ICAC) in February this year said that India’s cotton production is set to drop by 7% due to ‘insufficient rainfall’. This against China’s estimated 1% production increase might cost India its distinction as the world’s largest cotton producer, the report said.

Just last month, a release issued by NITMA said that the textile spinning mills in North India were considering cutting down production and shutting down mills once a week. The decision was made in lieu of poor demand for yarn from overseas market, combined with excess spinning capacity in the country.

 

The release said, “China, which has been a major importer of Indian yarns for the past few years, has cut down imports in the past few months, thus worsening the situation, leading to the accumulation of yarn stocks in Indian spinning mills.”

The releases further added that some textile units are considering lowering the capacity to even 50% in the wake of the unsafe market situation and to have less borrowing/outstanding and stocks.

 

https://thelogicalindian.com/awareness/textile-industry-advertisement/

 

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[Cont'd]

 

Tea Industry’s Public Appeal

On August 1, the Indian Tea Association had issued a similar public appeal. The appeal asked the government to ban expansion of tea estates for at least five years and for the Provident Fund (PF) contribution of workers to be taken over by the state government for at least three years, in order to provide relief to the industry.

 

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Himanta Biswa Sarma, Assam’s Finance Minister had also tweeted that the tea industry in Assam was undergoing critical phase. To relieve the producers, the state government withdrew cess on green leaves, he said in the tweet.



 
 

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Data on demonetisation's link to economic slowdown may have been suppressed

Puja%20Mehra Puja Mehra
August 22, 2019 00:02 IST
Updated: August 22, 2019 10:18 IST
 
22THiStock-1134833127
 
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Task force report may have provided factual evidence for the debilitating impact of demonetisation on the formal corporate sector

Was a task force report that recommended a new law to replace the more than 50-year-old Income Tax Act, 1961 suppressed because it inadvertently provided factual evidence for the debilitating impact of demonetisation on the formal corporate sector?

On September 1-2, 2017, at the Rajaswa Gyan Sangam (an annual conference of senior tax administrators), Prime Minister Narendra Modi had made an observation regarding the need to redraft the Income Tax Act, 1961. The Union Finance Ministry set the ball rolling for making direct taxes (on personal and corporate incomes) simple and in consonance with India’s economic needs. On November 22, 2017, it appointed a six-member ‘Task Force for drafting a New Direct Tax Legislation’.

On September 26, 2018, however, an office memorandum was issued “with the approval of the Finance Minister”, requesting the task force’s convenor “not to submit its report to the Government until and unless the Draft prepared by the Convenor of the Task Force is deliberated clause by clause by all Members of the Task Force and has agreement of all Members or at least majority of Members”.

The convenor, an Indian Revenue Service officer and the former Central Board of Direct Taxes (CBDT) Member (Legislation) Arbind Modi, who was closely involved earlier with tax reforms by the A. B. Vajpayee and Manmohan Singh governments, was to superannuate on September 30, 2018. No extension was given for complying with the office memorandum.

The convenor, nevertheless, submitted “four volumes in sealed cover of the report and draft legislation” to the Finance Minister and the Finance Secretary on September 28, 2018 “for continuity” and “record purposes”.

Click here for the full text of the report: Volume I | Volume II | Volume III | Volume IV

In November 2018, the Finance Ministry appointed Akhilesh Ranjan, the new Member (Legislation), CBDT, to succeed Mr. Modi as the task force convenor. Mr. Ranjan submitted his report to the Finance Minister on August 19, 2019.

Demonetisation’s blow

Drawing insights from the tax department’s database of annual tax returns filed by corporate firms and individuals, Mr. Arbind Modi’s report had proposed two alternative approaches along with draft legislations corresponding to each of the models for a new direct taxes law.

The chapter on reform proposals for corporate taxes has a table (page 109, Volume I) that makes for a significant piece of evidence for how demonetisation may have affected companies. The table shows aggregates of investments corporate firms disclosed in their annual tax return filings.

 

The aggregate of investments disclosed in the assessment year 2017-18, or financial year 2016-17, the demonetisation year, plummeted to ₹4,25,051 crore — or a drop of nearly 60% from the previous year.

In the seven financial years, from 2010-11 to 2016-17, the aggregates of investments disclosed were ₹11,72,550 crore, ₹9,25,010 crore, ₹10,22,376 crore, ₹11,03,969 crore, ₹9,98,056 crore, ₹10,33,847 crore and ₹4,25,051 crore. The near collapse becomes apparent when the aggregates are seen as a percentage of the GDP. The investments by corporate firms that filed annual returns in each of the years from 2010-11 to 2016-17 as a percentage of GDP were 15%, 10.5%, 10.2%, 9.8%, 9%, 7.5% and 2.7%.
 

 

The aggregate figures are actuals (therefore nominals) sourced from companies’ statutory disclosures, and not the estimates or findings of some survey. This in fact makes the data undeniable evidence of demonetisation’s contribution to the deepening economic slowdown that has become a headache for the Modi government early in its second tenure.

 

The report throws up a few more worrying trends. For example, on page 115, Volume I, the report notes: “About 50 percent of the companies registered with the Registrar of Companies filed their income tax returns for the financial year 2016-17 (assessment year 2017-18)”

“Of the 7,80,216 companies which filed their tax returns for AY 2017-18, 45.94 percent of corporate filers reported book losses”

“The share of loss-making companies has increased from 42 percent in AY 2013-14 to 45 percent in AY 2017-18”

“There has been a decline in the number of corporate filers from the manufacturing sector over the period AY 2013-14 to AY 2017-18”

“The share of manufacturing in the profits before taxes has marginally declined from 47.3 percent in AY 2013-14 to 46.4 percent in AY 2017-18”

“The return on equity declined from 16.4 percent in AY 2013-14 to 15.5 percent in AY 2015-16 and thereafter has reversed the trend and increased to 16.5 percent in AY 2017-18”

“The corporate tax liability increased from 19 percent of gross internal accruals in AY 2013-14 to 21 percent in AY 2017-18”

“The DDT [Dividend Distribution Tax] liability increased from 1 percent of gross internal accruals in AY 2013-14 to 2 percent in AY 2017-18”

“The efficiency (productivity) of the corporate tax, which shows the policy choices regarding tax concessions and the overall levels of non-compliance, is extremely low at 7.5 percent over the period AY 2013-14 to 2017-18. Compared to other select economies, India’s productivity of corporate income tax is the lowest”.

“In each of the years since AY 2013-14, the profit making companies had substantially more retained earnings (gross internal accruals minus tax liability) than the investments made during the year”

“Given the limited fiscal space available to the Government, economic growth would necessarily have to be driven by private investment…. [but] corporate investments have remained virtually stagnant despite the availability of sufficient retained earnings”.

GDP growth estimates

In the report, the trend in aggregate corporate investments figures corresponds to the investment slowdown discernible in the official GDP estimates for 2011-12 onwards. However, the investments aggregate figure for 2016-17 brings into question the GDP growth estimate for the demonetisation year. In the latest round of scheduled revisions, the government had revised upwards the 2016-17 GDP growth estimate, from 7.1% to 8.2%.

As per the revised estimate, the demonetisation year, is the best in the Modi government’s first tenure as far as GDP growth is concerned. This when, nearly every industry association (from traders, consumer durables to cement manufacturers) reported sharp drops in sales that year on account of the note ban.

The revised estimate defies common sense and runs contrary to comparable data generated by non-government agencies and, as it turns out now, also corporate annual returns tax return filings.

The Finance Ministry has so far not made public the task force reports (the one submitted on September 28, 2018 and the other on August 19, 2019). It remains to be seen whether it will put out the first one for public discussion. Or, if the second one, likely to be made public in due course, will retain the data from the corporate annual tax returns that threaten to expose the role of demonetisation in hurting the economy beyond the informal segment.

 

Earlier, the government had initially held back and even challenged the validity of the National Sample Survey Office’s (NSSO) periodic labour force survey results even after the National Statistical Commission had duly cleared the findings. The results — that the unemployment rate reached a 45-year high in 2017-18, the demonetisation year — were politically inconvenient. The findings were subsequently only released after the completion of the 2019 elections.

Puja Mehra is a Delhi-based journalist

 

https://www.thehindu.com/opinion/op-ed/a-politically-inconvenient-data-nugget/article29214638.ece

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Guest
1 hour ago, Lannister said:

 

WTF! Only 38%? Bhakts should be really really careful before calling others anti Indians, terrorists... Those 62% can easily pull your guts out. 

 

After Nazi lost the WW2 there was a clean up process within Germany to identify Nazis . India will need a similar process to identify Bhakts and take corrective actions. 

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2 hours ago, Lannister said:

 

WTF! Only 38%? Bhakts should be really really careful before calling others anti Indians, terrorists... Those 62% can easily pull your guts out. 

 

 

i am sure this libtard will consider herself as another intellectual :rotfl:

someone give her a biscuit and explain about how parliamentary system works 

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Best Of PSUs Trade At Over A Decade Low

Read more at: https://www.bloombergquint.com/markets/best-of-psus-trade-at-over-a-decade-low
Copyright © BloombergQuint

 

 

National Aluminium Company Ltd. and NMDC Ltd. are at trading at multi-year lows as global prices for steel and iron have corrected. Outside the Nifty PSE Index, Navratnas, including Shipping Corporation of India Ltd., Mahanagar Telephone Nigam Ltd. and NLC India Ltd., have seen the worst selloff in 12 years or more. Maharatnas SAIL: At 2004 levels. BHEL: Near 15-year low. ONGC:
 
Maharatnas SAIL: At 2004 levels. BHEL: Near 15-year low. ONGC: Lowest since March 2009. COAL India: Lifetime low. Navratnas SCI: Lowest since 2002. Neyveli Lignite: 12-year low. MTNL: Below 1993 levels.

Read more at: https://www.bloombergquint.com/markets/best-of-psus-trade-at-over-a-decade-low
Copyright © BloombergQuint


Read more at: https://www.bloombergquint.com/markets/best-of-psus-trade-at-over-a-decade-low
Copyright © BloombergQuint
Edited by Stan AF

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23 hours ago, Stan AF said:

 

Best Of PSUs Trade At Over A Decade Low

Read more at: https://www.bloombergquint.com/markets/best-of-psus-trade-at-over-a-decade-low
Copyright © BloombergQuint

 

 

National Aluminium Company Ltd. and NMDC Ltd. are at trading at multi-year lows as global prices for steel and iron have corrected. Outside the Nifty PSE Index, Navratnas, including Shipping Corporation of India Ltd., Mahanagar Telephone Nigam Ltd. and NLC India Ltd., have seen the worst selloff in 12 years or more. Maharatnas SAIL: At 2004 levels. BHEL: Near 15-year low. ONGC:
 
Maharatnas SAIL: At 2004 levels. BHEL: Near 15-year low. ONGC: Lowest since March 2009. COAL India: Lifetime low. Navratnas SCI: Lowest since 2002. Neyveli Lignite: 12-year low. MTNL: Below 1993 levels.

Read more at: https://www.bloombergquint.com/markets/best-of-psus-trade-at-over-a-decade-low
Copyright © BloombergQuint


Read more at: https://www.bloombergquint.com/markets/best-of-psus-trade-at-over-a-decade-low
Copyright © BloombergQuint

 

Reliance increased its market cap multifold ..

Compensated the fall of these companies by a big margin 

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It looks like some of the corporations are pushing for a "stimulus package"  into the economy. Aside from the vagueness regarding what that entails, it is such a stupid idea, IMO. It is better to do something important ie labour laws or land reform which are actual economic reforms rather than bakwas like a "stimulus package". Even if they are waiting for a Rajya Sabha majority before doing those two actual reforms(I am not convinced this is the case), they should be sensible. If they want to stimulate the economy it is better to give tax breaks to the middle and lower class. 

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Indian economy’s animal spirits got worse as slowdown spilled into July

A gauge measuring overall economic activity moved one notch toward weaker territory as 6 of 8 high-frequency indicators fell from previous month.

Anirban Nag Updated: 28 August, 2019 9:14 am IST
Representational image | Dhiraj Singh/Bloomberg  
 
 

 

Mumbai: Weakness in India’s investment and consumption activity worsened in July, with economic growth showing little signs of recovery from a five-year low.

A gauge measuring overall activity moved one notch toward weaker territory, as six of the eight high-frequency indicators compiled by Bloomberg fell from the previous month. Car sales slumped the most in almost two decades and latest data showed infrastructure sector output grew at the slowest pace in more than four years.

The weakening came about a month before Finance Minister Nirmala Sitharaman announced a slew of steps to revive Asia’s third-largest economy. While the measures boosted market sentiment, they are expected to fall short of spurring growth.

The dashboard measures “animal spirits” — a term coined by British economist John Maynard Keynes to refer to investors’ confidence in taking action — and uses the three-month weighted average to smooth out volatility in the single-month readings.

Here are the details of the dashboard:

Business activity

After contracting in June, India’s purchasing managers index for services rebounded into growth territory in July. The index rose to 53.8 from 49.6 in June, with the upturn in business activity linked to the budget presented in early July and improved work orders. A reading above 50 indicates expansion.

Manufacturing activity also picked up, a separate PMI survey showed, pushing the composite index to an eight-month high of 53.9 in July from 50.8 in June.

Input cost inflation was muted, with only a negligible proportion of companies increasing selling prices in July. That should give the central bank enough leeway to pursue an easy monetary policy bias in the coming months, after having lowered benchmark rates by 110 basis points so far this year.

 

Master.jpg

Exports

Merchandise exports grew in July from a year ago following a contraction in June. Still, the pace of exports growth was modest, dampened by a decline in gems and jewelry and engineering goods, and the outlook is clouded by a gloomy global economic picture and rising U.S.-China trade tensions.

 

Master.jpg

Consumer activity

Consumer spending showed continued signs of stress. Car sales fell 36% from a year earlier to 122,956 units in July, the most since December 2000, data released by the Society of Indian Automobile Manufacturers showed. Passenger vehicle sales slumped 31%, while truck and bus sales fell 26%.

Weak sales are forcing manufacturers to cut production or shutter factories temporarily, leading to at least 15,000 job losses in the industry so far, Vishnu Mathur, the director general of Siam, said.

The prospect of job losses and slowing growth saw consumer confidence drop further in July, according to a survey by the central bank. Consumption, which contributes nearly 60% to gross domestic product, has been largely hurt by a shadow banking crisis, and that in turn has dragged growth down to a five-year low.

Data due Friday will probably show India’s gross domestic product expanded 5.7% in the quarter ended June, slower than the 5.8% pace seen in the previous three months.

Sluggish consumer spending and tardy investment is keeping demand for bank loans in check. Overall credit growth was pegged at 12.2% in July, down from 14.2% at the beginning of April, according to central bank data.

The Citi India Financial Conditions Index, a liquidity indicator, showed overall conditions were improving in July after remaining fairly tight in April, May and the early part of June.

 

Master.jpg

Industrial activity

India’s core infrastructure industries’ output, which constitutes 40% of total industrial production, rose 0.2% in June from a year earlier. That was the slowest pace of expansion in more than four years, as four of the eight components — crude oil, natural gas, refinery products and cement — contracted.

Industrial output growth eased to 2% in June from 4.6% in May, with production of consumer durables and capital goods weighing down activity. Both the numbers are reported with a one month lag.

 

https://economictimes.indiatimes.com/news/economy/indicators/animal-spirits-get-worse-as-india-slowdown-spills-over-to-july/articleshow/70868441.cms

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Indian economy set for weakest quarter of growth in 5 years

The poll median showed the economy was expected to have grown at a year-on-year pace of 5.7% in the June quarter.

Reuters
Updated: Aug 27, 2019, 01.16 PM IST
 
Read more at:
 

https://economictimes.indiatimes.com/news/economy/indicators/indian-economy-set-for-weakest-quarter-of-growth-in-5-years/articleshow/70853077.cms

Edited by Stan AF

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Can't comment on how the dividends from RBI will be used, says FM Nirmala Sitharaman  :lol:

Economy
 
Updated Aug 27, 2019 | 18:04 IST | ET Now Digital
 
 
 

The Reserve Bank of India board on Monday approved to the transfer of staggering Rs 1.76 lakh crore to the government. This is the first time that RBI has provided such a huge amount to the government.

 

https://www.timesnownews.com/business-economy/economy/article/cant-comment-on-how-the-dividends-from-rbi-will-be-used-says-fm-nirmala-sitharaman/477152

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Bengaluru: Industries in Peenya on verge of closure - 15 lac people to lose jobs

 

Daijiworld Media Network – Bengaluru (EP)

Bengaluru, Aug 27: Over 10,000 industries in Peenya industrial area in Bengaluru are on the verge of closure. Famed to be the biggest industrial area in Asia, closure of the industries could lead to over 15 lac people losing their jobs.

In the 80’s and 90’s, people from various parts of the country came to Bengaluru looking for jobs. Many got employed in the small, medium and large scale industries in Peenya.

 

However, the economic setback has affected industries in Peenya like Tsunami. More than 10,000 industries are on life support. Industrial turnover has dropped by about 70% in two months. While sales in large industries have collapsed by 60%, it is reduced by 90% in medium and small industries. Those who had a turnover of 15 lac four months ago have to be content with Rs 3 lac. Thousands of industries including garments, automobile spare parts, fabrication, packaging industries, powder coating and electroplating are incurring loss.

allwyn_270819_peenya1.jpg

Employees get work for six hours instead of the earlier three shifts. Saturdays and Sundays are declared as mandatory holidays. As the production has dropped, the industries are facing threat of closure. The fact that there are four lac women among 15 lac who are likely to lose jobs, has caused anxiety. Thousands of families depend on the industries in Peenya to run their homes. They are now worried on what lies ahead, if they lose their jobs.

 

https://www.daijiworld.com/news/newsDisplay.aspx?newsID=618730

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195 firms owe Rs 13 trillion to lenders, borrowings exceed market-cap

These firms owe Rs 13 trillion to lenders and account for 55% of all non-financial corporate debt

Krishna Kant  |  Mumbai  Last Updated at August 25, 2019 00:51 IST

 

 

The recent correction in the stock market has raised the insolvency risk in corporate India, with borrowings exceeding market capitalisation (m-cap) for 195 non-financial and non-government-owned companies, the highest in at least five years. In comparison, there were 147 such firms at the end of March 2019 and 99 at the end of FY18.

 

A bigger worry for lenders is that the majority of corporate loans are now tied up with these financially stressed firms. Together, these 195 companies owe Rs 13 trillion to various lenders, the highest in the last five years and up 47.5 per cent from a low of Rs 8.8 trillion at the end of March 2018 and Rs 11 trillion at the end of March this year (see the adjoining chart).

 

Some prominent companies with very low m-cap to debt ratio are Vodafone Idea (15.1 per cent), Tata Motors (32.7 per cent), Tata Power (30.4 per cent), Tata Steel (38.5 per cent), GMR Infrastructure (37.7 per cent), IRB Infrastructure (17.5 per cent), Sadbhav Engineering (18.1 per cent), Adani Power (48.1 per cent), Jindal Steel (30 per cent), and Rattan India Power (2.7 per cent), among others. This is based on companies' m-cap at the end of August 23, 2019, and total debt at the end of FY19.

 

The analysis is based on a common sample of 742 non-financial companies that are part of either BSE 500, BSE MidCap or BSE SmallCap index, and excludes government-owned companies and debt-free companies in segments such as listed multinationals, fast-moving consumer goods (FMCG), and information technology services companies, such as Tata Consultancy Services, Infosys, HCL Technologies, and Wipro.

 

debt

This imbalance between debt and m-cap, analysts say, could trigger a fresh wave of corporate defaults as low m-cap makes it difficult, if not impossible, for companies to raise equity capital either to deleverage their balance sheet or fund operations.

 

In all, 54.5 per cent of all corporate loans in the listed space (ex-financials and government-owned companies) are now with companies with inadequate m-cap, up from 46.5 per cent at the end of March this year and 40.5 per cent at the end of March 2018.

"The amount of capital that a company raises is often a fraction of its existing market capitalisation. So the ability to raise capital falls sharply as a company's stock price plummets, reducing financial elbow room for a company just when it requires liquidity to tide over operation and financial difficulty," said G Chokkalingam, founder and MD, Equinomics Research & Advisory Services.

Low valuations could potentially choke the finances of many companies in capital-intensive sectors, such as telecom, power, metals and mining, and infrastructure, starting a vicious cycle of low liquidity, poor profitability and even lower m-cap.

These companies will now have to depend on internal accruals to manage debt servicing and fund operations, raising risk of a debt default or corporate failure if the economic downturn gets longer than anticipated.

 

Access to fresh capital is essential for the survival of many of these financially stressed firms, given their poor financials including losses in recent years. For example, 72 out of these 192 companies with inadequate m-cap had a combined loss of Rs 1.14 trillion.

Not surprisingly, many analysts expect a fresh round of default in corporate India if earnings drought stretches beyond a few quarters.

 

"We see another round of bad loans in the corporate sector as corporate earnings and valuations take a hit from the slowdown in global trade, decline in domestic demand, and growing stress in consumer-oriented sectors," said Dhananjay Sinha, chief economist and equity strategist at IDFC Securities.

In the past, many corporate failures or defaults were preceded by a sharp fall in the company’s m-cap in 2012 and 2013, making it tough for companies from financially stressed sectors to raise fresh capital.

 

 

https://www.business-standard.com/article/companies/195-firms-owe-rs-13-trillion-to-lenders-borrowings-exceed-market-cap-119082500020_1.html

 

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Money & Banking

Link between banks, NBFCs raises risk of contagion in a financial crisis: Bimal Jalan committee

Our Bureau  Mumbai | Updated on August 28, 2019  Published on August 28, 2019
BL03Loandebt

RBI and govt must be aware of the sources of financial instability: Bimal Jalan panel report

The government and the Reserve Bank of India (RBI) must be mindful that new potential sources of financial instability from systematically important financial institutions cannot be ruled out, according to the report of the Bimal Jalan committee to review the RBI’s extant economic capital framework.

 

In this regard, the committee said the interconnectedness in Indian markets between banks and non-banking financial entities is enlarging rapidly, thus increasing the risk of contagion in a financial crisis.

According to the June 2019 issue of the Financial Stability Report, the total outstanding bilateral exposures among the entities in the financial system increased to 36.3-lakh crore in March 2019 from 31.4-lakh crore in March 2018.

 

Public sector banks have a net receivable position vis-à-vis the non-banking financial sector. In the event of stress in the non-banking financial sector, the committee observed that the banking sector, and particularly public sector banks, will likely come under stress.

The current stress being experienced by the NBFC sector, for example, led to calls for appropriate Lender of Last Resort (LoLR) action by the RBI, it added. It may be pertinent to note here that defaults by non-banking entities, such as IL&FS and DHFL, have had a ripple impact on the financial system.

Risk provisioning

On the possibility of the RBI making emergency liquidity assistance (ELA) losses, even when a major part of the banking sector is in the public sector, the committee was of the view that prudence would necessitate risk-provisioning as the losses could materialise, including from ELA support, to private sector banks.

According to the committee’s report, having a public sector-dominated banking sector does not make an economy immune to bank runs. The 2002 crisis in a Latin American economy largely involved PSBs. Further, the experience from the global financial crisis has shown that the ownership of the banking sector becomes more public sector-oriented during periods of crisis.

NPA crisis

While large public sector ownership has been seen as a positive in preventing bank runs in the past, the committee underscored that the NPA crisis has thrown light on the challenges that arise if a sizable majority of the banking sector looks at the government for recapitalisation.

“Here lies the challenge of assessing the risk-provisioning requirements of the RBI. The central bank would theoretically not be exposed to ELA losses if the government recapitalises these banks.

“However, the European debt crisis has demonstrated that private sector debt crises can transform into a sovereign debt crisis if the government overstretches itself in recapitalising distressed banks,” the committee said. In this regard, the committee felt that the position could be even more severe in India.

It reasoned that given India’s sovereign rating is at the lowest investment grade – any downgrade, due to fiscal slippages caused by recapitalisation – could exacerbate the capital flight caused by the financial crisis.

The committee further stated that the rupee not being a reserve currency will greatly limit India’s capability to manage financial crises.

The committee, therefore, recognised that the RBI’s financial stability risk provisions need to be viewed for what they truly are – the country’s savings for a rainy day (a financial stability crisis), built up over decades and maintained with the RBI in view of its role as the LoLR. Its balance sheet, therefore, has to be demonstrably credible to discharge this function with the requisite financial strength.

 
Published on August 28, 2019
 
 
 
 

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I fear that a recession may start by the end of 2020: Karvy Stock Broking CEO

When a global recession arrives, the Indian economy would suffer as well, both due to the direct economic impact but more so on account of the indirect linkage via financial markets

 

Gold is likely to continue to do well and we recommend investors should invest in Gold, Rajiv Singh, CEO, Karvy Stock Broking, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q: Do you think the global economy is heading for a recession?

 

A: BoFA-ML fund manager survey revealed that 34 percent of them expect a recession in 12 months, the highest since 2011. This is not surprising, given that the US yield curve has inverted recently.

 
Rajiv Ranjan Singh
Rajiv Ranjan Singh
CEO|Karvy Stock Broking

Worries about the global business cycle have been around for a while, given that this is now the longest expansion in history. Data from China, Europe, and Japan has been weak for a while.

The US economic data remains strong but does point to a deceleration. The inversion of the yield curve, if persists, can be regarded as an indicator of a recession.

When a global recession arrives, the Indian economy would suffer as well, both due to the direct economic impact but more so on account of the indirect linkage via financial markets.

I fear that a recession may start by the end of 2020 or early 2021, and for now, investors should remain invested in equities, but at the same time remain vigilant.

Q: With global recession looming large, gold is all set to clock Mount 40K on MCX. Do you think it is the right time to invest in gold or gold ETF?

A: Due to fear of a global recession, uncertainty on account of trade wars and expectations of weak monetary policy, gold is likely to do well and we recommend investors should invest in gold.

 

https://www.moneycontrol.com/news/business/markets/i-fear-that-a-recession-may-start-by-the-end-of-2020-karvy-stock-broking-ceo-4371781.html

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Gold crosses record ₹40,000-mark as recession fears seep in
New Delhi, August 29, 2019 16:40 IST
Updated: August 29, 2019 16:40 IST
 
 
29IN-LT-GOLD
 
 

Closing in on the ₹50,000-mark, silver rose by ₹200 to ₹49,050 per kg on robust demand from industrial units and coin makers amid strong overseas trend.

Gold prices on Thursday jumped ₹250 to breach the record ₹40,000 per 10 gram level for the first time at the bullion market here on strong demand from investors amid growing fears of a global economic slowdown.

Maintaining its record-breaking run for the second day, gold spurted by ₹250 to a fresh life-time high ₹40,220 per 10 grams, according to the All India Sarafa Association. The precious metal had soared by ₹300 to close at ₹39,970 per 10 grams on Wednesday.

Closing in on the ₹50,000-mark, silver rose by ₹200 to ₹49,050 per kg on robust demand from industrial units and coin makers amid strong overseas trend.

Lingering worries over a possible global recession and uncertainty over the U.S.-China trade talks boosted the demand for a safe haven bet, traders said.

Fresh buying by jewellers ahead of the festive season also aided the rally in the precious metal.

 

HDFC Securities senior analyst (Commodities) Tapan Patel said gold prices have kept the firm trading so far on mixed global cues as inverse bond yields from the U.S. and Germany have raised economic slowdown fears.

“The development on Brexit will be the next thing for the markets to watch out while progress in U.S.-China trade talks and U.S. Federal Reserve’s stance [on rate cuts] are constant factors to determine the price trend for gold,” Mr. Patel added.

 

Gold was firm in global markets on possible recession fears. Gold was trading at $1,539 an ounce in New York after hitting a high of $1,550 an ounce. Silver was up 1.15% at $18.63 an ounce.

Besides, a weaker rupee also helped in upward movement of the gold price, they added. In early trade, the rupee depreciated by 17 paise to 71.95 against the U.S. dollar on Thursday.

In the national capital, gold of 99.9% and 99.5% purity jumped ₹250 each to ₹40,220 and ₹40,050 per 10 gram, respectively.

 

Sovereign gold soared ₹400 to ₹30,200 per eight grams.

Silver ready rose ₹200 to ₹49,050 per kg, while weekly-based delivery climbed ₹814 to to ₹47,230 per kg.

Silver coins were in good demand and traded higher by ₹3,000 at ₹1,01,000 for buying and ₹1,02,000 for selling of 100 coins.

 

https://www.thehindu.com/business/markets/gold-crosses-record-40000-mark-as-recession-fears-seep-in/article29289021.ece

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New speed breaker on India's road to $ 5 trn economy; NHAI's mounting debt

NHAI's debt has increased seven-fold in the past five years

Dhwani Pandya | Bloomberg Last Updated at August 30, 2019 06:54 IST

 
 
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India’s path to economic recovery faces another obstacle, with Prime Minister Narendra Modi asking the state road builder to stop constructing highways after its debt ballooned almost seven-fold over the past five years.

"National Highways Authority of India totally logjammed with unplanned and excessive expansion of roads," the prime minister’s office wrote to NHAI in a letter dated August 17. "NHAI mandated to pay several times the land cost; its construction costs also shooting up. Road infrastructure has become financially unviable."

Modi’s office proposed that NHAI be transformed into a road-asset management company, according to the letter obtained by Bloomberg, and the prime minister’s office asked NHAI to reply within a week.

The decision is a reversal from Modi’s first term, when his administration was praised for its breakneck speed of highway construction that helped make India one of the fastest-growing economies in the world. However this came with the burden of escalating costs, leaving NHAI increasingly dependent on the government for financial support at a time when Modi is looking to contain his budget deficit.

Restricting road-building risks imperiling Modi’s target to make India a $5 trillion economy as roads are necessary for socio-economic development, said Vikash Kumar Sharda, a partner at Infranomics Consulting LLP, who previously consulted for PWC India. “Road is critical infrastructure, and putting breaks on it will not only result in a slowdown of highway construction but also of other sectors that are dependent on it.”

There’s a strong co-relation between economic growth and investments in infrastructure, with roads accounting for about 3.1% of gross value added, Modi’s economic advisers said in a report this year. Data due Friday will probably show India’s gross domestic product expanded 5.7% in the quarter through June, the slowest pace in five years.
 

New speed breaker on India's road to $ 5 trn economy; NHAI's mounting debt

 

Modi’s office now wants NHAI to revert to a model used by his predecessor, where NHAI would auction projects to developers. They’d construct the roads, collect toll from users and then would transfer ownership back to NHAI after an agreed period. Weak private sector participation pushed Modi to scrap this practice and he permitted NHAI to bear as much as 100% of the costs in certain road projects that led to ballooning debt.

 

 

NHAI’s outstanding debt of Rs 1.8 trillion would entail annual interest servicing of about Rs 14,000 crore, higher than the Rs 10,000 rorw NHAI collects as toll, according to analysts at SBICap Securities Ltd.

Land acquisition costs have also risen to more than 25 million rupees per hectare from Rs 90 crore after fair-price laws were introduced in 2013, and this alone accounts for more than 30% of NHAI’s expenses, according to ICRA Ratings Ltd.

The prime minister’s office didn’t reply to an email seeking comment and NHAI declined to comment. The letter contains only suggestions and top-rated NHAI is fully capable of raising enough debt to keep building roads, Nitin Gadkari, Modi’s minister for roads, was cited by the Mint newspaper as saying on Tuesday.

 

 

 

New speed breaker on India's road to $ 5 trn economy; NHAI's mounting debt

 

Ratings company ICRA on Wednesday said the build up of debt means NHAI must either go slow on new projects -- a choice Modi can’t afford as he needs to spur economic growth -- or shift to a build-operate-transfer model involving equity-purchases by private players. Many developers can’t support huge equity investments that are part of BOT projects, the rating company said.

Among the beneficiaries of this shift could be IRB Infrastructure Developers Ltd., which has traditionally focused on BOT projects where the operator collects a toll from road users.

“The decision to switch back to BOT-toll is much needed given the fiscal constraints,” IRB Infrastructure Chairman Virendra Mhaiskar said. “In the present dispensation, given the land acquisition cost, restricting to BOT only for a year or two may be a wise idea.”

 

https://www.business-standard.com/article/economy-policy/new-speed-breaker-on-india-s-road-to-5-trn-economy-nhai-s-mounting-debt-119083000098_1.html

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Well he's isn't wrong but then he went on to rant about China insurance, may be he should read about China's internal debt explosion after 2008 global meltdown :laugh:

 

China isn't doing OBOR for no reason & there is a very good reason why lots of planned & ongoing projects have Chinese workers, I'll let the bright ones figure that out.

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